Judge: Holly J. Fujie, Case: 22STCV07450, Date: 2022-10-26 Tentative Ruling

Case Number: 22STCV07450    Hearing Date: October 26, 2022    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

MOVING PARTY: Defendant General Motors LLC (“Moving Defendant”)

RESPONDING PARTY: Plaintiff

            The Court has considered the moving, opposition and reply papers.

BACKGROUND

            This action arises out of the purchase of a vehicle (the “Vehicle”) manufactured and distributed by Moving Defendant.  Plaintiff initiated this action by filing a complaint (the “Complaint”) on March 1, 2022.  The currently operative first amended complaint (the “FAC”) alleges four causes of action for warranty breaches under the Song-Beverly Act and a fifth cause of action for fraudulent inducement by concealment.

In relevant part, the FAC alleges: Plaintiff purchased the Vehicle on or about July 23, 2016.  (FAC ¶ 6.)  The Vehicle came with several warranties.  (FAC ¶ 7, Exhibit A.)

Before purchasing the Vehicle, Plaintiff interacted with Moving Defendant’s authorized dealership’s sales representatives, considered Moving Defendant’s advertisements and other marketing materials related to the Vehicle, and researched the features of the Vehicle on Moving Defendant’s website.  (FAC ¶¶ 8, 31.) 

During the terms of the Vehicle’s warranties and within one year of its purchase, the Vehicle exhibited symptoms of various defects, including a defect to the cooling system.  (See FAC ¶¶ 12, 72.)  The cooling system defect can, among other things, cause mechanical problems such as fluid leakage into the engine and reduced engine power.  (See FAC ¶¶ 24, 26.)  Beginning in 2017, Plaintiff presented the Vehicle to Moving Defendant’s authorized repair facilities multiple times with concerns related to the Vehicle’s engine and/or cooling system.  (See FAC ¶¶ 26, 39-42.) 

Moving Defendant knew since at least 2010 that the Vehicle contained defects to its engine cooling systems from sources not available to the general public, pre- and post-production testing data, early consumer complaints, and its internal data aggregated from its network of dealers.  (See FAC ¶¶ 22, 29.)  Moving Defendant did not disclose the defect to Plaintiff either before or after he purchased the Vehicle.  (FAC ¶¶ 30, 80.)  Plaintiff discovered Moving Defendant’s wrongful conduct shortly before filing the original Complaint due to the Vehicle continuing to exhibit symptoms of its defects after repair attempts.  (FAC ¶ 45.) 

Moving Defendant filed a demurrer (the “Demurrer”) to the fifth cause of action on the grounds that the FAC fails to state sufficient facts to constitute a cause of action because: (1) the claim is time-barred by the applicable statute of limitations; (2) the allegations are not sufficiently specific to allege fraud; and (3) the claim is barred by the economic loss rule.  Moving Defendant also filed a motion to strike (the “Motion”) portions of the FAC related to punitive damages.

DEMURRER

Meet and Confer

            The meet and confer requirement has been met for the Demurrer and Motion.

Legal Standard

A demurrer tests the sufficiency of a complaint as a matter of law.  (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)  The court accepts as true all material factual allegations and affords them a liberal construction, but it does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts.  (Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1254.)  With respect to a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded.  (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.)  A demurrer will be sustained without leave to amend if there exists no reasonable possibility that the defect can be cured by amendment.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) 

Statute of Limitations

A complaint disclosing on its face that the limitations period has expired in connection with one or more counts is subject to demurrer.  (Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1250.)  Under California Code of Civil Procedure (“CCP”) section 338, subdivision (d), fraud claims have a three-year statute of limitations.  (CCP § 338, subd. (d).)

The cause of action is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.  (Id.)  The statute begins to run only after one has knowledge of facts sufficient to make a reasonably prudent person suspicious of fraud, thus putting him on inquiry.  (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 298.) When a plaintiff reasonably should have discovered facts for purposes of the accrual of a case of action or application of the delayed discovery rule is generally a question of fact, properly decided as a matter of law only if the evidence (or the allegations in the complaint and facts properly subject to judicial notice) can support only one reasonable conclusion.  (Broberg v. The Guardian Life Ins. Co. of America (2009) 171 Cal.App.4th 912, 921.)

            The Court finds that the allegations in the FAC do not conclusively establish that the fraudulent concealment claim is barred as a matter of law.  While Plaintiff was on notice of various issues with the Vehicle outside the limitations period proscribed by CCP section 338, subdivision (d), the FAC does not include allegations to demonstrate as a matter of law that the problems Plaintiff experienced with the Vehicle placed him on notice that Moving Defendant knew of a cooling system defect and intentionally failed to disclose the defect to Plaintiff.

