Judge Andrew E. Cooper, Case Number: 23CHCV03011, Date: 2024-04-12 Tentative Ruling

APRIL 5, 2024

Los Angeles Superior Court Case # 23CHCV03011

MOVING PARTY: Defendants Ford Motor Company; and Knight Sunrise Hollywood LLC, dba Sunrise Ford of North Hollywood (collectively, “Defendants”)

RESPONDING PARTY: Plaintiffs Michel Lopez; and Jorge Chavez (collectively, “Plaintiffs”)

RELIEF REQUESTED: Defendants demur to the fourth and fifth causes of action in Plaintiffs’ complaint.

TENTATIVE RULING: The demurrer is overruled as to Plaintiffs’ fourth cause of action and sustained as to Plaintiffs’ fifth cause of action with 30 days leave to amend.

On 7/8/20, Plaintiffs allegedly purchased a vehicle manufactured by Defendant Ford Motor Company (“FMC”), and now bring this action under the Song-Beverly Consumer Warranty Act (Civil Code § 1790 et seq.), alleging that defects and nonconformities manifested themselves during the warranty period. (Compl. ¶¶ 9–10.)

On 10/6/23, Plaintiffs filed their complaint, alleging against Defendants the following causes of action: (1) Violation of Song-Beverly Act – Breach of Express Warranty; (2) Violation of Song-Beverly Act – Breach of Implied Warranty; (3) Violation of Song-Beverly Act section 1793.2; (4) Fraudulent Inducement – Concealment; and (5) Negligent Repair.

On 11/9/23, Defendants filed the instant demurrer. On 3/25/24, Plaintiffs filed their opposition. On 3/29/24, Defendants filed their reply.

As a general matter, a party may respond to a pleading against it by demurrer on the basis of any single or combination of eight enumerated grounds, including that “the pleading does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) 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 the evidence or facts alleged.” (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Ibid.) The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)

Here, Defendants¿demur to Plaintiffs’ fourth and fifth causes of action on the bases that Plaintiffs fail¿to allege facts sufficient to¿state¿either of those causes of action.

Before filing its demurrer, “the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc. § 430.41, subd. (a).) The demurring party must file and serve a meet and confer declaration stating either: “(A) The means by which the demurring party met and conferred with the party who filed the pleading subject to demurrer, and that the parties did not reach an agreement resolving the objections raised in the demurrer;” or “(B) That the party who filed the pleading subject to demurrer failed to respond to the meet and confer request of the demurring party or otherwise failed to meet and confer in good faith.” (Id. at subd. (a)(3).)

Here, Defendants’ counsel declares that he met and conferred telephonically with Plaintiffs’ counsel to discuss the issues raised in the instant demurrer, but the parties were unable to come to a resolution. (Decl. of Chen Fei Liu, ¶ 3.) Therefore, counsel has satisfied the preliminary meet and confer requirements of Code of Civil Procedure section 430.41, subdivision (a).

Plaintiffs’ fourth cause of action alleges Fraudulent Inducement – Concealment against FMC. “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.)

In the Complaint, Plaintiffs allege that FMC had actual knowledge of the transmission defect through prior pre-market testing, consumer complaints, and issued a number of service bulletins acknowledging the defect. (Compl. ¶ 16.) “FORD knew about the 10R80 defect contained in 10R80 equipped vehicles and concealed the existence of those defects from Plaintiff(s) and other consumers prior to the time they purchased or leased their respective vehicles” by “preparing and issuing TSBs, through which it falsely implies that the problems were attributed to the vehicle needing to be broken-in and that abrupt and harsh shifting is normal.” (Id. at ¶¶ 21–22.)

Here, Defendants argue that Plaintiffs fail to meet the particularity requirement for pleading a fraud cause of action because “Plaintiffs’ fraudulent inducement - concealment claim fails to allege with particularity the defect Ford allegedly concealed.” (Dem. 10:4–5.) Specifically, Defendants argue that “Plaintiffs fail entirely to allege where the omitted information should or could have been revealed by Ford and fail to identify the requisite representative samples of advertisements, offers, or other representations by Ford that Plaintiffs relied upon to make their purchase.” (Id. 10:26–11:1.)

“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 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. (Id. at 1385.)

Here, Plaintiffs argue in opposition that the particularity requirement is relaxed when, as here, a plaintiff brings a cause of action for fraudulent concealment. (Pls.’ Opp. 7:24–27, citing Alfaro, 171 Cal.App.4th at 1384–1385; Tarmann v. State Farm Mutual Auto-Mobile Ins. Co. (1992) 2 Cal.App.4th 153, 158.) Here, as Plaintiffs allege, FMC “had superior or exclusive knowledge of its defective 10R80 transmission, and knew or should have known that the defects in the Subject Vehicle’s transmission were not known or reasonably discoverable by Plaintiff(s) before Plaintiff(s) acquired the Subject Vehicle.” (Compl. ¶ 23.) Plaintiffs therefore contend that “because Ford is the party with superior knowledge about the inner workings of the 10R80 transmission and any cause of the transmission defect, Plaintiffs’ allegations are sufficient at the pleading stage.” (Pls.’ Opp. 10:18–20.)

