Judge: Alison Mackenzie, Case: 24STCV34571, Date: 2025-06-02 Tentative Ruling

Case Number: 24STCV34571    Hearing Date: June 2, 2025    Dept: 55

NATURE OF PROCEEDINGS: Hearing on Defendants’ Demurrer

Defendants’ Demurrer is sustained in part and overruled in part.

BACKGROUND

Plaintiff Harish Chandra (Plaintiff) filed this action against Ford Motor Company (FMC) and Towne Ford Sales (Town) (collectively “Defendants”), alleging that he purchased a 2022 Ford Maverick, which suffers from an engine defect.

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.

The Fifth cause of action is brought only against Towne, and the other causes of action are brought only against FMC.

Defendants 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

Defendants demur to the fifth and sixth causes of action. The tentative considers these claims in reverse order.

I. Fraudulent Inducement – Concealment

First, as to the sixth cause of action, 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. Duty to Disclose

Defendants argue that because Plaintiff did not purchase the vehicle directly from FMC but from the dealership, FMC 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 (OCM).

1. Content of Omitted Facts

Defendants argue that Plaintiff failed to plead the defect in his own vehicle, instead describing a list of ways transmissions may be defective. 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 a fraudulent concealment claim against the vehicle manufacturer.

This argument conflates sufficiency of evidence at trial with sufficiency of pleadings. Here, the Complaint describes the alleged defect as “the 2.5L engine and/or its related components installed in the Subject Vehicle suffer from one or more defects that can result in loss of power, stalling, engine running rough, engine misfires, failure or replacement of the engine (the ‘Engine Defect’).” Comp. ¶ 53. Plaintiff’s allegation is that his vehicle is equipped with a defective engine that can cause various engine problems. The omitted fact is the existence of a defect that causes these problems. Whether it is true that all 2.5L engines, including the one in the subject vehicle, contain such a defect is a question of fact not resolvable at the pleading stage.

2. Transactional Relationship

Next, Defendants argue Plaintiff fails to plead a transactional relationship.

Defendants rely on Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276 (Bigler-Engler), which held “a duty to disclose arises in this context only where there is already a sufficient relationship or transaction between the parties.” Bigler-Engler 7 Cal.App.5th at p. 312. 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 markedly 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. 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, FMC had a direct transactional relationship with Plaintiff insofar as it made express warranties regarding the car. While it is true that “[u]nder California law, manufacturer warranties that accompany the sale of a vehicle without regard to the substantive terms of the sale contract between the buyer and the dealer are independent of the sale contract,” that does not mean the warranty cannot constitute a direct transactional relationship. Davis v. Nissan North America, Inc. (2024) 100 Cal.App.5th 825, 837. Unlike the manufacturer in Bigler-Engler, who had no direct contact with the patient who rented the medical device, FMC has direct contact with the recipients of its express warranties. In fact, FMC uses its warranty booklet to convey “Important information you should know” to purchasers of its vehicles. Compl. Ex. A at p. 2.

Additionally, “Bigler-Engler … discussed the question of whether there was a sufficient transaction or relationship between the defendant and the [plaintiff], with the court noting that there was no evidence of a transaction or relationship between [the plaintiff] and the defendant, nor was there evidence that the manufacturer directly advertised its products to consumers such as [the plaintiff] or derived any monetary benefit directly from [the plaintiff’s rental of the device at issue. A proper instruction under Bigler-Engler thus would have instructed the jury here to consider whether similar evidence of transactions, advertising, or [the defendant]’s direct monetary benefit supported the transactional requirement.” Bader v. Johnson & Johnson (2022) 86 Cal.App.5th 1094, 1132 (citing Bigler-Engler, supra, 7 Cal.App.5th at pp. 311, 314.)

Here, Plaintiff alleges “Defendant FMC was engaged in the business of designing, manufacturing, constructing, assembling, marketing, distributing, and selling automobiles and other motor vehicles and motor vehicle components in Los Angeles County, California.” Compl. ¶ 4 (emphasis added). He further alleges, “Defendant FMC continued to conceal its knowledge of the defective 2.5L Engine in its marketing materials, relied upon by Plaintiff.” This marketing may be sufficient to establish a transactional relationship.

Furthermore, in OCM, the court held that the seller of unregistered notes, which “were essentially identical to the registered notes, with the exception that they were not (yet) saleable on the open market” had a duty to disclose relevant facts to subsequent purchasers because “it had reason to expect that the notes would pass into the hands of subsequent purchasers.” OCM, supra, 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.’” Id. at pp. 859-860 (quoting Barnhouse v. City of Pinole (1982) 133 Cal.App.3d 171, 192).

Similarly, here, FMC knew that its dealerships intended to resell the motor vehicles and cannot use that intermediary to avoid liability for fraudulent concealment. Therefore, FMC had a duty to disclose known defects.