Fraud by Omission

The elements of fraud by omission are: (1) misrepresentation by nondisclosure; (2) knowledge of falsity; (3) intent to defraud (i.e., to induce reliance); (4) justifiable reliance; and (5) resulting damage.  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)  To plead fraud by omission, the plaintiff must also plead that the defendant was under a duty to disclose the allegedly omitted fact.  (Lopez v. Nissan North America, Inc. (2011) 201 Cal.App.4th 72, 596.)  There are four circumstances that impose a duty on the defendant such that nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant has exclusive knowledge of material facts not known to 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.  (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 310-11.)  The heightened pleading for standard for fraud claims is relaxed if it appears from the nature of the allegations that the defendant must necessarily possess full information, or if the facts lie more in the knowledge of opposing parties.  (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384-85 (“Alfaro”).)  The plaintiff need not plead specific information that should be within the knowledge of the defendant.  (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)

A transaction giving rise to a duty to disclose, as would support a claim for intentional concealment, must necessarily arise from direct dealings between the plaintiff and defendant; it cannot arise between the defendant and the public at large.  (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 312).  As a matter of common sense, such a relationship can only come into being as a result of some sort of transaction between the parties.  (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 337.)  Thus, a duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement.  (Los Angeles Memorial Coliseum Com. v. Insomniac, Inc. (2015) 233 Cal.App.4th 803, 831.)  A vendor has a duty to disclose material facts not only to immediate purchasers, but to subsequent purchasers when the vendor has reason to expect that the item will be resold.  (OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 851 (“OCM”).)

            The FAC adequately alleges a transactional relationship between Plaintiff and Moving Defendant to support a duty to disclose.  Moving Defendant manufactured and distributed the Vehicle.  In addition, Moving Defendant was the source of the warranties which form the basis for Plaintiff’s Song-Beverly claims.  By manufacturing and distributing cars, including the Vehicle, it was reasonable for Moving Defendant to expect that the Vehicle would subsequently be sold.  (See OCM, supra, 157 Cal.App.4th at 851.)  In addition, the FAC alleges that the facts underlying the fraudulent omission claim lie more within the knowledge of Moving Defendant, a knew of the transmission defect through a variety of sources that are not readily available to the general public, including early consumer complaints and its internal data.  The FAC is thus sufficiently alleged to put Moving Defendant on notice of the nature of Plaintiff’s claim.  (See Alfaro, supra, 171 Cal.App.4th at 1384.)  The Court therefore finds that the FAC alleges sufficient facts to constitute fraud by omission. 

Economic Loss Rule

Where a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is in contract alone, for he has suffered only economic losses.  (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988 (“Robinson”).)  The economic loss rule 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.  (Id.)  The economic loss rule prevents the law of contract and the law of tort from dissolving one into the other.  (Id.)

The restrictions on contract remedies serve purposes not found in tort law—they protect the parties’ freedom to bargain over special risks and they promote contract formation by limiting liability to the value of the promise.  (Harris v. Atlantic Richfield (1993) 14 Cal.App.4th 70, 77.)  This encourages efficient breaches, resulting in increased production of goods and services at a lower cost to society.  (Id.)  Because of these overriding policy considerations, the California Supreme Court has proceeded with caution in carving out exceptions to the traditional contract remedy restrictions.  (Id.)  The most widely recognized exception to the economic loss rule is when a defendant’s conduct constitutes a tort as well as a breach of contract.  (Id. at 78.)  The party alleging fraud or deceit in connection with a contract must establish tortious conduct independent of a breach of the contract itself, that is, violation of some independent duty arising from tort law.  (Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 1118, 1130 (“Food Safety Net Services”).)  Such conduct may arise in several situations, including in the fraudulent inducement of the pertinent contract.  (See id.)

The Court is not persuaded by Moving Defendant’s argument that the economic loss rule bars the sixth cause of action because the exception to the economic loss rule established by Robinson is limited to cases alleging affirmative misrepresentations.  In Robinson, the California Supreme Court held that that the economic loss rule does not bar tort recovery for claims for intentional misrepresentation or fraud in the performance of a contract.  (See Robinson, supra, 34 Cal.4th 979 at 984.)  Robinson therefore does not expressly bar recovery for claims arising out of allegations that a contract was induced by a defendant’s fraudulent concealment of facts.  (See Food Safety Net Services, supra, 209 Cal.App.4th at 1130.)  Because the FAC sufficiently alleges fraud by omission and alleges that Plaintiff would not have leased the Vehicle if he knew of the transmission defect, Plaintiff is not precluded from seeking damages that are separate from those arising from a breach of contract.

The Court therefore OVERRULES the Demurrer.  Moving Defendant is to file an answer within 20 days of this order.

MOTION TO STRIKE

Legal Standard

A motion to strike either: (1) strikes any irrelevant, false or improper matter inserted in any pleading; or (2) strikes any pleading or part thereof not drawn or filed in conformity with the laws of this state, a court rule or order of court.  (CCP § 436.)

The Motion seeks to strike the prayer for punitive damages from the FAC.  As the fraud by omission claim forms the basis for the prayer for punitive damages, based on the Court’s ruling on the Demurrer, the Court DENIES the Motion.

Moving party is ordered to give notice of this ruling. 

In consideration of the current COVID-19 pandemic situation, the Court¿strongly¿encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative.¿¿If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to¿SMC_DEPT56@lacourt.org¿stating your intention to appear in person.¿ The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date.¿ This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org.  If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar. 

  Dated this 26th day of October 2022