The Court agrees with Plaintiffs and finds that the particularity requirement for pleading a fraud cause of action is relaxed at this stage, and Plaintiffs have sufficiently alleged facts to meet the relaxed standard. To the extent that Defendants contend that the complaint “nowhere specifically identifies the defect experienced in Plaintiffs’ vehicle,” the Court notes that Plaintiffs sufficiently allege that the subject “defective transmissions were installed in FORD automobiles, which were sold or leased to California consumers, including the Subject Vehicle sold to Plaintiff.” (Defs.’ Reply 2:24; Compl. ¶ 12.)

“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, Defendants further argue that Plaintiffs do not allege any direct dealings with FMC, and therefore has not alleged that FMC had any requisite duty to disclose. (Dem. 12:27–28.) Defendants argue that no duty to disclose exists where, as here, a plaintiff brings its claims against a manufacturer from which it did not directly obtain the product in question. (Id. at 11:24–26.)

In Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, the 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.) Here, as Defendants argue, “Plaintiffs fail to allege facts establishing any direct transactional relationship between Plaintiffs and Ford at the time of the alleged non-disclosure.” (Dem. 12:27–28.)

Notwithstanding Defendants’ argument, the Court, as previously discussed, finds that Plaintiffs have sufficiently alleged that FMC, as the manufacturer, “had superior or exclusive knowledge of its defective 10R80 transmission, and knew or should have known that the defects in the Subject Vehicle’s transmission were not known or reasonably discoverable by Plaintiff(s) before Plaintiff(s) acquired the Subject Vehicle.” (Compl. ¶ 23.) Absent a fiduciary relationship between the parties, FMC may nevertheless have a duty to disclose based on such control over the material facts underlying the action. (Jones, 198 Cal.App.4th at 1199.)

Based on the foregoing, the Court finds that Plaintiffs has alleged facts sufficient to support a finding that FMC had the requisite duty to disclose, giving rise to a fraudulent concealment cause of action. Accordingly, the demurrer to Plaintiffs’ fourth cause of action is overruled.

“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]

Here, Defendants argue that “Plaintiffs’ fraud claim is barred by the economic loss rule because it is based on an alleged fraudulent omission rather than affirmative misrepresentation, seeks purely economic losses, and derives from Ford’s alleged breach of warranty. To be sure, the basis for Plaintiffs’ fraud claim amounts to Ford’s alleged non-performance under the contract; it is not distinct from the warranty contract and falls within the scope of the economic loss rule.” (Dem. 17:2–6; see also 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 the contract and the fraud occurs prior to the contract formation.” (Pls.’ Opp. 3:22–23, citing Erlich v. Menezes (1999) 21 Cal.4th 543, 551–552.) Plaintiffs contend that here, they have sufficiently alleged that FMC fraudulently induced them to enter into purchasing the subject vehicle by intentionally concealing a material fact concerning the subject defect, a tort independent from FMC’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’ fourth cause of action.

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

Plaintiffs’ fifth cause of action alleges Negligent Repair against Defendant Sunrise Ford. “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.” (Dhital, 84 Cal.App.5th at 838 [internal quotations and citations omitted].)

Here, Defendants further argue that the economic loss rule applies to bar Plaintiffs’ fifth cause of action because “Plaintiffs’ claim against Sunrise Ford is plainly rooted in Ford’s warranty obligations and Sunrise Ford’s obligations to repair the vehicle as an authorized repair facility.” (Dem. 18:7–8.)

Plaintiffs argue in opposition that “‘even where there is a contractual relationship between the parties, a cause of action in tort may sometimes arise out of the negligent manner in which the contractual duty is performed.’” (Pls.’ Opp. 15:10–13, quoting Eads v. Marks (1952) 39 Cal.2d 807, 810.) “‘The economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated.’” (Id. at 16:20–23, quoting Jimenez v. Superior Court (2002) 29 Cal.4th 473, 483.)

Even accepting Plaintiffs’ arguments that the economic loss rule does not bar a tort claim for property damage sustained by the negligent repair of a vehicle, such harm has not been pled in the complaint. As Defendants observe, “here, unlike Jimenez, there is no allegation in the Complaint that Sunrise damaged a component of a product.” (Defs.’ Reply 9:4–5.) The Court agrees and finds no allegations of “personal injury or damages to other property” constituting non-economic losses. Based on the foregoing, the Court finds that Plaintiffs’ claims against Sunrise Ford are for purely economic losses, which are barred by the economic loss rule. Accordingly, the demurrer against Plaintiffs’ fifth cause of action is sustained.

Where a demurrer is sustained, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Id.; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) However, “[i]f there is any reasonable possibility that the plaintiff can state a good cause of action, it is error to sustain a demurrer without leave to amend.” (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245).

Here, the Court notes that this is the first demurrer brought against Plaintiffs’ original complaint, and Plaintiffs request leave to amend in the event the Court sustains the demurrer. (Pls.’ Opp. 18:1–5.) Accordingly, under the Court’s liberal policy of granting leave to amend, the Court grants Plaintiffs 30 days leave to amend the complaint to cure the defects set forth above.

The demurrer is overruled as to Plaintiffs’ fourth cause of action and sustained as to Plaintiffs’ fifth cause of action with 30 days leave to amend.

[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.