Judge: Daniel S. Murphy, Case: 21STCV01757, Date: 2023-04-19 Tentative Ruling

Case Number: 21STCV01757    Hearing Date: April 19, 2023    Dept: 32

BACKGROUND

            On January 15, 2021, Plaintiff Madison Vanderberg filed this lemon law action against Defendant Kia Motors America, Inc., alleging breach of warranty in violation of the Song-Beverly Act and fraud by omission.

            On June 2, 2021, the Court sustained Defendant’s demurrer to the fraud claim pursuant to the economic loss rule. However, on January 23, 2023, the Court granted reconsideration of the order in light of the Court of Appeal decision in Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, which held that the economic loss rule does not bar fraudulent inducement claims. Plaintiff filed the operative First Amended Complaint on February 10, 2023, asserting a fraud claim based on Defendant’s alleged failure to disclose an engine defect prior to Plaintiff’s purchase of the subject vehicle.

            On March 20, 2023, Defendant filed the instant demurrer and motion to strike, pointing out that the Dhital decision is currently under review by the Supreme Court and therefore nonbinding.

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.)

Any party, within the time allowed to respond to a pleading, may serve and file a notice of motion to strike the whole or any part of that pleading. (Code Civ. Proc., § 435, subd. (b).) The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike (1) any irrelevant, false, or improper matter inserted in any pleading and (2) 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.) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id., § 437.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court notes that Defendant has complied with the meet and confer requirement. (See Tolmoyan Decl. ¶ 2.)

DISCUSSION

I. Economic Loss Rule

            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.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless the purchaser “can demonstrate harm above and beyond a broken contractual promise,” such as some form of personal injury or damage to property other than the defective product itself. (Ibid.) The economic loss rule exists to prevent “the law of contract and the law of tort from dissolving one into the other.” (Ibid.)

“[T]he economic loss rule is not a defense to a cause of action. Rather, the existence of damages other than purely economic loss is an element of a plaintiff’s common law cause of action.” (Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194, 1215.) “Under the economic loss rule, appreciable, nonspeculative, present injury is an essential element of a tort cause of action.” (Rosen v. State Farm General Ins. Co. (2003) 30 Cal.4th 1070, 1079.) In this case, Plaintiff has not alleged that she suffered any physical injury or that there was any physical damage to property other than to the vehicle itself. Plaintiff has alleged only economic loss. The speculative risk associated with an engine defect is not a present injury sufficient to overcome the rule. Additionally, Robinson Helicopter limited the fraudulent inducement exception to instances of affirmative representation. (See Robinson Helicopter, supra, 34 Cal.4th at p. 993.) For this reason, Plaintiff’s fraudulent concealment claim is barred by the economic loss rule.

The weight of authority within the Ninth Circuit concurs with this result. (See, e.g., Sloan v. General Motors LLC (N.D. Cal., Apr. 23, 2020, No. 16-CV-07244-EMC) 2020 WL 1955643, at *23-*24 (Judge Chen) (collecting cases); Mosqueda v. American Honda Motor Company, Inc. (C.D. Cal., Mar. 6, 2020, No. SACV19839MWFMAAX) 2020 WL 1698710, at *13; Hsieh v. FCA US LLC (S.D. Cal., Feb. 20, 2020, No. 19-CV-01691 W (AHG)) 2020 WL 835310, at *3; Zagarian v. BMW of North America, LLC (C.D. Cal., Oct. 23, 2019, No. CV 18-4857-RSWLPLA) 2019 WL 6111731, at *3; Thompson v. BMW of North America, LLC (C.D. Cal., Jan. 10, 2019, No. SACV 17-01912-CJC-KS) 2019 WL 988694, at *5.)

Although Dhital held otherwise, it has since been placed under review by the Supreme Court. “Pending review and filing of the Supreme Court's opinion, unless otherwise ordered by the Supreme Court under (3), 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 3.1115(e)(1).) Because Dhital is not binding, this Court’s prior analysis controls. (See June 21, 2021 Order re Demurrer.) The demurrer to the fraud claim is sustained.

II. Punitive Damages

            A plaintiff may not recover statutory penalties and punitive damages for the same conduct, because that would amount to a double recovery. (Anderson v. Ford Motor Co. (2022) 74 Cal.App.5th 946, 970-71.) While a plaintiff may recover punitive damages for conduct that is distinct from the statutory violation, such as fraud, Plaintiff has not asserted a valid fraud claim. The Song-Beverly Act itself does not provide for punitive damages, only penalties. (See Imperial Merchant Services, Inc. v. Hunt (2009) 47 Cal.4th 381, 390 [“the fact that the Legislature expressly designated specific damage remedies while omitting others . . . reflects that it intended the prescribed remedies to be exclusive”]; Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 228 [“had the Legislature, by Civil Code sections 3294 (permitting punitive damages) and 1794 (permitting a civil penalty), intended a double recovery of punitive and penal damages for the same willful, oppressive, malicious, and oppressive acts, it would in some appropriate manner have said so”].) Therefore, punitive damages are stricken.

III. Civil Penalties

            The Song-Beverly Act provides for a civil penalty up to two times the amount of actual damages if the violation was willful. (Civ. Code, § 1794(c).) Defendant argues that Plaintiff has not pled the requisite willfulness. The Court finds that Plaintiff has adequately pled willfulness. (See FAC ¶¶ 87, 94, 101.) The evidentiary facts proving Defendant’s intent should be left for discovery. (See Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 608.)

IV. Prejudgment Interest

            Defendant argues that prejudgment interest is inappropriate where damages are uncertain. However, this does not preclude Plaintiff from pleading entitlement to prejudgment interest. The issue of prejudgment interest can be addressed in a separate motion should Plaintiff prevail and seek prejudgment interest.

CONCLUSION

            Defendant’s demurrer to the sixth cause of action for fraud is SUSTAINED without leave to amend. Defendant’s motion to strike is GRANTED as to punitive damages and DENIED in all other respects. Plaintiff may amend the complaint to assert fraud if the Supreme Court upholds the ruling in Dhital.