Judge: Alison Mackenzie, Case: 24STCV04243, Date: 2024-12-20 Tentative Ruling
Case Number: 24STCV04243 Hearing Date: December 20, 2024 Dept: 55
NATURE OF PROCEEDINGS: Hearing on Defendant's Demurrer
- with Motion to Strike (CCP 430.10)
Defendant's Demurrer
is overruled. Defendant’s Motion to strike is denied.
BACKGROUND
Plaintiff Ariedlin Garibay
Camacho filed this action against General
Motors, LLC (“Defendant”), alleging warranty violations relating to
Plaintiff’s purchase of a 2022 Chevrolet Silverado.
The causes of action alleged in the First Amended Complaint
(FAC) are: (1) Violation of Civil Code Section 1793.2 subdivision (d); (2)
Violation of Civil Code Section 1793.2 subdivision (b); (3) Violation of Civil
Code Section 1793.2 subdivision (a)(3); (4) Breach of the Implied Warranty of
Merchantability; (5) Fraudulent Inducement – Concealment.
Defendant filed a Demurrer - with Motion to Strike. Plaintiff opposed
the motion.
LEGAL STANDARD
When considering demurrers, courts read the allegations
liberally and in context. Wilson v. Transit Authority of City of Sacramento
(1962) 199 Cal.App.2d 716, 720-21. In a demurrer proceeding, the defects must
be apparent on the face of the pleading or via proper judicial notice. Donabedian
v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994. “A demurrer tests the
pleading alone, and not on the evidence or facts alleged.” E-Fab, Inc. v.
Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315. As such, courts
assume the truth of the complaint’s properly pleaded or implied factual
allegations. Ibid. However, it does not accept as true deductions,
contentions, or conclusions of law or fact. Stonehouse Homes LLC v. City of
Sierra Madre (2008) 167 Cal.App.4th 531, 538.
Further, the court may, upon a motion, or at any time in its
discretion, and upon terms it deems proper, strike any irrelevant, false, or
improper matter inserted in any pleading. Code Civ. Proc., § 436(a). The court
may also strike all or any part of any pleading not drawn or filed in
conformity with the laws of this state, a court rule, or an order of the court.
Id., § 436(b). The grounds for a motion to strike are that the pleading
has irrelevant, false, or improper matter, or has not been drawn or filed in
conformity with laws. Id. § 436. The grounds for moving to strike must
appear on the face of the pleading or by way of judicial notice. Id. §
437.
Leave to amend must be allowed where there is a reasonable
possibility of successful amendment. See Goodman v. Kennedy (1976) 18
Cal.3d 335, 349 (court shall not "sustain a demurrer without leave to
amend if there is any reasonable possibility that the defect can be cured by
amendment"); Kong v. City of Hawaiian Gardens Redevelopment Agency
(2002) 108 Cal.App.4th 1028, 1037 ("A demurrer should not be sustained
without leave to amend if the complaint, liberally construed, can state a cause
of action under any theory or if there is a reasonable possibility the defect
can be cured by amendment."). The burden is on the complainant to show the
Court that a pleading can be amended successfully. Blank v. Kirwan
(1985) 39 Cal.3d 311, 318.
ANALYSIS
I. Demurrer
Defendants demur to Plaintiff’s fifth cause of action for
fraudulent inducement – concealment.
A. Specificity
First, Defendants
argue that Plaintiff fails to plead fraud with the requisite specificity.
The facts constituting the alleged fraud must be alleged
factually and specifically as to every element of fraud, as the policy of
“liberal construction” of the pleadings will not ordinarily be invoked. Lazar
v. Superior Court (1996) 12 Cal.4th 631, 645. As concealment is a species
of fraud, it must also be pled with specificity. Blickman Turkus, LP v. MF
Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 878. However, less
specificity is required where the defendant necessarily possesses the
information. Committee on Children’s Television, Inc. v. General Foods
Corp. (1983) 35 Cal.3d 197, 216.) Moreover, it is not practical to allege facts
showing how, when, and by what means something did not happen. Alfaro v.
Community Housing Improvement Sys. Planning Assn. (2009) 171 Cal.App.4th
1356, 1384, However, if the concealment is based on providing false or
incomplete statements, the pleading must at least set forth the substance of
the statements at issue. Ibid.
