State Farm/Amazon: Taking title to goods sold or distributed not necessarily an element to a New York products liability claim

The following is an update analyzing a recent case of interest:

Ruling on an issue of increasing importance around the country, a trial court in New York declined to grant summary judgment to Amazon as defendant in a products liability action arising from a fire caused by a thermostat bought from a third party through Amazon’s online marketplace.  Amazon had argued, as it has successfully in other actions, that because it never took title to the product, it could not be liable for damages caused by product malfunction as a matter of law.  The New York court ruled that title to goods sold or distributed by Amazon was not  necessarily an element to a products liability claim in New York.  State Farm Fire and Casualty Company v Amazon.com Services, Inc., 2020 WL 7234265 (New York Supreme Court slip opinion, Dec. 8, 2020). To view the opinion, click here.

FACTS

In February 2018 an Amazon customer purchased an Anself RF344 wireless thermostat controller via Amazon’s online website.  The thermostat malfunctioned and caused a fire in her home in Syracuse, New York.  State Farm covered the damages and took assignment of the claim.  It filed suit against Amazon.com Services, Inc. a/k/a Amazon.com in the Supreme Court of New York, alleging causes of action for negligence and products liability. 

Amazon does not dispute that the thermostat caused the fire.  The thermostat was sold by a Chinese company, HoneyMony, which had a contract with Amazon for logistics services, Fulfillment by Amazon (FBA).  Under an FBA agreement, a third-party seller publishes an offer on Amazon.com.  FBA logistics services allows third-party sellers to send their inventory to an Amazon fulfillment center for storage, and when an order is placed for the third-party seller’s goods, they are retrieved and shipped by Amazon employees.  Amazon also handles the billing and payment for the goods.  Under an FBA agreement, Amazon has possession of the goods in its distribution centers but does not take title to the items.  The third-party seller remains responsible for product-related customer services.

Amazon filed a summary judgment motion, arguing that it was not liable as a matter of law because it did not “design, manufacture, sell, distribute or market the allegedly defective item”, circumstances usually necessary for products liability, and because it never took title to the goods sold.  It relied on two recent federal cases arising from similar facts, where a product bought from the online marketplace malfunctioned and caused damages but the federal courts found Amazon not liable on products liability theories: Eberhart v Amazon.com, Inc., 325 F. Supp. 3d 393, 397 (S.D.N.Y. 2018) and Oberdorf v Amazon.com, Inc., 930 F. 3d 136 (3rd Cir. 2019).  (This case was subsequently vacated and set for rehearing at Oberdorf v. Amazon.com, Inc., 936 F.3d 182 (3rd Cir. 2019).  At the rehearing, the Third Circuit certified the question of an e-commerce business’ strict liability for a defective product for review by the Pennsylvania Supreme Court.)

State Farm countered with its own federal case which ruled to the contrary, State Farm and Casualty Company v. Amazon.com, Inc., 390 F.Supp.3d 964 (W.D. Wisc. 2019), which said a plaintiff could recover from a seller or distributor of a defective product if the seller or distributor undertook the manufacturer’s duties.  It found that Amazon had taken on all the roles of the manufacturer and therefore was exposed to products liability damages.

After an extensive review of the conflicting cases and arguments on the issue, the Supreme Court denied Amazon’s summary judgment motion.

REASONING

The court rejected Amazon’s augment that title was dispositive.  In some states it is, but not in New York.  It then looked at the conflicting outcome in the federal cases cited by the parties and found none of them dispositive on the case before it.  The Wisconsin case relied on a specific state statute which makes it clear that in the absence of a manufacturer, a “seller or distributor” may be held liable in the manufacturer’s place.  Although not bound by Wisconsin law, the policies behind it had merit. The only true conduit between the seller and the marketplace (i.e. the purchaser) was Amazon.  Amazon controlled not only the sale and purchase (exchange of funds), but it also required the third-party sellers to use the marketplace to field and respond to customer complaints and returns.  It retained discretion to refuse to list a product if it might be defective.  It held itself out as a guarantor of a product’s safety and implied a product was safe by listing it for sale among its own products.

The court reasoned that Amazon had influence over the products it listed and distributed, very much like a seller, and exerted sufficient control over the products that it impliedly undertook responsibility for their safe performance.  This influence on the manufacturing and sales process meant that Amazon could not be categorically excused from liability.  It rejected the concept that Amazon could “have all the benefits of the traditional brick and mortar storefront without any of the responsibilities.” Not only did it deny summary judgment, but the court implied it was likely to find Amazon liable by giving it 60 days to exercise its indemnification rights against the third-party sellers, rights which were established by the FBA agreements.

AUTHOR’S COMMENTS

This is the third review that I have published through CFN of an Amazon case in the past year.   One of those cases, Oberdorf, has now resulted in certification of the question of online marketplace liability to the state Supreme Court.  The one remaining case for Amazon was in a state where its not taking title to the goods was dispositive.  It appears that is a minority view.  I would observe that at the moment the trend is against Amazon.  And perhaps that is a good thing for not only the injured consumer, but also the small business sellers.

The advantage to the consumer is easy to spot.  If liability is established for a defective product, collection of that judgment against Amazon will be infinitely simpler than collection against a foreign company, assuming that jurisdiction over the seller could even be established. (That is a series of lawsuits for another day.)  With regard to the small business seller, it can be important to their reputation and viability that their products appear to have an endorsement and guarantee from Amazon that they are safe and will perform as advertised.  Small companies are often unable to establish a national reputation on their own and would be greatly enhanced by being able to ride on the coattails of an Amazon guarantee.  In addition, they are already required by the FBA agreements to indemnify Amazon.  Early on, I was concerned that insuring such indemnification would be cost prohibitive for most small businesses.  From the facts of the reported cases, it appears that Amazon is not requiring that it be a named insured on a policy, so my fears may be unfounded.

Stay tuned.  We are only getting started on online marketplace liability.

For discussion of similar issues, see:

• 2020-32 Comm. Fin. News NL 64:  California Court of Appeal Holds Amazon Strictly Liable in Third-Party Defective Products Case. [Bolger v. Amazon.com, LLC, 2020 WL 4692387 (Cal. App. 4th Dist. 2020)].
• 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)].

The Commercial Finance Newsletter is written by an ad hoc group of the California Lawyers Association (CLA) Business Law Section.   These materials were written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. Cal., Ret.) a member of the ad hoc group, with editorial contributions by Monique D. Jewett-Brewster, a shareholder with Hopkins & Carley, ALC, a member of the ad hoc group and past chair of the Business Law Section.  The opinions expressed herein are solely those of the author. Thomson Reuters holds the copyright to these materials and has permitted the Commercial Transactions Committee of Business Law Section of the California Lawyers Association to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.