United States: Wrong Court

Last Updated: July 31 2019
Article by James Beck

On practically no issue has this Blog been more insistent than on the principle of Erie conservatism when federal courts sitting in diversity undertake to "predict" state tort law.  Our posts on this subject go back to 2006.  At that time, we said:

In both of these decisions, novel questions of state law, involving state statutes intended to reduce tort liability, were answered so as to expand liability in ways that no state court had endorsed. Under established principles of federalism, that should not have happened. The Supreme Court made clear in Day & Zimmerman, Inc. v. Challoner, 423 U.S. 3 (1975), that "[a] federal court in diversity is not free to engraft onto those state rules exceptions or modifications which may commend themselves to the federal court, but which have not commended themselves to the State in which the federal court sits." Id. at 4.

We accompanied the Supreme Court precedent with authority for the same proposition from "every Court of Appeals." We again addressed Supreme Court precedent here, including:

[A] federal court is not free to apply a different rule however desirable it may believe it to be, and even though it may think that the state Supreme Court may establish a different rule in some future litigation.

Hicks v. Feiock, 485 U.S. 624, 630 n.3 (1988).

Since then, we've returned to this proposition time and again – addressing it in the context of First Circuit, Third Circuit, Fourth Circuit, Fifth Circuit, Sixth Circuit, and Eleventh Circuit law − even proposing legislation to codify the Supreme Court's position.

Now we're aware of another appeal that has put the Erie conservatism principle front and center. We've mentioned before the winning streak that Amazon.com was on in product liability cases, and wondered whether that online business model could eventually affect the market for prescription drugs. Well, the case that prompted that post, Oberdorf v. Amazon.com, Inc., 295 F. Supp.3d 496 (M.D. Pa. 2017), was recently reversed, 2-1, by a Third Circuit panel. See Oberdorf v. Amazon.com Inc., ___ F.3d ___, 2019 WL 2849153 (3d Cir. July 3, 2019) ("applying" Pennsylvania law).

Until then, no court anywhere had found Amazon (or similar entities) to be a product liability "seller" for purposes of strict liability. See Fox v. Amazon.com, Inc., ___ F.3d ___, 2019 WL 2896326, at *7 (6th Cir. July 5, 2019) (applying Tennessee law); Erie Insurance Co. v. Amazon.com, Inc., 925 F.3d 135, 141-42 (4th Cir. 2019) (applying Maryland law); Milo & Gabby LLC v. Amazon.com, Inc., 693 F. Appx. 879, 885 (Fed. Cir. 2017) (applying federal copyright law); Stiner v. Amazon.com, Inc., 120 N.E.3d 885, 893-94 (Ohio App. 2019); Garber v. Amazon.com, Inc., 380 F. Supp.3d 766, 776-78 (N.D. Ill. 2019); Carpenter v. Amazon.com, Inc., 2019 WL 1259158, at *5 (N.D. Cal. March 19, 2019); Eberhart v. Amazon.com, Inc., 325 F. Supp.3d 393, 398-400 (S.D.N.Y. 2018); Allstate N.J. Insurance Co. v. Amazon.com, Inc., 2018 WL 3546197, at *7-12 (D.N.J. July 24, 2018); McDonald v. LG Electronics., USA, Inc., 219 F. Supp.3d 533, 542 (D. Md. 2016); Inman v. Technicolor USA, Inc., 2011 WL 5829024, at *6 (W.D. Pa. Nov. 18, 2011).

Thus, for the Third Circuit to predict that Pennsylvania law would be to the contrary was a huge leap into the unknown that a federal court sitting in diversity jurisdiction should never have made. As Judge Scirica, in dissent, pointed out:

This case implicates an important yet relatively uncharted area of law. No Pennsylvania court has yet examined the product liability of an online marketplace like Amazon's for sales made by third parties through its platform. Our task, as a federal court applying state law, is to predict how the Pennsylvania Supreme Court would decide the case. We must take special care to apply state law and not to participate in an effort to change it." In my view, well-settled Pennsylvania products liability law precludes treating Amazon as a "seller" strictly liable for any injuries caused by the defective [product].

Oberdorf, 2019 WL 2849153, at *12 (citation and quotation marks omitted) (dissent).

