Judge Bruce G. Iwasaki, Case 21STCV31368 2022-10-24 Tentative Ruling

Tentative Ruling: The demurrer to the third cause of action for fraudulent inducement-concealment is sustained without leave to amend.

This is an action under the Song-Beverly Act in which Juan Arellanes Fausto and Patricia Diego (Plaintiffs) allege defects of their pre-owned 2018 Honda Pilot against American Honda Motor Co. (Defendant or Honda).[1] The Complaint asserts claims for breach of express and implied warranty, and fraudulent inducement by concealment.

The Court previously granted Defendant’s motion for judgment on the pleadings but granted leave to amend. After Plaintiffs filed their First Amended Complaint, Defendant now demurs to the third cause of action for fraudulent inducement – concealment. The grounds for the demurrer are the same as those asserted in the motion for judgment on the pleadings.

The Complaint alleges that Plaintiffs’ vehicle had a defective transmission. In their original Complaint, Plaintiffs asserted that the transmissions in 2014-2019 Honda Pilot suffered a defect that caused sudden jerking and ineffectual acceleration.

The First Amended Complaint (Complaint) similarly alleges a transmission defect but provides different models of affected vehicles: “2015-2017 Acura TLC, 2016-2017 Acura MDX, 2016-2017 Honda Pilot, and 2018-2019 Honda Odyssey.” (Complaint, ¶ 49.) The defect allegedly caused erratic acceleration, rough and delayed shifting, loud noises, harsh engagement of gears, and sudden loss of power. (Id. at ¶ 50.)

Plaintiffs now further allege that Honda knew about the defects as early as 2014 and did not disclose the defect when they purchased the vehicle on May 28, 2020. (Id. at ¶ 57.) Plaintiffs assert that the transmission was first manufactured for Fiat and Chrysler in May 2013 and three technical service bulletins (TSB) had to be issued, of which Honda was aware. Honda itself allegedly issued at least ten other technical service bulletins since then. (Id. at ¶¶ 62-71.) The Complaint summarizes a list of consumer complaints that were transmitted to the National Highway Traffic Safety Administration as to the transmission defect. (Id. at ¶¶ 76(f)-(j).)

The Complaint also adds in allegations that the salesperson informed Plaintiffs that the Subject Vehicle was certified as working properly, in good condition, would get good gas mileage and was a “great buy” that would not give Plaintiffs any problems. (Complaint, ¶¶ 91, 92.)

Honda demurs to the fraudulent concealment cause of action. It argues that the Complaint fails to state sufficient facts, the claim is barred by the economic loss rule, and is preempted by federal law. Plaintiffs oppose the demurrer, arguing that Honda had superior knowledge of the defective transmission from its own records, the economic loss rule does not apply to fraudulent inducement cases, and that preemption is inapplicable. Alternatively, Plaintiffs request a stay pending a Court of Appeal decision in two cases involving whether the Economic Loss Rule bars fraudulent inducement claims based on concealment of defects.

In its Reply, Honda reiterates that the Complaint is vague because there was no transaction between Honda and Plaintiffs, the dealership is not the agent of Honda, the exception to the economic loss rule for affirmative misrepresentations does not apply, and the fraud claim is preempted.

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “‘“treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .”’” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.)

Defendant reiterates its argument from its motion for judgment on the pleadings that the Complaint contains insufficient facts because there are no allegations of a duty of disclosure, there is no transactional relationship between parties to give rise to fraud, and there are no allegations that Defendant had exclusive knowledge of or actively concealed material facts. In addition, Honda argues that the fraud claim is barred by the economic loss rule bars and is preempted by federal statutes.

The Complaint still does not sufficiently plead facts to support fraud by concealment.

“‘[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.’” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 748.) Fraud must be pled specifically, not with “general and conclusory allegations.” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

A claim of fraudulent inducement requires a showing that the defendant “did not intend to honor its contractual promises when they were made.” (Food Safety Net Services v. Eco Safe Systems USA (2012) 209 Cal.App.4th 1118, 1131.) Fraudulent intent may be established by circumstantial evidence, but there must be “‘“something more than nonperformance . . . to prove the defendant’s intent not to perform his promise.”’” (Ibid.)

Plaintiffs assert that prior to purchasing their vehicle, they “reviewed marketing brochures, viewed television commercials and/or heard radio commercials about the qualities of the 2016 Pilot . . . [and] relied on AMERICAN HONDA’s reputation as an established and experienced auto manufacturer. (Complaint, ¶ 89.) They assert that they “relied on the statements made during the sales process by AMERICAN HONDA’s agents and within the marketing brochures provided.” (Id. at ¶ 90.)

The Complaint provides new allegations that the salesperson informed Plaintiffs that the vehicle was “verified through American Honda, that American Honda makes sure everything is working properly before re-selling a used vehicle, and that the Subject Vehicle had been certified as working properly prior to being offered for sale.” (Id. at ¶ 91.) The salesperson stated the vehicle was a “good car, in good condition, that would get good gas mileage, and that the Subject Vehicle was a ‘great buy’ and an excellent vehicle that would give Plaintiffs no problems because American Honda had attached a certification report confirming the Subject Vehicle had no issues.” (Id. at ¶ 92.)

