E-Commerce
Strict Products Liability
Distribution Agreement
When the Defendant Falls Outside the Vertical Chain of Distribution: Marketing Enterprise Theory or Stream of Commerce Approach
Amazon
Consumer Law
Punitive Damages
Standards: Underwriter’s Laboratories
California Law
Kisha Loomis brought suit against Amazon.com LLC (Amazon) for injuries she suffered from an allegedly defective hoverboard. The hoverboard was sold by a third party seller named TurnUpUp through the Amazon website. The trial court granted summary judgment in favor of Amazon. The primary issue on appeal is whether Amazon may be held strictly liable for Loomis’s injuries from the defective product. Recently, the Fourth District addressed this issue as a matter of first impression in Bolger v. Amazon.com, LLC (2020) 53 Cal.App.5th 431 (Bolger), review denied November 18, 2020. Bolger held Amazon “is an ‘integral part of the overall producing and marketing enterprise that should bear the cost of injuries resulting from defective products.’ ” (Id. at p. 453.) Our own review of California law on strict products liability persuades us that Bolger was correctly decided and that strict liability may attach under the circumstances of this case. We reverse and remand with directions.
Where Amazon is the seller of a product, it is identified as the seller on the product detail page, and it sources the product, sets the price, and holds title to it. This case does not involve an Amazon-listed product. Where a third party is the seller, it is identified as such on the product detail page and again on the order confirmation page before the user places the order. The third party sources the product, sets the price, and holds title to it.
Some third party sellers utilize Fulfillment by Amazon (FBA) services, which allow the seller to store its inventory in an Amazon warehouse. If a product is sold under the FBA, Amazon packages and ships the product to the purchaser. TurnUpUp did not elect to utilize the FBA services.
At issue in this appeal are Loomis’s strict and negligent product liability claims.
B. The Doctrine of Strict Products Liability in California
Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 62 (Greenman) established the doctrine of strict products liability when it held “a manufacturer is strictly liable in tort when an article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being.” “The purpose of such liability is to insure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves.” (Id. at p. 63).
The California Supreme Court extended the doctrine to retailers in Vandermark v. Ford Motor Co. (1964) 61 Cal.2d 256 (Vandermark), reasoning, “Retailers like manufacturers are engaged in the business of distributing goods to the public. They are an integral part of the overall producing and marketing enterprise that should bear the cost of injuries resulting from defective products. [Citation.] In some cases the retailer may be the only member of that enterprise reasonably available to the injured plaintiff. In other cases the retailer himself may play a substantial part in insuring that the product is safe or may be in a position to exert pressure on the manufacturer to that end; the retailer’s strict liability thus serves as an added incentive to safety. Strict liability on the manufacturer and retailer alike affords maximum protection to the injured plaintiff and works no injustice to the defendants, for they can adjust the costs of such protection between them in the course of their continuing business relationship.” (Id. at pp. 262-263).
California courts must consider the policies underlying the doctrine to determine whether to extend strict liability in a particular circumstance. (Anderson v. Owens–Corning Fiberglas Corp. (1991) 53 Cal.3d 987, 995 (Anderson); O’Neil v. Crane Co. (2012) 53 Cal.4th 335, 362–363 (O’Neil).) The public policies articulated in Greenman and Vandermark that form the foundation for the application of strict liability are the following: (1) whether Amazon may play a substantial part in insuring that the product is safe or may be in a position to exert pressure on the manufacturer to that end, (2) whether Amazon may be the only member in the distribution chain reasonably available to the injured plaintiff, and (3) whether Amazon is in a position to adjust the costs of compensating the injured plaintiff amongst various members in the distribution chain. (Vandermark, supra, 61 Cal.2d at pp. 262-263).
Applying these policy considerations, courts have extended strict products liability to entities within the chain of distribution, including bailors and lessors (Price v. Shell Oil Company (1970) 2 Cal.3d 245, 248); wholesalers and distributors (Barth v. B. F. Goodrich Tire Co. (1968) 265 Cal.App.2d 228, 252- 253; Canifax v. Hercules Powder Co. (1965) 237 Cal.App.2d 44, 52 (Canifax)); and sellers of mass-produced homes (Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 227). Courts have found these defendants were responsible for passing the product down the line to the consumer, had the ability to affect product safety by exerting pressure on the manufacturer, and were able to bear the cost of compensating for injuries. (Arriaga v. CitiCapital Commercial Corp. (2008) 167 Cal.App.4th 1527, 1535 (Arriaga).) Courts, however, have declined to extend the doctrine to hotel proprietors (Peterson v. Superior Court (1995) 10 Cal.4th 1185); sellers of used products (Wilkinson v. Hicks (1981) 126 Cal.App.3d 515); and auctioneers (Tauber–Arons Auctioneers Co. v. Superior Court (1980) 101 Cal.App.3d 268 (Tauber-Arons)), who were found to have little to no relationship with the manufacturer and thus lacked the ability to affect product safety.
A consumer injured by a defective product “may now sue ‘any business entity in the chain of production and marketing, from the original manufacturer down through the distributor and wholesaler to the retailer; liability of all such defendants is joint and several.’ ” (Wimberly v. Derby Cycle Corp. (1997) 56 Cal.App.4th 618, 628.) The purpose for this approach “is to extend liability to all those engaged in the overall producing and marketing enterprise who should bear the social cost of the marketing of defective products.” (Kaminski v. Western MacArthur Co. (1985) 175 Cal.App.3d 445, 455-456).
