Seller May Continue |to Press EBay on Refunds

SAN FRANCISCO (CN) - EBay must face claims that its policies are unfairly biased against sellers and allow dishonest buyers to defraud them, a federal judge ruled.

Lead plaintiff Maggie Campbell hopes to represent a class of sellers suing eBay and its wholly owned payment processor, PayPal on the grounds that the companies' buyer-is-always-right policy exposes sellers to fraud.

In her October 2012 complaint, Campbell, who says she uses eBay to sell bicycles and related parts, claims the site allows buyers who dispute a transaction to keep the items they purchased and gives them a refund through either eBay or PayPal.

Not only does this policy deprive sellers of their goods and profits, she says, eBay also refuses to refund sellers the listing fees for disputed items.

In its motion to dismiss, eBay claimed the class lacked standing and did not support their case with enough facts.

U.S. District Judge Yvonne Gonzalez Rogers agreed and dismissed the complaint in September 2013 with leave to amend, directing Campbell to address "the nature of the restrictions that are the basis for her complaint and why those restrictions are not part of the agreement she acceded to as part of her user agreement."

Campbell filed a third amended complaint for seven causes of action, including breach of contract, unfair business practices, fraud, and breach of fiduciary duty against PayPal only.

EBay again sought dismissal for failure to make viable claims and lack of standing, arguing that its "contracts with her allow all the conduct alleged."

Rogers's ruling on Monday was a mixed bag, offering both parties some relief while ultimately denying eBay's motion to dismiss.

Since Campbell did not oppose eBay's argument that her invasion of privacy claims against it were insufficient, and conceded that her claims for fraud and interference with contract should be dismissed outright, Rogers granted eBay's motions to dismiss those claims.

Rogers ruled that Campbell's breach of contract claims against PayPal were not sufficiently alleged.

Campbell argued that PayPal wrongfully refuses to force buyers to return items to sellers if the buyers say the item arrived "significantly not as described."

For example, she says, she sold $300 worth of bicycle parts to a man in Tennessee who got to keep the items and was refunded his money after he complained that he had "not authorized payment" for them.

Rogers was not convinced.

"The TAC [third amended complaint] itself does not allege which portions of the agreement were breached on account of the alleged conduct," she wrote. "Moreover, the sections cited by plaintiff in opposition only undermine her claim, as they demonstrate that sellers like plaintiff agreed to these terms. ... Thus, the PayPal agreement itself notified sellers that PayPal may require them to refund sales proceeds without requiring the buyer to return the item sold. In order to state a claim for breach of contract, plaintiff would have to plead these provisions in the PayPal agreement."

Campbell found more relief with her related claims against eBay.

She argued that eBay wrongfully refuses to credit final value fees back to sellers when sales are rescinded, in breach of its buyer protection policy; did not allow PayPal to accept money from potential international buyers on several occasions; and unfairly sides with "dishonest, deceptive" buyers during disputes rather than investigating each matter to determine who is right.

In opposition, eBay argued that the buyer protection policy allows it to settle disputes any way it chooses, and claimed that Campbell signed an agreement that lets it limit acceptable payment methods, including international transactions.

Rogers sided with Campbell on this one, stating that eBay's "arguments miss the point of the allegations."

"Though the TAC is not a model of clarity, it states eBay's alleged unfair conduct in the exercise of its discretion under its agreements with plaintiff and others. While the court agrees that the implied covenant of good faith and fair dealing does not 'prohibit a party from doing that which is expressly permitted by an agreement,' it does prohibit a party vested with discretion from exercising that discretion in a manner that is 'contrary to the contract's purposes and the parties' legitimate expectations," the ruling states, citing the 4th Circuit's decision in Carma Developers Inc. v. Marathon Development California Inc.

Rogers dismissed all of Campbell's fiduciary duty allegations against PayPal for failure to make a claim except her argument that PayPal arbitrarily put holds on her and other sellers' funds.

Though sellers' user agreements with PayPal say it can put holds on funds during disputes with buyers or with risky sales, it cannot simply use its discretion to place holds on funds at random, according to the complaint.

Campbell also prevailed on many of her claims that eBay intentionally interfered with sellers' contracts.

Though Rogers agreed with eBay that Campbell cannot complain about her inability to enforce a "no returns allowed" term of sale after she signed the site's dispute resolution policy, it must face claims that it is unfairly biased against sellers in dispute resolution proceedings and refuses to let PayPal process international payments, the ruling states.

Rogers dismissed Campbell's arguments that eBay arbitrarily forces sellers to add shipping costs to sale prices, arbitrarily changed the way it determines "top-rated sellers" to make gaining that distinction functionally impossible, and putting allegedly unfair restrictions on sellers' user accounts.

However, she allowed the unfair competition claims that focused on arbitrary use of discretion to move forward, including PayPal's alleged use of arbitrary holds and eBay's "buyer-is-always-right" policy.

A final, fourth amended complaint that alleges only the surviving claims is due within fourteen days of the order, and eBay and PayPal have fourteen days to respond. A case management conference is set for Oct. 27.

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