The Fine Print: Sorry eBay, My Claim Is Not Frivolous

The following is not legal advice. Please contact Alexander Bachuwa if you have questions or claims regarding consumer arbitration. 

There was no email to tell us the $500 was taken. The eBay Bucks just never showed up in my account a few days after the end of the quarter, as they usually do.

The dispute resolution provision for many companies includes an arbitration clause which specifies that the company will cover the cost of arbitration. Without such a provision, consumers would have little incentive to file a claim as the cost of the process can be thousands of dollars. This purported consumer friendly provision is not without limitation. Many companies include an addendum that states that a consumer may ultimately be liable for the arbitration proceeding should the claim be deemed frivolous. The eBay User Agreement, for example, provides that “[i]n the event the arbitrator determines the claim(s) [Claimant] assert[s] in the arbitration to be frivolous, [Claimant] agree[s] to reimburse eBay for all fees associated with the arbitration paid by eBay on [Claimant’s] behalf.”

This begs the question, “What is frivolous?” Is filing a claim for $5 frivolous because of the dollar amount? Is filing a claim due to account suspension or shutdown frivolous because the consumer took advantage of the terms and conditions? At what point is the efficacy of consumer arbitration claims undermined by the risk of a frivolous counterclaim? The answer to the final question is something eBay would like consumers to ponder before proceeding. While it is an effective mechanism for deterring fraudsters from filing random claims, it also intimidates those with meritorious claims from going forward for fear of retribution.

My client and I contemplated the answers to these questions as we debated whether to file an arbitration claim to recoup the $500 worth of eBay Bucks that was taken without explanation. Resolute that he was in the right and that his claim was far from frivolous, we decided to proceed with the arbitration. Shortly thereafter, eBay’s in-house counsel emailed me offering to refund the client his eBay Bucks if the client would sign a settlement agreement. My client was understandably upset that it took this level of legal action to resolve what could have been handled by competent customer service. At the same time, eBay refused to inform my client what he did to get shut down in the first place. After spending months corresponding with eBay via email and Twitter to no avail, my client was interested in more than a refund for what was rightfully his. He was searching for an explanation. In an attempt to get more answers, we declined the offer.

Weeks later, we received a response from eBay’s outside counsel which stated the following, “Claimant’s claims lack evidentiary or legal support and are patently frivolous. Accordingly, pursuant to eBay’s User Agreement and the Consumer Arbitration Rules of the American Arbitration Association, eBay requests that the Arbitration fees paid by eBay be reallocated to Claimant and Claimant ordered to reimburse eBay in full.”

Neither the client nor I were surprised by this response. From a strategic perspective, it makes sense for a company to try and bully a client into settling or dropping the claim by filing a counterclaim. Given the tumultuous relationship my client had with eBay up to this point, he also was not stunned by this sly maneuver.

Following the initial conference with the arbitrator, I called opposing counsel to see if there was a possibility of settlement. We were presented the same offer: a refund of the eBay Bucks if the client signed a settlement agreement. Otherwise, eBay was prepared to move forward with the arbitration.

As weeks passed and the deadline for document exchange, arbitration’s version of discovery, approached, the futile settlement dance continued. The final offer was a refund and a whopping $300 for my legal fees. Curiously, the contention that the claim was ‘patently frivolous’, was never referenced.

The only concession that eBay would make was the opportunity for a conference call with my client and eBay’s outside counsel where we could pose questions regarding my client’s account. My client and I drafted a wish list of questions that every eBay subscriber would love to ask. Most notably, we wanted to know what triggered the shutdown and what could be done to make sure that this does not happen in the future.

To the shock of none, we did not receive any concrete answers. The canned response was that eBay reserves the right to do whatever it wants.

Satisfied that we were never going to be satisfied, we agreed to the settlement.

Lessons Learned

The cynic may say that this was a waste of time, that small claims could have brought about the same resolution. Given the number of hours my client and I spent analyzing this claim, I cannot say that the cynic is wrong.

On the other hand, we gained valuable insight as to how eBay handles arbitration which may benefit future claimants. First, it is clear that eBay is not in the business of settling these claims for more than actual damages i.e., emotional distress, fundamental fairness, and other creative pleas for equitable relief are ignored regardless of the amount of time expended or stress endured.

Second, the threat of a frivolous counterclaim is frivolous in its own right. If eBay truly believed that my client’s claim was baseless, it would have pulled the settlement offer, gone through with the arbitration, and left my client with a hefty bill for challenging its omnipotence.

The Future Outlook

The way to get more answers out of eBay and compel it to change is to never settle and take such claims to decision. With the frivolous claim neutralized, the financial burden shifts back to eBay which now has to explain to the arbitrator why its own customers are filing claims against it. The cumulative effect of defending claim after claim even if the actual damages are modest will impact eBay’s bottom line.

The optimist can hope that this will make eBay more transparent and fairer with its users. The realist will assume that eBay would be more inclined to settle these valid claims for amounts that are more appropriate.

As for the pessimist, he is preparing to file his next case in small claims because he knows that big business will never change its behavior.

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