UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION AT DAYTON

RLFSHOP, LLC, et al., : Case No. 3:17-cv-405

:

Plaintiffs, : Judge Thomas M. Rose

:

v. :

:

AMERICAN EXPRESS COMPANY, et al., :

:

Defendants. :

ENTRY AND ORDER GRANTING IN PART AND DENYING IN PART

MOTION TO DISMISS (DOC. 4) OF DEFENDANT PAYPAL, INC.

This case is before the Court on the Motion to Dismiss (Doc. 4) filed by Defendant 

Paypal, Inc. (“PayPal”). Plaintiffs RLFShop, LLC d/b/a Shopsmith (“Shopsmith”) and 

Robert L. Folkerth (“Folkerth”) (collectively, “Plaintiffs”) allege that Defendants 

American Express Company (“American Express”) and PayPal are liable for fraudulent 

purchases made by one of Plaintiffs’ former employees on a company American Express 

card through PayPal’s platform. PayPal denies the Plaintiffs’ allegations and moves to 

dismiss all of their claims under Fed. R. Civ. P. 12(b)(6). Plaintiffs oppose PayPal’s Motion 

to Dismiss, which is fully briefed and ripe for review. (See Docs. 10, 17.) For the reasons 

below, the Court GRANTS IN PART and DENIES IN PART the Motion to Dismiss.

I. BACKGROUND

As alleged in the Complaint, Shopsmith is in the business of manufacturing and 

selling woodworking tools and accessories. (Doc. 2 at ¶ 1.) As Shopsmith’s principal 
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owner and manager, Folkerth is responsible for the company’s day-to-day operations. 

(Id. at ¶ 2.) Folkerth is also the holder of the American Express credit card account at the 

center of this lawsuit. (Id.)

In 2009, after acquiring the assets of a separate company called Shopsmith, Inc., 

Shopsmith hired Defendant Wesley Powell (“Mr. Powell”), one of Shopsmith, Inc.’s 

former employees. (Id. at ¶ 8.) Mr. Powell was primarily assigned IT department 

responsibilities, providing computer maintenance and support and related services. (Id.) 

Over the years, Mr. Powell was assigned responsibility for the purchase of certain 

materials and supplies in connection with Shopsmith’s manufacturing and distribution 

operations, in addition to purchases involving the IT department. (Id. at ¶ 9.)

For convenience and to provide “direct financial support” for Shopsmith’s 

business operations, Folkerth permitted Mr. Powell and other Shopsmith employees with 

purchasing responsibilities to use American Express credit cards issued under Folkerth’s 

American Express credit card account. (Id. at ¶ 10.) Employees were not authorized to 

use the credits cards for personal use; rather, they were authorized only for the limited 

purpose of purchasing services, materials and supplies for Shopsmith. (Id.)

Shopsmith maintained financial controls and procedures to monitor employee use 

of the American Express credit cards. (Id. at ¶ 11.) Shopsmith relied primarily upon its 

review of American Express’s billing statements to identify unauthorized purchases. (Id.) 

Shopsmith scrutinized the billing statement to confirm that credit card purchases were 

for approved services, materials and products from companies with which it had an 

established relationship. (Id.) Financial controls might also include requiring purchase 
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orders, invoices or receipts in support of transactions, which were the accounting 

department then reconciled against the American Express billing statements. (Id.)

At some point, Mr. Powell began using his company credit card to make “fictitious 

purchases” for his personal benefit. (Id. at ¶ 12.) These purchases appeared to be 

purchases of authorized goods and services from known vendors, but, in reality, they 

were purchases from accounts created by Mr. Powell for the purposes of defrauding 

Shopsmith.

Mr. Powell initiated this scheme by opening PayPal accounts in his name and in 

his mother’s name, Dorthy, aka Dorothy, Powell (“Ms. Powell”). (Id. at ¶ 13.) Mr. Powell 

then used his company American Express card to purchase non-existent, fictitious goods 

and services from Ms. Powell’s PayPal account. (Id.) When Mr. Powell made these 

purchases, he was able to falsely record the name of the seller of the fictitious goods as 

an established Shopsmith vendor, instead of his mother. (Id.) After Shopsmith’s 

payments for the fictitious goods were deposited into Ms. Powell’s PayPal account, Mr. 

Powell transferred the funds to his own PayPal account for distribution to himself and 

Ms. Powell. (Id.) Using this scheme, Mr. Powell allegedly stole more than $400,000 from 

Shopsmith through fraudulent credit card charges. (Id. at ¶ 22.) 

