9th Cir. / Strict Liability
Amazon Not a Seller When Third-Party Sellers Involved
The Ninth Circuit, applying Arizona law, affirmed the District Court’s ruling of summary judgment in favor of Amazon.com, Inc. and Amazon.com (jointly, “Amazon”) regarding State Farm Fire and Casualty Co.’s (“State Farm”) subrogation claims for strict liability and negligence. The Ninth Circuit held Amazon is not a seller of products sold on amazon.com via third-party sellers and therefore, had no duty to purchasers and could not be held strictly liable.
Amazon operates an online marketplace where millions of third-party sellers offer products for sale. This dispute stemmed from a fire allegedly caused by a hoverboard sold on Amazon by a third-party seller. State Farm insured the house where the fire occurred and paid $433,710.37 under the relevant homeowner’s policy. State Farm then sued Amazon for subrogation under the theories of strict liability and negligence. The parties filed cross motions for summary judgment, and the District Court granted Amazon’s motion.
Under Arizona law, strict liability extends only to the manufacturer and seller. For strict liability to apply, an entity must be an “integral part of an enterprise” that resulted in the defective product being placed in the stream of commerce. In determining whether an entity is integral, the court “must also acknowledge the realities of the marketplace.” Arizona courts have repeatedly applied a contextual analysis and balanced multiple factors to determine whether a company “participated” significantly in the stream of commerce.
According to State Farm, the District Court erred in its interpretation and application of Arizona’s strict liability laws by articulating a “rigid” seven-factor balancing test that is incompatible with Arizona’s emphasis on conducting a “totality of the circumstances” and “realities of the marketplace” approach to strict liability.
The Ninth Circuit disagreed and found that the District Court accurately summarized Arizona law when it enumerated seven factors that it weighed in assessing strict liability. Moreover, the Ninth Circuit agreed with the District Court that the majority of the factors weighed in favor of Amazon: (1) Amazon expressly disclaims any warranties in its Business Services Agreement, which applied to the third-party seller of the allegedly defective hoverboards; (2) while it facilitated shipping of the third-party seller’s hoverboards, Amazon was not the seller; (3) Amazon does not inspect third-party sellers’ products; (4) while Amazon did store and then ship the hoverboards, at no time did Amazon take title of the hoverboards; (5) Amazon derives only a small benefit from each of the transactions from third-party sellers, suggesting that its interest in the transaction is limited; (6) while Amazon has the capacity, due to its market power, to influence third-party sellers’ design and manufacturing decisions, State Farm showed little to support the conclusion that Amazon does so in practice; and (7) the consumer reliance factors weighed in Amazon’s favor because the third party is listed as the seller on the website and receipt.
The Ninth Circuit also found that because Amazon is not the seller for purposes of strict liability, State Farm’s negligence claim also failed; absent a duty to a defendant and a breach of that duty, a negligence claim fails.
Judge Clifton dissented stating that Amazon’s responsibility for the transaction at issue was not clearly covered by prior Arizona cases, and therefore, he would have certified questions to the Supreme Court of Arizona. The Ninth Circuit denied State Farm’s petition for rehearing en banc. State Farm Fire and Casualty Company v. Amazon.com, Inc., Case No. 19-17149 (9th Cir. Nov. 17, 2020).