Three Peas In A Pod L L C v. Ababy Inc et al
Filing
65
MEMORANDUM ORDER granting 46 Motion to Dismiss for Failure to State a Claim. The Court will dismiss Three Peas' claims against PayPal for failure to state a claim in its Second Amended Complaint. Signed by Magistrate Judge Carol B Whitehurst on 10/06/2016. (crt,Williams, L)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
LAFAYETTE DIVISION
Three Peas In A Pod, LLC
versus
Civil Action No. 6:15-02296
Magistrate Judge Carol B. Whitehurst
ABABY, Inc., et al
By Consent of The Parties
MEMORANDUM ORDER
Before the Court is Defendant, PayPal, Inc.’s (“PayPal”), Motion To Dismiss
the plaintiff’s claims against it for breach of contract pursuant to Fed. R. Civ. P.
12(b)(6) [Rec. Docs. 46, 47], as well as PayPal’s Supplement Memorandum In
Support of Its Motion To Dismiss [Rec. Doc. 58] and Plaintiff, Three Peas In A Pod,
LLC’s (“Three Peas”), Opposition Memorandum [Rec. Doc. 55]. For the reasons that
follow, the Motion To Dismiss will be granted.
I. Factual And Procedural Background
Plaintiff, Three Peas, filed this petition on open account and action for breach
of contract in the Fifteenth Judicial District Court, Lafayette Parish, Louisiana against
Defendant, ABABY, Inc. (“ABABY”) and several other now terminated defendants.
On August 27, 2015, ABABY removed this action pursuant to the Court’s diversity
jurisdiction. On April 7, 2016, Three Peas amended its original state court petition,
adding Defendant, PayPal. R. 41, Amended Compl.
Three Peas manufactures and sells blankets and shower curtains. R. 1,¶¶ 2-3.
In November 2014, ABABY placed a large order with Three Peas. Id., ¶ 5. Three
Peas began manufacturing and shipping the product in compliance with the order. On
December 23, 2014, after Three Peas shipped 240 shower curtains and 1,170 fleece
blankets, ABABY sent an email to Three Peas to stop production of the remainder of
the order and only send what ABABY had already paid for. Id. ,¶ 12.Three Peas
complied with this request. Id.¶ 13. Three Peas alleges it sent ABABY $307,260 in
merchandise and ABABY paid Three Peas $307,710 with its credit cards through
PayPal. Id., ¶¶ 14–16.
Three Peas alleges that after transmitting the payments, ABABY falsely caused
Three Peas’ PayPal account to “chargeback” over $70,000 by claiming it failed to
receive merchandise already paid for, which caused Three Peas’ PayPal account to
reflect a negative balance of over $70,000. Id., ¶ 16. Three Peas alleges that
ABABY’s “assertions and claims made to PayPal are false and inaccurate.” Id. Three
Peas asserts a breach of contract claim against PayPal for the chargebacks alleging
PayPal should have investigated the chargebacks before acting. R.41, Amended
Compl., ¶ 25. Three Peas seeks to recover from PayPal “the chargeback amounts
charged to [its] PayPal account.” R. 41.
PayPal filed this Motion on June 17, 2016, arguing there is “no possibility” that
Three Peas can establish breach of the contract between PayPal and ABABY. Three
Peas filed a Second Amended Complaint on July 12, 2016, R. 54, and PayPal filed a
Supplement Memorandum in Support of its Motion on July 26, 2016. R. 58. Based
on the Second Amended Complaint and PayPal’s Supplemental Memorandum the
Court reset the hearing on the Motion. R. 62. Thereafter, Three Peas’ filed a motion
to continue the hearing which the Court granted and ordered that the Court would
decide the Motion based on the parties’ briefs. R. 64.
2.
II. Legal Standard
In considering a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6), a court must accept all factual allegations in the complaint as true and make
all reasonable inferences in a plaintiff’s favor. Arias-Benn v. State Farm Fire & Cas.
Ins. Co., 495 F.3d 228, 230 (5th Cir.2007). In order to survive such a motion, a
complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009),
quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Thus, pursuant to a
12(b)(6) inquiry, the Court is addressing the sufficiency of the facts plead, not their
truth or the ultimate substantive application of those facts, and therefore, looks to
whether the facts are “well pleaded ” rather than to resolve the disputes or possible
arguments suggested by, or, surrounding those facts. The jurisprudence instructs the
nature of such an inquiry should look to whether a claim has facial plausibility where
the pled facts allow a court to “draw a reasonable inference that the defendant is
liable for the misconduct alleged.” Iqbal, 556 U.S. at 677. “The plausibility standard
is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility
that a defendant has acted unlawfully.” Id. at 678 (quoting Twombly, 550 U.S. at 556.
