This article was reprinted with permission from Bicycle Retailer and Industry News
By Steven W. Hansen, Esq.
Update 11/19/20: The California Supreme Court on 11/18/20 denied Amazon.com LLC’s
bid for judicial review of this case decided earlier this fall. So that mean this case is now a legally cite-able precedent and is "the law" in Calif.
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.
