Opinion
No. CV-17-01994-PHX-JAT
09-26-2019
STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff, v. AMAZON.COM INCORPORATED, Defendant.
Carolyn Nicholle Allen, Timothy Lee Moulton, Moulton Law Firm PC, Scottsdale, AZ, for Plaintiff. Amy Robyn Levine, Scott McClure, Pamela Alma Hostallero, Lewis Brisbois Bisgaard & Smith LLP, Phoenix, AZ, William Brendan Murphy, Pro Hac Vice, Perkins Coie LLP, Seattle, WA, for Defendant.
Carolyn Nicholle Allen, Timothy Lee Moulton, Moulton Law Firm PC, Scottsdale, AZ, for Plaintiff.
Amy Robyn Levine, Scott McClure, Pamela Alma Hostallero, Lewis Brisbois Bisgaard & Smith LLP, Phoenix, AZ, William Brendan Murphy, Pro Hac Vice, Perkins Coie LLP, Seattle, WA, for Defendant.
ORDER
James A. Teilborg, Senior United States District Judge
At issue is Defendant Amazon.com Inc.'s ("Amazon") Motion for Summary Judgment (Doc. 130) and Plaintiff State Farm Fire and Casualty Co.'s ("State Farm") Response and Cross-Motion for Summary Judgment (Doc. 141). The Court now rules on these Motions.
I. BACKGROUND
Amazon, one of the world's largest companies, operates a website for consumers to order products made by Amazon itself or offered by third-party vendors. (Docs. 131 at 2 ¶ 1; 147 at 30 ¶ 157). In addition to allowing third-party vendors the ability to list their products on its website, Amazon also offers them its "Fulfillment by Amazon" ("FBA") service. (Doc. 147 at 6-7 ¶¶ 27, 32-33). The FBA service allows third-party vendors to ship pre-packaged products to Amazon "fulfillment centers" for storage until a customer orders one, at which time Amazon will box the item and pass it off to a carrier for delivery (Id. ). Before listing their products on Amazon, third-party vendors must agree to a Business Services Agreement ("BSA"), outlining the terms of use for Amazon's various services, including the FBA. (Id. at 11 ¶ 59; 131-1, Ex. B, at 45).
Through Amazon's website, Abdul Albaloushi ordered two hoverboards from one such third-party vendor, Super Engine, and later sold the hoverboards to Mohamed Zeitoun. (Doc. 147 at 2 ¶¶ 1-2). Zeitoun took them home and, while they were charging, their batteries burst into flame and ignited a fire in the Zeitouns' house that caused severe damage. (Doc. 147 at 2 ¶¶ 2, 4, 5-6). State Farm paid for the Zeitouns' subsequent investigation and damages and, accordingly, now brings this suit against Amazon and Super Engine as the Zeitouns' subrogee. (Doc. 85 at 1).
II. DISCUSSION
a. Legal Standard
The Court must grant summary judgment under Federal Rule of Civil Procedure ("Rule") 56 when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The party asserting "that a fact cannot be or is genuinely disputed must support that assertion by" either "citing to particular parts of materials in the record" or "showing that materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1)(A)–(B). Thus, " Rule 56(c) mandates the entry of summary judgment ... against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The movant must first identify portions of the record that "it believes demonstrate the absence of a genuine issue of material fact." Id. at 323, 106 S.Ct. 2548. The burden then shifts to the non-movant to "designate ‘specific facts showing that there is a genuine issue for trial.’ " Id. at 324, 106 S.Ct. 2548 (citation omitted). "Only disputes over facts that might affect the outcome of the suit ... properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is "genuine" when "the evidence is such that a reasonable jury could return a verdict for the" non-movant. Id. The Court views all disputed facts in the light most favorable to the non-movant, Ellison v. Robertson , 357 F.3d 1072, 1075 (9th Cir. 2004), but the non-movant's unsupported assertions will not suffice to defeat a motion for summary judgment, Liberty Lobby , 477 U.S. at 247–48, 106 S.Ct. 2505.
