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Van v. LLR, Inc.

United States District Court, D. Alaska

March 1, 2019

KATIE VAN, individually and on behalf of all others similarly situated, Plaintiff,
LLR, INC., d/b/a LuLaRoe, and LULAROE, LLC, Defendants.



         Motion to Dismiss

         Defendants move to dismiss plaintiff's first amended class action complaint, or in the alternative, to strike the class allegations in plaintiff's first amended class action complaint.[1]This motion is opposed.[2] Oral argument was requested and has been heard.


         Defendants LLR, Inc., d/b/a LuLaRoe, and LuLaRoe, LLC “sell[] clothing through fashion retailers located in all fifty states to consumers across the United States.”[3] Plaintiff Katie Van alleges that she “made purchases from LuLaRoe retailers in other states and had those purchases shipped to her home in Anchorage, Alaska.”[4] Plaintiff alleges that she was improperly charged sales tax “on purchases she made from LuLaRoe's remote consultants.”[5]Alaska does not have a state-wide sales tax, although some local jurisdictions impose a sales and/or use tax.[6] Plaintiff alleges that defendants improperly charged sales tax “on at least 72, 503 sales transactions shipped into non-taxing jurisdictions in Alaska from April 2016 through June 1, 2017.”[7]

         Plaintiff alleges that defendants began improperly charging sales tax in 2016 after it was discovered that “LuLaRoe was paying sales tax on all sales regardless of whether or not the end consumer was charged or paid sales tax on a transaction. . . .”[8] Plaintiff alleges that this happened because of the way that defendants' point-of-sale system, which was called “Audrey, ” was programmed.[9] Plaintiff alleges that in response to this discovery, defendants, in April 2016, implemented a new sales tax policy, which was that “Audrey would be collecting tax from end consumers based upon the retailer location[.]”[10] Plaintiff alleges that defendants “altered the Audrey POS to prevent retailers from turning off the sales tax features when making sales delivered into other states with no sales tax[.]”[11]

         Plaintiff alleges that defendants “told [their] retailers that the policy [they] implemented, requiring that tax be charged based upon the location of the retailer, was proper and legal.”[12] Defendants explained that the option of collecting sales tax based on the retailer's location “recognize[d] that sufficient ‘nexus' exists between the consultant's state, the consultant, and LuLaRoe so that the consultant's customer is doing business with LuLaRoe through the consultant.”[13] Plaintiff alleges, however, that defendants knew their 2016 tax policy was not legal.[14]

         Plaintiff alleges that defendants “announced its new tax policy via webinar and conference call[s.]”[15] Defendants told the LuLaRoe retailers that sales tax would be collected based on the retailer's location “for a short time” and that they would “shift” to the option of collecting “sales tax based on the physical address where the sale takes place . . . or where the products are shipped to a customer . . . [i]n the near future.”[16] Defendants advised retailers that “[t]hose who simply do not wish to use the option offered by LuLaRoe can apply directly to their state for the permit to manage their own sales tax.”[17] Defendants also advised that the only thing preventing it from collecting sales tax based on where the products were being shipped was the Audrey software.[18]

         Defendants launched a new POS system in January 2017 called Bless and began transitioning retailers from Audrey to Bless.[19] This transition was not completed until May and Audrey was permanently disabled on May 31, 2017.[20]

         In February 2017, a law suit (the Webster case) was filed in the Western District of Pennsylvania, “alleging claims on behalf of class members in eleven states that have jurisdictions where there is no sales tax on the clothing LuLaRoe sells, but where those customers were charged the fraudulent tax. . . .”[21] Although plaintiff was not a named plaintiff in the Webster case, [22] there was an Alaskan named plaintiff. Class certification was denied in the Webster case on August 20, 2018 because the “[p]laintiffs [were] unable to establish Rule 23's requirements relating to commonality, the adequacy of class representation, predominance and superiority.”[23] The court's conclusion was primarily based on the fact that the laws of eleven different states would apply to the plaintiffs' claims. The court mentioned defendants' refund program in a footnote, referring to it as “a comprehensive refund program[.]”[24] On September 19, 2018, the Webster case was dismissed for lack of jurisdiction.[25]

         Plaintiff alleges that after the Webster case was filed, defendants “engaged in a confusing, ad hoc, refund scheme in a failed effort to escape responsibility for its bad acts.”[26]Defendants contend that they “recognized in or about June 2016 that a comprehensive sales tax refund program was needed” and that most refunds were issued by March 2017.[27] In answers to interrogatories in the Webster case, defendants admitted that they had only made 38 refunds prior to the filing of the Webster case on February 17, 2017 and that they had made no refunds to any Alaska residents prior to February 17, 2017.[28] Ultimately, defendants refunded $255, 483.35 to Alaska consumers who were improperly charged sales tax.[29]

         Plaintiff commenced this action on September 5, 2018. Plaintiff asserts two claims on behalf of herself and others similarly situated. In Count I, plaintiff asserts an Alaska Unfair Trade Practices and Consumer Protection Act (UTPCPA) claim. Plaintiff alleges that

[d]efendants violated the UTPCPA by knowingly charging and collecting an unlawful sales tax on its clothing sales to [p]laintiff and class member[s]; by failing to disclose that they were not authorized to collect such taxes; and by actively misrepresenting to their customers, directly and through [their] retailers, that their 2016 Tax Policy and their collection of “sales tax” from the class members was proper and lawful.[30]

         Plaintiff also alleges that “[d]efendants intentionally violated the UTPCPA by programming their online point-of-sale payment system to collect sales tax on clothing when such collection was unlawful and not authorized by the taxing authority of the buyer.”[31] In Count II, plaintiff asserts a conversion claim. In her first amended complaint, plaintiff sought the following relief: 1) actual, statutory, and punitive damages, 2) interest on her damages, 3) a declaration that defendants' conduct was unlawful, 4) an injunction prohibiting defendants from improperly collecting sales tax in the future, and 5) attorney's fees and costs. In her opposition to the instant motion, she states that she is seeking “the following relief: an accounting; interest; statutory damages; and punitive damages.”[32]

         Defendants now move to dismiss plaintiff's first amended class action complaint. Should the court not dismiss plaintiff's first amended class action complaint in its entirety, then defendants move to strike the class allegations.


