California Court Holds Amazon Strictly Liable for Marketplace Items Amazon Didn’t Fulfill–Loomis v. Amazon

April 28, 2021 · by · in Derivative Liability, E-Commerce

This is another lawsuit over a fiery Chinese-manufactured hoverboard sold through Amazon’s marketplace. In Bolger v. Amazon from August 2020, a California appellate court held that Amazon was strictly liable for marketplace items it fulfilled, and Section 230 immunity didn’t apply. A second California appellate court has endorsed Bolger but goes further: strict liability applies even if Amazon doesn’t do the fulfilment. This puts Amazon is a legally dicey spot, and its countermoves will likely shake up the industry.

The court says that Amazon can be strictly liable because it’s in the “vertical chain of distribution” based on the following facts (emphasis added):

Amazon’s own business practices make it a direct link in the vertical chain of distribution under California’s strict liability doctrine….Amazon placed itself squarely between TurnUpUp, the seller, and Loomis, the buyer, in the transaction at issue. When Loomis wanted to buy a hoverboard for her son, she perused product listings on Amazon’s website. Amazon took Loomis’s order and processed her payment. It then transmitted the order to TurnUpUp, who packaged and shipped the product to Loomis

When Loomis wondered whether the hoverboard would arrive in time for Christmas, she communicated her concerns through Amazon. TurnUpUp was not allowed to communicate with Loomis directly. If Loomis had wanted to return the hoverboard, the return would have been routed through Amazon.

Amazon remitted Loomis’s payment to TurnUpUp after deducting its fees, including a 15 percent referral fee based on the total sale price. These facts undermine Amazon’s characterization of its marketplace as an online mall providing online storefronts for sellers. Owners of malls typically do not serve as conduits for payment and communication in each transaction between a buyer and a seller. Moreover, they do not typically charge a per-item fee rather than a fixed amount to rent their storefronts. Instead, these actions – 1) interacting with the customer, 2) taking the order, 3) processing the order to the third party seller, 4) collecting the money, and 5) being paid a percentage of the sale – are consistent with a retailer or a distributor of consumer goods.

In other words, Amazon acted like an online marketplace.

Alternatively, the court says there’s a triable issue over whether Amazon is in the stream of commerce. The court also sends the negligence question back for further consideration.

Amazon argued that it was merely a “service provider” to its marketplace vendors.  The court responds: “Amazon took the order for the hoverboard, took the payment, and passed the order up the chain of distribution.”

In support of imposing strict liability, the court cites how Amazon undertakes some product safety efforts, such as requiring UL certification. In other words, the court embraces the moderator’s dilemma, when courts weaponize a service’s trust & safety efforts to hold them liable for whatever they failed to do. The court says “Application of strict liability in this case may incentivize Amazon to expand its safety compliance requirements to more products and thus further the goal of product safety.” That’s true, or it could motivate services like Amazon to counterproductively reduce their existing T&S work or even exit the industry. As I’ve predicted before, Amazon can and probably will increasingly nix marketplace items and retail some of those items directly, and those changes will devastate many current small marketplace vendors and possibly further consolidate Amazon’s market position.

Section 230 gets an inconsequential mention in the footnotes. Apparently the plaintiff dropped the claims Amazon thought Section 230 immunized, and Amazon apparently didn’t argue that Section 230 immunized the strict liability and negligence claims.

A lengthy and scholarly concurrence from Judge Wiley (a former UCLA law professor) excoriates Amazon. It starts out: “Amazon.com can control what it created” and goes downhill from there. Some quips:

  • “Once Amazon is convinced it will be holding the bag on these accidents, this motivation will prompt it to engineer effective ways to minimize these accident costs. Tort law will inspire Amazon to align its ingenuity with efficient customer safety. Customers will benefit.”
  • “we have an easy case that beautifully illustrates the deep structure of modern tort law: a judicial quest to minimize the social costs of accidents—that is, the sum of the cost of accidents and the cost of avoiding accidents….Amazon has cost-effective options for minimizing accident costs.”
  • “The cost-benefit analysis in Amazon’s case is not a close call: the benefits of the actions Amazon can take to minimize accidents vastly outweigh the costs of these actions to Amazon.”
  • “moral justice and cost-benefit analyses do not conflict in this case.”

Last August, a proposed California bill would have largely codified the Bolger holding. In a surprise move, Amazon flipped to support the bill–so long as its competitors also got equally hammered. That bill got close to passage but ran out of time when the legislative session ended; I believe it’s been resurrected this year. I interpreted Amazon’s flip as a sign that Amazon will eventually give up its legal defense and plans to reconfigure its marketplace. Still, until then, Amazon is digging in its heels in court–which seems increasingly unlikely to prevail in the end.

Meanwhile, every online marketplace–including eBay–seems to do all of the following: “1) interacting with the customer, 2) taking the order, 3) processing the order to the third party seller, 4) collecting the money, and 5) being paid a percentage of the sale.” This is a troubling standard for all online marketplaces, even though they weren’t in the courtroom to defend their interests.

Case citation: Loomis v. Amazon.com LLC, 2021 WL 1608878 (Cal. App. Ct. April 26, 2021)

BONUS: Another Amazon hoverboard case, from Illinois, reached a different result. The court says: “the Supreme Court of Illinois has consistently conveyed that the key criterion for being a seller is exercising control over the product, not over the purchasing process,” and the federal court repeatedly says it should be careful expanding liability beyond what the state courts have said. The negligent misrepresentation claim failed because the seller, not Amazon, wrote the product listing. That also means Section 230 applies. Summary judgment for Amazon. Great Northern Insurance v. Amazon.com, Inc., 2021 WL 872949 (N.D. Ill. March 9, 2021).

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