Where, as here, no "controlling forum state law [exists,] a federal court sitting in diversity must use its own best judgment in predicting how the state's highest court would decide the case" and may rely on "well-reasoned decisions from other jurisdictions" to do so. Takahashi v. Loomis Armored Car Serv. , 625 F.2d 314, 316 (9th Cir. 1980).
b. Strict Liability
Amazon argues that the Court should grant summary judgment in its favor because it merely provides services that connects consumers to vendors and therefore cannot be a "seller" or "manufacturer" subject to strict liability under Arizona law. (Doc. 130 at 14, 16). State Farm contends that Amazon's significant role in the stream of commerce that delivers third-party vendors' products to consumers justifies applying strict liability here. (Doc. 141 at 21-23).
The parties' briefs focus initially on the definitions of "Manufacturer" and "Seller" provided in A.R.S. § 12-681(3) and (9). (Docs. 130 at 14-15; 141 at 19-20). These statutes neither limit Arizona's common law of product liability, A.R.S. § 12-682, nor do they "attempt to oust [the] court[s] from the evolution of product liability law," Torres v. Goodyear Tire & Rubber Co. , 163 Ariz. 88, 786 P.2d 939, 947 (1990), nor could they, see Hazine v. Montgomery Elevator Co. , 176 Ariz. 340, 861 P.2d 625, 628–29 (1993) (discussing Ariz. Const. art. 18, § 6 ). Instead, the statutes only "establish certain affirmative defenses (A.R.S. § 12-683 ...); provide for indemnification between manufacturers and sellers (A.R.S. § 12-684 ); regulate the contents of ad damnum clauses (A.R.S. § 12-685 ); and deal with evidentiary issues pertaining to remedial measures (A.R.S. § 12-686 )." Torres , 786 P.2d at 947. Therefore, rather than relying on these statutes, the Court must decide whether Amazon is strictly liable by applying the factors outlined by Arizona's courts.
Following the Restatement (Second) of Torts § 402A ("Restatement § 402A"), Arizona imposes "strict liability o[n] manufacturers and sellers of defective products that were unreasonably dangerous and caused physical harm to the consumer or his property." Torres v. Goodyear Tire & Rubber Co. , 163 Ariz. 88, 786 P.2d 939, 942 (1990). "[I]n Arizona[,] the application of strict liability does not hinge on the technical limitations of the term seller or manufacturer as used in Restatement § 402A." Id. at 943. "[A]bjur[ing] technical definitions" and relying on policy considerations, Arizona courts have instead imposed strict liability on "those who [were] neither manufacturers nor sellers, but who were involved in the chain of production or distribution of the product ... [including] lessors of products, donors of products, and dealers of used goods." Id. (collecting cases); see also Tucson Indus., Inc. v. Schwartz , 108 Ariz. 464, 501 P.2d 936, 939–40 (1972) ("Strict liability is a public policy device to spread the risk from one to whom a defective product may be a catastrophe, to those who marketed the product, profit from its sale, and have the know-how to remove its defects before placing it in the chain of distribution.").
However, even entities in the chain of distribution who are better situated to bear the risks and costs of defective products are not strictly liable unless they "participate significantly in the stream of commerce." Grubb v. Do It Best Corp. , 230 Ariz. 1, 279 P.3d 626, 627 ¶ 5 (Ariz. Ct. App. 2012) ; Antone v. Greater Ariz. Auto Auction , 214 Ariz. 550, 155 P.3d 1074, 1077 ¶ 15 (Ariz. Ct. App. 2007) (citing cases that "required participation in the chain of production and distribution before liability will apply despite the fact the putative seller was better situated to bear the risks and costs"). Arizona law places this limitation on strict liability's application to ensure the doctrine "is not extended beyond those entities who are causally linked to the defective product by having placed it into the stream of commerce." Antone , 155 P.3d at 1076 ¶ 11 ; see also Dillard Dep't. Stores, Inc. v. Associated Merch. Corp. , 782 P.2d 1187, 1190 (Ariz. Ct. App. 1989) (explaining liability should be imposed on "that category of participants within the enterprise which is in the most effective position to cause the enterprise to take preventive action and to pass on most efficiently the alternative costs of prevention" (quoting Howard C. Klemme, The Enterprise Liability Theory of Torts , 47 U. Colo. L. Rev. 153, 186 (1976) ).
