Amazon Seller Challenging Unfavorable Arbitration Ruling in District Court

Petitioner Cowin Technology filed a notice of removal (1:23-cv-03054) from New York State Supreme Court to the U.S. District Court for Southern New York in Manhattan that seeks to overturn a December arbitration ruling over a seller dispute with Amazon. Howard Reiss, an arbitrator at the American Arbitration Association (AAA), on Dec. 15 denied the Hong Kong-based company’s claims for over $1 million it alleges it’s owed by Amazon, the Wednesday petition said. Amazon withheld payment for violations of its product reviews policy, and Reiss denied all of Cowin’s claims.

Section 2 of Amazon’s Business Solutions Agreement (BSA) says if the e-commerce company determines that “your account -- or any other account you have operated -- has been used to engage in deceptive, fraudulent, or illegal activity (including the sale of counterfeit goods), or to repeatedly violate our Program Policies, then we may in our sole discretion permanently withhold any payments to you,” Cowin noted in a March 13 petition to vacate the award of arbitrator in the New York court. Any disputes, says Section 18 of the BSA, will be handled by the AAA only on an individual basis and not in a class action.

As the dominant online marketplace with “65% to 70% of all U.S. online marketplace sales,” Amazon has “monopoly power over most third-party sellers and many of its suppliers,” said the petition. “With such kind of e-commerce dominance, small retailers do not have any viable or meaningful choice other than accepting Amazon’s terms if they want to get their products in front of online consumers,” it said, citing a January 2022 post from The Future of Commerce.

Third-party sellers must fully accept Amazon’s terms and conditions in the BSA before they can open an account, including a compulsory arbitration provision, and sections on seller account termination and sales proceeds withholding, said the petition. Sellers “have no negotiation power regarding the fairness and enforceability of the contract terms,” making the BSA an “adhesion contract.”

Prior arbitration cases ruled against the validity of Section 2 of the BSA, said the petition, citing the Jan. 6, 2021, AAA Commercial Arbitration ruling (No. 01-19-0002-2648) that it's “procedurally and substantively unconscionable” and “unenforceable as a penalty and confiscation clause -- rather than a proper liquidated damages clause,” the petition said. It cited other 2022 arbitration rulings that Section 2 provisions don’t constitute an unenforceable penalty and penalties are “substantively unconscionable and unenforceable" under Washington state law. In a September ruling, another arbitrator ruled against Amazon in a final award, ordering the release of a seller’s withheld proceeds, plus payment of administrative fees and expenses, the petition said.

Cowin became an Amazon seller Nov. 30, 2020, by adhering to the BSA, and it regularly paid Amazon a subscription fee to use and maintain its account, said the petition. In June 2021, “without prior warning,” Amazon deactivated Cowin’s accounts and accused it of “manipulating customer reviews” of its products, it said. The notice said Cowin could contact the disbursement team to appeal for the return of its funds after 90 days.

After requesting and receiving certain verifications, Amazon denied Cowin’s appeal and confiscated its funds, the petition said. Amazon notified the seller its account “was used to engage in deceptive, fraudulent or illegal activities that harmed our buyers, other sales partners, and our stores,” said the petition. “The funds in your account will not be paid to you,” Amazon said, calling it a “final decision," the petition said.

Amazon “froze” Cowin’s “entire sales proceeds” totaling $1.1 million, said the petition. Later, Amazon deducted unauthorized charges from those proceeds after account deactivation. The funds are “net proceeds” that belong to Cowin for sales of inventory it sent to Fulfillment by Amazon, it said. The seller has also incurred revenue losses due to Amazon’s actions, which it calculated as $3.9 million based on its average monthly sales of $1 million and an average 34% commission fee to Amazon.

Cowin seeks an order from the court vacating the Dec. 15 award of the arbitrator “for exceeding the arbitrator’s power, completely irrational and manifest disregard of the law.” It seeks the $1.1 million sales proceeds from its seller account on June 24, 2021, plus 12% interest, a refund of $3.9 million as compensation for losses for “improper account blocking,” and legal costs.