“The very existence of a warranty presupposes that some defects may occur.” (Santana v. FCA US, LLC (2020) 56 Cal.App.5th 334, 345.) The existence of defects which involved vehicles that Plaintiffs did not own are not, by themselves, enough to demonstrate that a Honda, as the vehicle manufacturer, fraudulently concealed a defect from Plaintiff. (Ibid.)

Here, Plaintiffs’ allegations are insufficient because these statements by a salesperson are “akin to ‘mere puffing,’ which under long-standing law cannot support liability in tort” and of which a “reasonable consumer would not interpret as a factual claim upon which he or she could rely.” (Consumer Advocates v. Echostar Satellite Corp. (2003) 113 Cal.App.4th 1351, 1361, n.3; In re All Terrain Vehicle Litigation (1991) 771 F.Supp. 1057, 1061.)

Plaintiffs’ claim is also insufficient on a broader level. First, they allege that they purchased a 2018 Honda Pilot. (Complaint, ¶ 8.) Yet, the alleged transmission defects cover the following models: “2015-2017 Acura TLC, 2016-2017 Acura MDX, 2016-2017 Honda Pilot, and 2018-2019 Honda Odyssey.” (Id. at ¶ 49.) The alleged defect does not even appear to be in the Subject Vehicle.

Secondly, Plaintiffs failed to allege facts showing Defendant had knowledge of the transmission defect in the Subject Vehicle when Plaintiffs purchased it in 2020. They allege, on information and belief, that prior to their purchase of the Subject Vehicle, Defendant knew about the transmission defect “through sources not available to consumers.” Plaintiffs allege that Defendant had knowledge through its issuance of TSBs and various consumer complaints on the transmission. (Complaint, ¶¶ 63-78) This allegation is speculative, especially with respect to the timing of Defendant’s knowledge of an alleged defect specifically as to the Subject Vehicle.

Moreover, Plaintiffs plead the defects of a “ZF 9HP” transmission, but notably never allege that such a transmission is installed in the vehicle itself. Paragraph 49 merely asserts that the Subject Vehicle has a defective transmission, while Paragraph 50 describes the “ZF9HP” defect, but Plaintiffs never connect the two and allege the same transmission is in the Subject Vehicle.[2] This is notable because the original Complaint pled the existence of a different transmission defect. Plaintiffs attempt to allege that Honda omitted disclosure of the defect, despite no allegation that Honda knew that the Subject Vehicle itself contained the defect.

Plaintiffs also allege that Honda issued a series of TSBs, but none of these bulletins relate to Honda’s knowledge of the defect before or at the time of purchase of the Subject Vehicle. Moreover, any reliance on the TSBs to establish Defendant’s knowledge is misplaced. (American Honda Motor Co., Inc. v. Superior Court (2011) 199 Cal.App.4th 1367, 1378 [“A TSB is not and cannot fairly be construed by a trial court as an admission of a design or other defect, because TSB’s are routinely issued to dealers to help diagnose and repair typical complaint”].)

The Court understands that less specificity is required to plead fraud by concealment. (Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1199; but see Goodman v. Kennedy (1976) 18 Cal.3d 335, 347 [“mere conclusionary allegations that the omissions were intentional and for the purpose of defrauding and deceiving plaintiffs and bringing about the purchase . . . are insufficient [to show fraud by concealment”].) However, “[i]f a fraud claim is based upon failure to disclose, and ‘the duty to disclose arises from the making of representations that were misleading or false, then those allegations should be described.’” (Morgan v. AT&T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1262.)

As to the salesperson’s statements, Plaintiffs still fail to provide their name and their authority to speak on behalf of Honda. (Tarmann v. State Farm Mutual Automobile Insurance Co. (1991) 2 Cal.App.4th 153, 157.) Moreover, there are still no allegations as to the contents of the marketing brochures and commercials. (Complaint, ¶ 89.) Plaintiffs would be in an equal position as Defendant to possess such information, but have failed to do so.

In addition, the Complaint still does not allege that Defendant had any duty to disclose a material fact. Plaintiffs cite the “‘four circumstances in which nondisclosure or concealment may constitute actionable fraud: (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.) However, unless the parties were in a fiduciary relationship, the other three circumstances “presupposes the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise.” (Id. at p. 337.)

The Complaint does not allege a fiduciary or “some other relationship between” the parties. Plaintiffs’ reliance on non-binding, federal authorities for the proposition that simply having “superior” knowledge of a defect imposes a duty is unpersuasive. For example, two of the cited cases, Falk v. GMC (N.D. 2007) 496 F.Supp.2d 1088, 1091, and In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices, and Products Liability Litigation (C.D. 2010) 754 F.Supp.2d 1145, 1174, were in the context of a putative class action.

