PayPal: Guilty!PayPal Lawsuits: The Truth

What do you think is the most asked question regarding PayPal lawsuits? Here is the question that I hear all the time: "Why is there still so many problems with PayPal? I thought that class action lawsuit against it a few years back settled all of this stuff!" A lot of people think that. There are millions and millions of people out there who think that PayPal problems are in the past because of the famous PayPal class action law suit filed back in 2002.

Nothing could be further from the truth. The class action lawsuit filed against PayPal in 2002, and settled in 2004, accomplished nothing. In this section, you will learn about the first -- and last -- class action lawsuit filed against PayPal. Second, you will learn exactly what this lawsuit accomplished. It is sad to see so many anti-PayPal websites celebrate this lawsuit saying "PayPal got what it deserved." These people are either not informed of what the truth is or are looking for filler space on their websites to pack with sensationalistic nonsense.

"PayPal got what it deserved." Nothing could be further from the truth! PayPal DID NOT get what it deserved -- complete and total restructuring of its business practices from the bottom, up. The 2002 class action lawsuit did not even come close. Here are the details:

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What is a Class Action Lawsuit?

In a class action, one or more people, called Class Representatives (in this case Roberta Toher and Jeffrey Resnick), sue on behalf of people who have similar claims. All of these people are members of the Class. One court resolves the issues for all Class Members, except for those who exclude themselves from the Class. United States District Judge Jeremy Fogel is in charge of this class action.

What Was the 2002 Class Action Lawsuit About?

In early 2002, Plaintiffs Roberta Toher and Jeffrey Resnick filed separate lawsuits against PayPal, Inc. These two cases were later consolidated into one lawsuit in the United States District Court for the Northern District of California, San Jose Division, entitled In re PayPal Litigation, Case No. CV 02 01227-JF (PVT). The lawsuit alleges that PayPal violated the federal Electronic Fund Transfer Act ("EFTA"), 15 U.S.C. §§ 1693 et seq., including provisions requiring PayPal to supply customers with information about dispute resolution procedures and to follow certain procedures when investigating complaints of unauthorized or incorrect electronic fund transfers. For example, the lawsuit claims that PayPal did not provide account statements in the manner required by the EFTA. The lawsuit further alleges that PayPal has placed inappropriate restrictions or other limits on customers' accounts and engaged in other improper practices. Based on these practices, the lawsuit asserts claims under California state law for conversion, money had and received, negligence, and violations of consumer protection statutes.

PayPal does not believe that it did anything wrong. In fact, PayPal disputes that the EFTA, originally passed in 1978, applies to its business. PayPal denies any and all liability for the claims alleged in the lawsuit. The Court did not decide in favor of the Plaintiffs or PayPal. Instead, beginning in the fall of 2003, the parties began a series of settlement negotiation sessions mediated by United States Magistrate Judge Edward Infante. Eventually, in November 2003, both sides agreed to a settlement in principle. By settling their claims, both parties avoided the uncertainty and cost of a trial. The settlement provides money and other benefits to the Class. On June 11, 2004, the parties entered into a formal, written Settlement Agreement, which is on file with the Court and available on the Internet at (this link is no longer in operation). By entering into the Settlement Agreement, PayPal is not admitting any wrongdoing. PayPal continues to believe that it did not do anything wrong. The Representative Plaintiffs and the attorneys appointed by the Court to represent the Class believe that the settlement is fair to Class Members. By this notice, the Court is not expressing any view on the merits of the lawsuit.

Did a Judge or Jury Rule Against PayPal?

What you mean is, was PayPal "guilty?" The answer is NO. A judge did not rule against PayPal. A jury did not rule against PayPal. In fact, a trial was not even conducted! PayPal entered into what is called "settlement talks." This is conducted outside of a courtroom. The attorneys for both sides meet with a judge and try to reach an agreement that both sides can accept. If both sides can reach an agreement, the agreement is called a "settlement." That is what PayPal did. PayPal reached a settlement with opposing counsel and a judge approved the settlement without the parties having to go to trial.

