Third Circuit Holds Online Retailers May Be Liable for Defective Third-Party Products Under Pennsylvania Product Liability Laws

The Third Circuit Court of Appeals has held that online retailers such as Amazon could be held liable for allegedly defective third-party products sold through its website.
In a 2−1 panel decision in Oberdorf v. Amazon.com, Inc., — F.3d —, 2019 WL 2849153 (3d Cir. July 3, 2019), the Third Circuit Court of Appeals reversed the district court’s ruling that Amazon was not a “seller” under § 402A of the Restatement Second of Torts, and therefore could be held strictly liable under Pennsylvania products liability law.

Pennsylvania has adopted Restatement Second of Torts § 402A, which “specifically limits strict products liability to ‘sellers’ of products.” Because the Pennsylvania Supreme Court has not yet addressed whether an online sales listing service such as Amazon Marketplace qualifies as a “seller” under § 402A, the district court was tasked with predicting what the Pennsylvania Supreme Court would decide under Pennsylvania law.

The plaintiff sued Amazon for strict liability, negligence, breach of warranty, misrepresentation, and loss of consortium for alleged injuries arising from use of a retractable dog leash that recoiled into the plaintiff’s eyeglasses and left her permanently blind in one eye.

The district court granted Amazon’s motion for summary judgment on the plaintiff’s strict liability claims, finding that Amazon could not be held strictly liable under Pennsylvania products liability law because it was “merely a third-party vendor’s ‘means of marketing’” and not a “seller” as defined by § 402A. Oberdorf v. Amazon.com, Inc., 295 F.Supp.3d 496, 501 (M.D. Pa. 2017), rev’d, — F.3d —, 2019 WL 2849153 (3d Cir. July 3, 2019).

The district court analogized Amazon to the auctioneer in Musser v. Vilsmeier Auction Co., 562 A.2d 279 (Pa. 1989), which the Pennsylvania Supreme Court held was not a “seller” but an “ad hoc salesman … [that] bears no relation to the manufacturer of the goods, beyond their immediate sale.” The Musser court reasoned, “[w]here he is only a salesman or agent for a given time and place, he can bear no relationship to the dealer or manufacturer sufficient to achieve the purpose of protecting the buyer from defective manufacture.”

On appeal, the Third Circuit considered the four factors established in Musser for determining whether an actor is 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”
  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.”

The Third Circuit held that all four Musser factors weighed in favor of imposing liability on Amazon for the plaintiff’s claims.

First, neither the plaintiff nor Amazon could locate the vendor who shipped the dog leash – a circumstance created by Amazon because its third-party vendor agreement “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.” The court noted 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” and “had no vetting process in place to ensure, for example, that third-party vendors were amenable to legal process.” Thus, Amazon stood “as the only member of the marketing chain available to the injured plaintiff for redress.”

Second, the court determined that “Amazon exerts substantial control over third-party vendors” through its agreements, which grant Amazon sole discretion to remove unsafe products from its website. Thus, “[i]mposing strict liability upon Amazon would be an incentive to do so.”

Similarly, the court concluded that under the third factor Amazon was “in a better position than the consumer to prevent the circulation of defective products” because “Amazon is uniquely positioned to receive reports of defective products, which in turn can lead to such products being removed from circulation.” “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.”

Finally, in considering “whether Amazon can distribute the cost of compensating for injuries resulting from defects,” the court found that “Amazon has already provided for indemnification by virtue of a provision” in its vendor agreements and “can adjust the commission-based fees that it charges to third-party vendors based on the risk that the third-party vendor presents.” The court noted, “had there been an incentive for Amazon to keep track of its third-party vendors, it might have done so.”

The Third Circuit also rejected Amazon’s argument that it could not be considered a “seller” because it does not take title to or possession of the products sold by third-party vendors. Relying on Hoffman v. Loos & Dilworth, Inc., 452 A.2d 1349 (Pa. Super. 1982), which held that “under Pennsylvania law a participant in the sales process can be held strictly liable for injuries resulting from defective products, even if the participant does not take title or possession of those products,” the Third Circuit observed:

Amazon’s role extends beyond that of the Hoffman sales agent, who in exchange for a commission merely accepted orders and arranged for product shipments. Amazon not only accepts orders and arranges for product shipments, but it also exerts substantial market control over product sales by restricting product pricing, customer service, and communications with customers. Amazon’s involvement, in other words, resembles but also exceeds that of the sales agent labeled a “seller” in Hoffman.

Moreover, “Pennsylvania state courts have repeatedly found that large retailers who offer a range of different products are ‘sellers’ within the meaning of 402A.”

The Third Circuit concluded that “Amazon should be considered a ‘seller’ under § 402A of the Second Restatement of Torts” and held “that under Pennsylvania law, Amazon is strictly liable for consumer injuries caused by defective goods purchased on Amazon.com.”

As the dissenting judge observed, the majority’s ruling conflicts with other case law determining that Amazon is not subject to strict liability as a “seller.” “[E]very 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.”

However, the majority responded that its holding was specific to Pennsylvania and that case law from other jurisdictions – including the Fourth and Sixth Circuits – had no bearing on the court’s analysis under Pennsylvania law. “It is of little consequence whether Amazon is a ‘seller’ for purposes of other states’ statutes, as each of those statutory schemes is based on distinct language and policy considerations.”“[W]e do not believe these non-precedential, out-of-circuit cases should guide our reasoning. Our task is strictly limited to determining what the Pennsylvania Supreme Court would do pursuant to Pennsylvania law.”

Both the Fourth and Sixth Circuits previously held that Amazon was not a seller under similar circumstances under Maryland and Tennessee law, respectively. The Third Circuit’s analysis was based on Pennsylvania law. Interestingly, no highest state court has yet addressed whether online retailers, such as Amazon, are subject to strict liability for defective third-party products sold on their websites. As a majority of states have adopted § 402A of the Restatement Second of Torts or some version into their own product liability laws, it will be interesting to see how other states apply their product liability laws to online retailers. Amazon has moved for enbanc rehearing arguing that the majority ruling was not grounded on clear Pennsylvania precedent.

Author Bio(s):

Michael C. Zogby is a New Jersey partner who co-chairs Drinker Biddle’s Products Liability and Mass Tort Group and the Pharma and Life Sciences Group. Mike is a trial lawyer who handles a variety of complex, aggregate litigation, including products liability, medical device, life sciences, class action, consumer disputes, intellectual property, trade secrets, toxic tort, multidistrict proceedings, and data collection and privacy inside and outside the United States.

Claudia V. Garcia is an associate in Drinker Biddle’s Products Liability and Mass Tort Group, residing in our San Francisco, California, office. Claudia focuses on pharmaceutical products liability defense.