Judge: Gregory Keosian, Case: 22STCV17911, Date: 2022-10-31 Tentative Ruling

Case Number: 22STCV17911    Hearing Date: October 31, 2022    Dept: 61

Defendant General Motors, LLC’s Demurrer to the First Amended Complaint is OVERRULED.

Defendant General Motors, LLC’s Motion to Strike Portions of the First Amended Complaint is DENIED

I.                   DEMURRER

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) In particular, as is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“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. [Citation.]”)

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.”  (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Such demurrers “are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 14 Cal.App.5th 841, 848.)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

A.    STATUTE OF LIMITATIONS

Defendant General Motors, LLC (Defendant) argues that Plaintiff Arlen L. Jackson’s (Plaintiff) Fifth Cause of Action for fraud is barred by the statute of limitations. (Demurrer at pp. 13–14.)

There is a three-year statute of limitations for “[a]n action for relief on the ground of fraud or mistake. The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” (Code Civ. Proc., § 338, subd. (d.)

The “discovery rule. . . postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.) “A plaintiff has reason to discover a cause of action when he or she ‘has reason at least to suspect a factual basis for its elements.’” (Ibid..) Courts “look to whether the plaintiffs have reason to at least suspect that a type of wrongdoing has injured them.” (Ibid.) The accrual of a cause of action in relation to the discovery rule is normally a question of fact. (Id. at p. 810.)

On a demurrer, the court must take as true statements such as that as plaintiff “did not discover, nor suspect, nor was there any means through which her reasonable diligence would have revealed, or through which she would have suspected,” the cause of an injury was the defendant in question. (Id. at p. 811.) However: “A plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” (Id. at p. 808.) The burden is on the plaintiff to show diligence, and conclusory allegations will not withstand demurrer. (Ibid.)

Here, the alleged fraud would have taken place on August 15, 2015, when Plaintiff obtained the warranty at issue. (FAC ¶ 6.) The limitations period from this date would have run without the discovery rule by August 15, 2018. The original Complaint was filed on June 1, 2022, almost four years beyond the limitations period. Because the fraud claim would thus be barred without the benefit of the discovery rule, Plaintiffs must specifically plead facts to show that the discovery rule applies.

The FAC pleads the requisite facts to allege application of discovery-rule tolling. The FAC includes a section documenting the repair history of the vehicle, including the defects that form the basis for the fraud claim, which occurred from May 2017 through and beyond the warranty period to October 2021. (FAC ¶¶ 39–47.) These allegations support Plaintiff’s contention that he could not have discovered the defect until shortly before this action was filed, and are sufficient to invoke the discovery rule and preserve the fraud claim from demurrer on statute of limitations grounds.

B.     ECONOMIC LOSS RULE

Defendant General Motors, LLC (Defendant) challenges the fifth cause of action for fraud by arguing  that the “economic loss rule” limits damages to those sounding in contract alone, and not in a tort for fraud, because the damages arise out of a warranty. (Demurrer at pp. 9–13.)

“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 . . . .”'” [Citation.]’ [Citation.] Simply stated, the economic loss rule provides: ‘“‘[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.’ [Citation.] 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. [Citation.] 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. (“Robinson”) (2004) 34 Cal.4th 979, 988.)

Defendant neglects, however, that  “‘tort damages have been permitted in contract cases . . . where the contract was fraudulently induced.” (Robinson, supra, 34 Cal.4th at p. 990.) As Plaintiff alleges that the purchase of the vehicle was the product of fraudulent concealment, the economic loss rule does not apply. (FAC ¶ 35.)

Defendant cites a number of federal cases holding that the economic loss rule fraudulent concealment claims brought on the same basis as breach of warranty claims. (See, e.g., Zagarian v. BMW of North America, LLC (C.D. Cal., Oct. 23, 2019, No. CV 18-4857-RSWL-PLA) 2019 WL 6111731, at *3; Hammond v. BMW of North America, LLC (C.D. Cal., June 26, 2019, No. CV 18-226 DSF (MRWX)) 2019 WL 2912232, 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; Kelsey v. Nissan North America (C.D. Cal., July 15, 2020, No. CV 20-4835 MRW) 2020 WL 4592744, at *2.) None are binding upon this court, and opinion on the issue is not unanimous even among the federal courts that Defendant cites. (See Scherer v. FCA US, LLC (S.D. Cal., Oct. 5, 2021, No. 320CV02009AJBBLM) 2021 WL 4621692, at *5 [holding that economic loss rule did not bar claim for fraudulent concealment where it was alleged that concealment induced the contract]; see also LMNO Cable Group, Inc. v. Discovery Communications, LLC (C.D. Cal., May 15, 2020, No. LACV1604543JAKSKX) 2020 WL 10759618, at *12.) Moreover, none of Defendant’s cases addresses the Robinson court’s express admonition that plaintiffs are not bound merely to economic losses when the contract itself forming the basis for that limitation is induced by fraud. The Robinson court explained the reason for such an exception was because “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.” (Id. at p. 990.) Here, it is alleged not merely that Defendant breached its contract in a fraudulent way, as was the underlying fact-pattern of Robinson, but that Defendant fraudulently induced Plaintiff to enter into a purchase contract that they otherwise would not have entered into. The economic loss rules forms no basis to sustain the demurrer here.

