An appeals court in Tennessee upheld a circuit court ruling that eBay's arbitration clause does not apply to controversies between buyers and sellers on the auction site.

The case, Evans v. Matlock, involved an antique Dr. Pepper dispenser up for auction on eBay. An online buyer sued an eBay seller when the seller refused to honor the winning eBay bid and sold the item to another party. The seller filed a motion for summary judgement, alleging that "the terms of the Agreement under which the contract was purportedly entered requires binding arbitration in lieu of litigation should any claim or controversy arise."

Judge Patricia J. Cottrell delivered the decision of the Court of Appeals of Tennessee, which agreed with the trial court that the arbitration clause is applicable only to controversies between eBay and the user, and not to controversies between users. The seller will not be able to use eBay's arbitration clause in the dispute over the Dr. Pepper dispenser.

In the case of the spurned eBay buyer's thirst for justice, it's "sellers beware" when serving up sales to non-winning bidders.

The court's opinion is online in a PDF file, you must have Adobe Acrobat Reader to view the file: http://www.tsc.state.tn.us/opinions/tca/PDF/024/EvansD.pdf