Related: 5 aspects of successful subrogation programs

But, U.S. District Judge Freda Wolfson said, Amazon never took ownership of the battery, which was sold by a Hong Kong company called E-life that is not subject to service of process in the U.S.

Allstate, which brought suit seeking to recover money it paid out in insurance claims on the fire, said Amazon met the definition of a seller under New Jersey's products liability statute.

But Wolfson on Tuesday granted Amazon's motion for summary judgment, finding it did not meet the definition of seller because it did not decide what product to sell; nor did it procure the product from the manufacturer or upstream distributor, or ensure that it complied with applicable laws.

Amazon's business model

The case sheds light on Amazon's business model, which involves three types of transactions with consumers, according to the decision.

• The first is the direct sale of its own, Amazon-branded products to consumers;
• Second is the sale of products directly from a vendor to a consumer, with Amazon merely providing means for the vendor to advertise the product and the consumer to order it; and,
• Finally, the sale of a product from a vendor to a consumer, with Amazon fulfilling the transaction by holding the product in its inventory and shipping it to the consumer.

The first transaction type, Wolfson said, clearly qualifies Amazon as a product seller under the New Jersey Product Liability Act, and under the second model, it certainly would not be considered a product seller.

Related: When batteries explode — who pays the claim?

But the transaction in the present case falls into the third category, which she said is the "grayest" of the three.

According to the decision, Kathleen Cancel of Farmingdale purchased the battery for her daughter's computer on July 31, 2016. On Sept. 9, 2016, after the laptop was left sitting on her daughter's bed, a fire started.

Allstate filed the case in New Jersey Superior Court in Monmouth County on March 8, 2017, and Amazon removed it to federal court on April 21, 2017.

Distribution chain

Allstate asserted that, under New Jersey law, Amazon is a party within the distribution chain, making it the product's seller. Allstate also argued that public policy supports holding Amazon liable as a product seller.

Wolfson noted that, under New Jersey's strict products liability law, a consumer injured by a defective product can generally bring suit against any business entity in the chain of distribution. But despite the law's broad language and its expansive interpretation by state courts, the reach of the Product Liability Act is not boundless. "Not every party involved in the distribution process can be classified as a 'product seller,'" Wolfson said.

Related: Mutually rewarding subrogation vendor partnerships

"New Jersey courts, in cases involving intermediaries in the distribution process, look to whether the intermediary's role 'was that of a facilitator rather than an "active participant" in the transaction,'" Wolfson said, quoting from case law.

Amazon merely facilitating transaction

In the present case, Amazon "never exercised control over the product sufficient to make it a 'product seller' under the Product Liability Act," Wolfson said. Amazon's agreement with E-life provides the content for the product listing on the Amazon site, and Amazon did not control the price of the product, as Allstate contended, she said.

Thus, "a buyer who purchases an E-life product on Amazon is engaging in a transaction with the seller that Amazon is merely facilitating," Wolfson said.

Allstate argued that Amazon should be considered a seller for public policy reasons because the company is well-positioned to push costs up the distribution chain. Amazon and E-life, which is also known as Lenoge, have not identified the manufacturer of the battery, and Allstate may not be able to sue Lenoge, the carrier contended.

Related: Subrogation claims put insurers in the policyholder's shoes

Allowing an injured plaintiff to sue a party that can shift the risk up the distribution chain would support the consumer protection goals of products liability law, but other policies underpinning the law — chiefly, setting limits on the reach of products liability — "are stronger counterweights," Wolfson said.

Citing the New Jersey Supreme Court's 1996 decision in Zaza v. Marquess & Nell, Wolfson said "stretching the case law to capture Amazon's activities in this case would conflict with the spirit of the law."

She added that courts "should be cautious in expanding the law when doing so would impose a substantial economic burden on these businesses and individuals, without necessarily achieving the goal of enhanced product safety."

Amazon also asserted that it was immune from liability under Section 230 of the Communications Decency Act, which says online intermediaries that host or republish speech are protected against a range of laws that might otherwise be used to hold them legally responsible for what others say and do.

The court, however, did not reach that question.

Christopher Konzelmann of White & Williams in Philadelphia, who represented Allstate, declined to comment.

Amazon's lawyer, Beth Rose of Sills Cummis & Gross in Newark, did not return a call about the case.

Related: Litigating product liability claims with foreign entities

Charles Toutant ([email protected]) is a litigation writer for the New Jersey Law Journal.