A California court case over a flammable hoverboard could force Amazon to change its entire third-party sales business model

• In 2015, a woman named Kisha Loomis suffered burns when a hoverboard ordered on Amazon caught on fire in her house.
• Loomis sued Amazon in California, and saw her case against the tech giant receive a summary judgment.
• Amazon successfully argued that the hoverboard merchant "fell outside the chain of distribution," and that it was therefore not responsible for the accident.
• But now, an appellate court has cleared the lawsuit to go before a judge and jury.
• If Loomis wins her case, it could have a significant impact on Amazon's third-party sales business.

Amazon is facing a legal challenge in California that could upend its lucrative third-party sales business.

The incident behind the lawsuit began when a woman named Kisha Loomis purchased a hoverboard on Amazon in 2015. The product came from TurnUpUp, an alias of a company called SMILETO, which is believed to be based in China.

On New Year's Eve, the hoverboard caught on fire while charging. Loomis escaped the flames in her bedroom, but not without sustaining burns to her hands and feet. She went on to sue Forrinx Technology - the outfit that delivered the hoverboard - as well as the seller and Amazon in 2016.

In the initial trial, Amazon asked for summary judgment, arguing that it was outside "the chain of distribution for product liability purposes," which would render it not liable. The court ruled in Amazon's favor, and Loomis appealed the decision.

Now, the appellate court has ruled in the plaintiff's favor, meaning that Amazon is left open to a legal ruling that could potentially alter the way it does business. Third-party sales accounted for $386 billion - or 54% of the company's total net sales - in 2020. Research firm Finbold also found that Amazon is adding 3,700 new sellers daily in 2021.

A ruling in favor of Loomis could leave Amazon liable for products sold by all of its third-party merchants, even those that it does not directly warehouse or delivery with its Fulfillment by Amazon business.

"California's got some pretty consumer-friendly law when it comes to product liability," attorney and former Texas appellate justice John Browning, who has litigated product liability cases, told Insider. "It means that Amazon is not going to be able to walk away from this quite so quickly."

Amazon declined to comment on the lawsuit itself, but it did send Insider a statement on product safety.

"Amazon invests heavily in the safety and authenticity of all products offered in our store including proactively vetting sellers and products before being listed, and continuously monitoring our store for signals of a concern," a spokesperson said in a statement sent to Insider. "Amazon supports legislation that provides protections for consumers wherever they shop online to ensure all stores are held to the same standards."

Appellate judges took the impact on public safety into consideration in their ruling. In a concurring opinion, Judge John Wiley wrote: "This case is easy. Amazon is well situated to take cost-effective measures to minimize the social costs of accidents. Strict liability will prompt this beneficial conduct."

"Once Amazon is convinced it will be holding the bag on these accidents, this motivation will prompt it to engineer effective ways to minimize these accident costs," Wiley wrote. "Tort law will inspire Amazon to align its ingenuity with efficient customer safety. Customers will benefit."

Browning said he wouldn't be surprised if the case ends up settled without going to trial. Still, he said the ruling seems to indicate that "the tide may be turning" against Amazon on a legal basis. The tech giant has been able to argue out of many similar lawsuits.

"It's another crack in this facade of invincibility that Amazon has built up," he said.