Judge: David B. Gelfound, Case: 23CHCV02410, Date: 2024-06-18 Tentative Ruling

Case Number: 23CHCV02410    Hearing Date: June 18, 2024    Dept: F49

LOS ANGELES SUPERIOR COURT

NORTH VALLEY DISTRICT

DEPARTMENT F49

DEMURRER

Motion filed: 4/3/24

MOVING PARTY: Defendant Ford Motor Company (“Ford Motor” or the “Demurring Defendant”)

RESPONDING PARTY: Plaintiffs Timothy McGinley and Chloe McGinley (“McGinleys” or “Plaintiffs”)

NOTICE: OK

RELIEF REQUESTED: An order granting Ford Motor’s demurrer to the Fifth Cause of Action for Fraudulent Inducement – Concealment in Plaintiffs’ First Amended Complaint (“FAC”)

TENTATIVE RULING: The demurrer is SUSTAINED without LEAVE TO AMEND.

BACKGROUND

Plaintiffs filed this lawsuit under the Song-Beverly Consumer Warranty Act, alleging defects in their 2021 Ford F-150 (the “Subject Vehicle”), manufactured by Defendant Ford Motor. Plaintiffs purchased the Subject Vehicle on November 19, 2021. (FAC, ¶¶ 8-9.)

This case commenced on August 10, 2023. Following a demurrer by Ford Motor on September 13, 2023, which was sustained by Department F47 Court on January 30, 2024, Plaintiffs were granted leave to amend.  

On February 29, 2024, Plaintiffs filed the operative First Amended Complaint (“FAC”) against Defendants Ford Motor, AutoNation Ford Valencia (“AutoNation Ford”),  and Does 1 through 10, alleging the following causes of action: (1) violation of subdivision (d) of Civil Code section 1793.2, (2) violation of subdivision (b) of Civil Code section 1793.2, (3) violation of subdivision (a)(3) of Civil Code section 1793.2, (4) breach of the implied warranty of merchantability (Civ. Code, §§ 1791.1, 1794, 1795.5), (5) fraudulent inducement – concealment, and (6) negligent repair.

On April 3, 2024, Ford Motor filed the instant Demurrer to the fifth cause of action in the FAC (the “Demurrer”). Subsequently, on June 5, 2024, Plaintiffs filed their Opposition, and Ford Motor replied on June 11, 2024.

ANALYSIS

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal 3d 311, 318.) No other extrinsic evidence can be considered.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747 (Hahn).)  When considering demurrers, courts read the allegations liberally and in context.  (Taylor v. City of Los Angeles Dep’t of Water & Power (2006) 144 Cal. App. 4th 1216, 1228.)  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 pleadings alone and not the evidence or other extrinsic matters.  Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.”  (SKF Farms v. Superior Ct. (1984) 153 Cal. App. 3d 902, 905.)  “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.) 

A.    Meet and Confer Requirement

A party filing a demurrer “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., section 430.41(a).) A failure to meet and confer does not constitute grounds to sustain or overrule a demurrer. (See Code Civ. Proc., sections 430.41 (a)(4).)

            Here, Ford Motor’s counsel attests that he met and conferred with Plaintiffs’ counsel telephonically on March 12, 2024, discussing the issues raised in the Demurrer. However, the parties were unable to reach an agreement. (Liu Decl. ¶ 3.)

            Based on the declaration provided, the Court concludes that the meet and confer requirement has been satisfied.

B.     Fifth Cause of Action – Fraudulent Inducement - 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.”  (Boschma v. Home Loan Ctr., Inc. (2011) 198 Cal. App. 4th 230, 248, [internal citations omitted].) 

Generally speaking, there are 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 (LiMandri).)

1)                  Ford Motor’s Concealment and Suppression of Material Fact

Ford Motor claims that the FAC fails to plead facts sufficient to demonstrate the material fact Ford Motor allegedly concealed. (Dem. at p. 11.) It maintains that Plaintiffs’ pleadings are insufficient where they relied on a generic “Transmission Defect,” citing In re Ford Motor Co. DPS6 Powershift Transmission Prod. Liab. Lit., (N.D. Cal. May 22, 2019) WL 3000646, at p. 7.

In response, Plaintiffs state that paragraph 29 of the FAC has clearly identified the material facts Ford Motor knew, but withheld from Plaintiffs. (Opp’n. at p. 5.)

Here, the FAC alleges, “Prior to Plaintiffs purchasing the Vehicle, 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 ("Transmission Defect").” (FAC ¶ 29.) 

