NATURE OF PROCEEDINGS: Hearing on Defendants' Demurrer-without Motion to Strike

           

BACKGROUND

Plaintiff Mace Lombardo filed this lemon law action against Defendants Ford Motor Company (Ford), Galpin Ford (Galpin), and doe defendants 1 to 10 (collectively Defendants), alleging that he purchased a 2022 Ford F150 manufactured by Ford, the vehicle exhibited transmission defects within the warranty period, and Defendants failed to repair the vehicle within a reasonable number of attempts.

The causes of action are: (1) Violation of Civil Code 1793.2 subdivision (d); (2) Violation of Civil Code 1793.2 subdivision (b); (3) Violation of Civil Code 1793.2 subdivision (a)(3); (4) Breach of the Implied Warranty of Merchantability; (5) Fraudulent Inducement – Concealment and (6) Negligent Repair.

The motion now before the Court is Defendants’ Demurrer-without Motion to Strike. Plaintiff filed an opposition.

Defendants' Demurrer-without Motion to Strike is overruled in part and sustained in part.

 

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.

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. Fraudulent Inducement – Concealment

First, Defendants argue that Plaintiff fails to plead facts sufficient to state a fraud claim.

“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.

A. Defect

Defendants argue that Plaintiff failed to plead the defect in his own vehicle, instead describing transmission defects that have occurred in other vehicles. In support, Defendants cite Santana v. FCA US LLC, 56 Cal.App.5th 334, 345 (2020), 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 at trial with sufficiency of pleadings. Here, Plaintiff alleges that Ford knew about specific transmission defects in other vehicles equipped with the same model transmission and that his vehicle manifested transmission defects. Compl. ¶¶ 12, 25, 26. Plaintiff describes the defects, which allegedly cause vehicles and their 10-speed transmissions to experience hesitation and/or delayed acceleration; harsh and/or hard shifting; jerking, shuddering, and/or juddering as the "Transmission Defect.".  Compl. ¶ 74. Plaintiff further alleges that his vehicle suffered from the  “Transmission Defect.” Compl. ¶ 76. Whether Plaintiff can prove Ford knowingly concealed transmission defects or that Plaintiff’s vehicle suffered from the same defects are questions of fact.

 

B. Specificity

Next, 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 Complaint alleges that Plaintiff entered into a warranty contract with Defendants on 6/27/2022 (¶¶ 7-8); that Defendants knew of the defects posed by the subject vehicle prior to Plaintiff purchasing the vehicle and withheld from Plaintiff (¶¶ 72-74); that Defendant had superior knowledge of the defects (¶¶ 23-31, 78); that the defects presented a safety hazard (¶33,74); that Plaintiff would not have purchased the subject vehicle had they known about the defects (¶ 76,); and that Plaintiff suffered damages (¶ 83). At the pleading stage, these allegations are sufficient to assert a cause of action for fraudulent inducement — concealment.

 

C. 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). 

 

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, unlike the medical device manufacturer in Bigler-Engler, Defendant had a direct transactional relationship with Plaintiff insofar as it made express warranties regarding the car.

 

D. Economic Loss Rule

 

Next, 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 rules’ 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 that occurs during performance of a contract. 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.

 

Defendants’ argument that the fraud claim is simply that Ford breached the promises in its warranty fails because it mistakes the nature of the fraud allegation as one of affirmative misrepresentation rather than concealment. Unlike the cases Defendants cite, Plaintiff is not arguing that the promises in Ford’s warranty were fraudulent, but rather that Ford concealed material information.

 

Accordingly, the Court overrules Defendants’ demurrer to the fraudulent inducement – concealment claim.

 

II. Negligent Repair Claim

Defendants contend that Plaintiff’s negligent repair claim is barred by the economic loss rule.

 In Sheen, supra,12 Cal.5th at p. 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, Galpin 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’s argument that the economic loss rule does not bar recovery in tort for damage to a vehicle caused by negligent repair of a component 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.

Even if the economic loss rule did not apply, Plaintiff alleges that the repairs were covered under Ford’s written warranty and does not allege that he paid any out-of-pocket expenses. As noted above, Plaintiff fails to allege that the failed repair caused 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”).

Accordingly, the demurrer to the negligent repair claim is sustained with leave to amend.

 

CONCLUSION

Defendants’ demurrer to the fifth cause of action is overruled. The demurrer to the sixth cause of action is sustained with leave to amend. Plaintiff has twenty days to file an amended complaint.