Zepeda v. Paypal Inc.

• Citation: 777 F.Supp.2d 1215
• Decision Date: 15 February 2011
• Docket Number: Case No. 5:10–CV–02500 JF (PSG).
• Court: U.S. District Court — Northern District of California
• Parties: Moises ZEPEDA, Plaintiff,v.PAYPAL, INC., Defendant.

777 F.Supp.2d 1215

Moises ZEPEDA, Plaintiff,

v.PAYPAL, INC., Defendant.

Case No. 5:10–CV–02500 JF (PSG).

United States District Court, N.D. California,San Jose Division.

Feb. 15, 2011.

Michael Vincent Storti, Carlsbad, CA, Alfredo Torrijos, Brian Stephen Kabateck, Richard Kellner, Kabateck Brown Kellner, LLP, Los Angeles, CA, Eric David Freed, Freed & Weiss LLC, Chicago, IL, Howard Judd Hirsch, Lexington Law Group, San Francisco, CA, Jonathan Shub, Seeger Weiss LLP, Philadelphia, PA, Mark N. Todzo, Lexington Law Group, LLP, San Francisco, CA, Seth Michael Lehrman, Farmer, Jaffe, Weissing, Edwards, Fistos & Lehrman, P.L., Fort Lauderdale, FL, for Plaintiffs.Lisa Marie Simonetti, David Wesley Moon, George Stephen Azadian, Julia B. Strickland, Stroock & Stroock & Lavan LLP, Los Angeles, CA, for Defendant.

ORDER ¹ GRANTING MOTIONS TO DISMISS AND TO APPOINT INTERIM LEAD, LIAISON, AND CLASS COUNSEL

JEREMY FOGEL, District Judge.

On June 7, 2010, Plaintiff Moises Zepeda filed a putative class action against defendant PayPal, Inc. (“PayPal”) alleging breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, unjust enrichment, and violations of California's Consumer Legal Remedies Act and Unfair Competition Law. Zepeda subsequently filed a first amended complaint, in which he joined additional named plaintiffs (collectively “Plaintiffs”). PayPal moves to dismiss that pleading for failure to state a claim upon which relief may be granted, and Plaintiffs move to appoint interim lead, liaison, and class counsel. For the reasons set forth below, both motions will be granted, and Plaintiffs will be given leave to amend their pleading.

I. BACKGROUND

PayPal is a Delaware corporation whose principal place of business is located in Santa Clara County, California. Am. Compl. ¶ 17. PayPal's payment processing service allows users to accept payment for goods and services they sell online. Id. ¶ 1. After users complete their transactions, PayPal puts the money it collects from buyers into the sellers' PayPal accounts; sellers then have the option to withdraw their funds or to keep them in their PayPal accounts. Id. ¶ 28.

Plaintiffs are residents of various states who use PayPal to accept payments for items they sell online. Id. ¶¶ 8–15. Each of the eight named plaintiffs uses PayPal “as a seller.” Id. Plaintiffs allege that PayPal placed holds on their accounts without providing them “any real explanation.” Id. ¶¶ 49, 8–15. They claim that as a result of the holds they have been unable to access the money in their PayPal accounts. Id. Plaintiffs received notice of the holds in “form emails” and “prepared phone scripts,” in which PayPal explained that the holds were placed because of “excessive risk involved,” “security issues,” or “suspicious activity.” Id. ¶ 42. Seven of the eight named plaintiffs were told through such notices that their funds would be held for 180 days, and one of them was told that his funds would be held for twenty to thirty days. Id. ¶¶ 8–15. When Plaintiffs inquired about the reasons for the holds, PayPal's customer service representatives told them that they would “need to obtain a court order or subpoena” to “obtain copies of the information [PayPal] reviewed in deciding to place a limitation on [their] accounts.” Id. ¶ 45.

All users must agree to PayPal's user agreement before using PayPal's services. Id. ¶ 33. The agreement states that “PayPal is an independent contractor for all purposes, except that PayPal acts as your agent with respect to the custody of your funds only.” Id. Pursuant to the user agreement, PayPal users must transfer to PayPal “any ownership right ... to any interest that may accrue” from the money deposited in their accounts. Id. ¶ 32. PayPal users also must refrain from engaging in any “Restricted Activities” under the user agreement, and PayPal is authorized to “take various actions” to protect itself and others from liability, including limiting access to users' accounts for “up to 180 days.” Id. ¶¶ 34–36. Plaintiffs allege that they performed their obligations under the user agreement. Id. ¶ 69.

