Judge Andrew E. Cooper, Case Number: 23CHCV02888, Date: 2024-03-22 Tentative Ruling

Los Angeles Superior Court Case # 23CHCV02888

MOVING PARTY: Defendant American Honda Motor Company, Inc. (“Defendant”)

RESPONDING PARTY: Plaintiffs Eileen Pineda; and Jose Pineda (collectively, “Plaintiffs”)

RELIEF REQUESTED: Defendant demurs to the second cause of action in Plaintiffs’ Complaint. Defendant also seeks an order striking Plaintiffs’ prayer for punitive damages.

TENTATIVE RULING: The demurrer is overruled, and the motion to strike is denied. Defendant shall file and serve an answer to Plaintiffs’ Complaint within 30 days.

Plaintiffs bring this action under the Song-Beverly Consumer Warranty Act (Civil Code § 1790 et seq.) for a vehicle they purchased on or around 12/5/20, for which Defendant issued the manufacturer’s express warranty. (Compl. ¶¶ 8–9.) Plaintiffs allege that Defendant “was unable to repair the vehicle in accordance with the written warranty or the consumer protection and warranty laws of the State of California.” (Id. at ¶ 5.)

Plaintiffs further allege that Defendant had actual knowledge of a defect in computerized driver-assisting safety systems in the same model of vehicle as that purchased by Plaintiffs, and continued to knowingly market and sell/lease vehicles equipped with the defect while concealing the existence of those defects from consumers such as Plaintiffs. (Id. at ¶¶ 23–25.)

On 9/27/23, Plaintiffs filed their complaint, alleging against Defendant the following causes of action: (1) Violation of Song-Beverly Act – Breach of Express Warranty; and (2) Fraudulent Inducement – Concealment.

On 10/30/23, Defendant filed the instant demurrer and motion to strike. On 3/11/24, Plaintiffs filed their opposition. On 3/15/24, Defendant filed its reply.

Defendant¿demurs to Plaintiffs’ second cause of action on the basis that the Complaint fails¿to allege facts sufficient to¿state¿a cause of action for fraudulent concealment.

Defendant’s counsel declares that on 10/25/23, he sent Plaintiffs’ counsel a meet and confer letter regarding the issues raised in the instant demurrer and motion to strike, but the parties were unable to come to a resolution. (Decl. of Bryan A. Reynolds ¶ 2.) Therefore, counsel has satisfied the preliminary meet and confer requirements of Code of Civil Procedure section 430.41, subdivision (a).

Plaintiffs’ second cause of action alleges fraudulent concealment against Defendant. “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.” (Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162.)

Fairness requires that allegations of fraud be pled “with particularity” so that the court can weed out nonmeritorious actions before a defendant is required to answer. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) The particularity requirement typically necessitates pleading facts that “show how, when, where, to whom, and by what means the representations were tendered.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) However, “less specificity should be required of fraud claims when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy; even under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party.” (Alfaro v. Community Housing Improvement & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384 [internal quotations and citations omitted].)

In their complaint, Plaintiffs allege that Defendant had actual knowledge of the transmission defect through prior consumer complaints, and issued a number of service bulletins acknowledging problems with the transmission. (Compl. ¶¶ 27–64.) Despite this knowledge, Defendant allegedly “continued to fail to disclose this unresolved safety defect to new and subsequent purchasers and lessees of Honda Sensing-equipped vehicles, including Plaintiff(s). AMERICAN HONDA continues to manufacture and sell AMERICAN HONDA vehicles equipped with the defective Honda Sensing system without any disclosure to consumers about these hidden safety defects.” (Id. at ¶ 69.)

