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Class action settlement over PayPal account closures finally finds resolution

The company will pay $4 million after nearly seven years of litigation

No one ever accused the litigation process of being overly expeditious, but a $4 million settlement approved by U.S. District Judge Saundra Brown Armstrong will finally put an end to a class action lawsuit that has spanned nearly seven years.

The original suit was filed by lead plaintiff Moises Zepeda, who sued PayPal in 2010 for allegedly closing his account and pocketing the money and interest that he had stored in it. While that may seem like a cut and dried case if proven true, actions taken by attorneys representing consumers with similar complaints derailed settlement talks and elongated the process.

A long journey

Sometime after Zepeda filed his claim in 2010, another PayPal user named Devinda Fernando attempted to sue both PayPal and eBay on similar charges, claiming that the companies closed customer accounts without notice for supposed suspicious activity.

All parties entered mediation in 2011 and reached a global settlement, but attorney Marina Trubitsky attempted to negotiate individual settlements with both PayPal and eBay, a series of actions that Armstrong believes was “ostensibly intended to derail the Zepeda settlement” in order to “[resurrect] her dormant motions to consolidate Zepeda and Fernando.”

Armstrong denied Trubitsky’s motions and set a global settlement conference for 2012; however, Trubitsky and her Fernando clients did not attend, so no settlement could be reached. Those actions began a string of proposed settlements by the Zepeda party, which were denied by Armstrong for varying reasons ranging from vagueness and lack of money damages to improper citations of previous settlement orders.

Finally, on Friday, Armstrong approved a settlement that had been well-received by the majority of class members; of the 100 million PayPal users who had been sent email notices of the settlement, only 11 objected to it and 75 opted out.

“These numbers indicate that the notice process has been remarkably successful – and the settlement class’s reaction to the settlement has been overwhelmingly positive, which favors approving the settlement,” she wrote in her decision.

Best to settle

Armstrong notes that the plaintiffs’ claims were generally “weak,” a fact that she said “militates in favor of settlement. “There is no question that maintaining this case as a class action through trial would be highly uncertain,” she wrote.

Under the agreement, PayPal will pay $4 million to the settlement fund, modify the disclosure of its reserve and hold practices, and clarify its dispute resolution process. Armstrong granted $800,000 to counselors but denied Trubitsky any award.

“[Trubitsky’s] actions resulted in additional delay and litigation costs – all to the detriment of the class. The court finds that she is not deserving of attorney’s fees or costs on the ground that her actions, on balance, did not provide a substantial benefit to the class,” she wrote.


Editor's note:  This story is about a class-action lawsuit. If you are among the class of consumers described in the suit, you may eventually be eligible to participate in whatever compensation the court awards, if any. Unlike what many people think, you do not "join" a class action -- you are either in the class covered by the action or you are not. 

Often, consumers included in an award do not need to take any action, as the defendant is required to contact them directly. In other cases, the court and the attorneys who brought the case will issue instructions when the case is settled.

Please note that under our Privacy Policy, we cannot provide you with the names of other consumers who may be similarly affected. 

Please see our Class Action Guide for more information.

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