PayPal $9.25 Million Settlement Tentatively OK'd

Rhett Pardon
SAN JOSE, Calif. — A consolidated class-action claim has been tentatively settled against PayPal Inc., effectively ending a long-running dispute over its mandatory arbitration policy that plaintiffs, including some adult webmasters, contended was unfair.

San Jose, Calif.-based PayPal will pay $9.25 million to settle a number of heavily litigated class actions filed in U.S. District Court, according to plaintiffs’ co-counsel Daniel Girard of San Francisco-based Girard Gibbs & De Bartolomeo.

The suits centered on an arbitration clause demanded as a condition of using PayPal's service, and plaintiffs said the its policies unconscionably deprived users of their rights to a fair adjudication of legal claims.

In the suits, plaintiffs said that PayPal, which still provides a payment service to some adult webmasters despite a policy against it, wrongfully removed funds from customer accounts, made erroneous charges to their accounts, allowed fraudulent accounts to be created under their name and deprived the plaintiffs of access to their funds.

Plaintiffs in two separate class actions accused PayPal of violating California’s unfair business practices act, California Business and Professions Section 17200, and state and federal law, including the Electronic Fund Transfer Act (EFTA).

Girard said that, while U.S. District Court Judge Jeremy Fogel hasn’t officially approved the accord, “he did not indicate that in any way that he was tending not to approve” the settlement. The parties attended a fairness hearing on Friday in federal court in San Jose, Calif., where Fogel heard from a number of objectors.

With the proposed settlement, a $4.3 million fund is allocated for arbitration claims while $1 million will fund claims filed by those seeking damages under the EFTA, which limits statutory damages to $500,000 for each class-action suit.

The class-action settlement covers individuals and businesses that opened PayPal accounts between Oct. 1, 1999, and Jan. 31, 2004.

Named plaintiffs would receive an average of $15,000. It would also provide $3,467,500 in attorneys fees and $135,000 in costs.

PayPal has grown to 50 million accounts worldwide since it started in 1998. It was purchased by online auction house eBay Inc., which bought it in 2002.

The case is In re PayPal Inc. Litigation (Fairness Hearing), No. C-02-1227 JF (PVT).