Since Torts 101, we learned the general products liability rule that everyone in the “chain of distribution,” which can include the designer, manufacturer, retailer, wholesaler, suppliers and distributors, could potentially be held liable for a defective product. In fact, most litigators take for granted that a brick and mortar retailer, like Home Depot, Walmart or PetSmart, could be dragged into a lawsuit, in place of a foreign manufacturer for simply selling the product from its store.

In fact, since the Pennsylvania Supreme Court adopted Section 402A of the Second Restatement of Torts in 1966 in Webb v. Zern, 220 A.2d 853, 854 (1966), the law of the commonwealth (and in most jurisdictions) has been: “One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if the seller is engaged in the business of selling such a product, and it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold … Subsection (1) applies although the seller has exercised all possible care in the preparation and sale of his product, and the user or consumer has not bought the product from or entered into any contractual relation with the seller.” Further, the word “seller” has been expansively defined by our courts, Oberdorf v. Amazon.com, 295 F. Supp. 3d 496, 500 (M.D. Pa. 2017); which has allowed plaintiffs to reach most manufacturers, wholesalers and retailers and bring them in 402A defendants despite their lack of involvement in the manufacturing of the product at issue.

But, times have changed, and Amazon, Inc.—the world's third-biggest retailer according to Stores magazine—has been on a winning streak recently racking up win after win in federal court, where they have been declared as not a seller and therefore are not subject to liability for defective products sold on its website, and processed for delivery by its warehouses.

Most recently, the U.S. Court of Appeals for the Fourth Circuit, on May 22, issued an opinion in Erie Insurance v. Amazon.com, (4^th Cir. COA, No. 18-1198), finding that “Amazon was not … a seller and therefore did not have liability under Maryland law for the allegedly defective product sold on its website by a third party seller.”

Current State of the Law: Not a Seller

Erie involved a subrogation action brought by Erie Insurance as subrogree of its insureds, Minh and Anh Nguyen. The Nguyens received a battery powered headlamp as a gift from their friend Trun Cao, who had purchased the headlamp from Amazon. It was alleged by Erie that the headlamp was defective and that the defect was the proximate case of a fire that severely damaged the Nguyens' home.

In coming to its decision that Amazon was “not a seller” and therefore products liability theories could not be brought against it, the circuit court analyzed Amazon's agreements with product sellers; its actions with respect to said products; and its notices on its website. The court noted that Cao had purchased the headlamp from Amazon, but that the website specifically noted that the product was “sold by” a third-party company named Dream Light and “fulfilled by” Amazon. Further the court noted that the headlamp was ultimately delivered to Cao by UPS Ground.

According to the evidence in the case, the agreement between Dream Light and Amazon was governed by “Amazon services  business solutions agreement,” pursuant to which Amazon would provide “logistics services” for a fee. In essence, Dream Light would send its headlamps to an Amazon warehouse for storage and Amazon would place the headlamp on its website—at a price set by Dream Light. Once an order was made for a headlamp, Amazon would retrieve the headlamp from its warehouse, box it up, and ship it—in this case by UPS Ground—to the purchaser. Amazon would also handle the collection of payment and, after taking its service fee, would send the remaining proceeds to Dream Light.

Based on this model, Erie argued, “The purchaser ordered from Amazon, using Amazon's website. The purchaser paid Amazon directly. Amazon packaged the product, in Amazon's warehouse, delivered it to the carrier, assumed the risk of credit card fraud, received payment, collected Amazon's fee and presumably forwarded any remaining balance to Dream Light. The purchaser never had direct contact—or, really, privity of any sort—with Dream Light. The contract was between him and Amazon, not between him and Dream Light … the purchaser, of course, reasonably assumed that title passed directly from Amazon to him, inasmuch as all of his dealings were with Amazon.”

In rejecting that argument, the court of appeals noted that Maryland law imposed liability on the seller, and it would use the plain meaning of the word seller. The court held that a seller was, “one that offers property for sale,” with “sale” defined as “the transfer of ownership of and the title to property from one person to another for a price.” The court went on to reason that when Dream Light “transferred possession of the headlamp to Amazon, without Amazon's payment of the headlamp's price or an agreement transferring title to it, Amazon did not, by that simple transfer, receive title.” The court went on to further state that, at least with respect to the headlamp, Amazon was merely the conduit (albeit, as admitted by the court, an extensively involved conduit) for facilitating the sale between Dream Light and Cao; the court even compared Amazon's role to that of UPS Ground's role as the shipper of the product (versus the seller). In sum, the court noted that without title passing to the consumer directly from it, Amazon could not be held liable for the allegedly defective product.

In a similar case, Oberdorf v. Amazon.com, 295 F. Supp. 3d 496, 500 (M.D. Pa. 2017), cited by the Erie court, the U.S. District Court for the Middle District of Pennsylvania also found for Amazon and reasoned that while the Pennsylvania Supreme Court has yet to weigh in on whether an “online sales listing service like Amazon Marketplace” qualifies as a seller, the Oberdorf court felt that it would side with Amazon and declare that Amazon was “merely a third-party vendor's 'means of marketing.'” The court went on further state, “because of the enormous number of third-party vendors (and, presumably, the correspondingly enormous number of goods sold by those vendors) Amazon is similarly “not equipped to pass upon the quality of the myriad of products” available on its Marketplace,” and therefore “Amazon Marketplace serves as a sort of “newspaper classified ad section.”

When a Concurring Opinion Is a Dissent

Judge Diana Gribbon Motz of the U.S. Court of Appeals for the Fourth Circuit filed a concurring opinion in Erie where she outlined her support for the court's holding, which she claims was based on the current state of the law. However, Motz went on to further state that she did not believe that their holding would stand the test of time.

Motz noted, “although at the moment, Maryland law supports the result we reach, much of the state's products liability law was adopted at a time when the American economy operated much differently than it does now”… “Amazon disrupts the traditional supply chain.” Moreover, she takes a shot at Amazon's model by stating, “Amazon's business model shields it from traditional products liability whenever state law strictly requires the exchange of title for seller liability to attach, in many cases forcing consumers to bear the cost of injuries caused by defective products (particularly where the formal seller of a product fails even to provide a domestic address for service of process).”

Motz muses that, while it was not their place to change law as a court sitting in diversity, it may only be a matter of time that the state courts change the common law that resulted in their decision, when, “in light of changed conditions or increased knowledge, the former rule has become unsound in the circumstances of modern life.” That said, Motz notes that the change in the law has been “stunted” due to “Amazon's strategy of removing nearly every products liability case to federal court.” And, closes her concurring opinion with the following line, “But legislative reforms, nonremovable lawsuits, and (in appropriate cases) certification remain available to consumers and state leaders who seek to confront these uniquely modern challenges.”

Takeaways

For now, pursuant to the current law, the products liability practitioner should exercise extra caution when litigating against a product sold through Amazon. Assuming it is not an actual Amazon-branded product, the actual product manufacturer must be brought in as an original defendant. As noted above, the current state of the law, would not allow for a products liability recovery against Amazon for goods sold on its site (while arguably it would against a Home Depot for something it sold in its store). Accordingly, while it may prove difficult, as more and more manufacturers are foreign entities with no domestic service addresses, a suit solely against Amazon for a product sold through Amazon.com would likely yield a defense verdict.

Will Sylianteng is the managing member of Wes Litigation Group, which he founded in 2013. He focuses his practice on litigation, subrogation and recovery, insurance coverage/bad faith and e-discovery. Contact him at [email protected].