I am filing a lawsuit against PayPal/eBay

[RobertDale]

What is the name of your state?Applies to California Law, though I reside in Michigan.

Here is the case (Very sorry for the "novel", but I don't like to miss any details):

About one year ago, I registered for a PayPal account, with the intention of using it to startup a small business selling desktop computers on eBay. Over a period of about 6 months, I made some sales and purchases, most notably a laptop computer which I sold for $600, and turned around and purchased another unit for $700. I then registered for a PayPal Business Account, which has the SOLE PURPOSE OF CONDUCTING HIGH VOLUME TRANSACTIONS. I applied for their Debit Card Service, which requires a good standing in the PayPal community - They gave it to me. Remember that, because it's important.

A few months later, I finally save enough money from my part time summer job to build a couple of desktop computer systems. These system sold for around $600/unit, and both customers were really happy with their systems. I then built a larger system, which sold for $1,600... This customer was also happy. ALL of my buyers were verified by the PayPal system, so I wasn't dealing with shady customers.

I then listed several more auctions for desktop computers. About half-way through these auctions, PayPal notifies me that my account has been limited because of "more than one report of suspicious behavior from your buyers". This put me into panic mode, as I feared people were complaning about me. PayPal then asked for me to provide proof that I actually owned and shipped the items. I wasn't sure of what proof to send, since I had so many vendors and nearly 30 invoices, some of which were e-invoices. I sent my question to PayPal customer service via e-mail (their recommended mode of communication). I never received a reply. I then sent another message, and still got no reply. Finally, I get a reply stating the same thing, that I must fax them documents. While all of that was going on, I was completing the other tasks requested in the e-mail... Such as phone number verification, bank account verification, etc..

The next day, they terminated my account because of a "high level of credit risk"... This means that PayPal now holds my funds that were in the account for 180 days ($1,700), to prevent the risk of chargebacks. In the User Agreement, PayPal does have the right to pull a credit report on any customer they wish, to assess whether or not they are fit to hold an account. Again, make reference to the fact that they allowed me to register for a Business Account, which has the SOLE PURPOSE OF CONDUCTING HIGH VOLUME TRANSACTIONS. I believe they should be obligated to pre-screen high volume Business Accounts PRIOR to granting them Business Account status - 99.9% of all other online merchants do this, shouldn't PayPal?

I pulled a credit report from the same company, and it showed that I had no overdue balances, no debts, and no negative strikes. But, and this is a big but, I did NOT have a FICO Score. In order to have a FICO Score, one must have credit for longer than 6 months - I only had my credit for around 4 months. Given that, how can they use the FICO Score to assess my risk, or lack thereof? It would be similar to trying to calculate an equation that is missing the variables - It can't be done. Nothing ever pointed to me being a credit risk. I tried to dispute their findings, but I was told that all decisions were final, and non-reversable. In fact, using a FICO Score simulator, my score is around 700... Not excellent, but not really bad either...

I called PayPal customer support numerous times as to why my account was initially limited, as I wasn't satisfied with "suspicious reports from buyers". Finally, the head manager stated that I actually didn't have complaints or suspicious reports from buyers at all, and that this is just a default message, (she said it while chuckling) - I did NOT find it funny. They essentially lied to me, leaving me with a near mental break down for weeks, simply because they were too negligent tell me what was REALLY going on, which I am still unsure of.

After more conversations, an employee accidentally disclosed confidential information (an internal memo) that was on her customer service terminal. She stated that I had no track record of selling desktop computers - Huh? I didn't know I needed a track record to start selling computers. So, I must have been flagged for selling desktop computers.

I contacted the Attorney General's office, and got a quick response. PayPal replied to the Attorney General's office and stated that they limited my account because the items I was selling were deemed to be "high risk", and that there was an unusual increase in account activity (again, this would be the "flag" seen in the above paragraph). Desktop computers are not listed as a high risk item in the User Agreement, nor are they listed as items which are against the "rules". And, just a reminder, this is NOT the initial reasons which PayPal gave me - Suspicious reports of behavior from your buyers. Again, PayPal lied to the Attorney General's office, or at least attempted changed their story arround to make them look better - I notified the Attorney General of the change in PayPal's story.

