Amazon and the Age of Product Liability Lawsuits


Like the mighty river it is named for, Amazon is a veritable retail giant, selling everything from diapers to dishwashers. Pioneering the online shopping scene in the 1990s, Amazon first emerged as a virtual warehouse for books and music. Today, Jeff Bezos’ brainchild has grown to carry furniture, beauty products, electronics, and just about everything else you could fit into the Amazon Rainforest.

Most recently, as its expansion efforts now encompass the lucrative world of groceries, Amazon acquired Whole Foods. Announced in June, the $13.7 billion deal promises to raise the stakes for Amazon and bring in more revenue than ever. According to Paul Cuatrecasas, CEO of British investment firm Aquaa Partners:

“This deal should leave no doubt that Amazon is deadly serious about dominating all aspects of retail.”

However, Amazon acquisitions are nothing new. Since its inception, the company has purchased shoe retailer Zappos, the ultimate book lovers’ app Goodreads, popular movie review site IMDB, along with dozens of other businesses.

But what do all these acquisitions mean for product liability cases in Ohio? If a product is defective, then who pays? Who bears the responsibility if Amazon’s Whole Foods delivery service gives a customer a carton of rotten milk? Or worse, if there’s a recall of salmonella-tainted chicken?

Selling on Amazon: Third-Party Vendors

First, we must take a look at third-party vendors. Amazon has a long history of working with third-party vendors to unload used merchandise. Many of these vendors, historically, were everyday individuals looking to make a few bucks off selling a used paperback novel or CD. Today, while the Mom and Pop vendors still exist, many Amazon vendors have become savvier.

For those designated as Professional Sellers (those who sell in volume) on Amazon, a Commercial Liability Insurance policy must be documented. Amazon’s rules state that the insurance must cover a minimum of $1 million per occurrence whether in terms of general liability, bodily injury, or property damage. These strict requirements demonstrate that Amazon wishes to extricate itself from any liability law proceedings by shifting the responsibility to the vendor.

But will it be so easy to pass the blame off to a subsidiary like Whole Foods? After all, if Amazon owns Whole Foods, then the online megastore must be liable for any legal issues that arise, right?

The Parent – Subsidiary Liability Relationship

By legal definition, Amazon became the parent company of Whole Foods when the $13.7 billion deal was struck. Whole Foods, in turn, became the subsidiary — again, one of dozens that Amazon has acquired over the past two decades. Logically, it would seem that the parent company should be responsible for the actions or mistakes of its subsidiary, essentially its “child.” But this is not always the case.

The 1998 Supreme Court ruling in the case of United States v. Bestfoods makes this fact crystal clear: “It is a general principle of corporate law deeply ingrained in our economic and legal systems that a parent corporation is not liable for the acts of its subsidiaries.”

This ruling would appear to let Amazon off the hook, but nothing is ever so simple in the land of law. There are exceptions to the ruling. However, Amazon appears to be exempt from the exceptions, which include the concept of a corporate veil, in which a company may try to escape its debt by passing it on to a subsidiary. Another exception is when the subsidiary is doing business under the same name as the parent company, which clearly Whole Foods is not. Whole Foods is a prestigious brand name in organic, healthy, and high-end groceries, and it would be a risky business decision to shed the established identity.

The other exceptions could be if the subsidiary had no assets to defend itself in a liability lawsuit or if any type of fraudulent activity had occurred on the part of the parent company. Again, neither of these scenarios currently apply to the Amazon-Whole Foods relationship. Therefore, although every legal case is individual, it is most likely that Whole Foods would bear the legal burden in any possible liability lawsuit. Furthermore, Amazon’s record of dealing with product liability issues reinforces this likelihood.

Amazon Product Liability Denied in Lamp Lawsuit

In Burtonsville, Maryland, a lamp purchased on Amazon caught fire and caused more than $300,000 in damages to a private home. The purchase was made through Dream Light, a vendor designated as a Professional Seller on Amazon. So, when the inevitable lawsuit came around, Amazon knew exactly how to defend itself, claiming:

“Amazon did not design, manufacture, or sell the headlamp, nor write the warnings or instructions for it…Amazon simply provided services – an online marketplace for a buyer and a seller…”

Interestingly, though, Amazon’s policies for vendors tend to be very customer-friendly. When a customer wishes to return an item, for whatever reason, Amazon generally intervenes in favor of the customer unless a seller’s policy has been blatantly violated. This practice has become notoriously unpopular among vendors who take a financial hit each time a product is returned. Perhaps Amazon sides with customers with the goal of avoiding lawsuits?

While no one can be certain of the company’s motivations, Amazon has become a runaway success by protecting itself with airtight seller agreements including expensive liability insurance policies. As Amazon takes Whole Foods under its powerful wing, it is likely that the parent company will continue to thrive and release itself of any product liability incurred by its newest subsidiary.

Have you been injured by a defective product? The experienced product liability attorneys of Dyer, Garofalo, Mann & Schultz will provide you with a free case review and help you plan your best course of action. Contact us today.

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