California Courts Continue to Trim Section 230’s Protection for Amazon’s Marketplace (and Everyone Else)–Lee v. Amazon

The California Appeals Courts have turned against Amazon’s marketplace. In 2020, in Bolger v. Amazon, the court held that Amazon may be strictly liable for marketplace sales it fulfills. Then, last year, in Loomis v. Amazon, the court extended Bolger’s strict liability rule to items Amazon doesn’t fulfill. Now, this ruling says that Amazon may be obligated to make mandatory disclosures for marketplace items and face liability for failing to do so.

Individually, each ruling creates substantial legal risk for Amazon that it can’t mitigate in its marketplace as currently configured. Collectively, the opinions almost certainly doom Amazon’s marketplace unless it can get relief on appeal or from the legislature (which isn’t as crazy as it sounds, because Amazon previously backed industry-changing legislation after Bolger). Grab some tissues before diving into this post.

[UPDATE: On April 8, 2022, the panel made ***eleven*** corrections to this opinion–an unusually high number. I don’t think the changes materially affect the analysis below, but I didn’t reread the corrected opinion to figure it out either. See 2022 WL 1055192 (Cal. App. Ct. April 8, 2022). ]

* * *

This lawsuit alleges that some skin-lightening creams sold in Amazon’s marketplace have excessive levels of mercury and do not provide the warnings required by Prop. 65, a mandatory disclosure law with a checkered reputation. In the trial court, experts debated whether a sample of a product showing elevated mercury indicates that all items of the product are problematic. The appellate court reverses the trial court on this point, concluding that the positive mercury tests triggered Prop. 65 disclosures for all instances of those products.

So, who is responsible for providing the Prop. 65 disclosures? Retailers have the obligation, but Amazon says it wasn’t the retailer of marketplace items. The appeals court says that doesn’t matter. Prop. 65 disclosure obligations apply to “any ‘person in the course of doing business,’ which unquestionably includes Amazon’s activities here….Amazon manages and oversees all aspects of third-party sales on its Web site, including accepting payment and providing refunds to customers on sellers’ behalf, providing the only channel for communication between customers and sellers, earning fees from sellers for each completed sale and, for sellers utilizing the FBA program, storing the products and arranging for their delivery to customers.”

The appeals court also says Amazon may have had sufficient notice of the elevated mercury. Plaintiffs’ notices may have conferred scienter. Government warnings (the “RAPEX” notices) could also confer sufficient knowledge to Amazon, especially because it checked that database. Also, “Amazon made the products available for purchase by the ultimate consumer and, at a minimum, facilitated the sale by providing a forum for it to take place, handling the finances of the transaction and controlling communications between the customer and the third-party sellers,” and all of that might indicate knowledge as well.

The court then addresses Section 230, and ugh. The court says:

Contrary to Amazon’s characterization, enforcing its obligations under Proposition 65 does not require it to “monitor, review, and revise” product listings

Oh really? From my perspective, the court expects Amazon to “alter”/”modify” vendor-provided listings if the vendor didn’t include the legally required Prop. 65 disclosure–and to figure that out, Amazon would need to “monitor” the listings.

The court rejects Amazon’s cited precedent because they “involved claims that necessarily based the defendants’ alleged liability on actions traditionally within a publisher’s role.” But Prop. 65 literally requires the publication of disclosures, so what’s the difference?

The court doubles down:

If Amazon has actual or constructive knowledge that a product contains mercury, it might choose to review the product listing to determine whether the third-party seller had provided a Proposition 65 warning before providing the warning itself or removing the listing. But nothing inherently requires Amazon to do so. It could choose, instead, to act on its knowledge by providing the warning regardless, pursuant to its own obligations under Proposition 65.

Sure, civil tort liability doesn’t “require” a defendant to change its behavior; the defendant can always go bankrupt if it chooses not to abate the tort risk. C’mon. And claiming that Amazon can “choose” to add the Prop. 65 disclosure, when the court already said that Amazon wouldn’t have to “monitor” or “modify” product listings, is disingenuous. Per the court, Amazon faces substantial legal exposure if it “knows” that a Prop. 65 warning is required and doesn’t add those warnings to marketplace listings drafted by independent third-party sellers that don’t include the warning. That sounds a lot like Amazon faces liability for what is, or isn’t, in third-party listings–exactly what Section 230 covers.

