Frozen PayPal and marketplace funds: what to do, step by step

A federal court order can freeze an Etsy seller's PayPal balance and marketplace funds before the seller sees a single court document. The listings go down, the money stops moving, and the first sign of trouble is often a PayPal email saying the account has been restricted. That sequence is not an accident – it is the design of the "Schedule A Defendants" mechanism, where plaintiffs obtain a temporary restraining order (TRO) and asset freeze from a US federal court before notifying the defendant at all.

TL;DRWhen PayPal and Etsy marketplace funds are frozen by a federal court order, the freeze is tied to a TRO obtained as part of a Schedule A IP lawsuit. The order can be challenged: a seller can move to dissolve or modify the asset freeze, contest personal jurisdiction and joinder, and open settlement discussions – but the procedural window moves quickly, and a weak or delayed response narrows the available options. Acting within days of learning about the freeze is critical.

This guide walks through each step in order – from confirming what has actually happened, to filing a motion, to deciding whether to settle or fight. At each stage there is a decision point, and the right choice depends on the specific wording of the order, the plaintiff's conduct, and the account history.

What actually caused your funds to freeze?

The freeze is the result of a TRO, not a marketplace policy decision – and that distinction changes every step that follows.

When Etsy suspends an account for policy reasons, the seller interacts with Etsy's seller support and appeals teams. When funds are frozen because a US federal court has issued a TRO in a Schedule A lawsuit, the relevant actor is the court, not Etsy. Etsy and PayPal are merely complying with the court's order. Appealing to Etsy's Trust and Safety team or sending PayPal a dispute claim will not work, because neither company has the authority to release the funds while the court order stands.

A Schedule A complaint is a mass-joinder IP lawsuit, most commonly for trademark or copyright infringement, filed in a US federal district court. The plaintiff – typically a brand owner or their counsel – lists dozens or hundreds of online sellers as anonymous "Schedule A Defendants." The court is asked to grant a TRO that simultaneously notifies the marketplace and payment processors to freeze assets. Because the TRO is granted ex parte (without the defendant present), most sellers first learn about the case when their funds stop moving.

In matters we handle, sellers often describe the same first hour: PayPal is locked, Etsy shows a funds hold, and a search of their shop name eventually turns up a case filing in the Northern District of Illinois, the Southern District of New York, or another commonly used venue. That moment of recognition is the start of the procedural clock.

For a fuller picture of the Schedule A mechanism and how it operates, the Schedule A TRO defense: the complete guide for sellers covers the structure of these cases from origination to resolution.

Step one: confirm the scope of the order and the case details

Before anything else, you need the actual court order in hand – not a summary, not an email from PayPal, but the filed document from the court docket.

PayPal's restriction notice and Etsy's funds-hold notification will rarely include the case number or the full text of the TRO. You need to locate the case. Federal court records are publicly accessible on PACER (Public Access to Court Electronic Records). If you have any identifying information – the plaintiff's brand name, the name on the PayPal account, the Etsy shop name – you can search PACER for a complaint filed against Schedule A Defendants in which your shop appears.

Once you have the order, read it carefully for three things. First, what does the order actually restrain? Some orders freeze all funds in the account; others are limited to funds derived from the allegedly infringing goods. The scope affects how much of your balance is genuinely at issue. Second, what is the TRO expiration date? A TRO issued without notice to the defendant is limited under the Federal Rules of Civil Procedure to a defined period, after which it must be converted to a preliminary injunction or it lapses. Federal Rule 65(b) caps a non-consent TRO at 14 days, extendable once for good cause – meaning the plaintiff must return to court relatively quickly. Third, has the court set a hearing date for a preliminary injunction? That date is your primary external deadline.

Check also what platform identifiers appear in the Schedule A exhibit. Plaintiffs sometimes include sellers whose shops do not actually sell the allegedly infringing goods – mistaken inclusion is more common than sellers expect, and it is immediately relevant to your defense posture.

Step two: preserve everything and stop making it worse

The second step runs in parallel with the first and is equally urgent: preserve your records and make no moves that could harm your position.

Do not transfer inventory, close related accounts, or move funds between payment accounts. Any transfer of assets after a court order is issued can expose you to a contempt of court finding, which is far more serious than the underlying IP claim. If you have inventory in Amazon FBA, do not request a removal order that results in funds being moved; that too can be read as circumventing the freeze.

Preserve everything that establishes your sourcing and sales history. Download your Etsy order history, your PayPal transaction records, any supplier invoices, and your product listings as they existed before the freeze. This evidence is directly relevant to whether you were selling an infringing product, and it is also needed for the bond hearing and any settlement discussion.

The emergency response to an asset freeze: the response checklist gives a more granular list of preservation steps calibrated to the first 72 hours after a freeze notice.

Step three: assess your position honestly before choosing a path

The single most common mistake sellers make when handling a Schedule A case without legal help is picking a response posture before they understand what they are actually accused of – and what the plaintiff can prove.