“The strict liability doctrine derives from judicially perceived public policy considerations, i.e., enhancing product safety, maximizing protection to the injured plaintiff, and apportioning costs among the defendants. [Citations.] Where these policy justifications are not applicable, the courts have refused to hold the defendant strictly liable even if that defendant could technically be viewed as a ‘ “link in the chain” ’ in getting the product to the consumer market. [Citation.] In other words, the facts must establish a sufficient causative relationship or connection between the defendant and the product so as to satisfy the policies underlying the strict liability doctrine.” (Arriaga, supra, 167 Cal.App.4th at p. 1535).
The court in Bay Summit Community Assn. v. Shell Oil Co. (1996) 51 Cal.App.4th 762 (Bay Summit), set forth three factors to determine whether such a causative relationship or connection exists when the defendant falls outside the vertical chain of distribution. Under the marketing enterprise theory or stream of commerce approach, the plaintiff must show: “(1) the defendant received a direct financial 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 consumer market; and (3) the defendant had control over, or a substantial ability to influence, the manufacturing or distribution process.” (Id. at p.776; Kasel v. Remington Arms Co. (1972) 24 Cal.App.3d 711 (Kasel)).
(…) Lastly, the court found the federal CDA did not shield Amazon from strict liability because liability was based on Amazon’s own conduct, not the content of the seller’s product listing. (Bolger, supra, 53 Cal.App.5th at p. 465).
(…) We are persuaded that Amazon’s own business practices make it a direct link in the vertical chain of distribution under California’s strict liability doctrine.
(…) These actions – 1) interacting with the customer, 2) taking the order, 3) processing the order to the third party seller, 4) collecting the money, and 5) being paid a percentage of the sale – are consistent with a retailer or a distributor of consumer goods.
Although we conclude Amazon is a link in the vertical chain of distribution, we nevertheless recognize e-commerce may not neatly fit into a traditional sales structure. The stream of commerce approach or market enterprise theory offers an alternative basis for strict liability.
“Under the stream-of-commerce approach to strict liability no precise legal relationship to the member of the enterprise causing the defect to be manufactured or to the member most closely connected with the customer is required before the courts will impose strict liability.
It is the defendant’s participatory connection, for his personal profit or other benefit, with the injury-producing product and with the enterprise that created consumer demand for and reliance upon the product (and not the defendant’s legal relationship (such as agency) with the manufacturer or other entities involved in the manufacturing- marketing system) which calls for imposition of strict liability. [Citation.]” (Kasel , supra, 24 Cal.App.3d at p. 725.) Thus, a defendant may be strictly liable under the stream of commerce approach if: “(1) the defendant received a direct financial 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 consumer market; and (3) the defendant had control over, or a substantial ability to influence, the manufacturing or distribution process.” (Bay Summit, supra, 51 Cal.App.4th at p. 778).
(…) For example, the BSA allows Amazon to require certification of products it lists from the Underwriter’s Laboratories, which, among other things, establishes standards for manufacturing practices.
(…) We are persuaded the trial court erroneously granted summary adjudication on the strict liability claim based on a stream of commerce approach.
(…) Read in context, however, it is clear O’Neil did not intend to overturn five decades of case law extending strict liability to lessors, bailors, and others within the stream of commerce who may not bear the label of manufacturer, seller, or supplier. (See, e.g., Fortman v. Hemco, Inc. (1989) 211 Cal.App.3d 241, 251 [“entities in the stream of commerce for purposes of strict liability are not limited to those readily identifiable as designer, manufacturer, or vendor of the defective product”]).
We likewise reject Amazon’s argument it is merely a service provider who is not subject to strict products liability. We have identified how it was instrumental in the sale of the hoverboard to Loomis.
Even if Amazon may be characterized as a service provider, Murphy v. E. R. Squibb & Sons, Inc. (1985) 40 Cal.3d 672 (Murphy) and Hernandezcueva v. E.F. Brady Co., Inc. (2015) 243 Cal.App.4th 249 (Hernandezcueva), cited by Amazon, are instructive on the issue of when strict liability attaches to service providers.
In both cases, the court determined the defendant provided both a service and sale of a product. Therefore, “the propriety of imposing strict liability on a party that both supplies and installs a defective component hinges on the circumstances of the transaction.” (Hernandezcueva, supra, 243 Cal.App.4th at p. 260.) In Murphy, the court determined the service aspect of the defendant pharmacist’s role predominated over its sale of prescription drugs. (Murphy, supra, 40 Cal.3d at p. 675.) In Hernandezcueva, the court determined the subcontractor that installed drywall in a commercial project provided both a service (the installation) and the sale of a product (the drywall). Despite its dual role, the subcontractor was a participant in the stream of commerce for strict liability purposes. (Hernandezcueva, supra, at p. 263).
Here, Amazon provides a service to TurnUpUp in the form of a website to list its product and, as described above, was also instrumental in the sale of the product by placing itself squarely between TurnUpUp and Loomis. That it did not hold title to the product and did not have physical possession of the hoverboard does not automatically render it solely a service provider and remove it from strict liability.
(California Court of Appeal, Second Appellate District, April 26, 2021, Loomis v. Amazon.com LLC, Docket No. B297995, Certified for Publication)
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