Showing posts with label 2020. Show all posts
Showing posts with label 2020. Show all posts

August 23, 2020

California Court rules that Amazon does have liability for a defective product (Bolger v Amazon.com LLC)

This article was reprinted with permission from Bicycle Retailer and Industry News  

By Steven W. Hansen, Esq.

An appeals court in California ruled Thursday that Amazon is not shielded from liability for defective products sold by third-party sellers through its online marketplace.

Nationally this California Appellate case is one of the first decided against Amazon holding them directly liable for a defective product sold on its marketplace. It remains to be seen what happens on somewhat similar cases pending in state and federal courts throughout the country. On a related issue, the California Legislature is considering a bill (AB-3262 Product liability: electronic retail marketplaces) that would treat “electronic retail marketplaces” like retailers for purposes of California strict liability law. The future of this bill is uncertain and most if not all of California law regarding product liability is case law not statutory law.

The plaintiff in the California case, Angela Bolger, bought a replacement laptop computer battery on Amazon.com in 2016.

The listing for the battery on Amazon identified the “seller” (“sold by”) as “E-Life,” a fictitious name used on Amazon by Lenoge Technology (HK) Ltd. (Lenoge). Amazon charged Bolger for the purchase, retrieved the laptop battery from its location in an Amazon warehouse, (as this was an “FBA” sale or “fulfillment by Amazon”) prepared the battery for shipment in Amazon-branded packaging, and sent it to Bolger. Bolger alleged the battery exploded several months later, and she suffered severe burns as a result.

Interestingly a month after the purchase Amazon suspended Lenoge’s selling privileges because it became aware of a “grouping” of safety reports on Lenoge’s laptop batteries and Lenoge did not respond to Amazon’s requests for documentation. Three weeks later, Amazon permanently blocked Lenoge’s account.  Bolger sued Amazon in January 2017 and several other defendants, including Lenoge, alleging causes of action for strict products liability, negligent products liability, breach of implied warranty, breach of express warranty, and “negligence/negligent undertaking.” Lenoge was served but did not appear, so the trial court entered its default. Other entities were sued as well but foreign service of process was going to take 2-3 years. Three months after suit was filed, Amazon sent Bolger an email warning her that Amazon had learned that the Lenoge replacement battery “may present a fire hazard or not perform as expected…If you still have this product, we strongly recommend that you stop using the item immediately.”

What is most interesting to us is that there is no record of any CPSC recall regarding this battery or related companies which would be required before any notification were sent to a consumer regarding a safety issue; unless of course Amazon did not consider itself a seller or in the retail chain. Ironically there is still an Amazon seller named “Lenoge” selling laptop batteries on the site as of this writing.

After almost two years of litigation, Amazon moved for summary judgment, arguing primarily that the doctrine of strict products liability, as well as any similar tort theory, did not apply to it because Amazon did not design or manufacture the product, sell or distribute the battery, set the price, provide a warranty, or control the terms of the product offer. Similarly, Amazon argued it was not involved in sourcing the subject battery from the manufacturer or upstream distributor.” Amazon also submitted a declaration from an Amazon senior manager responsible for product safety, investigations, and recalls who asserted that “E-life retained title to the battery at all times,” and “E-life was also responsible for ensuring the battery that it sold to [Bolger] was properly packaged and complied with all applicable laws.” The Amazon manager acknowledged Amazon’s A-to-z Guarantee, but she denied it was a warranty. She stated, “The only warranty provided for a product comes from the third-party seller.”

The trial court judge agreed with all of Amazon’s factual and legal arguments (even though there were likely disputed facts that could have prevented the motion from being granted), and granted Amazon’s motion, and entered judgment accordingly. 

The three-judge panel at the Court of Appeal, strongly disagreed in a very well reasoned decision. We strongly urge readers to take a look at the opinion starting at page 18 as it pretty much lays out the entire basis of product liability in California and how Amazon’s attempt to shield itself from liability was really a smokescreen for its true role in the chain of distribution.

Initially the court pointed out that “Essentially the paramount policy to be promoted by the [product liability doctrine] is the protection of otherwise defenseless victims of manufacturing defects and the spreading throughout society of the cost of compensating them.” But “the facts must establish a sufficient causative relationship or connection between the defendant and the product so as to satisfy the policies underlying the strict liability doctrine.” The court looked at older decisions where product “facilitators” had benefited from service charges in providing the product and finding liability as the “overall producing and marketing enterprise is in a better position to insure against the liability and to distribute it to the public by adding the cost thereof to the price of the product.” 

One of the key factors (although perhaps not the deciding factor) in this case was that the Lenoge supplier was participating in the FBA program with Amazon. The court painstakingly went thru the process of how the battery got from Lenoge to Amazon and from Amazon to the consumer and that Amazon was an “integral part of the overall producing and marketing enterprise that should bear the cost of injuries resulting from defective products.”. The court painstakingly went thru all of the policies underlying the doctrine of strict products liability to confirm that the doctrine should apply.

