Judge Holly J. Fujie, Case Number: 23STCV07831, Date: 2023-08-14 Tentative Ruling

This action arises out of the lease of an allegedly defective 2021 Chevrolet Bolt EV (the “Vehicle”) that was manufactured by Moving Defendant. The currently operative first amended complaint (the “FAC”) alleges: (1) fraud – concealment; (2) negligent misrepresentation; (3) violation of Business and Professions Code section 17200; (4) breach of express warranty; (5) breach of implied warranty; and (6) violations of the Song-Beverly Act.

In relevant part, the FAC alleges: On or about April 13, 2021, Plaintiff leased the Vehicle from a dealership (the “Dealer”). (FAC ¶ 8.) Plaintiff intended to lease a reliable electric car that would be able to travel at least 250 miles per charge. (Id.) Before she agreed to lease the Vehicle, Plaintiff spoke with an authorized salesperson about the Vehicle’s features, including its battery life. (Id.) The Dealer’s salesperson reiterated features about the Vehicle’s battery that Plaintiff had previously learned from Moving Defendant’s advertisements, including that the Vehicle had a range of 259 miles per charge. (See id.) Plaintiff decided to lease the Vehicle based on these representations about the longevity and safety of its battery. (Id.)

The Vehicle exhibited defects during the warranty period, including defects related to the battery. (See FAC ¶ 10.) Moving Defendant knew of battery defects affecting Chevrolet Bolts since 2017. (See FAC ¶¶ 13-24.)

Moving Defendant filed a demurrer (the “Demurrer”) to the first through third causes of action on the grounds that the FAC fails to state sufficient facts to constitute a cause of action. Moving Defendant also filed a motion to strike (the “Motion”) portions of the FAC concerning punitive damages.

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.)

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.)

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 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.)

The Court finds that the FAC sufficiently alleges the elements of fraud by omission. The FAC adequately alleges a transactional relationship between Plaintiff and Moving Defendant to support a duty to disclose. By distributing cars, including the Vehicle, to the Dealer, it was reasonable for Moving Defendant to expect that the Vehicle would subsequently be sold or leased. (See OCM, supra, 157 Cal.App.4th at 851.) In addition, the FAC alleges that the facts underlying the fraudulent omission claim were within the knowledge of Moving Defendant. Moving Defendant had superior knowledge of the battery defect through a variety of sources that are not readily available to the general public, internal investigations and customer complaints (See, e.g., FAC ¶¶ 13, 16.) The FAC further alleges that Moving Defendant purposely concealed the extent of the battery defect in order to encourage consumers, including Plaintiff, to purchase its vehicles. (See FAC ¶ 34.) These allegations are sufficient to put Moving Defendant on notice of the nature of Plaintiff’s claims. (See Alfaro, supra, 171 Cal.App.4th at 1384.) The Court therefore OVERRULES the Demurrer to the first cause of action.

The elements of negligent misrepresentation are: (1) the misrepresentation of a past or existing material fact; (2) without reasonable ground for believing it to be true; (3) with intent to induce another's reliance on the fact misrepresented; (4) justifiable reliance on the misrepresentation; and (5) resulting damage. (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 243.) A positive assertion is required; an omission or an implied assertion or representation is not sufficient. (Id.) Responsibility for negligent misrepresentation rests upon the existence of a legal duty, imposed by contract, statute or otherwise, owed by a defendant to the injured person. (Bock v. Hansen (2014) 225 Cal.App.4th 215, 228.) California courts have recognized a cause of action for negligent misrepresentation, i.e., a duty to communicate accurate information, in two circumstances. (Id. at 229.) The first situation arises where providing false information poses a risk of and results in physical harm to person or property. (Id.) The second situation arises where information is conveyed in a commercial setting for a business purpose. (Id.) With respect to the second situation, the duty extends only to losses suffered by plaintiffs belonging to a limited group of persons for whose benefit and guidance the misrepresentation was made. (Leining v. Foster Poultry Farms, Inc. (2021) 61 Cal.App.5th 203, 219.)

The FAC identifies several allegedly false statements regarding the Vehicle’s battery and safety that were made by Moving Defendant in its advertising materials and by an authorized salesperson when Plaintiff leased the Vehicle. (See FAC ¶¶ 8, 39.)[1] These misrepresentations facilitated Plaintiff’s lease of the Vehicle. (See FAC ¶¶ 8, 12, 41.) The Court finds that the FAC alleges sufficient facts to state a negligent misrepresentation claim. The Court therefore OVERRULES the Demurrer to the second cause of action.

The UCL prohibits any unlawful, unfair or fraudulent business act or practice. (Bus. & Prof. Code § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.) To show a violation of the UCL, a plaintiff must establish: (1) a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury; and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim. (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322.) A business act or practice only needs to meet one of the requirements to be considered unfair competition under the UCL. (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1093.)

The FAC’s Song-Beverly Act and fraud claims are identified as the bases of Plaintiff’s UCL claim. The FAC alleges that Plaintiff incurred economic injury when she leased the Vehicle in reliance on Moving Defendant’s alleged misrepresentations. The Court finds that this is sufficient to allege a cause of action for a fraudulent business practice. The Court therefore OVERRULES the Demurrer to the third cause of action.

Under California Code of Civil Procedure (“CCP”) section 436, 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.)

A plaintiff may recover punitive damages in an action for breach of an obligation not arising from contract when the plaintiff proves by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice. (Civ. Code § 3294, subd. (a).)

The Motion argues that the FAC does not allege proper facts to demonstrate Plaintiff’s entitlement to recover punitive damages. In light of the Court’s findings regarding the sufficiency of the fraud claims in the FAC, the Court finds that the FAC sufficiently alleges a basis for Plaintiff to recover punitive damages. The Court therefore DENIES the Motion.

Moving Defendant is ordered to file an answer to the FAC within 20 days of the date of this order.

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.

[1] In its consideration of the Demurrer, the Court accepts the allegation that the salesperson Plaintiff interacted with was authorized to speak on Moving Defendant’s behalf as true.