Tingyu Cheng v. PayPal, Inc.

ORDER GRANTING MOTION TO COMPEL ARBITRATION; GRANTING IN PART REQUEST FOR COSTS

[RE: ECF NO. 14]

BETH LAB SON FREEMAN, UNITED STATES DISTRICT JUDGE.

This case involves a dispute over Plaintiff Tingyu Cheng's account held with Defendant PayPal, Inc. Cheng alleges that he held an account with PayPal to receive compensation from college students to whom he offered tutoring services. PayPal allegedly accused Cheng of receiving payments to his account in violation of PayPal's Acceptable Use Policy, terminated Cheng's account, and confiscated the $76, 994.40 balance of the account as liquidated damages. PayPal has brought a motion to compel arbitration, arguing that Cheng agreed to a binding arbitration provision in PayPal's User Agreement, and seeks the fees and costs it incurred in prosecuting an identical state court case brought by Cheng. See ECF No. 14 (“MTC”); see also ECF No. 20 (“Reply”). Cheng admits the existence of the provision but opposes the motion on the grounds that the arbitration provision is unconscionable and therefore unenforceable. See ECF No. 18 (“Opp.”). The Court previously found this motion suitable for disposition without oral argument. See ECF No. 25; Civil L.R. 7-1(b). For the following reasons, the motion to compel arbitration is GRANTED and PayPal's request and costs is GRANTED IN PART.

I. BACKGROUND

As alleged in the Complaint, Chen created a PayPal account around May 11, 2009 to receive compensation from college students to whom he was offering tutoring services. ECF No. 1 (“Compl.”) ¶ 11.

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When he signed up for the PayPal account, Cheng agreed to the PayPal User Agreement (“UA”). The second paragraph of the UA states that its “terms include an agreement to resolve disputes by arbitration on an individual basis.” ECF No. 14 at 39 (“UA” at 1).^[1] When clicked, the blue text takes a user directly to the “Agreement to Arbitrate” section within the UA. In relevant part, that section reads:

You and PayPal each agree that any and all disputes or claims that have arisen or may arise between you and PayPal including without limitation federal and state statutory claims, common law claims, and those based in contract, tort fraud, misrepresentation or any other legal theory, shall be resolved exclusively through final and binding arbitration rather than in court, except that you may assert claims in small claims court, if your claims qualify and so long as the matter remains in such court and advances only on an individual (non-class, non-representative) basis. This Agreement to Arbitrate is intended to be broadly interpreted The Federal Arbitration Act governs the interpretation and enforcement of this Agreement to Arbitrate.

UA at 37. The UA also specifies certain “Restricted Activities” that users of PayPal agree not to do, including activities that violate PayPal's separate “Acceptable Use Policy” (“AUP”). See UA at 25. PayPal states, and Cheng does not dispute, that he assented to the UA by (1) checking a box next to language stating that he had “read and agree[d] to the User Agreement;” and then (2) clicking a large blue button labeled “Agree and Create Account.” Simons Decl., ECF No. 14 at 32, ¶ 6.

On or around June 16, 2020, Cheng received an email from PayPal alleging that two of his transactions violated the AUP.^[2] Compl. ¶ 12. PayPal requested that Cheng log in to its Resolution

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Center to resolve the issue. Id. Cheng allegedly did so and submitted information to PayPal. Id. Notwithstanding that action, on July 13, 2020, PayPal notified Cheng that his PayPal account was permanently restricted. Id. ¶ 13. PayPal informed Cheng that the entire balance of his PayPal account was frozen for 180 days and that PayPal would inform Cheng via email how to retrieve the balance. Id. PayPal allegedly did not do so and instead confiscated the entire balance of his account-$76, 994.40-on November 9-10, 2020. Id. ¶ 14. Cheng's efforts to get PayPal to return the money-through its customer service department, a demand letter, and a complaint with the California Consumer Protection Bureau-have been unsuccessful. Id. ¶¶ 15-17.

Cheng originally filed a lawsuit in the Santa Clara County Superior Court, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, conversion, and common count over the same allegations as asserted in this case. Cheng v. PayPal, Inc., No. 21CV3755684 (Santa Clara Cty. Super. Ct., filed Jan. 4, 2021). In response to the state court complaint, PayPal filed a motion to compel arbitration. See Notice of Motion and Motion to Compel Arbitration, id. (filed Apr. 1, 2021). Instead of responding to the motion, Cheng dismissed the case. See Request for Dismissal, id. (filed Apr. 30, 2021).

Less than two weeks later, on May 13, 2021, Cheng filed this lawsuit. See Compl. Cheng alleges the same causes of action as he did his state court action. See Id. ¶¶ 18-39. Cheng seeks $76, 994.40 in damages, interest, costs of suit, punitive damages, restitution, and reasonable attorneys' fees. Id. at 7. PayPal filed this motion on June 17, 2021 and noticed a hearing for January 13, 2022. See MTC. The Court submitted the motion without argument on January 7, 2022. ECF No. 25.

II. LEGAL STANDARD

Under the Federal Arbitration Act, arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Benson v. Casa de Capri Enters., LLC,

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980 F.3d 1328, 1330 (9th Cir. 2020); see also Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149, 156 (Del. 2002) (same under Delaware law). Under the FAA, a court must determine two issues in deciding a motion to compel arbitration: “(1) whether there is an agreement to arbitrate between the parties; and (2) whether the...