A Link in the Chain? “E-Tailer” Liability for Defective Products Sold by Third-Party Vendors

Today, when consumers allege that they were injured by a defective product, it is possible for them to sue multiple parties in the distribution chain, although the nature and extent of liability will depend heavily on the applicable provisions of state law. Section 402A of the Restatement (Second) of Torts, for example, imposes liability on any defendant that is “engaged in the business of selling” the subject product, regardless of whether the “seller” exercised “all possible care” and regardless of whether the end user purchased the product directly from the seller.³ In other words, depending on the state, a plaintiff can potentially recover not only from the manufacturer but also from wholesalers, retailers, and other downstream nonmanufacturing suppliers.⁴

Although many facets of products liability have been settled in the century following MacPherson, both courts and practitioners still face uncharted waters, including those presented in cases involving products sold online. E-commerce is an increasingly prevalent feature of daily life in the United States, especially after the meteoric rise in delivery culture prompted by the COVID-19 pandemic.⁵ Products liability practitioners should be aware of the developing law concerning an “e-tailer’s” role in the chain of distribution, and its resulting exposure to potential products liability suits, when a consumer purchases a product from a third-party vendor.

Take Amazon, for example. The company’s website offers products for sale through three distinct platforms: (1) Amazon sells and ships goods directly to the consumer; (2) a third-party vendor sells the merchandise through Amazon’s “fulfilled by Amazon” program, under which Amazon stores, packages, and ships the sold product on the vendor’s behalf; or (3) a third-party vendor sells the product on Amazon.com but stores, packages, and ships the product itself.⁶ Under platforms (2) and (3), Amazon handles all communication with the customer and initially obtains the customer’s payment, which it later remits to the third-party vendor.

Like other online retailers that simply sell their products directly to consumers, when acting under platform (1), Amazon fits within the meaning of “seller” under most states’ laws. Its exposure therefore depends on how the state handles claims against downstream suppliers that played no role in the product’s design or manufacture.

In Amazon’s case, however, approximately 60 percent of its sales arise from orders placed with third-party vendors using platforms (2) and (3).⁷ The role of such sellers in a products liability case has been the subject of extensive litigation over the past few years.

Case in Point: Bolger v. Amazon

Last year, the California Court of Appeal held in Bolger v. Amazon.com, LLC that Amazon was subject to products liability claims arising from a defective battery that the plaintiff purchased from a third-party vendor through the “fulfilled by Amazon” program.⁸ Amazon stored the battery at one of its fulfillment centers; packaged it using Amazon-branded shipping supplies; and sent it directly to the plaintiff, who had no contact with the third-party vendor.⁹

In reversing the trial court’s grant of summary judgment in favor of Amazon, the appeals court reasoned that Amazon was “a link in the chain of product distribution even if it was not the seller as commonly understood,” as it “created the environment (its website) that allowed [the third-party vendor] to offer the replacement battery for sale.”¹⁰ It further explained that Amazon had “placed itself between [the vendor and plaintiff] in the chain of distribution” by accepting possession of the product, storing it in an Amazon warehouse, marketing it online, receiving payment, and shipping the product directly to the plaintiff.¹¹

Because Amazon was “an integral part of the overall producing and marketing enterprise” and “responsible for passing the product down the line to the consumer,” California law dictated that it should bear the cost of the injury.¹² Thus, the record did not “demonstrate as a matter of law that Amazon [could not] be held strictly liable for defects in third-party products sold through its website, at least under the circumstances here.”¹³ Following this decision, the Supreme Court of California denied Amazon’s request for review, thereby ensuring that Bolger’s result will present difficulty for any e-tailer seeking to escape liability in California.

While the Bolger decision will undoubtedly have sweeping implications for Amazon and other e-tailers, the court’s discussion suggests a few potential limitations. Its use of the “at least under the circumstances here” language, coupled with its focus on Amazon’s conduct in possessing, storing, and shipping the product, at least arguably suggests that the result may have been different if the third-party defendant had not used the “fulfilled by Amazon” program.

