“The life of the law has not been logic; it has been experience. . . . The law embodies the story of a nation’s development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics.” --Oliver Wendell Holmes, Jr., The Common Law (1881).

Many Americans recognize Oliver Wendell Holmes’ above-quoted statement as a civic touchstone. Most understand it as a bromide promoting stability in the law, rooted in human experience “through many centuries.” In truth, Holmes’ argument was to an opposite end. He acknowledged the need to consider centuries of legal precedent, but viewed the nation and its laws as evolving together.

Holmes cloaked his forward-look in reverence for precedent to win support for novel legal positions he took. In 1881, he was 40 years old, only 15 years into a 65 year career as a lawyer and, later, a jurist. The U.S. government had yet to observe its centenary and had barely survived the Civil War. But the war-time expedient of a national currency, the “greenback,” had succeeded, helping foster westward expansion via a growing network of railroads through the nation’s midsection. In 1881, the United States numbered 36; another nine states joined the Union before century-end. The country was filling out its frame like a teenager, and the adult nation was coming into view.

The four decades since 1980 reflect a parallel shift, one made by an economically mature nation, on an international scale, and with information technology rather than steam, oil and electricity as the means of transformation. Pundits have called ours the Second Gilded Age, as pioneers like Peter Thiel, Elon Musk and Mark Zuckerberg make rules they desire the rest of us to live by. Thiel even funded efforts to establish a man-made island nation in the Pacific Ocean, where technology rather than civil law would set all rules of human engagement. The effort failed dismally.

After publication of The Common Law, Holmes’ career reflected a successful balancing of old and new. Ironically, though, many legal issues arising now in the technology-shaped economy have antecedents in Holmes’s time on the bench. Consider, for example, two cases 113 years apart, each of which upended prevailing law governing sale of dangerously defective products.

In McPherson v. Buick Motor Company,[1] McPherson sued Buick after a rear wheel of his automobile collapsed while he was driving, injuring people in the vehicle. Buick defended the case on the then-prevailing legal rule that a party injured by a defective product could make claims against the party that sold him the product, but not against its manufacturer if the manufacturer was not the immediate seller. Buick said it purchased the wheel from a supplier and did nothing but install it on the vehicle, which it then sold to a Buick dealer, which sold it to McPherson. Because no direct contractual relationship existed between Buick and McPherson, no lawsuit could be maintained.

At trial in New York state court, the trial judge instructed the jury it could find Buick liable to McPherson if Buick failed to inspect wheels it installed on its vehicles. On appeal, the New York Court of Appeals (the highest court in the state) sustained the trial judge’s jury charge and the jury’s verdict against Buick. Judge Benjamin Cardozo’s majority opinion marked a sea change in American law and the industrial economy. He wrote,

We think [Buick] was not absolved from a duty of inspection because it bought the wheels from a reputable manufacturer. It was not merely a dealer in automobiles. It was a manufacturer of automobiles. It was responsible for the finished product. It was not at liberty to put the finished product on the market without subjecting the component parts to ordinary and simple tests. Under the charge of the trial judge nothing more was required of it. The obligation to inspect must vary with the nature of the thing to be inspected. The more probable the danger, the greater the need of caution.[2]

Last year, in Oberdorf v. Amazon.com, [3] Amazon made, and the Third Circuit Court of Appeals rejected, the argument Buick made in McPherson. Via Amazon, Ms. Oberdorf bought a dog leash. When it broke, hardware on the leash snapped back, her eyeglasses broke and she was blinded in one eye. The dog leash’s seller, the Furry Gang, sold the dog leash via Amazon and shipped it from the Furry Gang’s Nevada location. By the time of the litigation, the Furry Gang was defunct. The Third Circuit applied Pennsylvania law in deciding the case. Its opinion is a reprise of Judge Cardozo’s discussion.

Amazon's role extends beyond that of the sales agent [in a precedential case cited by the Court], who in exchange for a commission merely accepted orders and arranged for product shipments. Amazon not only accepts orders and arranges for product shipments, but it also exerts substantial market control over product sales by restricting product pricing, customer service, and communications with customers. Amazon's involvement, in other words, resembles but also exceeds that of the sales agent labeled a "seller" in [the case precedent].

At oral argument, Amazon contended that it should not be likened to a sales agent because it lists products and collects payment on behalf of various third-party vendors, whereas a sales agent typically represents a single seller or manufacturer. This is a distinction without a difference. Pennsylvania state courts have repeatedly found that large retailers who offer a range of different products are "sellers" within the meaning of [ Pennsylvania law governing liability for defective products]. Amazon is not exempted from strict products liability simply because its website offers a variety of products.

Like McPherson in relation to the 1916 universe of cases involving defective automobiles, the Oberdorf decision is the first appellate level decision to go against Amazon and similar Internet-enabled businesses. In our view, Oberdorf reflects judicial recognition of the pervasiveness of e-commerce as well as growing public support for greater accountability of e-commerce giants like Amazon. Other areas of the law are undergoing a similar shift: tax (both sales and corporate income tax), antitrust and trade regulation, and health and safety laws, to name a few.

The implications of Oberdorf are particularly significant for electronic financial commerce—for banks, for businesses and for consumers. Today, most of us buy the financial services equivalents of Ms. Oberdorf’s dog leash without considering, or without having the negotiating power able to modify, limitations of warranty and liability imposed by the seller or the e-commerce platform company through which we acquire the product or service. Only when the product or service fails, do we read the fine print and discover our rights are few and prohibitively expensive to enforce. This problem is as great for the average American bank as it is for consumers. Who among them has the means to litigate against First Data, FiServ or Salesforce?

Products liability and remedies in the financial services arena will be the subject of our next column. We will explore how precedent can be useful, as well as its limits. In the meantime, thank you for again reading our work. We look forward to continuing our conversation and welcome your feedback.

[1] McPherson v. Buick Motor Co., 217 N.Y. 382 (1916).

[2] Id. at 394-395 (1916)(citation omitted; emphasis added). Notably, until the mid-20th Century, the New York Court of Appeals (the state’s highest court) was the most influential state court in the nation, both because of its judicial precedents and because it sent the greatest number of judges to the Supreme Court of the United States. Aware of the significance of the McPherson decision when the Court of Appeals published it, Chief Judge Willard Bartlett filed a lengthy dissent. He cited English precedents that Cardozo rejected (which involved wheel failures on horse-drawn carriages) and said there was no reason to treat automobile-caused injuries and horse-drawn carriage injuries differently. The last two quoted sentences of the majority opinion implicitly reject Bartlett’s argument and set a higher standard of care where complicated manufactured goods are involved.

[3] Oberdorf v. Amazon.com Inc., 930 F. 2d 136 (3rd Cir. 2019), available at https://scholar.google.com/scholar_case?case=15553864645444846673&hl=en&as_sdt=6&as_vis=1&oi=scholarr