The following is a case update written by the Hon. Meredith Jury (United States Bankruptcy Judge, C.D. Cal. Ret.), analyzing a recent decision of interest:
The California Court of Appeal has weighed in on whether Amazon is subject to strict products liability for damages arising from a defective product sold on Amazon’s website by a third-party seller. Because as a factual and legal matter, Amazon placed itself between the seller and the buyer in the chain of distribution of the product at issue, the court found Amazon was strictly liable. Bolger v. Amazon.Com, LLC, 2020 WL 4692387 (Cal. Court of Appeal, 8/13/20).
To view the opinion, click here.
Angela Bolger bought a replacement laptop computer battery on Amazon. The Amazon listing for the battery identified the seller as “E-Life”, a fictitious name for Lenoge Technology (HK) Ltd. Bolger paid Amazon for the purchase, which retrieved the laptop battery from an Amazon warehouse and shipped the battery in Amazon packaging to Bolger. Bolger alleges that a few months later the battery exploded, causing her severe burns, hospitalization, and resulting damages. She sued Amazon and several other defendants, including Lenoge which defaulted, for strict products liability, breach of implied and express warranties, and negligence claims.
After extensive discovery, Amazon moved for summary judgment, primarily arguing that the doctrine of strict products liability and similar tort theories did not apply to it because it did not “distribute, manufacture, or sell the product in question.” It claimed that as an “online marketplace” it was not the seller; Lenoge was. The trial court agreed and granted summary judgment for Amazon. The Court of Appeal disagreed and reversed, holding that Amazon was subject to strict products liability for the defective product.
The Court of Appeal (“Court”) commenced its analysis by looking at the development of strict products liability as a theory for recovery in California. Noting that the doctrine was created judicially because of a need for protection of consumers “in an increasingly complex and mechanized society”, the Court observed that the concept had been expanded where necessary to account for market realities and to cover new types of transactions in the current business world. It seized upon the online marketplace as just such new type of transaction, determining that the time was ripe to consider whether strict products liability should be extended to cover products sold in the virtual marketplace. It based its conclusion that it should be expanded to cover Amazon’s role in the Bolger purchases transaction by considering a list of factors which play a role in fixing such liability, factors which arise from perceived public policy considerations.
It began the analysis by describing the relationships between Amazon and Lenoge, Amazon and Bolger, and Bolger and Lenoge. Lenoge was a third-party seller who was enrolled in the “Fulfilled by Amazon” (FBA) program. Participants in the FBA program ship products for sale to Amazon’s warehouses; these products are presented for sale within the Amazon.com website and, if and when sold, would be shipped by Amazon to the buyer in Amazon packaging. Amazon charges the customer and handles any products returns. If the customer has a complaint against the seller, such complaint must go through the Amazon.com website and generally even when this occurs, neither the third-party seller nor the customer is given direct contact information for the other party. In essence, Amazon “owns” the customer, controlling the relationships and all communications. Amazon also reserves the right to control who may sell on its website and has frequently restricted the sale rights of third-party vendors. The third-party sellers pay a hefty price for Amazon’s services under an FBA; in the Bolger instance almost 40% of the purchase price went to Amazon.
With this factual backdrop in mind, the Court compared the nuances of an online marketplace to existing cases which had concluded that “neither the transfer of title to the goods nor a sale is required” for strict products liability to apply. If a party was a “link in the chain of product distribution even if it was not a seller”, it could still be strictly liable. The Court contemplated the following policy considerations to determine the extent of strict liability: (1) Was Amazon, like conventional retailers, the only member of the distribution chain reasonably available to an injured plaintiff who purchases a product on its website? The Court answered “yes.” (2) Did Amazon play a substantial role in insuring product safety or was it in a position to exert pressure on the manufacturer to that end? Again, the Court said “yes.” (3) Did Amazon, like conventional retailers, have the capacity to adjust the cost of compensating injured plaintiffs between itself and the third-party sellers in the course of their ongoing relationship, by requiring indemnification from the sellers and in some instances insurance coverage? Again, the Court answered “yes.”
Amazon threw up a litany of defenses, all of which were struck down by the Court. It was unable to overcome the critical element of the relationship between the parties: that it controlled the customer, including all communications and, as the Court observed, had “placed itself between Lenoge and Bolger in the chain of distribution of the product at issue here.” In that sense, it looked very much like a brick and mortar retailer, resulting in strict products liability.
The Court’s 47 page opinion goes into much greater depth about the doctrine of strict products liability, the public policy considerations behind it, and why it should be applied to Amazon when it operates under an FBA agreement than I can cover in this summary. I encourage our readers with an interest in this evolving saga to read it first-hand. The history and policy implications of strict products liability in California alone are worth the read.
This is the third case reviewed by CFN in the past 5 months which addresses Amazon’s exposure to strict products liability. Two of them found it liable and the third not. The cases, arising in different jurisdictions, are not identical because not all third-party sellers have identical relationships with Amazon. All sellers must have an Amazon Services Business Solutions Agreement (BSA) but it is discretionary to the seller, and to a certain extent Amazon, whether it has an FBA. The most “turnkey relationship” arises when an FBA is in place and it seems to be the parameters imposed by the FBA which place Amazon in the critical position in the distribution chain that caused the Court here to impose strict liability under California law. Whereas the other cases discussed the implications of the Restatement of Torts or the UCC on Amazon’s potential liability, the California court discussed neither, focusing instead on the case law development of strict liability in that state. Based on this small sample, I am unable to predict a trend. At the moment, the outcome varies depending on the state where the sales transaction takes place.
In past reviews, I have pondered the effect on small company sellers if Amazon is found liable because of the indemnification terms which will arise if that occurs. I feared Amazon’s demands on its vendors would be too expensive for small company. It is clear from this opinion that Amazon is already looking for indemnification and, in some cases, already requires it be named as a co-insured. Because these factors are already in play, it is entirely possible the court decisions will not have the negative impact on smaller sellers that I envisioned.
For discussion of similar issues, see:
- 2020-27 Comm. Fin. News. NL 53: Third Circuit Certifies Question to Pennsylvania Supreme Court on Whether Amazon Is Strictly Liable for a Defective Product That Was Purchased from Third-Party Vendor. [Oberdorf v. Amazon.com Inc., 2020 WL 3023064 (3d Cir. 2020)].
2020-6 Comm. Fin. News NL 11:New York District Court Rules in Favor of Amazon in Suit Over Defective Product Sold by Third-Party Vendor. [Philadelphia Indemnity Ins. Co. v. Amazon.com, Inc., Prod. Liab. Rep. (CCH) P 20774, 2019 WL 6525624 (E.D. N.Y. 2019)].
These materials were authored by the Hon. Meredith Jury (United States Bankruptcy Judge, C.D. Cal. Ret.), a member of the ad hoc group, with editorial contributions by Monique D. Jewett-Brewster, an attorney with Hopkins & Carley, ALC, a member of the ad hoc group and 2018-19 Chair of the CLA Business Law Section. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.