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Product Liability & Toxics Law

Amazon Set to Deny Texas ‘Seller’ Injury Liability at 5th Cir.

Dec. 2, 2020, 11:53 AM

Amazon.com Inc. will undertake perhaps its last big argument for the foreseeable future on its liability for “marketplace” sales of defective products when it faces a panel of the Fifth Circuit on Thursday in a Texas child’s injury case.

The company wants the appeals court to overturn a lower court ruling that allows Morgan McMillan to proceed with claims on behalf of herself and her daughter, who allegedly ingested a remote-control battery as a toddler. The remote’s China-based maker didn’t even try to comply with industry standards, McMillan alleged.

Third-party merchant Hu Xi Jie, who did business as USA Shopping, wasn’t subject to the lower court’s jurisdiction, according to McMillan’s brief to the U.S. Court of Appeals for the Fifth Circuit.

Amazon argues it isn’t a “seller” subject to strict liability for defective products sold on its web marketplace under Texas law. It has made similar arguments under various other states’ laws, with varying outcomes in state and federal appellate courts in recent years. McMillan’s is the last of this set of high-profile appeals.

Win, Lose, Draw

Amazon won in October before the Ohio Supreme Court, which found it wasn’t a supplier of an allegedly fatal caffeine powder. A split Ninth Circuit panel affirmed a ruling in the company’s favor under Arizona law in November; the plaintiff there, an insurance company, just asked for the full circuit’s review Dec. 1. And the Fourth Circuit held Amazon wasn’t a seller under Maryland law in May 2019.

But the web giant faced a big setback when the California Court of Appeal said it could be held liable, and the state top court declined review Nov. 18. The California Legislature shelved a bill on online marketplaces but likely will take it up again in the next session.

The company has gotten mixed rulings or avoided adverse precedent elsewhere: The Third Circuit asked the Pennsylvania Supreme Court to resolve the seller question under that state’s law. The case was resolved in an apparent settlement before the state top court ruled.

And the Sixth Circuit ruled for Amazon on the seller issue but allowed negligence-based claims to proceed under Tennessee law. The case settled before trial.

Who’s in the Stream of Commerce?

Texas’ strict liability law, like that of Pennsylvania and other states, is based on Section 402A of the Restatement (Second) of Torts, but state courts have their own interpretations of the guidelines.

Oral argument in the Fifth Circuit case will likely focus on several precedents addressing service providers, auctioneers, sales facilitators, and the definition of the “stream of commerce,” according to the parties’ briefs.

Attorney Leah M. Nicholls of Public Justice PC in Washington said in an interview that the relevant line of Texas cases is frustrating, because some of them were written before Amazon’s rise.

“Is the test how much control” a business has over the product, or does it have to do with “technicalities” such as holding title? she asked. Nicholls co-wrote an amicus brief supporting McMillan.

Amazon said in its opening brief that the Texas Supreme Court “has drawn a bright line between actual ‘sellers,’ ‘who place products in the stream of commerce,’ and ‘everyone who facilitates the stream.’”

Amazon didn’t “decide what products Hu Xi Jie would sell, did not manufacture the remote or source it from the manufacturer, did not hold or transfer title to the remote, and did not set its price,” it said.

But McMillan said the company’s role in the “Fulfillment by Amazon” transaction was far greater. “When the elusive Hu Xi Jie in China sent the Remote to sit on a shelf at Amazon, a sale had not yet taken place,” she said in her brief. It was “out of the stream of commerce” there, she said.

A member of McMillan’s family ordered the remote through Amazon—at that point, the product was sold, “packaged, labeled, and placed in the stream of commerce,” she said. “Such actions perfectly fit the Texas and Restatement of Torts §402A definition of placing a product in the stream of commerce.”

The judges on the Fifth Circuit panel may also ask whether the state-law “seller” question should be certified to the Texas Supreme Court. Amazon has opposed the idea in briefing.

Meyerson Law Firm PC represents McMillan. Perkins Coie LLP and Munsch Hardt Kopf & Harr PC represent Amazon.

The case is McMillan v. Amazon.com, Inc., 5th Cir., No. 20-20108, oral argument 12/3/20.

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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