Courts consider a number of factors when determining if entities participate significantly in the stream of commerce and are therefore subject to strict liability, including whether they: (1) provide a warranty for the product's quality; (2) are responsible for the product during transit; (3) exercise enough control over the product to inspect or examine it; (4) take title or ownership over the product; (5) derive an economic benefit from the transaction; (6) have the capacity to influence a product's design and manufacture; or (7) foster consumer reliance through their involvement. Grubb , 279 P.3d at 629 ¶ 11 (considering all but third factor in concluding hardware-store cooperative was not subject to strict liability); see Antone , 155 P.3d at 1079 ¶¶ 26–28 (concluding commercial auctioneer was not subject to strict liability based on all but the second factor); Dillard , 782 P.2d at 1190–91 (analyzing all factors in concluding that a broker for a department store was not subject to strict liability); see also Torres , 786 P.2d at 942 (holding Goodyear strictly liable for a defective tire made by its subsidiary where its "actual ability to control" the subsidiary was "pervasive," including "indirectly through common directors and officers" and through contracts providing "formulas, specifications, and directions" for assembly as well as "labeling, marketing, packaging and advertising").
Analyzing each factor in turn, the Court first notes that Amazon's conditions of use plainly state that Amazon does not "warrant the offerings" of any third-party vendor. (Doc. 130 at 10). Despite this, State Farm claims one fact in favor of subjecting Amazon to strict liability is its occasional distribution of refunds to consumers, (Doc. 141 at 24), something it did in this case after several hoverboard-related incidents took place, (Doc. 147 at 25 ¶¶ 131, 133). But State Farm overlooks that, under the terms of the BSA, even if Amazon provides the refund, the third-party vendor must ultimately reimburse Amazon for doing so. (Doc. 131-,1 Ex. B, at 17). This factor thus weighs against imposing strict liability.
Under the terms of the FBA service, Amazon bears responsibility to either replace or refund products shipped from its fulfillment centers if the wrong item is delivered as well as if the item is lost or damaged in transit. (Id. at 49). Amazon will also reimburse third-party vendors for any loss or damage to their products that occurs while being stored at a fulfillment center. (Id. at 47). Therefore, in contrast to Grubb and Dillard —where the putative sellers were not responsible for the product at any point during transit—Amazon does assume some responsibility for a product during a portion of its journey to the consumer. Grubb , 279 P.3d at 629 ¶ 11 ; Dillard , 162 Ariz. at 298, 782 P.2d 1187. But this fact alone does not weigh in favor of extending strict liability to Amazon, because "[a]t all other times," third-party vendors are solely responsible for any loss or damage to any of their products, including when initially shipping the product to Amazon. (Id. at 45, 47).
Even after receiving products from third-party vendors, Amazon still exercises only minimal control over those products such that it has little meaningful ability to inspect them. As noted, third-party vendors' products are packaged before being shipped to a fulfillment center where Amazon simply stores them before placing them in a box for shipment. Amazon purports to rely on third-party vendors to provide it with accurate information about their products, asserting that it merely publishes such information with little ability to control its content. (Docs. 130 at 10-11; 131 at 2 ¶ 6). To counter this assertion, State Farm contends that the BSA "controls the product information" a third-party vendor must provide to Amazon. (Doc. 141 at 9). The terms of the BSA, however, require only that third-party vendors provide certain categories of content—a description of the product, in-stock status and availability, brand, model, etc. (Doc. 131-1, Ex. B, at 33). Within those categories, third-party vendors retain discretion to describe their products however they wish. To be sure, Amazon does have some limited means at its disposal to ensure that third-party vendors' products are safe and function as advertised, such as by monitoring customer complaints or even occasionally launching an investigation. (See Doc. 147 at 9-10 ¶¶ 51-52). As the facts here indicate, however, such tools can be employed only after some flaw in the product reveals itself. (Doc. 142 at 14-16 ¶¶ 41-52 (describing actions taken after recalls, negative product reviews, or news reports)). State Farm therefore provides no facts showing that Amazon has the time and technical know-how needed to inspect, detect, and ultimately remove dangerous defects from the products it is in the business of selling before placing them in the stream of commerce that the typical manufacturer or seller does. See Schwartz , 501 P.2d at 939–40.
