Judge Jill Feeney, Case Number: 23STCV10369, Date: 2023-12-06 Tentative Ruling

This is an action for violations of the Song-Beverly Warranty Act and fraudulent inducement and concealment. Plaintiffs allege that they purchased a 2020 Chevrolet Silverado 1500 from Defendant in 2020. The vehicle arrived with defects that Defendant failed to repair despite a reasonable number of opportunities. Plaintiffs allege that Defendant committed fraud by allowing the vehicle to be sold without disclosing that the vehicle and its 8-speed transmission were defective and susceptible to sudden and premature failure.

Defendant demurs to Plaintiff’s fifth cause of action for fraudulent inducement – concealment on the grounds that (1) the FAC fails to state facts relevant to the elements of the claim and (2) the FAC fails to allege a transactional relationship giving rise to a duty to disclose.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “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. (Code Civ. Proc., §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 (internal citations omitted).)

A party filing a demurrer “shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc., section 430.41(a).) “The parties shall meet and confer at least five days before the date the responsive pleading is due. If the parties are not able to meet and confer at least five days prior to the date the responsive pleading is due, the demurring party shall be granted an automatic 30-day extension of time within which to file a responsive pleading, by filing and serving, on or before the date on which a demurrer would be due, a declaration stating under penalty of perjury that a good faith attempt to meet and confer was made and explaining the reasons why the parties could not meet and confer.” (Code Civ. Proc., section 430.41(a)(2).) A failure to meet and confer does not constitute grounds to sustain or overrule a demurrer. (See Code Civ. Proc., sections 430.41 (a)(4).)

“Fraudulent inducement is a viable tort claim under California law. ‘The elements of fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage. Fraud in the inducement is a subset of the tort of fraud. It ‘occurs when ‘the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable.’” (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 838-839.)

Ordinarily, ”fraud must be pleaded specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.). “This particularity requirement necessitates pleading facts which show how, where, to whom, and by what means” the alleged fraud occurred. (Id.) The purpose of the particularity requirement is to “separate meritorious and nonmeritorious cases, if possible in advance of trial.” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

Some cases, however, conclude that this standard is less stringent when the defendant already has “ ‘full information concerning the facts of the controversy.’ ” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217, superseded by statute on other grounds as stated in Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 227.) Relaxation of the specificity requirement is particularly appropriate in a¿concealment¿case. Unlike intentional misrepresentation, which requires some affirmative representation or promise, a fraudulent¿concealment¿is the absence of something, the suppression of a fact. (Civ. Code § 1710.)

The courts have ruled that specificity as to fraud claims is required if it appears from the nature of allegations that 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, 1384-1385 [“it does not appear necessary to require each of the 38 plaintiffs to allege each occasion on which an agent of either defendant could have disclosed …. Surely defendants have records of their dealings with the plaintiffs”] accord Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 931 [“plaintiffs did not have to specify the … personnel who prepared these documents because that information is uniquely within … [defendant’s] knowledge”].) “‘[T]he courts should not ... seek to absolve the defendant from liability on highly technical requirements of form in pleading. Pleading facts in ordinary and concise language is as permissible in fraud cases as in any others, and liberal construction of the pleading is as much a duty of the court in these as in other cases.’” (Appollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 242.)

Here, the FAC alleges that on August 8, 2020, Plaintiffs entered into a warranty contract with Defendant GM regarding the purchase of a 2020 Chevrolet Silverado 1500 which was manufactured and distributed by Defendant. (FAC ¶7.) The purchase took place at the Chevrolet of Montebello. (FAC ¶7.) Plaintiffs saw Defendant’s commercials and brochures prior to making their purchase that did not disclose any transmission defect. (FAC ¶9.) Additionally, Defendant’s authorized sales professionals at Chevrolet Montebello described the vehicle’s key features and components and failed to disclose the transmission defect. (FAC ¶9.) Had Plaintiffs known about the defect, they would not have purchased the vehicle. (FAC ¶9.) Defendant knew that the 8-speed transmission installed on the vehicle was defective and failed to disclose this fact to Plaintiffs before the sale. (FAC ¶65.) Defendant knew the 8-speed transmission had hard or harsh shifts, jerking, lurching, hesitation on acceleration, surging, and uncontrollable speed, acceleration, and deceleration. (FAC ¶66.)

Defendant argues the cause of action for fraudulent inducement – concealment lacks the requisite specificity because FAC fails to identify (1) the identity of the individuals who purportedly concealed material facts or made untrue representations about the vehicle, (2) their authority to speak and act on behalf of Defendant, (3) Defendant’s knowledge of the alleged defects, (4) any interactions with Defendant before or during the purchase, or (5) Defendant’s intent to induce Plaintiffs’ reliance.