Dhital v.
Nissan North America,
Inc. (2022) 84 Cal.App.5th 828 (Dhital) (rev. granted Feb. 1,
2023, S277568) addressed the sufficiency for concealment for pleading
purposes in fraud in a lemon law case. While this matter is up on review and is
not binding authority, it is persuasive authority. The Dhital court
found that it was sufficient that plaintiffs alleged a transmission defect in
numerous vehicles, including the plaintiff's, the defendant knew of the defect
and the hazards they posed, defendant had exclusive knowledge of the
defect and failed to disclose that information, defendant intended to deceive
plaintiffs by concealing known defects, the plaintiffs would not have purchased
the car if they had known of the defects, and they suffered damages on the sums
paid to purchase the vehicle. Here, Plaintiff pleads substantially the same
facts as Dhital.
The
FAC alleges that Plaintiff entered into a warranty contract with Defendants on
7/24/2022 (¶ 6); that Defendants knew of the defects posed by the subject
vehicle prior to Plaintiff purchasing the vehicle and withheld from Plaintiff
(¶¶ 63, 66-70); that Defendant had superior knowledge of the defects (¶ 64);
that the defects presented a safety hazard (¶ 66); that Plaintiff would not
have purchased the subject vehicle had they known about the defects (¶ 69,);
and that Plaintiff suffered damages (¶ 78). At the pleading stage, these
allegations are sufficient to assert a cause of action for fraudulent
inducement — concealment.
B. Duty to Disclose
Additionally, Defendants
argue that because Plaintiff did not purchase the vehicle directly from
Defendant but from the dealership, Defendant had no duty to disclose material
facts.
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.
Transactional relationships include “seller and buyer, employer and prospective
employee, doctor and patient, or parties entering into any kind of contractual
agreement.” Hong Soo Shin v. Oyoung Kong (2000) 80 Cal.App.4th 498, 509,
(citation omitted) (internal quotation marks omitted). Additionally, “[u]nder
California law, a vendor has a duty to disclose material facts not only to
immediate purchasers, but also to subsequent purchasers when
the vendor has reason to expect that the item will be resold.” OCM Principal
Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157
Cal.App.4th 835, 859.
Defendants’ argument is similar to one
the court rejected in Dhital, which
the Court finds persuasive. In Dhital, the court held that at
the pleadings stage, it was sufficient 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 828
Defendants rely on 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 the 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 Chevrolet dealer to buy a Chevrolet, and they generally
expect that the dealer is significantly under the manufacturer’s control. See
Daniel v. GM Motor Co. (9th Cir. 2015) 806 F.3d 1217, 1226-27 (noting auto
manufacturers communicate with their consumers through their dealerships). Moreover,
Defendant knew that the dealership intended to sell the motor vehicles and
cannot use that intermediary to avoid liability for fraudulent concealment. See
OCM, supra,157 Cal.App.4th at pp. 859-860 (“[I]t would be anomalous if
liability for damages resulting from fraudulent concealment were to vanish
simply because of the fortuitous event of an intervening resale.” [citations
omitted] [internal quotation marks omitted]).
C. Other Arguments
In its Reply, Defendant raises several additional arguments
for the first time, including that FAC fails to allege that Defendant knew
about the defect in Plaintiff’s car because of alleged problems in other
vehicles, Plaintiff fails to plead damages, and that the economic loss rule bars
Plaintiff’s fraud claim. None of these arguments were raised in the demurrer,
and the Court is not required to address them. See Nordstrom Com.
Cases (2010) 186 Cal.App.4th 576, 583 (Courts generally need not accept
arguments raised for the first time on reply without good cause explanation as
to why points were not raised earlier). Nevertheless, the Court will briefly
address these issues.
1. Defect
Defendants argue that Plaintiff failed to plead the defect
in his own vehicle, instead describing transmission defects that have occurred
in other vehicles. The Court disagrees. Plaintiff alleges that Defendant knew
about specific transmission defects in other vehicles equipped with the same
8-speed transmission and that his vehicle manifested transmission defects. FAC
¶ 23, 62-64. Plaintiff describes the defect, which allegedly causes vehicles
and their 8-speed transmissions to experience harsh shifting, jerking,
clunking, and delays, as the “Transmission Defect.” Compl. ¶ 68. Plaintiff
further alleges that his vehicle suffered from the “Transmission Defect,” including
hard jolt shifting from 1st to 2nd gear and when in reverse. Compl. ¶ 23.
