61 Cal.App.5th 559
Cal. Ct. App.2021Background
- Plaintiffs are ten California residents who sold goods on eBay and used PayPal to receive payments; they sued PayPal (and eBay) challenging PayPal's user agreement terms.
- SAC alleged PayPal: (a) placed 21-day risk-based holds and reserves on sellers' funds to earn interest, (b) assigned to itself interest on funds in pooled bank accounts, and (c) extended buyer-protection dispute windows to 180 days and resolved disputes in buyer-favor.
- Causes asserted against PayPal included breach of contract (holds, seller protection), breach of fiduciary duty (holds; conversion of interest), unconscionability of interest and buyer-protection terms, UCL and CLRA claims, aiding-and-abetting fraud, and accounting.
- The user agreement (May 1, 2012) expressly authorized PayPal to place risk-based holds and reserves "in its sole discretion" and to combine user balances into pooled accounts and keep interest.
- Trial court sustained PayPal's demurrer without leave to amend as to eight causes of action, plaintiffs dismissed the remaining claims vs. PayPal, judgment entered for PayPal, and plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Risk-based holds — breach of contract | PayPal placed holds arbitrarily/bad-faith to maximize interest income, breaching the agreement | User agreement authorizes PayPal to place holds "in its sole discretion"; any discretion must be exercised in good faith but PayPal's exercise was permitted | Dismissed — specific allegations (e.g., eBay downgrades) showed PayPal acted within contractual discretion; general bad-faith allegation insufficient to state breach or fiduciary claim |
| Risk-based holds — breach of fiduciary duty | PayPal, as agent, owed utmost good faith and breached it by imposing unjustified holds | Agency duties are defined by the agreement; where contract permits conduct, no fiduciary breach | Dismissed — same reasoning as contract claim; agreement-authorized conduct negates fiduciary breach |
| Interest on pooled accounts — conversion / breach of fiduciary duty | PayPal converted users' interest and the assignment lacked consideration | Agreement expressly assigned interest to PayPal; agency duties measured by agreed terms; consideration exists as part of the overall exchange for services | Dismissed — assignment in the agreement authorized retention of interest; no breach or conversion stated |
| Unconscionability, UCL/CLRA re interest & 180-day buyer protection; aiding-and-abetting buyers | Interest-assignment and 180-day buyer-protection are substantively unconscionable; PayPal's dispute procedures encourage buyer fraud and thus aid/abet | Any procedural unconscionability is minimal for an adhesion contract; terms are not sufficiently one-sided or oppressive; no allegations PayPal intended to assist tortious buyer conduct | Dismissed — plaintiffs failed to plead substantive unconscionability; UCL/CLRA tethered claims fail; aiding-and-abetting fails for lack of conscious, knowing assistance to tortious conduct |
Key Cases Cited
- Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal.4th 342 (1992) (contractual discretion must be exercised in good faith).
- Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (2015) (unconscionability requires both procedural and substantive elements; substantive unfairness must be significant).
- Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109 (2013) (discussion of unconscionability doctrine and adhesion contracts).
- Zepeda v. PayPal, Inc., 777 F.Supp.2d 1215 (N.D. Cal. 2011) (user-agreement discretionary-hold provisions defeat similar breach and fiduciary claims).
- Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc., 131 Cal.App.4th 802 (2005) (aiding-and-abetting requires conscious decision to assist tortious activity).
- Chiatello v. City & County of San Francisco, 189 Cal.App.4th 472 (2010) (standard of review on demurrer; accept well-pleaded facts but not conclusions).