Terminated eBay Vendor Gets Day in Court Against eBay–Crawford v. Consumer Depot

By Eric Goldman

Crawford v. Consumer Depot, Inc., 05-3242 (Tenn. County Ct. Dec. 9, 2009)

Essex and Consumer Depot are competitors in the eBay consignment business. According to the court, prior to 2005 Essex used to allow its employees to bid on its auctions, and in 2004 one of its executives was personally suspended for shill bidding. Consumer Depot allegedly accused Essex of shill bidding, sparking a lengthy multi-front battle between the two companies (dating back to summer 2005).

In 2005, eBay suspended Essex for alleged shill bidding. eBay says it made an independent assessment (easily supported because of Essex’s past practices) and didn’t rely on reports from Consumer Depot. While Essex was negotiating with eBay over possible reinstatement, Essex tried to unload its warehouse by hiring independent contractors who worked very closely with Essex. eBay decided that this end-run was uncool and terminated Essex. Essex eventually sued eBay for the termination.

eBay defended in part on its user agreement. Essex attacked the user agreement in a number of ways, including:

* it never agreed to the user agreement and the company wasn’t bound by it. The court says that no one is allowed to sell on eBay without registering for an account, and the registration process requires acceptance of the user agreement. Any employees registering the Essex account automatically bound the corporation. (Cite to the Motise case, briefly discussed here).

* the contract was unconscionable and a contract of adhesion. The court says that although eBay is an important marketplace, people are free to go elsewhere, eBay is free to decline to business with anyone, and in this case Essex was a sophisticated business with experienced principals.

* the contract is illusory because eBay may modify it (see, e.g., the uncited Harris v. Blockbuster). The court rejects this argument because the changes require notice.

* the contract is illusory because eBay can terminate the relationship if it believes that Essex posed a threat to the site’s integrity. The court says this provision is sufficiently definite, but only if the court reads into it a “good faith reasonableness” standard for eBay’s belief. Further, Essex’s multi-year relationship with eBay creates a course of dealing that overlays the agreement. The court’s discussion is a little garbled, but it is clear that the court added a provision to the contract that eBay may exercise its termination right only reasonably and in good faith.

The courts says eBay had an ambiguous anti-shill bidding policy at the time, and Essex alleges that eBay was looking for a big player to use as an example to other vendors. Thus, Essex may be able to prove that eBay “falsely and as a pretext stated that it found Essex guilty of shill bidding.”

Based on the modified contract and eBay’s alleged pretextual justifications, the court denies summary judgment to eBay on the contract and state consumer protection claims. Further, the court says that eBay’s liability limit clause applies to the contract but not the consumer protection tort claim. With the open damages on the tort claim, this has become a very dangerous lawsuit for eBay. A jury isn’t going to like a shill bidder, but a Tennessee jury isn’t going to like a Silicon Valley bully beating up on a hometown employer either.

My question is: could eBay have successfully defended all claims based on 47 USC 230(c)(2), the statutory protection for filtering decisions? (Not 230(c)(1), which protects against liability for third party content). Policing against shill bidding seems consistent with the spirit of 230(c)(2)–it’s something we want service providers to do, and (c)(2) seems to immunize the steps a service provider takes to do so. Perhaps the real core of this dispute is that eBay publicly called out Essex as an example of a shill bidder. This would bring to mind the National Numismatics case where eBay was denied 230(c)(2) for sloppily worded public announcements intimating that some coins were fake when those coins merely didn’t satisfy eBay’s certification process. If this case is really about eBay’s public callout of Essex for engaging in behavior that violated eBay’s ambiguously worded anti-shill bidding process, then perhaps 230(c)(2) wouldn’t help here either.