In a matter of just a few years, LuLaRoe went from bringing in billions of dollars in annual revenue to operating as a shell of its former self, shrouded in controversy and an array of multi-million dollar lawsuits. Things began unraveling for the Corona, California-based multi-level marketing retail brand – which was founded by Deanne and Mark Stidham in 2012 – when the defective nature of its products went viral on social media in 2017.
Allegations of cheaply-made pants were followed by claims that its model is based on fraudulent business practices, its tax practices were predatory, and the LuLaRoe business, itself, amounts to little more than a “pyramid scheme” for the more 80,000 individuals in seller base.
Class action lawsuits began pouring in in 2017 from LuLaRoe’s network of “consultant” sellers, who claimed that the company had run afoul of its vow to buyback 100 percent of a consultant’s unsold inventory if she wanted to cease working with the company. Hundreds of women are in the hole for thousands of dollars as a result. In a subsequently-filed case, the plaintiffs accuse LuLaRoe of “improperly and fraudulently add[ing] a surcharge to purchases disguised as a ‘sales tax’ that does not exist.”
In yet another one of the 18 lawsuits that have been filed against LuLaRoe over the past two years, the company is being charged with violating the federal Racketeer Influenced and Corrupt Organizations Act, a federal statute most typically used to prosecute gang members, for allegedly “recruit[ing] sellers into [a] pyramid scheme through manipulation and misinformation.”
Now, a new $49 million suit – the most hard-hitting of all – is on the horizon for LuLaRoe and its founders. Filed in late November in a California state court, Province Industries claims that it has served as LuLaRoe’s primary clothing supplier since 2016, and while, that partnership worked well for a while, the troubled apparel company has stopped paying its bills. As a result, LuLaRoe is on the hook for tens of millions of dollars in stock, Province Industries asserts in its breach of contract and fraud-centric complaint.
But there is more to it than LuLaRoe failing to pay off its suppliers. Long Beach, California-based Providence Industries asserts that LuLaRoe’s founders, Deanne and Mark Stidham, have taken to actively hiding assets from creditors by building a tangled web of upwards of 20 limited liability “shell” companies, at least 17 of which were created in December 2017, to enable the Stidhams to “improperly diverting [company] funds from to themselves.”
In particular, Providence Industries claims that LuLaRoe’s founders have “lavished themselves with luxurious lifestyles by misappropriating the money belonging to creditors.” For instance, the Stidhams own – by way of two LLCs – a $700,000 Koenigsegg CCX and $2 million-plus Koenigsegg Agera RS, which were “purchased with finds that likely came from [the company].” They “have purchased private airplanes,” including a Gulfstream G550, “or transferred funds for the purchase of private airplanes, which are held in the name of 159DE, for the purpose of shielding assets from creditors.”
Still yet, the couple is accused of using company money – that should have been used to pay off creditors – to acquire a portfolio of real estate (again via related shell companies), including “valuable ranch homes and other properties” in Wyoming and South Carolina, for the sole purpose of “shielding assets from [the LuLaRoe] creditors.”
With the foregoing in mind, Providence Industries sets forth 10 different causes of action against LuLaRoe and the Stidhams, among others, and is seeking injunctive relief, which would immediately bar the defendants from “expending, distributing, transferring, assigning, selling, [or] pledging … any part of their property or assets outside of the ordinary course of business” and/or “concealing … any part of their property or assets” or any documentation. The supplier is also seeking “an amount not less than $48,732,955.45” from the defendants.
*The case is Providence Industries, LLC v. LuLaRoe, LLC, et al., 1825263 (Cal. Sup).
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