Chen v. PayPal, Inc.

• Decision Date: 02 March 2021
• Docket Number: A158118
• Citation: 275 Cal.Rptr.3d 767,61 Cal.App.5th 559
• Court: California Court of Appeals Court of Appeals
• Parties: Theo CHEN et al., Plaintiffs and Appellants, v. PAYPAL, INC., Defendant and Respondent.

61 Cal.App.5th 559

275 Cal.Rptr.3d 767

Theo CHEN et al., Plaintiffs and Appellants,

v.PAYPAL, INC., Defendant and Respondent.

A158118

Court of Appeal, First District, Division 2, California.

Filed March 2, 2021

Attorney for Plaintiff and Appellant Theo Chen: Law Offices of Anthony A, Ferrigno, Anthony A. Ferrigno, Walnut Creek; Franklin & Franklin APC, J. David Franklin.

Attorney for Defendant and Respondent PayPal, Inc.: Cooley LLP, Max A. Bernstein, Whitty Somvichian, San Francisco.

Richman, Acting P.J.

This appeal arises out of a putative class action brought against respondent PayPal, Inc. (PayPal) and eBay, Inc. (eBay) by a group of users of their services (appellants).¹ The action challenges various provisions of PayPal's and eBay's respective user agreements, including, as to PayPal, its risk-based-holds and reserves provisions, its interest-on-pooled-accounts provision, and its 180-day buyer protection policy. PayPal demurred to appellants’ second amended complaint, and the trial court sustained it without leave to amend as to eight causes of action. Appellants dismissed the remaining two causes of action against PayPal, the court entered a stipulated judgment for PayPal, and appellants now appeal. We conclude the trial court properly sustained the demurrer and did not abuse its discretion in doing so without leave to amend. We thus affirm.

I. BACKGROUND

A. The Parties

PayPal provides online payment services for individuals and businesses. As appellants allege, PayPal "enables users to send and receive payments online and across various locations, currencies, and languages through credit cards, bank accounts, promotional financing, and store balances, without sharing financial information."

Appellants are 10 California residents who sell goods on eBay, an online marketplace, as part of their online businesses and use PayPal to receive payments for many of their sales.²

B. The Complaint and First Amended Complaint

This action began on August 5, 2015, when appellants filed their initial complaint, which was removed to federal court and subsequently remanded. That complaint was followed on October 11, 2016, by a first amended complaint, a putative class action naming PayPal and eBay as defendants and seeking "damages, restitution, injunctive and declaratory relief, and an accounting."

On November 15, 2016, PayPal demurred to the first amended complaint. The trial court issued a tentative ruling sustaining the demurrer in its entirety and granting appellants leave to amend. Appellants did not contest the tentative ruling, which became the order of the court.

C. The Second Amended Complaint

Appellants filed a second amended complaint (SAC), again a putative class action against PayPal and eBay. It alleges 23 causes of action, 13 of which are alleged only as to eBay and are irrelevant to the issues before us. It alleges seven causes of action only as to PayPal: breach of contract with respect to holds (third cause of action); breach of fiduciary duty regarding holds (fourth cause of action); breach of fiduciary duty for conversion of interest (fifth cause of action); unconscionable contract provisions regarding interest on pooled bank accounts (sixth cause of action); declaratory and injunctive relief regarding unconscionable contract provision or policy (eighteenth cause of action); unlawful business practices (twenty-first cause of action); and violation of the Consumers Legal Remedies Act (CLRA) (twenty-second cause of action). And it alleges three causes of action as to both PayPal and eBay: breach of contract regarding seller protection (first cause of action); aiding and abetting buyers in defrauding sellers (nineteenth cause of action); and accounting (twenty-third cause of action).

The SAC appends 32 exhibits, one of which—Exhibit A—is the PayPal user agreement in effect as of May 1, 2012. According to the SAC, the May 1, 2012 agreement was the contract in effect "at the time of the filing of the Complaint in Campbell v. eBay, Inc. and PayPal, Inc. in the [Santa Clara County] Superior Court in October 2012. [¶] ... The case of Campbell v. eBay, Inc. and PayPal, Inc. was a putative class action involving putative class members who were residents of the State of California and who were eBay and PayPal users. The claims set forth in this First [sic ] Amended Complaint are very similar to the claims set forth in the Campbell case."³

PayPal again demurred, as did eBay.

