eBay Charged with Racketeering in Class Action Lawsuit

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http://www.newsday.com/business/ny-bzeb ... 3346.story

Fraud suit names eBay, others

BY MARK HARRINGTON
STAFF WRITER

April 7, 2005

Eleven disgruntled customers have filed a class-action suit against online auctioneer eBay Inc. and its pay-system affiliate, PayPal Inc., charging they schemed with an electronics merchant to encourage use of the payment system but frequently denied refunds when products weren't delivered as promised.

The suit, initially filed in March in New York State Supreme Court, accuses eBay, PayPal and Essex Technology Group., a Nashville-based supplier of closeout electronics, of breach of contract, fraudulent inducement and violations of the Racketeer Influenced and Corrupt Organizations Act.

The suit takes issue with the rights PayPal accorded customers to dispute charges to their accounts once they've made online purchases on the system. Essex products are carried on eBay's auction site. Charging that Essex products "failed to satisfy the quality standards" it advertised, the suit said PayPal customers found they actually forfeited charge-back rights normally afforded by credit card companies, despite promises in PayPal's user agreement. Moreover, it alleges those using bank accounts to buy products sacrificed even more rights.

Decisions about charge-back disputes were generally at PayPal's discretion, and frequently in Essex's favor, the suit says.

Amanda Pires, a PayPal spokeswoman, declined to comment on the litigation. But generally, she said, the company's buyer-protection policy covers customers "no matter how you fund your purchase," whether by credit card or bank account.

"We evaluate every dispute between buyers and sellers," she said. After encouraging them to "work it out between themselves," the company will step in and mitigate, she added. "If we find a lot of claims against a particular seller we'll investigate that," she said, and may rescind some selling rights.

Calls to Essex were not returned.

The suit comes a year after a deal was reached with New York Attorney General Eliot Spitzer in which PayPal agreed to better disclose the rights of customers when a seller fails to deliver merchandise. The company paid $150,000 in penalties and costs to settle that dispute.

Spitzer's investigation found that PayPal's user agreement misrepresented certain terms and conditions.

Marina Trubitsky, a Manhattan attorney representing class-action customers, said her suit was based on findings in the attorney general's investigation, plus more recent claims that PayPal protects buyers who make payments from their bank accounts on the system.