Possession and Control of the Subject Product

Indeed, other courts have focused on the level of control that the e-tailer exercises over the transaction.

Tennessee. In Fox v. Amazon.com, Inc., the U.S. Court of Appeals for the Sixth Circuit addressed Amazon’s role in the distribution chain—and its resulting liability—under the Tennessee Products Liability Act (TPLA), ultimately treating the issue as a function of control.¹⁴

There, the plaintiffs’ home was destroyed in a fire that was undisputedly caused by a hoverboard they purchased from a third-party vendor on Amazon’s website. That third-party vendor was judgment-proof, and the manufacturer of the product was unknown.¹⁵ Because the plaintiffs could not recover from either party, Amazon faced liability under the TPLA if it qualified as a seller.¹⁶

In addressing the TPLA’s definition of “seller,” which hinged on the entity’s “engagement ‘in the business of selling,’” the Sixth Circuit explained that both the legislature and the Tennessee Supreme Court had indicated that “control is an important consideration underlying products liability law.”¹⁷ It held that the TPLA’s definition of “seller” meant “any individual regularly engaged in exercising sufficient control over a product in connection with its sale, lease, or bailment, for livelihood or gain.”¹⁸

The Fox court ultimately concluded, however, that Amazon was not liable under the TPLA because it did not exercise sufficient control over the hoverboard. Although the parties disagreed over whether Amazon stored and shipped the hoverboard under its fulfillment program, the summary judgment record indicated that the hoverboard was “[f]ulfilled by [the third-party vendor].”¹⁹ The court, therefore, relied on the lack of evidence that Amazon shipped the hoverboard from one of its warehouses, and the fact that Amazon did not choose to offer the hoverboard for sale, did not set the price of the hoverboard, and did not make any representations about the hoverboard’s safety.²⁰

Ohio. The Supreme Court of Ohio adopted similar reasoning in holding that Amazon did not qualify as a “supplier” under Ohio law. In Stiner v. Amazon.com, Inc., the court held that Amazon was not subject to products liability and negligence claims arising from a defective product that was stored, packaged, and shipped by a third-party vendor that listed it on Amazon’s marketplace.²¹ Like many other e-tailer cases, the product manufacturer in Stiner wasn’t an available source of recovery for the plaintiff (because it wasn’t subject to judicial process in Ohio), so Amazon’s liability depended on whether it qualified as a downstream “supplier” under the Ohio Products Liability Act.²² Because the third-party vendor sourced, packaged, labeled, and shipped the product itself, the court held that Amazon was not a “supplier” under Ohio law.²³

Although Stiner and Fox differed from Bolger in terms of end results, their reasoning highlights a central question in many e-tailer products cases: How much control did the e-tailer exert over the subject product? Bolger, Stiner, Fox, and several other cases suggest that e-tailers are more likely to face a trial if the third-party vendor uses a program like “fulfilled by Amazon,” and less likely to be subject to claims if the vendor stores and ships the product itself.

Arizona. With that said, not every court faced with a “fulfilled by Amazon” case has ruled in favor of the consumer. In a split decision in State Farm Fire & Casualty Co. v. Amazon.com, Inc., for example, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in a case involving the “fulfilled by Amazon” program.²⁴ Applying Arizona law, the court held that Amazon was not subject to strict liability and negligence claims arising from a house fire caused by a hoverboard that State Farm’s subrogor purchased from a third-party vendor on Amazon’s marketplace. The court’s ruling centered on its conclusion that Amazon was not a “seller” as defined in Arizona.

Although Arizona courts generally apply Restatement (Second) of Torts section 402A in products liability cases, the state has avoided the “technical limitations of the term seller or manufacturer as used in” section 402A.²⁵ Instead, Arizona courts apply a “contextual analysis and balance[] multiple factors to determine whether a company ‘participate[d] significantly in the stream of commerce.’”²⁶ In State Farm, the court applied these factors and noted that Amazon expressly disclaimed any warranty from the product, never took title to the product, relied on its third-party sellers’ representations about product quality, and derived only a small benefit from each third-party transaction. The court also rejected State Farm’s argument that Amazon’s conduct in storing and shipping the product (through the “fulfilled by Amazon” program) gave it sufficient control over the transaction to be considered a seller.