Plaintiffs contend that similar allegations have previously been deemed sufficient at the pleading stage by California courts. (Opp’n. at p. 5, citing Dhital v. Nissan (2022) 84 Cal.App.5th 828, 844 (Dhital), [review granted, Feb. 1, 2023, S277568] [found that the allegation is sufficient at the pleading stage that “the CVT transmissions were defective in that they caused such problems as hesitation, shaking, jerking, and failure to function.”] Considering that our Supreme Court has granted review of Dhital, the Court acknowledges Dhital for its persuasive value only. The Court finds Plaintiffs argument to be well-reasoned and persuasive, and is not convinced otherwise by Ford Motor’s position.

Given these arguments, the Court determines that Plaintiffs’ descriptions of “hesitation and/or delayed acceleration; harsh and/or hard shifting; jerking, shuddering, and/or juddering” are sufficient to meet the factual allegation standard at the pleading stage.

2)                  Ford Motor’s Duty to Disclose

A duty to disclose may exist “(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 (LiMandri).)

(a)   Fiduciary Relationship

Firstly, Ford Motor argues that it does not have a fiduciary or transactional relationship with Plaintiffs, thereby not triggering a duty to disclose under the first LiMandri condition. (Dem. at pp. 12-16.)

            In response, Plaintiffs contend that under California law, a vendor is obligated to disclose material facts not only to immediate purchasers, but also to subsequent purchasers when the vendor anticipates that the item will be resold, arguing strict privity is not required. To support their argument, Plaintiffs cite OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp., (2007) 157 Cal.App.4th 835 (OCM). (Opp’n. at p. 6.)

The Court finds that Plaintiffs’ argument is not fully supported by the OCM ruling. The OCM court held, “Where, as here, there is no fiduciary relationship, the duty to disclose generally presupposes a relationship grounded in ‘some sort of transaction between the parties.’ [Citations] [Italics in original.]” (OCM, supra, 157 Cal.App.4th at p. 859.)

Similarly, an emphasis on the existence of some sort of transaction is also discussed in Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276 (Bigler-Engler), which stated that a duty to disclose that is based upon a “transaction must necessarily arise from direct dealings between the plaintiff and the defendant; it cannot arise between the defendant and the public at large.” (Id. at p. 312.) Even where the defendant has volunteered information, it does not have a further obligation to correct half-truths where no sufficient relationship or transaction exists.  (Ibid.)  Simply speaking does not give rise to a duty to disclose.  (Ibid.) In Bigler-Engler, the court noted that the manufacturer in that case was not involved “in any way” with the patient, and that there was no evidence that the manufacturer “directly advertised its products to consumers such as” the patient.  (Id. at p. 314.)

Furthermore, the Bigler-Engler court rejected the plaintiff’s reliance on the general principle that a manufacturer has a duty to warn consumers of a product’s hazards and faults, reasoning that this duty is applied in actions of strict product liability, and not directly applicable to fraud. (Id. at p. 312.)  

            Here, it is uncontested that there is not a fiduciary relationship between Plaintiffs and Ford Motor. Nor has the FAC sufficiently pleaded any transactional relationship between the parties. Thus, the Court concludes that the first LiMandri circumstance is inapplicable in this case.

(b)  Exclusive Knowledge, Active Concealment, or Partial Representation

Secondly, Plaintiffs argue that Ford Motor had exclusive knowledge of the true extent of the Transmission Defect, triggering its duty to disclose those facts under the second LiMandri circumstance to prevent the transaction from becoming deceitful or fraudulent. (Opp’n. at p. 6)

Here, the FAC alleges that “Defendant FMC was under a duty to Plaintiffs to disclose the defective nature of the Subject Vehicle and its transmission, its safety consequences and/or the associated repair costs because:

a. Defendant FMC acquired its knowledge of the Transmission Defect and its potential consequences prior to Plaintiffs acquiring the Vehicle, through sources not available to consumers such as Plaintiffs, including but not limited to pre-production testing data, early consumer complaints about the Transmission Defect made directly to Defendant FMC and its network of dealers, aggregate warranty data compiled from Defendant FMC's network of dealers, testing conducted by Defendant FMC in response to these complaints, as well as warranty repair and part replacements data received by Defendant FMC from Defendant FMC's network of dealers, amongst other sources of internal information;

b. Defendant FMC was in a superior position from various internal sources to know (or should have known) the true state of facts about the material defects contained in vehicle equipped with the defective transmission; and;

c. As early as January 2018, Consumers who purchased vehicles equipped with Ford's 10-speed transmission have been complaining about the transmission defect; and

d. Plaintiffs could not reasonably have been expected to learn or discover of the Vehicle's Transmission Defect and its potential consequences until well after Plaintiffs purchased the Vehicle.”

(FAC ¶ 72.)

