Consumer Law, Warranties Filing civil suit against PayPal and eBay

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. The contract/User Agreement states nothing about having to have a certain feedback or "track record" in order to sell items. 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 was the original reason. 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 note, 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.

PayPal breached the User Agreement - They limited my account for reasons not listed as valid reasons in the User Agreement, they are holding my funds when no chargeback risk exists, thery terminated the account stating that there was a high level of credit risk (when one seemingly did not exist), they did not adequately resolve the situation in a timely manor as stated in the User Agreement, and they breached the injunctive agreement. All of the above led to conversion of my funds for 180 days.

I would like to file a civil lawsuit against PayPal for:
Severe mental distress
Conversion (of my 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 $20,000. 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.

This is common sense advice, not legal advice.

You are highly articulate and well-written. You can write an article about your incident. That will do more damage to Paypal than any lawsuit. Lawyer's are invigorated at the prospect of litigation, so you're not hurting anybody except yourself. I am a lawyer who sued pro se -- all it did was hurt me, not the defendant. He had deep pockets, and didn't even blink when he had to pay his own fees and costs (I lost the case). Take that article and put it on epinions.com, and you'll do more that way than being embroiled in litigation for years to come. Paypal is not afraid of you. Don't waste your time. As for whether or not you have a case, I couldn't say without investigating it, which I have no time to do, but, again, and this is non-legal advice: get it out of your system by writing about it, and publishing it. You are a fine writer. It'll be cathartic for you, and you'd be surprised how many people will read it on epinions.com.

Good luck.

This is common sense advice, not legal advice.

You are highly articulate and well-written. You can write an article about your incident. That will do more damage to Paypal than any lawsuit. Lawyers are invigorated at the prospect of litigation, so you're not hurting anybody except yourself. I am a lawyer who sued pro se -- all it did was hurt me, not the defendant. He had deep pockets, and didn't even blink when he had to pay his own fees and costs (I lost the case). Take that article and put it on epinions.com, and you'll do more that way than being embroiled in litigation for years to come. Paypal is not afraid of you. Don't waste your time. As for whether or not you have a case, I couldn't say without investigating it, which I have no time to do, but, again, and this is non-legal advice: get it out of your system by writing about it, and publishing it. You are a fine writer. It'll be cathartic for you, and you'd be surprised how many people will read it on epinions.com.

Good luck.

Well, there have been some interesting developments.

I wrote a letter to the Attorney General (who then relays the message to PayPal), stating that PayPal had essentially lied to them (saying the case was resolved), as well as fabricating certain aspects of the story. I also made mention that I believe the injunctive agreement had been violated on several occasions for the period that my funds were held. I also made it clear in my letter that I am seeking legal action.

Almost immediately upon PayPal receiving that letter, PayPal released all of the funds in my account, nearly 35 days early. So, what's the reason? I am assuming that PayPal knows they were wrong, and thus they wanted to "get me off their back" by giving me my full refund. But, that's too late, because the damage has been done to my business, and many more people are still getting harmed in a similar manor.

I called up the lawyers who created PayPal's injunctive agreement, and they agreed that several violations of the injunction probably occured. Under California Business and Professions Code 17207, anyone who violates an injunction can be fined up to $6,000 per violation, with each day constituing a new violation (in my case, that would be nearly 145 days of violation).

My goals of persuing this are:

Recover lost business
Punish PayPal for their actions (mass conversion, repetitive offenses, injunction violation)
Seek injunction requiring PayPal to pull credit reports BEFORE allowing access to their service.

As for "punishing" PayPal, I have read tons of court cases that involve punitive damage, and there is essentially one thing in common with them all: The actions of the "defendant" were repetetive. Another positive is that PayPal has already been sued several times for the same/similar conduct, yet they do not cease. Though the compensatory damages are relatively small in my case, the civil fines (for injunction violations and Business and Professions violatons) could be nearly $5 million, and punitive damages can closely mirror civil fines/sanctions, per Gore v. BMW & Campbell v. State Farm.

