Amazon.com, Inc. v. McMillan

• Decision Date: 25 June 2021
• Docket Number: No. 20-0979,20-0979
• Citation: 625 S.W.3d 101
• Court: Texas Supreme Court
• Parties: AMAZON.COM, INCORPORATED, Appellant, v. Morgan MCMILLAN, Individually and as Next Friend of E.G., a Minor, Appellee

625 S.W.3d 101

AMAZON.COM, INCORPORATED, Appellant,

v.Morgan MCMILLAN, Individually and as Next Friend of E.G., a Minor, Appellee

No. 20-0979

Supreme Court of Texas.

Argued March 25, 2021

Opinion delivered: June 25, 2021

Gregory Miller, Brendan Murphy, Clifford L. Harrison, Houston, Scott P. Martin, for Appellant.

Scott Keller, for Amicus Curiae The Chamber of Commerce of the United States of America.

Jeremy Robinson, for Amicus Curiae Public Justice, P.C.

Jeffrey M. Meyerson, for Appellee.

Justice Busby delivered the opinion of the Court, in which Chief Justice Hecht, Justice Lehrmann, Justice Bland, and Justice Huddle joined.

Texas law imposes strict liability on manufacturers and some sellers of defective products. In the first few decades after we recognized common-law strict products liability, the people and entities held liable were typically part of a conventional distribution chain: upstream manufacturers, mid-stream distributors, and downstream retailers.¹ Today, third-party e-commerce platforms—such as Amazon, eBay, Etsy, and Alibaba—provide many of the services traditionally performed by distributors and retailers, enabling merchants from all over the world to reach consumers directly. But are such online marketplaces strictly liable for defective products manufactured and owned by third parties? The Fifth Circuit asks whether Amazon.com is a "seller" under Texas law when it does not hold title to third-party products sold on its website but controls the process of the transaction and delivery.

We answer no. The Legislature's definition of "seller" in Chapter 82 of the Civil Practice and Remedies Code is consistent with and does not expand the common-law definition. Under that definition, when the ultimate consumer obtains a defective product through an ordinary sale, the potentially liable sellers are limited to those who relinquished title to the product at some point in the distribution chain. Therefore, Amazon is not a "seller" of third-party products under Texas law.

BACKGROUND

Amazon.com is an e-commerce company with a global reach. From its beginnings as a small online bookseller, Amazon has expanded its business model to include general consumer retail, digital content streaming, web services, and—more recently—groceries. Amazon's online retail marketplace offers Amazon-branded products, third party-branded products owned by Amazon and listed on the website as "sold by" Amazon, and products owned and "sold by" third parties. According to the website's "Conditions of Use," to which all customers must agree when making a purchase, Amazon makes no warranties for products "sold by" third-party merchants and disclaims responsibility for third-party product descriptions. Other than a short line of text under the "buy" button identifying the seller, the experience of purchasing products "sold by" third-party merchants is no different from buying products "sold by" Amazon.² When a customer purchases a third-party product listed on Amazon.com, Amazon processes payment, retains a portion of the purchase price, and remits the remainder to the third-party merchant.

A third-party merchant who sells a product through Amazon.com may store and ship that product itself or use the Fulfillment by Amazon (FBA) logistics service.³ Under FBA, the merchant uses Amazon warehouses to store product inventory, and Amazon packages a product when it is sold and delivers it to a carrier for shipment to the purchaser. The merchant retains title to its products prior to the ultimate customer purchase. But Amazon maintains significant control over products sold through FBA. Amazon has the ability to refuse products and controls all aspects of customer service. Amazon also processes returns and delivers customer refunds for FBA products, and merchants must reimburse Amazon for these costs.

This suit concerns a product "sold by" a third-party merchant that used the FBA service. According to the allegations of the complaint filed in federal court, Morgan McMillan's husband purchased a remote control on Amazon.com that was "sold by" "USA Shopping 7693." Almost a year later, McMillan's nineteen-month-old daughter opened the remote's battery compartment and swallowed the included button battery. Though the battery was surgically removed, battery fluid caused permanent damage to the child's esophagus. When McMillan sought information from Amazon about "USA Shopping 7693," Amazon identified the account as belonging to Hu Xi Jie, an FBA user with an address in China. Amazon subsequently suspended Hu Xi Jie's account and removed the remote from its website.

McMillan sued both Amazon and Hu Xi Jie in the U.S. District Court for the Southern District of Texas, alleging, among other causes of action, strict liability for design and marketing defects. McMillan attempted to serve Hu Xi Jie through the Texas Secretary of State, see TEX. CIV. PRAC. & REM. CODE § 17.044(b), but Hu Xi Jie did not answer or make an appearance. McMillan v. Amazon.com, Inc. , 433 F. Supp. 3d 1034, 1038 (S.D. Tex. 2020). At the close of discovery, Amazon moved for summary judgment on the ground that it was not a seller of the remote and therefore could not be held strictly liable. Id. at 1039.

