Judge: Armen Tamzarian, Case: 24STCV07062, Date: 2024-05-16 Tentative Ruling

Case Number: 24STCV07062    Hearing Date: May 16, 2024    Dept: 52

Defendants Ford Motor Company and South Bay Ford Inc.’s Demurrer to Complaint

Defendants Ford Motor Company and South Bay Ford Inc. demur to the fifth and sixth causes of action alleged in the complaint by plaintiffs Cristian A. Barahona and Ashly M. Palomares.

5th Cause of Action: Negligent Repair

            Defendant South Bay Ford Inc. argues the economic loss rule bars this cause of action.  The economic loss rule does not apply because plaintiff does not allege purely economic loss.  “ ‘[E]conomic loss’ is pecuniary damage not arising from injury to the plaintiff’s person or from physical harm to the plaintiff’s property.”  (Rest.3d Torts, Liability for Economic Harm, § 2.)  Federal courts have specifically found a tort duty when repairing vehicles: “ ‘One who undertakes repairs has a duty arising in tort to do them without negligence.’ ”  (Sabicer v. Ford Motor Company (C.D. Cal. 2019) 362 F.Supp.3d 837, 840–841; accord McKeown v. Ford Motor Company (C.D. Cal., Mar. 13, 2019, No. CV1900281CJCPLAX) 2019 WL 1199468, at *3.) 

For this cause of action, the complaint alleges only: “Plaintiffs delivered the Subject Vehicle to Defendant SOUTH BAY for substantial repair on at least one occasion.  Defendant SOUTH BAY owed a duty to Plaintiffs to use ordinary care and skill in storage, preparation and repair of the Subject Vehicle in accordance with industry standards.  Defendant SOUTH BAY breached its duty to Plaintiffs to use ordinary care and skill by failing to properly store, prepare and repair the Subject Vehicle in accordance with industry standards.  Defendant SOUTH BAY’s negligent breach of its duties owed to Plaintiffs was a proximate cause of Plaintiffs’ damages.”  (¶¶ 69-72.)

From the face of the complaint, it is not clear plaintiffs seek pecuniary damage subject to the economic loss rule.  When liberally construed, these allegations state not only that South Bay did not adequately repair the vehicle, but also that South Bay caused physical property damage to the vehicle.  In other words, South Bay’s repair efforts left the vehicle in worse condition than before the repairs.  In particular, the allegation of “failing to properly store” the vehicle supports that conclusion.  Improperly storing a vehicle generally leads to harm separate from failing to repair the vehicle. 

Assuming plaintiffs seek recovery of some purely economic losses in addition to compensation for physical harm to property, the court cannot sustain the demurrer on that basis.  On demurrer, courts “examine the factual allegations of the complaint, ‘to determine whether they state a cause of action on any available legal theory.’ ”  (Adelman v. Associated Intern. Ins. Co. (2001) 90 Cal.App.4th 352, 359.)  The complaint states a cause of action via the theory of physical harm to property.    

6th Cause of Action: Fraudulent Inducement - Concealment

            Plaintiffs allege sufficient facts for this cause of action. 

A. Economic Loss Rule

Defendants again argue the economic loss rule applies.  That doctrine does not apply to claims for fraudulent inducement of contract.  “Several courts have found that fraudulent inducement is an exception to the economic loss rule.”  (Lewis v. Ford Motor Company (E.D. Cal. 2023) 655 F.Supp.3d 996, 1002.)  “[F]raudulent inducement claims fall within an exception to the economic loss rule recognized by our Supreme Court.”  (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 843, review granted Feb. 1, 2023, No. S277568 [permitting citation as persuasive authority].)               

B. Sufficient Allegations

            Defendants argue plaintiff does not allege sufficient facts for the elements of this cause of action.  Fraud by concealment requires: (1) defendant omitted, concealed, or suppressed a material fact; (2) defendant had a duty to disclose the fact to plaintiff; (3) defendant intentionally omitted or concealed the fact with intent to defraud plaintiff; (4) plaintiff must have been unaware of the fact and would have acted otherwise if he had known of the concealed fact; and (5) the omission caused damages.  (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248.) 