It is clear, therefore, that although an e-tailer’s control over the subject product is important, it is by no means dispositive. At the end of the day, the result will turn on how state law determines which parties should face liability in products cases.

The Role of Title and Ownership

Faced with facts similar to those in Bolger, Fox, and Stiner, some courts have imposed additional restrictions on the term “seller” and required the defendant to take and transfer title to the product.²⁷ In Erie Insurance Co. v. Amazon.com, Inc., for example, the consumer purchased the subject product from a third-party vendor using the “fulfilled by Amazon” program.²⁸ The U.S. Court of Appeals for the Fourth Circuit noted that Amazon received, stored, and shipped the product, but it rejected the plaintiff’s “control over the transaction” argument, holding that Maryland law defined “seller” as someone who passes title to the buyer for a price.²⁹ Because the third-party vendor transferred title directly to the buyer, Amazon could not face liability as a member of the distribution chain.³⁰

Other courts have expressly declined to impose a “passage of title” requirement. In Fox, for example, the court rejected Amazon’s argument that it was not a seller because it never possessed title to the hoverboard.³¹ The court observed that the TPLA’s definition of “seller” expressly “include[d] a ‘lessor’ and a ‘bailor,’ neither of which necessarily transfers title to the products they lease or bail.”³²

Accordingly, although Fox and other courts have rejected a “transfer of title” requirement,³³ it is clear from Erie and other decisions that the question of title could be relevant to the analysis in some jurisdictions.

Public Policy Considerations

Aside from issues of title and control, some decisions suggest that public policy may be the determinative factor. In Oberdorf v. Amazon.com Inc., a panel of the U.S. Court of Appeals for the Third Circuit held that under Pennsylvania law, public policy considerations favored holding Amazon liable as a member of the distribution chain.³⁴ There, the third-party vendor did not use the “fulfilled by Amazon” platform and instead stored, packaged, and shipped the product itself.

Applying Pennsylvania’s formulation of section 402A, the Third Circuit focused on four public policy factors governing whether a defendant is a seller for purposes of a products liability action: (1) whether the defendant is the “only member of the marketing chain available to the injured plaintiff for redress”; (2) whether “imposition of strict liability upon the [defendant] serves as an incentive to safety”; (3) whether the defendant is “in a better position than the consumer to prevent the circulation of defective products”; and (4) whether “[t]he [defendant] can distribute the cost of compensating for injuries resulting from defects by charging for it in his business.”³⁵ Concluding that all four factors weighed in favor of labeling Amazon a “seller,” the court held that the plaintiff’s strict products liability claims could proceed.³⁶

Following the panel’s ruling in Oberdorf, the Third Circuit took the case en banc and vacated the panel’s decision.³⁷ In June 2020, the court issued a certified question to the Supreme Court of Pennsylvania, concluding that the case presented an “issue of first impression and substantial public importance.”³⁸

In its certification order, the Third Circuit noted that Pennsylvania law was unclear as to whether the Oberdorf panel should have applied the four-factor test to the threshold issue of whether Amazon qualified as a seller. It saw two possibilities—under the first approach, a court would determine whether an e-commerce business is a section 402A seller by weighing the four factors set forth above.³⁹ Under the second, a reviewing court would apply a two-step framework and begin by addressing whether the entity is engaged “in the business of selling the product” at issue.⁴⁰ If it is, the court would weigh the four public policy factors. If the answer is “no,” the court would not reach the four-factor analysis because Pennsylvania’s strict liability doctrine would not apply.⁴¹

The Supreme Court of Pennsylvania never got a chance to answer the Third Circuit’s certified question. Following the certification order, the parties reached a settlement and dismissed the case. The Supreme Court of Texas recently accepted a similar certified question from the U.S. Court of Appeals for the Fifth Circuit in McMillan v. Amazon.com, Inc., however, and its decision should provide further insight into how state high courts are addressing e-tailer liability.⁴²

“Sealed Container” and “Innocent Seller” Doctrines

It is worth noting that California law—which applied in Bolger, where the court allowed the claims against Amazon to proceed—is something of an outlier on a crucial point that arises in several of these cases. It has no “innocent seller” defense, “sealed container” doctrine, or other provision intended to “protect distributors who are merely conduits of a product.”⁴³ Instead, the issue in Bolger was limited to whether Amazon played a sufficient role in bringing the battery to the consumer.