Here, Defendant argues that “Plaintiffs failed to plead with sufficient particularity what representations AHM made to these particular Plaintiffs regarding the sensing system (it has to be on this exact subject to be material), that these Plaintiffs relied on in purchasing the Subject Vehicle.” (Dem. 12:8–10.) In Alfaro, the Court of Appeal found that plaintiffs home purchasers in a housing development were sufficiently specific in pleading fraud based on the defendant vendors’ alleged nondisclosure of deed restrictions, even though plaintiffs did not allege that the nondisclosure occurred by a certain means or at a certain time or place, because the defendants possessed the records of their dealings with plaintiffs. (171 Cal.App.4th at 1385.)

Here, Plaintiffs allege that Defendant has exclusive access to “consumer complaints to the National Highway Traffic Safety Administration (“NHTSA”), consumer complaints made directly to AMERICAN HONDA and its dealers, testing conducted in response to those complaints, high failure rates and replacement part sales data, and other sources which drove AMERICAN HONDA to issue Technical Service Bulletins acknowledging this defect.” (Compl. ¶ 23.)

Defendant argues that the foregoing allegations fail to establish Defendant’s “exclusive knowledge” of the defects because “Plaintiffs specifically allege that the operative facts underlying the alleged sensing defect were publicly available since at least 2016 through multiple sources.” (Dem 15:13–20, citing Compl. ¶¶ 27–64.) Plaintiffs argue in opposition that although a number of reports were publicly available, “reasonable consumers such as Plaintiffs are not expected nor are they required to do a complete research into the reports to NHTSA and the technical service bulletins prior to her purchase of their new potential vehicle. … . Defendant is in the superior position to hold this information and make sure that it is readily available to reasonable consumers but failed to do so.” (Pls.’ Opp. 8:21–26.) The Court agrees.

Based on the foregoing, the Court finds that the specificity pleading standard is relaxed based on the facts alleged in Plaintiffs’ complaint, namely that Defendant possesses the full information concerning the transmission defect. (Compl. ¶¶ 27–64.)

“Fraudulent concealment requires the ‘suppression of a fact, by one who is bound to disclose it.’” (Huy Fong Foods, Inc. v. Underwood Ranches, LP (2021) 66 Cal.App.5th 1112, 1121, quoting Civ. Code § 1710, subd. 3.) “Although, typically, a duty to disclose arises when a defendant owes a fiduciary duty to a plaintiff …, a duty to disclose may also arise when a defendant possesses or exerts control over material facts not readily available to the plaintiff.” (Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1199.)

Here, Defendant further argues that Plaintiff does not allege any direct dealings with Defendant, and therefore has not alleged that Defendant had any requisite duty to disclose. (Dem. 15:1–3, citing Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 312.) In Bigler-Engler, the Fourth District Court of Appeal found that the defendant manufacturer of a medical device owed the plaintiff patient no duty to disclose where there was insufficient evidence that the parties transacted in any way. (7 Cal.App.5th at 314.)

However, absent a fiduciary relationship between the parties, Defendant may nevertheless have a duty to disclose based on its superior control over the material facts underlying the action. (Jones, 198 Cal.App.4th at 1199.) Here, the Court is satisfied that Plaintiffs have alleged that Defendant possesses superior knowledge of the material facts concerning the transmission defect. As previously discussed, the Court finds that Plaintiffs have sufficiently alleged that Defendant, as the manufacturer, “always had superior knowledge of the Sensing Defect through sources not available to consumers, including Defendant’s own design expertise, Defendant’s own records of customers’ complaints, dealership repair records, records from the National Highway Traffic Safety Administration (NHTSA), warranty and post-warranty claims, and internal pre-sale durability testing and technical service bulletins (TSBs).” (Pls.’ Opp. 3:19–23, citing Compl. ¶¶ 27–64.)

In Jones, the Second District Court of Appeal found that the plaintiffs, family members of a decedent worker, sufficiently pleaded that a defendant chemical manufacturer owed a duty to disclose the hazardous nature of a chemical product to the decedent worker, as would support fraudulent concealment, where the plaintiffs alleged that the defendant alone had knowledge of the toxic properties of the product, that it made representations regarding the product that were likely to mislead, and that studies attesting to the product’s toxicity had been published several years before worker began the employment where he was exposed to manufacturer’s product. (198 Cal.App.4th at 1199–1200.) The Jones court mentioned no requirement that the manufacturer and the decedent must have transacted directly with one another to give rise to the duty to disclose.

