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Friends for Health Supporting North Shore Health Center v. PayPal, Inc.

United States District Court, N.D. Illinois, Eastern Division

June 12, 2018

FRIENDS FOR HEALTH SUPPORTING THE NORTH SHORE HEALTH CENTER, an Illinois nonprofit corporation, DC CENTRAL KITCHEN, a District of Columbia nonprofit corporation, HIGHLAND PARK-HIGHWOOD LEGAL AID CLINIC, an Illinois nonprofit corporation, PROGRAM FOR EARLY PARENT SUPPORT, a Washington nonprofit corporation, KOL HADASH HUMANISTIC CONGREGATION, an Illinois nonprofit corporation, and TERRY KASS individually and on behalf of all others similarly situated, Plaintiffs,



         Plaintiffs Friends for Health: Supporting the North Shore Health Center, DC Central Kitchen, Highland Park-Highwood Legal Aid Clinic, Program for Early Parent Support, Kol Hadash Humanistic Congregation (the Charity Plaintiffs) and Terry Kass (“Kass”) filed an eight-count amended complaint against defendants PayPal, Inc., and PayPal Charitable Giving Fund (“Giving Fund”)[1] based on a donation platform operated by defendants. Plaintiffs' complaint alleges the following: violation of the Lanham Act, 15 U.S.C. § 1051, et seq. (Count I); conversion (Count II); unjust enrichment (Counts III and IV); violation of the DC Consumer Protection Procedures Act, D.C. Code § 28-3901, et seq. (Counts VII and VIII); and seeks a complete accounting of all transactions relating to donations made through the Giving Fund (Counts V and VI). Defendants have moved, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §1, et seq., to stay the proceedings and compel arbitration. For the reasons discussed below, defendants' motion is granted.


         PayPal provides digital and mobile payment services for consumers and merchants worldwide. The Giving Fund is accessible through a “Cause Hub” on PayPal's website, and allows individuals to make donations to charities maintained in a database through their PayPal accounts. This donation system is designed to work as follows: once a donation is made through PayPal, the Giving Fund issues a tax receipt to the donor, aggregates the funds with other donations, and issues them to the charity in a lump sum payment. According to plaintiffs, defendants either fail to deliver, or delay in delivering, donations made through PayPal. Specifically, Kass alleges that she donated to thirteen charities through the Giving Fund in December 2016, and the charities either did not receive her donation or had no record of it. Plaintiffs claim that charities that do not have PayPal accounts receive donations made through the Giving Fund either in an untimely way, or not at all, and that when they do receive donations, they do not receive valuable donor information. Plaintiffs further allege that PayPal established the Giving Fund to enhance its corporate reputation and entice charities to set up PayPal accounts when they otherwise would not, all to the charities' detriment.

         Each of the plaintiffs maintains a PayPal account, and has for varying lengths of time. Kass has been a PayPal user for the longest time, since 2004. The user agreement in effect when Kass opened her account did not contain a mandatory arbitration provision, but it did contain a dispute resolution provision, and also specified that PayPal could amend the agreement at any time, with the terms taking effect thirty days after being posted to PayPal's website. PayPal amended its user agreement in 2012, adding a mandatory arbitration provision, which reads as follows:

Agreement to Arbitrate. You and PayPal each agree that any and all disputes or claims that have arisen or may arise between you and PayPal shall be resolved exclusively through final and binding arbitration, rather than in court, except that you may assert claims in small claims court, if your claims qualify. The Federal Arbitration Act governs the interpretation and enforcement of this Agreement to Arbitrate.

         The following paragraph of the user agreement provides:


         In October 2012, PayPal posted the amendment to its user agreement on its website and emailed all PayPal users to notify them of the amendment, specifically noting that users would be bound to arbitrate disputes they had with PayPal unless they opted out of the agreement to arbitrate by December 1, 2012.[3] Kass denies receiving this email, or reviewing the updated user agreement on PayPal's website, and did not opt out of the arbitration provision. The Charity Plaintiffs established PayPal accounts after PayPal amended its user agreement to include an arbitration provision, [4] between 2015 and 2016. Those user agreements also contained a mechanism through which users could opt out of the arbitration provision while maintaining their PayPal accounts. None of the Charity Plaintiffs opted out.

         The Charity Plaintiffs claim that they are not obligated to arbitrate their claims because defendants have failed to establish that the agreements upon which they rely are valid. The Charity Plaintiffs further argue that, even if the arbitration agreements are valid, they are not enforceable because defendants have not shown that plaintiffs waived their right to have their claims resolved by an Article III judge. Kass joins in the Charity Plaintiffs' arguments, and further argues that, even if the arbitration provision found in PayPal's user agreement as of 2012 is valid, it is not enforceable as to her because it is not an amendment to the agreement she accepted in 2004, and she did not accept it in 2012. Kass also argues that, even if she were obligated to arbitrate her dispute with PayPal, that obligation would not extend to her claims against the Giving Fund.[5]


         I. Standard of Review

         Under the FAA, federal courts are in the gatekeeper position of determining whether a dispute is one that the parties intended to arbitrate and is therefore arbitrable. See AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643 (1986). The FAA was passed to ensure that valid agreements to arbitrate would be enforced by courts. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). Even still, a party cannot be forced to arbitrate a claim without previously agreeing to arbitrate that claim. See Kiefer Specialty Flooring, Inc. v. Tarkett, 174 F.3d 907, 909 (7th Cir. 1999); see also AT&T Techs., 475 U.S. at 648 (“[A]rbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration.”). Rather, “courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms.” Gore v. Alltel Comm'cns, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012) (internal quotation omitted). Accordingly, “[w]hen deciding whether the parties agreed to arbitrate a certain matter, courts generally should apply ordinary state-law principles that govern the formation of contracts.” Druco Rest., Inc., v. Steak N Shake Enterp., Inc., 765 F.3d 776, 781 (7th Cir. 2014).

         Under the FAA, “arbitration may be compelled if the following three elements are shown: a written agreement to arbitrate, a dispute within the scope of the arbitration agreement, and a refusal to arbitrate.” Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 687 (7th Cir. 2005) (citing 9 U.S.C. § 4). Courts review a motion to compel arbitration under a summary judgment standard in accordance with Federal Rule of Civil Procedure 56(c). Tickanen v. Harris & Harris, Ltd., 461 F.Supp.2d 863, 866 (E.D.Wis. 2006). Movants are required to “provide sufficient evidence in support of their claims such that a reasonable jury could return a verdict for them under applicable law.” WFC Commodities Corp. v. Linnco Futures Grp., Inc., 1998 WL 834374, at *2 (N.D. Ill. Nov. 25, 1998). “The party opposing arbitration must identify a triable issue of fact concerning the existence of the agreement” and “cannot avoid compelled arbitration by generally denying the facts upon which the right ...

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