I then contacted all of my buyers to see what their methods of payment were. They all paid using direct debit or PayPal e-checks, all of which carry zero chargeback risk. I contacted PayPal customer service about the zero risk of chargebacks associated with my funds (meaning they could release them, risk free), and the woman said that they could issue a refund, and that I had to contact an e-mail address. I went ahead and contacted that e-mail address, and got a reply stating what I already know "due to the risk of chargebacks, PayPal reserves the right to hold funds for 180 days". This is confusing, as there is no risk of chargebacks, so why are they holding my money? Better question, why did they even terminate my account, or feel the need to? Surely I am not the biggest seller on eBay, or the only individual who sells desktop computers, just do a simple search on eBay for "computers"... On a side not, ALL of my customers were furious that PayPal would do such a thing, and then lie and say that they were complaining. They have since told me that they no longer use PayPal, as they would rather not feed a company that doesn't treat people with respsect.

To make things more interesting, there was a previous class-action lawsuit filed against PayPal ($9.25 million class action settlement), and an injunctive was setup (I believe - see this: http://www.settlement4onlinepayments.com/injunctive.pdf ). This injunctive states that PayPal may not hold a members funds in excess of what the risk to PayPal is. Since my funds are not a risk, they are holding them in excess. The injunctive also states that PayPal is to provide a link to any person with a limited account, on where to obtain more information. Though, this injunctive states that it is a "proposed" injunction, I am unsure as to whether or not it is actually in effect.

Anyway, I would like to file a civil lawsuit against PayPal for:
Severe mental distress
Convesrion of funds
Breach of Contract on 4 seperate occasions, for wrongfully limiting and terminating the account
Violation of California Business and Professions Code 17200 (business ethics) on several occasions

Compensation damages: Lost income for the 180 days that the funds were held (which prevents me from further listing auctions and/or selling using the account) to the total of $15,000. Compensation for the mental distress cause by the negligence (basically PayPal lying), but I don't know how to put a value to that.

Punitive Damages: While the harm was economic in nature, the reprehensibility of PayPal's action(s) is significant. The tortious conduct that PayPal has engaged in is very reckless, and disregards the well-being and emotional health of the customers. The targets (PayPal's customers), are financially vulnerable by keeping funds within the PayPal system, as well as trying to make a living using the service as an online merchant. The conduct which PayPal has engaged in, has been repeated on numerous occasions, despite numerous lawsuits, warnings, and injunctive agreements. The harm done was a direct result of malice, oppression, very reckless behavior, deceiving customers, and denying persons the right for a fair appeal. These actions are not a mere accident, they have been recurring.

PayPal acted with oppression and malice. PayPal knowingly deceived me, PayPal wrongfully terminated my account, PayPal breached the User Agreement on several occasions, all resulting in significant monetary damage to me in the form of converted funds and lost income, as well as severe mental distress. PayPal has full reprehensibility for this situation, as they have been warned in similar judgements, settlements, and injunctive agreements, yet these malicious and oppressive actions continue. PayPal breached the Injunctive Agreement of the previously settled lawsuit, making this the second offense.

In your opinion, do I have a case? How should I go about contacting a lawyer?


Thanks for your time, it is very much appreciated.

 

[seniorjudge]

I am filing a lawsuit against PayPal/eBay

We wish you luck.

Post back with results.

 

[RobertDale]

I am filing a lawsuit against PayPal/eBay

We wish you luck.

Post back with results.

Do you think I have a case? I am just tired of this company lying to me... It's like the louder I scream, the more they don't listen. There is no reason they should tell me people are filing complaints about me, when they aren't. There is no reason they should be holding my funds... Does not having a FICO Score really constitue having a 'high level of credit risk", or is it up for PayPal to decide that? If it's left up to PayPal, then does that mean their User Agreement is ambiguous in the fact that it doesn't clearly set boundaries for what is considered "high level of credit risk"?

I was attempting to startup a legitimate business, with legitimate products. I was so frustrated when they told me that they were going to hold my funds for 180 days... Words can't even describe it. All of this has caused me to be late on credit card payments (this money was going to be used to cover the credit card bills and other bills)... Now my credit truely IS going downhill as a result of this.

Can the fact that this is PayPal's second offense be used in court or litigation? In my opinion, second time offenders should be punished even more...

And thanks for reading my novel, by the way...

