United States District Court, D. Alaska
KATIE VAN, individually and on behalf of all others similarly situated, Plaintiff,
v.
LLR, INC., d/b/a LuLaRoe, and LULAROE, LLC, Defendants.
ORDER
H.
RUSSEL HOLLAND UNITED STATES DISTRICT JUDGE.
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.
Background
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.
Discussion
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 ...