EcommerceBytes-NewsFlash, Number 1265 - April 25, 2006     0 of 5

eBay Settles Billing-Glitch, Fair-Procedure Lawsuit

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eBay sellers Nancy Spaulding and Robert Cerreta filed a class-action lawsuit against eBay over billing glitches that plagued the site in 2004. But according to Spaulding, they were dropped from the case after eBay fixed their accounts. She said it's not fair that eBay did nothing to fix the billing glitches in 2004, and only fixed accounts for those members who sued the company in order to avoid a class-action lawsuit.


Nancy Spaulding protested eBay's handling of a major billing glitch in 2004

"I don't see how it was fair," Spaulding said. "That negates the class members from participating."

Spaulding and Cerreta filed the lawsuit on July 2, 2004, to cover themselves and all other eBay sellers affected by the glitch. Spaulding, an eBay seller from Ohio, had picketed at the eBay user conference in June of 2004 to protest eBay's handling of the problem. eBay executive Jeff Jordan apologized for the problem at the keynote session at the eBay Live annual conference on June 25, 2004, but many members reported that problems remained.

Spaulding said eBay sent police to move her from the sidewalk to the median strip when she was protesting, but no one from the company offered to talk to her about the problem. The 2004 apology to eBay Live attendees from Jordan did not satisfy Spaulding, who said, "I don't know why he apologized. If you are really sorry, you are going to allow people to talk about it." She said hundreds of thousands of sellers emailed eBay telling them of the billing problems, but claims eBay did nothing to permanently fix the problem. She said she still reads of ongoing billing problems on the eBay boards, though not as many as before.

The problem began in February 2004 when eBay began rolling out a new billing system. The changes caused eBay's records to show overcharges to a certain percentage of seller accounts. eBay refused to reveal how many of the 45 million active registered user accounts were affected.

Spaulding said with each amended complaint filed against it, eBay would fix the new plaintiffs' accounts, making them ineligible to participate in the lawsuit. The judge "was not grasping what happened," Spaulding said, and the plaintiff's lawyers finally felt they were "spinning their wheels."

Spaulding has spent hundreds of hours trying to figure out her account and flew to San Francisco to meet with her attorneys and eBay. She said eBay could not explain to her satisfaction how her account had been corrected.

She said her lawyers spent hundreds of hours on the case at their expense. It is Spaulding's understanding that during discovery, eBay would hand over a required paper in a stack of paperwork that would take hours to go through to find the one thing her lawyers were looking for. This happened over and over again, she said.

Spaulding's lawyer Jeffrey L. Fazio of Fazio Micheletti LLP said eBay did make discovery much more difficult than necessary. "After going through negotiations for months about what constituted confidential information, we agreed that the only materials that would be deemed confidential were those that met the legal definition of a trade secret and those that would harm eBay competitively if they were disclosed. Nonetheless, eBay proceeded to mark each and every page of each and every document "CONFIDENTIAL," and forced us to litigate the issue of confidentiality over documents such as a press release pertaining to a study that eBay conducted relating to the number of sellers who relied on eBay as their primary source of income, and sought to prohibit us from sharing information with other lawyers who were also suing eBay."

Fazio said eBay's over-billing was only one aspect of the case. The lawsuit also included a claim for fair procedure, the purpose of which was to obtain for sellers the right to receive notice and the opportunity to be heard before eBay could shut down their businesses. Fazio said, "In other words, we sought to prevent eBay from arbitrarily terminating sellers' membership, on which many rely as a major - or even a sole - source of their income."

However, the judge made it impossible to pursue that claim as a class action, because each seller would have to demonstrate their right to fair procedure by going into the details of their finances, according to Fazio.

"The effect of that ruling made it virtually impossible to prosecute the claim as a class action, because it would require an examination of each and every class member's tax records and other financial information. Not only would such an individuated examination destroy the ability to proceed with the claims as a class action, the ruling would have forced each eBay seller to disclose personal and confidential financial records, and it could actually dissuade people from stepping forward to serve as a representatives in other cases."

"For that reason, as well as several others, we decided to dismiss the case," Fazio said. The parties have settled the lawsuit on an individual basis - not as a class action - therefore, all sellers (other than the individuals who were named plaintiffs in the case being settled) are free to pursue legal action against eBay, as individuals or as a class of sellers.

Spaulding said she is most frustrated that she was unable to get things taken care of for the people who do want to sell on eBay. She said she is unwilling to sell on eBay until she is convinced that eBay will properly bill her for selling fees. "eBay does not have customer service. For a company that size, it's unacceptable."

According to eBay's recent 10-Q filing, the court approved a settlement agreement this month. "Under the terms of the settlement, the plaintiffs agreed to dismiss the lawsuit and release eBay from all claims."

Fazio said, "Although we worked very hard on the case for nearly two years, we did not achieve any real benefit for members of the proposed class. Therefore, we decided to create a benefit indirectly, by donating to non-profit organizations the entire $250,000 eBay had earmarked as payment for the fees and costs we incurred in the course of prosecuting the case.... We will not earn a dime for our efforts in this case, nor will we recover any of the thousands of dollars in litigation expenses we incurred. Although we were disappointed in the outcome, we're glad that our efforts were not in vain."


About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.


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