LOS ANGELES (CN) - An online vendor claims eBay falsely accuses thousands of sellers of fraud and freezes accounts on a whim, in an "illicit scheme" to force sellers to pay money they don't owe.
Plaintiff Iconic Trading Co. does business on eBay as Koolzap. It claims in Superior Court that its online store was shut down after it paid eBay $27,000 to resolve a false claim that it had committed fraud.
Koolzap claims it has lost hundreds of thousands of dollars in profits since its account was suspended and now makes "virtually zero dollars."
It claims that eBay "has regularly engaged in a course of unfair business conduct and illicit scheme wrongly to obtain funds for their own benefit and use, to the detriment of thousands of eBay sellers".
Koolzap, which sells car and truck parts on eBay, accuses eBay of an "illicit scheme to wrongly obtain funds for their own benefit and use, to the detriment of thousands of eBay sellers."
Koolzap claims that eBay, "with little or no warning," restricts or freezes seller accounts and "destroys and fundamentally disrupts the seller's ongoing economic relationships with customers" by falsely "claiming there's 'suspicious activity' or that another account which owes eBay money or which is otherwise restricted/suspended is 'linked' with the seller's eBay account even though there is no fraud or other inappropriate activity involved and the seller is completely innocent of any wrongdoing and there is no such 'linkage' such that the seller is in any way responsible for what happened with the other 'linked' account".
The complaint adds: "On or about June 1, 2011, Alex Farahani, the president of plaintiff Iconic Trading Company, Inc., received an e-mail from defendants informing him that the Koolzap store account had been 'restricted' because the account was supposedly 'linked' to another account which had been suspended for non-payment of eBay fees back in June 2010 (before Koolzap was even formed and before plaintiff Iconic was even incorporated). Defendants further stated that the Koolzap account was frozen and restricted from posting any new listings so that all plaintiff and/or Koolzap could do was to sell off what was listed as of June 1st and that if that $27,000 was not immediately paid, the Koolzap account would be shut down within 14 days.
"These assertions by defendants were false, as plaintiff and/or Koolzap had no legal responsibility for the other account or the supposed debt purportedly owed to eBay and should never have been 'linked' to that account. Accordingly, the resulting restrictions placed upon the Koolzap store as well as defendants' threats of its pending closure were all highly improper."
Koolzap claims that, robbed of the ability to add new listings and with thousands of orders to fill, it had no choice but to pay eBay money it did not owe.
"With the suspension looming, despite the fact that plaintiff had no legal or moral responsibility to pay the nearly $27,000 purportedly owed to eBay by third parties, Mr. Farahani, on behalf of plaintiff was forced to tender payment of the demanded sum or suffer a shutdown that would have irreparably damaged the business' goodwill and reputation and potentially put plaintiff out of business. However, Mr. Farahani expressly and in writing made the payment of $27,000 to defendants conditional on the acknowledgment by defendants that Koolzap had no 'link' or other association with another account, that Koolzap was not engaged in any 'suspicious activity' and that the Koolzap account would be placed back in good standing and remain so without restrictions, limitations and/or suspensions imposed. Mr. Farahani further expressly stated in writing that if defendants/eBay accepted the $27,000 payment, they would be agreeing to the conditions imposed."
Koolzap says that after it paid the $27,000 and eBay accepted its terms, Koolzap continued to grow and received glowing customer reviews. But in late 2011 customers complained of problems paying for Koolzap goods through PayPal, an eBay subsidiary.
"Then, on December 27, 2011, without any warning, notice or discussion whatsoever, and in clear violation of the express written conditions agreed upon by the parties prior to the payment to eBay of nearly $27,000, eBay, without any reason or justification, 'froze' and suspended the Koolzap online store," the complaint states. "Customers began frantically calling and emailing through the Koolzap account, which is how Mr. Farahani learned of the shutdown. Numerous customers began expressing panic about the fact that they could not even see their online transactions with Koolzap, as their orders had 'disappeared' from the website. Customers, thinking it was a problem on eBay's platform began calling eBay's customer service. Some of these customers informed Mr. Farahani that defendants had stated that the Koolzap store was 'linked' to 'suspicious activity,' and further stated that plaintiff was engaged in 'fraudulent activity' and that plaintiff was a 'fraud,' which were the purported 'reasons' the Koolzap store was shutdown. These statements were completely false. Plaintiff and Mr. Farahani were/are completely innocent of any wrongdoing. Further, there was no 'suspicious activity' linked to the Koolzap account.
"After defendants made these untrue and defamatory statements to customers, customers became extremely agitated and irate. They contacted Mr. Farahani, telling him that eBay said the company was a 'fraud' and customers accused him of being a 'thief.'"
Koolzap says Farahani contacted eBay and asked why the store was shut down after he had paid $27,000 to keep it open, and eBay responded: "'We won't tell you. Go ahead and subpoena us if you want to know.'
"In or about the time the Koolzap store was 'frozen,' approximately $45,000 in Koolzap PayPal account had also been 'frozen' and to this date cannot be withdrawn or otherwise accessed."
Before eBay disrupted its business, Koolzap says, it was making close to $200,000 a month.
"From December 27, 2011 to date, while defendants have suspended the Koolzap store and have asserted to Koolzap's customers that Koolzap is a 'fraud' and linked to 'suspicious activity' the Koolzap store is still listed by defendants on the eBay website as a 'top rated seller' and a platinum rated seller with a green star," the complaint states.
Koolzap seeks an injunction and damages for interference with contract and unfair trade practices.
It is represented by Nima Farahani with Campbell & Farahani, of Sherman Oaks.
eBay did not respond to a request for comment.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.