On The Case

Is Amazon liable for selling defective products? Three appeals courts will decide

(Reuters) - In September 2016, William Foley took a drag on his vaping device and nearly burned down his house in La Miranda, California. Foley’s home insurer, State Farm, paid Foley more than $400,000 for repairs and related expenses. The insurer contends the fire was caused by a defective LG battery in Foley’s vaping device. Last month, State Farm lawyers at Pillemer & Pillemer filed a complaint in Los Angeles Superior Court, seeking to recoup the money it paid on Foley’s claim.

The suit, which was removed earlier this month to federal district court in Los Angeles, names not just LG as a defendant, though. State Farm is also suing Amazon, which it blames for selling Foley the allegedly defective batteries in his vaping device. Amazon, represented by Friedenthal, Heffernan & Brown, said in an answer filed last week that it neither designed, manufactured nor sold the batteries. The online retailer also said it’s shielded by the Communications Decency Act, which protects online publishers from claims based on content provided by someone else.

Obviously, if State Farm were to manage to pin liability on Amazon, the consequences would huge. But don’t go selling your Amazon shares just yet. At least four previous plaintiffs have attempted to hold Amazon responsible for selling a defective product. So far, none has won.

Three of those cases are now before federal appellate courts in the 3rd, 4th and 6th Circuits. The next several months, in other words, are a bit of an appellate crucible for Amazon. If all three federal circuits uphold lower-court rulings that the company is not liable for selling defective products, Amazon will have pretty well squelched the threat of an onslaught of product liability suits. But if even one of circuits goes the other way, it’s a good bet that consumers and insurers like State Farm will sit up and take notice.

The 3rd Circuit will hear oral arguments on Oct. 5 in Oberdorf v. Amazon, in which U.S. District Judge Matthew Brann of Williamsport, Pennsylvania, granted summary judgment  to Amazon last December. The litigation stems from a horrible accident. Heather Oberdorf was walking her dog in 2015 when the dog’s retractable leash snapped back and hit her in the face, causing permanent damage to her eyesight. Oberdorf had purchased the leash through Amazon, but Judge Brann held the company isn’t liable as a seller under Pennsylvania law because it has no role in the manufacture or selection of goods sold by vendors on the site.

“The Amazon Marketplace serves as a sort of newspaper classified ad section, connecting potential consumers with eager sellers in an efficient, modern, streamlined manner,” the judge wrote. He also agreed with Amazon that the Communications Decency Act’s safe harbor for online publishers protects the retailer from liability.

At the 4th Circuit, appellate briefing is complete in Erie v. Amazon, which stems from Erie Insurance’s coverage for a house fire blamed on a faulty headlamp. U.S. District Judge Roger Titus of Greenbelt, Maryland, ruled in January that Amazon’s online marketplace functions differently than, for instance, Home Depot. If Erie’s policyholder were to have purchased the headlamp at Home Depot, the judge acknowledged, Home Depot could be held liable for selling it. But Amazon said clearly on its website that headlamp maker – and not Amazon itself – was selling the product. Amazon simply facilitated the sale, Judge Titus said, by storing and delivering the product and remitting payment to the seller.

“The vast majority of cases, both inside this circuit and outside of it, have concluded that under the circumstances of this case, Amazon cannot and must not be viewed as a seller of the head light,” the judge said. “Amazon did not manufacture, sell, deliver or offer this for sale product and the information about the product including price was created and uploaded by the seller. And, therefore, Amazon was not the seller.”

The 6th Circuit appeal was just filed in late June, after U.S. District Judge William Campbell of Nashville concluded Amazon was not responsible for selling a hoverboard that allegedly triggered the fire that burned down the home of Charles and Megan Fox. Judge Campbell held Amazon does not fit Tennessee’s definition of a seller. “Amazon did not hold title to the product sold here, did not set the price of the product, and did not create the text describing or making representations about the product,” he wrote. “Amazon’s role in the transaction was to provide a mechanism to facilitate the interchange between the entity seeking to sell the product and the individual who sought to buy it.” (The judge also rejected the Foxes’ theory that Amazon failed to warn buyers about problems with hoverboard batteries even after the company conducted its own extensive safety review.

Broadly speaking, the plaintiffs who want to hold Amazon responsible for providing the allegedly defective products are arguing that courts should not allow the company to evade liability through the technical loophole of its relationship with its vendors. For all practical purposes, they contend, Amazon is a seller, just like any retailer that distributes products made by other manufacturers. Amazon, represented in all three appeals by Perkins Coie, counters that its business model is fundamentally different from that of traditional retailers: It provides an online storefront and back-end services to more than a million vendors, but it does not sell their products itself so cannot be held responsible when those products are defective.

So far, Amazon’s position has carried the day. We’ll see if the company fares as well in the circuits as it has in trial courts.