Stated differently, the jurisprudence instructs that if a plaintiff fails to allege, in
his/her pleadings, facts sufficient to “nudge [his or her] claims across the line from
conceivable to plausible, [his or her] complaint must be dismissed.” Mitchell v.
Johnson, 2008 WL 3244283 (5th Cir. Aug. 8, 2008) (citing Twombly, 550 U.S. at
570).
3.
When considering a Rule 12(b)(6) motion, a court may consider documents
outside the complaint when they are: (1) attached to the motion; (2) referenced in the
complaint; and (3) central to the plaintiff’s claims. See In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (5th Cir.2007) (finding consideration of insurance contracts
unattached to the complaint permissible where they were attached to the motions to
dismiss, referred to in the complaint, and central to the plaintiffs’ claims).
III. Analysis
It is undisputed that the PayPal User Agreement is the “contract” between
Three Peas and PayPal that applies to Three Peas’ “use of the PayPal Services.” R.
46-3, Exh. C, p. 1.1 PayPal asserts there is “no possibility” that Three Peas can
establish any breach of the User Agreement by PayPal because the User Agreement:
(1) plainly defines “Chargebacks;”(2) unequivocally states that “the credit card issuer,
not PayPal, will determine who wins the chargebacks;” (3) defines PayPal’s rights
when a chargeback is initiated by a buyer and under review by the buyer’s credit card
issuer; and, (4) fully discloses the risk of chargebacks to PayPal’s users, as follows:2
1
Exhibits C and D, attached to PayPal’s Motion To Dismiss, are the cited relevant portions of
the User Agreements in effect during the relevant time period of April 3, 2015 through June 11,
2015, when the chargebacks in question occurred. As the cited portions are identical, the Court will
refer only to Exhibit C. R. 46-3.
2
The User Agreement advises of the risk of chargebacks to seller as follows:
Payments received in Your Account may be reversed at a later time, for example, if
such a payment is subject to a Chargeback, Reversal, Claim or is otherwise
invalidated. This means that for some of our sellers, payments received into their
Accounts may be returned to the sender or otherwise removed from their Account
after they have been paid and/or delivered any goods or services sold.
R. 46-3.
4.
•
“Chargebacks” are “request[s] that a buyer files directly with his or her
debit or credit card company or debit or credit card issuing bank to
invalidate a payment.” R. 46-1, User Agreement, § 4.4.
•
“If a sender of a payment files a chargeback, the credit card issuer, not
PayPal, will determine who wins the Chargeback.” Id.
•
“If a User files a Dispute, Claim, Chargeback or Reversal on a payment
you received, PayPal may place a temporary hold on the funds in your
Account to cover the amount of the liability. . . . If you lose the dispute,
PayPal will remove the funds from your Account.” Id at § 10.5(b).
•
“Please note the following risks of using the PayPal Services, which are
set forth in more detail in the relevant sections of the Agreement:
Payments received in your Account may be reversed at a later time, for
example, if such a payment is subject to a chargeback, Reversal, Claim
or is otherwise invalid. This means that for some of our Sellers,
payments received into their Account may be returned to the sender or
otherwise removed from their Account after they have been paid and/or
delivered and goods or services sold.”Id at p. 1.
•
“4.4 Risk of Reversals, Chargebacks and Claims. . . . If a sender of a
payment files a Chargeback, the credit card issuer, not PayPal, will
determine who wins the Chargeback.” Id at § 4.4.
Three Peas argues that while the User Agreement does advise of the risk of
chargebacks to sellers such as Three Peas, none of the provisions cited by PayPal
explicitly state, nor convey to the seller that PayPal intends to play no investigative
role with respect to the chargeback. R. 55. It asserts that PayPal’s Motion fails
“because it ignores the implied covenant of good faith and fair dealing inherent in
every contract.” Three Peas submits that its Second Amended Complaint “clarifies
the allegations against PayPal” and “provides a more definite statement of the
allegations” supporting its breach of contract claim.
In a diversity case such as this, the Court applies the choice of law rules of the
forum state in determining which state’s substantive law to apply. See Mumblow v.
5.
Monroe Broad., Inc., 401 F.3d 616, 620 (5th Cir.2005). Louisiana's general choice of
law provision directs that the applicable law on any issue is “the law of the state
whose policies would be most seriously impaired if its law were not applied to that
issue.” La. C. C. art. 3515. Specifically regarding contracts, the Code instructs courts
to assess the strength of the relevant policies of the involved states in light of the
place of negotiation, formation, and performance of the contract as well as the
location of the object of the contract. La. Civ.Code art. 3537.
