The Subrogation Strategist

Whether Amazon can be held strictly liable for products sold by third parties through its website is a question courts often face. In Loomis v. Amazon.com, LLC, No. 297995, 2021 Cal. App. LEXIS 347 (Apr. 26, 2021), the Court of Appeal of California, Second Appellate District (Second District), held that, under the circumstances, Amazon could be held strictly liable.

In this case, Kisha Loomis (Loomis), purchased a hoverboard on Amazon’s website from a seller identified as TurnUpUp in November of 2015. TurnUpUP was a name used by SMILETO, a company based in China, to sell its products on Amazon. Loomis communicated about the timing of the delivery through Amazon’s website and Forrinx Technology (USA) shipped the hoverboard to Loomis. On New Year’s Eve, Loomis’ son plugged the hoverboard in to an outlet in Loomis’ bedroom and later that night, Loomis’ boyfriend discovered a fire burning in the bedroom. Loomis suffered burns to her hand and foot as a result of fighting the fire.

Loomis’ amended Complaint included products liability claims against Amazon. Amazon moved for summary judgment arguing, among other things, that it did not fall within the chain of distribution for products liability purposes. The trial court granted Amazon’s motion, and Loomis appealed. On appeal, Loomis argued that the trial court improperly granted summary judgment in Amazon’s favor on her strict and negligent product liability claims.

As it did in Bolger v. Amazon.com, LLC, 53 Cal. App.5^th 431 (4^th Dist. 2020), Amazon argued, among other things, that it was merely a service provider. The Bolger court, like the Second District in Loomis, rejected Amazon’s argument. As noted by the Second District, the fact that Amazon did not hold title to the hoverboard nor have physical possession of it did not automatically render it solely a service provider and remove it from strict liability. The Second District found that, based on its review of Amazon’s third-party business model under its Business Solutions Agreement (BSA), “Amazon’s own business practices make it a direct link in the vertical chain of distribution under California’s strict liability doctrine.” As the court found, it was undisputed that Amazon placed itself between TurnUpUp, the seller, and Loomis, the buyer, in the transaction at issue. Among other things, Loomis purchased the hoverboard through Amazon’s website, she communicated her delivery concerns through Amazon and Amazon processed her payment and remitted it to TurnUpUp after deducting its fee, including a 15 percent referral fee based on the total sale price. Based on the circumstances in Loomis, the court found that Amazon was a link in the vertical chain of distribution.

Although the court found that Amazon was a link in the vertical chain of distribution, it recognized that e-commerce may not fit neatly into a traditional sales structure. Thus, the court found that the stream of commerce approach offered an alternative basis for imposing strict liability. Under the stream of commerce approach, a defendant can be held strictly liable if: 1) it received a direct benefit from its activities and from the sale of the product; 2) the defendant’s role was integral to the business enterprise, such that the defendant’s conduct was a necessary factor in bringing the product to the initial customer; and 3) it had control over, or a substantial ability to influence, the manufacturing or distribution process. With respect to the third factor, the Second District found that Amazon had the ability to influence the manufacturing or distribution process through its ability, as stated in the BSA, to require safety certification, indemnification, and insurance before it agrees to list any product.

In deciding the case, the Second District reviewed the doctrine of strict liability in California. As stated by the court, “California courts must consider the policies underlying the doctrine to determine whether to extend strict liability in a particular circumstance.” Relevant considerations include whether Amazon: 1) played a substantial part in insuring that the product was safe or was in a position to exert influence on the manufacturer to that end; 2) is the only member in the distribution chain reasonably available to the injured plaintiff; and 3) is in a position to adjust the costs of compensating the injured plaintiff amongst various members in the distribution chain.

The court found that Amazon played a role in ensuring product safety, as evidenced by the fact that sellers are required under the BSA to comply with all applicable laws and Amazon may require proof that a product complies with recognized safety standards before it is listed. In addition, the court found that, like in Bolger, Amazon can use its power as a gatekeeper between an upstream supplier and the consumer to exert pressure on those upstream suppliers to enhance safety. With the rights Amazon retained in its BSA, it could halt placement of defective products in the stream of commerce, deterring future injuries. Further, the court found that Amazon may be the only member in the distribution chain reasonably available from whom an injured plaintiff can recover damages. Finally, the court found that Amazon can adjust the costs of consumer protection between itself and third-party sellers through its fees, indemnity requirements and insurance.

With respect to Loomis’ negligence claim, the Second District found that the trial court erred in granting summary judgment in Amazon’s favor. Although Amazon argued that it owed no duty to Loomis, the court found that Amazon provided no analysis of the relevant duty factors to establish that it owed no duty to Loomis. Those factors include: the foreseeability of harm; the degree of certainty that the plaintiff suffered harm; the closeness of the connection between the defendant’s conduct and the plaintiff’s injury; the moral blame attached to the defendant’s conduct; the policy of preventing future harm; the extent of the defendant’s burden; the consequences to the community of imposing a duty of care, and liability, on the defendant; and the availability, cost and prevalence of insurance for the risk involved. Because Amazon offered no analysis of these factors, the Second District found that the trial court erred in granting summary judgment in Amazon’s favor with respect to Loomis’ negligence claim.

The Loomis decision provides a good analysis of arguments subrogation professionals can make to establish that, in California, Amazon is strictly liable for product defects because it is a link in the chain of distribution. While decisions with respect to Amazon’s being more than a service provider or marketplace tend to turn on a particular state’s law, at least in California’s Second and Fourth Districts, the law is not in Amazon’s favor.