Court Rules Amazon Can Be Held Liable for Third-Party Sales

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From The Hill:

A federal appeals court on Wednesday ruled online retail giant Amazon can be held liable for the products sold by third-party sellers on its platform.

The 3rd U.S. Circuit Court of Appeals ruled 2-1 that customers can sue Amazon when they buy defective products from its platform, even if Amazon did not make those products.

The decision could leave Amazon vulnerable to a slew of lawsuits.

The case before the appeals court, though, involved a plaintiff who was in Pennsylvania, and the appeals court carefully noted that it was finding Amazon liable under that state’s strict product liability laws.

Amazon has argued that it does not count as a “seller” because it merely provides the platform, but the appeals court on Wednesday said it disagrees.

“Amazon … plays a large role in the actual sales process,” Circuit Judge Jane Richards Roth, a Reagan appointee, wrote in the opinion. “This includes receiving customer shipping information, processing customer payments, relaying funds and information to third-party vendors, and collecting the fees it charges for providing these services.”

. . . .

The case in question involves a woman named Heather Oberdorf, who bought a leash from Amazon that turned out to be defective. During a walk with her dog in 2015, the leash malfunctioned and hit Oberdorf’s face, leaving her permanently blind in her left eye, according to the filing.

Oberdorf, who was in Pennsylvania at the time of the incident, bought the leash from a seller on Amazon called “The Furry Group,” but neither Oberdorf’s legal team nor Amazon have been able to get in touch with them since 2016.

Amazon is the country’s most valuable retail company and about half of the items sold on its online retail platform are from third-party sellers.

Two federal appeals courts have previously ruled that Amazon cannot be held liable for products from third-party sellers, but the federal appeals court in Philadelphia reversed the latest lower court decision.

Link to the rest at The Hill

The appellate court reversed the decision of the trial court in this matter. Here is the relevant portion of the trial court’s decision which relieved Amazon of any liability under Pennsylvania’s laws:

Like an auctioneer, Amazon is merely a third-party vendor’s “means of marketing,” since third-party vendors—not Amazon—”cho[o]se the products and expose[ ] them for sale by means of” the Marketplace. Because of the enormous number of third-party vendors (and, presumably, the correspondingly enormous number of goods sold by those vendors) Amazon is similarly “not equipped to pass upon the quality of the myriad of products” available on its Marketplace. And because Amazon has “no role in the selection of the goods to be sold,” it also cannot have any “direct impact upon the manufacture of the products” sold by the third-party vendors.

. . . .

The Amazon Marketplace serves as a sort of newspaper classified ad section, connecting potential consumers with eager sellers in an efficient, modern, streamlined manner. Because subjecting it to strict liability would not further the purposes of § 402A, as revealed by Musser and other Pennsylvania cases, it cannot be liable to the Oberdorfs under a strict products liability theory.

. . . .

Section 230 of the Communications Decency Act (“CDA”) states that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”Amazon argues that the Oberdorfs’ claims attempt to treat Amazon “as the publisher or speaker” of information provided by The Furry Group—i.e. , “as the publisher or speaker” of the product information provided to Amazon by that third-party vendor—and are therefore barred by § 230.

. . . .

Courts have interpreted § 230 expansively, noting that the immunity provided by that section “does not depend on the form of the asserted cause of action[, but] rather … on whether the cause of action necessarily requires that the defendant be treated as the publisher or speaker of content provided by another.” In Jane Doe No. 1 v. Backpage.com LLC , for example, three victims of sex trafficking sued an online classified ad website, alleging that they were trafficked through ads listed on the website by third parties. The plaintiffs argued that the website was liable for their injuries because it deliberately created a forum to facilitate such ads.Rejecting this argument, the United States Court of Appeals for the First Circuit determined that the plaintiffs were attempting to hold the website liable “as the publisher or speaker” of third-party content (the sex trafficking ads), and held that the claims were therefore barred by § 230.

. . . .

Since the Oberdorfs’ claims for strict products liability, misrepresentation, and breach of warranty have all been disposed of supra , this Court need only consider Amazon’s CDA argument with respect to the Oberdorfs’ negligence and negligent undertaking claims. Although the Complaint frames those claims broadly, it is clear from the Oberdorfs’ papers that they are, in fact, attempting to hold Amazon liable for its role in publishing an advertisement for The Furry Group’s product.In other words, the Oberdorfs are attempting to “treat[ Amazon] as the publisher or speaker of … information provided by” The Furry Group. Therefore, these claims are barred by § 230 of the CDA, and summary judgment will be granted in favor of Amazon on both Counts III of the Oberdorfs’ Complaint.

