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PayPal settles customer suit
By Paul Festa
Staff Writer, CNET News.com
http://news.com.com/2100-1038-5233490.html
Story last modified June 14, 2004, 4:38 PM PDT
PayPal has reached a preliminary settlement with some customers who
accused the eBay unit of illegally freezing their funds.
The company on Friday said it will pay a total of $9.25 million to settle
the federal class-action suit, $3.4 million of which will pay lawyers' fees
and costs.
PayPal admitted no wrongdoing in settling the claims, which were filed in
2002 as part of two federal class-action suits that also alleged other
customer service deficiencies.
Those two cases were merged, and a third case, pending in California state
court, will be dismissed if the settlement agreement is approved.
"In this agreement, PayPal does not acknowledge that any of the allegations
in the case are true," PayPal said in an e-mail to customers. The unit
"entered into the settlement agreement to avoid further costs of litigation
and to devote resources to more productive areas of our business."
An attorney for PayPal customers called the settlement a win not only in
securing a financial reward, but in changing the way PayPal does business.
"I think we got it right," said Daniel Girard, a partner with Girard Gibbs
& De Bartolomeo in San Francisco. "The settlement provides for cash
recovery and also for a series of changes to the operating procedures at
PayPal."
Between June and September 2003, while the litigation was still pending,
PayPal released $5.1 million in frozen customer funds, Girard said. As part
of the settlement, PayPal agreed to change the way it handled dispute
resolution.
PayPal acknowledged that the settlement included an injunction mandating
certain changes to the company's procedures, but maintained that the
modifications had come about independent of the litigation.
"PayPal has always been looking for ways to improve customer service," said
company spokeswoman Amanda Pires. The litigation "didn't really change the
way PayPal has been operating. We have improved our customer service as
part our normal course of business."
PayPal claims 45 million member accounts around the world.
The settlement was the product of mediation, begun early last fall, before
a court-appointed special master. Within a week, the parties plan to file
the preliminary settlement with the U.S. District Court in San Jose,
Calif., for approval.
The case involves PayPal customers who used the service between Oct. 1,
1999 and Jan. 31, 2004. European Union residents are exluded.
PayPal said it will publish the allocation plan in July or August.
Customers will be informed of settlement terms within two months of the
court's preliminary approval.
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R. A. Hettinga