A Link in the Chain? Developments Regarding E-Commerce Website Liability for Defective Products Sold by Third-Party Vendors

Butler Snow LLP
Contact

Butler Snow LLP

More than 100 years ago, the New York Court of Appeals issued its now-infamous opinion in MacPherson v. Buick Motor Co.,[1] which ushered American courts into a new age of personal injury jurisprudence.  Writing for the majority, renowned jurist Benjamin Cardozo eliminated the requirement of privity of contract for product-related personal injury actions, effectively allowing a downstream consumer to sue a manufacturer even though the parties had no contractual relationship.[2]  Over the ensuing century, courts and legislatures expanded, modified, and otherwise molded this concept into what practitioners now refer to as the doctrine of products liability.

Today, when a consumer alleges that she was injured by a defective product, it is possible for her to sue multiple parties in the distribution chain, although the nature and extent of liability will depend heavily on the applicable provisions of state law.  Section 402A of the Restatement (Second) of Torts, for example, imposes liability on any defendant who is “engaged in the business of selling” the subject product, regardless of whether the “seller” exercised “all possible care,” and regardless of whether the end user purchased the product directly from the “seller.”[3]  In other words, depending on the state, a plaintiff can potentially recover not only from the manufacturer, but also from wholesalers, retailers, and other downstream non-manufacturing suppliers.[4]

Although many facets of products liability have been settled in the century following MacPherson, both courts and practitioners still face uncharted waters, including those presented in cases involving products sold online.  E-commerce is an increasingly prevalent feature of daily life in the United States, especially after the meteoric rise in delivery culture prompted by the COVID-19 pandemic.[5]  Product liability practitioners should be aware of the developing law concerning an “e-tailer’s” role in the chain of distribution, and its resulting exposure to potential products liability suits, when a consumer purchases a product from a third-party vendor.

Take Amazon, for example.  The company’s website offers products for sale through three distinct platforms: (1) Amazon sells and ships goods directly to the consumer; (2) a third-party vendor sells the merchandise through Amazon’s “fulfilled by Amazon” program, under which Amazon stores, packages, and ships the sold product on the vendor’s behalf; or (3) a third-party vendor sells the product on Amazon.com, but stores, packages, and ships the product itself.[6]  Under platforms (2) and (3), Amazon handles all communication with the customer and initially obtains the customer’s payment, which it later remits to the third-party vendor.

Like other online retailers who simply sell their products directly to consumers, when acting under platform (1), Amazon fits within the meaning of “seller” under most states’ laws.  Its exposure therefore depends on how the state handles claims against downstream suppliers who played no role in the product’s design or manufacture.

In Amazon’s case, however, approximately 60% of its sales arise from orders placed with third-party vendors using platforms (2) and (3).[7]  The role of such sellers in a product liability case has been the subject of extensive litigation over the past few years.

Case in Point – Bolger v. Amazon.com, LLC

Less than a month ago, the California Court of Appeals held in Bolger v. Amazon.com, LLC that Amazon was subject to product liability claims arising from a defective battery the plaintiff purchased from a third-party vendor through the “fulfilled by Amazon” program.[8]  Amazon stored the battery at one of its fulfillment centers, packaged it using Amazon-branded shipping supplies, and sent it directly to the plaintiff, who had no contact with the third-party vendor.[9]

In reversing the trial court’s grant of summary judgment in favor of Amazon, the appeals court reasoned that Amazon was a “link in the chain of product distribution even if it was not the seller as commonly understood,” as it “created the environment (its website) that allowed [the third-party vender] to offer the replacement battery for sale.”[10]  It further explained that Amazon had “placed itself between [the vendor] and plaintiff’ in the chain of distribution” by accepting possession of the product, storing it in an Amazon warehouse, marketing it online, receiving payment, and shipping the product directly to plaintiff.[11]

Because Amazon was an “integral part of the overall producing and marketing enterprise” and “responsible for passing the product down to the consumer,” California law dictated that it should bear the cost of the injury.[12]  As such, the record did not “demonstrate as a matter of law that Amazon [could not] be held strictly liable for defects in third-party products sold through its website, at least under the circumstances here.”[13]

While the Bolger decision will undoubtedly have sweeping implications for Amazon and other e‑tailers, the court’s discussion suggests a few potential limitations.  Its use of the “at least under the circumstances here” language, coupled with its focus on Amazon’s conduct in possessing, storing, and shipping the product, at least arguably suggests that the result may have been different if the third-party defendant had not used the “fulfilled by Amazon” program.