 

[seniorjudge]

Q: Do you think I have a case?

A: No, they do not have to do business with you.

 

[RobertDale]

Q: Do you think I have a case?

A: No, they do not have to do business with you.

Correct, but breaching the User Agreement AND coverting my funds into their possession for 180 days, as well as mental distress? They handled my account and situation very recklessly... In addition, when I agreed to the User Agreement, I never agreed that they could violate their terms... There are set standards in the User Agreement for which they may terminate and account, and the reasons they gave me aren't listed, and besides, which "reason" do I use? There have been so many reasons, most of them conflicting...

If they didn't want to do business with me, all they had to do was say so, and I would pack up and leave. Instead, they lie to me, breach the agreement, convert my funds, and continue to lie. This is the same thing the previous lawsuit was filed for - In fact, if that Injunctive Agreement is actually in place, CA law would provide fines of $6,000 per day, per violation (so 180 days) for every day that the injunctive was violated. In this case, the violations would be holding funds in excess of what the actual risk is, not providing me with a reason as to why my account was limited, etc..

Again, I wouldn't mind if they terminated the account and sent me on my way... But to do so AND keep hold of my funds, that's a different story.

The law in the State of CA protects consumers against unethical business practices, which is the law PayPal is stuck under AND clearly violates.

 

[RobertDale]

I wish you could elaborate a little more on why I do or do not have a case...

I see:

Conversion of funds
Breach of contract 1: Limiting the account under false allegations and for reasons not listed in the User Agreement
Breach of contract 2: Terminating the account stating there was a high level of credit risk, when there was none
Breach of contract 3: PayPal User Agreement claims "PayPal will use reasonable efforts to investigate accounts that are subject to account access limitations and to reach a final decision on the limitations promptly", which they did not do
Breach of contract 4: PayPal User Agreement claims: "PayPal may continue to hold your funds for up to 180 days as appropriate to protect PayPal against the risk of reversals" There are no risk of reversals on those funds - Simply enough, they shouldn't be held
PayPal violates the Injunctive Agreement on three seperate sections
PayPal violates "Business & Professions Code § 17200" on three seperate occasions

Again, 'breach of contract #2" is in questions, as I do not know if a lack of FICO Score really constitues a high level of credit risk, and whether the term "unacceptable level of credit risk" as used in the PayPal User Agreement (under "Eligibility") is ambiguous. PayPal also admitted that they don't adhere to the eligibility policy when it comes to that specific section regarding "unacceptable level of credit risk" - And obviously not, because if they did, I would have never been able to sign up, right? Anyway, the reason I say ambiguous is that what one person may find "unacceptable" and what another person finds "unacceptable" may be two different things. An example would be you saying it would be unacceptable to file a lawsuit, where I would say it isn't unacceptable.

Again, I am not disputing the fact that they don't have to do business with me... I am disputing the fact that they damaged me as a result of breach of contracts, conversion, and breach of injunctive agreement, and they should pay.

This may be a bit more controversial, but PayPal indirectly profits from holding funds in their bank account (owned by Bank of America). The more funds that are held in the account, the lower their banking fees become, which at the end of the year turns into profit. It's not like PayPal hasn't went behind peoples backs before, just look through what the Attorney General of New York found (also filed suit for $600,000). So, it would seem to make sense that PayPal would set a minimum quota for the amount of funds to be held in that account... When they fall below that quota, they go "searching" for accounts to limit access to, thus holding that additional balance for 180 days (6 months). It is possible that PayPal uses bad faith (much like insurance companies) to actively search and dig out reasons to limit an account, even if those reasons are merely false allegations. Again, that's controversial, and I have no evidence of that happening... But I do know that PayPal does receive a bank fee reduction, and my funds are helping them do it

 

[seniorjudge]

Go ahead and sue. Report back with results.

 

[RobertDale]

Go ahead and sue. Report back with results.

You don't sound too confident, LOL....

Another class action lawsuit has just been filed against PayPal for breach of contract and racketeering, have to watch that one as well.

