NATURE OF PROCEEDINGS: Hearing on FCA's Demurrer

 

FCA's Demurrer is overruled.

                                                                                                                                       

BACKGROUND

Plaintiff Rudy Zendejas filed this lemon law action against FCA, US, LLC, Los Angeles (FCA) Chrysler Dodge Jeep Ram, and Doe defendants 1-10 alleging that he purchased a 2018 Jeep Grand Cherokee which suffers from an engine defect that the defendants have failed to repair. 

The causes of action 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) Negligent Repair; and (6) Fraudulent Inducement – Concealment.

 

FCA filed a demurrer. Plaintiff filed an opposition.

 

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

FCA demurs to Plaintiff’s third cause of action for violation of Civil Code Section 1793.2, subdivision (a)(3), and sixth cause of action for fraudulent inducement – concealment.

I. Civil Code Section 1793.2, Subdivision (a)(3)

In this Song-Beverly action, FCA demurs to the third cause of action for violation of Civil Code section 1793.2 subdivision (a)(3). FCA argues this cause of action is insufficiently pleaded because it lacks details regarding the alleged violation or Plaintiff’s resulting damages. 

The Court finds that the third cause of action is sufficiently pleaded. Civil Code section 1793.2 (a)(3) provides that a dealer must “[m]ake available to authorized service and repair facilities sufficient service literature and replacement parts to effect repairs during the express warranty period.” A pleading must allege facts, not conclusions. Jones v. Grewe (1987) 189 Cal.App.3d 950, 954. The rules of pleading require only ultimate facts be alleged; evidentiary facts supporting the allegation of ultimate fact need not be pleaded. McKelly v. Washington Mut., Inc. (2006) 142 Cal.App.4th 1457, 1469. “[I]t has long been recognized that ‘[the] distinction between conclusions of law and ultimate facts is not at all clear and involves at most a matter of degree’…. What is important is that the complaint as a whole contain sufficient facts to apprise the defendant of the basis upon which the plaintiff is seeking relief.” Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6 (quoting Burks v. Poppy Construction Co. (1962) 57 Cal.2d 463, 473) (internal quotation marks omitted). However, statutory claims are subject to a heightened pleading standard and generally must be pleaded with particularity. See Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 790 (noting “the general rule that statutory causes of action must be pleaded with particularity”).

Here, Plaintiff alleges that FCA failed to make sufficient service literature and replacement parts available to its authorized service and repair facilities to effect repairs during the express warranty period. Compl. ¶ 52. He also alleges that FCA’s representatives have failed to service and/or repair the Vehicle to conform to the applicable warranties. Compl. at ¶¶ 8, 30, 41. Taken together, these allegations are sufficient to state a claim for violation of section 1793.2 subdivision (a)(3). While this is a statutory claim subject to a heightened pleading standard, Plaintiff need not identify what parts or literature FCA failed to provide because FCA has superior knowledge of what parts and literature it made available. See Okun v. Superior Court (1981) 29 Cal.3d 442, 458 (“Less particularity is required when it appears that defendant has superior knowledge of the facts, so long as the pleading gives notice of the issues sufficient to enable preparation of a defense.”) Regarding damages, Plaintiff alleges that “FCA has still not fixed the underlying problems that cause the Engine Defect.” Compl. at ¶ 30. Therefore, the damages are the purchase of a vehicle that remains defective. Accordingly, the demurrer is overruled as to the third cause of action.

II. Fraudulent Inducement – Concealment

FCA demurs to Plaintiff’s fifth cause of action for fraudulent inducement – concealment.

A. Particularity

First, FCA argues that Plaintiff fails to plead fraud with the requisite particularity.

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 (Lazar). 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 FCA on 10/21/2018 (¶ 10); that FCA knew of the defect affecting the subject vehicle prior to Plaintiff purchasing the vehicle and withheld it from Plaintiff (¶¶ 19, 21, 23); that FCA had superior knowledge of the defects (¶ 25); that the defects presented a safety hazard (¶ 23); that Plaintiff would not have purchased the subject vehicle had they known about the defects (¶ 24, 27,69 70,); and that Plaintiff suffered damages (¶ 71, 72). At the pleading stage, these allegations are sufficient to assert a cause of action for fraudulent inducement — concealment.

 

B. Duty to Disclose

Additionally, FCA argues that because Plaintiff did not purchase the vehicle directly from FCA but from the dealership, FCA 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 pp. 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.

 

FCA’s argument is similar to the 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 at p. 828.

 

FCA relies 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 pp. 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 p. 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 Jeep dealer to buy a Jeep, 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).

 

While it is true that, unlike in Dhital, Plaintiff does not allege that the dealership is FCA’s agent, that fact is not dispositive. FCA 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. Economic Loss Rule

Finally, FCA argues that the economic loss rule bars Plaintiff's fraudulent concealment claim. The Court disagrees.

 

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 p. 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 p. 991. However, the court declined to address the fraudulent concealment and only decided the issue of affirmative misrepresentation. Ibid. (“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.”).

 

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 p. 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, Cal.5th 1, at p. 54 (emphasis added).

 

Moreover, the court’s discussion of the economic loss rule 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 p. 47 (quoting, Lazar, supra, 12 Cal.4th at p. 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 p. 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 p. 48-49. However, the economic loss doctrine only applies if the risk of nondisclosure during the performance of the contract was within the reasonable contemplation of the parties when the contract was formed. Id.at p. 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 FCA’s demurrer to the fraudulent inducement – concealment claim.

 

CONCLUSION

FCA's Demurrer is overruled. FCA has 20 days to answer.