PAYPAL PUTS CART BEFORE THE HORSE

I saw an interesting NPR piece about a class action suit in Illinois against PayPal filed by charitable donors and a charitable organization concerned that year-end donations didn’t wind up going where they were supposed to.

The case involves a program set up by PayPal called the “PayPal Giving Fund.”  Here’s the gist of the complaint:

3. On its face, PayPal Giving Fund is an admirable endeavor; however, in practice, it falls woefully short of that mission on numerous fronts. Specifically, PayPal Giving Fund is currently (i) listing charities on its website that are not registered to receive donations; (ii) failing to inform donors that unregistered charities will not receive their donations; (iii) failing to notify unregistered charities that donations have been made to them; and (iv) redirecting unclaimed donations from the intended unregistered recipient charities to organizations of their own choosing (without notice to the donor or intended recipient). As described in detail below, tens of thousands of generous individuals after placing their trust in PayPal, have made donations, that, unbeknownst to them, have never reached their chosen charity. Likewise, thousands of charities have been deprived of much needed funds they never knew were even intended for them.

To put that into basic English, the complaint alleges that that PayPal says donors can send money to the charity of their choice using the service.  But in fact, PayPal distributes money only to those organizations that set up a Giving Fund account.  In its FAQ section, PayPal acknowledges this practice. But information is not exactly front and center.  According to the NPR report, if a donor sends money to a charity that has not set up an account, PayPal will contact the organization “at regular intervals  . . . in order to enroll them.”  After six months, the funds are “reassigned.”  But the complaint asserts that PayPal “often fails to provide notice of donations to unregistered organizations.”   In essence, according to the complaint, PayPal makes solicits funds before it knows whether it can direct them where they’re supposed to go.  We’ll see how the facts play out.

There could be a standing issue right off the bat.  A party has to be injured to bring a lawsuit.  In this case, there are two named plaintiffs – Terry Kass and “Friends for Health.”  Kass is a donor and Friends for Health is a charitable organization.  Kass is understandably upset that his donation ended up in some other organization’s coffers.  But is that damage? Once Kass let the money go, with no expectation of any financial reward, he’s out the cash.  Is he damaged by the misdirection?

And while Kass interacted with PayPal and, as a result, developed expectations about where his donation would go, Friends for Health apparently did not deal with PayPal at all.  So, what duty did PayPal owe that organization?  Absent a duty – contractual or otherwise – there’s no claim.

It will be interesting to see how this plays out.  But it’s a tougher case I think than it may appear on its face.