|EcommerceBytes-NewsFlash, Number 2798 - May 07, 2012 - ISSN 1539-5065 2 of 4|
Online sellers who filed class action lawsuits against PayPal over the company's practice of holding funds for lengthy periods have reached a tentative agreement to settle following successful mediations.
The parties in Fernando v. PayPal and Zepeda v. PayPal are currently in the process of finalizing a written settlement agreement and exhibits, including proposed notice to the settlement class. A hearing on preliminary approval is set for June 12, 2012, with the motion for preliminary approval to be filed by May 8, 2012.
While terms of the settlement are as yet undisclosed, the litigation has not stopped PayPal from expanding its holds policy. PayPal sent an email last week sharing its plans to update its "Funds Availability program" to add additional circumstances in which it could hold seller funds, including "Sellers who sell an item that has a sales price that is significantly higher than the average sales price of items previously sold by that seller."
At issue in the two lawsuits is PayPal's practice of withholding funds from sellers in transactions that seemingly have no suspicious circumstances and then refusing to explain why.
The plaintiffs in the Fernando case alleged PayPal's practice of holding funds for up to 180 days or longer was fraudulent, and in violation of its user agreement, the Electronic Funds Transfer Act and the terms of a 2004 settlement the company agreed to in resolution of an earlier lawsuit in the Comb et al vs. PayPal case, which dated to 2002.
The Zepeda plaintiffs claimed that PayPal's practices constituted a breach of contract, breach of fiduciary duty, violated the California Consumers Legal Remedies Act and California Unfair Competition Law, and that PayPal had been unjustly enriched.
PayPal and the Zepeda plaintiffs had participated in mediation in May 2011, which had resulted in an agreement on a class settlement, and last fall, plaintiffs in Fernando v. PayPal asked the court to intervene in Zepeda vs. PayPal on the grounds they involved essentially the same charges.
In the meantime, Dennis Dunkel and Cy Stapelton filed a class action against eBay on March 22, 2012, alleging, among other things, that eBay improperly closed their accounts without just cause or prior notice, purportedly in violation of the terms of the eBay User Agreement. Four days later, the plaintiffs filed an administrative motion to consider whether their case should be related to Fernando v. PayPal In the motion, plaintiffs write:
"The Fernando Action's special emphasis is on PayPal's practice of holding funds in sellers' accounts by placing reserves on accounts and/or limiting and/or suspending sellers' accounts and holding the funds in the accounts for 180 days (collectively referred to as “holding funds”). While investigating the practices which gave rise to Fernando Action, Plaintiffs' counsel discovered eBay's practices which appeared to be independent from claims raised in Fernando action. Specifically, while talking to numerous class action representatives, Plaintiffs' counsel learned that Defendant eBay has been in practice of suspending or terminating its customers' accounts on the basis that they have engaged in fraudulent activity in connection with the site. Plaintiffs' counsel also learned that those contracts contained a number of one-sided nonnegotiable terms favorable only to eBay. Relying on those one-sided clauses, eBay failed to give any warnings to its users regarding account suspension."
Zepeda v PayPal
Fernando v PayPal
Dunkel v eBay
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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 firstname.lastname@example.org.
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