American Express and PayPal issued transaction reports and billing statements 

that showed the fictitious purchases in the same manner as genuine purchases. These 

records also displayed the false information input by Mr. Powell, instead of showing that 

the fictitious goods were sold by (and Shopsmith’s monies were paid into) Ms. Powell’s 

PayPal account. Accordingly, American Express sent billing statements to Folkerth at 
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Shopsmith showing the date of purported credit card purchases, naming an established 

Shopsmith vendor as the merchant, identifying a product suitable for use by Shopsmith 

as the product purchased, and stating the charge for the purchase. (Id. at ¶ 14.) As a 

result, Folkerth’s review of American Express’s billing statements did not alert him to 

Mr. Powell’s fraudulent purchases. (Id.)

Folkerth entered into a contract with American Express for the use of his credit 

card, which contained certain representations and warranties regarding the processing 

and reporting of credit cards. (Id. at ¶ 17.) Plaintiffs also allege, upon information and 

belief, that American Express and PayPal entered into an agreement authorizing PayPal 

to process and report American Express credit card payments for purchases made 

through PayPal accounts. (Id. at ¶ 18.) These contracts form the basis of several of 

Plaintiffs’ claims.

On October 30, 2017, Plaintiffs brought this action against American Express and 

PayPal in the Montgomery County Court of Common Pleas. On December 1, 2017, 

PayPal removed the action to this Court pursuant to its federal question jurisdiction. In 

the Complaint, Plaintiffs allege against PayPal claims for breach of contract, negligence, 

fraud, negligent misrepresentation, and unjust enrichment. PayPal moves to dismiss all 

of the claims against it for failure to state a claim as a matter of law.

II. LEGAL STANDARD ON MOTION TO DISMISS

Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain a “short 

and plain statement of the claim showing that the pleader is entitled to relief.” While this 

Rule “does not require ‘detailed factual allegations’ . . . it demands more than an 
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unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 

662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

To survive a Rule 12(b)(6) motion to dismiss, the complaint must contain sufficient 

factual allegations “to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at

697 (2009), quoting Twombly, 550 U.S. 544, 547 (2007). A claim is facially plausible when 

it includes “factual content that allows the court to draw the reasonable inference that the 

defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. This standard is 

not the same as a probability standard, but “asks for more than a sheer possibility that a 

defendant has acted unlawfully.” Id.

When ruling on a motion to dismiss, the Court must accept the factual allegations 

of the complaint as true and construe them in a light most favorable to the non-moving 

party. Twombly, 550 U.S. at 554-55. “The Court need not accept as true, however, a legal 

conclusion couched as factual allegations.” Id. If Plaintiff “ha[s] not nudged [its] claims 

across the line from conceivable to plausible, [its] complaint must be dismissed.”

Twombly, 550 U.S. at 570.

III. ANALYSIS

A. Plaintiffs’ Claim for Breach of Contract

Plaintiffs’ breach-of-contract claim against PayPal is based on an alleged contract 

between American Express and PayPal “with respect to the use of AMEX credit cards, 

with the intention that AMEX credit card account holders benefit from the terms of these 

contracts.” (Doc. 2 at ¶ 25.) Plaintiffs allege that the contract’s terms include 

“requirements that PayPal take reasonable precautions to avoid credit card fraud, assure 
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the identity of the parties to credit card transactions, comply with laws pertaining to

credit card use, and provide protections to credit card account holders as required by 

law.” (Id.) Plaintiffs allege that American Express imposed these requirements on PayPal 

for the specific benefit and protection of its account holders, like Folkerth. (Id.)

Plaintiffs allege that PayPal breached its contract with American Express by failing 

to take “reasonable precautions to avoid credit card fraud, correctly identify the 

Merchants and confirm the existence and legitimacy of credit card transactions processed 

through its accounts.” (Id. at ¶ 28.) Plaintiffs further allege that PayPal recklessly 

processed fraudulent credit card charges, failed to provide accurate transaction 

statements, and misrepresented the identify of merchants and products sold in 

connection with fraudulent charges. (Id.)

The parties agree that Plaintiffs’ breach-of-contract claim is based on a third-party 

beneficiary theory of liability. PayPal argues, however, that this claim nonetheless fails 

because Plaintiffs do not allege that they were specifically intended beneficiaries of the 

contract between American Express and PayPal.

