Judge: Joel R Wohlfeil, Case: 37-2023-00033027-CU-BC-CTL, Date: 2023-10-27 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - October 26, 2023

10/27/2023  09:00:00 AM  C-73 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Joel R. Wohlfeil

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Civil - Unlimited  Breach of Contract/Warranty Demurrer / Motion to Strike 37-2023-00033027-CU-BC-CTL RUELAS VS FORD MOTOR COMPANY [IMAGED] CAUSAL DOCUMENT/DATE FILED: Demurrer, 09/06/2023

The general Demurrer (ROA # 10) of Defendants Ford Motor Company ('Ford') and Chino Hills Ford ('Chino Hills') (collectively 'Defendants') to the Complaint by Plaintiffs Martha Ruelas and Maria Ruelas ('Plaintiffs'), is OVERRULED IN PART and SUSTAINED IN PART.

The Demurrer is overruled to the fifth cause of action for fraudulent concealment and sustained to the sixth cause of action for negligent repair.

Plaintiffs are permitted leave to file and serve a First Amended Complaint within twenty (20) days of this hearing.

This ruling is based on the analysis set forth below.

5th COA: FRAUDULENT CONCEALMENT Application of the of Economic Loss Rule.

Defendants argue that the 'economic loss rule' bars this cause of action. However, this argument lacks merit. '... [T]he economic loss rule allows a plaintiff to recover in strict products liability in tort when a product defect causes damage to 'other property,' that is, property other than the product itself. The law of contractual warranty governs damage to the product itself.' Jimenez v. Superior Court (2002) 29 Cal. 4th 473, 483.

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. Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal. 4th 979, 988.

The economic loss rule provides that where a purchaser's expectations in a sale are frustrated because the product purchased is not working properly, the remedy is in contract alone: the purchaser has suffered only 'economic' losses. Id. The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless they can demonstrate harm above and beyond a broken contractual promise. Id. The economic loss rule prevents the law of contract and the law of tort from dissolving one into the other.

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3016649  14 CASE NUMBER: CASE TITLE:  RUELAS VS FORD MOTOR COMPANY [IMAGED]  37-2023-00033027-CU-BC-CTL Id.

However, tort damages have been permitted in contract cases where a breach of duty directly causes physical injury; for breach of the covenant of good faith and fair dealing in insurance contracts; for wrongful discharge in violation of fundamental public policy; or where the contract was fraudulently induced. Id. at 989, 990 (quoting Erlich v. Menezes (1999) 21 Cal. 4th 543, 551-552).

'In summary, under current California law, tort liability has been imposed for essentially contract-based claims only where (1) the breach is also a tort, (2) the parties to the contract have the requisite 'special relationship,' or (3) the breach is accompanied by bad faith denial of the contract.' Harris v. Atlantic Richfield Co. (1993) 14 Cal. App. 4th 70, 80.

In each of these cases, 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. Robinson Helicopter Co., Inc. v. Dana Corp., supra at 990.

Generally, outside the insurance context, a tortious breach of contract may be found when (1) the breach is accompanied by a traditional common law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion; or (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages. Id. Focusing on intentional conduct gives substance to the proposition that a breach of contract is tortious only when some independent duty arising from tort law is violated. Id. Fraud is an independent tort such that the economic loss rule does not bar the claim for fraud. Although the Robinson Helicopter case was premised, in part, on fraud via affirmative misrepresentations (the certifications), there is no reason to assume that its rationale would not also apply in the context of a concealment claim such as the one pled in this action. An intentional decision to conceal damaging material facts in order to induce action (a vehicle purchase) is functionally indistinguishable from an intentional misrepresentation. Thus, this Court agrees with, and finds persuasive, the following statement: 'Robinson explicitly did not address the question whether a case involving material omissions, rather than affirmative misrepresentation, would similarly be exempt from the economic loss rule. Robinson, 34 Cal. 4th at 991. The opinion strongly suggests no meaningful distinction exists between intentional concealment and intentional misrepresentation; rather, the material distinction is whether the tortious conduct was intentional or negligent. Id. at 990 (noting that California courts have found exceptions to the economic loss rule in this non-contractual duty category where Defendant's conduct was committed 'intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages').' NuCal Foods, Inc. v. Quality Egg LLC (E. D. Cal. 2013) 918 F. Supp. 2d 1023, 1031.

It is important to note the opinion in Robinson Helicopter relied on the opinion in Erlich v. Menezes, which in turn relied on Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal. App. 3d 1220, and the concurring and dissenting opinion of Justice Mosk in Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal. 4th 85.

Erlich refers to fraudulent inducement and states that '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.' Erlich v. Menezes (1999) 21 Cal. 4th 543, 552.

