PayPal and Account Suspension: Litigation in Germany?

As a merchant, if you become involved with PayPal, you can experience some surprises – especially if you rely on PayPal as your primary service provider for Internet payment transactions. Like many other PayPal customers, our client's account was suddenly restricted or frozen overnight, making any disposal of the account balance impossible. By means of an action brought in Germany, the account balance was released – (unfortunately) without a decision being rendered. PayPal managed to prevent this not altogether clumsily.

It typically begins with the following, completely non-committal message from PayPal:

"To ensure security within the PayPal network, we regularly conduct account reviews for potential risks. Following our review of your account, we have decided to close it due to security issues."

One might think, well, that is nice. Everything is being done to protect the customer from misuse. An immediate inquiry with PayPal then revealed that they were working at full speed to resolve the problem. However, no further explanation was provided. For days, only the receipt of payments and refunds to customers were possible, but no disposal of the account balance. The formally lodged objection was rejected with similarly vague statements – the alleged security risks would continue to exist, disposal of the account balance would be possible at the earliest in 180 days (perhaps). That is almost half a year and for any merchant who depends on his PayPal account, financial ruin.

Eventually it became clear that this was not about protecting the customer, but about protecting PayPal. Our client was required to provide all business documents such as BWAs, tax documents, supplier invoices, etc., to provide detailed information about the products sold and the customers, as well as to provide comprehensive shipping proofs. Furthermore, contact with the competent Creditreform office would be required to clarify the problem. What all this has to do with the business relationship to a bank is just as questionable as the purpose of the exercise as a whole. What is clear is that PayPal protects itself in this way against risks from its buyer protection programme at the expense of merchants. If a merchant, in PayPal's view, has too many buyer complaints that could result in refund obligations for PayPal, the account is simply locked – without consultation and without any attempt at clarification. In this case, there were not even 10 complaints out of several hundred transactions, most of which came to nothing because there were only short-term delivery delays. The access restriction was nevertheless maintained. One can reasonably ask what the merchant as a bank customer has to do with the other products (buyer protection programme) of his bank and why he should bear the risk associated with it.

The client was not only outraged by the incident, but was also massively economically endangered by it. The PayPal account held a balance in the high five-figure range, which he would have urgently needed for the purchase of goods and thus to maintain his business operations. For these reasons, he was determined to sue PayPal.

Said and done. However, it must first be clarified where and on what basis this can take place. An obvious approach is an action for payment of the frozen balance in the form of a claim for performance. The problem with this is that PayPal is based in Luxembourg and the action would therefore also have to be brought there. That can take time (definitely longer than 180 days) and cost money (definitely more than proceedings in Germany). We ultimately decided to take action against PayPal in Germany for an injunction and apparently struck a nerve. The basis was a claim for an injunction from §§ 823 I (established and operated business), 1004 BGB. The business-related nature of the interference can, in my view, be justified.

Nothing has been done on the cease and desist letter with a one-week deadline and the request to issue a declaration of non-infringement. Anyone could come along with that. Even the action filed immediately upon expiration of the deadline with the Regional Court (LG) Stuttgart and promptly served in Luxembourg was initially stubbornly resisted. In parallel, however, there was a first surprise: completely unexpectedly, after "only" 90 days, PayPal announced that the security problems had been resolved and that disposal of the account balance was now possible again. Of course, all this had nothing to do with the action. Aha.

In any case, the Regional Court (LG) Stuttgart soon scheduled a date for oral hearing, and in such a situation one can ask what the claim for an injunction (which still existed despite everything) would still achieve after the release of the account balance and termination of the account. So it was about costs and the question of what the court would have to say about the not entirely risk-free action. Unfortunately, the court's submissions were kept disappointingly general. Somehow it was not quite in order, somehow our client was also obliged to cooperate (?). Somehow the whole thing no longer made sense after the lifting of the access restriction.

At that point, the client was still determined to push the matter to the limit and to let it come to a judgment. However, PayPal was keen to exclude even the slightest risk and under no circumstances to allow it to come to a judgment. At any rate, it can hardly be explained otherwise than that an offer was readily made to reimburse all (!) costs in the event of settlement of the proceedings. Extremely difficult in this situation to still advise the client to continue. Thus a settlement was reached that provided for the termination of the matter with PayPal bearing the costs. The amount, which was determined without a cost fixing procedure, was also transferred promptly.

In the end, everything achieved and still everything unclear. But PayPal now knows that it cannot hide behind such questionable behaviour in Luxembourg. And we now know that PayPal fears a German injunction order like nothing else. Why, one wonders?