Amazon Removes Chinese Seller's Breach of Contract Case to SDNY

Xingchen previously submitted its claims against Amazon to proceedings administered by the American Arbitration Association, said the notice of removal. Those proceedings were dismissed by the appointed arbitrator because Xingchen either failed or refused to pay its share of the arbitrator’s fees, Amazon said.

Xingchen alleges Amazon unlawfully seized its net sales proceeds under the Amazon Services Business Solutions Agreement (BSA). The complaint notes the SEC is investigating Amazon for “misusing third-party seller data to benefit its own product sales.” It also cited the Ending Platform Monopolies Act, HR-3825, passed by the House Judiciary, which aims to rein in tech giants’ conflicts of interest “that arise from a dominant platform’s ownership.” That is “exactly what Amazon is doing, running a dominant online retailer platform for third-party sellers” while it sells privately on the Amazon marketplace as well, the complaint said.

Amazon relies on automated mechanisms and “error-prone fraud detection software to identify and punish third-party sellers” it suspects of violating the BSA, said the complaint. “Algorithmic errors can lead to abrupt account deactivation and removal of product listings, which can be financially devastating for third-party sellers,” it said. “Without presenting evidence to sellers to support its allegations of term violations, Amazon blocked over 55,000 seller accounts in 2021” and it seized sales proceeds totaling “billions of dollars,” the complaint said.

Xingchen alleges it generated over $2.3 million in sales on Amazon in the first six months of 2021 “until Amazon deactivated Plaintiff’s Account and terminated the BSA on June 24” on accusations of BSA term violations. Amazon deactivated the seller's accounts and terminated the BSA without advance notice, it said. Amazon seized all of Xingchen’s sales proceeds -- over $124,446 -- in November 2021 and “keeps deducting unauthorized charges from the frozen fund after account blocking,” it said: The current frozen fund amount is under $75,000 dollars.

In addition to breach of contract, the complaint asserts declaratory relief that section two of the BSA -- allowing Amazon to “permanently withhold any payments to third-party sellers" -- is unenforceable. It also claims conversion, unjust enrichment and violation of the Washington Consumer Protection Act (WCPA). The plaintiff seeks an award of money damages including “less than $75,000" in direct damages, additional direct damages equivalent to a refund of the seller’s prior six-month payment to Amazon, other unspecified compensatory damages, plus interest, costs and attorneys’ fees.

In June, Xingchen filed a request for judicial intervention addendum, pegging the precise amount of alleged direct damages at “the jurisdictionally convenient amount of $74,500,” Amazon said. Under the WCPA, prevailing plaintiffs may also recover treble damages up to the statutory cap of $25,000, said the notice. The district court “must consider the possible damages under WCPA as being ‘in controversy’ for purposes of jurisdictional considerations,” Amazon said.

The district court has original jurisdiction over the case because it is a civil action between citizens of different states and the matter in controversy is alleged to exceed $75,000, exclusive of interest and costs, said the notice. The 2nd Circuit has held that the amount of treble damages recoverable under state law causes of action must be included in a district court’s determination of the amount in controversy for diversity jurisdiction purposes, and “therefore, the amount in controversy” in the case “exceeds $95,500,” it said. Removal is proper because the state court action is pending in New York state Supreme Court, Amazon said.