The majority of states, on the other hand, have adopted provisions that, in some form or another, limit the liability of nonmanufacturing sellers and other parties that appear downstream in the distribution chain. The TPLA provides, for example, that a plaintiff may not maintain a products liability action against any seller, other than the manufacturer, unless:

(1) The seller exercised substantial control over that aspect of the design, testing, manufacture, packaging or labeling of the product that caused the alleged harm for which recovery of damages is sought;

(2) Altered or modified the product, and the alteration or modification was a substantial factor in causing the harm for which recovery of damages is sought;

(3) The seller gave an express warranty . . . ;

(4) The manufacturer or distributor of the product or part in question is not subject to service of process in this state and the long-arm statutes of Tennessee do not serve as the basis for obtaining service of process; or

(5) The manufacturer has been judicially declared insolvent.⁴⁴

Alabama law contains similar limitations. Plaintiffs can only recover from an “innocent” final seller or other downstream supplier if they are unable, “despite a good faith exercise of due diligence,” to identify the manufacturer.⁴⁵ Mississippi and Georgia take this a step further and essentially prevent downstream suppliers from being sued under any strict products liability theories.⁴⁶

The TPLA’s “innocent seller” exceptions were expressly implicated in Fox, where the third-party vendor and manufacturer were judgment-proof and unknown, respectively.⁴⁷ Had the manufacturer or third-party vendor been available and solvent, Amazon may have been shielded entirely by the Tennessee Consumer Protection Act’s “sealed container” defense. In other words, if the manufacturer were an available defendant, the Sixth Circuit wouldn’t have needed to address whether Amazon qualified as a seller.

In Oberdorf, neither the plaintiff nor Amazon could locate the third-party vendor or its representative, and the manufacturer’s identity was unknown.⁴⁸ Amazon, therefore, stood “as the only member of the marketing chain available to the injured plaintiff for redress.”⁴⁹ Although Pennsylvania has no bright-line rule, it treats the manufacturer’s availability as a factor in the public policy analysis, and the Oberdorf court found that it weighed heavily in favor of imposing strict liability on Amazon.⁵⁰

In states with ironclad “sealed container” defenses, such as Georgia and Mississippi, the definition of “seller” would have likely been a red herring. These states effectively maintain absolute bars to strict products liability claims against nonmanufacturing parties. If a plaintiff sued under the laws of Georgia, Mississippi, or a state with similar provisions, an e-tailer would likely prevail on a Federal Rule of Civil Procedure 12(b)(6) motion or, at the very least, an early summary judgment.

Emerging Themes

Moving forward, it is clear that Amazon and other e-commerce entities’ liability for alleged product defects will depend heavily on state law. Nevertheless, certain themes have emerged, and the following questions will be integral in determining whether courts will subject Amazon and other e-tailers to liability in products cases involving third-party vendor platforms:

• Did the subject product touch an Amazon warehouse?
• Was the product shipped from an Amazon facility using Amazon packaging?
• Did Amazon have the opportunity to inspect the product?
• Did Amazon collect payment and handle all communications with the buyer?
• Does the state’s products liability formulation—reflected in statutes or case law—require an entity to take title to a product in order to qualify as a seller? Alternatively, does the applicable state law treat the question of a downstream supplier’s liability as a matter of public policy (such as in Pennsylvania)?