First, Amazon, like conventional retailers, may be the only member of the distribution chain reasonably available to an injured plaintiff who purchases a product on its website. 

Second, Amazon, again like conventional retailers, “may play a substantial part in insuring that the product is safe or may be in a position to exert pressure on the manufacturer to that end; the retailer’s strict liability thus serves as an added incentive to safety.”

Third, Amazon, like conventional retailers, has the capacity to adjust the cost of compensating injured plaintiffs between itself and the third-party sellers in the course of their ongoing relationship.

Amazon focused on dictionary definitions of “seller” and “distributor” and claimed it could not be held strictly liable because those definitions do not apply to it. It characterized its business as a service, i.e., a forum for others to sell their products, and therefore outside the rule of strict liability. The court felt Amazon’s arguments were unpersuasive.

First, regardless of whether Amazon selected this particular battery for sale, it chose to host Lenoge’s product listing, accept Lenoge into the FBA program, take possession of the battery, accept Bolger’s order, take her payment, and ship the battery to her. Amazon was therefore part of the chain of distribution even if it did not consciously select the Lenoge replacement battery for sale. Second, and more fundamentally, Amazon did choose to offer the Lenoge replacement battery for sale. Amazon was no mere bystander to the vast digital and physical apparatus it designed and controlled. The court reasoned Amazon made these choices for its own commercial purposes and so it should share in the consequences.

Many of the arguments Amazon asserted were contradictory. For example, Amazon argued that it did not set the price for third-party products and therefore cannot “spread the cost of defects across units sold.” But as Amazon noted, it does control its fees. If it desires, it can increase fees on high-risk products, or all products, and thereby spread the cost of compensating consumers injured by such products.  Of course, this is the problem in general with low-cost products. Costs must be cut somewhere and one of the ways to do that is by avoiding product liability and insurance costs. This is typically the case with overseas companies beyond the reach of US courts. But of course, the argument here is that Amazon does in fact have control over these overseas companies and can force them to insure Amazon.

Amazon also contended (as all internet companies do) that, regardless of its liability under California law, it is shielded by the federal Communications Decency Act (1996). The court ruled against Amazon on this issue as well as under existing case law, “while the [CDA] protects interactive computer service providers from liability as a publisher of speech, it does not protect them from liability as the seller of a defective product.” Here the liability was based on Amazon’s own conduct, as described above, not the content of Lenoge’s product listing. The court also distinguished eBay cases where eBay was not found responsible for users' false product listings.

It is important to point out that this appellate decision will almost surely be appealed by Amazon to the California Supreme court and that it could take well over a year for a final decision from that court. Once that decision comes down from the CA Supreme court (Its unclear if the US Supreme court would agree to hear this case) the case may still be sent back to the trial court for trial and appealed again from a verdict. Or the case may settle and this opinion and/or any Supreme Court opinion would stand as the law. Amazon may seek to “de-publish” the opinion so it could not be relied on as precedent. That outcome is unlikely in this case. 

The issue of Amazon’s strict liability for third-party sales has been, and continues to be, litigated in state and federal courts across the country. Some hold Amazon strictly liable while others do not.  Many of the other cases are factually distinguishable, including because the product at issue was NOT sold through Amazon’s FBA program (as in the Bolger case). Also other state statutes or case law have limited strict liability in a manner inconsistent with California law.   

So now what are the implications of the Bolger case? Well knowing Amazon and how it likes to assert its leverage over sellers, it will likely immediately start requiring very large insurance policies naming it as additional insured for all third party sellers (but especially those who use FBA) As California is such a huge market for Amazon and Amazon cannot be sure where a third party seller product may be shipped, any decision in any state holding Amazon responsible will make it such that Amazon will have to enforce the insurance requirements system-wide. Also as most plaintiffs do not pursue entities in other countries that require complex foreign service and jurisdictional issues to be overcome, it will be interesting to see how this decision forces Amazon to force the small sellers to pony up when it comes to the defense and indemnification of Amazon. The overall effect will likely be increased prices on the Amazon third party platform (even more so that post-COVIID-19) which may hurt it in its fight with Walmart.

This decision was a long time in coming but I had to say the writing was on the wall. The decision is a great read for those that want to learn about how Amazon deals with sellers. Amazon wants a big piece of the sales pie. It wanted to have total control over sellers and buyers while keeping the two isolated from each other. But when it came to liability its position was “oh we don’t sell anything and have nothing to do with the marketing of the product”. Well that facade has now been severely eroded. The emperor's lack of clothes has now been pointed out in a court decision that will be heard around the world.

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