Additionally, the FAC pleads, “Defendant acquired this knowledge prior to Plaintiffs purchasing the Vehicle through various sources of information, including but not limited to pre-production testing, pre-production design failure mode and analysis data, production failure mode and analysis data, early consumer complaints made exclusively to Ford's network of dealers and directly to Ford, aggregate warranty data compiled from Ford's network of dealers, testing conducted by Ford in response to consumer complaints, and repair order and parts data received by Ford from Ford's network of dealers.” (See FAC ¶¶ 30, 69.)

According to established legal principles, a complaint is only required to allege facts sufficient to state a cause of action to survive a demurrer; it need not contain every evidentiary fact that might eventually form part of the plaintiff's proof. (See Golceff v. Sugarman (1950) 36 Cal.2d 152, 154.) However, while a demurrer admits all facts properly pleaded, it does not admit contentions, deductions or conclusions of law or fact. (George v. Automobile Club of Southern California, supra, 201 Cal.App.4th at pp. 1120, 135.)

            Here, Ford Motor argues that the FAC’s allegations provide only summary and conclusory allegations regarding Ford Motor’s knowledge of the transmission defects, and it fails to plead “exclusive knowledge and active concealment” by Ford Motor. (Reply at p. 4.) The Court finds this argument persuasive.

            The Court considered the allegations in paragraphs 30, 69, and 72 of the FAC, which Plaintiffs rely upon to establish Ford Motor’s duty to disclose, to be conclusory. These allegations touch on “pre-production and post-production” and “consumer complaints” but lack specificity about what the testing and complaints actually revealed. This lack of details fails to substantiate claims that Ford Motor had exclusive and specific knowledge that it was obligated to disclose. 

            Given these deficiencies, the FAC does not adequately plead that Ford Motor has a duty to disclose to Plaintiffs.

(c)   Ford Motor’s Intentional Concealment or Suppression of the Defect with the Intent to Defraud Plaintiffs

In analyzing this LiMandri circumstance, several California district court decisions have outlined the need for specific factual allegations, indicating that the defendant “sought to suppress information in the public domain or obscure consumers' ability’ to discover information regarding the alleged [defects].” (See, e.g, Taragan v. Nissan North America, Inc., 2013 WL 3157918, at * 7 (N.D. Cal. June 20, 2013); Gray v. Toyota Motor Sales, U.S.A., 2012 WL 313170, at *10 (C.D. Cal. January 23, 2012).)

Here, the FAC asserts that “[i]n failing to disclose the defects in the Vehicle’s transmission. Defendant FMC has knowingly and intentionally concealed material facts and breached its duty not to do so.” (FAC ¶ 73.) However, the Court deems this statement to be a legal conclusion rather than a sufficient factual allegation demonstrating the intentional concealment or suppression of information.

The assertions do not include specific facts such as how Ford Motor actively sought to keep the information from reaching consumers, or affirmatively misled or deceived Plaintiffs about the transmission defects. Without the details, the FAC fails to meet the required standard of specificity to state a cause of action for fraud.

Therefore, the Court SUSTAINS the Demurrer for failing to sufficiently plead the elements of the fifth cause of action.

3)                  Economic Loss Rule

Both parties recognize that the economic loss rule is inapplicable to intentional misrepresentation claims as narrowly applied. (See Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979.) However, there is a divergence in authority regarding the rule’s applicability to causes of action for fraudulent concealment. (See Dhital, supra, (2022) 84 Cal.App.5th 828 [review granted, Feb. 1, 2023, S277568] [holding that the economic loss rule does not bar claims for fraudulent inducement by concealment.])

Given the pending Supreme Court review of Dhital, expected to clarify this issue, it is unnecessary for the Court to address Plaintiffs’ claim that the fifth cause of action - fraudulent concealment - is not barred by the economic loss rule. Moreover, this particular issue is not dispositive in this review, as the Court has already sustained the Demurrer to the fifth cause of action based on other grounds.

C.    Leave to Amend

A “plaintiff has the burden of proving that an amendment would cure the defect” in their complaint. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 [internal citations omitted].)

Here, Plaintiffs have sought leave to amend, yet they have not indicated that any additional facts would cure the deficiency in their fifth cause of action. Moreover, Plaintiffs were previously granted leave to amend this same issue on January 30, 2024, by Department F47 Court. Despite this opportunity, their FAC continues to inadequately state all necessary elements of the fraudulent concealment claim.

Based on the reasons above, the Court SUSTAINS without LEAVE TO AMEND the Demurrer.

CONCLUSION

Defendant’s Demurrer to the Fifth Cause of Action in Plaintiffs’ First Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND.

Moving party to give notice.