Sugar Daddy Dating Sites Advance PayPal Lawsuit

(CN) - PayPal cannot dismiss a lawsuit over its refusal to work with dating websites that cater to self-styled sugar daddies, a federal judge ruled.

InfoStream and its CEO Lead Way claims that his websites "cater to adults looking for a nontraditional dating experience."

Seekingarrangement.com purports to facilitate "mutually beneficial relationships" between members who refer to themselves as either "sugar daddy, sugary mommy or sugar baby users." Whatsyourprice.com emphasizes its dating website as a "marketplace" that "allows members to buy and sell the opportunity of going out on a first date."

Both sites purportedly prohibit prostitution and enlisted PayPal to collect membership fees beginning in 2007.

But PayPal suspended the accounts that year and again in 2011, telling Way that it took issue with the fact that daters could choose options such as "Dating - Casual/Intimate Encounter" and "Married Dating/Discreet Affair (meeting for purposes of having sex)."

Way and InfoStream sued the payment processor in Santa Clara County Superior Court in January. The companies claimed that PayPal suspended their accounts for "sexual nature," but continued to service competing dating services AshleyMadison.com and ArrangementSeekers.com.

After removing the case to federal court, PayPal moved to dismiss the amended complaint, which accuses PayPal of having a monopoly in the "confidential payment services" market.

U.S. District Judge Susan Illston dismissed the Sherman Act and fraud claims last week.

"Plaintiffs have not alleged that PayPal has a dangerous probability of success in establishing a monopoly in the specialty online dating services market," she wrote. "Nor have plaintiffs alleged that their specialty online dating services competitors - in which PayPal allegedly has an ownership interest - have a dangerous probability of success in monopolizing that market."

Claims for breach of contract, bad faith and unfair business practices still stand.

"Plaintiffs allege that PayPal acted in bad faith by terminating the agreement for the sole purpose of benefitting plaintiffs' competitors," Illston wrote. "Whether or not that turns out to be the case, it is sufficiently alleged to survive a motion to dismiss."

PayPal said California's statute of limitations barred charges related to Seeking Arrangement, which had its processing contract terminated in 2007, but Illston ruled that the state's discovery rule validated the claims.

"Due to the inherently secretive nature of PayPal's conduct underlying plaintiffs' theory, it is reasonable that plaintiffs could not have discovered PayPal's 'motivations' until plaintiffs were explicitly informed of PayPal's 'pre-approval' of identical competitor websites," the 18-page ruling states.

Illston granted the plaintiffs leave to amend the Sherman Act and fraud claims, and ordered an amended complaint to be filed by Sept. 7.

As of publication of this article, the domain for SeekingArrangement had expired.

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