Products Liability Law Daily Without transfer of title, Amazon not a ‘seller’ liable for defective headlamp
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Thursday, May 23, 2019

Without transfer of title, Amazon not a ‘seller’ liable for defective headlamp

By Leah S. Poniatowski, J.D.

Amazon was protected from liability in the absence of any evidence showing that it took title of an LED headlamp that allegedly caused a house fire. However, it was not immune under Communications Decency Act because the lawsuit against the online retailer was not premised on publication of a third-party’s speech.

Amazon’s role "fulfilling" the sale of an LED headlamp by the product’s seller to a consumer insulated the company from liability because there was no evidence establishing that it obtained title to the product for the transaction to fall within the definition of a "sale" under the Maryland Uniform Commercial Code, a three-judge panel for the U.S Court of Appeals for the Fourth Circuit held, affirming the federal district court in Maryland’s judgment. However, because Amazon was named in a products liability lawsuit irrespective of third-party speech, it had no immunity under the federal Communications Decency Act (Erie Insurance Co. v. Amazon.com, Inc., May 22, 2019, Niemeyer, P.).

A consumer who bought an LED headlamp for a friend on Amazon.com received a transaction document stating that the lamp was "sold by" Dream Light and "[f]ulfilled by" Amazon. Unfortunately, two weeks after the friends received the gift, the headlamp malfunctioned and caused over $300,000 in fire damages to the friends’ home. Erie Insurance Company insured the home and covered the loss. Erie, as subrogee, filed a products liability lawsuit against Amazon, asserting that the company was the "seller" of the headlamp and, accordingly, liable under Maryland law governing defective products. Amazon filed for summary judgment.

District court. The district court granted Amazon’s motion, holding that Amazon was not a "seller" because its actions "fulfilling" the order did not convert "Amazon into the status of seller." Moreover, the court found that the Communication Decency Act would preclude the claims "in any event." Erie filed the present appeal.

Fulfillment services. Under the "Amazon Services Business Solutions Agreement," which Dream Light entered into with Amazon, sellers ship their inventory for storage to an Amazon warehouse, and when an item is purchased through the website, Amazon retrieves the item, prepares it for shipping, and sends it out for delivery. In this case, Amazon used UPS Ground, a third party, for the shipping services. As a general practice, Amazon collects the payment, withdraws its service fee, and remits the balance to the seller. The prices and product description posted on the website are set by the seller. Sellers can offer warranties as part of the agreement, but Dream Light did not offer any explicit warranty for the LED headlamp.

Communications Decency Act. Under the federal Communications Decency Act, Internet intermediaries may be immune from suit with respect to online publication of a third-party’s information. The appellate court disagreed with the district court, holding that the Act did not apply in this case. The immunity provided under the Act applies when a claim is based on the publication of a third party’s speech, the appellate court clarified, which is distinct from the products liability claims filed in the case at bar premised on Amazon being the seller of the product. Thus, the lower court’s application of immunity to Amazon under the Act was reversed.

"Seller" liability. However, the appellate court agreed that Amazon was not a "seller" subject to liability under Maryland law. Erie asserted that Amazon controlled the sale of the product in the way a brick-and-mortar retailer would, and that a consumer would reasonably assume that because his dealings were with Amazon, title of the product had passed to Amazon. Under Maryland law governing products liability, liability is imposed on sellers. A "seller" in Maryland is understood by its ordinary meaning-- "a person who sells or contracts to sell goods"—and a "sale" is "the passing of title from the seller to the buyer for a price" (Md. Code, Com. Law §2-103(1)(d), and § 2-106). Accordingly, the key issue in the current case was whether Amazon took title of the headlamps.

The appellate court observed that there was no evidence that Amazon took title of the headlamps. To the contrary, Amazon did not obtain title to the headlamps, nor was title transferred to Amazon in its contractual agreement with Dream Light. Unlike other products that Amazon owns and sells through its website, Dream Light was the seller of the headlamp, transferring title of the product to the consumer. Consequently, Amazon was not liable as a "seller" of the headlamp.

Maryland law governing "entrustees" did not rescue Erie’s case either, the appellate court concluded. The Maryland Commercial Code provision Erie points to—Md. Code, Com. Law § 2-403—actually supported Amazon’s position because it allows for transferring the title of a good by an entrustee from the title holder—the seller—to the buyer. Erie’s reliance on the provision explaining that title passes upon performance of the delivery of the goods—Md. Code, Com. Law § 2-401—was ill placed because the law does not confer title to the person making the delivery and, further, Amazon did not deliver the headlamp.

Finally, Erie’s argument that Amazon was liable as a "distributor" also failed because liability under that provision was dependent upon the entity being a "seller." To concur with Erie would rewrite § 402A of the Restatement (Second) of Torts, and expose any entity involved in the chain of distribution to strict liability. Therefore, the facts established that Amazon was not a "seller" in the transaction at issue, and the lower court’s judgment on the issue was affirmed.

The case is No. 18-1198.

Attorneys: Jesse M. Cohen (Sacks Weston Diamond, LLC) for Erie Insurance Co. Laura Hill (Perkins Coie LLP) for Amazon.com, Inc.

Companies: Erie Insurance Co.; Amazon.com, Inc.; eBay, Inc.

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