Attorneys question LuLaRoe's generosity in wake of sales tax lawsuit

By April Brown and John O'Brien | Mar 28, 2017

PITTSBURGH - Popular online fashion company LuLaRoe says it has fixed the problem that led to a class action fraud lawsuit and issued refunds, but plaintiffs attorneys object to the company's actions and are moving forward with the case.

Rachael Webster filed her complaint Feb. 17 in the U.S. District Court for the Western District of Pennsylvania, alleging LuLaRoe knowingly overcharged customers in the form of fraudulent sales taxes.

LuLaRoe told Legal Newsline it identified the problem and is working on a solution.  

“We are fully aware of this issue and have invested significant resources to address it," a spokesperson for LuLaRoe recently said.

Independent sales representatives for LuLaRoe are required to use an online, proprietary point-of-sale system called “Audrey” that automatically adds sales tax according to the location of the salesperson, rather than the customer, and that independent representatives do not have the ability to adjust the sales tax. 

The complaint alleges that in some cases “the sales tax surcharge is more than the price advertised online for the product and purchasers do not become aware of this overcharge until Audrey sends them an invoice.”  

The complaint accuses LuLaRoe of overcharging buyers “up to 10.25 percent every time a consultant who lives in a jurisdiction that taxes clothing makes a sale where a delivery is made to a jurisdiction that does not,” and of not remitting overcharges to that taxing authority that governs the transaction.

LuLaRoe’s spokesperson offered an explanation for the issue, stating that “a former technology vendor had a software failure that misidentified the accurate location of certain customers.”

“We have contracted a new point-of-sale vendor to accurately identify sales tax moving forward," the company’s spokesperson said. 

"In addition, we have already issued refunds for incorrect sales tax collection to customers who contacted us directly to identify their proper location, and we are in the process of proactively refunding all affected customers. We have an independent, dedicated account of all sales tax collected that is segregated from the operating funds of the company.”

The formal charges in the complaint include breach of constructive trust, unjust enrichment, unfair trade practices and consumer protection law, and conversion and misappropriation. The complaint states that the plaintiff is seeking reimbursement of the alleged fraudulent charges, as well as reimbursement for attorneys fees and court costs.

Two Pittsburgh firms are representing Webster - Carlson Lynch and Cohen & Grigsby. They recently asked Judge David Cercone to prevent LuLaRoe from confusing class members.

The motion claimed LuLaRoe has "changed its tune" since the lawsuit was filed, telling Forbes it has reimbursed any individual identified as having been improperly charged sales tax.

After refusing to issue refunds previous to the filing of the lawsuit, the company is now doing so to mislead potential class members about the benefits of the lawsuit, attorneys say.

"As part of an apparent effort to put the genie back into the bottle regarding its unlawful collection of sales taxes... LuLaRoe is engaged in misleading communications with Plaintiff and the putative class members, and in some cases, has wired unaccounted-for amounts to their credit cards or bank accounts without consent or explanation," plaintiffs attorneys wrote March 21.

"While these efforts will presumably be framed by Defendant as a belated effort to 'do the right thing' by refunding unspecified amounts to some class members without any accompanying explanation or accounting, the reality is most putative class members are unaware that they were charged unlawful amounts in the first instance."

Class members have no basis for determining whether a refund makes them whole, attorneys wrote.

Cercone has ordered a response from the company in April. Plaintiffs attorneys also recently filed a motion to certify their class.

The motion says a class exists because LuLaRoe charges each customer the same way.

It also says Webster is an adequate class representative, having been charged sales tax on at least 12 purchases even though her home state of Pennsylvania does not permit sales tax on clothing. She has been charged $35 in sales tax.

Want to get notified whenever we write about Pennsylvania Western District Court ?

Sign-up Next time we write about Pennsylvania Western District Court, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

Pennsylvania Western District Court

More News

The Record Network