Judge: Alison Mackenzie, Case: 23STCV11763, Date: 2024-08-29 Tentative Ruling

Case Number: 23STCV11763    Hearing Date: August 29, 2024    Dept: 55

Background

Plaintiff Aaron Bowman filed a complaint against Defendants Ford Motor Company (Ford), Airport Marina Ford (the dealership), and Doe defendants 1 to 10, alleging that the vehicle he purchased manifested defects, including transmission defects, which Defendants failed to repair or refund. Relevant here, Plaintiff alleges the Fifth Cause of Action for fraudulent inducement – concealment (against Ford); and the Sixth Cause of Action for negligent repair (against the dealership).

Defendants move for judgment on the pleadings as to counts five and six.

Legal Standard

A motion for judgment on the pleadings is equivalent to a demurrer and attacks defects disclosed on the face of the pleadings. Cal. Code Civ. Proc. § 438(d); Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 999. In considering a motion for judgment on the pleadings, courts consider whether properly pled factual allegations of the complaint, assumed to be true and liberally construed, are sufficient to constitute a cause of action. Stone Street Capital, LLC v. Cal. State Lottery Com’n (2008) 165 Cal.App.4th 109, 116.

Application

1. Whether Plaintiff Fails to Plead All Elements to the Fraudulent Inducement – Concealment Cause of Action

“The required elements for fraudulent concealment are (1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (3) the defendant intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the concealment or suppression of the fact.” Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 606.

Defendants argue that Plaintiff failed to plead the defect in his own vehicle, instead describing transmission defects that have occurred in other vehicles. Compl. ¶¶ 25, 58. In support, Defendants cite Santana v. FCA US LLC, (2020) 56 Cal.App.5th 334, 345, which held that the “occurrence of a few defects that … were all fixable, and mostly involved vehicles [plaintiff] did not own,” was insufficient to support a jury verdict on fraudulent concealment claim against the vehicle manufacturer.

This argument conflates sufficiency of evidence with sufficiency of pleadings. Here, Plaintiff alleges that Ford knew about specific transmission defects in other vehicles equipped with the same transmission model as his vehicle, and that his vehicle manifested transmission defects. Compl. ¶¶ 14, 25, 57-58. Whether Plaintiff can prove Ford knowingly concealed transmission defects or that Plaintiff’s vehicle suffered from the same defects are questions of fact.  

Next, Defendants argue that because Plaintiff did not purchase the vehicle directly from Ford but from the dealership, Ford had no duty to disclose material facts to Plaintiff. 

A duty to disclose a material fact can arise “(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336. The latter three require a transactional relationship between the parties. Id. at 336-337.

Defendants’ argument is like one rejected by the court in Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828 (“Dhital”), rev. granted Feb. 1, 2023, S277568, which the Court finds persuasive.[1]

In Dhital, the court held that at the pleading stage, it was sufficient to show an existence of a transactional relationship (and thus duty to disclose) for plaintiff to allege “that they bought the car from the Nissan dealership, that Nissan backed the car with an express warranty and that Nissan’s authorized dealerships are its agents for the purposes of the sale of Nissan vehicles to consumers.” Dhital, supra, 84 Cal.App.5th 845. Similarly, Plaintiff alleges that he entered into a warranty contract with Ford for the car he purchased. Compl. ¶ 9.