Here’s a link to the entire trial court decision

Here are some of the relevant portion of the Appellate Court’s decision reversing the trial court’s decision (PG has removed all legal citations to cases and statutes to make reading the opinion easier. The original opinion is packed with them if you’re interested):

Amazon contends that, just as every item offered at an auction house can be traced to a seller who may be amenable to suit, every item on Amazon’s website can be traced to a third-party vendor. However, Amazon fails to account for the fact that under the Agreement, third-party vendors can communicate with the customer only through Amazon. This enables third-party vendors to conceal themselves from the customer, leaving customers injured by defective products with no direct recourse to the third-party vendor. There are numerous cases in which neither Amazon nor the party injured by a defective product, sold by Amazon.com, were able to locate the product’s third-party vendor or manufacturer.

In this case, Amazon’s Vice President of Marketing Business admitted that Amazon generally takes no precautions to ensure that third-party vendors are in good standing under the laws of the country in which their business is registered. In addition, Amazon had no vetting process in place to ensure, for example, that third-party vendors were amenable to legal process. After Oberdorf was injured by the defective leash, neither she nor Amazon was able to locate The Furry Gang. As a result, Amazon now stands as the only member of the marketing chain available to the injured plaintiff for redress.

. . . .

The second factor we consider is whether “imposition of strict liability upon the [actor would] serve as an incentive to safety.”

In Musser, the Pennsylvania Supreme Court “fail[ed] to see how the imposition of strict liability [on the auction house] would be more than a futile gesture in promoting the manufacture and distribution of safer products,” chiefly because the auction house was “not in the business of designing and/or manufacturing any particular product or products.”

Amazon asserts that it does not have a relationship with the designers or manufacturers of products offered by third-party vendors. Therefore, it contends that imposing strict liability would not be an incentive for safer products. Again, we disagree with Amazon.

Although Amazon does not have direct influence over the design and manufacture of third-party products, Amazon exerts substantial control over third-party vendors. Third-party vendors have signed on to Amazon’s Agreement, which grants Amazon “the right in [its] sole discretion to . . . suspend, prohibit, or remov[e], any [product] listing,” “withhold any payments” to third-party vendors, “impose transaction limits,” and “terminate or suspend . . . any Service [to a third-party-vendor] for any reason at any time.”

Therefore, Amazon is fully capable, in its sole discretion, of removing unsafe products from its website.

Imposing strict liability upon Amazon would be an incentive to do so.

. . . .

In Musser, the court indicated that the auctioneer was not in a better position than the consumer to prevent the circulation of defective products because it lacked an “ongoing relationship with the manufacturer from which some financial advantage inures to [its] benefit . . ..” Similarly, in Nath v. National Equipment Leasing Corp., the Pennsylvania Supreme Court held that, because financing agencies perform only a “tangential” role in the sales process, “their relationship with a particular manufacturer does not, in the normal course, possess the continuity of transactions that would provide a basis for indirect influence over the condition and the safety of the product.” Here, while Amazon may at times lack continuous relationships with a third-party vendor, the potential for continuing sales encourages an on-going relationship between Amazon and the third-party vendors.

. . . .

Moreover, Amazon is uniquely positioned to receive reports of defective products, which in turn can lead to such products being removed from circulation. Amazon’s website, which Amazon in its sole discretion has the right to manage, serves as the public-facing forum for products listed by third party vendors. In its contract with third-party vendors, Amazon already retains the ability to collect customer feedback: “We may use mechanisms that rate, or allow shoppers to rate, Your Products and your performance as a seller and Amazon may make these ratings and feedback publicly available.”

Third-party vendors, on the other hand, are ill-equipped to fulfill this function, because Amazon specifically curtails the channels that third-party vendors may use to communicate with customers: “[Y]ou may only use tools and methods that we designate to communicate with Amazon site users regarding Your Transactions . . ..”

. . . .

The fourth factor we consider is whether Amazon can distribute the cost of compensating for injuries resulting from defects.

In Musser, the court “acknowledge[d] that it would be possible for the auctioneer to pass on the costs of imposing strict liability upon him; possibly as [the injured plaintiff] suggests, by indemnity agreements between the auctioneer and the seller.” However, although the court found that extending the meaning of “seller” to include the auctioneer would provide another remedy for injured customers, the court demurred, stating that this would “only marginally” promote the “purpose of the policy considerations” underlying § 402A.37

In this case, however, Amazon has already provided for indemnification by virtue of a provision in the Agreement:

You release us and agree to indemnify, defend, and hold harmless us, our Affiliates, and our and their respective officers, directors, employees, representatives, and agents against any claim, loss, damage, settlement, cost, expense, or other liability (including, without limitation, attorneys’ fees) . . . .

Moreover, Amazon can adjust the commission-based fees that it charges to third-party vendors based on the risk that the third-party vendor presents.

Amazon’s customers are particularly vulnerable in situations like the present case. Neither the Oberdorfs nor Amazon has been able to locate the third-party vendor, The Furry Gang. Conversely, had there been an incentive for Amazon to keep track of its third-party vendors, it might have done so.

The fourth factor also weighs in favor of imposing strict liability on Amazon. Thus, although the four-factor test yielded a different result when applied by the Musser court to an auction house, all four factors in this case weigh in favor of imposing strict liability on Amazon.

