Senate Bill S6437

                                 
BILL NUMBER: S6437

SPONSOR: HOYLMAN-SIGAL
 
TITLE OF BILL:

An act to amend the general obligations law, in relation to the liabil-
ity of electronic marketplaces for compensation for damages for defec-
tive goods

 
SUMMARY OF PROVISIONS:

Section 1 adds a new section 11-108 to the general obligations law in
which:

1) Defines the following terms:

a. Electronic marketplace provider

b. Handmade

c. Marketplace seller

d. Product
              

2) Establishes strict product liability on electronic marketplaces for
selling or facilitating sales of defective products by including them as
a retailer under existing New York law

3) Indicates that strict liability applies regardless of fault, the
marketplace's or seller's physical presence in the state, and regardless
of whether the electronic marketplace ever takes physical possession of
or title to the products.

4) Creates several exceptions where strict liability does not apply

5) Allows the application of strict liability for exempted products if
it is consistent with the policy considerations underlying strict prod-
uct liability

6) Establishes that strict liability does not limit other remedies under
the law.

Section 2 provides the effective date.

 
JUSTIFICATION:

Dangerous products sold in online marketplaces are a major public safety
concern. E-commerce sales account for nearly 15% of total retail sales
and make more than $250 billion every quarter. (US Census). In a Novem-
ber 2022 report, the US Public Interest Research Group found that
banned, recalled, and counterfeit toys are widely available and easily
purchased on electronic marketplaces, contributing to the approximately
200,000 toy-related injuries that occur annually. (PIRG) Marketplaces
have also sold "pure" sodium nitrate, a chemical increasingly being used
for self-harm that has been used in 25 suicide attempts this year alone,
according to Bloomberg Law. (Bloomberg Law) Additional reports have
revealed that online marketplaces are hotbeds for a wide variety of
harmful products, including illegal and unregulated performance enhanc-
ing substances (Markup), unsafe electrical products, products containing
lead and dangerous chemicals, helmets that fail safety tests, and sleep-
ing bags that can suffocate infants. (WSJ) Online marketplaces are
effectively the "wild west" for dangerous products.

But despite this major safety issue, online marketplaces are often
absolved of liability for the products that they sell or facilitate the
sale of, giving them no incentive to be vigilant about harmful products.
Online marketplaces need to be "sellers" to be liable under product
liability law, but they are not under current law, primarily due to
outdated common law rules that "sellers" must hold legal title to their
products, according to legal scholars. (Sharkey) In fact, New York state
and federal courts have affirmed this requirement under current law,
immunizing online marketplaces from liability because they do not hold
legal title and are "provider(s) of services" instead of participants in
the sales/ distribution chain. See Eberhart v. Amazon.com, Inc.
(S.D.N.Y. 2018); Philadelphia Indemnity Ins. Co. v. Amazon.com, Inc.
(E.D.N.Y. 2019); Wallace v. Tri-State Assembly, LLC (N.Y. App. Div.
2021).

These rules are profoundly misaligned with the reality in which e-com-
merce platforms play a critical role in selling and facilitating the
sale of products, functioning as active participants in the product
"distribution chain." Although the platforms often disclaim legal title,
in many cases, they are in possession of the products, ship the
products, take a cut of the proceeds, and are the sole or primary inter-
face through which customers search, purchase, return, and complain
about products. It has come to the point that e-commerce platforms have
"revolutionized the way New Yorkers and Americans generally shop" and
"seek to have all the benefits of the traditional brick and mortar
storefront without any of the responsibilities." State Farm Fire and
Casualty Company v.  Amazon.com Services, Inc. (N.Y. Sup. Ct. 2020).
(State Farm)

