McMillan v. Amazon.com, Inc.

• Decision Date: 18 December 2020
• Docket Number: No. 20-20108,20-20108
• Parties: Morgan MCMILLAN, individually and as next friend of E.G., a minor child, Plaintiff—Appellee, v. AMAZON.COM, INCORPORATED, Defendant—Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

983 F.3d 194

Morgan MCMILLAN, individually and as next friend of E.G., a minor child, Plaintiff—Appellee,

v.AMAZON.COM, INCORPORATED, Defendant—Appellant.

No. 20-20108

United States Court of Appeals, Fifth Circuit.

FILED December 18, 2020

Jeffrey M. Meyerson, Meyerson Law Firm, P.C., Austin, TX, for Plaintiff-Appellee.

William Brendan Murphy, Perkins Coie, L.L.P., Seattle, WA, for Defendant-Appellant.

Scott A. Keller, Baker Botts, L.L.P., Daryl Langdon Joseffer, Esq., Michael Benjamin Schon, U.S. Chamber Litigation Center, Washington, DC, Jeremy Evan Maltz, Baker Botts, L.L.P., Washington, DC, for Chamber of Commerce of the United States of America Amicus Curiae.

Leah Marie Nicholls, Public Justice, P.C., Washington, DC, Evan J. Ballan, Lieff, Cabraser, Heimann & Bernstein, L.L.P., San Francisco, CA, Jeremy Robinson, Casey, Gerry, Reed & Schenk, San Diego, CA for Public Justice, P.C. Amicus Curiae.

Before Wiener, Costa, and Willett, Circuit Judges.

Don R. Willett, Circuit Judge:

When Amazon allows third parties to sell products on its website, is Amazon "placing" products into the stream of commerce or merely "facilitating" the stream? If the former, then Amazon is a "seller" under Texas products-liability law and potentially liable for injuries caused by unsafe products sold on its website.¹ But if Amazon only facilitates the stream when it hosts third-party vendors on its platform, then it is not a seller, meaning injured consumers cannot sue for alleged product defects.²

This Texas tort case has potentially sweeping implications. Online retailers like Amazon have transformed how goods are bought and sold. But when safety disputes arise, are e-commerce retailers like virtual big-box stores (who would be strictly liable for injuries caused by products sold through their own websites) or more akin to an online flea market (a mere information conduit that connects buyers and sellers)? As often happens, technological innovation has outpaced legal adaptation. None of Texas's bricks-and-mortar precedents has determined whether an e-tailer like Amazon should be deemed a "seller" when vendors’ products turn out to be unsafe. Given the dearth of on-point caselaw and the significant potential consequences of holding online marketplaces responsible for third-party sellers’ faulty products, we certify this important question to the only court that can adjudicate it with finality: the Supreme Court of Texas.

I

Amazon is a global e-commerce behemoth—"the world's largest retailer."³ Its massive website, Amazon.com, "makes up at least 46 percent of the online retail marketplace, selling more than its next twelve online competitors combined."⁴ The migration of consumer spending online, further compounded by the COVID-19 pandemic, has enabled the once modest online bookstore (initially dubbed "Cadabra," as in "abracadabra") to make many traditional retailers disappear.⁵ And while Amazon sells many products itself, most of the items sold on Amazon.com are listed by millions of third-party merchants. Such sales represent a fast-growing part of Amazon's retail empire, and a lucrative one.

When purchasing products on Amazon.com, customers must agree to Amazon's "Conditions of Use," which specify that both Amazon and third parties sell products on the website. The conditions inform customers that Amazon isn't responsible for third-party product descriptions nor does Amazon provide any warranties for those products.

When third parties want to sell their products on Amazon.com, they must create an account and agree to the "Amazon Services Business Solutions Agreement" (BSA). The BSA informs third-party sellers that they must ensure their products "comply with all applicable laws." It also states that the third parties will provide the product description on Amazon.com. For its part, Amazon promises third parties that it "will enable" the listing of their products on its website, "conduct merchandising and promote" the products, and "use mechanisms that rate[ ] or allow shoppers to rate" the products.

When a customer is looking at a third party's product, the website identifies the seller in the "sold by" line next to the price. The order confirmation page also identifies the seller. After a shopper buys a third-party product, Amazon receives all sales proceeds and has "exclusive rights to do so." Amazon then remits the sale proceeds to the third party, retaining a service fee.