Under Ohio law, in order to state a breach-of-contract claim as a third-party

beneficiary, the plaintiff must allege that a promisee under the contract specifically 

intended for him to benefit from the contract. Laverick v. Children’s Hosp. Medical Center 

of Akron, Inc., 43 Ohio App. 3d 201, 204, 540 N.E.2d 305 (9th Dist. 1988); see also Norfolk & 

W. Co. v. United States, 641 F.2d 1201, 1208 (6th Cir. 1980). Ohio law applies the aptly 

named “intent to benefit” test to determine whether a third party is an intended 

beneficiary who can bring suit or only an incidental beneficiary with no enforceable rights 
7

under the contract. Hill v. Sonitrol of Southwestern Ohio, Inc., 36 Ohio St.3d 36, 40, 521 

N.E.2d 780 (1988). Under this test, “if the promisee * * * intends that a third party should 

benefit from the contract, then that third party is an ‘intended beneficiary’ who has 

enforceable rights under the contract.” Norfolk, 641 F.2d at 1208. Conversely, “[i]f the 

promisee has no intent to benefit a third party, then any third-party beneficiary to the 

contract is merely an ‘incidental beneficiary,’ who has no enforceable rights under the 

contract.” Id. The “mere conferring of some benefit on the supposed beneficiary by the 

performance of a particular promise in a contract is insufficient; the performance of the 

promise must also satisfy a duty owed by the promisee to the beneficiary.” Id.

The “intent to benefit” test sets a high bar for plaintiffs seeking to assert rights as 

a third-party beneficiary. In Reisenfeld & Co. v. Network Group, Inc., 277 F.3d 856 (6th Cir. 

2002), for example, the Sixth Circuit observed that it was not sufficient to allege that a 

promisee had an “ancillary intention” to confer benefits on the third party to state a claim 

under Ohio law. Id. at 863. Instead, “[i]n order that a third person may enforce a promise 

made for his benefit, it must appear that the contract was made and entered into directly 

or primarily for the benefit of such third person.” Id. (quoting Hines v. Amole, 4 Ohio 

App.3d 263, 448 N.E.2d 473, 479 (Ohio Ct. App. 1982)). The third person need not be 

directly named in the contract, but an “incidental or indirect benefit to a third party is not 

sufficient to provide the third party with a cause of action.” Alexander v. Motorists Mut. 

Ins. Co., 2012-Ohio-3911, ¶ 27. 

PayPal cites several cases in which courts have found that a plaintiff was not a 

third-party beneficiary under a contract. The most compelling cases that the Court has 
8

reviewed, however, were decided on summary judgment or at trial after review of the 

contract in question. See, e.g., Huff v. FirstEnergy Corp., 2011-Ohio-5083, ¶ 14, 130 Ohio St. 

3d 196, 201, 957 N.E.2d 3, 7 (affirming summary judgment for defendant on breach-ofcontract claim where review of contract did not create genuine issue of fact regarding 

whether plaintiffs were intended beneficiaries); Fed. Ins. Co. v. Fredericks, 2015-Ohio-694, 

¶ 51, 29 N.E.3d 313, 326 (affirming trial court’s finding of no liability on third-party 

beneficiary theory where subcontract extended no benefits to plaintiff); Alexander, 2012-

Ohio-3911, ¶ 26 (affirming summary judgment for defendant on alleged third-party 

beneficiary’s breach-of-contract claim where nothing in the language of the contract 

indicated plaintiff was an intended beneficiary); Reisenfeld & Co. v. Network Grp., Inc., 277 

F.3d 856, 864 (6th Cir. 2002) (affirming summary judgment for defendant on breach-ofcontract claim where it was “clear that the specific provision in the contract mentioning 

[plaintiff] was not entered into for [plaintiff’s] benefit”).

Here, Plaintiffs have alleged that they are intended beneficiaries under a contract 

between American Express and PayPal. Plaintiffs specifically allege that PayPal is 

required to take certain actions under the contract to protect American Express account 

holders, like Plaintiffs. (Doc. 2 at ¶ 25.) The Court must accept these factual allegations 

as true. Because the contract is expressly identified in the Complaint, PayPal could have 

submitted it for the Court’s review in consideration of its Motion to Dismiss. The Court 

then might have been in a position to evaluate whether Plaintiffs’ allegations concerning 

the contract’s terms are plausible. Without the contract, the Court has only Plaintiffs’ 

allegations regarding its contents. Construing these factual allegations in the light most 
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favorable to Plaintiffs, they state a claim for relief. It is plausible that, in exchange for its 

account holders’ business, a credit card company might require service providers to take 

certain precautions to protect those account holders. For this reason, at this stage of the

case, the Court must deny PayPal’s Motion to Dismiss Plaintiffs’ breach-of-contract claim.