Defendants argue that the Court should not consider Dhital because it fails to distinguish Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276 (Bigler-Engler), which held a medical device manufacturer had no duty to disclose. However, the facts of Bigler-Engler are distinguishable. In Bigler-Engler, the plaintiff rented a medical device from her doctor, which she claimed caused serious injury to her knee. Bigler-Engler, supra, 7 Cal.App.5th at 286-292. The court, evaluating plaintiff’s claim against the device manufacturer for fraudulent concealment, held that because there was no transactional or other relationship between the plaintiff and the medical device manufacturer, there was no duty to disclose. Id. at 312. However, the circumstances of buying a car are widely different from renting a medical device. Doctors are not franchisees of medical device companies, and patients generally do not choose their doctor based on their desired model of medical device. People go to a Ford dealer to buy a Ford, and they generally expect that the dealer is significantly under the manufacturer’s control. See Daniel v. Ford Motor Co. (9th Cir. 2015) 806 F.3d 1217, 1226-27 (noting that auto manufacturers communicate with their consumers through their dealerships). Moreover, unlike the medical device manufacturer in Bigler-Engler, Ford had a direct transactional relationship with Plaintiff insofar as it made express warranties regarding the car.

Based on the automaker-dealership relationship and Ford’s express warranties, the Court concludes that Ford had a transactional relationship with Plaintiff, imposing a duty to disclose material facts.

Defendants further contend that Plaintiff’s fraud claim fails to plead Ford had exclusive knowledge of material facts. The Court disagrees. Plaintiff alleges that Ford knew the vehicles suffered from defects that could cause the transmission to experience hesitation and/or delayed acceleration; harsh and/or hard shifting; jerking, shuddering, and/or juddering. Compl. ¶¶ 25, 57, 58. Plaintiff further alleges that Ford acquired this knowledge through various sources of information, including but not limited to “pre-production testing, pre-production design failure mode and analysis data, production failure mode and analysis data, early consumer complaints made exclusively to Ford’s network of dealers and directly to Ford, aggregate warranty data compiled from Ford’s network of dealers, testing conducted by Ford in response to consumer complaints, and repair order and parts data received by Ford from Ford’s network of dealers.” Compl. ¶ 26.

The complaint alleges sufficient facts to set forth a duty owed by Ford to disclose known defects, and that Ford purposely withheld disclosures from consumers, including Plaintiff. These allegations are sufficient to plead fraud by concealment.

Accordingly, the Court denies Defendants’ motion for judgment on the pleadings as to fraudulent inducement – concealment.

2. Whether the Economic Loss Rule Prohibits the Fraudulent Inducement – Concealment Count

The economic loss rule provides that, “[i]n general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage. Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922 (quoting, Southern California Gas Leak Cases (2019) 7 Cal.5th 391, 400). Furthermore, it “requires a [contractual party] to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.”

Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988 (Robinson).

In Robinson, supra, 34 Cal.4th at 988, the court explained the application of the economic loss rule to an intentional tort, specifically fraudulent misrepresentation, in the performance of a contract. The court found that a parts supplier who falsely certified the parts were manufactured according to contract specifications was liable in tort as well as breach of contract. Robinson, supra, 34 Cal.4th at 991) “Because [the supplier]’s affirmative intentional misrepresentations of fact (i.e., the issuance of the false certificates of conformance) are dispositive fraudulent conduct related to the performance of the contract, we need not address the issue of whether [the supplier]’s intentional concealment constitutes an independent tort.” Ibid.

Again relevant, is Dhital, supra, 84 Cal.App.5th 828, review granted Feb. 1, 2023, S277568. There, the court held, “plaintiffs’ claim for fraudulent inducement by concealment is not subject to demurrer on the ground it is barred by the economic loss rule.” Dhital, supra, 84 Cal.App.5th at 840. As the Dhital court noted, the logical follow on from the Robinson court’s analysis in the context of an affirmative misrepresentation claim is that “concealment-based claims for fraudulent inducement are not barred by the economic loss rule.” Id. at 840. The California Supreme Court granted review of Dhital and deferred further action “pending consideration and disposition of a related issue in Rattagan v. Uber Tech. Inc., S272113.” Dhital v. Nissan North America, Inc. (2023) 304 Cal.Rptr.3d 82.

