LuLaRoe, the Corona-based husband-and-wife-operated fashion wholesaler that markets its merchandise through individual freelance salespeople, has been sued for more than $48.7 million by its major supplier, according to court documents.

Suit alleges creation of shell companies

The lawsuit, filed Nov. 29 in Riverside County Superior Court by Providence Industries, alleges that LuLaRoe has not paid for any of the clothing it ordered from Providence more than seven months ago. It also accuses the company and its founders, Mark and DeAnne Stidham, of creating numerous shell companies to hide its assets from Providence and other creditors.

Seven of those alleged shell companies were named as co-defendants in the suit.

The lawsuit additionally claims there are reasons to believe that LuLaRoe is becoming insolvent, pointing out that a court ruling in California directs an insolvent company to place its remaining assets in a trust fund so creditors can be paid.

“The plaintiff believes that LuLaRoe has sold the products and absconded with the proceeds of the sale without paying plaintiffs for the very same products,” the suit reads. Long Beach-based Providence Industries, which designs, manufactures and distributes clothing, said the money from those sales is funding a “lavish lifestyle” for LuLaRoe’s principals.

LuLaRoe says the claims are without merit

A LuLaRoe spokesperson declined to discuss any of the specifics mentioned in the suit.

“We believe the claims in this case are completely without merit and will fight vigorously against them,” the spokesperson in an email. “Given this is pending litigation, we cannot comment on the specifics.”

The company has said sales in 2017 hit $2.3 billion. The suit contends that LuLaRoe never intended to pay its bills for the material it has purchased.

Providence Industries’ representatives claim that, in September, Mark Stidham said, “Look, guys, I am not going to pay you guys a (expletive) dime unless a judge orders me to pay it, and DeAnne and I will take our two to three hundred million dollars to the Bahamas, and (expletive) everything.”

According to the lawsuit, the Stidhams have acquired assets with the intent of shielding LuLaRoe from creditors. These assets include companies that own expensive race cars, private airplanes, a distribution facility in South Carolina and a ranch in Wyoming. The suit claims they own 17 individual properties, all set up as limited liability companies.

Thirteen of those property-related LLCs were set up in December 2017, after a series of class action lawsuits were filed against LuLaRoe late in that year, according to the suit.

A multitude of legal actions

The 2017 legal actions — as many as 13 lawsuits — were filed by retailers, private citizens who signed up with LuLaRoe to buy clothing from the company and sell it at a markup, either online, door-to-door or at parties. At one point there were close to 80,000 retailers, called “independent fashion consultants,” across the country.

The suits alleged that LuLaRoe was operating a pyramid scheme, that it was maintaining an unfair policy for the return of unsold merchandise and that it had provided some poorly made products That, in turn, caused many salespeople to leave the company, which hurt its bottom line.

The November 2018 suit maintains that the magnitude of this decline was not disclosed to Provident, to induce the company to continue to supply LuLaRoe.

Riverside County’s Superior Court has set a May 28, 2019 date for a case management conference.