Plaintiffs also argue that a relationship exists because Honda “utilizes its authorized dealerships specifically to communicate with and advertise directly to its consumers.” But this is not a products liability action and Plaintiffs failed to name the dealership as a party in their Complaint. Therefore, the fraud allegations in this Complaint are improper and raised between Honda and “the public at large.” (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 312.)

Plaintiffs attempt to distinguish Bigler-Engler by asserting that the brochures here are “distributed to a subset of the public at large and distributed at the dealership” and not through “wide scale public means.” But Bigler-Engler did not purport to confine the relationship based on the size of the public distribution; rather, the transaction “must necessarily arise from direct dealings between the plaintiff and the defendant.” (Ibid.) Advertisements directed to a “subset of the public at large” is still too attenuated to constitute direct dealings between Honda and Plaintiffs.

Even assuming Honda had a duty to disclose the defect, the Complaint still inadequately alleges that Honda did so with the intent to defraud Plaintiffs. The only allegation is in Paragraph 93 that Honda intended to deceive Plaintiffs “in an effort to sell affected vehicles at maximum price.” There are no specific allegations to support this general assertion. The Complaint lacks any details suggesting that Honda knew of the defect specifically as to the Subject Vehicle itself.

Finally, the Complaint also still fails to allege any actual damages to Plaintiffs for the alleged fraudulent concealment other than defects to the car covered by the express warranty.

The Court declines Plaintiffs’ request to continue this case pending the decisions by the Court of Appeal on whether a fraud claim may be based on fraudulent omission. There is nothing indicating that the facts of those cases are similar to the circumstances of this case. Moreover, the Court is not sustaining the demurrer solely on the economic loss rule and so the appeals are not necessarily dispositive of this issue. Thus, the Court briefly reincorporates its prior discussion of the economic loss rule as noted below.

Here, Plaintiffs’ harm is economic only because they allege that the damage is to the vehicle with no physical damage to property or personal injury. Plaintiffs do not claim that the Vehicle’s alleged defects caused any personal injury or damage to property other than the vehicle. (Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal.4^th 979, 988.) Instead, they allege that the transmission defect “increases risk of crashes” and “a serious safety risk that can lead to accidents, injuries, or even death.” (Complaint, ¶ 20.) This merely constitutes potential, speculative exposure to harm. Therefore, the economic loss rule bars any recovery.

Plaintiffs argue that the economic loss rule does not bar recovery under a theory of fraudulent inducement to enter into the contract and that Robinson specifically upheld that exception. However, the holding is not as broad as Plaintiffs contend.

The California Supreme Court in Robinson cautioned that the exception was “narrow in scope and limited to a defendant’s affirmative misrepresentations on which a plaintiff relies and which expose a plaintiff to liability for personal damages independent of the plaintiff’s economic loss.” (Robinson, supra, 34 Cal.4th at p. 993, italics added.) The Court declined to extend the scope of the exception to the economic loss rule to include fraud by omission. (Id. at p. 994, fn. 9 [“We only address the Court of Appeal’s application of the economic loss rule to [defendant’s] affirmative misrepresentation and do not decide any other issues”]; see also Rattagan v. Uber Technologies (9th Cir. 2021) 19 F.4th 1188, 1192 [“California Courts of Appeal have not addressed whether this Robinson exception applies to fraudulent concealment”].) Thus, the economic loss rule is an independent, separate ground to sustain the demurrer. (See also Kelsey v. Nissan North America (C.D.Cal. July 15, 2020, No. CV 20-4835 MRW) [2020 U.S.Dist.Lexis 145411; 2020 WL 4592744] *4 [collecting cases in which federal courts have applied the economic loss rule to prohibit fraudulent inducement claims].)

As the demurrer is sustained on the above grounds, the Court again does not reach the preemption argument.

The burden is on the plaintiff to show how the complaint can be amended and the legal effect of the amendment on the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Plaintiffs have not done so here and merely state that additional “case-specific” allegations can be added. Given the broader insufficiencies of Plaintiff’s claim for fraudulent omission, the Court declines the request for leave to amend.

The Court sustains the demurrer on the third cause of action for fraudulent inducement by omission, without leave to amend.

[1] While paragraph 8 of the Complaint alleges that in May 2020 Plaintiffs purchased a 2018 Honda Pilot, the Complaint elsewhere refers to the subject vehicle as a 2018 Honda Odyssey and 2016 Honda Pilot (Cf. Complaint ¶¶ 49, 50, 52, 55, 58, and 64.) As noted below, this discrepancy is significant in light of paragraph 49 of the Complaint. Rather than order another round of pleading, the Court assumes the parties will, before trial, stipulate to the model and year of the vehicle Plaintiffs purchased. Without such clarification, substantial portions of the Complaint would appear to be irrelevant.

[2] Paragraph 49, in part, alleges that Honda manufactures hundreds of thousands of vehicles with “defective transmissions . . . including the 2018 Honda Odyssey.” Yet, the Subject Vehicle is alleged to be a 2018 Honda Pilot. (Complaint, ¶ 8.)

Judge Bruce G. Iwasaki

Department 58