B. Plaintiffs’ Claim for Negligence

To state a claim for negligence, the Complaint must contain factual allegations 

showing the existence of a duty owed to the plaintiff, a breach of that duty, and an injury 

proximately resulting from the breach. Jeffers v. Olexo, 43 Ohio St. 3d 140, 142, 539 N.E.2d

614 (1989). “[T]he existence of a duty depends upon the foreseeability of harm; if a 

reasonably prudent person would have anticipated that an injury was likely to result 

from a particular act, the court could find that the duty element of negligence is satisfied.” 

Wallace v. Ohio DOC, 96 Ohio St.3d 266, 2002-Ohio-4210, 773 N.E.2d 1018, ¶ 23. 

PayPal moves to dismiss Plaintiffs’ negligence claim on the grounds that the 

Complaint does not allege facts showing the existence of any duty owed to Plaintiffs and 

that Plaintiffs are not permitted to bring a claim in tort against PayPal under the economic 

loss doctrine. (Doc. 4 at 6 (citing Corporex Dev. & Constr. Mgmt., Inc. v. Shook, Inc., 106 

Ohio St.3d 412, 2005-Ohio-5409, ¶ 6).)

As the Supreme Court of Ohio explained in Shook:

The economic-loss rule generally prevents recovery in tort of damages for 

purely economic loss. See Chemtrol Adhesives, Inc. v. Am. Mfrs. Mut. Ins. Co.

(1989), 42 Ohio St.3d 40, 45, 537 N.E.2d 624; Floor Craft Floor Covering, Inc. v. 

Parma Community Gen. Hosp. Assn. (1990), 54 Ohio St.3d 1, 3, 560 N.E.2d 206. 

“’[T]he well-established general rule is that a plaintiff who has suffered 

only economic loss due to another's negligence has not been injured in a 

manner which is legally cognizable or compensable.’” Chemtrol, 42 Ohio 
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St.3d at 44, 537 N.E.2d 624, quoting Nebraska Innkeepers, Inc. v. Pittsburgh–

Des Moines Corp. (Iowa 1984), 345 N.W.2d 124, 126. See, also, Floor Craft, 54 

Ohio St.3d at 3, 560 N.E.2d 206. This rule stems from the recognition of a 

balance between tort law, designed to redress losses suffered by breach of 

a duty imposed by law to protect societal interests, and contract law, which 

holds that “parties to a commercial transaction should remain free to 

govern their own affairs.” Chemtrol, 42 Ohio St.3d at 42, 537 N.E.2d 624. See

also, Floor Craft, 54 Ohio St.3d at 7, 560 N.E.2d 206, quoting Sensenbrenner v. 

Rust, Orling & Neale Architects, Inc. (1988), 236 Va. 419, 425, 374 S.E.2d 55. 

“‘Tort law is not designed * * * to compensate parties for losses suffered as 

a result of a breach of duties assumed only by agreement. That type of 

compensation necessitates an analysis of the damages which were within 

the contemplation of the parties when framing their agreement. It remains 

the particular province of the law of contracts.’” Floor Craft, 54 Ohio St.3d 

at 7, 560 N.E.2d 206, quoting Sensenbrenner, 236 Va. at 425, 374 S.E.2d 55.

Shook, 2005-Ohio-5409, ¶ 6.

Plaintiffs acknowledge the economic loss doctrine, but argue that an exception to 

that doctrine applies where the duty of care arises independent of the contract at issue. 

They contend that PayPal’s duty arose from its “special relationship” with Folkerth and 

Shopsmith “as to the means and manner of AMEX credit card transactions and how those 

transactions are reported.” (Doc. 2 at ¶ 33.) Specifically, Plaintiffs argue that the duty of 

care arises as a result of PayPal’s exercise of substantial control over the credit card 

purchases involving Plaintiffs’ credit card accounts and the foreseeability of harm to 

Plaintiffs arising from their relationship with PayPal. (Doc. 10 at 6-7 (citing Federal Steel 

& Wire Corp. v. Ruhlin Constr. Co. (1989), 45 Ohio St. 3d 171, 174).)

