Products Liability E-Commerce Updates: Fifth Circuit Seeks Guidance from Texas Supreme Court

July 14 2021 | Committees

Our U.S. Fifth Circuit Court of Appeal recently faced another interesting wrinkle in products liability law in the ever-changing world of e-commerce. In McMillan v. Amazon.com, Inc., 20-20108 (5th Cir. 2020), 983 F.3d 194, it reviewed a motion for summary judgment that had been denied by the district court regarding Amazon’s status as a “seller” under the Texas Products Liability Act. If Amazon were deemed a “seller” under the Texas Products Liability Act, it could ultimately be held responsible for a defect in a product sold by an alien manufacturer who cannot be served with process. Id. at *5. Because this was an issue of interpretation of Texas law, the U.S. Fifth Circuit certified the question of whether “…Amazon [is] 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.” On June 25, 2021, The Texas Supreme Court answered that question in the negative, leaving those injured by said defective products in the lurch with remedies only against foreign manufacturers who are often difficult if not impossible to find, much less serve.

In McMillan v. Amazon.com, the plaintiffs sued when their 19-month-old child swallowed a battery from a remote control sold by a third-party seller on Amazon. The child required hospitalization as a result of the incident, and the complaint filed by the parents alleged permanent esophageal damage, along with other associated injuries.

The Fifth Circuit explained Amazon’s third-party seller program as follows: Amazon offers two different services to third-party sellers. Through the Amazon Services Business Solutions Agreement (“BSA”) Amazon allows third parties to sell products on its website pursuant to certain terms and conditions, like specifying the product must conform to all applicable laws.

When a shopper buys a third-party product, Amazon receives all sales proceeds and has “exclusive rights to do so.” Amazon then remits the sale proceeds to the third party, retaining a service fee.

Relevant to the McMillan decision, is a second tier of services provided by Amazon, “Fulfilled by Amazon” (“FBA”). When a third-party seller uses FBA, Amazon agrees to store its products in Amazon’s warehouses and ship the products directly to the buyer, all for a fee.

The question certified to the Texas Supreme Court was whether this relationship between Amazon and a third-party seller using FBA made Amazon a “seller” under the Texas Products Liability Act.

The Texas Supreme Court answered the question, holding that “sellers” under the Act are limited to those entities that “relinquish title to the product at some point in the distribution chain”. Amazon.com v. McMillan, 2021 WL 260885, *1. In doing so, the Court compared the Texas Products Liability Act to the Restatement (Third) of Torts and found consistency in using the transferring or relinquishing title approach to determine whether someone is a “seller” of a product under the Act.  Because FBA does not take title of the goods it holds – only possession – the Texas Supreme Court reasoned it is not a “seller” under Texas law. It should be noted this is consistent with the decisions of several other state supreme courts interpreting their law on the subject.

When faced with a similar situation, the Louisiana Supreme Court may conduct a similar analysis and reach a similar result under the Louisiana Products Liability Act (the “LPLA”). In fact, the LPLA defines as “seller” as a “…person or entity who is not a manufacturer and who is in the business of conveying title to or possession of a product to another person or entity in exchange for anything of value.”  La R.S. 9.2800.53 (emphasis added). On the other hand, the Louisiana Supreme Court could also find that FBA’s taking “possession of” a product could be sufficient to deem Amazon a “seller” under Louisiana law.

The end result would be different in Louisiana regardless because of the different burdens on a seller. Whereas, under the Texas Products Liability Act, a seller can be held liable for a product when the manufacturer of the product is not subject to the jurisdiction of the court; under the LPLA, a plaintiff has the additional burden of proving the foreign manufacturer is the “alter ego” of the “seller”. La R.S. 9.2800.3(1)(d).

 

Jeff Green

JJC Law LLC



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