The decision of the Appeals Court was made by a panel of three judges. Two judges decided Amazon should be held liable for the injuries. One of the judges disagreed. Following are a few excerpts from that judge’s dissenting opinion:

This case implicates an important yet relatively uncharted area of law. No Pennsylvania court has yet examined the product liability of an online marketplace like Amazon’s for sales made by third parties through its platform. Our task, as a federal court applying state law, is to predict how the Pennsylvania Supreme Court would decide the case. . . .   We must take special care “to apply state law and not . . . to participate in an effort to change it.”

. . . .

In my view, well-settled Pennsylvania products liability law precludes treating Amazon as a “seller” strictly liable for any injuries caused by the defective Furry Gang collar.

. . . .

A “seller” in Pennsylvania is almost always an actor who transfers ownership from itself to the customer, something Amazon does not do for Marketplace sellers like The Furry Gang. For similar reasons, every court to consider the question thus far has found Amazon Marketplace not a “seller” for products liability or other purposes; several of those courts have done so under products liability regimes similar to Pennsylvania’s.

. . . .

Amazon is a multinational technology company. Among other ventures, it hosts online sales. Products are offered for sale at Amazon.com in three primary ways. First, Amazon sources, sells, and ships some products as seller of its own goods. Second, third-party sellers sell products through Amazon Marketplace “fulfilled by Amazon,” purchasing Amazon’s services in storing and shipping their products. Third, at issue here, third-party sellers sell products through Amazon Marketplace without additional “fulfillment” services. These sellers, like The Furry Gang, supply and ship products directly to consumers without ever placing the items in Amazon’s possession.

. . . .

Amazon envisions its Marketplace as an open one. It reserves the right to remove sellers’ listings or terminate Marketplace services for any reason and requires sellers to represent they are in good legal standing, but it does not apply a general vetting process to all sellers to identify those who do not in fact meet that standard. Amazon also does not narrow the Marketplace’s offerings by limiting the number of sellers who may offer each type of product: any number of sellers may register. In displaying products to customers, Amazon distinguishes products sold through the Marketplace from those sold directly by Amazon, identifying the seller responsible for the item in a “sold by” line placed prominently
next to the price and shipping information. The seller’s name also appears on the order confirmation page, before the customer clicks “place your order” to finalize the purchase. . . . Amazon’s conditions of use for customers affirm the distinction, explaining, in Amazon Marketplace purchases from third-party sellers, “you are purchasing directly from those third parties, not from Amazon. We are not responsible for examining or evaluating, and we do not warrant, the offerings of any of these businesses or individuals.” . . . citing Amazon, Conditions of Use

. . . .

A customer on Amazon Marketplace buys a product that has been chosen, sourced, and priced by the third-party seller. The seller contractually commits to “ensure that [it is] the seller of each of [its] Products” listed for sale. The relationship reflected in the agreement between Amazon and the seller is one of “independent contractors.”

. . . .

A seller under Pennsylvania product liability law is one “engaged in the business of selling . . . a product.” . . . . In nearly all cases, “selling” entails something Amazon does not do for Marketplace products: transferring ownership, or a different kind of legal right to possession, from the seller to the customer.

. . . .

Amazon Marketplace, like the auctioneer in Musser, takes an important part in assisting sales, but is “tangential” to the actual exchange between customer and third-party seller. Like an auctioneer, Amazon Marketplace provides the “means of marketing” to a third-party seller who accomplished the “fact of marketing” when it “chose the products and exposed them for sale.” Amazon Marketplace’s services to any individual seller for an individual product are not “undertaken specifically,” but rather, as with the auctioneer, provided on essentially similar terms to a large catalogue of sellers.  And like an auctioneer, Amazon Marketplace never owns, operates, or controls the product when it assists in a sale.

Here’s a link to the Appeals Court Decision

PG thinks the trial court got this right and the court of appeals became too entranced with Amazon’s size and power, thus deciding that Amazon had plenty of money to pay damages and ignoring a careful structuring of the relationship between Amazon and its Marketplace sellers which Amazon created and disclosed to customers who were contemplating a purchase from a Marketplace seller. This sort of relationship, if respected by courts, helps Amazon maintain low prices for its customers.

As one of many illustrations of the old legal maxim, “Hard cases make bad law,” PG believes the majority in the Court of Appeals focused on the size and wealth of Amazon together with the disappearance of the actual seller of the defective product and stretched more than a little to reach a decision whereby the injured plaintiff would receive some compensation from the only party available who had the money to pay such compensation.

While this may seem to result in a just outcome in a particular case, if it becomes binding precedent for determining the outcome of other cases, it is (in PG’s ineluctably humble opinion) a bad idea that will result in more companies besides Amazon being hit with damages just because they’re big instead of because they have behaved in an illegal manner (or maybe because they’re not big, but have a bit of money to pay to an injured person).