En Banc Third Circuit Sends Online Marketplace Liability Issue to Pennsylvania Supreme Court

Last week the Third Circuit made its most recent move in the Oberdorf v. Amazon case: asking the Pennsylvania Supreme Court whether an e-commerce business – such as Amazon – is strictly liable for a defective product that was sold on its platform by a third-party vendor that the e-commerce business did not possess or own. Given the lack of clarity, and the “substantial public importance” of this issue, the Third Circuit asked the Pennsylvania Supreme Court to weigh in.

Background

In Pennsylvania, as in many jurisdictions that apply the Restatement (Second) of Torts, Section 402A or statutes similar to section 402A, strict products liability is limited to “sellers” of products. Courts balance multiple factors to make the determination – issues such as warranty, title, control sufficient to inspect, economic benefit, control over design and manufacture, and the like come up frequently. At the core, though, much of the focus revolves around the level of control an entity has. We’ve previously discussed section 402A and “seller” status here, here, and here.

Originally, this case came to the Third Circuit after the Middle District of Pennsylvania granted summary judgment in Amazon’s favor on Heather Oberdorf’s claims. The plaintiff sued Amazon under Pennsylvania law based on strict liability (failure to warn and design defect), negligence based on a variety of theories, breach of warranty, misrepresentation and loss of consortium after she was allegedly injured by a faulty dog collar. The plaintiff purchased a dog collar from a third-party vendor using Amazon, which shipped the collar directly to her. Amazon moved for summary judgment, which the district court granted – primarily because it found Amazon was not a “seller” within the meaning of Pennsylvania law.

The Third Circuit initially reversed, holding Amazon is categorically a “seller” within the meaning of Pennsylvania law, though the court agreed to hear the appeal en banc, effectively nullifying the prior opinion. Until the Third Circuit agreed to rehear the case en banc – nullifying the earlier opinion – this was the only appellate court to find that Amazon was a “seller” under these circumstances. It heard oral argument specifically on the “seller” issue earlier this year.

Certifying the Issue to the Pennsylvania Supreme Court

The Third Circuit said it is “unable to predict how the Pennsylvania Supreme Court would rule” as to if and how Pennsylvania law applies to Amazon. Under Pennsylvania Law – Pennsylvania adopted the Restatement (Second) of Torts, Section 402A – to be strictly liable, a company must be a section 402A “seller.” The Third Circuit stated it is unable to determine what the correct test is for applying section 402A to e-commerce businesses – and whether the appropriate test is a one-step test or a two-step test. The one-step test would consist of four policy factors1 to determine “seller” status. The two-step test is the same as the one-step test, but with a prerequisite determination that a company “is in the business of selling the kind of product at issue.”

The Third Circuit went further, asking for guidance as to how to perform the first step if the appropriate test includes a prerequisite determination of whether a company is in the business of selling the product at issue. The court addressed Amazon’s argument on that point, “that a ‘seller’ must transfer either ownership of or some kind of legal right to possession.” The court noted that Pennsylvania law and various courts around the country apply this “bright-line approach,” but Pennsylvania law “does not slavishly adhere to the language of section 402A.”

The Court suggested that the concept of “tangentiality” could be the appropriate framework to determine if a company is selling the kind of product at issue. That is, whether a company’s role in a transaction is too tangential to impose strict liability. However, the Court also said it is uncertain of the role and weight of tangentiality in the section 402A analysis.

The Third Circuit found that this “is an issue of first impression and substantial public importance.” It certified the following question to the Supreme Court of Pennsylvania:

“Under Pennsylvania law, is an e-commerce business, like Amazon, strictly liable for a defective product that was purchased on its platform from a third-party vendor, which product was neither possessed nor owned by the e-commerce business?”

For now, the issue remains unsettled. The authors continue to monitor this case and similar cases around the nation for developments in online marketplace liability.


1The four policy factors are the following: (1) is the defendant the only member of the marketing chain available to the injured party for redress; (2) does imposition of strict liability serve as an incentive to safety; (3) is the defendant in a better position than the consumer to prevent circulation of the defective product; and (4) can the defendant distribute the costs of strict liability?