Providence Industries Llc vs. LuLaRoe Llc

Case Background

On November 29, 2018, Plaintiff Providence Industries LLC and others filed a Fashion Industry lawsuit in the California State, Superior Court of Riverside County (Case number: RIC1825263). This case was assigned to District Judge Anne M. Nardacci

Cause

Providence Industries (MyDyer) entered into a critical Sourcing Agreement with LuLaRoe in April 2016, establishing what initially appeared to be a promising partnership in the fashion retail industry. The agreement required LuLaRoe, a prominent MLM company in the women’s clothing sector, to purchase products with payment due within seven days. However, the relationship deteriorated when LuLaRoe’s financial stability began to falter in mid-2017. LuLaRoe implemented significant policy changes that triggered a devastating chain of events in their MLM business operations. In April 2017, the company altered its retailer bonus structure, causing monthly revenues to plummet from $200 million to $100 million. The situation worsened when LuLaRoe initiated a 100% refund buyback policy, resulting in $120 million in returns from their fashion retail consultants. Despite these clear signs of financial distress, LuLaRoe continued placing substantial orders with MyDyer. The supplier payment defaults began mounting as LuLaRoe ordered tens of millions of dollars in products through April 2018 while concealing their deteriorating financial condition. The MLM company’s litigation reached a critical point when Mark Stidham, LuLaRoe’s owner, explicitly refused payment in September 2018.

Injuries and Damages

The apparel supplier dispute resulted in massive financial losses for Providence Industries. The supplier payment default encompassed multiple categories of damages. LuLaRoe accumulated $33,753,895.66 in unpaid delivered products, demonstrating a severe breach of fashion industry standard practices. The company also owed $8,000,000 for reduced liability products, showing a pattern of payment defaults in the clothing manufacturer relationship. The fashion retail litigation revealed additional losses, including $4,812,487.80 for fabric products, highlighting the extent of the MLM business practices’ impact on suppliers. License indebtedness reached $460,762, while storage costs accumulated to $383,124.59. The supplier payment dispute extended to trim costs of $1,322,685.40, bringing the total damages in this clothing retail sector dispute to over $48 million.

Key Arguments and Proceedings

Legal representation

• Plaintiff(s): Providence Industries LLC | Cresden, LLC,
  • Counsel for Plaintiff: Marsha A. Houston | Christopher O. Rivas | Ekwan E. Rhow | Gopi Panchapakesan | Christopher Jumin Lee | Miri Gold

• Defendant(s): LuLaRoe, LLC
  • Counsel for Defendants: Alejandro S Angulo

Claims

The LuLaRoe lawsuit centered on multiple breach of contract in the fashion retail industry. The MLM company violated fundamental agreements by failing to pay for delivered products, demonstrating problematic MLM business practices. They consistently neglected their obligation to provide semi-annual reports, further breaching the clothing manufacturer agreement. The apparel supplier dispute escalated when LuLaRoe violated minimum purchase commitments outlined in the original contract. The fashion industry lawsuit uncovered fraudulent business practices that extended beyond simple supplier payment defaults. LuLaRoe deliberately concealed its financial difficulties while continuing to place orders, knowing it couldn’t fulfill its payment obligations. The clothing retail litigation revealed how the company diverted funds for personal use while neglecting supplier payments, raising serious concerns about MLM company operations.

Defense

In its defense against the fashion industry lawsuit filed by Plaintiffs, LuLaRoe argued that their business practices aligned with fashion industry norms and were driven by changing market conditions rather than intentional wrongdoing. They asserted that the Sourcing Agreement with Providence included flexible payment terms, allowing for reasonable delays based on the cyclical cash flows typical in retail. LuLaRoe claimed that Providence had previously accommodated such adjustments, and the current dispute arose from differing interpretations of contractual obligations rather than intentional payment defaults. Additionally, LuLaRoe contended that their 2017 policy changes, including adjustments to their bonus structure, were necessary adaptations to address industry challenges, not maneuvers to avoid payments. They argued that the introduction of a 100% refund buyback policy was intended to protect their retailers’ interests amid market fluctuations, demonstrating their commitment to responsible business practices. The company further emphasized that it made continuous good-faith efforts to manage its supplier relationships, maintaining open communication with Providence Industries to navigate these difficulties. LuLaRoe also disputed the accuracy of the $33.7 million in damages claimed by Providence Industries, arguing that the calculations included questionable charges, potential double-counting, and disputed assessments, including storage and trim costs. They defended their right to diversify supplier relationships as a standard MLM business practice, arguing that this aligned with industry norms and did not violate exclusivity provisions in the Sourcing Agreement. Furthermore, LuLaRoe challenged the assertion that they were required to disclose detailed financial information or policy changes to Providence, contending that such disclosures were not mandated by the Sourcing Agreement or industry standards. Finally, they refuted allegations of improper asset transfers, asserting that all transactions adhered to legitimate business practices and proper corporate governance.

Jury Verdict

On November 11, 2024, the jury found in favor of Plaintiffs, confirming that the defendants breached written sourcing agreements involving tens of millions of dollars in products. The defendants were also found to have orchestrated a large-scale fraud related to their multi-billion-dollar business model and attempted to conceal the resulting revenue. As a result, the jury awarded Cresden $164 million in total damages. Court Documents: Available Upon Request