January 20, 2020

By Kent Bevan

A woman in Pennsylvania walks her dog on a retractable leash with a collar she bought online that was sold by a third-party vendor who advertised there. The dog suddenly pulls ahead, a part of the collar breaks, and the leash snaps back striking the dog owner in in her face ultimately causing her to go blind in one eye. The seller of the collar could not be found. The woman sues the online marketplace under a theory of strict products liability, negligence and misrepresentation. The district court determined that the online company from whom she had purchased the collar was not liable for her injuries when the third-party seller had listed the collar on the internet-based site and the court granted summary judgment to the online company. The district court held that under state law, the online company where the dog owner saw the product and purchased it was not a “seller” of the product and further held that the woman’s claims were barred under the Communications Decency Act since she tried to hold the online company accountable as the online publisher of third-party content. The Third Circuit vacated the district court’s ruling and remanded the case. Thereafter, the on line company asked that the case be reviewed en bane before the full panel of judges for the Third Circuit, and the court granted a petition for rehearing.

In Georgia, a man sustained grievous bodily injury when he was burned when his house was extensively damaged in a fire allegedly caused by a Chinese-made hoverboard that was not even plugged in when the lithium-ion battery caught fire. Though he and his girlfriend escaped the burning house, the man’s injuries required skin grafts. The man sued an online company along with some foreign co-defendants, including the Chinese manufacturer. The co-defendants never answered the suit and the federal district court threw out the case against the online company. Later, the Eleventh Circuit vacated the district court’s order, which dismissed the plaintiffs’ claims, remanding the case to the district court for further proceedings. The online company filed a motion to dismiss. The Eleventh Circuit found that the owner had alleged enough facts from which one may infer reasonably that the online company had at least constructive knowledge of the potential risk of fire associated with the hoverboard. Further, the plaintiff had claimed that when it sold the hoverboard involved in the fire, the online concern had been notified in writing of several “specific fires that had been caused by hoverboards” that it sold. Beyond that, the plaintiff claimed, “thousands of hoverboards had been seized by U.S. customs authorities based on concerns about the hoverboards, and their potentially explosive lithium batteries.”

In Wisconsin, a consumer bought a bathtub faucet adapter from an online company that allegedly failed and caused extensive water damage in the buyer’s home. While the manufacturer would have liability, the product was purchased online and the Chinese manufacturer could not be sued. There are many other instances of product failure where people purchased items advertised on the internet and they, or more often, their insurance carriers end up having no recourse with the seller that is out of business, has simply disappeared, or cannot be sued.

Large web-based retailers sell many of their own products and also allow others to sell products on their websites. What recourse does the consumer have when something goes awry and causes injury, death, or damage and a manufacturer – especially a foreign company – can’t be located or sued? Should the web-based host have liability exposure and if so, should there be any limits or parameters? Certain state laws may shield sellers when they do nothing more than act as a pass-through for the sale of a product. As to a theory of recovery in products liability, there is case law that the plaintiff must prove the defect existed when the product left the manufacturer’s control and the product entered the stream of commerce. Careless handling of products has been found to be abnormal use and can bar recovery. After all, an online company may merely be the last link in the chain of distribution of the product, that begins with the designer/inventor/manufacturer and moves forward to the ultimate sale of the product to consumers around the world that purchase through websites. Sellers using online companies to advertise their products on the
Internet may elect to pay a monthly fee in some instances to store the seller’s products plus have the online company handle incoming orders and shipment of the product.

Alternatively, the seller may decide to ship the product from its own warehouse or facility. When the seller elects to have the online company handle the orders and shipment, does that transform the online company into something more in the chain of distribution and sale than a mere pass-through? Is there any difference if the seller ships directly? Is an online company in a position to stop the flow of any defective goods of which it becomes aware? Does it have any responsibility to investigate or test products before selling or shipping? Should online companies require indemnity agreements with the suppliers of the products they deal with, and if so, what is covered in such agreements? Should plaintiffs in cases filed against online concerns be required to prove what knowledge the online concern had, if any, that would make it aware of potential or actual problems with the product? Who has legal liability? Is it shared and can it be re-apportioned in the event one party’s liability cannot be reduced to a judgment that’s collectible? Can the online company limit their liability at the time of sale through a disclaimer or limited liability language restricting recovery to the cost of the sales transaction? Is the online concern somehow transformed into the manufacturer when it has nothing to do with designing, engineering, or producing the product?

What would happen to the selling model if the online company should ultimately be found to be liable and unsuccessfully exhausts all of its appellate options? Would these online companies decide to only sell their own products and no longer sell anything from third parties that want to advertise on their site? A lot is riding on the balance between issues involving consumer protection versus laissez faire economics in the marketplace.

Federal courts are bound by the substantive law of the jurisdiction in which they sit, so there are potentially different outcomes for the same set of facts that unfold in different jurisdictions throughout the country. Stated differently, federal courts do not have the power to create their own federal common law when they are hearing state law claims under diversity jurisdiction but rather must apply the substantive law of that state. For example, there have been incidents where lithium batteries taken on board commercial airplanes in various electronic devices have caught fire or exploded causing damage and injury to the airline company, its employees, and third parties; not just the owners of these devices. Determining what law applies is crucial to a determination of liability. Should online sellers have any liability for defective products that merely wind their way through their warehouses and sit on a shelf until they’re sold? What oversight should government exercise in the scheme of marketing and selling? Caveat emptor versus caveat vendor. Are existing governmental agencies up to the task and equipped to handle the role of watchdog for the consumer? For now, there may be more questions than answers. The fulcrum has not yet finally come to rest. In what direction will it pivot?

This article originally published in USLAW Magazine.