Judge Deirdre Hill, Case 22TRCV00717 2023-03-01 Tentative Ruling

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The demurrer is OVERRULED. Defendant is ordered to file an answer within 20 days.

On August 19, 2022, Kelly Darley and Vincent Darley filed a complaint against American Honda Motor Co., Inc. for violation of statutory obligations.

On October 7, 2022, plaintiffs filed a FAC for (1) violation of Civil Code 1793.2(d); (2) violation of Civil Code 1793.2(b); (3) violation of Civil Code 1793.2(a)(3); (4) breach of implied warranty of merchantability; and (5) fraudulent inducement – concealment.

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. “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 Court (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 v. Mirda (2007) 147 Cal. App. 4th 740, 747.

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. CCP § 436(a). The court may also strike 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. CCP § 436(b). The grounds for a motion to strike are that the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws. CCP § 436. The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. CCP § 437.

Defendant American Honda demurs to the FAC on the grounds that the 5^th cause of action fails to allege sufficient facts to constitute a cause of action.

The FAC alleges that on June 29, 2019, plaintiffs entered a warranty contract with defendant Honda regarding a 2019 Honda Odyssey. FAC, ¶10. Prior to leasing the vehicle, plaintiffs interacted with defendant and/or defendant’s authorized dealership’s sales representatives, reviewed defendant’s website, brochures, advertisement, and/or other marketing materials concerning the 2019 Honda Odyssey vehicles and their infotainment system. For example, in June 2019, plaintiffs interacted with Honda’s authorized sales representatives in-person and reviewed Honda’s online websites regarding the 2019 Honda Odyssey and discussed various components of the subject vehicle, including the infotainment system. Id., ¶11. Prior to purchasing the subject vehicle, plaintiffs relied on defendant’s positive representations of the subject vehicle (i.e., combination of brochure, Maroney sticker, TV/radio advertisements, internet ads, word of mouth, brand recognition, etc.) to state true facts about the subject vehicle. Nowhere did Honda disclose that the subject vehicle contains defects known to it prior to purchase of the subject vehicle, including the Infotainment Defect. Id., ¶12. Plaintiffs chose to enter a warranty contract with Honda for the subject vehicle specifically because of its infotainment system, among others, and because defendant represented that the subject vehicle was technologically advanced, driven, and safe. Id., ¶13. None of the representations received by plaintiffs contained any disclosure relating to any defect in the infotainment system. Further, none of the representations received by plaintiffs included any information with regards to consumer complaints or Honda’s awareness of the defective infotainment system installed in 2019 Honda Odyssey vehicles. Id., ¶14. In fact, defendant failed to reveal facts about the defective infotainment system in 2018 Honda Odyssey vehicles that were material to inducing the purchase of the subject vehicle when numerous positive representations were made concerning 2018 Honda Odyssey vehicles, which plaintiffs relied on. Had defendant disclosed the Infotainment Defect, plaintiffs would have been aware of it and would not have leased the subject vehicle. Id., ¶15.

“One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.” Civil Code section 1709 (emphasis added). “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 fact.” Hambridge v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162 (citation omitted).

“[T]o establish fraud through nondisclosure or concealment of facts, it is necessary to show the defendant ‘was under a legal duty to disclose them.’” OCM Principal Opportunities Fund v. CIBC World Markets Corp. (2007) 157 Cal. App. 4th 835, 845. Nondisclosure or concealment may constitute actionable fraud when: (1) there is a fiduciary relationship between the parties; (2) the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) the defendant actively conceals a material fact from the plaintiff; and (4) the defendant makes partial representations but also suppresses some material facts. Los Angeles Memorial Coliseum Commission v. Insomniac, Inc. (2015) 233 Cal. App. 4th 803, 831.

Rules of specifically pleading how, when, where, to whom, and by what means, misrepresentations were communicated, is intended to apply to affirmative misrepresentations, and not to concealment. See Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal. App. 4th 1356, 1384.

Under this cause of action, the FAC alleges that the defect at issue relates to the “infotainment system.” Such systems are designed to attract buyers who want to manage available technology while on the road, while minimizing distractions and maximizing safety. Id., ¶49. The screen is the gateway between the user and the 2018-[2019] Odyssey vehicles’ safety, navigation, communications, and entertainment features. Id., ¶50. The Odyssey vehicles contain a defect that causes many of the Vehicles’ features associated with the infotainment system to malfunction. As documented by widespread consumer complaints, this defect has plagued the infotainment system since its launch, which defendant knew about well before the Vehicles’ launch. Id., ¶51. As a result of the defect, Honda Vehicles’ infotainment systems frequently freeze or crash (in which case no features connected to system are operational, including the navigation technology, the radio, and the rearview camera). These malfunctions pose a safety risk because when the system malfunctions, unexpected audio or video – or a blank or blue infotainment screen – can cause the driver to become distracted. Id., ¶52. The defect can also render safety-related systems to fail. Id., ¶53. Additionally, because the infotainment system may fail at any time, thereby startling the driver and putting the passengers’ safety at risk, the defect makes Honda Vehicles, including the Subject Vehicle, unfit for the use for which they were intended in that they cannot be relied upon as a safe and reliable means of transport. Id., ¶54.

The FAC also alleges that Honda has long known or should have known of the Honda Vehicles’ infotainment system problems from multiple sources. Yet Honda failed to disclose and actively concealed Honda Vehicles’ infotainment system defect from the public, and continues to manufacture, distribute, and sell the Vehicle without disclosing the defect. Id., ¶56. Furthermore, Honda either knew of the defect before marketing the Vehicle or failed to conduct adequate testing of the Vehicles system prior to its release. Id., ¶57. Honda has not found a solution to the Infotainment System Defect. Instead, Honda tells Honda Vehicle owners to wait for a forthcoming “software update” to fix the infotainment problems, or alternatively simply replaces defective parts with equally defective parts, thereby leaving consumers caught in a cycle of use, malfunction, and replacement. Id., ¶58. While defendant has been fully aware of the Infotainment System Defect affecting the Subject Vehicle, defendant and its agents actively concealed the existence and nature of the Defect from plaintiff at the time of purchase (and/or lease), repair, and thereafter. Id., ¶73. To this day, defendant still has not notified plaintiffs that the Vehicle suffers from a systemic, latent safety defect that causes the infotainment system to malfunction. Id., ¶74. As a result of defendant’s concealment, inaction, and silence, plaintiffs were entirely unaware that plaintiffs leased and/or purchased, and continued to drive, an unsafe and unreliable vehicle. Id., ¶77. Defendant committed fraud by allowing the Subject Vehicle to be sold to plaintiffs without disclosing that the Subject Vehicle and its infotainment systems was defective and susceptible to malfunction of the navigation system, rear entertainment system, audio system, backup camera, and/or cabin watch system. Id., ¶79. Honda was under a duty to plaintiffs to disclose the defective nature of the Vehicle and its infotainment system, its safety consequences, and/or the associated repair costs. Id., ¶85.

The FAC further alleges that plaintiffs were harmed by defendant’s concealment of the Infotainment System Defect, which was a substantial factor in causing plaintiffs’ harm. Specifically, plaintiffs were harmed by purchasing a vehicle which plaintiffs would not have leased had the Infotainment System Defect been disclosed prior to sale. As such, this concealment substantially influenced plaintiffs’ decision to lease the Subject Vehicle. As a result of defendant’s misconduct, plaintiffs have suffered and will continue to suffer actual damages. Further, plaintiffs were unknowingly exposed to the risk of liability, accident, and/or injury upon third parties as a result of defendant’s fraudulent concealment of the Infotainment System Defect, which is a material and significant safety hazard. Id., ¶89.

Defendant argues that the allegations are insufficient. Defendant contends that plaintiffs lack standing because plaintiffs have not alleged any damages, including any allegations of a specific defect with their vehicle related to the infotainment system, and that “[d]eception without loss is not actionable fraud.” Defendant contends that plaintiffs have not alleged “something beyond other vehicles having a similar concern since the very existence of a warranty presupposes that some defects may occur.” Defendant also argues that plaintiffs fail to plead any specific and direct communication with Honda, much less a transaction that would attach a duty to disclose. Defendant contends that plaintiffs have not alleged whether a salesperson from the dealership made any representations regarding the infotainment system, what those representations were, and whether that salesperson had authority to speak on behalf of Honda as Honda had no part in the vehicle’s sale. Defendant asserts that the FAC fails to establish that any representations made to plaintiffs were false or incomplete at the time of the sale or lease. Defendant also argues that plaintiffs fail to plead sufficient facts that Honda had a duty to make disclosures to plaitniffs.

Defendant requests that the court strike para. 8, fn1, fn4, para. 72, fn12, paras. 85 and 85(c), 86, fn14, fn15, and prayer for punitive damages.

Under this cause of action, the FAC alleges that the defect at issue relates to the “infotainment system” which may “contain a defect that causes many of the Vehicles’ features associated with the infotainment system to malfunction…which defendant knew about well before the Vehicles’ launch.” FAC ¶51. As a result of the defect, the infotainment systems frequently freeze or crash. Id., ¶52. The defect can also render safety-related systems to fail. Id., ¶53. Ultimately the FAC alleges that this defect makes certain “Honda Vehicles, including the Subject Vehicle, unfit for the use for which they were intended in that they cannot be relied upon as a safe and reliable means of transport.” Id., ¶54. Taken together, these allegations effectively assert that the defect referenced by the FAC is material.

The FAC also alleges that Honda has long known or should have known of the Honda Vehicles’ infotainment system problems from multiple sources. The FAC alleges that “Honda failed to disclose and actively concealed Honda Vehicles’ infotainment system defect from the public, and continues to manufacture, distribute, and sell the Vehicle without disclosing the defect;” and “defendant and its agents actively concealed the existence and nature of the Defect from plaintiff at the time of purchase (and/or lease), repair, and thereafter.” Id., ¶56, 73. By way of these allegations, plaintiff asserts that the defendant failed to disclose certain facts that were known only to it, and that plaintiff could not have discovered.

Because defendant is in the business of manufacturing vehicles for sale at a profit, plaintiff has sufficiently plead the assertion that defendant concealed the information about its infotainment system so as not to lose out on those profits.

The FAC goes on to allege that plaintiff would have behaved differently had the omitted information been disclosed: “plaintiffs were harmed by purchasing a vehicle which plaintiffs would not have leased had the Infotainment System Defect been disclosed prior to sale. Id., ¶89.

The remaining issue, raised by defendant both as “lack of standing” and as a failure to plead with specificity, is the requirement of harm. Defendant asserts that plaintiff’s failure to assert any allegation of a defect in plaintiff’s vehicle means that plaintiff’s FAC is fatally flawed. Indeed, during oral argument, plaintiff could point to nothing in the complaint as evidence that plaintiff was harmed by defendant’s alleged conduct other than the risk that plaintiff’s vehicle may suffer from the defect that has allegedly befallen other owners of similar vehicles.

The court rules as follows: The court finds that the allegations are sufficient to support the elements at the pleading stage for fraudulent concealment. Plaintiff alleges that defendant concealed or suppressed a material fact. See FAC, ¶¶12, 14, 15, 56, 62, 67. Plaintiff alleges that defendant had a duty to disclose the fact. See FAC, ¶¶52, 85. See OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal. App. 4^th 835, 859 (“Under California law, a vendor has a duty to disclose material facts not only to immediate purchasers, but also to subsequent purchasers when the vendor has reason to expect that the item will be resold.”); see also Khan v. Shiley Inc. (1990) 217 Cal. App. 3d 848, 858 (“[A] manufacturer of a product may be liable for fraud when it conceals material product information from potential users.”). Plaintiff alleges that defendant intentionally concealed the fact with an intent to defraud. See FAC, ¶¶57, 73. The court can infer that defendant placed the vehicle into the stream of commerce, presumably for profit. Plaintiff was unaware of the fact and he would not have purchased the vehicle, had he known of such defects and sustained damages. See FAC, ¶¶77, 78, 80, 83, 87. Further, plaintiff alleges that defendant had exclusive knowledge. See FAC, ¶84. The only remaining question then, is whether plaintiff was harmed. Despite the failure to plead actual harm, the court finds that the allegations support a cause of action for fraud: “A cause of action does not presently exist under any theory premised on the risk the [infotainment system] may malfunction in the future. This includes negligence, i.e., failure to warn, and breach of warranty. Allegations of fraud, however, are in a class by themselves. . . . For purposes of establishing fraud, it matters not that the [plaintiff’s infotainment system] is still functioning, arguably as intended. Unlike the other theories, in which the safety and efficacy of the product is assailed, the fraud claim impugns defendants' conduct.” Khan, supra 217 Cal. App. 3d at 857 (emphasis in original). By the same reasoning, defendant’s argument that plaintiff does not have standing lacks merit.

The court also finds that the economic loss rule does not bar the cause of action. “[W]here 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.' This doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts. 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. Quite simply, the economic loss rule 'prevent[s] the law of contract and the law of tort from dissolving one into the other.” Robinson Helicopter Co., Inc. v Dana Corp. (2004) 34 Cal.4th 979, 988 (citations omitted). “[W]hen one party commits a fraud during the contract formation or performance, the injured party may recover in both contract and tort.” Harris v. Atlantic Richfield (1993) 14 Cal. App. 4^th 70, 78 (citation omitted). See also Erlich v. Menezes (1999) 21 Cal. 4^th 543, 552 (“Tort damages have been permitted in contract cases where . . . the contract was fraudulently induced. . . . The duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm.”) (citations omitted) and Fassberg Construction Co. v. Housing Authority of City of Los Angeles (2007) 152 Cal. App. 4^th 720, 757 (“A plaintiff seeking to recover damages for economic loss caused by fraud must show that the plaintiff actually relied on the defendant’s misrepresentation or nondisclosure, that the reliance was reasonable, and that the plaintiff suffered damages as a result.”) (citations omitted). Thus, tort damages are permitted in contract cases where the contract has been fraudulently induced, which is what plaintiff alleges. Plaintiff alleges that had the true facts been disclosed, he would not have entered into the contract at all, which is not the same as a mere breach of contact.

Defendant requests that the court strike para. 8 (lines 5-8), fn1, fn4, para. 72 (lines 4-6), fn12, paras. 85 and 85(c), 86, fn14, fn15, and prayer for punitive damages.

As to para. 8, the motion is GRANTED WITHOUT LEAVE TO AMEND. The allegations as to “class action tolling” and reference to U.S. District Court case Conti v. American Honda Motor Co., Inc. are improper, immaterial, and irrelevant.

As to fn1 and para. 85, the motion is DENIED. As the court ruled above, the court finds that the allegations are sufficient as to duty to disclose.

As to fn4, the motion is GRANTED WITHOUT LEAVE TO AMEND. Allegations as to a recently certified federal class action lawsuit is improper, immaterial, and irrelevant.

As to para. 72 (lines 4-6), “Upon information and belief, such conspicuous TSB, or absence thereof, evidences Defendant’s knowledge of widespread Infotainment System Defect within Honda Vehicles.” Fn12) and fn12 (Exh. C, TSB 18-037), the motion is GRANTED WITHOUT LEAVE TO AMEND. This TSB references 2019 Honda Odyssey pre-delivery inspection of the navigation system. It does not reference any defect relating to the infotainment system. Thus, it is immaterial.

As to paras. 85(c) and 86, the motion is DENIED as such allegations are material to the elements.

As to fn14, and fn15, the motion is DENIED. Plaintiff is citing to law regarding omission.

As to prayer for punitive damages, the motion is DENIED in light of the ruling on the demurrer to the fraudulent concealment cause of action.