Amazon Found Liable as Product Seller In New Jersey

The Case

The US District Court of New Jersey recently held that Amazon is a “seller” under the State’s product liability laws, meaning, the company can face strict liability for damages caused by products sold on its ecommerce marketplace.

The ruling was pronounced in N.J. Mfrs. Ins. Grp. a/s/o Angela Sigismondi v. Amazon.com, Inc., U.S. Dist. LEXIS 115826 (June 29, 2022). In the case, Ms. Sisigmondi’s ex-husband bought their children a hoverboard from a seller called “Paradise 00.” The hoverboard caught fire and burned down the home insured by New Jersey Manufacturers Insurance Group (NJM). NJM brought a claim against Amazon under the New Jersey Products Liability Act (NJPLA). Amazon moved for summary judgment on the basis that it is not a “seller” within the meaning of New Jersey’s products liability statute.

In finding Amazon guilty and determining that it is a seller by NJ law, the Court looked at the black letter stating:

any person who, in the course of a business conducted for that purpose: sells; distributes; leases; installs; prepares or assembles a manufacturer’s product according to the manufacturer’s plan, intention, design, specifications or formulations; blends; packages; labels; markets; repairs; maintains or otherwise is involved in placing a product in the line of commerce. . . .

The Court further stated that the principle behind NJ product liability law is that a customer injured by a defective product may bring a strict liability action against any business entity in the chain of distribution.

Where Amazon Stands

Amazon has constantly faced product liability claims in the US and has consistently argued that it is not a seller but merely an online marketplace whose role is to facilitate the sale of products by third-party sellers to online shoppers.

Back in 2021, Amazon announced a policy change that would have it answer for customers' claims of up to $1000 caused by defective products—on the condition that the seller has product liability insurance.

While the definition of a “seller” varies state-by-state and may be up for determination by local courts, the Sigismondi case could serve as an important precedent that benefits third-party marketplace sellers, who necessarily give up a certain amount of control over their business to Amazon in order to participate in the marketplace.

“Selling” on Amazon involves any one of three ways:

• Amazon selling its own products under its own private label brands, to which it readily admits that it has product liability;
• Third-party sellers who are usually running private label brands and using Amazon’s marketplace platform to sell their products to online customers; and
• Third-party sellers who run the Fulfilled by Merchant (FBM) model and take care of warehousing and fulfillment themselves—but nevertheless use the Amazon marketplace to sell

According to Sigismondi, in any of these cases, third-party Amazon sellers agree to the Amazon Services Business Solutions Agreement (BSA). Under the BSA, all products sold and returned on Amazon.com are processed exclusively by Amazon. This means that only Amazon, not the third-party vendor, has any contact with the consumer.

Amazon readily admits product liability in cases involving its own brands and products. Most legal battles in the past have revolved around products sold through the FBA program, where Amazon exercises a relatively high degree of control over sales, as it stores, picks, packs, and ships the goods to customers.

The case is significant because the case involves a product that was not sold through the FBA program, ergo, less control was exerted by Amazon over the sale.

Establishing Precedent

While customer claims against Amazon over damages from defective products may still be decided by other courts in other states differently (and Sigismondi is by no means binding on other courts), this case could serve as a significant precedent for other courts to consider in imposing Amazon’s liability as a seller on account of its degree of control over all sales made on its platform.

Good third-party sellers have historically struggled against customer claims which are often considered detrimental to account health if unaddressed, while bad sellers often leave customers with no resort by the mere expedience of being unlocatable, insolvent, or not subject to the jurisdiction of US courts.