C.    ELEMENETS & SPECIFICITY

The elements of fraud are: (1) misrepresentation or concealment, (2) knowledge of its falsity, (3) intent to defraud, (4) justifiable reliance and (5) resulting damage. (Gil v. Bank of America, Nat. Ass'n (2006) 138 Cal. App. 4th 1371, 1381; Barbara A. v. John G. (1983) 145 C.A.3d 369, 376.) 

“‘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 the fact. [Citation.]’ [Citation.]” (Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162.) The elements of concealment, as with ordinary fraud, must be pleaded with specificity. (See Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1472.)

Fraud causes of action must be pleaded with particularity, meaning that the plaintiff must allege “how, when, where, to whom, and by what means the representations were tendered.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

Defendant argues that the FAC fails to allege a specific omission or the identity of any individual who ought to have rectified this omission. (Demurrer at pp. 14–16.)

This argument is unpersuasive. While specificity is required in fraud claims, specificity is not required as to non-material matters. And the facts so material in cases of affirmative representation — who made what representations, by what means, where, etc.  — are not so easily or necessarily described when pleading a claim for fraudulent concealment, defined by the failure to disclose pertinent facts. (See Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384 [requirement to plead affirmative misrepresentations in detail is “intended to apply to affirmative misrepresentations”].)

The FAC here pleads the facts requisite to a concealment claim with adequate specificity. The material fact is the existence of the cooling system defect. (FAC ¶ 22.) Defendant is alleged to have had superior and exclusive knowledge of this defect and to have intentionally withheld this knowledge from consumers like Plaintiff. (FAC ¶¶ 82, 86.) Plaintiff alleged to have relied upon this failure to disclose in deciding to purchase the vehicle. (Complaint ¶ 8, 87.) The concealment claim is adequately pleaded.

Defendant finally argues that there was no transactional relationship between itself and Plaintiff such that Defendant owed a duty to disclose to Plaintiff. (Demurrer at pp. 16–17; see Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 312 [transaction giving rise to duty to disclose “must necessarily arise from direct dealings between the plaintiff and the defendant; it cannot arise between the defendant and the public at large”].) But such a relationship exists here. Although Plaintiff does not allege that they purchased their vehicle from Defendant, it was Defendant that provided them with the warranty that they are here alleged to have breached. (FAC ¶ 6.) Thus a transactional relationship exists.

The demurrer is therefore OVERRULED.

II.                MOTION TO STRIKE

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 thereof. (Code Civ. Proc., § 435(b)(1)). The notice of motion to strike a portion of a pleading shall quote in full the portions sought to be stricken except where the motion is to strike an entire paragraph, cause of action, count or defense. (California Rules of Court Rule 3.1322.)

The grounds for a motion to strike shall appear on the face of the challenged pleading or form any matter of which the court is required to take judicial notice. (Code Civ. Proc., § 437(a)). The court then may strike out any irrelevant, false, or improper matter inserted in any pleading and strike out 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. (Code Civ. Proc., § 436.) When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend. (Perlman v. Municipal Court (1979) 99 Cal.App.3d 568, 575.)

Defendant moves to strike the prayer for punitive damages on the grounds that such damages are not recoverable in Song-Beverly claims seeking civil penalties, and cannot be recovered in connection with a defective fraud claim. (Motion at pp. 3–5.)

Punitive damages are allowed in non-contract cases when a defendant is guilty of “oppression, fraud, or malice . . . .” (Civ. Code § 3294.) The terms are defined as:

“Malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.

“Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.

“Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

Something more than the mere commission of a tort is always required for punitive damages. (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894.) Proof of negligence, gross negligence, or recklessness is insufficient to warrant an award of punitive damages. (Dawes v. Sup.Ct. (Mardian) (1980) 111 Cal.App.3d 82, 88–89.) Punitive damages may be recovered in an action for negligence or other nonintentional torts if the plaintiff pleads and proves that the defendant acted with the state of mind described as “conscious disregard” of the potential dangers to others. (Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1299.) When malice is based on a defendant’s conscious disregard of Plaintiff’s rights, the conduct must be both despicable and willful. (College Hospital v. Superior Court (1994) 8 Cal.4th 794, 713 (“College Hospital”).)

Here, because Plaintiff has alleged a viable fraud claim, he has pleaded fraud for the purposes of entitlement to punitive damages under Civil Code § 3294.

The Motion to Strike is DENIED.