PayPal submits that Delaware law applies to Three Peas’ breach of contract
claim but also submits that Louisiana law is in accord with Delaware’s breach of
contract law. Three Peas does not indicate which law applies. Neither party addresses
the Louisiana choice-of-law provision. “Under Delaware law, the elements of a
breach of contract claim are: (1) a contractual obligation; (2) breach of that obligation
by the defendant; and (3) resulting damage to plaintiff.” H-M Wexford LLC v. Encorp,
Inc. 832 A.2d 129, 140 (Del. Ch. 2003). “Under Louisiana law, ‘[t]he essential
elements of a breach of contract claim are (1) the obligor's undertaking an obligation
to perform, (2) the obligor failed to perform the obligation (the breach), and (3) the
failure to perform resulted in damages to the obligee.’ ” Boudreaux v. Flagstar Bank
FSB, 623 Fed.Appx. 235, 237 (5th Cir. 2015) (quoting Favrot v. Favrot, 68 So.3d
1099, 1108–09 (La.Ct.App.2011). See 28 U.S.C. § 1332(a) (1). As these two laws
are substantially similar, there is no conflict between them and the Court need not
undertake a choice-of-law analysis. R.R. Mgmt. Co.v. CFS La. Midstream Co., 428
6.
F.3d 214, 222 (5th Cir. 2005). Thus, this Court will apply the forum law of Louisiana
in addressing the issues before the Court.
PayPal asserts that Three Peas cannot identify “any term of the User Agreement
that creates any obligation/duty owed by PayPal to Three Peas relating to
chargebacks.” PayPal contends that Three Peas instead attempts to “mischaracterize
and strain” sections of the User Agreement to infer such an obligation/duty. It also
contends that Paragraphs 25–28 of the Second Amended Complaint are not part of
the User Agreement, but instead are general statements made on PayPal’s website. R.
46-2, www.paypal.com.
In Paragraph 25, Three Peas alleges that “[t]he User Agreement states on Page
1 that a Seller can help protect from the risk of a payment being reversed from its
account by following guidance proved in the Security and Protection page accessible
on PayPal, Inc.’s website....” R. 54, ¶ 25. Three Peas then alleges that this statement
“thereby incorporat[es] the terms and provisions of the Security and Protection Page
into the User Agreement.” Id. Thereafter, in Paragraphs 26, 27 and 28, Three Peas
quotes PayPal’s website related to its Seller Protection, Id at ¶¶ 27–28, and concludes
PayPal “breached the expressed terms of the User Agreement by not properly or
sufficiently investigating the chargebacks.. . . before charging back plaintiff’s PayPal
account.” Id at ¶ 28.
The record reveals, as asserted by PayPal, that the portions of the website Three
Peas cites and quotes in Paragraphs 25 through 27 generally describe the “Seller
Protection for Merchants’ that PayPal provides to sellers, contractual rights that are
7.
fully and plainly defined in Section 11 of the User Agreement at pages 20 through
22.” R. 58, p. 4. To be eligible for Seller Protection under Section 11 of the User
Agreement for chargebacks relating to “items not received,” R. 46-3, § 11.4, p 21,
Three Peas would be required to submit to PayPal “proof of delivery” of the
shipments which includes documentation establishing that the shipment was in fact
delivered and signature confirmation of delivery of the shipping. Id at pp. 21–22.
Three Peas admits ABABY refused shipment of those goods and they were returned
to Three Peas. Thus, Three Peas could not have submitted the confirmation of
delivery necessary to be eligible for Seller Protection. Further, the record reveals that
Three Peas has not alleged in any complaint that it sought or met the requirements to
be eligible for Seller Protection. As Three Peas was not eligible for Seller Protection
under Section 11 of the User Agreement, PayPal could not have breached any
contractual duty owned to Three Peas related to the Seller Protection provision.
In Paragraphs 29 through 31, Three Peas alleges PayPal breached contractual
duties under Section 4.3 of the User Agreement, “Payment Review,” which provides
in pertinent part:
PayPal will place a hold on the payment and provide notice to the Seller
to delay shipping of the item. PayPal will conduct a review and either
clear or cancel the payment. If the payment is cleared, PayPal will
provide notice to the Seller to ship the item. Otherwise, PayPal will
cancel the payment and funds will be returned to the buyer.
R. 46-3, § 4.3. PayPal argues this provision applies to review of a payment before the
funds are placed into the Seller’s account. It does not create any duties once funds
have been placed into the Seller’s account and made available to the Seller. Here,
8.
Three Peas alleges it received $307,710 from ABABY. Three Peas has failed to state
a plausible claim that PayPal breached § 4.3 of the User Agreement.