State Farm also points to no evidence showing that, at any point in the stream of commerce, Amazon becomes the owner of, or ever holds title to, third-party vendors' products. It merely states that it can neither admit nor deny Amazon's assertion that title flows directly from third-party vendors to consumers. (Docs. 131 at 3 ¶ 7; 142 at 6 ¶ 7). State Farm does suggest, and the Court agrees, that whether Amazon ever owned the hoverboards is not by itself dispositive. (Doc. 142 at 6-7 ¶ 7). Whether title is transferred to an entity in the chain of production has never been a necessary prerequisite to holding that entity strictly liable under Arizona law, see Torres , 786 P.2d at 942 (holding parent company liable for a product "actually manufactured by a subsidiary"), but it remains an important factor courts consider, see Grubb , 279 P.3d at 628 ¶¶ 6–7 (first citing Antone , 155 P.3d at 1075, 1077 ¶ 27 ; and then citing Dillard , 782 P.2d at 1189, 1191 ). Indeed, the FBA service's terms make clear that Amazon only takes title to third-party vendors' products at their request. (Doc. 131-1, Ex. B, at 48) That Amazon sometimes stores third-party vendors' products in its warehouses does not make it the owner of those products, just as a mall does not become an owner of the products sold by the various stores contained therein. Cf. Dillard , 782 P.2d at 1191.
Certainly, Amazon derives some economic benefit from transactions involving third-party vendors, but not in a way sufficient to support subjecting it to strict liability under Arizona law. It collects fees from third-party vendors for its services, including: a 15% sales fee, a referral fee, and additional fees for use of its fulfillment service. (Doc. 147 at 27 ¶¶ 140, 143, 145). Amazon also collects customers' payment after purchase, holds those funds until a predetermined time, and then remits them to the third-party vendor less any applicable fees for its services. (Doc. 147 at 27 ¶¶ 139-43). Thus, although Amazon reaps a small benefit, it is the third-party vendor who is the primary beneficiary of the transaction. This kind of arrangement does not support applying strict liability to Amazon in this case. See Grubb , 279 P.3d at 629 ¶ 11 ("Despite the fact that DIB collected a fee for the sale, it remitted the majority of such fees ...." (citing Antone , 155 P.3d at 1079 ¶ 26 )).
Turning to whether Amazon can influence third-party vendors' designs or their manufacturing processes, State Farm asserts that Amazon controls and manipulates virtually all aspects of placing the product into the stream of commerce. (Docs. 141 at 22; 149 at 4). Amazon maintains that as a "service provider" it has no ability to exert such influence. (Doc. 130 at 17-18). Although the undisputed facts show that Amazon can influence third-party vendors in some ways, it wields no more than indirect pressure over their design choices or manufacturing processes and thus does not support subjecting Amazon to strict liability here either.
Through means like the BSA and the FBA service, Amazon establishes an ongoing relationship with third-party vendors and controls the terms of that relationship. To a certain extent, Amazon influences pricing by barring third-party vendors from charging more on its website than they do elsewhere, but third-party vendors are otherwise free to set their own price. (Doc. 131-1, Ex. B, at 30-31). Likewise, third-party vendors must also provide at least the same level of customer support and product information as they would through other sales channels. (Id. ). And they must agree to "release ... indemnify, defend and hold [Amazon] harmless" against any claim arising from their products. (Id. at 15-16).
