The Subrogation Strategist

On June 25, 2021, the Texas Supreme Court held that Amazon cannot be liable for defective third-party products sold on its website, even when Amazon controls the transaction and delivery of the product, because Amazon never relinquishes or holds title to the products. This opinion should result in the reversal of a prior decision by the United States District Court for the Southern District of Texas – which found that Amazon was a “seller” under Texas law – and causes further division in the jurisdictions in the United States regarding whether Amazon can be held liable for defective third-party products.

The majority of products sold on Amazon come from third-party sellers participating in the “Fulfillment by Amazon” (FBA) program. Under the FBA program, a third-party seller sends its product to Amazon’s fulfillment centers, where it is stored until a consumer purchases it on Amazon’s website. When a consumer purchases the product, Amazon retrieves it from the shelf in its warehouse, packs it, and delivers it to the consumer. The third-party seller pays Amazon an additional fee for participating in the FBA program. However, Amazon does not take title to third-party products in the FBA program, which the Texas Supreme Court determined is critical in determining whether Amazon is a “seller” under Texas law.

In McMillan v. Amazon.com, Inc., No. 18-CV-2242, 2020 U.S. Dist. LEXIS 102025 (S.D. Tex. June 8, 2020), a case discussed in a prior post, the plaintiff, Morgan McMillan, alleged that a remote control purchased on Amazon caused permanent injuries to her 19-month-old daughter. The plaintiff’s husband ordered the remote from a third-party vendor on Amazon called “USA Shopping 7693.” The plaintiff’s daughter opened the remote’s battery compartment and swallowed the included battery, causing permanent damage to her esophagus. “USA Shopping 7693” is an account belonging to Hu Xi Jie, an FBA user located in China. The plaintiff filed a lawsuit in the United States District Court for the Southern District of Texas (U.S. District Court) against Amazon and Hu Xi Jie for strict liability, negligence, and breach of implied warranties. Hu Xi Jie did not respond to the lawsuit. Amazon filed a motion for summary judgment to dismiss the entire lawsuit. The U.S. District Court ruled that Amazon could be held liable as a “seller” under Texas’ products liability statute for the injuries caused by the remote because Amazon was integrally involved in and exerted control over the sale of the remote through the FBA program.

The U.S. District Court’s decision was appealed to the Fifth Circuit,[*] which certified the following question to the Texas Supreme Court:

Under Texas products-liability law, is Amazon a “seller” of third-party products sold on Amazon’s website when Amazon does not hold title to the product but controls the process of the transaction and delivery through Amazon’s [FBA] program?

The Texas Supreme Court answered the question in the negative, finding that Amazon was not a “seller” of the remote because Amazon did not hold or relinquish title of the product.

Texas’ products liability statute allows actions for actions “against a manufacturer or seller for recovery of damages arising out of personal injury, death, or property damage allegedly caused by a defective product. . .” Tex. Civ. & Rem. Code § 82.001. The court explained that Texas does not extend liability to all persons/entities involved in the distribution chain and does not extend liability to those that facilitate sales, such as auctioneers, advertising agencies, newspapers, internet providers and shipment companies. The court determined that no Texas cases have held that any person/entity, other than the person/entity that has relinquished or held title in the product distribution chain, can be a “seller” under Texas’ products liability law. Since Amazon did not relinquish or hold title to the remote, it could not be considered a “seller” under Texas law, even though it controlled the transaction and delivered the remote through the FBA program.

Because a majority of the products purchased through Amazon are sold by third parties through the FBA program, this is a significant blow for subrogating carriers pursuing claims against Amazon for defective products in Texas.

[*] See McMillan v. Amazon.com, 983 F.3d 194 (5^th Cir. (Tex.) 2020).