Amazon Removes to SDNY Petition to Vacate Arbitration Award Over Product Review Manipulation
Amazon on Friday removed to U.S. District Court for Southern New York from New York County Supreme Court the petition of Amazon third-party seller Shenzhen Zongheng Domain Network to vacate a $507,619 arbitration award in Amazon’s favor. Amazon had declined to disburse the $507,619 in sales proceeds to the seller after “uncovering” that it was “manipulating customer product reviews to artificially and deceptively inflate the perceived value of the goods it was selling in the Amazon store,” said Amazon’s notice of removal (docket 1:23-cv-03334).
Amazon’s case against Shenzhen Zongheng is similar to its Southern District of New York dispute with another third-party seller, Jiakeshu Technology. Jiakeshu also was accused by Amazon of manipulating product reviews, except the amount in dispute against Shenzhen Zongheng is more than 10 times higher. Jiakeshu’s motion to remand its petition to vacate a $50,000 arbitration award in Amazon’s favor to the state court where the petition originated is still pending (see 2302130008).
Arbitrator Carol Heckman entered her award Jan. 23 denying all of Shenzhen Zongheng’s claims in their entirety, and Shenzhen Zongheng filed its petition to vacate her ruling March 21, said the notice of removal. The Southern District of New York is the proper venue to hear the petition because Chapter 2 of the Federal Arbitration Act provides for federal jurisdiction over actions to confirm or vacate an arbitration award that’s governed by the New York Convention, it said. The New York Convention “applies here” because Shenzhen Zongheng is a foreign company, based in China, it said.
Amazon relies on automated mechanisms and “error-prone” fraud detection software to “identify and punish” third-party sellers that Amazon suspects of violating the “business solutions agreement” (BSA) the sellers are forced to sign, said Shenzhen Zongheng’s petition to vacate. “Algorithmic errors can and do lead to abrupt account deactivation and removal of product listings, which can be financially devastating for third-party sellers,” it said.
The BSA gives Amazon “sole discretion to permanently withhold any payments” to its third-party sellers, said the petition. Independent third-party merchants “have no negotiation power regarding the fairness and enforceability of the contract terms,” it said. “This makes the BSA an adhesion contract,” it said. Courts often look at the doctrine of reasonable expectations to determine whether to strike down adhesion contracts.
The BSA also gives Amazon the power to “exercise its arbitrary authority to terminate the seller’s third-party seller account and remove its selling capability at will,” said the petition. “This action basically means the death penalty for small businesses,” it said. The exercise of this power is limited only “by the duty of good faith and fair dealing,” it said.
Shenzhen Zongheng became a third-party seller on Amazon’s North American marketplace in March 2017 and expanded to its European marketplace a month later, said the petition. Amazon “suddenly deactivated” its accounts in July 2021 with “no prior warning,” and simultaneously “froze” its sales proceeds, it said. The petitioner “also incurred revenue losses due to improper account deactivation by Amazon,” it said. The “partiality and misconduct” of arbitrator Heckman demands that her award in Amazon’s favor be vacated, it said.