Was I Part of the Settlement Agreement?

On July 12, 2004, Judge Fogel entered an order granting preliminary approval of the settlement and certifying the following class for purposes of the settlement: All Persons who opened a PayPal account during the period from October 1, 1999 through January 31, 2004. Excluded from the class are any judicial officer to whom the lawsuit is assigned; PayPal and any of its affiliates; any current or former employee, officer, or director of PayPal; anyone who resides in Austria, Belgium, Denmark, Germany, Greece, Finland, France, Ireland, Italy, Luxembourg, Portugal, Spain, Sweden, The Netherlands, or United Kingdom; and all persons who timely and validly request exclusion from the class pursuant to this notice.

Thus, if you opened a PayPal account between October 1, 1999 and January 31, 2004, and are not one of the excluded persons listed above, you are a member of the class.

Who Were the Lawyers Suing PayPal?

To represent the class, the Court has appointed Plaintiffs Roberta Toher and Jeffrey Resnick as Representative Plaintiffs and their counsel of record as Class Counsel. The Court has also appointed the following attorneys and law firms as Co-Lead Counsel:

A. J. De Bartolomeo
Girard Gibbs & De Bartolomeo LLP
601 California Street, Suite 1400
San Francisco, California 94108

Robert C. Finkel
Wolf Popper LLP
845 Third Avenue
New York, New York 10022

What Did the Settlement Agreement Accomplish?

The PayPal settlement provided for both injunctive relief and monetary relief. Here are the highlights:

A. Injunctive Relief
The settlement requires that PayPal consent to the entry of an order, called an injunction, that mandates various changes to PayPal's business practices. PayPal has already implemented these changes. The injunction includes PayPal's agreement to comply with certain notice and error resolution procedures of the EFTA, and to follow certain procedures for limiting accounts and responding to and returning funds to customers whose accounts have been limited. A copy of this injunction can be found as Exhibit D to the Settlement Agreement, entitled "Form of Injunctive Order."

B. Monetary Relief
Under the settlement, PayPal will pay $9.25 million into a settlement fund, to be held in an interest-bearing account. The fund will be used (1) to make payments to class members who submit valid claims before the claims deadline; (2) to pay certain costs of giving notice to the Class and of settlement administration, as approved by the Court; and (3) to pay attorneys' fees and expenses to Class Counsel in the amount awarded by the Court. Class Counsel have proposed that, after deduction of notice and administrative costs and Class Counsel's attorneys' fees and expenses, the balance of the fund ("Net Settlement Fund") be applied in accordance with a written plan of allocation. (The following explanation is qualified in its entirety by reference to the Plan of Allocation attached to the Settlement Agreement as Exhibit C, a copy of which is on file with the Court and available on the Internet at (this link is no longer in operation).

Who Got Money From This Settlement Agreement?

(1) Statutory Damage Fund Claimants
The plan of allocation designates $1 million of the Net Settlement Fund to a "Statutory Damage Fund," to be distributed equally among all Fund Claimants who are not Dispute Resolution Claimants. This means that if you are a member of the Class and do not fall within the definition of a "Dispute Resolution Claimant," as set out above, you can make a claim for a payment from the Statutory Damage Fund. The Statutory Damage Fund provides compensation for potential statutory damages under the Electronic Fund Transfer Act ("EFTA"), 15 U.S.C. §§ 1693 et seq. Statutory damages under the EFTA are limited by law to no more than $500,000 for any class of individuals claiming "the same failure to comply." Plaintiffs' counsel contended in the litigation and for purposes of settlement that PayPal was potentially liable for multiple failures to comply, a position PayPal vigorously opposed.

The Statutory Damage Fund Claim Form requires you to provide certain identifying information and sign a statement under penalty of perjury authenticating your claim, which may be subject to verification by PayPal's records. Millions of wronged PayPal customers got $1 million dollars split up between them (payments ranged from $50 to $100 for each person -- in most cases much less).