For shipping, Amazon offers two options to third parties—they can ship the item themselves or use the "Fulfillment by Amazon" program (FBA). If using FBA, third parties must pay Amazon a service fee to store and ship their products. Third parties can use FBA for products listed on Amazon.com or products sold through other websites or stores. When a transaction takes place on Amazon.com and the third party is using FBA, Amazon will retrieve the product from one of its fulfillment centers and then ship it to the buyer.

If a buyer wants to return a product sold and shipped through FBA, the buyer sends the product back to Amazon. Amazon accepts the item and refunds the customer. The third party must then reimburse Amazon for the refund. When the third-party seller doesn't use FBA, it must "accept and process cancellations, returns, refunds, and adjustments" on its own.

II

In this case, Morgan McMillan's husband purchased a remote control on Amazon.com. The listed seller was "USA Shopping 7693." About a year later, McMillan's nineteen-month-old daughter swallowed the remote control's battery. A doctor surgically removed the battery, and McMillan alleges that the "battery's caustic fluid from its electric charge ha[s] caused severe, permanent, and irreversible damage to [the child's] esophagus."

After McMillan notified Amazon of the incident, Amazon identified "USA Shopping 7693" as an account belonging to Hu Xi Jie, who sold products on Amazon.com using FBA. Amazon attempted to contact Hu Xi Jie but never received a response. Amazon suspended Hu Xi Jie's account, and the remote control is no longer available on Amazon.com.

McMillan sued Amazon and Hu Xi Jie, alleging five causes of action: (1) strict liability for design defect; (2) strict liability for marketing defect; (3) breach of implied warranty; (4) negligence; and (5) gross negligence. McMillan attempted to serve Hu Xi Jie—either a Chinese individual or entity (no one has been able to confirm)—through the Texas Secretary of State. Hu Xi Jie failed to answer or otherwise make an appearance in the case.

The litigation proceeded, and after discovery ended, Amazon moved for summary judgment. Amazon argued that it was not liable for any of the claims because under Texas law, it wasn't the remote control's "seller." Amazon also argued that the Communications Decency Act barred McMillan's claims.

The district court first tackled a jurisdictional issue. Although nonmanufacturing sellers are typically not liable for defective products, the Texas Products Liability Act provides an exception when "the manufacturer of the product is ... not subject to the jurisdiction of the court."⁶ The district court found that McMillan followed the Act's prescribed process for serving nonresident manufacturers and therefore shifted the burden to "the seller" to secure personal jurisdiction over Hu Xi Jie.⁷ So, the court reasoned, "to determine the jurisdictional issue," it had to decide if Amazon was a "seller" under Texas law.

The district court answered "yes" because Amazon "was an integral component in the chain of distribution" by enabling the sale, having physical possession of the product, delivering the product, earning money from the sale, and exercising control over the transaction by retaining certain rights, such as withholding payment to the third-party seller. Thus, the district court denied summary judgment to Amazon on the "seller" point, concluding that "Amazon was engaged in the business of placing the product in the stream of commerce."⁸

Agreeing that there was "substantial ground for difference of opinion" on "the scope of ‘seller’ liability under Texas products-liability law," the parties jointly moved to certify for immediate appeal the district court's order on this "controlling question of law." The district court certified its order for interlocutory appeal under 28 U.S.C. § 1292(b). And we granted Amazon's permission to appeal.

III

The district court had diversity jurisdiction under 28 U.S.C. § 1332(a)(3). We have jurisdiction to conduct an interlocutory review of the district court's denial of summary judgment under 28 U.S.C. § 1292(b).

We review summary judgment de novo, but the scope of interlocutory review is limited.⁹ "This court's appellate jurisdiction under § 1292(b) extends only to interlocutory orders that involve a ‘controlling question of law’ "—here, whether Amazon is a "seller" under Texas tort law.¹⁰ Our review "is limited to th[at] narrow question."¹¹

IV

The Texas Products Liability Act 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."¹² The Texas Legislature "chose to define ‘seller’... just as [the Texas Supreme Court has] construed the term for strict-liability purposes."¹³

No Texas court has yet decided whether an online retailer like Amazon is a "seller" under Texas products-liability law. Ordinarily, we would "make an Erie guess as to what the Texas Supreme Court would most likely decide," mindful that our task is "to predict state law, not to create or modify it."¹⁴

The parties and two amici, Public Justice and the United States Chamber of Commerce, focus on Amazon's control over the transaction and offer competing analogies drawn from caselaw. But, as discussed next, the available precedent does not yield an airtight answer.

The Supreme Court of Texas has laid out various principles that inform "seller" status. First, the Court has...