Small online merchants file suit against Amazon.com
The lawsuit centers on an Amazon.com practice of withholding payments to third-party sellers over questions about the sellers’ accounts.
Seattle Times business reporter
Amazon.com was hit with a class-action lawsuit Friday by online sellers who allege the Internet giant violates its own terms as well as Washington state law by holding the sellers’ money for more than 90 days.
The suit, filed in U.S. District Court in Seattle, seeks full restitution of “monies wrongfully obtained,” plus financial interest and other unspecified damages.
The suit revolves around Amazon’s third-party-seller business, which enables merchants both large and small to sell their products on its website. The complaint argues that, by holding sellers’ money longer than allowed, Amazon racks up interest and uses the extra cash to support its operations.
“The scale of Amazon’s practice makes it lucrative,” the suit says. “On information and belief, Amazon has reaped and continues to reap many tens of millions of dollars annually from this practice.”
An Amazon spokesman did not return an email or phone call seeking comment Friday.
The suit follows a Seattle Times report in November about dozens of Amazon sellers who complained of tied-up payments and sudden shutdowns of their accounts.
The Washington state Attorney General’s Office received about 120 complaints in three years from Amazon sellers who accused the company of arbitrarily withholding their payments, The Times found.
At the center of the suit is Amazon’s so-called Participation Agreement, which gives the company “sole discretion” to withhold payments for up to 90 days if it believes seller behavior could cause problems with customers.
The suit argues that Amazon’s terms break a Washington state law requiring “money transmitters” to disburse payments within 10 business days.
The company qualifies as a money transmitter because it requires sellers on its site to use the Amazon payment-processing service, according to the lawsuit. Amazon collects payments from customers, takes a cut of between 6 and 25 percent, and distributes the remaining amounts to sellers.
Even so, the suit alleges Seattle-based Amazon violates not only state law but also its own contractual obligations.
“While Amazon contends to have the contractual basis, in some instances, for holding the funds for 90 days, Amazon routinely holds funds beyond the contractual period, often well in excess of 90 days,” the suit states.
One of two named plaintiffs is a Kentucky woman who began selling hard-to-find DVDs on Amazon in October. She says Amazon suspended her seller account a month later and held up for 98 days several hundred dollars in payments owed to her.
The other plaintiff is a Texas man who sold flight-training materials on Amazon and alleges he had to wait more than 100 days for several hundred dollars in payments.
The suit, which seeks class-action status, notes Amazon “simply ignored” the plaintiffs’ requests for information about their tied-up payments, leading them to pursue a legal remedy.
While Amazon sells many products itself, it also relies on other online merchants to expand its merchandise selection. Third-party sales account for about 40 percent of all products sold on Amazon and generate between 9 and 12 percent of the company’s annual revenue, according to analysts.
The suit estimates the total merchandise value of third-party sales last year averaged more than $160 million a day.
“By holding on to this daily cash flow for only a few days or weeks, Amazon is able to invest this money in money market funds, marketable securities and other investments, and utilize the cash as working capital in the operation of its business,” the suit says.
This is not the first time a major Internet marketplace has been sued by its sellers.
In 2010, eBay sellers whose accounts were frozen filed a class-action lawsuit in Northern California, accusing payments processor and eBay subsidiary PayPal of breach of contract and unjust enrichment. But U.S. District Judge Jeremy Fogel ruled PayPal’s pact with sellers gave it broad discretion to freeze accounts without disclosing the reasons.
The Amazon suit was brought by Seattle law firm Terrell Marshall Daudt & Willie, as well as The Monts Firm of Austin, Texas.
Amy Martinez: 206-464-2923 or email@example.com
On Twitter: @amyemartinez