Amazon Says The Two Merchants Suing Them Sold Counterfeit Goods, Tried To Get Others To Raise Prices And Said Mean Things To Amazon

Amazon (NASDAQ:AMZN) has formally responded to a lawsuit from two of its onetime sellers—in which the sellers said Amazon held their money for more than 90 days, in violation of state law—by essentially saying, "We won't see you in court, buddy." Amazon's position is that a mandatory check-off box on its site means that sellers are not allowed to sue, having agreed to settle all disputes via arbitration.

Amazon's position is very direct: that by agreeing to be a seller, the merchant has to abide by the terms of the agreement, which includes arbitration. The sellers' legal position is focused on how long Amazon held the money and that it violates state law, which sets 10 days as the limit. By violating Washington state law, the action goes beyond the contract (and its arbitration clause) and needs to be settled by a government court, in open proceedings. Amazon's contract sets a maximum time of 90 days and the lawsuit contends that it didn't even meet that deadline.

Interesting enough, the detailed Amazon response somehow didn't address the state legal claim, which was the essence of the lawsuit. But while ignoring the state legal issue, the Amazon response did go into plenty of details about why the world's largest e-commerce site opted to terminate the sales agreement of these two sellers—and why it chose to hold their funds for so long. The reason for holding the funds was because of the poor conduct of the sellers, Amazon argued.

"Amazon withheld payments to each Plaintiff to cover potential chargebacks, refunds or returns to dissatisfied consumers," Amazon's motion said. "Amazon's actions were entirely consistent with the agreements both Plaintiffs accepted and consistent with Amazon's overarching commitment to customer satisfaction (such as Amazon's A-to-z Guarantee) reflected in those agreements. But Plaintiffs sued nonetheless."

The legal debate is jurisdictional. Amazon can argue that its contract gave it the right to hold the funds indefinitely when bad conduct is alleged, but when that action conflicts with state law, federal judges often have to get involved. Amazon would rather they not.

One thing that is clear is that these allegations—excessive holding of monies owed to sellers—are not isolated.One thing that is clear is that these allegations—excessive holding of monies owed to sellers—are not isolated. The lawsuit was filed after a Seattle Times report in November about 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.

Back to Amazon's version of what naughtiness these sellers performed. The first plaintiff seller, Jo Ellen Peters, was accused of selling counterfeit goods, something her attorney denies.

The second plaintiff seller, Ken Lane, has much more colorful accusations and his seemed to be backed up with lots of e-mail excerpts. Lane "alleges he 'marketed, sold, and shipped' aviation-related materials using Amazon's website for two years," the Amazon filing said. "During his tenure as an Amazon seller, however, Lane committed numerous policy violations and ultimately was terminated for attempted price-fixing and inappropriate communications to others through the website."

To support the "inappropriate communications" part, Amazon included multiple copies of his e-mails, which made generous use of the always-eyebrow-raising f--- word, while calling Amazon's people "f----ing morons" and "f---ing idiots." He is even accused of working in a political comment, ending one e-mail to Amazon with "Put that in your pipe and smoke it, you f***ing, piece of sh**, Obama voter."

A more legally interesting allegation is that Lane tried to get other sellers to increase their prices so that all sellers could make more money.

"I'd like to talk to you about raising the price with me so we can both do better. I just raised my price a bit. I'd like to move it up to a more reasonable 54.95. I hope we can both do this," said one e-mail referenced by Amazon. "I'd suggest raising your price on this one. By my spreadsheet, the $249 is just about break even. I notified the other guy as well" was another e-mail.

Amazon also documented how it shut down Lane's seller account and that Lane kept creating new ones, with different names. Amazon would find them and shut them down.

Plaintiffs lawyer Britton Monts, of Austin, Texas, said Amazon hopes to keep the proceedings out of the public eye and avoid a class action. He said he'll file a motion opposing arbitration by a June 3 deadline, according to The Seattle Times. "Monts also dismissed Amazon's allegations against plaintiffs Jo Ellen Peters and Ken Lane, saying Peters' products were not counterfeit and Lane did not collude to raise prices. He added that Lane's profane comments came after many 'polite' attempts to resolve problems with Amazon. 'They bashed our clients,' Monts said. 'It's a cheap shot that really has nothing to do with the issues.'"

The legal issues raised are interesting and Amazon's obligations to quickly pay sellers what they owed—minus any legitimate deductions—is crucial. But if the comments attributed to Lane are proven, he may have helped Amazon an awful lot by weakening his case. Ironically, a seasoned arbitrator would likely dismiss such comments as irrelevant as the issue isn't whether he was legitimately terminated but whether Amazon had the right to hold his money that long. But if the plaintiffs win this jurisdictional argument and wind up in front of a civil jury, Lane's comments may turn out to be Amazon's biggest helper.