Amazon also controls what products enter, and remain, on its online marketplace. And it acknowledges that it has previously removed products upon receiving information relating to a product's safety, whether from its own users or other sources. (Doc. 147 at 8-9 ¶¶ 43-49). Yet as the facts of this case demonstrate, Amazon has the power to make demands of third-party vendors and those demands could potentially influence manufacturing and design choices. Here, for instance, after receiving multiple reports about safety issues pertaining to hoverboards, as well as a letter from the U.S. Consumer Protection Safety Commission stating that hoverboards failing to comply with certain voluntary safety standards posed an unreasonable risk of fire to consumers, Amazon instituted an additional documentary compliance review before hoverboard vendors could list their products on the site. (Doc. 147 at 20-22 ¶¶ 102-08, 114-15). As a purely practical matter, access to Amazon's marketplace may well mean the difference between some vendors' success or failure and thus provides a powerful incentive for manufacturers to comply with whatever demands Amazon asks of them.
State Farm makes much of the various tools Amazon may use to influence a product's design, but this influence does not rise to a level sufficient to support applying strict liability to Amazon. Specifically, Amazon does not have a unilateral ability to force any vendor or manufacturer to adopt any particular design or manufacturing method; though its marketplace may provide a great opportunity for such businesses, those businesses remain free to sell their wares through other channels. The undisputed facts therefore show that Amazon does not exercise a level of control over how third-party vendors design their products sufficient for this factor to weigh in favor of imposing strict liability on it. See Torres , 786 P.2d at 942.
Finally, as to any consumer reliance engendered by Amazon's involvement, Amazon conspicuously lists the relevant third-party vendor on the "sold by" line when describing the product both before the customer places an order and in the receipt summarizing the order. (Docs. 130 at 11; 143-1, Ex. E, at 14). And the BSA requires third-party vendors to identify themselves as the seller on all information provided in connection with their products and as the entity to which the products are to be returned. (Doc. 131-1, Ex. B, at 29). State Farm claims that Zeitoun "believed Amazon to be the actual seller," but does not cite a single case where an Arizona court found an injured party's subjective belief to be a relevant factor in exposing an entity to strict liability. (Doc. 141 at 5). Nor has it produced any paperwork from Amazon identifying itself as the seller. Moreover, because it is an entity's "degree of control" over the product that "foster[s] consumer reliance as to their quality," see Antone , 155 P.3d at 1079 ¶ 27, the Court's conclusion that Amazon did not exercise a significant amount of control over the design and manufacturing process also lends itself to the conclusion that consumers would not rely on third-party vendors' products merely because they are posted on Amazon's website. State Farm simply does not adduce any evidence showing that Amazon's involvement would engender reliance in a product's safety.
On balance, then, the Court concludes that State Farm fails to create a genuine issue of material fact as to whether Amazon "participate[s] significantly in the stream of commerce" that delivered these hoverboards to the consumer. See Grubb , 279 P.3d at 627 ¶ 5. Despite bearing some responsibility for third-party vendors' products during transit, Amazon provides no warranty for them, does not have a meaningful ability to inspect them for defects, never takes title to them unless asked to, derives only a slight economic benefit from transactions involving them, exerts only indirect pressure on product design or manufacturing processes, and does not foster significant consumer reliance by facilitating the transaction.
