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Amazon Ducks Liability for Defective Third-Party Products

In a case centered on a headlamp that caught fire and burned a family’s house to the ground, the Fourth Circuit ruled Wednesday that online retail giant Amazon is not liable for defective products sold on its website by third parties.

RICHMOND, Va. (CN) – In a case centered on a headlamp that caught fire and burned a family’s house to the ground, the Fourth Circuit ruled Wednesday that online retail giant Amazon is not liable for defective products sold on its website by third parties.

FILE- In this Aug. 3, 2017, file photo, packages pass through a scanner at an Amazon fulfillment center in Baltimore. Amazon's Prime Day starts July 16, 2018, and will be six hours longer than last year's and will launch new products. (Photo/Patrick Semansky, File)

Back in 2014, Minh and Anh Nguyen received a battery-operated headlamp, purchased from Amazon, from a friend as a gift. The trouble started once the Nguyens began using the headlamp – it malfunctioned and caught fire, burning their house to the ground.

After filing a claim with their home insurer, Erie Insurance Company, the Nguyens received over $300,000 for the fire damage. The insurer then set out to reclaim that hefty sum.

That effort led Erie to Amazon and the third-party seller of the headlamp, China-based Dream Light. Claiming negligence, breach of warranty and strict liability, Erie aimed to keep Amazon as a defendant in the suit despite the retailer’s claim that Dream Light was responsible as a third-party seller using its website.

Erie said Amazon was directly involved in the sale. It argued that while the headlamp at issue was purchased through the retailer’s platform, Amazon also warehoused the product, which gave it title, or ownership.

But a federal judge in Maryland was not convinced. U.S. District Judge Roger Titus dismissed the claim last year, finding that Amazon was not the seller and could not be held liable as such.

He also ruled Amazon was insulated from the lawsuit by the Communications Decency Act, which limits the liability of a website’s publisher for content posted by third parties.

A three-judge panel of the Fourth Circuit on Wednesday affirmed the lower court’s ruling in part, disagreeing on the Communications Decency Act protections but still finding Amazon free from liability for the defective headlamp.  

“Amazon was not the ‘seller’ of the headlamp and therefore did not have liability under Maryland law for products liability claims asserted by reason of the product’s defective condition,” U.S. Circuit Judge Paul Niemeyer wrote, noting the laws around a product’s change of title are central to the case.

“No one has presented evidence to dispute that when Dream Light shipped its headlamp to Amazon’s warehouse in Virginia, it was the owner of — i.e., it had title to — the headlamp,” he wrote. “And when it transferred possession of the headlamp to Amazon, without Amazon’s payment of the headlamp’s price or an agreement transferring title to it, Amazon did not, by that simple transfer, receive title.”

Niemeyer was joined on the panel by Chief U.S. Circuit Judge Roger Gregory and U.S. Circuit Judge Diana Gribbon Motz.

In a concurring opinion, Motz agreed with the majority opinion but questioned whether the laws as they currently exist are fairly treating people like the Nguyens who are seeking pre-internet justice in a post-internet world.

“By design, Amazon’s business model cuts out the middlemen between manufacturers and consumers, reducing the friction that might keep foreign (or otherwise judgment-proof) manufacturers from putting dangerous products on the market,” she wrote, noting the online retailer dominates the digital marketplace with almost 50 percent of all online retail flowing through its doors.

“Nothing in today’s holding prevents Maryland’s own courts or legislators from taking up and resolving these difficult, fast-changing, and cutting-edge issues differently,” Motz added. “To be sure, Amazon’s strategy of removing nearly every products liability case to federal court has complicated this endeavor and arguably stunted the development of state law.”

In a phone interview, John Weston with the Philadelphia-based firm Sacks Weston Diamond, which represented Erie Insurance Company at oral arguments in March, said Motz hit on an important distinction: the nature of liability in a rapidly evolving, digital marketplace.

He pointed to 70 years of consumer protection laws that started as “buyer beware” and are now “what you get better meet certain standards.” He said Amazon is now skirting those laws through their third-party marketplace.

“Because of the contract Amazon has, where Amazon doesn’t retain title, they use old, pre-internet law to get around that notion,” Weston said. “Based on this reasoning, Home Depot could put up a sign in their fertilizer department that said ‘sold by CertainTeed’ and they would be free from any liability, if the title is the critical thing.”

“It’s one of those ‘it walks like a duck, it quacks like a duck, but because it doesn’t have fully webbed feet, it's not a duck,” he added.  

Weston said he was unsure if his client will seek an en banc rehearing or appeal to the U.S. Supreme Court.

Attempts to reach Brendan Murphy, an attorney with the Seattle-based Perkins Coie who represented Amazon in the case, were not immediately returned Thursday.  

Notably, the Fourth Circuit disagreed with the lower court’s finding that Amazon was protected from liability by the Communications Decency Act. The federal law was designed to protect online companies from third-party content passively hosted on their website, such as comments and reviews.

While Amazon has succeeded in arguing for such protections in the past, including in this case at the district court level, Judge Niemeyer said the product liability claim here was not based on speech, but rather the company’s role as the seller.

“While the Communications Decency Act protects interactive computer service providers from liability as a publisher of speech, it does not protect them from liability as the seller of a defective product,” he wrote. “Accordingly, we reverse the district court’s ruling applying the Communications Decency Act’s immunity to this case.”

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