Posted on behalf of Arnold Law Firm on October 19, 2021 in Arnold Law Firm. Updated on February 24, 2022
Attorneys at private law firms and some government agencies have continued to investigate and litigate against LuLaRoe concerning allegations the company violated the law in operating its multilevel marketing business.
Much of that has focused on the pyramid scheme aspect. For example, in 2021 LuLaRoe settled a claim brought by the State of Washington Attorney General for $4.7 Million. However, work by the Arnold Law Firm has focused on violation of California’s Seller-Assisted Marketing Plan Act (“SAMP Act”). Former LulaRoe fashion consultants may be able to take legal action under the provisions of the SAMP Act to recover damages.
The SAMP Act regulates some risky opportunity offerings. It applies to situations in which a participant spends between $500 and $50,000 to purchase inventory to sell at retail in which the inventory-seller does any of the following: (i) offers to buy back all or part of the inventory; (ii) represents there is a market for the product; (iii) represents it is possible to make back the initial investment.
The SAMP Act applies to all offers made from California or to California residents. Since LuLaRoe is based in California, anyone who was a Fashion Consultant could make a claim against LuLaRoe for any violations of the law, even if they live in another state.
The SAMP Act requires a seller to give the buyers a specific disclosure about how many people earn back their investment in inventory. This is different from the MLM/pyramid disclosure. It is information about the product-selling part of the business. It also requires the SAMP-seller to register with California’s Attorney General and purchase a bond or set up another mechanism to ensure it can meet its buy-back obligations.
A SAMP disclosure is a standalone packet that has an unbranded black and white cover page stating the disclosure is required by the State of California and cautioning to consult an attorney or financial advisor if buyers have questions. Where the seller has made any statement concerning earnings or range of earnings that may be made, the disclosure must specifically state:
No guarantee of earnings or ranges of earnings can be made. The number of purchasers who have earned through this business an amount in excess of the amount of their initial payment is at least ______, which represents ___ percent of the total number of purchasers of this seller-assisted marketing plan.
Some former LuLaRoe Fashion Consultants have reported that they did not receive any such disclosures. Yet, the LuLaRoe form contract incorporates a buyback plan through a policies and procedures document. Some former Consultants also report receiving documents talking about how long it would take to earn back their investment and being told how the investment was safe.
Where the SAMP Act applies, a business must also take other steps like:
Many find that their LuLaRoe contract outright denies that LLR is a SAMP in the fine print of the Fashion Consultant contract, which is itself a violation of the SAMP Act.
Violation of the SAMP Act is a crime that can give rise to a $10,000 penalty payable to the State and jail time for each offense if timely prosecuted by authorities.
More importantly for former consultants, it provides a way to take civil action to recover damages. The SAMP Act allows a wronged buyer to recover all damages plus attorney fees and costs of litigation. Examples of damages include:
LuLaRoe has always benefitted from the fact that it included an arbitration clause in its form agreement. In virtually every effort by private law firms, LuLaRoe’s arbitration clause has stood up, and courts have sent cases to arbitration. In arbitration, both sides must pay for administration costs, which can be prohibitive for Fashion Consultants.
However, the American Arbitration Association (“AAA”) adopted a policy in which it will charge “independent contractors” for arbitration in the same way it charges employees. When 25 or more employees/contractors sue about the same thing, AAA bundles those claims together and charges the employee/contractor $100 to start and $100 to go to an arbitration hearing if the matter does not resolve promptly. The rest of the arbitration costs are paid for by the company.
Some or all standard LuLaRoe contracts declare Fashion Consultants to be “independent contractors” under California Labor Code sections 2750.5 and 3353. This triggers the AAA employment fee rules.
The fee schedule is written right into the AAA arbitration rules LuLaRoe selected for its contracts:
Perhaps because of an aversion to arbitration among plaintiff-side lawyers, this avenue has been largely overlooked. Now, however, Arnold Law Firm is proceeding with AAA claims on behalf of LuLaRoe consultants.
Time is short to effectively use this pathway to justice. All legal claims are subject to a “statute of limitations” that limits the time to take legal action. In California, the statute of limitations for violation of the SAMP Act is three years. The statute of limitations for breach of a written contract or unfair business practices in four years.
The SAMP Act provides for the full range of damages above, but the other claims likely provide for lower damages, maybe just a consultant’s out-of-pocket money losses. Since some people made a few dollars after accounting for all revenue vs all costs, those people might have a SAMP Act claim but be unable to recover damages in a breach of contract or unfair practices claim. For everyone, the SAMP Act claim allows for more damages in any event.
The deadline to take action as an individual is tolled (paused) for the time that a putative class action was pending that might have provided relief to you. That time period covers the Lemburg and Berry class actions back in 2017.
Without getting into all the nuance, if a consultant joined after May 1, 2017, and files an arbitration demand before November 14, 2021 they will most likely meet their statute of limitations and have the right to timely allege all their SAMP claims. If they joined earlier but were denied a refund after May 1, 2017, they may still have substantial SAMP claims.
If a consultant joined earlier but was monetarily harmed by LuLaRoe after May 1, 2016, they likely still have the ability to timely allege breach of contract and unfair business practice wrongs. If, for example, LuLaRoe would not accept their inventory-return so they were left absorbing a loss for the inventory subject to a return policy, they could likely still make a timely claim asking to get that money back even if they might not be able to recover for the stress of the whole experience.
Ironically, many of these enhanced damages were not available in a class action because of the rules applicable to class actions. Time and persistence have made additional damages available and provided a pathway to justice.
Arnold Law Firm is accepting new LuLaRoe clients until November 8, 2021. To retain the firm, a former LuLaRoe consultant needs to go to our sign-up website and fully complete the registration questionnaire and sign the contract.
We will do an initial merit review of the claims submitted. Those claims that have merit based on the information submitted in the registration will be filed. (We expect every truthful submission will have merit but need to reserve the right not to file in case something unexpected is submitted.) We will contact everyone to confirm their filing status.
If you would like to hire Arnold Law Firm, you can do so at the secure signup link here.