The embattled multilevel marketing company LuLaRoe has agreed to pay $4.75 million to settle a lawsuit filed by the state of Washington, which accused the company of engaging in a pyramid scheme.
The state Attorney General Bob Ferguson announced the settlement in a press release on Monday night, about two weeks before the lawsuit had been scheduled to go to trial against the multilevel marketing clothing company. Ferguson had named the company, as well as its husband and wife cofounders, Deanne and Mark Stidham, as defendants along with Deanne's son Jordan Brady.
Ferguson will use $4 million of the funds to pay restitution to Washington residents who "lost money, or who may have quit their job or sacrificed opportunities as a result of LuLaRoe’s deception, but who failed to make a 'full-time' income as LuLaRoe promised." The state estimates about 3,000 residents will get checks as part of this deal.
“LuLaRoe tricked Washingtonians into buying into its pyramid scheme with deceptive claims and false promises,” Ferguson said in the press release. “As a result, thousands lost money and two individuals made millions from their scheme. Washingtonians deserve fairness and honesty — and accountability for those who don’t play by the rules.”
In a press release announcing the settlement, Mark Stidham said the lawsuit was too expensive to justify continuing to fight.
"Even though we believed we would win the case eventually – whether at trial or on a subsequent appeal – the expense would be enormous and the amount of time senior management would have had to devote to the litigation during the trial would have been a distraction from our business," he said.
The company also stated that although they were settling, the agreement "specifically states that none of the defendants has admitted liability or violation of any laws" and the "defendants denied, and continue to deny, any wrongdoing."
Under the terms of the deal, LuLaRoe will also be required to adhere to certain guidelines while operating in the state in the future. These include working to ensure people understand how much money they can actually make through LuLaRoe, by publishing an "income disclosure statement that accurately details retailer income potential." LuLaRoe also will only be able to pay bonuses to retailers based on that person's individual sales, rather than the sales on the retailers who report to them, as is common in a typical multi-level marketing company.
The settlement also regulates LuLaRoe's refund policy, which came under fire after several consultants said they were left with thousands of dollars of merchandise they could neither sell nor return to the company. Under the deal, LuLaRoe is required to allow new retailers to return any and all merchandise for 45 days after joining the company, and it bans the company from applying "certain types of deductions from refund requests." It also says LuLaRoe must return any merchandise that is not eligible for a refund to the retailer, another point of contention in the past.
Ferguson filed the lawsuit against LuLaRoe in 2019, charging that the defendants "made unfair and deceptive misrepresentations" about how much money a person could make selling the company's clothes. The lawsuit also objected to the company's bonus structure and refund policy.
"Today’s resolution, filed in King County Superior Court, prohibits LuLaRoe from operating a pyramid scheme. Additionally, LuLaRoe must be more transparent with retailers to avoid future deception," the press release stated.
The Washington state lawsuit is only one of several the company has been fighting in court over the past few years. A lawsuit against LuLaRoe from its former supplier, MyDyer, is still making its way through state court in Riverside, California. Lawsuits filed against the company by former consultants and former customers are also pending.