Here, the Court is satisfied that “Plaintiffs have alleged specific facts to meet the following elements: (1) Defendant concealed or suppressed a material fact (Complaint, ¶¶ 71-83.); (2) Defendant had a duty to disclose the fact to Plaintiffs based on its superior knowledge and active concealment (Complaint, ¶¶ 65-70.) (3) Defendant intentionally concealed or suppressed the fact with the intent to defraud Plaintiffs (Complaint, ¶ 119); (4) Plaintiffs were unaware of the fact and would not have acted as they did had they known of the concealed or suppressed fact (Complaint, ¶¶ 66, 80, 87, 120, 124- 125.); and (5) Plaintiffs were damaged as a result of the concealment (Complaint, ¶¶ 124-125.)” (Pls.’ Opp. 5:6–12.)

The Court notes the parties’ arguments regarding whether the dealership is Defendant’s agent for purposes of vehicle sales, but the Court is satisfied at the demurrer stage that Plaintiffs have alleged that “AMERICAN HONDA’S authorized dealerships are its agents for purposes of the sale of HONDA vehicles to consumers such as Plaintiff(s).” (Compl. ¶ 115.) At the demurrer stage, the Court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.)

Accordingly, the Court finds that Plaintiffs have sufficiently alleged facts, under the applicable relaxed pleading standard, to support each element of a fraudulent concealment cause of action.

“The economic loss rule provides that, in general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage. … For claims arising from alleged product defects, economic loss consists of damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits—without any claim of personal injury or damages to other property.” (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 837, review granted Feb. 1, 2023, 523 P.3d 392 [internal quotations and citations omitted].)[1]

“There is no liability in tort for economic loss caused by negligence in the performance or negotiation of a contract between the parties. …Where a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only ‘economic’ losses. … The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.” (Id. at 838 [internal quotations and citations omitted].)

Here, Defendant argues that “the economic loss rule bars Plaintiffs’ fraudulent inducement-concealment cause of action because Plaintiffs fail to allege that AHM breached any duty independent of the warranty, or that Plaintiffs suffered any independent tort loss beyond the alleged breach of warranty(ies) under the Song-Beverly Act.” (Dem. 18:4–7, citing Food Safety Net Servs. v. Eco Safe Sys. USA, Inc. (2012) 209 Cal.App.4th 1118, 1130 (“a party alleging fraud or deceit in connection with a contract must establish tortious conduct independent of a breach of the contract itself, that is, violation of some independent duty arising from tort law.”).)

Plaintiffs argue in opposition that “the economic loss rule does not apply to fraudulent inducement because the duty not to commit fraud is independent of any contract duties, and because the tortious conduct occurs prior to contract formation.” (Pls.’ Opp. 11:19–21, citing Erlich v. Menezes (1999) 21 Cal.4th 543, 551.) Plaintiffs contend that here, they have sufficiently alleged that Defendant fraudulently induced them to enter into purchasing the subject vehicle by intentionally concealing a material fact concerning the subject defect, a tort independent from Defendant’s alleged breach of the warranty contract.

As the Court finds that Plaintiffs have alleged facts sufficient to constitute a cause of action for Fraudulent Inducement – Concealment, as outlined above, the Court likewise finds that this tort is independent from any alleged breach of the warranty contract itself. Accordingly, the Court finds that the economic loss rule does not apply to bar Plaintiffs’ second cause of action.

Based on the foregoing, the demurrer to Plaintiffs’ second cause of action is overruled.

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, subd. (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, subd. (b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id., § 437.) Here, Defendant moves to strike Plaintiffs’ prayer for punitive damages.