The last one (seeking the injunction) has good grounds, I believe. PayPal is well known for letting people open a business account, letting those people start their sales, and letting those people accumulate a large amount of funds in their account. Then, PayPal decides to pull a credit report - And, if PayPal believes your credit is "unacceptable", they terminate your account. The problem comes in when PayPal LOCKS the funds in your account for 180 days. I strongly believe that if PayPal pulled the credit reports prior to allowing members access to "high volume business accounts", there would be a significant decrease in the number of locked accounts - which ultimately injure PayPal's customers - The same way I got burned.

I estimated that there are a total of 50,000 accounts closed each year as a result of PayPal pulling credit reports too late. If each account averages $400 locked within, that totals $20 million that PayPal has locked up, simply because they choose not to pull credit reports beforehand. But, that proposed injunction has one drawback that PayPal will notice right away - It will cost them $3 to $5 million per year to pull credit reports on each business account application. While that sounds like alot, it's actually less than 1% of PayPal's gross income. I'm not sure, but it seems like they would try and settle the injunction out of court, or try their hardest to fight it... But in the long run, I think such an injunction would be very beneficial to PayPal customers.

Hm, I am happy to see someone take on paypal which really does not belong to my favorite companies, but as lawyer said above: a lawsuit will require a lot of stamina here. You might have a case, but in the end it might cost you a lot more to pursue this than you will gain, while barely making a dent in ebay's stock value. If on the other hand you try to find out if others would be willing to join you and make this a highly public effort,who knows, you might even end up having a class action going...

NYClex said:

Hm, I am happy to see someone take on paypal which really does not belong to my favorite companies, but as lawyer said above: a lawsuit will require a lot of stamina here. You might have a case, but in the end it might cost you a lot more to pursue this than you will gain, while barely making a dent in ebay's stock value. If on the other hand you try to find out if others would be willing to join you and make this a highly public effort,who knows, you might even end up having a class action going...

Click to expand...

Yeah, it's ashame that it takes so long to get justice (and time = money). But, PayPal would have incentive to rush it through, because a proposed injunction (the one I roughly outlined) would be costing them in excess of $5 million per year - AND - they would continue to rack up civil sanctions for violation of the original injunctive agreement. I am not sure, but don't courts hear proposed injunctions almost immediately, as opposed to waiting for the case to be settled (in or out of court)? But, that's assuming my propsed injunction would pass through...

After looking at previous lawsuits, and talking to those who have filed small claims against PayPal, it appears that PayPal strongly fears media attention. Most "big" cases (i.e. the Attorney General of New York, and the class action) get settled. The same is true for small claims cases, except for one thing - PayPal almost always attempts to "hush" the plaintiffs by offering money for an agreement of silence, which I find very interesting...

How does one go about getting a company fined for violation of an injunction? Isn't it usually brought out by the Attorney General? I know for individuals who violate an injunction (such as trespassing), it's contempt of court and can lead to jail time, whereas a corporation usually get's monetary sanctions. Do I have to bring these charges out in court, such as after filing a lawsuit? Would this be something that PayPal would want me to shut my mouth about, and attempt to "silence" me? - Very interesting...

Class action would be good, but I am not sure whether the "commonality" test would pass.

Qui Tam lawsuits

Do some research on "whistleblower" lawsuits, called Qui Tam lawsuits. You might find a law firm willing to take the case. There's also the question of standing to sue and/or whether you fit within the parameters of the injunction... You might also consider Elliot Spitzer - he'll tackle any class action legal issue to clamp down on corporate wrongdoing. Ebay owns paypal now and Meg Whitman and 2 others just settled to pay millions in dollars of fines for taking advantage of prefererred stocks made available to them (something along those lines). (I wondered when they'd hit her, after the Martha Stewart debacle) They're vulnerable right now, but again - they would want to settle. And you want publicity about their actions, so you'd have to fight it out... and no lawyer is going to want to slug it out if they can get quick money. Sounds like you'd do better to spend the next 3 years going to law school than fighting a case.... you have an interest in it, obviously. You could do more good that way than spending money on a lawsuit! Good job, though. Keep us posted.

