The Fifth Circuit late last year certified the question whether the operator of  an on-line marketplace is a seller” under Texas products liability law. McMillan v., Inc., 983 F.3d 194 (5th Cir. 2020).

The Texas Supreme Court in response determined that Inc. isn’t considered a “seller” under Texas product liability law.  No. 20-0979, 2021 WL 2605885 (Tex. June 25, 2021)(certified question answered).  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 asked specifically whether 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.

The Supreme Court answers “no”. The Texas Legislature’s definition of “seller” in Chapter 82 of the state’s  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.

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, the Court said it must determine whether Amazon’s role in the distribution chain amounts to “distributing or otherwise placing” a product in the stream of commerce.  2021 WL 2605885, at *3.  The Court has refused to extend liability to all persons or entities involved in the distribution chain, however. For example, those that provide both goods and services are not sellers if the provision of products is incidental to the provision of services.  Likewise, those that merely assist or facilitate sales—such as auctioneers, advertising agencies, newspapers, internet providers, and shipment companies—are not sellers. See RESTATEMENT (THIRDOF TORTS: PROD. LIAB. § 20 cmt. g (1998), which provides that “[p]ersons assisting or providing services to product distributors, while indirectly facilitating the commercial distribution of products, are not subject to liability”).

Given that Chapter 82 is more restrictive than the common law, the Court saw no indication that the Legislature intended its language to include commercial behavior beyond ordinary sales and previously qualifying non-sale commercial transactions. Accordingly, the necessary qualities of those transactions provide the limits of “seller” status under Chapter 82. The cases show that both sales and non-sale commercial transactions, at a minimum, involve sellers that hold or relinquish title in a product’s distribution chain.  Considering title to determine seller status is also consistent with the approach taken by other jurisdictions that follow the Restatement’s framework for strict products liability. Using this approach, many courts have concluded that Amazon is not a seller when it does not hold or relinquish title to the product. See, e.g., State Farm Fire & Cas. Co. v., Inc., 835 F. App’x 213, 216 (9th Cir. 2020) (holding that Amazon was not a “seller” under Arizona’s common-law Restatement-based multi-factor test, under which holding title is a factor); Erie Ins. Co. v., Inc., 925 F.3d 135, 144 (4th Cir. 2019) (concluding that Amazon did not hold title and thus was not a “seller” under Maryland law, which is based on Restatement section 402A); Eberhart v., Inc., 325 F. Supp. 3d 393, 397–98 (S.D.N.Y. 2018) (concluding that “regardless of what attributes are necessary to place an entity within the chain of distribution, the failure to take title to a product places that entity on the outside,” and such a requirement is reinforced by the Restatement (Third) of Torts: Products Liability).