         Pursuant to Rule 12(b)(1), Federal Rules of Civil Procedure, defendants move to dismiss plaintiff's first amended class action complaint for lack of standing. “‘Because standing . . . pertain[s] to federal courts' subject matter jurisdiction, [it is] properly raised in a Rule 12(b)(1) motion to dismiss.'” Carijano v. Occidental Petroleum Corp., 643 F.3d 1216, 1227 (9th Cir. 2011) (quoting Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010)). “A Rule 12(b)(1) jurisdictional attack may be facial or factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). “In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.” Id. Here, defendants are making a factual attack. “In resolving a factual attack on jurisdiction, the district court may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment.” Id. “The court need not presume the truthfulness of the plaintiff's allegations.” Id. “The plaintiff . . . bears the burden of proof to establish standing ‘with the manner and degree of evidence required at the successive stages of the litigation.'” Wash. Envtl. Council v. Bellon, 732 F.3d 1131, 1139 (9th Cir. 2013) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)). “‘[A]t the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice[.]'” Id. at 1139 (quoting Lujan, 504 U.S. at 561). If plaintiff “lacks standing, the class lacks standing as well.” Pimentel v. Dreyfus, 670 F.3d 1096, 1111 (9th Cir. 2012).

         “The ‘irreducible constitutional minimum of standing' consists of three elements: the plaintiff must have (1) suffered an injury in fact; (2) that was caused by the defendant's challenged conduct; and (3) that would be redressed by the remedy the plaintiff seeks.” Desert Water Agency v. U.S. Dep't of the Interior, 849 F.3d 1250, 1253 (9th Cir. 2017) (quoting Lujan, 504 U.S. at 560-61). “‘[A] plaintiff must demonstrate standing for each claim [s]he seeks to press and for each form of relief that is sought.'” Maya v. Centex Corp., 658 F.3d 1060, 1068-69 (9th Cir. 2011) (quoting Davis v. Fed. Elec. Comm'n, 554 U.S. 724, 734 (2008)).

         Defendants argue that plaintiff has not shown that she suffered an injury, “the ‘[f]irst and foremost' of standing's three elements.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016) (quoting Steel Co. v. Citizens for Better Environment, 523 U.S. 83, 103 (1998)). “A plaintiff establishes injury in fact, if he or she suffered ‘an invasion of a legally protected interest' that is ‘concrete and particularized' and ‘actual or imminent, not conjectural or hypothetical.'” Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037, 1042 (9th Cir. 2017) (quoting Spokeo, Inc., 136 S.Ct. at 1548).

         Defendants argue that plaintiff cannot show that she has suffered an injury in fact as to her claims for damages because the sales tax that she was charged has been refunded. Jamie Ellis, a Senior Tax Analyst for defendants, [33] avers that “[b]etween April 2016 (the time of her first purchase) and June 2017, [plaintiff] made purchases totaling over $10, 000 (before sales tax was added) that were delivered into a non-taxing jurisdiction.”[34] Ellis avers that plaintiff “was charged sales tax through Audrey on some of these transactions, but not all. For the transactions on which she was charged sales tax, the sale tax charges amount to $531.25.”[35] Ellis avers that plaintiff “was refunded the full $531.25” and that these refunds “were issued to [her] debit card on May 17 and 18, 2017.”[36]

         Plaintiff does not dispute that she was refunded $531.25 but she avers that she was not notified that defendants were making these refunds, that defendants did not request permission to electronically transfer funds to her account, and that defendants “did not condition receipt of any of the 164 separate electronic fund transfers on a release of any claims I have against them for their deceptive practices and conversion.”[37] She also avers that she has no way of knowing if she has been refunded the correct amount because she does not have “invoices or receipts for all of the purchases that I made from LuLaRoe since April 2016[.]”[38]

         The bottom line here is that plaintiff does not dispute that she has been refunded $531.25, and she admits that she has no proof to refute that this amount properly reflects the amount of sales tax she was improperly charged. The record also shows that plaintiff was refunded the $531.25 prior to her filing this lawsuit and prior to her unsuccessful attempt to become a named plaintiff in the Webster case.

         Courts have held that a plaintiff lacks standing when a defendant refunds or offers to refund the plaintiff's losses prior to litigation. For example, in Hamilton v. General Mills, Inc., Case No. 6:16-cv-382-MC, 2016 WL 4060310, at *1 (D. Or. July 27, 2016), Hamilton purchased General Mills cereal that was labeled as gluten-free but that had been contaminated by wheat flour on specific production dates in July of 2015. “On October 5, 2015, General Mills, working in conjunction with the United States Food and Drug Administration (‘FDA'), issued a widely-advertised voluntary recall and refund program for the cereals produced on those dates.” Id. Hamilton brought suit against General Mills, on behalf of himself and others similarly situated, “alleg[ing] that General Mills (1) violated the Oregon Uniform Trade Practices Act, Or. Rev. Stat § 646.605, et seq.; (2) received unjust enrichment; and (3) engaged in unfair and deceptive acts and practices under various states' laws.” Id. “General Mills argue[d] that Hamilton lack[ed] Article III standing because he has not suffered any physical or economic injury and has no possibility of obtaining relief because he has already been offered a full ...

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