Amazon strictly liable for product defect but 230 preempts failure to warn claim

Oberdorf v. Amazon.com Inc., No. 18-1041 (3d Cir. Jul. 3, 2019)

Oberdorf was injured by a retractable dog leash “sold” by Amazon on behalf of a third-party vendor, who shipped the leash directly to Oberdorf. The district court found that, under Pennsylvania law, Amazon was not a “seller” who could be strictly liable for Oberdorf’s injuries, and that the CDA barred her claims.  The court of appeals reversed the first finding and partially reversed the second.

As one might expect, the Amazon contract with vendors allows Amazon almost total control of the relationship between the parties.  The vendor chooses the products it sells and provides Amazon with a product description, digital images, shipping and handling options, and other information it requests. Amazon has sole control over the content, appearance, design, functionality, and all other aspects of its website. The vendor can choose the price, but can’t charge more on Amazon than in other sales channels.  [Hmm.  I can think of at least one wooden jigsaw puzzle vendor that seems not to follow this rule, but perhaps it’s actually some hidden-to-me arbitrage by a third party.] Vendors must communicate through the Amazon platform. When there’s a purchase, Amazon collects the payment and requires the vendor to send Amazon shipping information for each order. Of course, it also charges commissions and fees, and is the vendor’s agent for purposes of payments and refunds.  Amazon can, among other things, require vendors to stop or cancel orders of any product. It further requires that its vendors release it and agree to indemnify, defend, and hold it harmless against any claim, loss, damage, settlement, cost, expense, or other liability.

In Pennsylvania, strict products liability is limited to “sellers.”  The Pennsylvania Supreme Court identified four relevant factors in identifying a “seller”:

(1)       Whether the actor is the “only member of the marketing chain available to the  injured plaintiff for redress”;

(2)       Whether “imposition of strict liability upon the [actor] serves as an incentive to safety”;

(3)       Whether the actor is “in a better position than the consumer to prevent the circulation of defective products”; and

(4)       Whether “[t]he [actor] can distribute the cost of compensating for injuries resulting from defects by charging for it in his business, i.e., by adjustment of the rental terms.”

Under this test, Amazon is a “seller.”  First, Amazon isn’t like a brick-and-mortar auctioneer.  Even though every item on Amazon’s website can be traced to a third-party vendor, the only way to communicate with customers is 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.”  Amazon’s VP 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 [the vendor].”  For compensation, it’s Amazon or nothing, weighing in favor of strict liability.

The dissent argued that “[t]o assign liability for no reason other than the ability to pay damages is inconsistent with our jurisprudence,” but it wasn’t just ability to pay that was Amazon’s problem.  “Amazon fails to vet third-party vendors for amenability to legal process. The first factor weighs in favor of strict liability not because The Furry Gang cannot be located and/or may be insolvent, but rather because Amazon enables third-party vendors such as The Furry Gang to structure and/or conceal themselves from liability altogether.”

Second, whether “imposition of strict liability upon the [actor would] serve[] as an incentive to safety”: Imposing strict liability on an auction house wouldn’t help because an auction house doesn’t design or make any particular product; Amazon too argued that it didn’t have any relationship with designers or manufacturers.  However, though Amazon didn’t directly control design and manufacture, it exerted “substantial control” over third-party vendors by virtue of its comprehensive, discretion-allocating agreement with them. “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.”

The dissent argued that this holding imposes a fundamentally new business model on Amazon because it presently “does not undertake to curate its selection of products, nor generally to police them for dangerousness.”  Echoing what I tell my students (there is no divine entitlement to a specific business model), the court said that Pennsylvania law does not shield a company from strict liability just because it chose a business model that fails to prioritize consumer safety. “The dissent’s reasoning would give an incentive to companies to design business models, like that of Amazon, that do nothing to protect consumers from defective products.”

Third, whether Amazon is “in a better position than the consumer to prevent the circulation of defective products.”  An auctioneer lacks an ongoing relationship with a manufacturer, and financing agencies perform only a “tangential” role in the sales process and ordinarily lacks a “continuity of transactions that would provide a basis for indirect influence over the condition and the safety of the product.” Here, by contrast, “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.”  In addition, “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 is the “public-facing forum” for listed products; it collects customer feedback.  Third-party vendors are ill-equipped to do this precisely because Amazon controls the channels of communication.

The dissent argued that Amazon wasn’t better positioned than customers (!) to encourage product safety. But even the dissent noted one aspect of Amazon’s power relative to the consumers: Amazon, but not consumers, can eject sellers from the platform. “Imposing strict liability on Amazon will ensure that the company uses this relative position of power to eject sellers who have been determined to be selling defective goods.”

Fourth, whether Amazon can distribute the cost of compensating for injuries resulting from defects: Actually, it already has provided for indemnification in its agreements. And it can adjust the commission-based fees that it charges to third-party vendors “based on the risk that the third-party vendor presents.” By contrast, “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.”

This result was also consistent with other Pennsylvania cases, which established that a “seller” need never take title to or possession of the products at issue to be strictly liable. Amazon also argued that it wasn’t a sales agent because it works on behalf of numerous third-party vendors, not a single seller or manufacturer; this is not the law.

CDA §230: Bars some, but not all, of the claims. “The question that we must answer is ‘Would such an addition to the content be part of the editorial function of the Amazon website?’”  Not all of the claims were precluded.  “Amazon’s involvement in transactions extends beyond a mere editorial function; it plays a large role in the actual sales process. … Therefore, to the extent that Oberdorf’s negligence and strict liability claims rely on Amazon’s role as an actor in the sales process, they are not barred by the CDA. However, to the extent that  Oberdorf allged that Amazon failed to provide or to edit adequate warnings regarding the use of the dog collar, that activity fell within its editorial function. “That is, Amazon failed to add necessary information to content of the website.”  Such failure to warn claims were barred by the CDA. But the district court didn’t parse the claims to distinguish between “failure to warn” claims and claims premised on other actions or failures in the sales or distribution processes, so remand was required.

Judge Scirica dissented on the Pennsylvania law issue, but concurred in the “thoughtful” CDA analysis.