Given the considerable availability of dangerous products online, the
legislature is deeply troubled by the current state of product liability
law that fails to hold e-commerce platforms accountable for facilitating
sales of unsafe and harmful products. We disagree with the approach
taken by the courts in Eberhart, Philadelphia Indemnity, and Wallace,
and instead prefer the approaches taken by the New York Supreme Court in
State Farm and those taken by California courts in Bolger and Loomis. We
believe that e-commerce websites need an incentive to better moderate
the products they offer, and we feel that, as the cheapest cost avoid-
ers, they are in the best position to reduce the potential harm that may
result from their products. (Sharkey)

This legislation follows attempts by California to impose this liabil-
ity, (CA Bill) and heeds the calls of US Appeals Courts in encouraging
state legislators to take up the issue (Erie Insurance, Motz) and those
of federal legislators who believe that online platforms have a respon-
sibility to take action. (Daily News) By holding marketplaces strictly
liable for injury caused by these dangerous products, in the way that
brick-and-mortar retailers are, we can incentivize marketplaces to be
more proactive about removing these products from their sales rosters.

Footnotes:

US Census: https://www2.census.gov/retail/releases/
historical/ecomm/22q3.pdf
PIRG: https://publicinterestnetwork.org/wp-
content/uploads/2022/11/TOYLAND-WED-717.pdf

Bloomberg Law:

https://www.bloomberglaw.com/product/blaw/bloomberglawnews/
us-law-week/BNA%2000000184-5dc1-dbbd-a5cd-
5ddd4e090001?bwid=00000184-5dc1-dbbd-a5cd-
5ddd4e090001&cti=LSCH&emc=bblnw_nl%3A11&et=
NEWSLETTER&isAlert=false&item=read-text&qid=7383868& region=
digest&source=newsletter&uc=1320024077&udvType=Alert&usertype=External

WSJ:https://www.wsjcom/articles/amazon-has-ceded-control- of-its-site-
the-resultthousands-of-banned-unsafe-or-mislabeled- products-11566564990

MARKUP Annie Gilbertson & Jon Keegan, Labeled "Research" Chemicals,
Doping Drugs Sold Openly on Amazon.com, THE MARKUP (Sept. 17, 2020),
https://themarkup.org/banned-
bounty/2020/09/17/amazon-sales-peptides-doping-drugs

Sharkey: Catherine Sharkey, Products Liability in the Digital Age:
Online Platforms as "Cheapest Cost Avoiders", 73 HASTINGS L.J. 1327,
1335-36 (2022)

Eberhart: Eberhart v. Amazon.com, Inc., 325 F.Supp.3d 393, 398-400
(S.D.N.Y. 2018) ("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").

Philadelphia Indemnity: Philadelphia Indemnity Ins. Co. v.  Amazon.com,
Inc., 425 F.Supp.3d 158 (E.D.N.Y. 2019)

Wallace: Wallace v. Tri-State Assembly, LLC, 157 N.Y.S.3d 438, 441 (N.Y.
App. Div. 2021), leave to appeal denied, 188 N.E.3d 138 (2022).

State Farm: State Farm Fire and Casualty Company v. Amazon.com Services,
Inc., 137 N.Y.S.3d 884, 889 (N.Y. Sup. Ct. 2020).

Bolger: Bolger v. Amazon.com, Inc., 267 Cal. Rptr. 3d 601, 617 (Cal. Ct.
App. 2020).

Loomis: Loomis v. Amazon.com, Inc., 277 Cal. Rptr. 3d 769, 789 (Cal. Ct.
App. 2021).

Erie Insurance Co. v. Amazon.com, Inc., 925 F.3d 135, 145 (4th Cir.
2019) (Motz, C.J., concurring).

Daily News https://www.nydailynews.com/news/politics/ us-elections-
government/ny-uspirg- recalled-toys-sold-online-20221118-
v5ryite2ercj5ejxv1gxxlh2wq-story.html

CA Bill: AB 3262

 
HTTPS://LEGINFO.LEGISLATURE.CA.GOV/FACES/ BILLTEX-
TCLIENT.XHTML?BILL_ID=201920200AB3262