Class Action Filed against PayPal for the Seizure of Client Funds

On Thursday, Lena Evans, Roni Shemtov and Shbadan Akylbekov filed a class action lawsuit in the Northern District of California against digital payments giant PayPal, Inc. alleging PayPal has a widespread and illegal business practice of unilaterally seizing clients’ funds without cause and without any fair or due process.

According to the complaint, Lena Evans is a resident of San Diego, California and has been a PayPal user for 22 years, Roni Shemtov is a resident of Los Angeles, California and has been a Paypal User since 2014 and Shbadan Akylbekov operates businesses in Chicago, Illinois and has been a Paypal User since 2016. The plaintiffs allege that Lena Evans has had $26,984.00 seized from her PayPal Account without notice, Roni Shemtov had $42,737 seized from her PayPal account and Shbadan Akylbekov has had $172,206.43 seized from his PayPal account. 

The complaint states PayPal is a Delaware corporation headquartered in San Jose, California that owns and operates a digital payments platform with about 325 million active users. 

The plaintiffs argue PayPal has a widespread business practice of seizing client funds by placing a hold on the clients PayPal accounts as it did to the plaintiffs. Further, the plaintiffs purport that the only reason PayPal has provided for the seizure of funds is an alleged violation of its Acceptable Use Policy. However, the plaintiffs state when asking for further information as to why PayPal was holding and denying access to their funds PayPal told them they would “have to get a subpoena.”

The plaintiffs argue that PayPal has implemented a “shooting first and asking questions later” policy by taking the clients money for itself without conducting a reasonable investigation to determine if a violation has occurred. 

The complaint goes on to state that PayPal has justified the seizure of the plaintiffs’ entire PayPal balances and transferring those balances to PayPal’s own account through the application of an unlawful and unenforceable liquidated damages clause that amounts to a contract of adhesion. The plaintiffs argue the liquidated damages provision and the seized funds have no relation to any actual damages suffered by PayPal and amount to nothing less than a conversion of funds that do not belong to PayPal. 

Further, the plaintiffs argue PayPal has violated its own User Agreement by failing to provide adequate notice to users whose accounts have holds on them. The complaint states that when Paypal places a hold on an account, it sends the user a notice, but it does not inform the user why the funds are being held, how they can obtain a release, not how they can avoid future holds on their account. However, the User Agreement allegedly requires PayPal to provide notice to such users of any hold placed on their accounts that includes both the reason for the hold and an opportunity to request restoration of access to the held funds. 

Further, the complaint states PayPal permanently seizes the money being held after the 180-day hold period ends without notice and without explanation. 

The plaintiffs allege the following causes of action against PayPal; conversion, violation of the Federal RICO Act, violation of the Electronic Funds Transfer Act, breach of contract, breach of fiduciary duty, violation of the California Business & Professions Code and unjust enrichment. For the alleged causes of action, the plaintiffs seek certification of the representative class, declaratory relief, an accounting to determine the amount improperly seized, compensatory damages, treble damages, punitive damages, injunctive relief, costs and attorneys fees. The plaintiffs are represented by the Bensamochan Law Firm Inc. and Schreiber & Schreiber, Inc..