A lawsuit has been filed against online payments system giant PayPal, claiming that the company didn’t deliver charitable donations made on the company’s platform, as promised.
The case, Friends for Health: Supporting the North Shore Health Center, an Illinois nonprofit corporation, and Terry Kass, individually and on behalf of all others similarly situated, Plaintiffs, v. PayPal, Inc., a Delaware corporation, and PayPal Charitable Giving Fund, a Delaware nonprofit corporation (1:17-cv-01542), was filed in federal court in the Northern District of Illinois last week. The lawsuit, which was filed as a trademark infringement matter under the Lanham Act, seeks damages of at least $9,999,000.
According to the lawsuit, PayPal established a new platform in 2013 to make it easier for customers to donate money to their favorite tax-exempt charities. The PayPal Giving Fund was created at the same time to process and distribute those donations. It was, claims the suit, “an admirable endeavor.” There was, however, one big problem: according to the lawsuit, not all of the non-profit charities on the site received their donations.
According to the lawsuit, a number of the charities never even knew that the platform existed. The complaint alleges that “as a general practice, neither PayPal nor PayPal Giving Fund notifies the unregistered charities that a donation has been made to them or that they need to create an account to receive the money.” Additionally, the lawsuit alleges that despite guarantees that the funds would be delivered to named charities, “no effort is made to notify the customer that their chosen charity does not have the necessary accounts to be able to receive the funds and that the funds will not be delivered as promised.”
The lawsuit has been filed as a class action. The lead plaintiff in the case is Terry Kass. In 2016, Kass donated a total of $3,250 to thirteen different charities through the PayPal charitable platform. Only three of those charities were actually registered with PayPal which means that they were the only charities that Kass selected who could receive donations through the platform but Kass didn’t know this. The result? Just $100 of Kass’ donations actually made it to the intended charities. Kass didn’t know, the lawsuit states, until she followed up with the charities. This, explains Chris Dore, an attorney with Edelson, PC, who is representing Kass in the suit, made her “reasonably frustrated.” Kass, who is also an attorney, reached out to a friend who eventually connected her with Edelson.
Here’s how the PayPal donation system works: PayPal allows you to search their database by name, category, or state on the giving platform web page. The search results contain the names, and, according to the lawsuit, “on some occasions the marks, of matching organizations.” When you choose the charity, a profile page created by PayPal pops up with the “charity’s name, trade or service mark (if it has one), or other representative marks” together with a mission statement, EIN number, and a promise that “100% of your donation will go to your chosen cause.” You then choose an amount to donate, click and, according to the website, the funds are directed to charity and you, as the donor, receive a receipt for tax purposes.
So why all of the references to the marks? The suit has been filed as a Lanham Act suit. The Lanham Act, sometimes referred to as the Trademark Act of 1946, is a federal law that governs the use of trademarks. The lawsuit alleges that the use of trademarks and other marks belonging to the charities on the site “constitutes false association and/or false endorsement” by PayPal. The use of those marks, together with other information, is, according to the suit, meant to “induce potential donors into using the giving platform… despite the lack of any affiliation.”
While PayPal claims that consumers can donate to “over a million charities,” Dore notes that a 2015 tax filing only alluded to 29,000 registered charities. However, Dore claims that “billions with a b” of dollars worth of donations have been made through the PayPal Giving Fund. But, he warns, those charities who have not registered with the site may not have received donations that were intended for them.
PayPal, however, specifically disputes Dore’s allegations – and his numbers. According to a company spokesperson, “Donations to PayPal Giving Fund only made up a very small fraction of the total donations we processed during the holiday campaign. The majority of those funds have been distributed to charities identified by donors that have enrolled with PayPal Giving Fund.”
Getting the funds to the charities is, according to Dore, what those involved in filing the lawsuit want to happen. “We want the dollars intended for these organizations to reach their end result,” he says. The charities should “be made whole” by PayPal and that includes not only receipt of the donations but interest, as well.
In response to the suit, PayPal released a statement saying that “we are proud of what we have been able to accomplish and the contributions we have made.” The company says it is “carefully reviewing” the lawsuit which it believes “is misleading.” They are, they vow, “fully prepared to defend ourselves vigorously in this lawsuit.”
Specifically, Paypal asserts that, “Contrary to the lawsuit’s allegations, the PayPal Giving Fund has not redirected any of the charitable gifts donated during the holiday campaign to charities not selected by the donor.” The expansion of charities on the platform was, the company says, the result of a partnership with Guidestar. The company views “the inclusion of this expanded list of charities as providing a great opportunity for charities and donors to the PayPal Giving Fund alike.”
When the company receives a gift intended for a charity that is not enrolled in the platform, the company says that it makes “multiple attempts to contact unenrolled charities on a monthly basis for at least six months, via email, letter and, in some cases, phone calls.” While this is happening, “all donations are placed in a secure and segregated, non-interest bearing account maintained by PayPal Giving Fund.”
“We are,” the company concludes, “proud of the PayPal Giving Fund program and the significant positive impact this program has had on giving and charities around the world for many years.” (You can read the entire statement here.)
Dore doesn’t dispute that the company might have had positive intentions, saying that providing a platform for charities to receive donations “is a good thing.” But, he alleges, PayPal lacked transparency throughout the process. It appears, he said, that they “grew their platform faster than their feet could carry them.”