(2) Short Form Claimants
The Short Claim Form requires you to provide certain identifying information and sign a statement under penalty of perjury, which may be verified using PayPal's records, that you experienced an unauthorized or incorrect electronic transfer or an account limitation or denial of access to your account. If you make a timely, valid claim using the Short Claim Form, you will receive a payment of $50, unless the amount needed to pay all of the Short Form claims exceeds the Short Form Fund. In that case, the Short Form Fund will be divided equally among all Short Form Claimants. If the amount needed to pay all of the Short Form claims is less than the amount of the Short Form Fund, the money left over will be added to the Long Form Fund.

(3) Long Form Claimants
The Long Claim Form requires you to provide certain identifying information; give the details of the account restriction(s) and/or unauthorized electronic fund transfer(s) you experienced; state the amount of your claim, and sign a statement, under penalty of perjury, which may be subject to verification by PayPal's records, that you actually suffered the claimed damages. You should also provide any documentation you have that will support your claim, as explained in more detail on the Long Form.

If you make a timely, valid claim using the Long Claim Form, an independent, court-approved claims administrator will evaluate your claim and determine the amount you should receive. In making this determination, the claims administrator will take into account the amount of damages you claim; the nature of your complaint; the quality of the supporting documentation you provide; your recoverable damages; the probability that you would be successful on your complaint; and such other factors that the claims administrator considers relevant. If the amount needed to pay all of the Long Form claims is less than the amount of the Long Form Fund, the money left over will be added to the Short Form Fund.

How Much Money Did The Lawyers Get?

The settlement agreement called for PayPal to pay monetary damages in the amount of $9.25 million. The lawyers received $3.5 million dollars out of this money.

Can PayPal Be Sued Again in California?

No! PayPal cannot be sued in California again on the same charges or by ANYBODY who accepted the terms of the settlement agreement. That includes the millions and millions of persons who accepted their small $10, $50, $100 settlement payments.

After the settlement agreement was reached, the charges against PayPal were DISMISSED WITH PREJUDICE. In legal terms, that means any charges that were mentioned in the original lawsuit (there were many) cannot be used against PayPal in the future.

No class actions in California can be filed against PayPal dealing with the original charges in the 2002 class action.

Summary of the Class Action Settlement


The settlement agreement (which PayPal agreed to), required PayPal to do the following:

(1) Comply with certain notice and error resolution procedures of the EFTA.

(2) Follow certain procedures for limiting accounts and responding to and returning funds to customers whose accounts have been limited.

(3) PayPal must pay $9.25 million into a settlement fund.

(4) PayPal must modify their User Agreement. First, PayPal cannot compel arbitration for amounts in dispute over $10,000. Second, PayPal cannot compel users to come to California for arbitration. For amounts under $10,000 PayPal can still compel arbitration, but users can arbitrate over the phone.

(5) Unfreeze a certain amount of customer accounts containing a total of $5.1 million.

That's it! That is what the big, scary class action lawsuit accomplished. PayPal had to pay $9.25 million (chump change), PayPal had to rewrite its policy on error resolution, PayPal had to be forced to follow certain procedures for limiting accounts, modify the arbitration section in the user agreement and unfreeze a certain number of user accounts.

What Can PayPal Still Do Now That The Settlement Has Been Reached?

PayPal can still limit and freeze accounts for any reason!

PayPal can still hold your money for 180 days or more!

PayPal can still find ways to hide its phone number!

PayPal can still offer bad customer service!

PayPal can still offer false and misleading "Buyer and Seller Protection."

IN SHORT, PayPal has only gotten worse! The problems continue and more people become victims of PayPal's dictator like system.

Why? The lawyers sold everybody out for $3.5 million dollars. Instead of taking PayPal to court and getting a trial by judge or jury -- where a decision could have ENDED PayPal's practices of freezing accounts, taking your money for 180 days or more, and abusing customers in general -- the lawyers settled for peanuts.

The only winners here was PayPal and the lawyers. You and me didn't get a thing. The proof: PayPal continues the same practices today as they practiced back in 2002.

Take a look at this website's TOS Exposed section -- you will see exactly what PayPal is allowed to get away with today.

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