I'm curious as to what happened...

Hey whatever happened w/ pay pal and ebay issue? Im having somewhat a simular issue...and I found this very odd and started to investigate -found you and many others! I hope its ok to post this here. Heres what happened to me;

I'm having an issue w/my Pay pal right now where Ebay has double dipped* and instead of refunding me they are keeping this 84.00 towards my next sellers invoice (which wasnt even out yet when all this happened & has left me w/a negative balance!). What happened was I paid this invoice by "one time ebay payment" cuz it was late i noticed and my Ebay was set-up for auto payments, Pay pal didnt pick up on it was already paid & tried to get the funds from my debit card/checking. When the debit card declined (cuz I already paid that bill), Pay pal paid Ebay themselves on my behalf which left me a negative balance.

Pay pal was behind me 100% when we all went into conference w/ Ebay. Ebay says they dont give refunds to current sellers w/ current sellers fees (keep in mind my invoice wasnt even out yet)! So since Ebay isnt budging on their mistake, Pay pal has backed down from them & asking me to replenish my account now. This is way too weird for me. Its as if a big company can steal from a common person but if I did that to someone else, its a penalty to be had.

Where Pay pal is not insured by FDIC that scares me. They are not a bank, not even backed by one. Who do I complain to? I have no one to talk to but Ebay & Pay Pal-no one else can help me. Even Pay pal said what they did to me was wrong. Arent they supppose to stand up for our rights? Depends on who they are standing up against I guess? Im frustrated and very much shaken by all this.

They have made it so I can accept money in my Pay Pal (so they can replenish my negative balance) but I cannot send any money or withdraw (doesnt make sense). I cannot even take my listings off Ebay til this is resolved to stop all payments from coming in. Sneaky, very sneaky. I've been looking around on the internet & others have simular if not worse cases than mine. So many lawsuits against them, Im not feeling comfortable right now.

Needless to say, if you have any more info-I would love to hear it!
Cindy (Maine)

I need A experianced attorney to fight ebay

We require a experienced Attorney to work with eBay to settle a on going problem.

HAS ANYONE FILED LIGATION AGAINST EBAY FOR THERE POLICIES OF TAKING DOWN A SELLERS LISTING FOR NEBULOUS, CONTRADICTING AND BOGUS SO CALLED "MISREPRESENTATION"?

suit against ebay

I AM a 75 year, Bakelite jewelry manufacturer, resin manufacturer and Collectible Jewelry seller for 10 years on the internet and eBay. I have, as well as many seller associates and friends, been continually harassed by eBay who removes our listings. E bay haphazardly and frequently, removes our Bakelite Jewelry products listings (we own the company that makes the Bakelite jewelry, since 1927) during the selling, phase with nebulous, conflicting and factually incorrect and evasive emails on how the items was "misrepresented " even though it was not. They even have, after items SOLD, contacted buyers that item was misrepresented,causing a loss
of reputation and financial loss. I have tried for years to work with their
legal counsel, but she, Michele Fang is evasive, inconsistency and avoids our current communications. How can I and other stop or litigate against eBay for their harassment policies, file complaints and possible file civil suits against eBay?
We believe E bay is allowing so called outside, "experts" dictate to them that many sellers Bakelite (Generic term for all phenolic resin products) items are NOT Bakelite or somehow misrepresented, so eBay closes these sellers listing. These outside "Bakelite police" are TRYING to control the market, (Federal law violation) and who sells Bakelite jewelry on eBay to monopolize internet eBay selling, and keep high false vales on their own collection of "vintage" Bakelite.
Mike Weinberg PRESIDENT Americancatalin@yahoo.com