Amazon's Seattle headquarters. Photo: Miune/Shutterstock.com

The online retail giant Amazon may be liable under products liability laws for defective products sold by third-party vendors, a federal appeals court has ruled, reversing a federal trial court and potentially setting the stage for a split among federal courts on the issue.

The U.S. Court of Appeals for the Third Circuit ruled Wednesday that Amazon is a “seller” as the term is defined in the Second Restatement of Torts, and therefore subject to Pennsylvania's strict liability laws. The 2-1 panel decision reversed a ruling from the U.S. District Court for the Middle District of Pennsylvania, which predicted that the state Supreme Court would not consider the company to be a “seller” for strict liability purposes.

Amazon had contended that, under the test outlined in a 1989 Pennsylvania Supreme Court decision, it could not be held liable as a “seller,” but Senior Judge Jane Richards Roth, who wrote the majority opinion, determined that questions in that test regarding whether the company was in a position to prevent the circulation of defective products and whether imposing liability would incentivize safety weighed in favor of designating the company as a “seller” under 402A of the Second Restatement of Torts.

“Amazon's customers are particularly vulnerable in situations like the present case,” Roth said. “Neither the [plaintiffs] nor Amazon has been able to locate the third-party vendor, The Furry Gang. Conversely, had there been an incentive for Amazon to keep track of its third-party vendors, it might have done so.”

The ruling bucks a recent trend where both the Fourth and Sixth circuits held that the company could not be liable as a seller under state product liability laws.

David Wilk of Lepley, Engelman, Yaw & Wilk in Williamsport, Pennsylvania, who represented the plaintiffs, said that since the opinion waded into both the Second Restatement of Torts and Pennsylvania law, it was not immediately clear how broadly the ruling should apply, and whether it may split with recent federal court decisions. However, he said, he anticipates the retailer will appeal the ruling, which he said was a recognition of a changing retail market.

“I think, fundamentally, it's a recognition that antiquated ideas of what a seller is need to adapt and change, given the preeminent dominance Amazon has in the marketplace,” he said. “We're certainly gratified that the Third Circuit listened to our argument.”

The lawsuit stemmed from an eye injury Heather Oberdorf sustained while walking her dog in early 2015. According to the allegations, she was using a leash she'd purchased a month earlier through Amazon.com from a company called The Furry Gang. When the leash malfunctioned it snapped backward and struck her in the face, allegedly leaving her with permanent loss of vision.

After the incident, Oberdorf was unable to locate The Furry Gang or contact the manufacturer directly. She subsequently sued Amazon.com alleging products liability, breach of warranty and duty, and negligence.

U.S. District Judge Matthew Brann of the Middle District of Pennsylvania dismissed the case, determining that although state courts have defined the term “seller” broadly under Pennsylvania's products liability law, some companies, such as auction houses, function more as a means of marketing and should not be considered sellers.

Amazon had asked the Third Circuit to uphold Brann's ruling, arguing that, under the Pennsylvania Supreme Court's decision in Musser v. Vilsmeier Auction Co., it could not be deemed a “seller.”

Musser outlined four factors courts should look to when determining whether an actor is a “seller” for strict liability purposes: whether the company is the only member of the marketing chain that the plaintiff can sue, whether imposing liability would create safety incentives, whether the actor is in a better position to stop the circulation of defective products and whether the actor can distribute the costs of the injuries from the allegedly dangerous products.

Amazon contended that it is not the only member of the marketing chain, since every product it sells involves a third-party vendor, and that it does not have any relationship with the product designers or manufacturers that would allow it to control the safety.

Roth noted that in his dissent Judge Anthony Scirica cited recent decisions from the Fourth and Sixth circuits, as well as the Southern District of New York and the Northern District of Illinois, which had declined to hold the company liable.

Roth, however, said Amazon's platform allowed vendors to conceal themselves from customers, leaving the injured plaintiffs without any recourse, and that the company is in the best position to block the sale of defective products.

“Amazon is uniquely positioned to receive reports of defective products, which in return can lead to such products being removed from circulation,” Roth said. “Third-party vendors, on the other hand, are ill-equipped to fulfill this function, because Amazon specifically curtails the channels that third-party vendors may use to communicate with customers.”

Roth also said the rulings that Amazon relied were based on other states' statutes, and did not shape the court's analysis.

“Amazon contends that we should construe 'seller' as a person who transfers a thing that she owns to another in exchange for something of value, usually money,” Roth said. “This concept runs squarely against Pennsylvania case law that does not require an actor to possess or hold title to an item in order to be considered a 'seller' for purposes of 402A.”

Laura Hill of Perkins Coie in Seattle, who represented Amazon, did not return a call seeking comment.