Punitive damages may be recovered upon a proper showing of malice, fraud, or oppression by clear and convincing evidence. (Civ. Code § 3294, subd. (a).) “Malice” is defined as conduct intended to cause injury to a person or despicable conduct carried on with a willful and conscious disregard for the rights or safety of others. (Id. at subd. (c); Turman v. Turning Point of Cent. Cal., Inc. (2010) 191 Cal.App.4th 53, 63.) “Oppression” means despicable conduct subjecting a person to cruel and unjust hardship, in conscious disregard of the person’s rights. (Ibid.) “Fraud” is an intentional misrepresentation, deceit, or concealment of a material fact known by defendant, with intent to deprive a person of property, rights or otherwise cause injury. (Ibid.)

Punitive damages must be supported by factual allegations. Conclusory allegations, devoid of any factual assertions, are insufficient to support a conclusion that parties acted with oppression, fraud or malice. (Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1042; Anschutz Entertainment Group, Inc. v. Snepp (2009) 171 Cal.App.4th 598, 643.)

Defendant argues that Plaintiff has failed to allege facts with sufficient particularity as to show Defendant’s “malice, fraud, or oppression by clear and convincing evidence.” (Civ. Code § 3294, subd. (a).) “Plaintiffs’ conclusory allegations of ‘fraud’ omit key information—the ‘how, when, where, to whom, and by what means’ the purported fraud occurred.” (MTS 8:8–10.) In opposition, Plaintiffs contend that they “have pled facts sufficient to state a claim that Defendant fraudulently induced Plaintiffs into leasing the Subject Vehicle, based on a theory of concealment.” (MTS Opp. 3:11–12, citing Compl. ¶¶ 27–65, 71–83, 87, 120, 124.)

Based on its foregoing analysis of Defendant’s demurrer against Plaintiff’s second cause of action, the Court finds that Plaintiffs have sufficiently alleged facts to support their prayer for punitive damages under the “fraud” prong of Civil Code section 3294. The issue of Defendant’s intent to defraud is a question of fact that the Court declines to determine at the demurrer stage. (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1061.)

“An employer shall not be liable for [punitive] damages … based upon acts of an employee of the employer, unless the employer … authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.” (Civ. Code § 3294, subd. (b).)

Here, Defendant argues that it cannot be held liable for punitive damages because “Plaintiffs have not alleged that an officer, director or managing agent of AHM authorized, ratified or personally engaged in any oppressive, malicious or fraudulent conduct, as required by Civil Code § 3294(b).” (MTS 8:27–9:3.) In opposition, Plaintiffs observe that they have alleged that ‘all acts of corporate employees as alleged were authorized or ratified by an officer, director or managing agent of the corporate employer.’” (MTS Opp. 4:26–28, quoting Compl. ¶ 7.)

Based on the foregoing, the Court is satisfied at the pleading stage that Plaintiffs have alleged Defendant’s ratification of employee conduct. Accordingly, the motion to strike Plaintiffs’ prayer for punitive damages is denied.

The demurrer is overruled, and the motion to strike is denied. Defendant shall file and serve an answer to Plaintiffs’ Complaint within 30 days.

The Court is not requesting oral argument on this matter. Pursuant to California Rules of Court, Rule 3.1308(a)(1) notice of intent to appear is required. Unless the Court directs argument in the Tentative Ruling, no argument will be permitted unless a “party notifies all other parties and the court by 4:00 p.m. on the court day before the hearing of the party’s intention to appear and argue. “The tentative ruling will become the ruling of the court if no notice of intent to appear is received.”

Notice may be given either by email at CHAdeptF51@LACourt.org or by telephone at (818) 407-2233.

[1] “Pending review and filing of the Supreme Court's opinion, … a published opinion of a Court of Appeal in the matter has no binding or precedential effect, and may be cited for potentially persuasive value only.” (Cal. Rules of Ct., rule 8.1115(e)(1).) Here, the Court cites to Dhital as nonbinding persuasive authority.