Defendant’s first argument that Plaintiffs were required to name the employees who concealed material facts or made misrepresentations about the vehicle fail because it is not necessary for a complaint to name the specific employee who sold the vehicle to Plaintiff. This information is within Defendant’s knowledge because Defendant would reasonably maintain records of the employees’ identities and Plaintiff’s transaction.

Next, Defendant’s argument that the FAC failed to state the employees who sold the vehicle were authorized to act on Defendant’s behalf fails because the FAC does state that the employees who sold her the vehicle were authorized sales representatives. The FAC also adequately describes interactions with Defendant because it states Defendant’s authorized sales representatives described the vehicles key features and components to Plaintiffs.

Finally, the FAC alleges sufficient facts to show that Defendant intended to induce Plaintiffs’ reliance on their failure to disclose the transmission defects. Plaintiffs chose to buy the vehicle after seeing advertisements, visiting an authorized dealership, and speaking to authorized sales representatives. It is reasonable to infer from the advertisements and the sales representatives’ concealment of the defects that Defendants intended to induce Plaintiffs into relying on the concealment to purchase the vehicle.

Absent a fiduciary relationship between the parties (which Plaintiffs do not allege here), a duty to disclose can arise in only three circumstances: (1) the defendant had exclusive knowledge of the material fact; (2) the defendant actively concealed the material fact; or (3) the defendant made partial representations while also suppressing the material fact. (Bigler-Engler, (2017) 7 Cal.App.5th 276, 311; LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.) The California Supreme Court “has described the necessary relationship giving rise to a duty to disclose as a ‘transaction’ between the plaintiff and defendant ….” (Bigler-Engler, 7 Cal.App.5th at 311; Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1187–89 [rejecting concealment claim where plaintiffs “were not involved in a transaction with the parties they claim defrauded them”]; LiMandri, supra, 52 Cal.App.4th at 337 [“such a relationship can only come into being as a result of some sort of transaction between the parties”]; Kovich v. Paseo Del Mar Homeowners Ass'n (1996) 41 Cal.App.4th 863, 866-867 [no duty to disclose where complaint alleged no facts that defendant “acted as a seller, was a party to [a]contract, or assumed a special relationship” with plaintiff.])

In Dhital, “Plaintiffs alleged that they bought the car from a Nissan dealership, that Nissan backed the car with an express warranty, and that Nissan's authorized dealerships are its agents for purposes of the sale of Nissan vehicles to consumers. In light of these allegations, we decline to hold plaintiffs’ claim is barred on the ground there was no relationship requiring Nissan to disclose known defects.” (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 844.) The court concluded that at the pleading stage, these allegations sufficiently allege a relationship.

Here, Defendant, citing Bigler-Engler, argues that there were no direct dealings between Plaintiffs and Defendant because Plaintiffs did not purchase the vehicle directly from Defendant. However, the FAC alleges that Plaintiffs entered into the subject warranty agreement with Defendant and that authorized sales representatives explained the purchase to them. Because Defendant is a party to a contract with Plaintiff, this contractual relationship is sufficient to create a duty to disclose. Even if Defendant was not a party to the contract, the FAC alleges that the representatives who sold the vehicle to Plaintiffs were authorized to sell the vehicle on Defendant’s behalf. This fact would also be sufficient to establish that Defendant had a duty to disclose the transmission defects.

If the buyer establishes that the failure to comply was willful, the judgment may include, in addition to the amounts recovered under subdivision (a), a civil penalty which shall not exceed two times the amount of actual damages. This subdivision shall not apply in any class action under Section 382 of the Code of Civil Procedure or under Section 1781, or with respect to a claim based solely on a breach of an implied warranty.

In interpreting this section, courts have found that “…the penalty under section 1794(c), like other civil penalties, is imposed as punishment or deterrence of the defendant, rather than to compensate the plaintiff. In this, it is akin to¿punitive¿damages.” (Kwan v. Mercedes-Benz of North America, Inc.¿(1994) 23 Cal.App.4th 174, 184.) Accordingly, courts have barred recovery of both civil penalties and punitive damages based on the same conduct, providing:

We are of the opinion that had the Legislature, by Civil Code sections 3294 (permitting punitive damages) and 1794 (permitting a civil penalty), intended a double recovery of punitive and penal damages for the same willful, oppressive, malicious, and oppressive acts, it would in some appropriate manner have said so. And we believe that by seeking a “civil penalty” and also attorney's fees and all reasonable expenses as allowed by Civil Code section 1794, plaintiff had in effect elected to waive punitive damages under section 3294. (Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 228.)

In Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, a plaintiff mobile home owner brought an action against the manufacturer of the mobile home for “damages for personal injuries based on breach of express warranty, products liability, and fraudulent concealment,” specifically seeking compensatory and punitive damages as well as civil penalties under Civil Code section 1794. (Troensegaard at 220-221.) After trial, the plaintiff “obtained a judgment on a jury verdict against the manufacturer for $90,000 compensatory damages, $55,000 punitive damages, and $90,000 as a ‘civil penalty,’” and attorneys’ fees and costs under Civil Code section 1794. (Id. at 221.)

On the manufacturer’s appeal from the judgment, the appellate court determined that although plaintiff was entitled to a punitive damage award based on the manufacturer’s intentional concealment, the $55,000 punitive damage award and $90,000 civil penalty award were “based upon the substantially the same conduct of [the manufacturer]. And both were made for the purpose of punishing, and making an example of, [the manufacturer]; in their effect both constituted punitive damage awards.” (Id. at 226-227; emphasis in the original.) Accordingly, the appellate court struck the punitive damage award. (Id. at 227.)

Here, like the plaintiff in Troensegaard, Plaintiffs have causes of action for both violations of the Song-Beverly Act and fraudulent inducement by concealment. Plaintiff also seeks both a civil penalty under Civ. Code, section 1794 and punitive damages under Civ. Code 3294. Defendant argues that because Plaintiffs may not recover both punitive damages and a civil penalty, the demand for punitive damages must be stricken from the FAC.

Plaintiff argues that the demand should not be stricken because fraud remedies and Song-Beverly remedies are both recoverable if they arise from different conduct that occurred at different times. Plaintiffs cite Anderson v. Ford Motor Co. (2022) 74 Cal. App. 5th 946, 963 in support of this argument.

The facts here are on all fours with Anderson. The fifth cause of action for fraudulent concealment is based on alleged actions which occurred prior to the sale. These actions are distinct in time from the Song-Beverly Act causes of action which are based upon conduct alleged to have occurred after the purchase of the vehicle. Thus, there is not a bar to seeking punitive damages with respect to the fifth cause of action.

In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damage statute, Civil Code section 3294. (College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 721.) These statutory elements include allegations that the defendant has been guilty of oppression, fraud or malice. (Civ. Code, § 3294, subd. (a).)

“Malice is defined in the statute as conduct 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.” (College Hospital, Inc., supra, 8 Cal.4th at p. 725 [examining Civ. Code § 3294, subd. (c)(1)].) “A conscious disregard of the safety of others may constitute malice within the meaning of section 3294 of the Civil Code. In order to justify an award of punitive damages on this basis, the plaintiff must establish that the defendant was aware of the probable dangerous consequences of his conduct, and that he willfully and deliberately failed to avoid those consequences.” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 895-896.)

“As amended to include [despicable], the statute plainly indicates that absent an intent to injure the plaintiff, ‘malice’ requires more than a ‘willful and conscious’ disregard of the plaintiffs’ interests. The additional component of ‘despicable conduct’ must be found.” (College Hospital, Inc., supra, 8 Cal.4th at p. 725.) The statute’s reference to despicable conduct represents a “new substantive limitation on punitive damage awards.” (Ibid.) Despicable conduct is “conduct which is so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people. Such conduct has been described as ‘having the character of outrage frequently associated with crime.’” (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1287.)

“[T]he imposition of punitive damages upon a corporation is based upon its own fault. It is not imposed vicariously by virtue of the fault of others.” (City Products Corp. v. Globe Indemnity Co. (1979) 88 Cal.App.3d 31, 36.) “Corporations are legal entities which do not have minds capable of recklessness, wickedness, or intent to injure or deceive. An award of punitive damages against a corporation therefore must rest on the malice of the corporation’s employees. But the law does not impute every employee’s malice to the corporation. Instead, the punitive damages statute requires proof of malice among corporate leaders: the ‘officer[s], director[s], or managing agent[s].’” (Cruz v. Home Base (2000) 83 Cal.App.4th 160, 167 [citation omitted].) As to ratification, “[a] corporation cannot confirm and accept that which it does not actually know about.’” (Ibid. [citing College Hospital, Inc., supra, 8 Cal.4th at p. 726 [for ratification sufficient to justify punitive damages against corporation, there must be proof that officers, directors, or managing agents had actual knowledge of the malicious conduct and its outrageous character]].)

Here, the FAC alleges that Defendant concealed the transmission defects, sold the defective vehicle to Plaintiff, and then refused to repurchase the vehicle or make restitution. These allegations demonstrate a willful disregard for Plaintiffs’ rights that may be found to rise to the level of despicable conduct given that the alleged defects could give rise to safety issues with the vehicle. The FAC, however, fails to name an officer, director or managing agent who engaged in malicious conduct. Thus, the FAC fails to meet the requirements of alleging punitive damages against a corporation. The motion to strike is granted.