Aside from judicial decisions, proposed legislation suggests that state legislatures may intervene to help control future outcomes. The now-defunct California Assembly Bill No. 3262 (AB 3262), for example, was designed to make it easier for consumers to sue e-tailers that facilitate the movement of products from the manufacturer to the end consumer. Subject to certain exceptions, the bill aimed to hold “electronic retail marketplace[s]” strictly liable “to the same extent as [retailers]” for “all damages caused by defective products placed into the stream of commerce.”⁵¹ The bill defined “electronic retail marketplace” as

an electronic place or internet website that is engaged in the business of placing or facilitating the placement of products into the stream of commerce in this state, regardless of whether the vendor, product, or the marketplace has a physical presence in the state or whether . . . the electronic retail marketplace ever takes physical possession of the product.⁵²

Notably, after the California appeals court published its decision in Bolger, Amazon made a surprising maneuver and issued a public statement indicating that it would support California’s AB 3262 under certain conditions. Specifically, Amazon explained that, as long as the law applies “equally to all stores” and does not condition liability on the way that a given online marketplace operates, it would support the legislation.⁵³ Following this proclamation, the California Senate amended the bill and struck an exemption for websites that simply receive a fee for advertising a vendor’s product.⁵⁴

While California’s AB 3262 later died on the floor, its presentation—and the momentum it had originally gained—indicates that the answers to e-tailer products liability may lie in state legislation. State lawmakers could potentially introduce e-tailer–specific bills (like in California), or they could simply amend their current products liability formulations to make clear that e-tailers qualify as sellers or suppliers. And an interesting point for future observation with such enactments will be whether they specifically include (or decline to include) a requirement that the e-tailer take physical possession of the product. California’s AB 3262 was unequivocal on that point—it was to apply regardless of whether the e-tailer ever had physical possession—but judging by the case law, it’s possible that some lawmakers will prefer a different approach.

Conclusion

Ultimately, an e-tailer’s exposure to products liability claims arising from third-party vendor marketplaces will hinge heavily on state law and whether the applicable products liability formulation focuses on control, public policy, the passage of title, or something else. Strong “innocent seller” and “sealed container” doctrines may bar recovery entirely, but in other cases, these defenses will depend on the solvency of the manufacturer or other responsible parties.

In any event, the Supreme Court of Texas’s answer to the Fifth Circuit’s certified question in McMillan, further cases from state supreme courts, and future legislation similar to California AB 3262 will help flesh out the issues further. Products liability practitioners should keep an eye out for these decisions.

Notes

1. 217 N.Y. 382 (1916).

2. Id. at 389–90.

3. Restatement (Second) of Torts § 402A (Am. L. Inst. 1965) (“Special Liability of Seller of Product for Physical Harm to User or Consumer”).

4. See, e.g., Oberdorf v. Amazon.com Inc., 930 F.3d 136, 154 (3d Cir.), reh’g en banc granted, opinion vacated, 936 F.3d 182 (3d Cir. 2019) (stating that Pennsylvania’s formulation of section 402A allows a product user to file a strict products liability claim against a nonmanufacturing seller); Bolger v. Amazon.com, LLC, 267 Cal. Rptr. 3d 601, 604–28 (Ct. App. 2020), review denied (Nov. 18, 2020); Tex. Civ. Prac. & Rem. Code Ann. § 82.003(a)(7) (providing that nonmanufacturing sellers are subject to strict liability where, inter alia, the manufacturer is insolvent or not subject to jurisdiction).

5. According to Digital Commerce 360’s analysis of U.S. Department of Commerce data for the first six months of 2020, consumers’ online spending increased 30.1 percent when compared to the same period in 2019. See Fareeha Ali, Charts: How the Coronavirus Is Changing Ecommerce, Digit. Com. 360 (Feb. 15, 2021), https://www.digitalcommerce360.com/2020/08/25/ecommerce-during-coronavirus-pandemic-in-charts.

6. See Oberdorf, 930 F.3d at 154.

7. See Jeffrey P. Bezos, 2018 Letter to Shareholders, Amazon (Apr. 11, 2019), https://blog.aboutamazon.com/company-news/2018-letter-to-shareholders.

8. Bolger, 267 Cal. Rptr. 3d at 604–28.

9. Id. at 609.

10. Id. at 615–16.

11. Id. at 609, 617.

12. Id. at 617.

13. Id. at 624 (emphasis added).

14. 930 F.3d 415, 423–25 (6th Cir. 2019).

