Business Law

ILC E-Bulletin: Loomis v. Amazon.com, LLC (Cal. App.)

The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.), analyzing a recent decision of interest:

The Second Appellate Division of the California Court of Appeal (the Court) recently held that even though Amazon was not a manufacturer, distributor, or retailer of a product available for sale through its website by a third party seller, it was subject to strict products liability. The Court agreed with the Fourth Appellate Division’s holding in Bolger v Amazon.com, LLC, 53 Cal. App. 5th 431, 453 (2020), that Amazon “is an ‘integral part of the overall producing and marketing enterprise that should bear the cost of injuries resulting from defective products.’” The Second Division’s ruling expanded liability beyond just those third party sellers who had utilized Amazon’s Fulfillment by Amazon (FBA) service, as did the seller in Bolger, to include also those who only had a Business Solutions Agreement (BSA) with Amazon, which all third party sellers must have. Loomis v Amazon.Com LLC, 2021 WL 1608878 (Cal App. April 26, 2021).

To view the opinion, click here.

FACTS

Kisha Loomis bought a hoverboard through Amazon’s marketplace from a seller identified as TurnUpUp, a dba of SMILETO, a company allegedly based in China. The hoverboard was shipped to Loomis by Forrinx Technology (USA), Inc. As is standard for an Amazon marketplace transaction, Amazon handled the payment processing and all communications regarding the product and would have handled a refund if one had been requested by Loomis. A couple of weeks after the hoverboard was delivered, Loomis’s son plugged it into an outlet in her bedroom to charge. This caused a fire which burned her bed and the hoverboard, injuring Loomis’s hand and foot as she fought the flames. Loomis sued, first only Forrinx, then naming Amazon as a Doe defendant, alleging strict products liability, negligent products liability, and fraud. Forrinx defaulted and was not a party to the appeal.

Amazon brought a motion for Summary Judgment, asserting among other theories that it did not fall within the chain of distribution for product liability purposes and could not be liable under the “marketing enterprise theory.” The trial court granted Summary Judgment for Amazon and Loomis appealed. The Court of Appeal reversed and remanded, rejecting Amazon’s assertion that it had no exposure for products liability.

REASONING

The Court first identified several factors about Amazon’s involvement in the sale transaction as being significant. All third party sellers operate under a BSA, which requires a seller to verify that it is the true seller and to provide Amazon with specified product information. A third party seller chooses what products to sell and the price. However, the BSA requires pricing parity, meaning the seller could not sell for a lower price elsewhere. Amazon provides payment processing and collects a “referral fee” which was a certain percentage of the price, depending on the product. The referral fee for hoverboards was 15%. Amazon controlled the entire sale process, requiring all communications to go through its website, and it reserved the right to suspend or remove any sale listing. Amazon also disclaimed any liability for product safety and required the sellers to indemnify it. In instances where the seller’s sale volume hit certain thresholds, that seller was required to also provide insurance to cover Amazon. TurnUpUp had sufficient sales to hit that threshold. As noted above, TurnUpUp did not have an FBA agreement, under which Amazon would have stored the hoverboard in its warehouse and shipped it to the customer.

After identifying these and other factors which demonstrated both Amazon’s extensive involvement in and control over the marketplace and product sales, the Court surveyed the development of products liability law in the state, beginning in 1963, when a manufacturer was first held liable, followed by a 1964 case drawing in retailers, and subsequent cases which refined who in the distribution chain could be liable. The cases identified the public policies that form the foundation for application of strict liability: (1) whether Amazon might play a substantial role in ensuring product safety or might be in a position to exert pressure on the manufacturer to ensure safety; (2) whether Amazon was the only party in the distribution chain available to the injured plaintiff for a judicial remedy; and (3) whether Amazon was in a position to spread the costs of compensating the injured plaintiff amongst various members in the chain.

Having identified the policies in play, the Court then looked at the various methodologies case law has developed when applying them: the vertical chain of distribution approach; the stream of commerce approach; whether Amazon was a mere “service provider,” exempt from liability; and the market enterprise approach. No matter which methodology was in play, the Court concluded that Amazon met all three policy considerations. As to influence over product safety, Amazon had already acknowledged that it had an impact on safety by requiring all sellers to comply with consumer safety laws before a product was listed and following up to remove any product which failed safety protocols. The Court reasoned that exposure to liability “may incentivize Amazon to expand its safety compliance requirements to more products and thus further the goal of product safety.” Moreover, Amazon could assert its power as a gatekeeper between the supplier and consumer to exert pressure to enhance safety.

As to being available to the injured party, most consumers would look first and likely only to Amazon, since all aspects of the sale transaction from the buyer’s perspective were controlled by Amazon. The buyer would know of Amazon and where to serve it with a lawsuit. The possibility of other defendants defaulting and then being judgment proof, unlike Amazon, tainted all other parties in the chain.

With regard to loss spreading, the Court observed that Amazon can adjust the costs of consumer protection between it and third party sellers through its fees, indemnity requirements, and insurance. The issue was not whether such measures would result in higher pricing to the consumer, but whether the loss should be borne solely by the injured consumer or spread among those who profited from the sale. Amazon could control that spread.

Finding all three public policy factors were satisfied, the Court concluded Amazon could be strictly liable and remanded for further proceedings.

The thirty page opinion was joined by a twenty two page concurrence which began as follows: “The Amazon is the world’s largest river. Amazon.com supposedly chose its trademark because it aimed to create the world’s largest river of commerce. Amazon.com can control what it created.” Then, ends: “This case is easy. Amazon is well situated to take cost-effective measures to minimize the social costs of accidents. Strict liability will prompt this beneficial conduct. Loomis wins.”

AUTHOR’S COMMENTS

California appellate courts have spoken twice. Amazon is subject to strict products liability in the state. The reasoning of Bolger and Loomis, even more so for its thorough historical and policy review, is hard to quibble with. (Loomis in fact provides an excellent treatise on strict products liability law and is worth a read for those interested.) And, to my surprise, it does not matter whether the third party seller used Amazon to store and ship the product. A seller merely listing the product on the online marketplace under a BSA allows Amazon sufficient control over the market enterprise to have influence on product safety and to be the deep pocket to which a consumer will turn if injured. Amazon is nothing if not powerful. I agree that this power gives it influence over safety and allows it to be uniquely situated to spread the risk among all players in the distribution chain. All policy boxes have been checked.

When I first wrote on Amazon’s liability more than a year ago, I was concerned that exposing Amazon to risk would result in indemnification and insurance requirements on small businesses which they could not afford. My concern for that cost has not entirely dissipated, but it appears that Amazon is already largely requiring indemnification and insurance. If the tradeoff is that a potentially injured plaintiff will have certainty about where to look for recourse, then I consider that a fair balance.

This submission was authored by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.) a member of the ad hoc group with editorial contributions by Adam A. Lewis, Senior Counsel, Morrison & Foerster LLC, also a member of the ad hoc group. 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.

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