PayPal Class Action Settlement Over Held Funds Rejected

Last week, a proposed settlement deal in the class action lawsuit accusing PayPal Inc., an online payments processor, of improperly holding customers’ funds was rejected by a California federal judge.

The lead plaintiffs alleged in their class action lawsuit that PayPal, a unit of eBay, places holds on customers’ accounts without providing notice and with no reason to place the hold. The plaintiffs also alleged that PayPal doesn’t provide information to customers about how to avoid holds in the future. The plaintiffs claimed these holds are a violation of PayPal’s customer agreement, as well as the Electronic Funds Transfer Act and a previous settlement agreement PayPal entered into in 2004 to settle claims in the Comb v. PayPal class action lawsuit.

The parties had proposed a settlement agreement in February of last year, but that was rejected by U.S. District Court Judge Saundra Brown Armstrong for an overbroad Class definition and questions about the benefit to the Class Members. The parties submitted another settlement agreement in August that was rejected last week by the judge.

According to the revised settlement agreement, two Classes would be created: one for injunctive relief made up of approximately 100 million PayPal account holders and one for claims relief made up of about 10.5 million account holders. Class Members would receive $3.2 million without the release of claims for damages for certain Class Members. Plaintiffs also sought provisional certification of the two Classes.

Judge Armstrong rejected the August class action settlement deal pointing out a number of problems with it, including whether the settlement should address PayPal’s alleged violations of the previous 2004 settlement and the proposed Class.

“Because of these deficiencies, the court is not persuaded that the settlement would ultimately pass muster as ‘fair, reasonable and adequate’ … particularly under heightened scrutiny to which pre-certification settlements are subject,” said the judge in her order. “In light of this decision, the court need not reach plaintiffs’ remaining request to conditionally certify a settlement class,” she continued. She also pointed out that the parties did not explain why the classes included PayPal account holders since 2006 given that the disputed conduct began in 2008.

The judge also indicated there were issues about whether the court could settle the case, given plaintiffs’ allegations that PayPal violated the 2004 settlement in In re: PayPal Litigation (Comb). “The court has concerns regarding whether it is appropriate for plaintiffs to allege — or the parties to settle — a claim based on a breach of the Comb settlement agreement, particularly where, as here, the settlement agreement contemplates that disputes over the settlement will be raised in that action.”

The plaintiffs are represented by Garrett Skelly of Garrett Skelly Attorney At Law, Mark N. Todzo of Lexington Law Group and Jeffrey A. Leon of Quantum Legal LLC.

The PayPal Improper Hold Class Action Lawsuit is Moises Zepeda v. Paypal Inc., Case No. 4:10-cv-02500, in the U.S. District Court for the Northern District of California.

UPDATE: Claim filing instructions for the PayPal account hold class action settlement are now available! Click here or visit www.AccountHoldSettlement.com for details.

UPDATE 2: On Nov. 14, 2016, PayPal users urged a California federal judge to grant final approval of a near $4 million settlement over claims the company placed inappropriate holds or reserves on sellers’ funds.

UPDATE 3:  On Oct. 26, 2017, Top Class Actions viewers who filed a claim for the PayPal Account Hold class action settlement started receiving checks worth as much as $23.15. Congratulations to everyone who got PAID!