Amazon Isn’t Liable for Defective Marketplace Sale (No Thanks to Section 230)–Erie Insurance v. Amazon

A buyer purchased an LED headlamp in Amazon’s marketplace from a third party merchant (“Dream Light”) and gave it as a gift. The batteries allegedly malfunctioned and caused a fire in the gift-receiver’s house. The home insurer paid $313k+ for the loss and sought reimbursement from Amazon as the headlamp seller. The Fourth Circuit denies the claim because Amazon wasn’t in fact the seller.

Section 230. The lower court ruled for Amazon on Section 230 grounds. The Fourth Circuit disagrees:

The products liability claims asserted by Erie in this case are not based on the publication of another’s speech. The underpinning of Erie’s claims is its contention that Amazon was the seller of the headlamp and therefore was liable as the seller of a defective product. There is no claim made based on the content of speech published by Amazon — such as a claim that Amazon had liability as the publisher of a misrepresentation of the product or of defamatory content. While the Communications Decency Act protects interactive computer service providers from liability as a publisher of speech, it does not protect them from liability as the seller of a defective product.

Perhaps surprisingly, I think this is right. The insurer is claiming that Amazon physically delivered a defective good. Even though the good was owned by the merchant, not Amazon, the legal question being posed is whether Amazon was also the seller of the physical good. I think the offline physicality takes the question out of Section 230; just like a print-on-demand manufacturer can’t claim Section 230 for the manufactured goods, even if they were sold online.

I would feel differently if the good being delivered was purely delivered online (like an electronic file), in which case “sale” is likely a codeword for “publishing.” I would also feel differently if the insurer had claimed that the merchant’s on-site disclosures were incomplete or mistaken; at that point, the claim clearly reaches Amazon’s publication of those disclosures. Finally, I see this as a different issue than the Airbnb cases, where holding Airbnb or HomeAway liable for processing transactions necessarily forces them to not publish unprocessable listings to prevent false advertising/bait-and-switch. The Ninth Circuit got that case wrong; the Fourth Circuit got this case right.

Amazon Isn’t the Seller. Even without Section 230, Amazon defeats the case because it’s not the “seller” under Maryland law. According to the court, sellers are “owners of personal property who transfer title to purchasers of that property for a price.” Amazon never takes title to the goods sold by marketplace vendors, even when Amazon holds those goods in inventory and does the fulfillment. Instead, “Dream Light set the price for the sale of the product to purchasers, designed the product description for the website, paid Amazon for its fulfillment services, and ultimately received the purchase price paid by the purchaser. In these circumstances, as Amazon explicitly posted on its site, Dream Light was the seller….Although Amazon’s services were extensive in facilitating the sale, they are no more meaningful to the analysis than are the services provided by UPS Ground, which delivered the headlamp…”

The insurer argued that Amazon was an “entrustee” of the good, but the court says the “entrustee” status merely allows Amazon to pass along whatever title the seller had in the good: “Amazon functioned much like an auctioneer, a broker, a consignee, or a bailee, none of whom actually possesses title but nonetheless is, if it is a merchant, authorized to effect a transfer to the buyer of title held by the owner — i.e., the seller.”

A concurring judge expressed her discomfort with the law because Amazon has disrupted traditional supply chains. Amazon has a huge percentage of the e-commerce market yet isn’t subject to traditional liability principles despite its extensive involvement in the transaction:

[the buyer] ordered the product from Amazon’s website and paid Amazon directly. Amazon took physical possession of the product, warehoused it, packaged it, and delivered it to the carrier. Amazon even assumed the risk of credit card fraud, received payment, and remitted a portion of that payment to the manufacturer. Nearly the only thing Amazon did not do was hold title.

I think the last sentence is overly dramatic. In addition to not holding title, Amazon doesn’t buy the good from an upstream supplier, set that purchase price, doesn’t set the sales price in the marketplace, and doesn’t bear any inventory risk.

This result is consistent with numerous other cases holding that Amazon isn’t the seller of marketplace goods, including the virtually identical McDonald v. LG case also interpreting Maryland law. The result is also consistent with the Federal Circuit’s Milo & Gabby ruling, which now establishes the Amazon-isn’t-seller rule in two federal circuits. Perhaps, as the concurrence suggests, the legislatures will get involved in this matter. Until then, the rule appears to be solidifying in Amazon’s favor.

Case citationErie Insurance Company v., Inc., 2019 WL 2195146 (4th Cir. May 22, 2019)

Selected Related Posts:

* Online Marketplace Defeats Trademark Suit Because It’s Not the “Seller”–OSU v. Redbubble
Amazon Again Avoids Liability for Defective Marketplace Item–Fox v. Amazon
Recapping a Year’s Worth of Section 230 Cases That Got Stuck in My Blogging Queue
Amazon Doesn’t “Sell” Its Marketplace Goods–Milo & Gabby v. Amazon
eBay Isn’t Liable for Patent-Infringing Marketplace Sales–Blazer v. eBay
Section 230 Doesn’t Protect Amazon From Products Liability Claims–McDonald v. LG
eBay Isn’t Liable for Selling Recalled Merchandise–Hinton v. Amazon