Pennsylvania Record

Friday, September 20, 2019

Plaintiffs seek class certification in LuLaRoe tax payment case

By Carrie Salls | Mar 21, 2018

PITTSBURGH – LuLaRoe customers have asked the U.S. District Court for the Western District of Pennsylvania to certify a class as part of their sales tax collection class action lawsuit filed against the company.

The potential class members said in the Dec. 6 motion for class certification that LLR Inc., which does business as LuLaRoe, “implemented and used a point-of-sale system to charge a ‘tax’ to consumers in certain states when no such tax was due on their purchases of clothing.”

The plaintiffs said the company knew it was not legally allowed to collect taxes in these states, and it “actively misled consumers about the legality of this practice.”

Plaintiffs' attorney R. Bruce Carlson | Carlson Lynch Sweet Kilpela & Carpenter

According to the memorandum, the allegedly “fraudulent scheme converted more than $8.3 million from class members between April 2016 and June 1, 2017 and spanned over 2 million individual transactions.”

The potential class members said the taxes were improperly collected from them in 11 separate states, including Pennsylvania, New York, Minnesota, New Hampshire, Delaware, Alaska, Oregon, Montana, New Jersey, Massachusetts and Vermont.

After LuLaRoe “came under pressure from authorities to remit tax on its retailers” in 2014, the plaintiffs said the company hired ControlPad “to implement a POS [point-of-sale] system called ‘Audrey,’” that allowed sales tax to be added to or left off during purchase of clothing “based on a transaction’s ship-to address… not the address of the LuLaRoe retailer responsible for the sale.”

The plaintiffs said LuLaRoe found out in 2016 that it had been actually paying taxes on all transactions, even those for which the consumer was not required to pay.

“LuLaRoe manufactured a ‘solution’ to address this tax dilemma: the 2016 Tax Policy, which was designed to shift the overpayments caused by Audrey’s system failures from LuLaRoe to its own consumers,” the memorandum said. “As a result of LuLaRoe’s new policy and the change in Audrey’s functionality, LuLaRoe automatically and systematically charged every consumer tax, even if consumers were not obligated to pay such tax.”

The plaintiffs said they are seeking certification to file claims for “(1) breach of constructive trust; (2) unjust enrichment; (3) applicable consumer protection laws; and (4) conversion and misappropriation.”

LuLaRoe filed an objection to the class certification motion with the court on Jan. 8.

According to the objection, the company has refunded all of the taxes that were allegedly improperly collected from the plaintiffs.

In addition, LuLaRoe said the “plaintiffs rely on incomplete and misleading facts to characterize LLR’s over collection of sales taxes as a fraudulent scheme. But as illustrated by the detailed chronology of events and the significant complexity attendant to sales tax issues — both of which plaintiffs ignore — nothing could be further from the truth.”

According to the objection, the company never kept any of the improperly collected taxes “for its own benefit,” as the plaintiffs allege. LuLaRoe said all taxes collected are turned over to the applicable state agencies.

The company also said the “evidence shows that plaintiffs’ and the class members’ claims will require an individual inquiry into whether they are barred by the voluntary payment doctrine, and whether they can show reliance, causation and damages—essential elements of many of their consumer protection claims.”

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LuLaRoe Pennsylvania Western District Court