15. Id. at 423–25; see also Tenn. Code Ann. § 29-28-106(4).

16. Fox, 930 F.3d at 423–25; see Tenn. Code Ann. § 29-28-106 (providing that nonmanufacturing sellers and distributors are only liable in a strict products liability case under certain circumstances).

17. Fox, 930 F.3d at 422–24.

18. Id. at 424–25.

19. Id. at 418.

20. Id. at 425.

21. 164 N.E.3d 394, 401 (Ohio 2020).

22. See Ohio Rev. Code Ann. §§ 2307.71 et seq.

23. Stiner, 164 N.E.3d at 398–401.

24. No. 19-17149 (9th Cir. Nov. 17, 2020).

25. Id.

26. Id.

27. Erie Ins. Co. v. Amazon.com, Inc., 925 F.3d 135, 141 (4th Cir. 2019); see also Eberhart v. Amazon.com, Inc., 325 F. Supp. 3d 393, 398 (S.D.N.Y. 2018) (explaining that, under New York law, an entity’s failure to take title to a product necessarily places it outside the chain of distribution).

28. 925 F.3d at 138.

29. Id. at 141–42.

30. Id.

31. Fox v. Amazon.com, Inc., 930 F.3d 415, 422–23 (6th Cir. 2019).

32. Id. at 423.

33. See, e.g., State Farm Fire & Cas. Co. v. Amazon.com, Inc., 390 F. Supp. 3d 964, 970 (W.D. Wis. 2019); Allstate N.J. Ins. Co. v. Amazon.com, Inc., No. 17-cv-7238, 2018 WL 3546197, at *8 (D.N.J. July 24, 2018).

34. 930 F.3d 136, 142 (3d Cir. 2019).

35. Id. at 144.

36. Id. at 144–49.

37. See id. at 142, vacated & reh’g en banc granted, 936 F.3d 182 (3d Cir. 2019).

38. Oberdorf v. Amazon.com Inc., No. 18-1041, 2020 WL 3023064, at *4 (3d Cir. June 2, 2020).

39. Id. at *2.

40. Id. at *2–3.

41. Id. at *2.

42. See 983 F.3d 194, 203 (5th Cir. 2020), certified question accepted (Jan. 8, 2021).

43. See Ga. Code Ann. § 51-1-11.1; Miss. Code. Ann. § 11-1-63(h).

44. Tenn. Code Ann. § 29-28-106; see also N.C. Gen. Stat. § 99B-2(a) (providing “sealed container” immunity from strict liability for nonmanufacturing sellers unless the manufacturer is not subject to the court’s jurisdiction); Tex. Civ. Prac. & Rem. Code Ann. § 82.003(a)(7).

45. Ala. Code § 6-5-521(b), (c). The Alabama Code and other similar state laws provide, of course, that these protections do not apply where a seller or other downstream distributor is accused of independent negligence or other misconduct. See id. § 6-5-521(b)(4).

46. See Ga. Code Ann. § 51-1-11.1; Miss. Code. Ann. § 11-1-63(h). Again, both Georgia and Mississippi law allow sellers to face liability for independent acts of negligence.

47. Fox v. Amazon.com, Inc., 930 F.3d 415, 423–25 (6th Cir. 2019); see also Tenn. Code Ann. § 29-28-106(4).

48. Oberdorf v. Amazon.com Inc., 930 F.3d 136, 145 (3d Cir. 2019).

49. Id.

50. Id.

51. Assemb. B. 3262, 2019–2020 Legis., Reg. Sess. (Cal. 2020), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB3262.

52. Id.

53. Brian Huseman, Amazon Stands Ready to Support AB 3262 If All Stores Are Held to the Same Standards, Amazon (Aug. 21, 2020), https://blog.aboutamazon.com/policy/amazon-stands-ready-to-support-ab-3262-if-all-stores-are-held-to-the-same-standards.

54. See Assemb. B. 3262, supra note 51 (as amended on Aug. 24, 2020).