Whether Plaintiff can prove Defendant knowingly concealed transmission defects
or that Plaintiff’s vehicle suffered from the same defects are questions of
fact.
2. Damages
Plaintiff’s damages are that he now possesses an allegedly defective
vehicle, which he would not have purchased absent Defendant’s alleged fraudulent
concealment.
3. The Economic Loss Rule
Finally,
Defendant argues that the economic loss rule bars Plaintiff's fraudulent
concealment claim.
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 economic loss rule’s application 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. 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
decision in Rattagan v. Uber Technologies, Inc. (2024) 17
Cal.5th 1 (Rattagan) is highly relevant. 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,
“[i]t 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 during a contract's
performance. Id. at 48-49. However, the economic loss doctrine only
applies if the risk of nondisclosure was within the reasonable
contemplation of the parties. Id.at 49.
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
overrules Defendants’ demurrer to the fraudulent inducement – concealment
claim.
II. Motion to Strike
First, there is no merit in Defendant argument that
Plaintiff cannot recover both Song-Beverly civil penalties and punitive
damages. Mot. at p. 3: 16-18. In Anderson v. Ford Motor Co. (2022) 74
Cal.App.5th 946, 971, the court held, “plaintiffs are not prohibited from
receiving both an award for punitive damages based on presale fraudulent
inducement and a postsale Song-Beverly Act penalty….”
Additionally, Defendant argues that Plaintiff’s request for
punitive damages should be stricken because he fails to plead sufficient facts
to support the allegations of “oppression, fraud, or malice.”
To state a prima facie claim for punitive damages, a
complaint must set forth the elements as stated in the general punitive damage
statute, Civil Code Section 3294. College Hospital, Inc. v. Superior Court
(1994) 8 Cal.4th 704, 721. These statutory elements include allegations that
the defendant has been guilty of oppression, fraud, or malice. Civ. Code §
3294, subd. (a).
“In order to survive a motion to strike an allegation of
punitive damages, the ultimate facts showing an entitlement to such relief must
be pled by a plaintiff. In passing on the correctness of a ruling on a motion
to strike, judges read allegations of a pleading subject to a motion to strike
as a whole, all parts in their context, and assume their truth. In ruling on a
motion to strike, courts do not read allegations in isolation.” Clauson v.
Superior Court (1998) 67 Cal.App.4th 1253, 1255. (citations omitted). “The
mere allegation an intentional tort was committed is not sufficient to warrant
an award of punitive damages. Not only must there be circumstances of
oppression, fraud or malice, but facts must be alleged in the pleading to
support such a claim.” Grieves v. Superior Ct. (1984) 157 Cal.App.3d
159, 166 (fn. omitted) (citations omitted). Punitive damages may be assessed
against an employer where the employer authorized or ratified a malicious act. College
Hospital Inc., supra, 8 Cal.4th at. p 723.
An award of punitive damages is statutorily permitted for
fraud. Punitive damages are properly recoverable where oppression, fraud, or
malice is proven by clear and convincing evidence. See Civil Code
§3294(a). “Fraud,” for purposes of punitive damages, “means an intentional
misrepresentation, deceit or concealment of a material fact known to the
defendant with the intention on the part of the defendant of thereby depriving
a person of property or legal rights or otherwise causing injury.” Civil Code
§3294(c).
Since this Court has overruled Defendant’s demurrer to the
fraudulent inducement – concealment cause of action, the Court must also deny Defendant’s
motion to strike punitive damages. For the reasons given above, the Court finds
Plaintiff adequately pleaded fraudulently inducement and that the alleged facts
are sufficient for a jury to conclude Defendant intended to conceal material
facts from Plaintiff to induce him to buy the vehicle. Accordingly, the motion
to strike is denied.
CONCLUSION
Defendant's Demurrer is overruled.
Defendant’s motion to strike is denied.