Plaintiffs claim to act on behalf of a putative nationwide class consisting of all PayPal users “whose funds have been held by PayPal, or whose accounts were closed, suspended, or limited by PayPal.” ² Id. ¶ 57. They allege that PayPal's holds constitute a breach of the user agreement, as well as “fraudulent act[s]” that “unjustly enrich[ ] PayPal since it fails to refund interest earned while the users are denied access to their accounts.” Id. ¶ 3.

II. STANDARD OF REVIEW

Fed.R.Civ.P. Rule 8(a) requires a plaintiff to plead his claim with sufficient specificity to “give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A court is not required to accept as true conclusory allegations, unreasonable inferences, or unwarranted deductions of fact. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir.2008). If a complaint lacks facial plausibility, a court must grant leave to amend unless it is clear that the complaint's deficiencies cannot be cured by amendment. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir.2002).

III. DISCUSSION

A. Plaintiffs Fail to State a Claim for Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing

Plaintiffs claim that PayPal breached “the express terms” of its user agreement by placing holds on their accounts “without reason to believe” that they had engaged in restricted activities and by failing to provide them with notice of the reasons for the holds. Am. Compl. ¶ 70. For the same reasons, Plaintiffs contend that PayPal also breached the implied covenant of good faith and fair dealing contained in the user agreement. Id. ¶¶ 73–75.

California contracts in a diversity case “will be interpreted so as to reach the same results as would be reached in a California court.” Republic Pictures Corp. v. Rogers, 213 F.2d 662, 664 (9th Cir.1954). Under California law, contract interpretation is a matter of law and solely a judicial function. Superior Dispatch, Inc. v. Insurance Corp. of New York, 97 Cal.Rptr.3d 533, 548 (Cal.Ct.App.2009). The goal of contract interpretation is to give effect to the mutual intention of the parties, which “is to be inferred, if possible, solely from the written provisions of the contract.” County of San Diego v. Ace Prop. & Cas. Ins. Co., 37 Cal.4th 406, 33 Cal.Rptr.3d 583, 118 P.3d 607, 612 (2005). “If contractual language is clear and explicit, it governs.” Id.

1. The User Agreement Gives Broad Discretion to PayPal to Place Users' Accounts on Hold

Plaintiffs allege that PayPal breached the express terms of the user agreement by placing their accounts on hold “without reason to believe that Plaintiffs were engaged in restricted activities.” Am. Compl. ¶¶ 70–72. To support their claims, Plaintiffs cite a provision of the user agreement that lists a number of “Restricted Activities” that could lead PayPal to suspend a user's account.³ Section 10.4 of the user agreement provides:

“If [PayPal] ha[s] reason to believe that [a user] ha[s] engaged in any Restricted Activities,” [PayPal] may take various actions to protect PayPal, eBay, other Users, other third parties, or [the user] from Reversals, Chargebacks, Claims, fees, fines, penalties, and any other liability,” including closing, suspending or limiting access to the user's account and holding the user's funds “for up to 180 days if reasonably needed to protect against the risk of liability.” Id. ¶¶ 34–36, Ex. 1 at 14.

Plaintiffs' claim for breach of contract is unpersuasive. Even assuming that Plaintiffs did not engage in any restricted activities and that PayPal thus lacked authority to place their accounts on hold pursuant to section 10.4, this Court cannot infer that the holds amount to breach of the user agreement. This is because the user agreement contains at least two other provisions that give PayPal broad discretion to place holds on its users' accounts, neither of which requires that the users have engaged in restricted activities.

Section 10.6 provides:

“PayPal, in its sole discretion, may place a hold on a payment [the seller] receive[s] for an eBay transaction when PayPal believes there may be a high level of risk associated with the transaction.” Id. Ex. 1 at 14.

Section 10.7 provides:

“PayPal, in its sole discretion, may place a Reserve on funds held in [the user's] Premier or Business Account when PayPal believes there may be a high level of risk associated with [the user's] Account ... If [the user's] Account is subject to a Reserve, PayPal will provide [the user] with notice specifying the terms of the Reserve. The terms may require that a certain percentage of the amounts received into [the user's] Account are held for a certain period of time, or that a certain amount of money is held in reserve, or anything else that PayPal determines is necessary to protect against the risk associated with [the user's] Account.” Id.

Both 10.6 and 10.7 apply to Plaintiffs, who were sellers on eBay.⁴ Id. ¶¶ 8–15. Accordingly, PayPal could have placed holds on Plaintiffs' accounts in its “sole discretion” even if Plaintiffs never engaged in restricted activities. Because Plaintiffs fail to address the effect of sections 10.6 an...