Plaintiffs contend other jurisdictions have found the existence of a duty of care in 

connection with financial transactions. (Id. at 7 (citing Sovereign Bank v. BJ’s Wholesale 

Club, Inc., 395 F. Supp. 2d 183, 194, 194 (M.D. Penn. 2005); FleetBoston Fin. Corp. v. Advanta 

Corp., No. CIV. A. 16912-NC, 2003 WL 240885, at *34 (Del. Ch. Jan. 22, 2003); Merrick Bank 
11

Corp. v. Valley Nat'l Bank, No. CV 13-7756, 2017 WL 5951583, at *6 (D.N.J. Nov. 30, 2017);

In re: The Home Depot, Inc., Customer Data Sec. Breach Litig., No. 1:14-MD-2583-TWT, 2016 

WL 2897520, at *4 (N.D. Ga. May 18, 2016). As noted by PayPal, however, Sovereign Bank 

actually supports PayPal’s Motion to Dismiss and the other cases cited by Plaintiffs are 

distinguishable on their facts.

Sovereign Bank stemmed from the breach of a retailer’s computer system and 

consequent theft of credit card information belonging to Sovereign Bank’s customers. 

Sovereign Bank brought a negligence claim against the retailer and Fifth Third Bank, 

which processed the retailer’s credit card transactions. 395 F. Supp. 2d at 187. The district 

court held that Sovereign Bank had a sufficient relationship with the retailer to support 

the existence of a duty and therefore a negligence claim. As to Fifth Third Bank, however, 

the district court found that the economic loss doctrine precluded a negligence claim. Id.

at 203-05. Under the applicable Pennsylvania law, there were two rationales for the 

economic loss doctrine: (1) the “putative tortfeasor could not foresee the harm,” and (2) 

“public policy dictated a limitation on the right of recovery in negligence for economic 

losses.” Id. at 204. As a matter of public policy, Pennsylvania courts had determined that

permitting anyone “in the economic chain” to sue for purely financial losses would overly 

burden the economic system. Id. This public policy rationale provided an independent 

basis for application of the doctrine, even if harm to Sovereign Bank was foreseeable. 

Here, PayPal’s relationship with Plaintiffs is more analogous to Sovereign Bank’s 

relationship with Fifth Third Bank than its relationship with the retailer.
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In Advanta, the parties’ dispute arose out of the acquisition of a consumer credit 

card business. Advanta Corp., 2003 WL 240885, at *1. The acquiring corporation, referred 

to as “Fleet”, sued the selling corporation, called “Advanta”, for damages. Advanta 

asserted counterclaims and the case was tried to the court. Among the counterclaims, 

Advanta asserted a negligent interference claim based on Fleet’s solicitation of Advanta’s 

business card customers. Considering whether Fleet owed any duty to Advanta, the

Delaware Court of Chancery found that Advanta had “surrendered substantial control 

over certain of its business card customer accounts” to Fleet under an interim services 

agreement. 2003 WL 240885, at *34 (Del. Ch. Jan. 22, 2003). Pursuant to the agreement, 

Fleet processed payments for Advanta and had access to its proprietary customer 

information, including information about its business card customers. Id. This special 

relationship was sufficient to impose a duty on Fleet not to negligently interfere with 

Advanta’s business. In contrast, in the instant case, Plaintiffs do not allege that they gave 

PayPal unfettered access to their proprietary information. In addition, Plaintiffs had a 

direct relationship with American Express, not PayPal. 

In Merrick Bank, a bank was accused of negligently mismanaging an escrow 

account. 2017 WL 5951583, at *1. The escrow account held funds from the purchase of 

airline tickets, which were to be used to refund passengers for cancelled flights. The 

airline failed and, due to mismanagement of the escrow account, many passengers never 

received their refunds. The district court considered several factors in finding that the 

bank had a duty of care in its management of the escrow account, including “the risk, the 

foreseeability, or the likelihood of injury all weighed against the social utility of the actor's 
13

conduct, the opportunity and ability to exercise care to prevent the injury and the 

consequences of placing the burden of the duty on the actor.” Id. at *6 (quoting J.S. v. 

R.T.H., 155 N.J. 330, 337, 714 A.2d 924, 928 (1998)). The district court found the risk to the 

airline’s customers plainly foreseeable—if there was no money in the escrow account, 

customers could not be reimbursed. It further recognized the escrow account as the only 

recourse for customers who paid by check for their tickets. 

