eBay and PayPal prevail in long-running litigation brought by sellers

By Casey Gerry November 30, 2021

In 2015, a group of third-party sellers filed a class action suit against eBay, a global online marketplace with over 100 million active users, and PayPal, the online payment company owned by eBay. They asserted that several practices and policies of both defendants were unfair or unconscionable. As to eBay, they contended that eBay’s user agreement was unconscionable and challenged eBay’s practices of adding shipping charges to its fees calculation, allegedly hiding product listings, removing duplicate listings, and showing ads on listing pages that could include competitors’ products. As to PayPal they took issue with: (1) PayPal’s policy of placing a temporary hold on funds in a user’s account when it believes there is a high level of risk associated with a transaction or account; (2) PayPal’s retention of interest on users’ funds that are placed in pooled accounts when users maintain a balance in their accounts; and (3) PayPal’s buyer’s protection policy, which allows buyers, under certain circumstances, to dispute transactions up to 180 days after the date of purchase. The sellers also claimed PayPal helps buyers defraud sellers by the way it resolves disputes.

Six years and three appeals later (not counting denial of a writ petition and at least one petition for review), the litigation has largely come to an end. In three separate opinions, the Court of Appeal, First District, Division 2, affirmed the trial court’s sustaining of demurrers by both defendants and its denial of the sellers’ motion for class certification. See Chen v. PayPal, Inc. (2021) 61 Cal.App.5th 559, 569 (PayPal’s demurrer), Chen v. eBay (Aug. 24, 2021, A158417, 2021 WL 3732121 [nonpub. opn.]) (motion for class certification), and George v. eBay, Inc. (Cal. Ct. App., Nov. 12, 2021, No. A162129) 2021 WL 5275029 (eBay’s demurrer).

Without getting into the weeds of the rulings, the court essentially found that eBay’s and PayPal’s business practices were not commercially unreasonable for an online marketplace and that the various user agreements and other documents sufficiently explained those practices and policies to prospective sellers. The court also ruled that sellers failed to allege they had no other reasonable alternatives since they did “not allege they were unable to avoid eBay’s allegedly unconscionable policies by, for example, selling on other online marketplaces.” According to the opinions, two causes of action for certain individual sellers are all that remain.

Interestingly, the litigation did not appear to involve any efforts to compel arbitration. So either eBay’s and PayPal’s contracts didn’t have arbitration clauses, at least in 2015, or they chose not to try to enforce them. This differentiates eBay from, say, Amazon, which aggressively seeks to enforce the arbitration clause in its Business Solutions Agreement, see Shenzen Shileziyou Technologies Co., Ltd., Case No. 3:21-cv-07083 (N.D. Cal.) (Amazon moving to compel arbitration in case brought by foreign sellers over money withheld by Amazon and termination of accounts) even though it has eliminated the clause from its consumer-facing contracts.

And while these decisions may have exonerated eBay from certain claims brought by sellers, they also show how much influence eBay has over the sales process, an important consideration for whether eBay is liable to buyers for harm caused by products sold on eBay.

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