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October 18, 2012 / Corina Valderrama

PayPal Adds “No Class Action” Clause to Arbitration Agreement

PayPal recently updated its policy regarding arbitration agreements to include a class action waiver. Users of the popular payment website will now have to opt out of a mandatory binding arbitration agreement or else they will lose their right to join a class action lawsuit against the company.

Users received the following notice via email regarding the change:

The update to the User Agreement is effective November 1, 2012 and contains several changes, including changes that affect how claims you and PayPal have against each other are resolved. You will, with limited exception, be required to submit claims you have against PayPal to binding and final arbitration, unless you opt out of the against each other are resolved. You will, with limited exception, be required to submit claims you have against PayPal to binding and final arbitration, unless you opt out of the Agreement to Arbitrate (Section 14.3) by December 1, 2012. Unless you opt out: (1) you will only be permitted to pursue claims against PayPal on an individual basis, not as a plaintiff or class member in any class or representative action or proceeding and (2) you will only be permitted to seek relief (including monetary, injunctive, and declaratory relief) on an individual basis.

The new policy change follows a string of court decisions regarding the validity of express class action waivers in arbitration agreements. With the landmark U.S. Supreme Court decision, AT&T Mobility v. Concepcion in 2012, California courts have grappled with how to handle such provisions. Previously, California courts held that most express waivers in consumer contracts were unenforceable due to the unequal positions of the two parties involved, the consumer versus the company. (Gentry v. Superior Court) However, Concepcion rejected that rule and found that arbitration agreements must be held to their terms just like any other contract.

Arbitration agreements, though, are not like any other contract and could ultimately result in denying a consumer his or her day in court, especially in the area of class actions. Forcing consumers to be automatically bound by class action arbitration agreements may create a situation that denies a remedy to groups of people who have been wronged by a company, but are unable to seek relief because of the small amount of the individual injury. Class actions allow that relief.

If you feel that you have had a legal right violated, please contact Khorrami, LLP for a private consultation.

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