Possession and Control of the Subject Product

Indeed, other courts have focused on the level of control the e-tailer exercises over the transaction.  In Fox v. Amazon.com, Inc., the Sixth Circuit addressed Amazon’s role in the distribution chain — and its resulting liability — under the Tennessee Product Liability Act (“TPLA”), ultimately treating the issue as a function of control.[14]

There, the plaintiffs’ home was destroyed in a fire that was undisputedly caused by a hoverboard they purchased from a third-party vendor on Amazon’s website.  That third-party vendor was judgment-proof, and the manufacturer of the product was unknown.[15]   Because the plaintiffs could not recover from either party, Amazon faced liability under the TPLA if it qualified as a “seller.”[16]

In addressing the TPLA’s definition of “seller,” which “hinged on the . . . entity’s engagement in the business of selling,” the Sixth Circuit explained that both the legislature and the Tennessee Supreme Court had indicated that “control is an important consideration underlying products liability law.”[17]  It held that the TPLA’s definition of “seller” meant “any individual regularly engaged in exercising sufficient control over a product in connection with its sale, lease, or bailment, for livelihood or gain.”[18]

The Fox court ultimately concluded, however, that Amazon was not liable under the TLPA because it did not exercise sufficient control over the hoverboard.  Although the parties disagreed over whether Amazon stored and shipped the hoverboard under its fulfillment program, the summary judgment record indicated that the hoverboard was “[f]ulfilled by [the third-party vendor].”[19]  The court, therefore, relied on the lack of evidence that Amazon shipped the hoverboard from one of its warehouses, and the fact that Amazon did not choose to offer the hoverboard for sale, did not set the price of the hoverboard, and did not make any representations about the hoverboard’s safety.[20]

The Role of Title and Ownership

Faced with facts similar to those in Bolger and Fox, some courts have imposed additional restrictions on the term “seller” and required the defendant to take and transfer title to the product.[21]  In Erie Insurance Company v. Amazon.com, Inc., for example, the consumer purchased the subject product from a third-party vendor using the “fulfilled by Amazon” program.[22]  The Fourth Circuit noted that Amazon received, stored, and shipped the product, but it rejected the plaintiff’s “control over the transaction” argument, holding that Maryland law defined “seller” as someone who passes title to the buyer for a price.[23]  Because the third-party vendor transferred title directly to the buyer, Amazon could not face liability as a member of the distribution chain.[24]

Other courts have expressly declined to impose a “passage of title” requirement.  In Fox, for example, the court rejected Amazon’s argument that it was not a “seller” because it never possessed title to the hoverboard.[25]  The court observed that the TPLA’s definition of seller expressly “include[d] ‘lessors’ and ‘bailors,’ neither of which necessarily transfers title to the products they lease or bail.”[26]

Accordingly, although Fox and other courts have rejected a “transfer of title” requirement,[27] it is clear from Erie and other decisions that the question of title could be relevant to the analysis in some jurisdictions.

Public Policy Considerations

Aside from issues of “title” and “control,” some decisions suggest that public policy may be the determinative factor.  In Oberdorf v. Amazon.com, Inc., the Third Circuit held that under Pennsylvania law, public policy considerations favored holding Amazon liable as a member of the distribution chain.[28]  There, the third-party vendor did not use the “fulfilled by Amazon” platform and instead stored, packaged, and shipped the product itself.