Ultimately, the court views this mandatory disclosure law like other general-purpose disclosure laws, such as tax filings, that aren’t based on third-party content. The Prop. 65 language even provides a statutory hook for this: it applies to “any person in the course of doing business,” not just retailers or manufacturers. As a result, the court rejects Internet exceptionalism:

If a skin-lightening cream is sold in a brick-and-mortar drug store that was aware the product contained mercury, there is no question that retail seller would have some obligation to provide Proposition 65 warnings—depending, of course, on whether entities further up the distribution chain had provided warnings for the products and, if not, could be held to account. Nothing in the text or purposes of the CDA suggests it should be interpreted to insulate Amazon from responsibilities under Proposition 65 that would apply to a brick-and-mortar purveyor of the same product.

Not only would such an interpretation give Amazon a competitive advantage unintended by Congress in enacting the CDA, but it would be inimical to the purposes of Proposition 65. Amazon makes it possible for sellers who might not be able to place their products in traditional retail stores to reach a vast audience of potential customers

This passage is riddled with mistakes. Congress intended Internet exceptionalism–that’s the whole point of Section 230. And the court’s point would make sense if Amazon were the retailer, but the court didn’t conclude that. If Amazon is configured differently from a retailer, then Section 230 might very well require that Amazon be treated differently. For example, would Craigslist have to provide Prop. 65 disclosures? Or a closer analogy, how eBay would handle Prop. 65 disclosures? eBay can’t make individualized disclosures for listings that come and go of products that aren’t taxonomized at the SKU level. Now what? Finally, to be clear, if the marketplace vendors are violating Prop. 65, they aren’t entitled to “reach a vast audience of potential customers.” They are breaking the law and should be held accountable. What the court is really saying is that Amazon has to police the vendors…and we’re back to the “monitoring” obligation the court says Amazon doesn’t have.

On that point, the court adds that many cream-sellers may be overseas, so Amazon is the only entity that can be forced to comply with Prop. 65. I think this point exposes another problem with the court’s approach. Amazon can’t show the Prop. 65 disclosures only to California-based consumers, so it will have to provide the disclosures to all prospective buyers regardless of location. This means that the court’s ruling clearly reaches into interstate commerce as it requires Amazon to make disclosures when the buyer and seller are both not Californians.

The court closes:

The text of section 230(e)(3) is clear that state laws inconsistent with section 230 are preempted while those consistent with section 230 are not preempted. Proposition 65’s warning requirement is an exercise of state authority to protect the public that imposes obligations on any individual who exposes another to a listed chemical. Proposition 65 is not inconsistent with the CDA because imposing liability on Amazon for failing to comply with its own, independent obligations under Proposition 65, does not require treating Amazon as the publisher or speaker of third-party sellers’ content. Accordingly, if Lee can establish all the elements of a violation of Proposition 65, section 230 does not immunize Amazon from liability.

The court doesn’t need to interpret Section 230(e)(3) here if it’s applying the rule that online marketplace transactions don’t qualify for Section 230. By invoking this provision, the court implies it’s relying on other principles to negate Section 230. That makes this opinion even more problematic than the Bolger and Loomis rulings.

So what will Amazon do next? It could win on remand if it can defeat the scienter requirement, but I don’t like those odds. Perhaps Amazon will appeal this ruling to the California Supreme Court. After Hassell v. Bird badly split that court, that sounds pretty risky too. So that leaves the obvious approach, which is for Amazon to provide generic Prop. 65 warnings on every marketplace item. I’m not sure overly general disclosures satisfy Prop. 65, but more tailored disclosures aren’t possible. And if that gets through Prop. 65, this opinion opens the door for other consumer protection disclosure laws, both federal and state, to be imposed on Amazon and other marketplaces as well. I’ve said for a while that online marketplaces are legally doomed, and this opinion is another hard shove in that direction.

Case citation: Lee v., Inc., 2022 WL 736094 (Cal. App. Ct. March 11, 2022)