McMillan responded that Amazon was a non-manufacturing seller that could be held liable under the Texas Products Liability Act. Id. ; see TEX. CIV. PRAC. & REM. CODE § 82.003. Although non-manufacturing sellers typically are not liable under the Act, an exception applies when the manufacturer is not subject to the jurisdiction of the court. TEX. CIV. PRAC. & REM. CODE § 82.003(a)(7)(B). Because McMillan had alleged that Hu Xi Jie was the manufacturer, and Hu Xi Jie did not make an appearance, the federal district court concluded that McMillan had taken the initial steps required to trigger the exception. McMillan , 433 F. Supp. 3d at 1040.⁴

The district court denied Amazon's motion for summary judgment. Id. at 1044. Applying the Act's definition of seller, the court concluded that: (1) Amazon's role as a service provider did not preclude it from also being a seller, id. at 1042 ; (2) Amazon's possession and control of the remote was evidence that it engaged in the business of placing the product in the stream of commerce, id. at 1043 ; (3) Amazon's lack of title did not preclude it from being a seller, id. at 1044 ; and (4) Amazon's relationship to the manufacturer aligned with the policy justifications for strict liability. Id.

On the parties’ joint motion, the district court certified its order for interlocutory appeal, and the Fifth Circuit granted permission to appeal. McMillan v. Amazon.com, Inc. , 983 F.3d 194, 198 (5th Cir. 2020). Noting our track record of deciding cases timely,⁵ the Fifth Circuit certified the following question to this Court, which we accepted:

Under Texas products-liability law, is Amazon a "seller" of third-party products sold on Amazon's website when Amazon does not hold title to the product but controls the process of the transaction and delivery through Amazon's Fulfillment by Amazon program?

Id. at 203.

ANALYSIS

I. Standard and scope of review

"The Supreme Court of Texas may answer questions of law certified to it by any federal appellate court if the certifying court is presented with determinative questions of Texas law having no controlling Supreme Court precedent." TEX. R. APP. P. 58.1 ; accord TEX. CONST. art. V, § 3-c (a). Because the scope of this interlocutory appeal is limited to the question whether Amazon is a seller, we must construe the Legislature's definition of seller in section 82.001(3) of the Civil Practice and Remedies Code —a question of law that we consider de novo. Regent Care of San Antonio, L.P. v. Detrick , 610 S.W.3d 830, 834 (Tex. 2020). We have not previously addressed whether an e-commerce platform that handles many of the tasks involved in its client's sale of a product to a consumer is also considered a seller.

Though the Fifth Circuit did not limit the form or scope of our answer, we typically "provide answers solely as to the status of Texas law on the questions asked." Janvey v. GMAG, L.L.C. , 592 S.W.3d 125, 128 (Tex. 2019) (quoting Interstate Contracting Corp. v. City of Dallas , 135 S.W.3d 605, 620 (Tex. 2004) ). We therefore focus our answer on the specific type of transaction at issue: third-party sales on Amazon.com through FBA. We do not address whether Amazon would be a seller in any other circumstance.

II. The statutory meaning of "seller" in Chapter 82 is consistent with our cases and the Restatements.

Before the Legislature adopted the Texas Products Liability Act, sellers of defective products could be held strictly liable under the common law. See New Tex. Auto Auction Servs., L.P. v. Gomez de Hernandez , 249 S.W.3d 400, 403 (Tex. 2008) ; RESTATEMENT ( SECOND ) OF TORTS § 402A. Under the Act, codified as Chapter 82 of the Civil Practice and Remedies Code, the general rule is the opposite: a non-manufacturing seller "is not liable for harm caused ... by [a] product unless the claimant proves" that one of the enumerated exceptions applies. TEX. CIV. PRAC. & REM. CODE § 82.003.⁶

Although the extent of seller liability is different under the common law and Chapter 82, the definition of who constitutes a seller is similar. The statute defines a seller as "a person who is engaged in the business of distributing or otherwise placing, for any commercial purpose, in the stream of commerce for use or consumption a product or any component part thereof." Id. § 82.001(3). To decide whether Amazon is a seller under Chapter 82, we must determine whether Amazon's role in the distribution chain amounts to "distributing or otherwise placing" a product in the stream of commerce.⁷

Though statutory language should be construed according to common usage, phrases that have acquired a particular meaning—whether by definition or otherwise—should be construed accordingly. TEX. GOV'T CODE § 311.011 ; KMS Retail Rowlett, LP v. City...