The district court distinguished New Jersey caselaw holding banks had no duty to 

a third party. Id. (citing cases). In some of those cases, the bank had an ancillary role, 

such as cashing a check, in a fraudulent scheme perpetrated by someone else. See Brunson 

v. Affinity Federal Credit Union, 199 N.J. 381, 407 (2009) (bank did not owe duty to victim 

of identity theft who was incarcerated after importer used victim’s identity to cash 

fraudulent checks); City Check Cashing, Inc. v. Manufacturers Hanover Trust Co., 166 N.J. 49, 

62 (2001) (bank had no duty of care to the plaintiff, a check cashing service, when the 

bank incorrectly verified the authenticity of a check); Penn. Nat’l Turf Club, Inc. v. Bank of 

West Jersey, 385 A.2d 932, 934 (N.J. App. Div. 1978), cert. denied, 77 N.J. 506 (1978) 

(dismissing negligence claim where bank deviated from good banking practices by 

failing to dishonor a depositor’s returned checks within midnight deadline required by 

the Uniform Commercial Code). None of the cited cases involved mismanagement of an 

escrow account. The district court found imposition of a duty was also consistent with 

fairness and policy considerations because it would protect consumers from financial loss 

in the case of a flight operator’s insolvency. Id. at *7. 
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Returning to this case, the relationship between Plaintiffs and PayPal is different 

from the relationship between the airline customers and the bank managing the airline’s 

escrow account in Merrick Bank. PayPal was not responsible for holding funds against 

which Plaintiffs might have a claim. Nor did PayPal represent the only recourse for 

Plaintiffs to obtain refunds for the fictitious goods purchased by Mr. Powell. PayPal has 

more in common with the banks in the caselaw distinguished by the district court in 

Merrick Bank. Like those banks, PayPal processed a transaction in which someone else, 

here the Powells, allegedly defrauded Plaintiffs.

Plaintiffs also rely on In re: The Home Depot, Inc., Customer Data Sec. Breach Litig., 

No. 1:14-MD-2583-TWT, 2016 WL 2897520, at *4 (N.D. Ga. May 18, 2016). In that case, 

the district court held that a negligence claim could proceed against Home Depot where 

it stored customers’ credit card information, which was subsequently stolen. Id. at *3-4. 

The district court reasoned, “A retailer's actions and inactions, such as disabling security 

features and ignoring warning signs of a data breach, are sufficient to show that the 

retailer caused foreseeable harm to a plaintiff and therefore owed a duty in tort.” Id. at 

*3. Here, PayPal was not the retailer and did not interact directly with Plaintiffs.

In sum, Plaintiffs do not allege the kind of special relationship that would impose 

a duty of care on PayPal, even under the caselaw cited by Plaintiffs. 

Plaintiffs also argue, however, that PayPal is liable based upon its violation of 

statutory enactments, which would constitute negligence per se. (Doc. 10 at 8 (citing 

Chambers v. St. Mary’s Sch. (1998), 82 Ohio St. 3d 563, 565; Thornton v. State Farm Mut. Auto 

Ins. Co., 2006 U.S. Dist. LEXIS 83968, *43 (N.D. Ohio 2006).) Plaintiffs specifically argue 
15

that PayPal violated section 5 of the Federal Trade Commission (“FTC”) Act, 15, U.S.C. § 

45(a), and the Ohio Deceptive Trade Practices Act (“ODTPA”), Ohio Rev. Code § 

4165.02(A)(1) and (2).

Section 5 of the FTC Act is the basic consumer protection statute enforced by the 

Federal Trade Commission. Section 5 prohibits “unfair or deceptive acts and practices in 

or affecting commerce.” 15 U.S.C. § 45(a)(1). PayPal argues that Section 5 is inapplicable 

because it applies only to unfair or deceptive acts directed toward consumers. (Doc. 17 

at 5, citing FTC v. OMICS Grp. Inc., 2017 U.S. Dist. Lexis 161910, *5 (D. Nev. Sep. 29, 2017)

and https://www.ftc.gov/about-ftc/what-we-do/enforcement-authority.) PayPal 

reasons that Plaintiffs—a business (Shopsmith) and its owner (Folkerth)—are not 

consumers and, therefore, no violation of Section 5 is alleged.

Plaintiffs cite FTC v. Inc21.com Corp., 745 F.Supp. 2d 975 (N.D. Cal. 2010) for the 

standard for proving deceptive billing practices in violation of Section 5 of the FTC Act. 

In that case, the defendants billed consumers for internet-based products and services by

placing monthly charges on their telephone bills. Id. at 1000. On the parties’ motions for 

summary judgment, the district court noted that, under Section 5, “[a]n act or practice is 

deceptive if ‘first, there is a representation, omission, or practice that, second, is likely to 

mislead consumers acting reasonably under the circumstances, and third, the 

representation, omission, or practice is material.’” Id. (quoting FTC v. Gill, 265 F.3d 944, 

950 (9th Cir. 2001)). The district court found undisputed evidence established that nearly 

97 percent of the defendants’ customers had not agreed to purchase the products for 

which they were billed. In addition, the court found that placement of the charges on 
16

consumer telephone bills constituted an affirmative representation that the consumers 

had in fact authorized the purchases. Id. The representation was material because it

involved “information that is important to consumers and, hence, likely to affect their 

choice of, or conduct regarding, a product.” Id. at 1001, (quoting FTC v. Cyberspace.Com 

LLC, 453 F.3d 1196, 1201 (9th Cir.2006)).