Applying Pennsylvania’s formulation of § 402A, the Third Circuit focused on four public policy factors governing whether a defendant is a “seller” for purposes of a product liability action: (1) whether the defendant is the “only member of the marketing chain available to the injured plaintiff for redress;” (2) whether “imposition of strict liability upon the [defendant] serves as an incentive to safety;” (3) whether the defendant is “in a better position than the consumer to prevent the circulation of defective products;” and (4) whether “[t]he [defendant] can distribute the cost of compensating for injuries resulting from defects by charging for it in his business.”[29]  Concluding that all four factors weighed in favor of labeling Amazon a “seller,” the court held that the plaintiff’s strict product liability claims could proceed.[30]

Following the panel’s ruling in Oberdorf, the Third Circuit took the case en banc and vacated the panel’s decision.[31]  In June 2020, the court issued a certified question to the Supreme Court of Pennsylvania, concluding that the case presented an “issue of first impression and substantial public importance.”[32]

In its certification order, the Third Circuit noted that Pennsylvania law was unclear as to whether the Oberdorf panel should have applied the four-factor test to the threshold issue of whether Amazon qualified as a “seller.”  It saw two possibilities — under the first approach, a court would determine whether an e-commerce business is a § 402A “seller” by weighing the four factors set forth above.[33]  Under the second, a reviewing court would apply a two-step framework and begin by addressing whether the entity is engaged “in the business of selling the product” at issue.[34]  If it is, the court would weigh the four public policy factors.  If the answer is “no,” the court would not reach the four-factor analysis because Pennsylvania’s strict liability doctrine would not apply.[35]

The Supreme Court of Pennsylvania has not yet answered the Third Circuit’s certified question, but when it does, the decision will undoubtedly shed further light on how courts are analyzing e‑tailers’ potential liability in cases involving third-party vendors.  The Supreme Court of Ohio is also set to weigh in on the issue in Stiner v. Amazon.com, Inc., which has been fully briefed and is awaiting disposition as of the date of this article.[36]

Emerging Themes

Moving forward, it is clear that Amazon and other e-commerce entities’ liability for alleged product defects will depend heavily on state law.  Nevertheless, certain themes have emerged.

Did the subject product touch an Amazon warehouse?  Was it shipped from an Amazon facility using Amazon packaging?  Did Amazon have the opportunity to inspect the product?  Did Amazon collect payment and handle all communications with the buyer?  Does the state’s product liability formulation — reflected in statutes or case law — require an entity to take title to a product in order to qualify as a “seller”?

Alternatively, does the applicable state law treat the question of a downstream supplier’s liability as a matter of public policy (such as in Pennsylvania)?

Such questions will be integral in determining whether courts will subject Amazon and other e-tailers to liability in products cases involving third-party vendor platforms.

“Sealed Container” and “Innocent Seller” Doctrines

It is also worth noting that California law, which was at issue in the recent Bolger decision, is something of an outlier on a crucial point that arises in several of these cases.  It has no “innocent seller” defense, “sealed container” doctrine, or other provision intended to “protect distributors who are merely conduits of a product.”[37]  Instead, the issue in Bolger was limited to whether Amazon played a sufficient role in bringing the battery to the consumer.

The majority of states, on the other hand, have adopted provisions which, in some form or another, limit the liability of non-manufacturing sellers and other parties that appear downstream in the distribution chain.  The Tennessee Products Liability Act (“TPLA”) provides, for example, that a plaintiff may not maintain a product liability action against “any seller, other than the manufacturer, unless:

(1) The seller exercised substantial control over that aspect of the design, testing, manufacture, packaging or labeling of the product that caused the alleged harm for which recovery of damages is sought;

(2) Altered or modified the product, and the alteration or modification was a substantial factor in causing the harm for which recovery of damages is sought;

(3) The seller gave an express warranty . . .;

(4) The manufacturer or distributor of the product or part in question is not subject to service of process in this state and the long-arm statutes of Tennessee do not serve as the basis for obtaining service of process; or

(5) The manufacturer has been judicially declared insolvent.”[38]

Alabama law contains similar limitations.  A plaintiff can only recover from an “innocent” final seller or other downstream supplier if she is unable, “despite a good faith exercise of due diligence,” to identify the manufacturer.[39] Mississippi and Georgia take this a step further and essentially prevent downstream suppliers from being sued under any strict products liability theories.[40]

The TPLA’s “innocent seller” exceptions were expressly implicated in Fox v. Amazon, where the third-party vendor and manufacturer were judgment-proof and unknown, respectively.[41]   Had the manufacturer or third-party vendor been available and solvent, Amazon may have been shielded entirely by the TCPA’s “sealed container” defense.  In other words, if the manufacturer were an available defendant, the Sixth Circuit wouldn’t have needed to address whether Amazon qualified as a “seller.”

