Circuit Court Rules Amazon is Liable for its Third-Party Vendors

With $232.9 billion in revenue last year, Amazon.com is the world’s largest online retailer, making up almost 50% of the United States ecommerce market. Amazon sells over 12 million products, with more than 50% of its sales coming from third-party vendors that use Amazon as an online marketplace for their merchandise. With such a sheer volume of goods entering the consumer market under Amazon’s watch, the issue of products liability is bound to be a critical one for the company. But what exactly is Amazon’s role in its third-party vendor sales? And more importantly, who is to be held liable to protect consumers?

The 3rd Circuit Court of Appeals recently answered these questions in Oberdorf v. Amazon.com Inc., 18-1041 (3d Cir. 2018) when it overturned a finding by the United States District Court for the Middle District of Pennsylvania that Amazon cannot be sued under Pennsylvania’s strict products liability law because the company does not constitute a “seller” under the applicable legal definition. To the contrary, the 3rd Circuit held that Amazon is a “seller,” as defined by Pennsylvania’s legal standard, and is thereby strictly liable for the products sold by its third-party vendors. The judicial opinion set forth a precedent within its jurisdiction that is likely to have widespread legal implications for the world’s biggest marketplace.

The Lawsuit

In January 2015, the plaintiff, Heather Oberdorf, was walking her dog with a retractable leased that she purchased from Amazon.com through the third-party seller, The Furry Gang. When Oberdorf’s dog unexpectedly lunged, the D-ring on the collar broke, which hit Oberdorf’s face and eyeglasses. As a result, she is permanently blind in her left eye. The leash was directly shipped from The Furry Gang but after the accident, Oberdorf was unable to locate a representative from the company, which has not had an active account on Amazon.com since May 2016.

Oberdorf filed a civil complaint against Amazon in the United States District Court for the Middle District of Pennsylvania, alleging, among others, claims of strict products liability for the defective design of the retractable leash and Amazon’s failure to provide adequate warnings. Oberdorf further alleged that Amazon was negligent in its distribution, inspection, marketing, testing, and selling of the product and that it allowed a defective item to enter the stream of commerce without conducting proper hazard analysis. (Oberdorf v. Amazon.com Inc., 16-CV-01127). The district court granted Amazon’s motion for summary judgment and dismissed the lawsuit on the basis that Amazon could not be sued under Pennsylvania’s strict liability law because it does not constitute a “seller” within the meaning of the statute.

The Appeal: Defining Amazon as a Seller

On appeal, the 3rd Circuit analyzed the definition of “seller” under the Pennsylvania Supreme Court’s interpretation of the Second Restatement of Torts § 402A, which states that an actor can only be subject to strict liability if the actor is “a seller…engaged in the business of selling such a product” and the product is “expected to and does reach the user or consumer without substantial change in the condition in which it is sold.” Following the Pennsylvania Supreme Court test set forth in Musser v. Vilsmeier Auction Co., Inc., 562 A.2d 279 (Pa. 1989) – a case which held that an auction house cannot be held strictly liable as a “seller” of an allegedly defective tractor – the 3rd Circuit applied to same factors to determine whether Amazon could be considered a “seller.” The Circuit concluded Amazon was, in fact, a seller and could be held strictly liable.

Under the Musser test, the 3rd Circuit considered four questions – 1) whether Amazon is the “only member of the marketing chain available to the injured plaintiff for redress;” 2) whether the imposition of strict liability on Amazon “serves as an incentive to safety;” 3) whether Amazon is “in a better position than the consumer to prevent the circulation of defective products;” and 4) whether Amazon could “distribute the cost of compensating for injuries resulting from defects by charging for it.”

As to the first factor, the 3rd Circuit found that Amazon is the only member in the marketing chain available for redress, in light of the fact that third-party vendors communicate with the customer only through Amazon, enabling the vendor to conceal itself from the customer. The 3rd Circuit also noted that Amazon “had no vetting process in place to ensure” that third parties are amenable to legal process. In Oberdorf’s case, this resulted in Amazon being unable to locate The Furry Gang.

As to the second factor of incentivizing safety, the 3rd Circuit found that Amazon exerts substantial control over its third-party vendors by reserving the right to remove product listings, withhold payments, impose transaction limits, and terminate marketplace services. Therefore, the Court held, Amazon is fully capable of removing unsafe products from its platform. Likewise, in consideration of the third factor, the Court found that Amazon is in a better position than the consumer to prevent the circulation of defective products because the potential for continuing sales encourages an ongoing relationship between Amazon and the third-party vendors. Because Amazon is the sole channel of communication between the vendor and the customer through the monitoring of its own website and customer feedback forums, third-party vendors are not as equipped as Amazon to receive reports of defective products and prevent their circulation into the online market.

Lastly, in considering the cost of compensating for injuries resulting from defects, the Court cited Amazon’s own indemnification agreement with its vendors. The Court also noted that Amazon has the ability to adjust its commission fees based on any risk that the vendor presents.

In consideration of the four factors enumerated by the Pennsylvania Supreme Court, as well as other previous cases, the 3rd Circuit found that Amazon is a “seller,” and therefore, can be held strictly liable for injuries resulting from defective products sold by third-party vendors.

How Can Experts Weigh in?

In strict liability cases, a defendant seller is liable for any defective condition that is unreasonably dangerous to the consumer. Strict products liability differs from a negligence theory in that the seller need not have committed any wrongdoing or deviated from any standard of care to be held liable. In other words, plaintiffs need only prove that a seller sold a product that was unreasonably dangerous.

As a precedential case, Oberdorf creates a guarantee that, in claims against Amazon within the jurisdiction of Pennsylvania, one element, Amazon’s status as a seller under strict liability law, is already established. Therefore, the issue of the product’s danger becomes even more critical. All strict liability cases can benefit from products safety experts, design experts, and engineers to testify to the product’s potential defects and dangers (or lack thereof). In light of the fact that the Circuit rejected Amazon’s arguments contesting its status as a seller, any defenses to strict products liability claims moving forward will boil down to a case-by-case analysis of the specific products at hand, making these experts even more valuable.

Although not controlling, the 3rd Circuit’s ruling may have implications throughout other districts handling strict products liability claims against Amazon, as well as other similar ecommerce websites. For such a massive company like Amazon, any future strict products liability litigation will inarguably affect consumers, third-party vendors, and the general climate of online marketplaces.