Among other arguments, the Inc21.com defendants argued that they subjectively 

believed their customers had authorized the charges on their telephone bills. The district 

court dismissed this argument, however, observing that defendants’ subjective belief was 

immaterial to liability under Section 5—which turns on only whether a reasonable 

consumer was likely to be misled. Id. at 1003 (citing Gill, 265 F.3d at 950). The district 

court dismissed defendants’ other arguments and granted summary judgment for the 

FTC on the claim.

Even construing the Complaint’s allegations in the light most favorable to 

Plaintiffs, they have not alleged a violation of Section 5 of the FTC Act. This is because 

the Complaint does not contain factual allegations about how consumers, or the public 

generally, perceived, and therefore would have been misled by, the PayPal account used 

to execute the Powells’ alleged fraudulent scheme. Instead, Plaintiffs allege that a 

business and its principal were deceived by the intentional fraud committed by an 

employee. Moreover, Plaintiffs allege that they were deceived because they could not 

detect the fraud in their American Express billing statement. There is no indication that 

a consumer, interacting directly with the fraudulent PayPal account, would have been 

fooled into believing that the account actually belonged to a legitimate business. 
17

As to the ODTPA, to establish a claim, a party must demonstrate an intent to 

engage in deception or unfairly compete. Olde Towne Windows v. Baker, 96 Ohio App. 3d 

204, 205 (Ohio 6th Dist. 1994) (dismissal of ODTPA claim proper where plaintiff failed to 

present facts which would establish intent to deceive). Plaintiffs do not allege that PayPal 

acted with an intent to deceive, but that PayPal was negligent in permitting others to act 

with such intent. Plaintiffs’ negligence per se theory of liability therefore also fails.

The Court grants the Motion to Dismiss Plaintiffs’ negligence claim.

C. Plaintiffs’ Claim for Fraud

Under Ohio law, a well-pled claim for fraud alleges: “(1) a representation (or 

concealment of a fact when there is a duty to disclose) (2) that is material to the transaction 

at hand, (3) made falsely, with knowledge of its falsity or with such utter disregard and 

recklessness as to whether it is true or false that knowledge may be inferred, and (4) with 

intent to mislead another into relying upon it, (5) justifiable reliance, and (6) resulting 

injury proximately caused by the reliance.” Volbers-Klarich v. Middletown Mgt., Inc., 2010-

Ohio-2057, ¶ 27, 125 Ohio St. 3d 494, 501. In addition, under Fed. R. Civ. P. 9(b), a plaintiff 

must allege “with particularity the circumstances constituting fraud or mistake.” “So 

long as a relator pleads sufficient detail—in terms of time, place and content, the nature 

of a defendant’s fraudulent scheme, and the injury resulting from the fraud—to allow the 

defendant to prepare a responsive pleading, the requirements of Rule 9(b) will generally 

be met.” U.S. ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008).

PayPal argues that Plaintiffs’ claim for fraud must be dismissed because the 

Complaint does not allege PayPal made any representations to Plaintiffs and fails to 
18

plead the details of any alleged fraudulent statements with the particularity required by 

Rule 9(b). In response, Plaintiffs persuasively argue that the Complaint meets the 

particularity requirements of Rule 9(b), but fail to address the argument that their 

allegations, even if sufficiently detailed, do not state a cause of action under Ohio law. 

(Doc. 10 at 9-11, citing, inter alia, U.S. ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 

504 (6th Cir. 2008).)

 This Court has previously recognized that, under Ohio law, “[a] party may not 

be held liable for fraudulent acts in which he does not participate, or for false 

representations which were neither induced by him nor made with his knowledge.”

Firestone v. Galbreath, 747 F. Supp. 1556, 1569–70 (S.D. Ohio 1990) (citing Klein v. Equitable 

Life Assurance Soc., 17 Ohio App.3d 50, 477 N.E.2d 1190 (1984)), aff’d in relevant part, 976 

F.2d 279 (6th Cir. 1992), certified question answered, 67 Ohio St. 3d 87, 616 N.E.2d 202 

(1993), and aff’d in part, rev’d in part, 25 F.3d 323 (6th Cir. 1994). A party may be held 

liable, however, if it or someone with authority to act on its behalf procures the fraud. 

