Providence Industries a clothing supplier based out of California is suing LuLaRoe for nearly $49 million in unpaid goods. The company also alleges that LuLaRoe founder’s Mark and Deanne Stidham created more than a dozen shell companies to hide assets from their suppliers. Additionally, Providence argues that the Stidham’s used money owed to creditors to fund their lavish lifestyle. The trial for the lawsuit started this week, and details of the case will leave LuLaRoe legging lovers speechless.
In court documents filed in Riverside County, California on November 29th, uploaded and shared by the Wall Street Journal, Providence outlines a compelling case against LuLaRoe.
According to the document, Providence and LLR entered a sourcing contract in 2016. As a part of the deal, LLR agreed to order clothing from Providence and pay for clothing upon delivery. The agreement held LLR responsible for payment for all orders.
Initially, Providence says they received money for their goods and services. LLR ordered from the supplier regularly, and Providence delivered orders within 4-6 months.
However, Providence noted that in April 2017, LLR stopped paying for the goods and services on time. According to the document, LLR failed to disclose that they were facing financial difficulties. The supplier states that LLR withheld critical information about their financial situation and misled them about the financial issues.
Providence says they were informed, only after the fact, that LLR’s financial situation was bleak in 2017. According to knowledge obtained through their sources, the supplier said they learned that LuLaRoe’s new bonus structure paid to “Retailers” drastically impacted the companies’ revenue.
In April 2107, LuLaRoe decided to stop paying retailers bonuses based on purchases they made wholesale. Instead, LLR paid bonuses solely based on what their retailers sold directly to consumers.
In addition to the bonus change, LLR instituted a 100% buyback program for retailers that wanted to return goods. Due to the changes, Providence learned that the monthly income LLR made dropped by more than 50% from more than $200 million per month to $100 million per month.
On top of losing a mass amount of revenue from sales, the company lost thousands of retailers. Throughout several months, more than half of their 80,000 retailers left the company. Due to the buyback policy, LLR implemented, the company refunded more than $120 million to retailers.
Although LLR was losing money hand over fist in 2017, Providence states that LLR continued to order millions of dollars in clothing orders through the end of 2017 and into 2018.
At one point in late 2017, LLR failed to pay Providence on time for the goods. However, LLR found a way to make right on the part of the debt. By paying a portion of the obligation to Providence, LLR convinced the supplier to continue to stay in business with them.
However, Providence says that LLR failed to tell them critical facts about the company during the conversation to remain business partners. Providence says that LLR withheld details about lawsuits, debts to other creditors, and refused to provide financial documents related to the LLR business.
By mid-2018, Providence said the debt amassed by LLR was close to $49 million. Because LLR and Providence had an on-going supplier agreement, LLR was required to make orders to Providence for clothing.
In order to stick to the contract terms, LLR continued to make clothing orders. However, Providence says that once the clothing was ready, LLR refused to accept delivery of the garments. Instead, LLR asked Providence to hold the inventory in storage until they wanted the products.
Per LLR’s request, Providence purchased a storage space for the unpurchased goods. Throughout several months, Providence wracked up thousands of dollars in storage fees for the unsold clothing. LLR refused to pay for the storage fees and would not accept delivery of the goods.
While Providence attempted to deliver the garments to LLR, the supplier learned that LLR started using a different supplier for clothing. Providence alleges that LLR shifted their business to the new supplier to avoid paying Providence their outstanding debt.
At the same time, Providence says Mark and Deeann Stidham set up more than a dozen shell companies to hide money from creditors. According to the document, the Stidham’s funneled cash to the shell companies, funded a lavish lifestyle, and left LLR with no money to pay outstanding debts.
In court documents, Providence says the Stidham’s purchased multiple properties in Wyoming, a private jet, multiple million dollar cars, and hired a professional racecar driver to break land speed records with the supercar he purchased.
All of the shell companies set up in 2017 by the Stidham’s, Providence alleges were set up with the sole purpose to hide assets from a growing list of creditors.
By March 2018, Providence says the company owed them millions of dollars, but Mark still bragged about his high priced purchases.
The supplier says on a business trip to Korea and Vietnam that Mark showed a representative of the supply company photos of his expensive ranch in Wyoming. Mark told the representative that he planned to buy the land adjacent to the property to gain exclusive access to the nearby river.
While LLR failed to pay Providence for their goods and debts, LLR ordered millions of dollars in supplies from other vendors. Providence said they learned in November 2018, that LLR requested more than $30 million in products from four suppliers.
By September 2018, Providence states they attempted to engage with Mark Stidham about the outstanding debt. During the conversation, Providence asked Mark to pay the unpaid bill.
However, the supplier says Mark told them he would never pay them back. The document quotes Mark as saying, “look, guys, I’m not going to pay you a f**king dime unless a judge orders me to pay it, and Deanne and I will take our two to three hundred million to the Bahamas, and f**k everything.”
As a result of the massive debt, Providence filed the lawsuit to reclaim the money owed to them by LLR. Providence is requesting various actions against LLR as a result of the suit.
According to the action section of the document, Providence is requesting the following:
-Order a judgment of $48,732,955.45 for Breach of Contract
-Require LLR to pay $33,753,895.66 for goods and services owed to Providence
-LLR not to destroy any mail, emails, or communications regarding their deceptive practices against Providence
-The court to freeze the assets of the shell companies and the Stidham’s
-For LLR to pay all legal fees, attorney fees, and costs associated with the lawsuit
Following the filing of a document in Riverside County in late November, former LuLaRoe executive Patrick Winget filed a declaration supporting the claims made by Providence in the lawsuit. Patrick confirmed the lavish purchases made by the Stidham’s.
In the declaration filed by Winget, he also confirmed the bleak financial position of LLR.
In statements made to the court on Wednesday, Mark Stidham denied the claims made by Providence Industries and Patrick Winget.
The Business Insider provided quotes from the proceeding yesterday. According to their article, Stidham said,
“To be clear, I do not have, and have never had, any intention or plans of absconding abroad with money,” he said. “To the contrary, I remain committed to the LuLaRoe business and continue to work daily on the business.”
“The suggestion that I would abscond with hundreds of millions of dollars from LuLaRoe and escape to the Bahamas — or anywhere else for that matter — is absurd,” he said, and “testimony to that effect is reckless, misleading, and insulting.”
To demonstrate the financial responsibility of the company, Stidham identified four properties and a warehouse held by LLR. Stidham said that LLR is up to date on all rents for the buildings.
In addition to his denials about the fleeing the country, Stidham denied setting up shell companies to divert funds from creditors.
Finally, Stidham took a jab at former executive Patrick Winget by calling him a “disgruntled employee.”
Another hearing for the lawsuit is scheduled for Friday, December 7th.
As more details roll out regarding the financial position of LuLaRoe and the fraud perpetrated by Mark and Deanne Stidham, the Stidham’s may find themselves on the next episode of American Greed.
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