3-year Lawsuit Over $3.76 in Interest Finally Settled

In 2017, multi-level marketing company LuLaRoe faced allegations of improperly assessing sales tax against certain customers. LuLaRoe sells clothing through “independent representatives.” According to a February 2017 report from CBS News, sales tax was collected based on where the sales representative lived, as opposed to the customer’s residence. This led to improper charges against customers who lived in states that do not assess sales tax on clothing purchases.

Faced with a potential class action, LuLaRoe admitted to the overcharges and provided refunds to customers. But that was not the end of the matter. A new class action complaint emerged in Alaska federal court–this time arguing LuLaRoe should have to pay interest on the sales tax funds it wrongfully collected in the first place.

Alaska Judge Rejects Customer’s Claims as “Inadequate” to Justify Legal Standing

The lead plaintiff in the Alaska lawsuit is an Anchorage woman, Katie Van. Van said she was charged $531.25 in sales tax on items that she purchased from LuLaRoe independent representatives in other states, even though Alaska itself has no statewide sales tax. And while Van later received a full refund of the sales tax she paid, she alleged the Alaska Unfair Trade Practices and Consumer Protection Act (UTCPA) entitled her to collect “interest” on her damages.

In March 2019, U.S. District Judge H. Russel Holland granted LuLaRoe’s motion to dismiss Van’s lawsuit. Holland concluded that the actual amount of interest Van seeks to collect, $3.76, was “inadequate” to sustain a federal lawsuit. Article III of the U.S. Constitution requires federal courts to establish a plaintiff’s “standing” to bring a lawsuit. Among other elements, standing requires “an injury in fact.”

In this case, Van could not allege the improper sales tax itself was her injury-in-fact, as she’d already received a full refund prior to filing her lawsuit. So her claim to Article III standing rested on the fact “she did not receive interest” on that refund. But Holland believed that this was not good enough–i.e., $3.76 in interest was “too little to support Article III standing.”

Ninth Circuit Joins Sister Courts in Adopting “Lost Time Value of Money” Rule

Van appealed Holland’s ruling. And on June 24, 2020, a three-judge panel of the U.S. Ninth Circuit Court of Appeals in San Francisco reversed Holland’s order dismissing the case. Without ruling on the merits of Van’s lawsuit, the Ninth Circuit said she had sufficiently pleaded an injury that met the requirements for Article III standing.

The unsigned opinion noted that Ninth Circuit law has previously established that even the loss of a “dollar or two” was enough to show an injury-in-fact. In other words, there was no basis for Holland’s reasoning that $3.76 fell below some minimum-injury threshold. Indeed, even LuLaRoe did not bother to defend Holland’s reasoning on that point.

Nevertheless, LuLaRoe maintained that since it gave Van a full refund, she could not maintain standing based solely on interest–or her “lost time value of money,” as it were. The Ninth Circuit disagreed, noting that several of its sister courts have already found that “the temporary loss of use of one’s money constitutes an injury in fact for purposes of Article III.” The Ninth Circuit said it found the reasoning of the other appeals courts persuasive and adopted the same standard here.

The Ninth Circuit further rejected LuLaRoe’s claim that Van had to “make specific allegations regarding how [she] would have earned interest on the money but for [LuLaRoe’s] wrongful conduct.” But as a matter of law, the issue was not whether or not Van would have received interest had she, say, put the improperly collected sales tax into a CD. Rather, the alleged injury was that she “lost the use of her money” during the period from when LuLaRoe improperly collected sales tax until the time it gave Van a refund. And while other appeals courts may have implied that a plaintiff must allege “specific plans to invest [their] money into an interest-bearing asset” to establish Article III standing, the Ninth Circuit expressly declined to adopt that rule here.