eBay Venue Selection Clause Upheld in Texas

July 15, 2010 · by Eric Goldman · in E-Commerce, Internet History, Licensing/Contracts

By Eric Goldman

In re eBay, Inc., 2010 WL 2695803 (Tex. App. Ct. July 8, 2010)

In Comb v. PayPal, 218 F. Supp. 2d 1165 (N.D. Cal. 2002), PayPal defended a putative class action by invoking the arbitration clause in its user agreement. Judge Fogel tossed the arbitration clause on unconscionability grounds, noting (among other defects) the cost/benefit problem facing plaintiffs: their case values individually were much smaller than the arbitration costs, and arbitration blocked class adjudication. This ruling was quite influential. Since then, online user agreements–and especially mandatory venue selection clauses–have become vulnerable to unconscionability challenges and other collateral challenges on their enforceability. At this point, a vendor’s attempt to destroy class consolidation through a mandatory arbitration clause is virtually per se unconscionable.

The Comb case involved PayPal’s venue selection clause, but eBay’s user agreement had a basically identical clause. With this clear warning sign, eBay revised its venue selection clause. eBay now uses a bifurcated approach. The baseline is mandatory venue in a Santa Clara County, California court. However, if the dispute amount is less than $10,000, the plaintiff can select arbitration that does not involve in-person hearings. I personally think eBay’s approach is pretty savvy, and I have modeled some clients’ venue selection clauses on it. It responds to the Comb v. PayPal concerns about the arbitration costs for small disputes by creating a “fast lane” for small disputes, while still keeping the important disputes in eBay’s home court.

This recent ruling shows the strength of eBay’s current approach. Richards is the victim of a busted eBay Motors transaction, apparently incurring an $18,000 loss. eBay apparently takes the position that the transaction took place off-website and therefore outside the scope of eBay’s Vehicle Protection Program. Richards sued eBay and the car seller in his home court. eBay responded with its mandatory venue selection clause. Apparently, the trial court rejected eBay’s motion, but the appellate court easily reverses the trial court and orders the trial judge to enforce eBay’s clause.

Richards attacked the venue selection clause per Comb. The court distinguishes Comb on several bases:

* PayPal had frozen small amounts of money; there is nothing like that at issue here.

* there was no issue about case consolidation. Instead, Richards chose to pursue his case individually.

* Richards didn’t show that his unrecoverable costs to litigate in California were greater than litigating in Texas.

From my perspective, the key is that Richards’ dispute value of $18,000 exceeds the threshold for efficient ADR option in the user agreement; but it’s also a big enough case value for the court to accept that Richards could afford to litigate the case individually (as, in fact, he was doing in Texas).

eBay Venue Selection Clause Upheld in Texas

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