Here's a link to Amazon's petition for en banc review, filed recently. The petition leads with the Erie conservatism principle:

[T]he panel decision is contrary to decisions of the Supreme Court and this Court holding that federal courts sitting in diversity cannot "act as ... judicial pioneer[s]" by deciding "whether and to what extent they will expand state common law." City of Phila. v. Lead Indus. Ass'n, 994 F.2d 112, 123 (3d Cir. 1993). The majority's creation of an unprecedented form of "seller" liability under Pennsylvania law − with far-reaching consequences not just for Amazon but also for countless other businesses and service providers − conflicts with Lead Industries Association, as well as Day & Zimmermann v. Challoner, 423 U.S. 3 (1975), Sheridan v. NGK Metals Corp., 609 F.3d 239 (3d Cir. 2010), Travelers Indemnity Co. v. Dammann & Co., 594 F.3d 238 (3d Cir. 2010), Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir. 2002), City of Philadelphia v. Beretta U.S.A. Corp., 277 F.3d 415 (3d Cir. 2002), Adams v. Madison Realty & Development, 853 F.2d 163 (3d Cir. 1988), Falcone v. Columbia Pictures Industries, 805 F.2d 115 (3d Cir. 1986), Bruffett v. Warner Communications, 692 F.2d 910 (3d Cir. 1982), and McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657 (3d Cir. 1980).

Amazon petition at 2; see id. at 9-12 (discussing this precedent in more detail).

So how did we do? Comparing our 2009 Erie-in-the-Third-Circuit post with the Amazon brief, Amazon relies on two later-decided Third Circuit cases, which of course we couldn't cite. But as for the rest, Amazon, had four we didn't have (Adams, Falcone, Bruffett, and McKenna), but we also had four that Amazon didn't cite: Lexington National Insurance Corp. v. Ranger Insurance Co., 326 F.3d 416, 420 (3d Cir. 2003); Camden County Board of Chosen Freeholders v. Beretta, U.S.A. Corp., 273 F.3d 536, 541-42 (3d Cir. 2001); Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 92 n.7 (3d Cir. 2000); and Leo v. Kerr-McGee Chemical Corp., 37 F.3d 96, 101 (3d Cir. 1994). Call it a draw – but the larger point is that there is a long line of Third Circuit authority should have prevented the leap taken in Oberdorf. In that respect, Oberdorf reminds us of the same court's disregard of its own prior precedents that preemption was a legal issue in In re Fosamax (Alendronate Sodium) Products Liability Litigation, 852 F.3d 268, 288 & n.106 (3d Cir. 2017), rev'd, 139 S. Ct. 1668 (2019) (on precisely this point) – something we commented on here.

What's equally frustrating to us was the supposed "test" for being a strict liability "seller" that the Third Circuit majority employed. The Oberdorf majority "consider[ed] whether the following four factors apply":

(1) Whether the actor is the only member of the marketing chain available to the injured plaintiff for redress;

(2) Whether imposition of strict liability upon the actor serves as an incentive to safety;

(3) Whether the actor is in a better position than the consumer to prevent the circulation of defective products; and

(4) Whether the actor can distribute the cost of compensating for injuries resulting from defects by charging for it in his business. . . .

Oberdorf, 2019 WL 2849153, at *4, see Francioni v. Gibsonia Truck Corp., 372 A.2d 736, 739 (Pa. 1977) (articulating factors).

Talk about a test biased in favor of finding liability. Factors one and four are blatant cost-spreading-based liability shifters dating from the 1970s heyday of strict liability. Factors two and three, while ostensibly safety-related, likewise almost unerringly point to liability. Any liability, strict or otherwise, can virtually always be construed as an "incentive" to safe conduct or a "deterrent" to its opposite. Likewise, when if ever will a "consumer" be "better positioned . . . to prevent the circulation of defective products"? The fix was in with this test.

The Pennsylvania Supreme Court recognized the bias of this test, however, in a case subsequent to what Oberdorf relied on – and that Oberdorf majority failed to cite – a case that just happens to be a prescription medical product liability decision. Coyle v. Richardson-Merrell, Inc., 584 A.2d 1383, 1387 (Pa. 1991). Coyle rejected the imposition of strict liability on pharmacies as supposed "sellers" of drugs, cautioning:

In support of their argument, [plaintiffs] can assert no more than the [defendant's] ability to obtain insurance and/or indemnification as a means of distributing the potential cost of liability. Reliance on cost-shifting as the only factor to be considered in whether a given party should be exposed to liability, however, would result in absolute liability rather than strict liability.

Id. at 1387. See also Cafazzo v. Central Medical Health Services, Inc., 668 A.2d 521, 526 (Pa. 1995) (reiterating that "[t]o assign liability for no reason other than the ability to pay damages is inconsistent with our jurisprudence") (citing Coyle).

How online websites fit into product liability is an intriguing question, as we discussed in our original Oberdorf post. Some of our clients would support liability, some would not − so we take no position on that question. However, from day one, the DDL Blog has been foursquare in our opposition to federal courts adopting expansive state-law theories of liability in diversity jurisdiction cases. The Third Circuit violated fundamental Erie principles in its rush to liability in Oberdorf, and that needs correcting. It's been thirty years since the United States Supreme Court last reined in liability overreach in diversity jurisdiction, but perhaps it will get another chance in Oberdorf.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions