Judge: Gary I. Micon, Case: 23CHCV03888, Date: 2024-04-30 Tentative Ruling

Case Number: 23CHCV03888    Hearing Date: April 30, 2024    Dept: F43

Dept. F43

Date: 4-25-24

Case #23CHCV03888, Hakop Jack Minassian vs. BMW Financial Services NA, LLC, et al.

Trial Date: N/A

 

DEMURRER

 

MOVING PARTY: Defendant Valencia B. Imports, Inc. dba Valencia BMW

RESPONDING PARTY: Plaintiff Hakop Jack Minassian

 

RELIEF REQUESTED

Demurrer to the Complaint

·         1st Cause of Action for Fraud and Deceit

·         2nd Cause of Action for Breach of Implied Covenant of Good Faith and Fair Dealing

·         3rd Cause of Action for Violation of Business and Professions Code § 17200

·         4th Cause of Action for Violation of Business and Professions Code § 17500

·         5th Cause of Action for Violation of the Consumers Legal Remedies Act

 

RULING: Demurrer sustained without leave to amend for the First, Second, Third, Fourth, and Fifth Causes of Action.

 

SUMMARY OF ACTION

On September 6, 2019, Plaintiff Hakop Jack Minassian (Plaintiff) visited Defendant Valencia BMW’s (Defendant) dealership. (Comp., 14.) After discussions with a salesperson and finance manager at the dealership, Plaintiff decided to lease a new 2019 BMW. (Comp., 19.) Plaintiff alleges that the dealership employees informed him that he could lease the vehicle at a low cost with a possibility to purchase it later, and that by making lease payments, he could reduce the principal balance and eventually buy the vehicle for a reduced price based on the number of payments made. (Comp., 17.)

 

The agreed upon value of the vehicle was $113,587.00. (Comp., ¶ 20.) Plaintiff alleges that he was told by the dealership’s finance manager that he could walk away from the lease if the vehicle was worth less than the residual balance or buy it if it was worth more, and that this is what convinced Plaintiff to lease the vehicle. (Comp., 21.) The lease agreement was drafted by BMW Financial Services. (Comp., 22, Ex. A.) Plaintiff claims that the statements made by the dealership staff regarding equity were false, and that had he known they were false, he would not have leased the vehicle. (Comp., ¶¶ 23-24.)

 

On November 4, 2020, the vehicle was involved in a total loss incident, and Plaintiff filed a claim with Farmers Insurance on November 10, 2020. (Comp., ¶ 25.) On January 10, 2022, Farmers Insurance declared the vehicle a total loss and determined the actual cash of the vehicle to be $90,689.00, plus sales tax in the amount of $8,615.46, plus the license/transfer fees in the amount of $834.68. (Comp., ¶ 26.)  After subtracting the $1,000.00 deductible and other fees in the amount of $2,025.00, Farmers Insurance transferred the insurance payout for the vehicle in the amount of $97,114.14 to BMW Financial Services. (Comp., ¶ 26.) BMW Financial Services collected the full sum of $97,114.14 and refused to remit any amounts to Plaintiff. (Comp., ¶ 27.) Plaintiff alleges that BMW Financial Services committed fraudulent conduct by withholding Plaintiff’s equity of $514.96 based on the adjusted lease balance of $96,249.18. (Comp., ¶¶ 30-31.)

 

Plaintiff alleges that BMW Financial Services claimed itself to be the sole loss payee and so it collected the full sum of the insurance proceeds and withheld Plaintiff’s $514.96. (Comp., ¶ 34.) Plaintiff’s complaint alleges several other possibilities for misinterpretation on the part of MBW Financial Services of the parties’ lease agreement, including that the lease contained what Plaintiff describes as an “unequivocal right to purchase the Subject Vehicle,” and that there is no language that indicates the purchase option terminates if the vehicle is declared a total loss. (Comp., ¶ 37.) Plaintiff also alleges that he should have been able to purchase the vehicle pursuant to section 30 of the Lease because he had complied with its requirements. (Comp., ¶ 39.)

 

Plaintiff also alleges that while the insurance investigation was ongoing, Plaintiff continued making 14 months of additional payments on the lease, and Plaintiff alleges that he should have been paid back the $23,086.98 that he paid out over those 14 months. (Comp., ¶¶ 51-54.) Plaintiff was obligated to make these payments pursuant to section 25 of the lease, set forth below. (Comp., Ex. A.) He does not allege that he made any payments past the period during which the insurance proceeds payment was pending. However, Plaintiff alleges that he is entitled to a total of $23,601.94, based on his equity and the payments he made during the insurance investigation. (Comp., ¶ 55.)

 

Plaintiff alleges that BMW Financial Services has multiple consumer complaints against it for similar situations. (Comp., ¶ 57.) Plaintiff alleges that this evidences a scheme on the part of BMW to induce consumers to agree to lease vehicles, and that he would not have agreed to lease the vehicle if he knew about it. (Comp., ¶¶ 58-59.) Finally, Plaintiff alleges that Defendants have refused to pay Plaintiff’s damages. (Comp., ¶ 64.)

 

Based on these facts, Plaintiff has alleged five causes of action against Defendants for (1) Fraud and Deceit; (2) Breach of the Implied Covenant of Good Faith and Fair Dealing; (3) Violation of Business and Professions Code § 17200; (4) Violation of Business and Professions Code § 17500; and (5) Violation of the Consumer Legal Remedies Act.

 

The relevant lease agreement provisions to Plaintiff’s complaint and Defendant’s demurrer are the following:

 

“27. Purchase Option. I have an option to purchase the Vehicle AS-IS, WHERE-IS. If I want to buy the Vehicle, I will notify you in advance and agree to complete any documents you require for the purchase. I also agree to re-register and re-title the Vehicle at my own expense in my name at the time I purchase it…Prior to the end of the Lease Term, the purchase price will be the Adjusted Lease Balance (Section 30). In either case, I agree to also pay any other amounts due or outstanding under the Lease at the time of purchase such as any official fees, unpaid Monthly Payments or late charges.”

 

“24. Vehicle Loss or Damage. I agree to immediately notify you if the Vehicle is damaged or destroyed in an accident…In that event, you reserve the right to terminate this Lease and my liability with either be: (a) calculated under Section 25 below, if I am in compliance with my insurance obligations; or (b) calculated under Section 23 above, if I am not in compliance with my insurance obligations. If the Vehicle is…destroyed, another vehicle may be substituted in its place only if you agree to the substitution. You have no obligation to provide a substitution vehicle…”

 

“25. “Gap Amount” Waiver. If I am in compliance with my insurance obligations under this Lease and the Vehicle is damaged, stolen or destroy and considered a total loss under my insurance coverage, I will not be obligated to pay you the gap amount (the difference between the Adjusted Lease Balance and the actual cash value of the Vehicle as of the date of loss) if the claim for total loss is actually paid to you by my insurance company. However, I will be obligated to pay you: (1) any and all amounts due and owing needed to satisfy my obligations under this Lease…; plus (2) any amounts (including Monthly Payments) that become due pending receipt of the insurance proceeds, plus (3) the deductible amount under my insurance policy, plus (4) any amounts deducted from the actual cash value of the Vehicle by the insurance carrier…”

 

“31. Realized Value of the Vehicle. For the purpose of calculating my Early Termination liability (Section 30), the Realized Value of the Vehicle is (a) the price you receive for the Vehicle upon disposition in a commercially reasonable manner…If the Vehicle is a total loss as set forth in Section 24 above and I am in compliance with my insurance obligations, the amount of any deductible and the proceeds of the settlement of the insurance claim you receive are the “Realized Value.”…”

 

(Comp., Ex. A.)

 

Defendant Valencia BMW has demurred to all five causes of action on the basis that they fail to state a cause of action against it. It argues that the complaint contains numerous allegations against BMW Financial Services, but the complaint does not make clear why Valencia BMW has any liability.

 

Plaintiff argues in his opposition that the demurrer’s arguments are without merit and that Plaintiff has pled facts sufficient to maintain each cause of action. Defendant argues in its reply that the opposition fails to overcome the demurrer.

 

ANALYSIS

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. (CCP § 430.30(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.” (CCP § 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.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

 

As a preliminary matter, Plaintiff’s opposition appears to indicate that its complaint is premised on the theory that BMW Financial Services and the dealership Valencia B. Imports, Inc. dba Valencia BMW are “the agents, servants, employees, and/or joint venturers of their co-defendants and, as such, were acting within the course, scope, and authority of said agency, employment, and/or venture.” (Comp., ¶ 6.) In Valencia BMW’s reply, it argues that this is not the case, as the two are separate entities and Valencia BMW is not a party to the lease agreement that is at issue in this case. Defendant also argues that it and BMW Financial Services are not alter egos to one another and that Plaintiff has not alleged that that they are.

 

In order to allege a unity of interest between the between the alleged alter ego companies, a plaintiff must allege facts to support that unity and that the failure to recognize alter ego relationship would lead to an inequitable result. (See Leek v. Cooper (2011) 194 Cal.App.4th 399, 411.) Plaintiff has not alleged that here. They are not alter egos of each other. Valencia BMW is a dealership. BMW Financial Services is a separate entity that handles the leasing of new BMWs. BMW Financial Services was the party to the lease agreement, not Valencia BMW.

 

First Cause of Action for Fraud and Deceit

Defendant demurs to the First Cause of Action on the basis that it fails to allege facts sufficient to state a cause of action.

 

A fraud cause of action requires a Plaintiff to plead and prove: “(a) [a] misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal 4th 631, 638.) Fraud causes of action must be pled with specificity. “…This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom and by what means the representations were tendered.’” (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73, quoting Hills Trans. Co. v. Southwest (1968) 266 Cal.App.2d 702, 707.)

 

Fraud claims against a corporation must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

 

To the extent that Plaintiff alleges that Valencia BMW was part of a scheme with BMW Financial Services because the two are alter egos of one another, the Court rejects this argument given that they are separate entities.

 

Furthermore, while Plaintiff alleges that the salesperson and finance manager at Valencia BMW made representations to Plaintiff about how he could obtain equity through a lease agreement, nowhere does Plaintiff allege that they made misrepresentations regarding what happens when an insurance company deems a vehicle a total loss. Plaintiff only alleges that they made general representations regarding how equity worked and how Plaintiff could purchase the vehicle.

 

Additionally, Plaintiff was given the opportunity to review the lease before signing it. (See Comp., ¶¶ 20-21.) To the extent that Plaintiff is arguing that the lease agreement was somehow unconscionable, that is irrelevant to the allegations that Plaintiff has made concerning fraud. Fraud causes of action are not based on the conscionability of agreements. The Court will not consider Plaintiff’s arguments on conscionability. Regardless, to be unconscionable, a contract must be both procedurally and substantively unconscionable. (Davis v. Kozak (2020) 53 Cal.App.5th 897, 905.) It was certainly not procedurally unconscionable, as there was no oppression or surprise, and Plaintiff did not sign the contract under duress. (Id. at 906.)

 

There would also be no fraud because the terms of the lease agreement show that BMW Financial Services had the unilateral right to terminate in situations of total loss, and the purchase option cannot be construed to apply in that situation. (See Comp., Ex. A, Section 24.) Plaintiff attached the lease agreement to his complaint. The Court may consider the terms of the lease agreement. “‘While the “allegations [of a complaint] must be accepted as true for purposes of demurrer,” the “facts appearing in exhibits attached to the complaint will also be accepted as true and, if contrary to the allegations in the pleading, will be given precedence.”’” (Moran v. Prime Healthcare Management, Inc. (2016) 3 Cap.App.5th 1131, 1145-1146.)

 

“When interpreting a contract, a court must consider the ‘clear and explicit’ ‘language of [the] contract’ (Civ. Code, § 1638), generally construing ‘[t]he words ... in their ordinary and popular sense ... unless used by the parties in a technical sense’ (Civ. Code, § 1644), and taking ‘[t]he whole of [the] contract ... together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other’ (Civ. Code, § 1641).” (Id. at 1146.)

 

Interpreting the lease agreement in this case, the purchase option provision of the lease (Section 31) is separate from the provision related to total loss (Section 24). The purchase option does not override BMW Financial Services’ right to terminate the lease. Plaintiff’s interpretation that the purchase option would somehow override the provisions of the total loss section that allows BMW Financial Services to terminate the lease does not make sense. BMW Financial Services’ right to terminate the lease in the event of total loss would override the right to purchase, as it does here.

 

Furthermore, to the extent that Plaintiff alleges that the payments he made during the period that the insurance investigation was ongoing should be returned, during that period, Plaintiff was obligated to continue making lease payments by the Gap Amount provision of the lease agreement. (Comp., Ex. A, Section 25.) Plaintiff does not allege that he made any payments past that point required by the lease agreement. Therefore, there was no fraud in relation to any representations that were made about those payments.

 

As a result, setting aside whether the dealer has liability separate from BMW Financial Services, no fraud occurred. The terms of the lease are clear. While Plaintiff did have the option to purchase the vehicle, that did not override BMW Financial Services’ right to terminate the lease in the event of a total loss.

 

Plaintiff has not pled facts sufficient to constitute a cause of action for fraud against Defendant Valencia BMW. Nothing in the lease agreement would support Plaintiff’s cause of action for fraud or shows a possibility that a different meaning could be present, so Defendant’s demurrer to Plaintiff’s First Cause of Action is sustained without leave to amend. (See George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1128-1130.)

 

Second Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing

Defendant demurs to Plaintiff’s Second Cause of Action on the basis that it fails to state facts sufficient to constitute a cause of action.

 

The implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract. (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1032.) It cannot impose substantives duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350.) This is because the implied covenant “…cannot be read to require defendants to take a particular action that is discretionary under the contract when the contract also expressly grants them the discretion to take a different action.” (Bevis v. Terrace View Partners, LP (2019) 33 Cal.App.5th 230, 256.)

 

First, Valencia BMW is not a party to the lease agreement. The lease agreement is between Plaintiff and BMW Financial Services. Plaintiff cannot allege that Valencia BMW failed to deal with good faith and fair dealing pursuant to the contract because Valencia BMW was not a party to the contract.

 

Additionally, Defendant points out in its demurrer BMW Financial Services had the option under the lease agreement to terminate the lease in the event that the vehicle was damaged or destroyed, and if the lessee was in compliance with insurance obligations, he was not required to pay a gap amount. (Comp., Ex. A, Sections 24, 25.) BMW Financial Services was also entitled to receive the “realized value” of the vehicle in the event of a total loss. (Comp., Ex. A, Section 31.) Even if Valencia BMW were a party to the contract, based on these provisions, Plaintiff has not sufficiently alleged that it was in breach of the implied covenant of good faith and fair dealing.

 

Defendant’s demurrer to Plaintiff’s Second Cause of Action is sustained without leave to amend. Valencia BMW is not a party to the contract, as is evident from the lease agreement attached as Exhibit A to Plaintiff’s complaint.

 

Third Cause of Action for Violation of Business and Professions Code § 17200, Fourth Cause of Action for Violation of Business and Professions Code § 17500, and Fifth Cause of Action for Violation of the Consumer Legal Remedies Act

 

Defendant demurs to Plaintiff’s Third, Fourth, Fifth Cause of Action on the basis that it fails to state facts sufficient to constitute a cause of action.

 

Defendant argues that the common element in these three causes of action was that there had been an alleged misrepresentation or other unfair act. Defendant lays it out as follows:

“Minassian has judicially admitted (1) he specifically came to the Dealership looking for a lease; (2) the Dealership laid out the terms and documentation for him; (3) he read, reviewed, and understood the terms; (4) he agreed they reflected what he wanted; (5) he signed the Lease Agreement where he acknowledged that he read and understood the terms of the Lease Agreement; (6) he attached a true and correct copy of the Lease Agreement to the Complaint; (7) in the event of a total loss settlement the Lease Agreement expressly authorized BMWFS to terminate the lease, accept the total loss settlement, and release Minassian from the remainder of the Lease Agreement; (8) Farmers Insurance paid out a total loss settlement to BMWFS; and (9) BMWFS dutifully accepted the total loss settlement and released Minassian from the rest of the Lease Agreement. (Complaint, ¶¶ 16, 20, 25-28, and Ex. A at Sections 24, 25, 31, and 37, among others.) Furthermore, Minassian does not allege he was somehow forced to enter the Lease Agreement and he could have rejected the deal presented at any time.” (Defendant’s Demurrer, p. 16.)

 

For the Third and Fourth Causes of Action, Plaintiff is alleging that Defendant BMW Financial Services withheld his equity and monthly payments, not Valencia BMW. (Comp., ¶¶ 93, 117, 122.) Plaintiff has also failed to allege that Valencia BMW made misrepresentations to Plaintiff regarding what happens in the event of a total loss. To the extent that Valenica BMW’s representatives made representations to Plaintiff regarding the building of equity and how he could buy the vehicle, those representations were not related to the total loss of the vehicle.

 

For the Fifth Cause of Action, Plaintiff is alleging that the Consumer Legal Remedies Act was violated because the terms of the lease were not honored. Once again, the lease agreement was between Plaintiff and BMW Financial Services. Valencia BMW did not have any obligations under the lease agreement.

 

As an alternative basis for sustaining the demurrer to these causes of action, there can be no statutory violation if BMW complied with the terms of lease. As discussed above, the Court finds that BMW did comply with the terms of the lease based on the total loss (Section 24) and gap amount (Section 25) provisions. (See Comp., Ex. A.)

 

Because Plaintiff cannot allege that Valencia BMW had obligations under the lease agreement or that the lease agreement was breached in any way, Defendant’s demurrer to Plaintiff’s Third, Fourth and Fifth Causes of Action is sustained without leave to amend.

 

CONCLUSION

Defendant’s demurrer to Plaintiff’s First, Second, Third, Fourth, and Fifth Causes of Action is sustained without leave to amend.

 

Moving party to give notice to all parties.