In Oberdorf, neither the plaintiff nor Amazon could locate the third-party vendor or its representative, and the manufacturer’s identity was unknown.[42]  Amazon, therefore, stood “as the only member of the marketing chain available to the injured plaintiff for redress.” [43]  Although Pennsylvania has no bright-line rule, it treats the manufacturer’s availability as a factor in the public policy analysis, and the Oberdorf court found that it weighed heavily in favor of imposing strict liability on Amazon.[44]

In states with ironclad “sealed container” defenses, such as Georgia and Mississippi, the definition of “seller” would have likely been a red herring.   These states effectively maintain absolute bars to strict product liability claims against non-manufacturing parties.  If a plaintiff sued under the laws of Georgia, Mississippi, or a state with similar provisions, an e-tailer would likely prevail on a Fed. R. Civ. P. 12(b)(6) motion or, at the very least, an early summary judgment.

Legislation

Aside from judicial decisions in product liability cases, other events, including proposed state legislation in California, will likely impact e-commerce liability.   California’s proposed bill AB‑3262, for example, is designed to make it easier for consumers to sue e-tailers that play a role in bringing products to the market.  Subject to certain exceptions, the bill would require an “electronic retail marketplace” to be held strictly liable “to the same extent as a retailer” for “all damages caused by defective products placed into the stream of commerce.”[45]

Notably, after the California appeals court published its decision in Bolger, Amazon made a surprising maneuver and issued a public statement indicating that it would support California’s AB-3262 bill under certain conditions.  Specifically, Amazon explained that, so long as the law applies “equally to all stores” and does not condition liability on the way a given online marketplace operates, it would support the legislation.[46]  Following this proclamation, the California Senate amended the bill and struck an exemption for websites that simply receive a fee for advertising a vendor’s product.[47]

Conclusion

Ultimately, an e-tailer’s exposure to product liability claims arising from third-party vendor marketplaces will hinge heavily on state law, and whether the applicable product liability formulation focuses on control, public policy, the passage of title, or something else.  Strong “innocent seller” and “sealed container” doctrines may bar recovery entirely, but in other cases, these defenses will depend on the solvency of the manufacturer or other responsible parties.

In any event, the Supreme Court of Pennsylvania’s answer to the Oberdorf certified question, the Ohio high court’s decision in Stiner, and the California legislature’s disposition of AB-3262 will help flesh out the issues further.  Product liability practitioners should keep an eye out for these decisions.


[1] 217 N.Y. 382, 111 N.E. 1050 (N.Y. 1916).

[2] Id. at 389-90.

[3] Restatement (Second) of Torts § 402A: Special Liability of Seller of Product for Physical Harm to User or Consumer (Amer. Law Inst. 1965).

[4] See, e.g., Oberdorf v. Amazon.com Inc., 930 F.3d 136, 154 (3d Cir.), reh’g en banc granted, opinion vacated, 936 F.3d 182 (3d Cir. 2019) (stating that Pennsylvania’s formulation of § 402A allows a product user to file a strict products liability claim against a non-manufacturing seller); Bolger v. Amazon.com, LLC, — Cal. Rptr. 3d —, 2020 WL 4692387, at *1-21 (August 13, 2020); Tex. Civ. Prac. & Rem. Code Ann. § 82.003(a)(7) (providing that non-manufacturing sellers are subject to strict liability where, inter alia, manufacturer is insolvent or not subject to jurisdiction).

[5] According to Digital Commerce 360 analysis of U.S. Department of Commerce data for the first six months of 2020, consumers spending online increased 30.1% when compared to the same period in 2019.  See https://www.digitalcommerce360.com/2020/08/25/ecommerce-during-coronavirus-pandemic-in-charts/

[6] See Oberdorf, 930 F.3d at 154.

