** Discrimination Class Action filed in California Alleging That Payment Providers such as Square and PayPal Violated Unruh law for Refusing to Process Merchant Payments for Merchant’s Risky Transactions ** . . .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

By: Brent E. Johnson                                                                

Payment processors such as Square, Inc. and PayPal, Inc have opened up a new world for merchants who can now easily and inexpensively accept payments online and/or by credit card from anyone – anywhere.  The platform, however, is not open to all-comers: the companies have strict policies on what sort of merchants or transactions they will accept – and those that they will not.  For example, Square’s User Agreement prohibits merchants from using their accounts to accept payments for anything “illegal” – but it also prohibits a range of activities that may be legal but raise the risk profile for anyone involved (including the payment processor) such as transactions involving mail order drugs, gambling, firearms, adult material, hate products and drug paraphernalia.  PayPal, Inc’s Acceptable Use Policy is similar, it prohibits using an account for activities that violate any law – but also legal (but legally risky) transactions such as get- rich-quick-schemes, lotteries, sexually orientated material, firearms and offshore banking.  Plaintiff counsel in California have bought a purported class action alleging that such business regulations are “discrimination” under California’s civil rights statute (Cal. Civ. Code §§ 51 – 52) (aka “Unruh”).  Abu Maisa Inc., v Flint Mobile Inc., No. 3:15-cv-06338 (N.D. Cal. December 31, 2015) ECF No. 1.  In particular their named plaintiff is a convenience store owner, who, it is alleged, was dissuaded from using Square and PayPal (and other payment providers Flint Mobile, Google, Intuit and Stripe) because plaintiff’s store sells “banned” items such as adult magazines and lottery tickets.  The case is an unusual one, in so far as Unruh cases are typically bought by plaintiff’s who have been discriminated against on the basis of some sort of disability or recognized protected classification (not just on the basis that a plaintiff was denied the right to, in this case, sell adult magazines).  Plaintiff appear to have a hard road ahead of him.  Notwithstanding the broad sweep of Unruh, California courts recognize that businesses may discriminate amongst customers in order to comply with legal requirements or protect business reputation (Harris v. Capital Growth Inv’rs XIV, 805 P.2d 873, 884 (Cal. 1991)) – as long as those regulations are rationally related to the services performed and the facilities provided.  Marina Point, Ltd. v. Wolfson, 640 P.2d 115, 124 (Cal. 1982).  For example, a rental car company can “discriminate” on the basis of age because of the risks involved in renting cars to younger drivers.  Lazar v. Hertz Corp., 82 Cal. Rptr. 2d 368, 373 (Cal. Ct. App. 1999).  Similarly, financial companies can make risk-oriented decisions regarding what customers to deal with and on what terms.  Flower v. Wachovia Mortgage FSB, No. C 09-343 JF HRL, 2009 WL 975811, at *6 (N.D. Cal. Apr. 10, 2009).  Courts uniformly “decline to second-guess [the defendant’s] business judgment.” Desert Healthcare Dist. v. PacifiCare FHP, Inc., 114 Cal.Rptr.2d 623 (Cal. Ct. App. 2001); Semler v. Gen. Elec. Capital Corp., 127 Cal. Rptr. 3d 794, 798 (Cal. Ct. App. 2011).