My situation involves a written agreement, that I agreed to. In that agreement, there are strict limitations for what an account can be suspended or terminated for. I violated nothing - They lied and said they were receiving complaints from my customers - Which they weren't. They later said that it was just a "default message". The whole premise of my account being terminated hinges on the fact that they used false allegations to limit the account. They then pulled a credit report, and stated I had a high level of credit risk, and terminated the account. There is nothing negative in my credit report - It may not be loaded with credit cards and loans, but I have a single credit card that gets paid on time. The agreement states that they can terminate an account with a high level of credit risk - I believe they breached some sort of implied covenant of good faith and fair dealing - It was implied that only a "bad" or "unacceptable" level of credit risk would warrant an account termination.

They were also grossly negligent - They fail to screen members who register as a high volume seller. If they were to have a stricter screening process, this wouldn't be happening. This doesn't mean they need to screen everyone, but they should at least screen all members who apply for a "Business Account" and input a montly sales of over $5,000.

What this all means is that ALL of the money I had, which was in that account, remains in that account for 180 days. The user agreement clearly states that they may do this so that PayPal doesn't take a loss on any chargebacks. The thing is, none of my buyers used credit cards, and there is no risk of chargebacks. The injunctive agreement clearly states that "PayPal agrees to limit access to funds in accounts only in such amounts as PayPal deems reasonably necessary to protect it's customers and/or PayPal against the risk of loss, unless PayPal determines that it is necessary to limit access to an entire account in order to protect the security of the PayPal system". Clearly, PayPal is holding more funds than what is at risk to them. I guess PayPal could argue that they are doing it to protect the security of their system, but they would have to prove it, wouldn't they?

Do you know what the fine is for breaching an injunctive agreement in the State of California? It's $6,000 per day, per violation, and that's just one violation of the injunctive agreement which I believe PayPal violates. That would be the Business and Professions Code 17207 that provides that.

And as far as damages, that's a bit harder... My business was only up for about a week before all of this happened. I was selling computers pretty regularly at that point, about every other day. This was meant to be an actual business, which made actual profits for me to pay bills. But, one week of earnings is not nearly long enough to prove that there was a steady income via that account. So, are any "loss of profit" damages speculative?

Potential financial loss or expenses that a plaintiff (person filing a lawsuit) claims that are contingent upon a future happening that is purely conjectural or highly improbable. Speculative damages should not be awarded and the jury's instructions should indicate such. For example: a) plaintiff believes that in ten years, he may begin to feel pain from a healed fracture although no physician has testified that this is likely to happen; b) plaintiff claims that defendant's failure to deliver products for sale may hurt plaintiff's reputation with future customers.

I don't think the loss of profits are purely conjectual or highly improbably - There is evidence that I was starting to make a decent profit. So, since there is proof that a sort of damage did exist, it probably shouldn't be considered speculative. But, determining the AMOUNT of damages is the key problem.



Also, PayPal slips this into their user agreement about half way down (on page "6" if printed out):

2.6 Limitation of Liability. IN NO EVENT SHALL WE, OUR PARENT, SUBSIDIARIES, EMPLOYEES OR OUR SUPPLIERS BE LIABLE FOR LOST PROFITS OR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH OUR WEB SITE, OUR SERVICE, OR THIS AGREEMENT (HOWEVER ARISING, INCLUDING NEGLIGENCE). Some states do not allow the exclusion or limitation of incidental or consequential damages so the above limitation or exclusion may not apply to you.

OUR LIABILITY, AND THE LIABILITY OF OUR PARENT, SUBSIDIARIES, EMPLOYEES AND SUPPLIERS, TO YOU OR ANY THIRD PARTIES IN ANY CIRCUMSTANCE IS LIMITED TO THE ACTUAL AMOUNT OF DIRECT DAMAGES.

I don't know if that exculpatory clause would hold up in the courts of California given the conduct. For starters, this is a contract of adhesion. Secondly, PayPal could be considered a public service, as it has well over 25 million customers/users. And finally, that clause is obviously meant to shield PayPal from any and all liability. "However arising; including negligence" leads me to believe they are being very broad and trying to cover every aspect of a potential lawsuit. California courts already found the user agreement to be unconscionable, PayPal has since changed their agreement.


I wish there was more input from others as well, maybe my situation is too complex?

Senior Judge, from all the other posts, I take it that you're a judge... What state?

 

[MdeLaureano]

Ombudsman Help

I live in Utah. A local tv news program did a program a while back about this same problem. You can find it with a seach for "KUTV2News". Click on the "Get Gephart" button. I don't remember how long ago this story was, so you might have to do some searching. However, I do remember that he got the problem straightened out.