Therefore, the Supreme Court’s recent decision in Rattagan v. Uber Technologies, Inc. (Aug. 22, 2024, No. S272113)   Cal.5th   https://supreme.courts.ca.gov/opinions/recent-opinions (Rattagan), is highly relevant.[2] Though it does not resolve the specific issues raised in Dhital, the court held, “a plaintiff may assert a cause of action for fraudulent concealment based on conduct occurring in the course of a contractual relationship, if the elements of the claim can be established independently of the parties’ contractual rights and obligations and the tortious conduct exposes the plaintiff to a risk of harm beyond the reasonable contemplation of the parties when they entered into the contract.” Rattagan, supra, at 54 (emphasis added).

Moreover, the court’s discussion of the economic loss doctrine strongly suggests it does not apply to claims of fraudulent inducement by concealment. The court notes “it has long been the rule that where a contract is secured by fraudulent representations, the injured party may elect to affirm the contract and sue for the fraud.” Rattagan, supra, at 47 (quoting, Lazar v. Superior Court (1996) 12 Cal.4th 631, 645) (internal quotation marks omitted). The court rejects the argument that fraudulent concealment should generally be treated differently from affirmative misrepresentation but acknowledges “unique aspects of a claim of fraudulent concealment related to a contractual performance.” Id. at 43 (emphasis added). Because parties may contractually impose a duty of disclosure during performance or waive existing obligations to disclose, the economic loss doctrine may apply to fraudulent concealment that occurs during performance of a contract. Id. at 48-49. The court must determine if the parties reasonably contemplated and accounted for the risk of nondisclosure before entering into the agreement. Id.at 49. If the risk of nondisclosure was within the reasonable contemplation of the parties, the doctrine applies, and the injured party may only seek economic damages for breach of contract. Ibid.

Because Rattagan is clear that the economic loss doctrine has greater application to fraudulent concealment during contract performance than inducement to contract, the Court is persuaded that Dhital correctly held that the economic loss rule does not apply to a fraudulent inducement – concealment claim.

Accordingly, the Court denies Defendants’ motion for judgment on the pleadings as to fraudulent inducement – concealment.

3. Whether the Economic Loss Rule Prohibits the Negligent Repair Count

In Sheen, supra,12 Cal.5th at 922, the California Supreme Court analyzed the application of the economic loss rule to services and held it barred a borrower from pursuing tort liability against the bank regarding seeking a loan modification because the plaintiff’s damages arose from the mortgage, rather than an independent duty. Id. at 930. The court distinguished professional cases in which a fiduciary or quasi-fiduciary duty exists from ordinary commercial contracts. Id. at 929.

Here, the dealership owed Plaintiff no other duty than that imposed by their contract. Therefore, the economic loss rule applies. 

Plaintiff argues that even if the economic loss rule applies, the complaint does not state his damages were limited to economic losses. Plaintiff argues that the economic loss rule does not bar recovery in tort for damage to a vehicle caused by negligent repair of a component.

This argument fails because nowhere in the complaint does Plaintiff allege that the dealership’s negligent repair of the transmission caused damage to the vehicle, only that it failed to repair it. Accordingly, the Court concludes that the economic loss rule bars the negligent repair cause of action.

The Court grants Defendants’ motion for judgment on the pleadings as to the negligent repair count with leave to amend.

4. Whether Plaintiff Fails to Plead Damages Where the Repairs Were Allegedly Covered by Warranty

Even if the economic loss rule did not bar Plaintiff’s negligent repair cause of action, Plaintiff fails to allege sufficient facts to support his claim for negligent repair.

Plaintiff alleges that the repairs were covered under Ford’s written warranty and does not allege that he paid any out-of-pocket expenses for the repairs. As mentioned above, Plaintiff fails to allege that the failed repair caused any additional damage to the vehicle. Accordingly, he fails to allege damages, a necessary element of negligence. See County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 318 (“The elements of a negligence cause of action are duty, breach, causation and damages”).

Conclusion

For the reasons given above, the Court denies Defendants’ motion for judgment on the pleadings as to count five and grants it as to count six with 20 days leave to amend.