3. Exclusive Knowledge

Defendants contend that Plaintiff fails to plead that FMC had exclusive knowledge with sufficient 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.

In Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 834 (Dhital) (review dismissed December 18, 2024), the Court of Appeal held that the plaintiff had adequately pleaded Nissan’s knowledge of the defect. It held, “[a]s to Nissan’s knowledge that the transmissions were defective, plaintiffs alleged in part that Nissan ‘knew or should have known about the safety hazard posed by the defective transmissions before the sale of CVT-equipped vehicles from premarket testing, consumer complaints to the National Highway Traffic Safety Administration (‘NHTSA’), consumer complaints made directly to Nissan and its dealers, and other sources which drove Nissan to issue Technical Service Bulletins acknowledging the transmission’s defect.’”

In Wilson v. Hewlett-Packard Co. (9th Cir. 2012) 668 F.3d 1136, 1147 (Wilson), the Ninth Circuit, applying California law, held that “[t]he allegation that [the defendant], as the manufacturer, had ‘access to the aggregate information and data regarding the risk of overheating’ is speculative and does not suggest how any tests or information could have alerted [the defendant] to the defect.” Citing Wilson, a federal district court held that “[u]nder Wilson, to successfully allege a manufacturer was aware of a defect, a plaintiff is typically required to allege how the defendant obtained knowledge of a specific defect prior to the plaintiff’s purchase of the defective product.” Barrera v. Samsung Electronics America, Inc. (C.D. Cal., Feb. 27, 2019, No. SACV1800481CJCPJWX) 2019 WL 1950295, at *4.

The complaint in Dhital goes beyond merely conclusory allegations of exclusive knowledge and satisfies the standard articulated in Wilson and Barrera. While not binding, the Court finds these federal cases instructive and, in the absence of binding authority, adopts their reasoning.

Here, the Complaint alleges “Plaintiff is informed and believes, and based thereon alleges, that prior to sale of the Subject Vehicle, FMC knew, or should have known, about the Engine Defect through its exclusive knowledge of non-public, internal data about the Engine Defect, including: pre-releasing testing data; early consumer complaints about the Engine Defect to Defendant FMC’s dealers who are FMC’s agents for vehicle repairs; dealership repair orders; testing conducted in response to those complaints; and other internal sources of information possessed exclusively by Defendant FMC and its agents.” Compl. ¶ 57. These allegations go beyond mere conclusionary statements of FMC’s exclusive knowledge and identify the sources of such knowledge. Because the content of that internal data is in FMC’s possession, these allegations are sufficiently specific to show exclusive knowledge of the defect.

4. Active Concealment

Defendants argue that Plaintiff fails to plead active concealment because he alleges only omission of material facts.

Defendants cite federal district court cases which have held “merely failing to disclose a known defect is insufficient to amount to affirmative acts of concealment necessary to establish a duty to disclose” Kahn v. FCA US LLC (C.D. Cal., Aug. 2, 2019, No. 2:19-CV-00127-SVW-SS) 2019 WL 3955386, at *5 (citing Taragan v. Nissan North America, Inc. (N.D. Cal., June 20, 2013, No. C 09-3660 SBA) 2013 WL 3157918, at *7 (Taragan). In Taragan, the court held “an allegation of active concealment must plead more than an omission; rather, a plaintiff must assert affirmative acts of concealment; e.g., that the defendant ‘sought to suppress information in the public domain or obscure the consumers’ ability’ to discover it.” Taragan, supra, WL 3157918, at *7 (quoting Gray v. Toyota Motor Sales, U.S.A. (C.D. Cal., Jan. 23, 2012, No. CV 08-1690 PSG JCX) 2012 WL 313703, at *10. [Gray]). It explained, “‘if mere nondisclosure constituted ‘active concealment,’ the duty requirement would be subsumed and any material omission would be actionable. This is not the law.’” Ibid (quoting Gray, supra, WL 313703, at *9).

Accepting this federal authority as persuasive, Defendants are correct that Plaintiff has not pleaded active concealment. However, active concealment is only one basis for establishing a duty to disclose. Exclusive knowledge is an independent basis for finding such a duty. As explained above, Plaintiff has adequately pleaded exclusive knowledge. Therefore, Plaintiff has adequately pleaded FMC’s duty to disclose known defects based on FMC’s exclusive knowledge.

B. Actual and Justifiable Reliance

Defendants further argue Plaintiff fails to plead actual and justifiable reliance.

“Justifiable reliance is ordinarily a question of fact that is not properly determined on demurrer, but ‘whether a party’s reliance was justified may be decided as a matter of law if reasonable minds can come to only one conclusion based on the facts,’ which facts include consideration of ‘the knowledge, education and experience’ of the person whose reliance is at issue.” Amiodarone Cases (2022) 84 Cal.App.5th 1091, 1111. Guido v. Koopman (1991) 1 Cal.App.4th 837, 843–844. To prove reliance on an omission, “[o]ne need only prove that, had the omitted information been disclosed, one would have been aware of it and behaved differently.” Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1093.