Quoting Justice Mosk, the opinion also refers to a finding of a tortious breach of contract when the breach is accompanied by a traditional common law tort, such as fraud or conversion; or when the means used to breach the contract are tortious, involving deceit or undue coercion. Id. at 553, 554. I In Las Palmas Associates v. Las Palmas Center Associates, the opinion states: 'We are aware of the Calendar No.: Event ID:  TENTATIVE RULINGS

3016649  14 CASE NUMBER: CASE TITLE:  RUELAS VS FORD MOTOR COMPANY [IMAGED]  37-2023-00033027-CU-BC-CTL danger of grafting tort liability on what ordinarily should be a breach of contract action. While society has a strong interest in the security of transactions, parties dealing at arm's length are permitted to reach a reasoned decision to breach an agreement, knowing their risk is limited to the reimbursement of the other side's compensatory losses. However, no public policy is served by permitting a party who never intended to fulfill his obligations to fraudulently induce another to enter into an agreement.' Id. at 1238.

Recognizing the adverse effect fraud has on commercial transactions, the law nonetheless permits a defrauded party to seek punishment of the wrongdoer through the imposition of punitive damages. Id. at 1238, 1239.

'Applying this framework of principles to the present case, the record contains credible evidence from which a trier of fact could conclude sellers committed fraud and then systematically attempted to avoid honoring the guaranties.' Id. at 1239.

Even though Robinson Helicopter is necessarily limited by its facts, the authority it cites does not support the same narrow interpretation. In this context, there is simply no reason to distinguish between fraud by an overt statement and fraud by omission. Fraud or deceit may consist of the suppression of a fact by one who is bound to disclose it, or who gives information or other facts which are likely to mislead for want of communication of that fact. Outboard Marine Corp. v. Superior Court (1975) 52 Cal. App. 3d 30, 37.

Where failure to disclose a material fact is calculated to induce a false belief, the distinction between concealment and affirmative misrepresentation is tenuous. Id. Both are fraudulent. Id. No public policy is served by permitting a party who never intended to fulfill an obligation to fraudulently induce another to enter into a transaction, whether that fraud consists of a misrepresentation or a concealment. An active concealment has the same force and effect as a representation which is positive in form. Id. 'Respondent Commission attempts to point out a distinction between a concealment of a material fact and a misrepresentation as to such fact. The legal effect in each instance amounts to the same thing, fraud.' General Acc. Fire & Life Assur. Corp., Limited, of Perth, Scotland, v. Industrial Acc. Commission (1925) 196 Cal. 179, 190.

In addition, the First Appellate District recently affirmed that 'concealment-based claims for fraudulent inducement are not barred by the economic loss rule.' Dhital v. Nissan North America, Inc. (2022) 84 Cal. App. 5th 828.

Although review has been granted (Dhital v. Nissan North America (Cal. 2023) 304 Cal. Rptr. 3d 82, 523 P. 3d 392), it is still persuasive authority. See California Rules of Court, Rule 8.1115(e)(1).

This Court also finds persuasive the following statement in the district Court opinion of Lewis v. Ford Motor Co. (E.D.Cal. 2023) No. 2:21-cv-02367-TLN-JDP; 2023 WL 1823760: 'The economic loss rule states that a party to a contract cannot recover 'purely economic loss' in tort, 'unless he can demonstrate harm above and beyond a broken contractual promise.' Rattagan v. Uber Techs., Inc., 19 F. 4th 1188, 1191 (9th Cir. 2021) (internal citations and quotations omitted). The California Supreme Court set forth an exception to the economic loss rule when '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.' Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 990, 22 Cal. Rptr.3d 352, 102 P.3d 268 (2004) (quoting see Erlich v. Menezes, 21 Cal. 4th 543, 552, 87 Cal.Rptr.2d 886, 981 P.2d 978 (1999)). Several courts have found that fraudulent inducement is an exception to the economic loss rule. Id. at 989–90, 22 Cal.Rptr.3d 352, 102 P. 3d 268 ('Tort damages have been Calendar No.: Event ID:  TENTATIVE RULINGS