In Paragraphs 32 through 36 Three Peas alleges that PayPal has breached its
duties under Sections 9 and 10 of the User Agreement. PayPal argues that Sections
9 and 10 “do not create any duties owed by PayPal to Three Peas.” R. 58, p. 6. Upon
review, Section 9.1 defines the activities of a user of PayPal’s services that are
prohibited. Section 9.1 states, “In connections with your use of our website, your
Account, the PayPal services, or in the course of your interaction with PayPal, other
Users, or third parties, you will not [engage in the following restricted enumerated
activities].” R. 46-3, § 9.1. Section 10 further defines the actions PayPal may take in
the event Three Peas (or ABABY, or any user) breached the User Agreement. Id at
§ 10.1. Thus, Section 9 defines the duties that Three Peas owes to PayPal and Section
10 defines actions PayPal may take if Three Peas breaches any duties it owes to
PayPal – not vise-versa. PayPal had no duty under § 9 or § 10 which could have been
breached.
In Paragraphs 37 through 39 of the Second Amended Complaint, Three Peas
alleges PayPal breached duties arising out of Section 11 of the User Agreement, the
section defining “Protection for Sellers” —the same provision as the allegations in
Paragraphs 25 through 28, discussed above. To reiterate, the Court found that Three
Peas was not eligible for Seller Protection nor did Three Peas allege that it sought
to avail itself of any contractual right to Seller Protection.
9.
Three Peas alleges in Paragraphs 40 through 48 that PayPal breached the
implied obligation of good faith and fair dealing by not properly investigating
whether a chargeback was warranted or appropriate before reversing payments
received in Three Peas’ PayPal Account. It is well settled that “Louisiana does not
recognize a separate and distinct obligation of good faith, the breach of which would
be equivalent to a breach of the contract between the parties. The performance of an
obligation or contract can be characterized as being in good faith or bad faith, but the
party alleging bad faith performance must first allege facts revealing the duty to
perform an obligation.” Gulf Coast Bank and Trust Co. v. Warren, 125 So.3d 1211,
1219 (La.App. 4 Cir., 2013). In other words, “The implied obligation to execute a
contract in good faith usually modifies the express terms of the contract and should
not be used to override or contradict them.” Domed Stadium Hotel, Inc. v. Holiday
Inns, Inc., 732 F.2d 480, 485 (5th Cir.1984). Thus, in order to state a claim for breach
of an implied duty of good faith and fair dealing relating to chargebacks Three Peas
must identify a contractual obligation or duty under the User Agreement owed by
PayPal related to the chargebacks.
In Paragraphs 41, 43, 45, 46, 47 and 48 of the Second Amended Complaint,
Three Peas alleges PayPal breached the implied covenant of good faith and fair
dealing by not properly: (1) investigating whether a charge back was warranted or
appropriate; (2) determining whether ABABY had chargeback rights prior to
reversing payments received in Three Peas’ Account; (3) determining the nature and
extent of ABABY’s chargeback rights; (4) providing Three Peas with notice of the
10.
chargebacks; (5) advising Three Peas of its rights regarding a chargeback situation;
and (6) advising Three Peas whether the transactions subject to the chargebacks were
eligible for Seller Protection as defined by the User Agreement. R. 54, ¶¶ 41-48.
As provided in the foregoing, the User Agreement imposes no obligation on
PayPal to investigate or make a final determination regarding the appropriateness of
chargebacks. Nor is there any obligation imposed on PayPal to advise sellers, such
as Three Peas, of its “rights” if a buyer, such as ABABY, initiates a chargeback with
the buyer’s credit card issuer. The User Agreement does, however, provide notice at
Section 10.5(b) that if a chargeback is initiated on a payment that has been received
“PayPal may place a temporary hold on the funds in your account to cover the amount
of the liability. . . . If you lose the dispute, PayPal will remove the funds from your
Account.”
Finally, there is no provision of the User Agreement which imposes an
obligation on PayPal to advise Three Peas of its Seller Protection rights enumerated
in Section 11 of the User Agreement. Rather, the User Agreement states,”If a sender
of a payment files a Chargeback, the credit card issuer, not PayPal, will determine
who wins the Chargeback.” 46-3, § 4.4. Three Peas cannot use the implied duty of
good faith and fair dealing to create and impose an obligation or duty on PayPal to
make the determinations alleged regarding the appropriateness of chargebacks.
IV. Conclusion
Based on the foregoing analysis, the Court finds that Three Peas has failed to
plead that PayPal breached either any express term of the User Agreement or any
11.
implied duty of good faith and fair dealing arising out of any term of the User
Agreement. The Court will dismiss Three Peas’ claims against PayPal for failure to
state a claim in its Second Amended Complaint. Accordingly,
IT IS ORDERED that PayPal, L.L.C.’s Motion To Dismiss [Rec. Doc. 46] is
GRANTED.
THUS DONE AND SIGNED this 6th day of October, 2016 at Lafayette,
Louisiana.
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