There are genuinely different situations inside "Schedule A defendant," and the right path depends on which one you are in. Were you selling a product that infringed the plaintiff's trademark? Were you selling an authorized or licensed product that the plaintiff is mischaracterizing as counterfeit? Were you included by mistake – a shop with a similar name or a product category that overlaps? Or were you selling a product that is legitimately generic or unbranded, and the plaintiff's mark is narrower than they are asserting?

Each of those situations calls for a different approach. A mistaken inclusion is resolved fastest by producing evidence directly to plaintiff's counsel showing you do not sell the product at all, combined with a motion to dismiss. A legitimate-authorization defense requires documentation of the supply chain. A direct infringement case where the product is clearly counterfeit is most often resolved through settlement – fighting to trial is rarely the right commercial decision, and the asset freeze will persist during any prolonged litigation.

We regularly see sellers who spent weeks drafting their own motions before they had a clear view of the strength of the plaintiff's case – and some of those motions worsened the seller's position by conceding facts unnecessarily. Understanding the actual merits first is not a luxury; it determines the entire strategy.

Step four: decide whether to move to dissolve the freeze or negotiate first

Once you understand your position, you face the key strategic decision: move to dissolve or modify the TRO, or open a settlement channel – or, frequently, both at once.

A motion to dissolve or modify the asset freeze argues that the court should release some or all of the frozen funds, either because the freeze was improperly obtained, because it is overbroad relative to the alleged harm, or because the seller has been mistakenly named. To succeed on this motion, you typically need to establish: (1) the plaintiff cannot demonstrate a likelihood of success on the merits against you specifically; (2) the balance of hardships favors release; or (3) the order is procedurally defective.

Personal jurisdiction is a separate but related argument. Many Schedule A complaints are filed in a district with no meaningful connection to the defendant. An Etsy seller in a different state – or outside the US – may have strong grounds to challenge whether the court has any authority over them at all. Misjoinder is another common challenge: the plaintiff lumped together many unrelated defendants in one case to pay one filing fee and obtain one TRO, but the defendants have nothing in common other than selling a similar product category. Courts have increasingly been willing to sever misjoined defendants and dismiss for lack of personal jurisdiction.

In parallel, opening a settlement channel rarely forecloses the motion. In many matters, plaintiffs are willing to release funds as part of a negotiated resolution, and knowing that you are prepared to litigate the dissolution motion gives you real leverage. The decision to prioritize the motion versus negotiation depends on how strong your procedural arguments are and how much the frozen balance matters commercially relative to the cost of continued litigation.

Step five: file the motion – and know what the realistic timeline looks like

If the decision is to file a motion to dissolve or modify the asset freeze, it must be done correctly and promptly.

The motion will typically include a memorandum of law setting out the legal standard, your declaration or affidavit providing facts, and evidentiary exhibits – your sourcing records, sales data, and any correspondence with the plaintiff. The plaintiff gets an opportunity to respond, and the court will often hold a hearing. In cases we handle, the gap between filing and a hearing is typically measured in weeks, not months, though that varies by judge and district.

What decides the motion? On the freeze specifically, the court will look at whether the plaintiff posted an adequate bond, whether the freeze amount is proportionate to the claimed harm, and whether you have presented credible evidence that the underlying infringement claim is contestable. A well-evidenced motion filed quickly – before the plaintiff has further entrenched the order – has a genuinely different outcome profile than one filed after a preliminary injunction has already been granted.

This is the step where most sellers who are handling the matter without counsel run into the most serious problems. Federal court procedural rules are unforgiving on timing and format. A motion filed after the wrong deadline, or one that fails to address the correct legal standard, can be denied without reaching the merits. For context on how this plays out in practice, counterfeit allegation in federal court: the current state for sellers covers the current judicial treatment of Schedule A motions across the main filing venues.

A mid-market apparel seller on Etsy (winter 2025) came to our practice after a TRO had been in place for nearly three weeks without any response from the seller. The frozen PayPal balance represented the seller's only available operating capital. We located the case, identified a personal-jurisdiction argument and a misjoinder argument, and filed a motion to dissolve. The court held a hearing, the plaintiff agreed to release a portion of the funds pending resolution, and the matter ultimately settled on terms the seller considered acceptable. The seller's chief concern – having no cash to fulfill orders on a separate channel – was addressed within the motion itself, which argued the freeze was causing disproportionate commercial harm.

Step six: resolve the case – settlement, dismissal, or default-judgment defense

Schedule A cases typically resolve in one of three ways: a negotiated settlement, a dismissal (voluntary by the plaintiff or ordered by the court), or – the outcome every defendant should avoid – a default judgment.

Settlement is the most common resolution. The plaintiff typically wants an agreement that the defendant will stop selling the allegedly infringing goods, combined with a payment. The amount in negotiated settlements varies widely based on the size of the frozen balance, the strength of the defendant's position, and how many of the other Schedule A defendants have already settled. Being an active, represented defendant with a pending dissolution motion puts you in a materially better settlement position than a seller who has gone silent.

Dismissal on procedural grounds – personal jurisdiction, misjoinder, or failure to establish the TRO's factual basis – is a real outcome in appropriate cases. It is not the most common resolution, but it is not rare either, particularly where the seller was clearly not selling the specific product described in the complaint.