Klein, 477 N.E.2d at 1193; see also Fed. Mgt. Co. v. Coopers & Lybrand, 137 Ohio App. 3d 366, 

381–82, 738 N.E.2d 842, 853 (2000).

Here, at most, the Complaint alleges that PayPal knowingly permitted the Powells 

to misidentify the seller in the fraudulent transactions they charged to Plaintiffs’ 

American Express account. (Doc. 2 at ¶ 13.) Such allegations do not amount to 

participating in the fraud in a manner for which PayPal may be held liable under Ohio 

law. Plaintiffs have not offered any rebuttal to this argument. Their fraud claim is 

therefore dismissed.
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D. Plaintiffs’ Claim for Negligent Misrepresentation

In order to state a claim for negligent misrepresentation under Ohio law, a plaintiff 

must allege facts establishing that the defendant had “a duty to provide accurate 

information to the plaintiff that goes beyond the common-law duty to exercise reasonable 

care to prevent foreseeable harm.” 425 Beecher, LLC v. Unizan Bank, 186 Ohio App.3d 214, 

2010-Ohio-412, 927 N.E.2d 46, ¶ 51 (10th Dist.); accord Ford v. New Century Mtge. Corp., 

797 F.Supp.2d 862, 872 (N.D. Ohio 2011) (“A core requirement in a claim for negligent 

misrepresentation is a special relationship under which the defendant supplied 

information to the plaintiff for the latter’s guidance in its business transaction.”). As 

discussed above, Plaintiffs have not alleged a special relationship that would give rise to 

such a duty. In addition, Plaintiffs allege a misrepresentation by the Powells, not a 

misrepresentation by PayPal. For these reasons, Plaintiffs’ negligent misrepresentation 

claim must be dismissed.

E. Plaintiffs’ Claim for Unjust Enrichment

Plaintiffs’ claim for unjust enrichment against PayPal is based “upon PayPal 

having received fees for each fraudulent credit card transaction that PayPal processed 

through PayPal’s account, knowing (or with reckless disregard of the truth) that the credit 

card transactions were fraudulent.” (Doc. 10 at 13, citing Doc. 2 at ¶¶ 20, 46, 57.) PayPal 

argues that, despite Plaintiffs’ assertion, the Complaint is devoid of facts showing that 

PayPal retained any of the alleged unauthorized credit card charges or any other benefit 

from Plaintiffs. PayPal also suggests that it would not be unjust to permit PayPal to retain 
20

any funds because Plaintiffs failed to examine their billing statements to discover the 

Powell’s fraud. In other words, Plaintiffs are to blame for their losses, not PayPal. 

A claim for unjust enrichment has three elements: (1) a benefit conferred by the 

plaintiff upon the defendant; (2) knowledge by the defendant of the benefit; and (3) 

retention of the benefit by the defendant under circumstances where it would be unjust 

to do so without payment. Reisenfeld & Co. v. Network Group, Inc., 277 F.3d 856, 860 (6th 

Cir.2002). A plaintiff is not required to allege an injury in excess of the harm inherent in 

the defendant’s unjust retention of the benefit. Delahunt v. Cytodyne Techs., 241 F. Supp. 

2d 827, 836 (S.D. Ohio 2003).

Plaintiffs have alleged that they conferred a benefit on PayPal through the 

payment of transaction fees via their American Express account. They have also 

sufficiently alleged that PayPal had knowledge of its receipt of this benefit. The only 

issue is whether Plaintiffs allege the third element—that PayPal’s retention of this benefit 

would be unjust under the circumstances. PayPal has not cited any caselaw supporting 

its contention that Plaintiffs’ allegations are insufficient as a matter of law to state a claim 

for unjust enrichment. Rather, the question of whether retention of a benefit would be 

unjust is a mixed question of fact and law—a question difficult to rule upon at the 

pleading stage without apposite, binding precedent. For this reason, the Court denies 

the motion to dismiss Plaintiffs’ unjust enrichment claim.
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IV. CONCLUSION

For the reasons above, the Court GRANTS IN PART and DENIES IN PART

PayPal’s Motion to Dismiss (Doc. 4). Plaintiffs’ negligence, fraud and negligent 

misrepresentation claims are DISMISSED. Plaintiffs’ other claims shall proceed.

DONE and ORDERED in Dayton, Ohio, this Thursday, August 23, 2018. 

s/Thomas M. Rose

________________________________

THOMAS M. ROSE 

UNITED STATES DISTRICT JUDGE