The Subrogation Strategist

Recently, in McMillan v. Amazon.com, Inc., No. 18-CV-2242, 2020 U.S. Dist. LEXIS 102025, the United States District Court for the Southern District of Texas ruled that Amazon.com, Inc. (Amazon) could be held liable as a “seller” under Texas’ product liability statute for injuries caused by a defective product sold by a third-party vendor on its website. Although the court’s analysis is based on Texas law, the decision puts one more crack in Amazon’s armor.

In McMillan¸ the plaintiff, Morgan McMillan (McMillan), alleged that a generic Apple TV remote purchased on Amazon caused permanent injuries to her 19-month-old daughter. McMillan’s husband ordered the remote from a third-party vendor on Amazon, Hu Xi Jie, which is located in China. The battery fell out of the remote and was swallowed by the McMillan’s daughter, who suffered permanent damage to her esophagus.

McMillan then filed a lawsuit 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 complaint based upon two arguments. First, Amazon argued that the lawsuit should be dismissed because Amazon is not a “seller” under Texas’ product liability statute. Second, Amazon argued that, even if it was considered a “seller,” the plaintiff’s claims were barred by the Communications Decency Act (CDA).

Texas’ product liability statute allows actions for strict liability, negligence and implied warranties “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 statute defines a “seller” as “a person who is engaged in the business of distributing or otherwise placing, for any commercial purpose, in the stream of commerce for use or consumption a product or any component part thereof.”

The court determined that Amazon was a “seller” because it was integrally involved in and exerted control over the sale of the remote. Hu Xi Jie subscribed to Amazon’s “Fulfillment by Amazon” (FBA) service, under which Amazon stored the remote in its warehouse, packaged it, applied a shipping label and delivered it to McMillan. Hu Xi Jie paid Amazon an additional fee for this service. Although Amazon did not set the price of the remote, it set the fees it received from the sale of the remote. Amazon also controlled the process by which McMillan paid Hu Xi Jie for the remote and retained the power to withhold payment to Hu Xi Jie for deceptive, fraudulent or illegal activity. Additionally, Amazon was the sole platform for communication between McMillan and Hu Xi Jie. On these facts, the court determined that Amazon was an integral component in the chain of distribution and was engaged in the business of placing the remote into the stream of commerce. Accordingly, the court deemed Amazon a “seller” under Texas’ product liability statute. Therefore, McMillan’s claims were allowed to proceed.

Amazon next argued that, regardless of whether it was considered a “seller” under Texas law, the CDA barred the plaintiff’s claims. The CDA states that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” 47 U.S.C. § 230(c)(1). The court explained that the CDA provides broad immunity to internet service providers for all claims stemming from their publication of information created by third parties. Pursuant to the CDA, the court dismissed the claims against Amazon relating to its failure to provide a product warning on its website. However, the court held that the CDA did not apply to the remainder of claims related to Amazon’s involvement in the sales process for the remote.

McMillan is a significant case for subrogating carriers pursuing claims against Amazon for defective products in Texas. Although the analysis regarding whether Amazon is a “seller” under Texas’ product liability statute is fact specific, McMillan suggests that Amazon will be deemed a “seller” (at least in the Southern District of Texas) any time a third-party sells a product through the FBA.

Editor's Note: On December 18, 2020, the United States Court of Appeals for the Fifth Circuit certified the question of Amazon’s status as a seller to the Supreme Court of Texas. See McMillan v. Amazon.com, No. 20-20108, 2020 U.S. App. LEXIS 39847 (5^th Cir. (Tex.)).  Specifically, the question the court certified asks:

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 Fulfillment by Amazon program?