The Court finds support for this conclusion in the great weight of other courts that have applied Restatement § 402A, or similar statutes, and have agreed that Amazon should not be strictly liable for harms caused by third-party vendors' products because it exercises an insufficient degree of control over such products. See, e.g. , Fox v. Amazon.com, Inc. , 930 F.3d 415, 425 (6th Cir. 2019) ; Erie Ins. Co. v. Amazon.com, Inc. , 925 F.3d 135, 139 (4th Cir. 2019) ; Garber v. Amazon.com, Inc. , 380 F. Supp. 3d 766, 778 (N.D. Ill. 2019) ; Carpenter v. Amazon.com, Inc. , No. 17-03221-JST, 2019 WL 1259158, at *4 (N.D. Cal. Mar. 19, 2019) ; Eberhart v. Amazon.com, Inc. , 325 F. Supp. 3d 393, 398–99 (S.D.N.Y. 2018) ; Allstate N.J. Ins. Co., v. Amazon.com, Inc. , No. 17-2738, 2018 WL 3546197, at *7–10 (D.N.J. July 24, 2018). This conclusion is also consistent with, although not dependent on, the Third Restatement of Torts' statement that "product distribution facilitators," such as Amazon, are generally not subject to strict products liability. Restatement (Third) of Torts: Product Liability § 20 cmt. g (Am. Law Inst. 1998).
But see Oberdorf v. Amazon.com, Inc. , 930 F.3d 136, 151 (3d Cir. 2019) (holding Amazon strictly liable under Pennsylvania law for third-party vendor goods sold on its website), vacated and reh'g granted en banc , 936 F.3d 182 (3d Cir.).
Although the Arizona Supreme Court has never adopted this provision of the Third Restatement, the Court notes that it was cited as persuasive authority in Grubb and appears generally consistent with Arizona products liability law. Grubb , 279 P.3d at 628 ¶ 5 ; see also Espinoza v. Schulenburg , 212 Ariz. 215, 129 P.3d 937, 939 ¶ 9 (2006) ("Generally ..., absent law to the contrary, Arizona courts follow the Restatement.").
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Amazon has shown it is entitled to judgment as a matter of law on State Farm's strict liability claim. Accordingly, the Court will grant Amazon's Motion for Summary Judgment on State Farm's strict liability claim.
c. Negligence
Amazon further argues that State Farm's "inability to establish that Amazon is a seller ... also disposes of its negligence claim, because selling is the source of any duty owed." (Doc. 130 at 19). To the extent State Farm even responds to this argument, it simply asserts that Amazon is a "seller" and states in a footnote that its "negligence claim here should not be decided by Summary Judgment as there are obvious questions of fact and credibility precluding summary judgment." (Doc. 141 at 21 n.4).
In Arizona, "[w]hether a duty exists ‘is a legal matter to be determined before the case-specific facts are considered.’ " Quiroz v. ALCOA Inc. , 243 Ariz. 560, 416 P.3d 824, 828 ¶ 7 (2018) (quoting Gipson v. Kasey , 214 Ariz. 141, 150 P.3d 228, 232 ¶ 21 (2007) ). Duties arise from "either recognized common law special relationships or relationships created by public policy." Id. at 829 ¶ 14. Courts can find public policy in state statutes or common law but, absent a statute, the Arizona Supreme Court "exercise[s] great restraint in declaring public policy." Id. at 830–31 ¶¶ 19–20.
As with its strict liability claim, State Farm bears the burden to establish the elements of negligence in this case. But State Farm points to no public policy or common-law special relationship—aside from its argument that Amazon is a "seller"—that could give rise to a duty on these facts. Thus, given the absence of any alternative showing by State Farm, the Court's conclusion that Amazon did not even significantly participate in the stream of commerce that delivered these hoverboards to consumers means that State Farm "fails to make a showing sufficient to establish of an element essential" to its case, mandating entry of summary judgment against it. Celotex Corp. , 477 U.S. at 322, 106 S.Ct. 2548. III. Conclusion
For these reasons,
IT IS ORDERED that State Farm's Cross Motion for Partial Summary Judgment (Doc. 141) is DENIED .
IT IS FURTHER ORDERED that Amazon's Motion for Summary Judgment (Doc. 130) on all remaining counts is GRANTED .
Because all other counts and parties have previously been dismissed, the Clerk of the Court is directed to enter a judgment in favor of Amazon.com Incorporated (and all other Defendants for whom judgment has not yet entered based on this Court's prior orders at Docs. 81, 89, and 116) and against State Farm. Further, the Clerk of the Court, shall enter judgment against Amazon.com Incorporated on the cross-claim (see Doc. 90).