Here, Plaintiff alleges he relied upon FMC’s marketing materials, which did not mention the alleged defects. Compl. ¶ 72. Plaintiff also alleges that if he had known about the alleged defects at the time of the sale, he would not have purchased the vehicle. Compl. ¶ 60. These allegations are sufficient, at the pleading stage, to show that had the information been disclosed, Plaintiff would have been aware of it and behaved differently.

Defendants argue that the only reasonable inference is that Plaintiff actually relied on the express warranty, not upon the omission. However, this argument assumes that Plaintiff’s decision to purchase the vehicle was not made in reliance on more than one factor. Even if, absent the express warranty, Plaintiff would not have purchased the vehicle, that does not mean he would have purchased the vehicle with the express warranty if FMC had shared information regarding the alleged issues affecting the subject vehicle’s engine.

Nor is there merit to Defendants’ argument that Plaintiff’s reliance was unjustifiable because by providing an express warranty, FMC informed Plaintiff that the vehicle could be defective. As discussed above, FMC had a duty to disclose material information. Therefore, Plaintiff could reasonably have interpreted the express warranty as disclosing the possibility of unknown defects but not defects of which FMC was aware. Plaintiff has adequately pleaded actual and justifiable reliance.

C. Economic Loss Rule

Finally, Defendants argue 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 issue of fraudulent concealment and only decided the matter 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.”).

This issue is controlled by Dhital, where 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 Technologies, Inc. (2024) 17 Cal.5th 1 (Rattagan)].” Dhital v. Nissan North America, Inc. (2023) 304 Cal.Rptr.3d 82. Following publication of Rattagan, the California Supreme Court dismissed review of Dhital. Dhital v. Nissan North America, Inc. (2024) 327 Cal.Rptr.3d 898.

In Rattagan, 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). However, the Rattagan court expressly did not consider the application of the economic loss doctrine to fraudulent inducement by concealment. “[Plaintiff’s] tort claims are, of course, based on alleged conduct committed during the contractual relationship but purportedly outside the parties’ chosen rights and obligations. This court has granted review in two other cases — Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 300 Cal.Rptr.3d 715, review granted Feb. 1, 2023, S277568 and Kia America v. Superior Court (Feb. 3, 2022, D079858) [nonpub. opn.], review granted Apr. 20, 2022, S273170 — both of which involve claims of fraudulent inducement by concealment claims as well as the potential interplay with remedies available under the Song-Beverly Consumer Warranty Act (Civ. Code, § 1791 et seq.). We do not address these issues here.” Rattagan supra, 17 Cal.5th at p. 41 fn. 12.

Because the California Supreme Court did not address this issue in Rattagan and subsequently dismissed review, Dhital remains binding authority. See Cal Rules of Court, Rule 8.528 (3) (“An order dismissing review does not affect the publication status of the Court of Appeal opinion unless the Supreme Court orders otherwise.”); Dhital v. Nissan North America, Inc. (2023) 304 Cal.Rptr.3d 82, 83 (“The request for an order directing depublication of the opinion is denied.”); see also Advisory Committee Comment, subd. (b), to Cal. Rules of Court, 8.528 (noting “after the [California Supreme C]ourt decides a ‘lead’ case, its current practice is to dismiss review in any pending companion case (i.e., a ‘grant and hold’ matter under rule 8.512(c)) that appears correctly decided in light of the lead case and presents no additional issue requiring resolution by the Supreme Court or the Court of Appeal.” ).

Therefore, Dhital controls, and there is no merit to Defendants’ economic loss rule argument. Accordingly, the Court overrules Defendants’ demurrer to the fraudulent inducement – concealment claim.

II. Negligent Repair Claim

Next, Defendants contend that the economic loss rule bars Plaintiff’s negligent repair claim, and Plaintiff fails to plead damages.

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

Additionally, even if the economic loss rule did not apply, Plaintiff alleges that the repairs were covered under FMC’s written warranty and does not allege that he paid any out-of-pocket expenses. 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”).

Plaintiff’s opposition does not address the demurrer to the negligent repair cause of action, which the Court interprets as conceding that the claim lacks merit. “The onus is on the plaintiff to articulate the ‘specifi[c] ways’ to cure the identified defect, and absent such an articulation, a trial or appellate court may grant leave to amend ‘only if a potentially effective amendment [is] both apparent and consistent with the plaintiff's theory of the case.’” Shaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th 1125, 1145 (quoting CAMSI IV v. Hunter Technology Corp. (1991) 230 Cal.App.3d 1525, 1542). Accordingly, the demurrer to the negligent repair claim is sustained without leave to amend.

CONCLUSION

Defendants’ Demurrer is sustained as to the fifth cause of action without leave to amend. The Demurrer to the sixth cause of action is overruled. FMC has 20 days to answer.