Breaking Down The Billion Dollar Lawsuit
By now, you have probably heard that LLR just got hit with a consultant class action. Did you know there are two now? Did you also know that the lower California courts also have three employee lawsuits against the company filed? One is a wage claim, one is a claim pertaining to bag checks (both are proposed class actions), and the third is a disability claim. Just pissing everybody off, huh? At least they are consistent... This billion dollar baby has garnered a lot of press, and in reading some of the pushback, I thought it was important to break down what it all means for those that don't follow as closely, as well as those that might not speak in legalese so well. The first question or comment I hear often is "A billion dollars? These girls are so greedy! Why a billion dollars?" First, this is a proposed class action, so the amount wouldn't go to these few women and their attorneys. The class would get a disbursement- as in anyone that is identified as a member of the class. Ie: Consultants, past and present. Why a billion dollars? That is actually quite simple. The filing includes a very important allegation: LuLaRoe is an illegal pyramid scheme. By definition, if LuLaRoe is found to be an illegal pyramid scheme, then all monies earned by them would have to be deemed acquired illegally, and they wouldn't be entitled to keep them. Essentially, if the lawsuit was won, they are asking for LuLaRoe to give all the money back to those that invested in this "opportunity". When it's explained that way, I think it's a little easier to understand. It's not about the greed of a couple people, it's that the law firm very carefully crafted an argument that says "ALL of this is wrong". Several people stressed that they felt that the lawsuit didn't touch on all of their complaints. I recognize and appreciate that it feels good to get validation for our grievances, and to see them expressed in a document filed in court IS satisfying. However, I believe the reasons these lawyers didn't go into every single detail is very simple: -A second proposed consultant class action has since been filed. I'm certain the two firms probably communicated prior. The second suit is the one I wrote about forming months ago, and in that one, the firm involved dives deeper into the guts of the complaints. -Next, this case makes the illegal pyramid argument. Attorneys tend to want to keep the initial filings clear, concise (as much as possible), and respectful of the judge's time. Lawsuits like this go into lengthy and expensive litigation that involves discovery, depositions, evidentiary hearings, etc... if something is left out, you can be assured that if it is pertinent to their argument, it will be brought in. But for the sake of this allegation, the initial pleading outlines details to support why they made the illegal pyramid claim, and not much more than that. Essentially, illegal pyramid trumps "I was treated badly" because basically- "of course you were, because it's an illegal pyramid scheme". For the sake of that argument, it doesn't matter if you were treated well or not. If the operation is illegal, it is illegal, and that's it. This lawsuit also brings in three allegations of violations of the RICO act. This is particularly interesting to me because RICO is the government's answer to organized and white collar crime and the activities that take place in these organizations. Understand that this does not allege mafia ties, for those of you that watch too many crime dramas and documentaries. RICO stands for "The Racketeer Influenced and Corrupt Organizations Act". There is a list of 35 crimes that are included in RICO included but not limited to: gambling, bribery, murder, arson. The three allegations of violation of RICO included in this complaint are as follows: 1. "A pattern of racketeering activities in violation of wire and mail fraud statutes" with a goal of obtaining money. The claim that LuLaRoe is an "enterprise" is an unlawful name for their business as defined by law. They (LuLaRoe) are involved in commerce (business) in the US and abroad and is capable of owning property. (This isn't a crime, they are showing that this entity qualifies under the law to fall under RICO) The defendants (LuLaRoe and unnamed (yet) participants (leadership) make up distinct roles in the business/pyramid scheme and the unnamed defendants are separate entities from LuLaRoe. (Different businesses, sole proprietorships, LLCs, individuals, etc.) The defendants used various means to conduct the illegal pyramid scheme, worked together to entice potential participants for the goal of earning money illegally. This was done by enticing or inducement of participants to purchase inventory based on false promises and representation. They allege also that this was a conspiracy to defraud participants. A conspiracy is defined by Wikipedia as: an agreement between persons who intend to gain some collective advantage while keeping their agreement secret from the public or from other people affected by it. These racketeering activities are a part of their ongoing way of doing business and alleges without these activities, LuLaRoe would not have achieved the level of success they have. Revenue gained was reinvested with the intention of continuing the racketeering activities by way of recruiting more participants. Every defendant participated in the fraud by wire or mail (websites, mailings, invoices, billing, promotional materials, etc) and each example is a separate instance of racketeering. Layman's terms on the first RICO claim: LuLaRoe and the unnamed defendants wanted to gain money and quickly. They used fraudulent means to represent the potential for participating in the company and did so through channels and means that are outlined in the RICO act and are examples of racketeering. 2. Members were induced to participate in the illegal pyramid scheme and recruited others to do so as well. This action was illegal. The Plaintiffs and proposed class members used their money (property) to purchase inventory from LuLaRoe and hence injured by LuLaRoe and the defendants' illegal conduct. Per the cited law, plaintiffs and proposed class members are entitled to triple damages, and reimbursement of all costs and fees. 3. This portion alleges conspiracy on the part of the defendants, and reiterates triple damages, costs and fees. Aside from the RICO claims, there are three others: Endless Chain Scheme, False Advertising, and Unfair and Deceptive Business Practices. The Endless Chain Scheme is the portion detailing the illegal pyramid scheme claim and simply stating that the plaintiffs and proposed class members suffered because of it. The UDP claim states the following (simplified):
LuLaRoe was conducting business in an illegal manner and continues to do so causing damage to thousands of participants.
The intent of LuLaRoe was to dispose of property and recruit others to do the same. (More pyramid scheme, done for monetary gain, etc.) This portion calls the consultants customers of LuLaRoe. I feel that's important to point out because the FTC discusses the need for an end user in a multilevel marketing company. Because LuLaRoe's direct customers are the consultants, and there is no purchasing happening from end-market consumers from the company, the unfair business practice claim is important. Consultants are the customers of LuLaRoe. The customers that buy from consultants may be the end user, but are not as defined by the law with regard to LuLaRoe, the entity.
LuLaRoe will not stop the illegal actions without an injunction or order of the court.
They ask the court to make a ruling that the methods imposed by LuLaRoe and the unnamed defendants are illegal, unethical, etc. (Important, even though this is a civil case, it can help any criminal case that may spring forward in the future.)
And finally, False Advertising.
This portion outlines how they falsely advertised the program.
-they did not tell people they were entering an illegal pyramid scheme.
-they misrepresented potential earnings from participation in this program.
-the false advertising was then used to recruit other people to participate in the illegal pyramid scheme without disclosing the above mentioned claims as well.
-because the defendants misled people, money was acquired illegally and they are not entitled to have or keep it.
The suit goes on to explain they request class certification, a jury trial, injunctive, and monetary relief as well as the cost of litigating the issue.
I hope this helps those that were struggling to understand this lawsuit. I need to also state that I'm not an attorney, and my interpretation of the case should not be deemed expert legal interpretation, however, I did consult with several attorneys about this case prior to publishing this article- including the firm that filed suit.
If you wish to be involved in this proposed class action, please go to the following website: HERE
If you would like to see the complaint, please click HERE. (Document courtesy of Becca Peter)