            Plaintiffs allege sufficient facts for each element.  First, they allege Ford Motor Company failed to “disclos[e] that the Subject Vehicle and its transmission was defective and susceptible to sudden and premature failure.”  (Comp., ¶ 75.)  They allege Ford “knew that the transmission installed in the Vehicle was defective but failed to disclose this fact.”  (¶ 76.)  “Specifically, Defendant FMC knew that vehicles equipped with the same 10-speed transmission as the Vehicle suffered from one or more defects that can cause the vehicles and their 10-speed transmissions to experience hesitation and/or delayed acceleration; harsh and/or hard shifting; jerking, shuddering, and/or juddering.  (¶ 77.)  These allegations adequately specify what fact Ford was required to disclose.

            Second, plaintiffs allege Ford owed a duty to disclose based on its exclusive knowledge of material facts.  A defendant can be liable for fraud by omission “when the defendant had exclusive knowledge of material facts not known to the plaintiff.”  (Heliotis v. Schuman (1986) 181 Cal.App.3d 646, 651; accord LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.)  Plaintiffs allege Ford “acquired its knowledge of the Transmission Defect prior to Plaintiffs acquiring the Subject Vehicle, through sources not available to consumers such as Plaintiffs, including but not limited to pre-production and post-production testing data, early consumer complaints about the transmission defect made directly to FMC and its network of dealers, aggregate warranty data compiled from FMC’s network of dealers, testing conducted by FMC in response to these complaints, as well warranty repair and part replacements data received by FMC from FMC’s network of dealers, amongst other sources of internal information.”  (Comp., ¶ 78.)  This allegation suffices to constitute exclusive knowledge of the defect. 

            Defendants argue duty to disclose requires a direct transaction.  It does not.  A defendant has a duty to disclose when it “possesses or exerts control over material facts not readily available to the plaintiff.”  (Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1199; accord OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 859 [“a vendor has a duty to disclose material facts not only to the immediate purchasers, but also to subsequent purchaser when the vendor has reason to expect that the item will be resold”]; Barnhouse v. City of Pinole (1982) 133 Cal.App.3d 171, 192 [developer of residential property who did not disclose material facts to original purchaser was liable for fraud to subsequent purchaser because it was “foreseeable” that the nondisclosure would be “passed on”].)   

Plaintiff alleges the defect was material because it poses safety risks.  (Comp., ¶¶ 77, 83.)  Facts regarding unreasonable safety risks are material. (See Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 835-836; Falk v. General Motors Corp. (N.D. Cal. 2007) 496 F.Supp.2d 1088, 1096.) 

Third, plaintiffs allege defendant intentionally concealed the defect with the intent to defraud.  “[T]he only intent by a defendant necessary to prove a case of fraud is the intent to induce reliance.  Moreover, liability is affixed not only where the plaintiff's reliance is intended by the defendant but also where it is reasonably expected to occur.”  (Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, 93.)  “It may be inferred that [defendant] concealed [a material fact] with fraudulent intent, for the purpose of making a profit; it may also be inferred that plaintiff, who was unaware of the [fact], would have acted differently had he known of the suppressed fact.”  (Id. at p. 96.)  Plaintiff alleges facts sufficient to permit the inference that Ford should have reasonably expected plaintiffs to rely on Ford’s failure to disclose the alleged defect. 

Fourth, plaintiffs allege they were unaware of the defect and would have acted differently if they knew about it.  They allege, “Had Plaintiffs known that the Subject Vehicle suffered from the Transmission Defect, they would not have purchased the Subject Vehicle.”  (Comp., ¶ 79.)

Fifth, plaintiffs allege they suffered damages as a result of their reliance on Ford’s omission.  “Plaintiffs were harmed by purchasing a vehicle that Plaintiffs would not have leased and/or purchased had Plaintiffs known the true facts about the Transmission Defect.”  (Comp., ¶ 87.) 

Disposition

            Defendants Ford Motor Company and South Bay Ford Inc.’s demurrer is overruled.  Defendants shall answer plaintiffs’ complaint within 20 days.