On August 16, 2017, the trial court heard argument on the demurrers.⁴ That same day, the court entered separate orders sustaining the demurrers in part. The order as to PayPal ruled as follows: "As noted, the arguments on both sides of the issues regarding [cause of action] 1 are addressed in the court's ruling on eBay's demurrers. As pertinent here, the court concludes that the exemplar transaction regarding PayPal set forth in paragraph 84 of the SAC, together with the other allegations upon which [cause of action] 1 is based, are sufficient, for pleading purposes.

"Likewise, the treatment of [cause of action] 19 as it applies to PayPal will also mirror the manner in which it was applied to eBay. This [cause of action] continues to lack sufficient specificity.

"As to [cause of action] 3 and [cause of action] 4, Plaintiffs’ opposition arguments are based on their assertion that PayPal's invocation of its contractual right to place holds on funds and reserves on accounts cannot reasonably be based on the fact, as alleged in the SAC, that the seller status of each of the Plaintiffs was changed by eBay to ‘below standard.’ The court agrees with PayPal that its acts alleged by Plaintiff fall within the scope of its contractual authority. The same is true for the breach of fiduciary duty alleged in [cause of action] 5.

"As to those cause[s] of action that assert that certain terms of the PayPal user agreement are unconscionable ([causes of action] 6, 18, 21 and 22), the court agrees with PayPal that the factual allegations in the SAC continue to fall short. The degree of procedural unconscionability that arises from the fact that a contract is one of adhesion is ‘minimal’ ( Walnut Producers of Cal. v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 645–646 ) and the distinction between the terms that have been historically used to describe substantive unconscionability is immaterial in this context. The SAC does not contain allegations that show that the contract terms at issue in these [causes of action] ‘are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement.’ ( Sanchez v. Valencia Holding Co., LLC [(2015)] 61 Cal.4th [899, 912, 190 Cal.Rptr.3d 812, 353 P.3d 741].)"

The court then overruled the demurrer as to the first and twenty-third causes of action, and sustained it as to the third, fourth, fifth, sixth, eighteenth, nineteenth, twenty-first, and twenty-second causes of action, doing so without leave to amend because appellants "have been given ample opportunities to amend to allege sufficient facts to state these causes of action and have failed to do so ...."

Appellants petitioned for a writ of mandate challenging the trial court's order. We summarily denied the petition on November 13, 2017. (No. A152595.)

On July 11, 2019, appellants moved to dismiss the first and twenty-third causes of action against PayPal. The trial court granted the motion, and on August 12, pursuant to a stipulated request for entry of judgment, it entered judgment in favor of PayPal, with the parties to bear their own costs.

This timely appeal followed.

II. DISCUSSION

A. Standard of Review

The standard of review governing an appeal from a demurrer sustained without leave to amend is well established. As we summarized in Chiatello v. City and County of San Francisco (2010) 189 Cal.App.4th 472, 480, 117 Cal.Rptr.3d 169 : " ‘Because this case comes to us on a demurrer for failure to state a cause of action, we accept as true the well-pleaded allegations in plaintiffs’ first amended complaint. " ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]" ’ [Citation.] We likewise accept facts that are reasonably implied or may be inferred from the complaint's express allegations. [Citations.] ‘ " ‘A demurrer tests the legal sufficiency of the complaint ....’ [Citations.] On appeal from a dismissal after an order sustaining a demurrer, we review the order de novo, exercising our independent judgment about whether the complaint states a cause of action as a matter of law. [Citations.] When the trial court sustains a demurrer without leave to amend, we must also consider whether the complaint might state a cause of action if a defect could reasonably be cured by amendment. If the defect can be cured, then the judgment of dismissal must be reversed to allow the plaintiff an opportunity to do so. The plaintiff bears the burden of demonstrating a reasonable possibility to cure any defect by amendment." ’ " (Accord, O'Grady v. Merchant Exchange Productions, Inc. (2019) 41 Cal.App.5th 771, 776–777, 254 Cal.Rptr.3d 494.)

B. The Essence of the Causes of Action Against PayPal

As noted, the focal point of the claims against PayPal is its user agreement (user agreement or agreement). As alleged in the SAC, in order to accept payments via PayPal for the sale of goods on eBay, each appellant "had to go to the PayPal website and electronically fill in an application to become a PayPal user. In order to complete the application, each [appellant] had to agree to accept the standardized PayPal User Agreement which could be accessed on the website." The eight causes of action at issue here take exception with various provisions of the user agreement and can be divided...