[7] See Amazon 2018 Annual Report, supra note 2 (Jeffrey P. Bezos 2018 Letter to Shareholders), available at https://blog.aboutamazon.com/company-news/2018-letter-to-shareholders

[8] Bolger v. Amazon.com, LLC, — Cal. Rptr. 3d —, 2020 WL 4692387, at *1-21 (August 13, 2020).

[9] Id. at *5.

[10] Id. at *10-11.

[11] Id. at *5, 11.

[12] Id. at *11.

[13] Id. at *18 (emphasis added).

[14] Fox v. Amazon.com, Inc., 930 F.3d 415, 423-25 (6th Cir. 2019).

[15] Fox, 930 F.3d at 423-25.; see also Tenn. Code Ann. § 29-28-106(4).

[16] Id.; see Tenn. Code Ann. § 29-28-106 (providing that non-manufacturing sellers and distributors are only liable in a strict product liability case under certain circumstances).

[17] Id. at 423-24.

[18] Id. at 424-25.

[19] Id. at 418.

[20] Id. at 425.

[21]  Erie Ins. Co. v. Amazon.com, Inc., 925 F.3d 135, 141 (4th Cir. 2019); See also Eberhart v. Amazon.com, Inc., 325 F. Supp. 3d 393, 398 (S.D.N.Y. 2018) (explaining  that, under New York law, an entity’s failure to take title to a product necessarily places it outside the chain of distribution).

[22] Erie, 925 F.3d at 138.

[23] Id. at 141-42.

[24] Id.

[25] Fox, 930 F.3d at 422-23.

[26] Id. at 423.

[27] See, e.g., State Farm Fire & Cas. Co. v. Amazon.com, Inc., 390 F. Supp. 3d 964, 970 (W.D. Wis. 2019); Allstate New Jersey Ins. Co. v. Amazon.com, Inc., 2018 WL 3546197, at *8 (D. N.J. July 24, 2018)

[28] Oberdorf, 930 F.3d at 142.

[29] Id. at 144.

[30] Id. at 144-49.

[31] See Oberdorf v. Amazon.com, Inc., 930 F.3d 136, 142 (3d Cir.), vacated and reh’g en banc granted, 936 F.3d 182 (3d Cir. 2019).

[32] Oberdorf v. Amazon.com Inc., No. 18-1041, 2020 WL 3023064, at *4 (3d Cir. June 2, 2020).

[33] Id. at *2.

[34] Id. at *2-3.

[35] Id. at *2.

[36] Stiner v. Amazon.com, Inc., 120 N.E.3d 885, 891 (Ohio Ct. App.) (concluding Amazon was not a “seller” under Ohio statutory definition encompassing a person that, in the course of business, sells or places a product in the stream of commerce), appeal allowed, 156 Ohio St. 3d 1487, 129 N.E.3d 461 (Ohio 2019).

[37] See O.C.G.A. § 51-1-11.1; Miss. Code. Ann. § 11-1-63(h).

[38] Tenn. Code Ann. § 29-28-106(4); see also N.C. Gen. Stat. Ann. § 99B-2(a) (providing “sealed container” immunity from strict liability for non-manufacturing sellers unless the manufacturer is not subject to court’s jurisdiction); Tex. Civ. Prac. & Rem. Code Ann. § 82.003(a)(7).

[39] Ala. Code § 6-5-521(b), (c).  The Alabama Code and other similar state laws provide, of course, that these protections do not apply where a seller or other downstream distributor is accused of independent negligence or other misconduct.  See Ala. Code § 6-5-521(b)(4).

[40] See O.C.G.A. § 51-1-11.1; Miss. Code. Ann. § 11-1-63(h).  Again, both Georgia and Mississippi law allow sellers to face liability for independent acts of negligence.

[41] Fox, 930 F.3d at 423-25.; see also Tenn. Code Ann. § 29-28-106(4).

[42] Oberdorf, 930 F.3d at 145.

[43] Id.

[44] Id.

[45] https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB3262

[46] https://blog.aboutamazon.com/policy/amazon-stands-ready-to-support-ab-3262-if-all-stores-are-held-to-the-same-standards

[47] See id. (as amended on August 24, 2020).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Butler Snow LLP | Attorney Advertising

Written by:

Butler Snow LLP
Contact
more
less

Butler Snow LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.