Good Luck

 

[RobertDale]

Thanks, I found it and posted it below:

PayPal Transaction Hold-Up

Jun 25, 2003 11:16 am US/Mountain
If you use the internet for shopping, you may use PayPal to exchange money. It's supposed to take 2 or 3 days to get the money exchanged. But a Lehi man decided to Get Gephardt when 3 days became more than a month.

PayPal, like other internet money-exchange service, is supposed to be secure and safe. And it's supposed to be quick. In this case, safe, yes. Quick and efficient? No.

Randy Covington was out to help his brother Christopher buy a car. Christopher is a Marine and has spent the last 6 months or so in and around the war in Iraq.

Christopher used the internet to find a vehicle to purchase. He found this old style Jeep here in West Valley, and Christopher set out to buy it from overseas.

Randy: "And what he wanted to do was to transfer the money to my PayPal account, so that I could get a check and pick up the Jeep for him."

Both Randy and Christopher had PayPal accounts and it seemed like a simple plan to get the money here.

Randy: "And so what he did, he transferred the money, and I've had a hard time getting the money out of my account."

Randy says PayPal told him the account was in review and he couldn't access the money. PayPal asked for his drivers license, bank statement, utility bill and even his passport.

Randy: "And I can't help the person with the Jeep, I can't help my brother, I can't get the money out."

This stalemate went on for over 4 weeks, so Randy called me and I called PayPal.

PayPal is owned by eBay, and they told us they have a number of security measures in place to help protect customer transactions, and with that security it usually takes 2 or 3 days to process a transaction. But in this case they really did not have a clear explanation why this case is taking more than 4 weeks.

But look at this, after we called, PayPal freed up the money and Randy was able to get this cashier's check for $4000.

Randy: "Yeah, I'm glad it's all done."

Randy was able to pay for this classic CJ 5 Jeep and will keep it for his brother Christopher who is now back from the middle east and about to be discharged.

PayPal told us they don't have a clear explanation for why this took so long but, they say this will prompt and internal review to make things easier for their customers.

I call bull**** on that last part that PayPal adds....

To anyone reading this, I highly recommend you NOT do business with PayPal (personal opinion only)... see more info at http://www.paypalsucks.com - They rank at 44K on Alexa.com as far as websites go (this site ranks 15K), so quite a few people visit it...

 

[RobertDale]

Okay, just got done talking on the phone with the law firm who handled the last PayPal class action suit. In my case it appears as though PayPal IS violating their injunctive agreement. The law firm sounded interested in the fact that PayPal lied to me, and held my funds without cause (i.e. there were no chargeback risks). We went over the injunctive agreement, and pointed out several clauses which PayPal appears to have violated.

Interesting that PayPal NOW decided to release my funds, after 145 days. I guess they finally figured out that they were wrong? Still doesn't fix the damage to my business, and the fact that they violated the injunctive agreement, and several clauses of their user agreement.

They have setup a conference call with me later this week to further discuss things.

 

[snoogiejj1]

SUE THEM SUE THEM SUM! I was a customer of Paypal until they started to dip into my account whenever they pleased with no explanation. I have over 3000 feedback on Ebay and once in awhile you come along one of those scammers. What I am referring to is a customer who tries to lie and say they never got there product or the transaction was never authorized. Paypal makes you submit info in regards but somehow always still take money away. Paypal also took over $700 from me stating it was sent from a fradulent account. So why penalize me for the seller sending me a a fake refund then on top of that they said I couldn't file a complaint because 30 days has passed. The user aggreement should outright say that they are a company that can take your money when they please and do not have to return it. I HATE PAYPAL

 

[meganproser]

RobertDale: Sounds like you are in good shape...don't forget to let us know what happens as you go along!

 

[AZIS]

are you really a judge?

Q: Do you think I have a case?

A: No, they do not have to do business with you.

I don't agree with you. In fact the OP should type in paypal to google and get some whistleblowers takes on paypal/ebay practices. This company is routinely abusive especially to retailer who use their services. They are known to attempt to do whatever they want and will comply with fair treatment if a suit is filed. I am wondering where the class action lawyers on this company?