3016649  14 CASE NUMBER: CASE TITLE:  RUELAS VS FORD MOTOR COMPANY [IMAGED]  37-2023-00033027-CU-BC-CTL permitted in contract cases ... where the contract was fraudulently induced.') (citing Erlich, 21 Cal. 4th at 551–52, 87 Cal. Rptr. 2d 886, 981 P. 2d 978); Dhital v. Nissan North Am., Inc., 84 Cal. App. 5th 828, 843, 300 Cal. Rptr. 3d 715 (2022) ('[W]e conclude that, under California law, the economic loss rule does not bar plaintiffs' claim here for fraudulent inducement by concealment'); Kroutilin v. FCA US, LLC, No. 822CV00929FWSDFM, 2022 WL 18278602, at *5 (C. D. Cal. Dec. 7, 2022) ('[B]ased on the existing persuasive authority, the court finds that Plaintiff's sixth cause of action for fraudulent inducement - concealment is not barred by the economic loss rule.') (citing Dhital, 84 Cal. App. 5th 828, 300 Cal. Rptr. 3d 715); Flier v. FCA US LLC, No. 21-CV-02553-CRB, 2022 WL 16823042, at *6–7 (N.D. Cal. Nov. 8, 2022) (same); Scherer v. FCA US, LLC, 565 F. Supp. 3d 1184, 1193 (S. D. Cal. 2021) (same). The Court agrees with these well-reasoned decisions and concludes the economic loss rule does not bar Plaintiff's claim.' Id. at *4.

Sufficiency of Fact Pleading.

A cause of action for fraudulent concealment requires (1) concealment or suppression of a material fact; (2) by Defendant with a duty to disclose the fact to Plaintiff; (3) Defendant intended to defraud Plaintiff by intentionally concealing or suppressing the fact; (4) Plaintiff was unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and (5) Plaintiff sustained damage as a result of the concealment or suppression of the fact. Hambrick v. Healthcare Medical Group, Inc.

(2015) 238 Cal. App. 4th 124, 162.

A fact is material if a 'reasonable consumer would deem it important in determining how to act in the transaction at issue.' Collins v. eMachines, Inc. (2011) 202 Cal. App. 4th 249, 256.

There are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when Defendant is in a fiduciary relationship with Plaintiff; (2) when Defendant had exclusive knowledge of material facts not known to Plaintiff; (3) when Defendant actively conceals a material fact from Plaintiff; and (4) when Defendant makes partial representations but also suppresses some material facts. Heliotis v. Schuman (1986) 181 Cal. App. 3d 646, 651.

Fraud must be pled 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, when, where, to whom and by what means the representations were tendered. Id. Plaintiff's burden in asserting a fraud claim against a corporate employer is even greater. Id. In such a case, Plaintiff 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. Id. However, less specificity is required when it appears from the nature of the allegations that Defendant must necessarily possess full information concerning the facts of the controversy. Committee On Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 217.

Less particularity is required when the facts lie more in the knowledge of the opposite party. Id. The rule of particularity when pleading fraud is intended to apply to affirmative misrepresentations.

Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal. App. 4th 1356, 1384.

It is harder to apply this rule to a case of simple nondisclosure. Id. Calendar No.: Event ID:  TENTATIVE RULINGS

3016649  14 CASE NUMBER: CASE TITLE:  RUELAS VS FORD MOTOR COMPANY [IMAGED]  37-2023-00033027-CU-BC-CTL In this action, the Complaint alleges sufficiently detailed facts that Defendants actively concealed information regarding material defects in the subject vehicle. It is also alleged this knowledge was in the exclusive and superior possession of Defendants. These are sufficient facts to support Defendants' duty to disclose the defect, and thus a concealment claim. Complaint at ¶¶ 9 - 71.

The allegations in this action are very similar to the allegations in Dhital v. Nissan North America, Inc.

(2022) 84 Cal. App. 5th 828.

In the Dhital opinion, Defendant car manufacturer made similar arguments regarding the failure to plead sufficient facts supporting each element of the fraud by concealment cause of action. The appellate court found that sufficient facts were alleged. The Demurrer to cause of action 5 is overruled on this basis.

6th COA: NEGLIGENT REPAIR Regarding the economic loss rule, Plaintiffs' opposition references the component exception. 'California decisional law has long recognized that the economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated. In Aas v. Superior Court, supra, 24 Cal. 4th at page 641, we observed that 'the concept of recoverable physical injury or property damage' had over time 'expanded to include damage to one part of a product caused by another, defective part.'' Jimenez v. Superior Court (2002) 29 Cal. 4th 473, 483, 484.

Paragraphs 14 through 16 of the Complaint allege the subject vehicle's transmission was defective. This results in 'hesitation and/or delayed acceleration; harsh and/or hard shifting; jerking; shuddering; and/or juddering.' However, it is not alleged that the defective transmission caused damage to other parts of the vehicle. Thus, this exception does not apply and the Demurrer is sustained with leave to amend.

On the other hand, Defendants' argument that facts plead in the Complaint are insufficient to establish damages lacks merit. It is reasonably inferred from the Complaint that Plaintiffs experienced diminution in value of the subject vehicle as a result of the vehicle's defect. Therefore, Plaintiffs have sufficiently alleged damages.

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