Default judgment is what happens when a defendant does nothing. The court enters judgment by default, which can include a permanent injunction, statutory damages, and a permanent freeze or forfeiture of the account balance. Statutory damages under the Lanham Act can be substantial in the context of a marketplace seller's revenue. A default judgment is extremely difficult to set aside after the fact. The most important thing a seller can do is respond – any response – within the time allowed.

Is being named in a Schedule A case an automatic loss? It is not. That assumption – that the plaintiff's filing is itself proof of infringement – is the most persistent and damaging myth we see in this area. Plaintiffs in Schedule A cases range from brands with strong, legitimate claims to opportunistic filers whose marks are weak or whose enforcement is overbroad. The quality of the underlying claim matters, and it is one of the first things we assess.

Where this process goes wrong

A few failure patterns appear consistently in Schedule A matters we take over after a seller has tried to handle them alone.

The most common is delay. Sellers often spend the first week in denial – assuming the freeze is a PayPal glitch, waiting for Etsy to respond to a support ticket, or hoping the case will go away. By the time they engage with the actual court process, the TRO has been converted to a preliminary injunction, which is harder to dissolve and carries a different legal standard. Every day matters in the first two weeks after a freeze.

The second is treating it as a marketplace dispute rather than a federal case. Sellers sometimes spend days on Etsy's appeals process, which has no effect on a court order. Etsy cannot release funds that a court has ordered frozen. That time is better spent identifying the case and assessing the motion options.

The third is over-disclosure in early communications with plaintiff's counsel. Plaintiff's attorneys in Schedule A cases often reach out to defendants early, offering settlement. Those conversations are appropriate to have – and often productive – but what a defendant says before they have counsel can bind them in ways that limit later options. An off-hand admission in an email about the product's origin can foreclose a legitimate-authorization defense.

The fourth is the assumption that a small frozen balance does not justify legal help. In our practice, the cost of a week's delay on a well-grounded dissolution motion routinely exceeds the cost of the motion itself. The question is not whether the matter is big enough to warrant attention. It is whether the frozen funds matter to the business – and for most Etsy sellers operating on standard disbursement cycles, they do.

If a first attempt at responding or communicating with the court or plaintiff has already gone poorly, a second read of the case can identify what went wrong and whether any options remain open. For a review of your specific situation, contact info@tutamenlaw.com.

Related areas

• Schedule A / TRO Defense – federal IP lawsuit defense for marketplace sellers facing asset freezes and injunctions
• Amazon account reinstatement – Plan of Action drafting and appeal strategy for deactivated seller accounts

Frequently asked questions

How long does resolving frozen PayPal and marketplace funds usually take on Etsy?

The timeline depends heavily on whether the case settles, is dismissed, or proceeds to a full hearing. In matters we handle, a negotiated resolution or a successful dissolution motion for a clearly mistaken defendant can take several weeks from the date of first engagement. Cases where the infringement question is genuinely disputed, or where the seller needs to build a detailed sourcing defense, typically take longer. The single biggest time variable is how quickly the seller acts after the freeze – delay at the start adds time at every later stage.

What are the main risks if I handle frozen PayPal and marketplace funds alone?

The principal risk is a default judgment. If no appearance is filed and no motion is submitted within the court's deadline, the court can enter judgment by default against the seller – including statutory damages and a permanent injunction. Beyond default, sellers who respond without counsel frequently miss personal-jurisdiction and misjoinder arguments that could have shortened the case, and make admissions in early communications with plaintiff's counsel that limit the available defenses. Federal court procedure is unforgiving on both timing and form.

Do I need a lawyer for frozen PayPal and marketplace funds?

A lawyer who handles Schedule A defense is not legally required, but the practical case for representation is strong. The motion to dissolve an asset freeze involves federal civil procedure, the standard for TRO dissolution, and often personal-jurisdiction arguments – areas where procedural errors are irreversible. Representation is also relevant to the settlement dynamic: a seller with filed motions and counsel is in a materially better negotiating position than one who has only sent emails to the plaintiff's attorney. The firm offers fixed fees quoted after a short review, so the cost question can be answered before any commitment.

About Tutamen

Tutamen is an independent law firm for online marketplace sellers. We represent Amazon, Walmart, Etsy and eBay sellers in account deactivations, frozen-funds recovery, intellectual-property disputes, arbitration and Notices of Dispute, and US federal Schedule A defense, plus EU marketplace regulation. Our work is attorney-led and confidential, with fees quoted up front. We act for founders, brand owners and in-house teams who need a specialist for a marketplace dispute. Two grounded reasons to reach out: every matter is handled by a qualified attorney, and every engagement is covered by attorney-client confidentiality from the first substantive contact. To discuss your situation, email info@tutamenlaw.com.

Byline: Sofia Marchetti – Partner, Schedule A / Federal Defense

Disclaimer: This article is general information, not legal advice, and does not create an attorney-client relationship. Marketplace policies and the law change, and every account and case is different. For advice on your situation, contact Tutamen at info@tutamenlaw.com.