Judge: Joel R Wohlfeil, Case: 37-2023-00035386-CU-BC-CTL, Date: 2023-12-08 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - December 07, 2023

12/08/2023  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 37-2023-00035386-CU-BC-CTL MCCLELLAN VS FORD MOTOR COMPANY [IMAGED] CAUSAL DOCUMENT/DATE FILED: Demurrer, 10/20/2023

1. The general Demurrer (ROA # 17) of Defendant Ford Motor Company ('Defendant' or 'FMC') to the Complaint filed by Plaintiff Bradley Dean McClellan II ('Plaintiff'), is OVERRULED.

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.

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. 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. LiMandri v. Judkins (1997) 52 Cal. App. 4th 326, 336.

The latter three circumstances in which nondisclosure may be actionable presupposes the existence of some type of relationship between Plaintiff and Defendant in which a duty to disclose can arise. Id. at 336, 337.

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3039290  9 CASE NUMBER: CASE TITLE:  MCCLELLAN VS FORD MOTOR COMPANY [IMAGED]  37-2023-00035386-CU-BC-CTL 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. Id. at 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. Id. The Complaint in this action alleges the existence of a transactional relationship. It alleges Plaintiff leased the vehicle from a Ford dealership (¶¶ 9, 53), that Ford provided an express warranty (¶ 10), and that the dealership was Ford's agent for purposes of the sale of Ford vehicles to consumers (¶¶ 56, 115).

Although review of Dhital v. Nissan North America, Inc. (2022) 84 Cal. App. 5th 828 has been granted (see 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). Thus, this argument is not persuasive.

Defendant also argues the second cause of action is not pled with the requisite particularity. This argument is not persuasive. Sufficiently detailed facts are alleged, especially given that this is a concealment claim. Reliance has been sufficiently alleged.

Defendant also argues that the 'economic loss rule' bars this cause of action. However, this argument is not persuasive.

'... [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.

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.

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3039290  9 CASE NUMBER: CASE TITLE:  MCCLELLAN VS FORD MOTOR COMPANY [IMAGED]  37-2023-00035386-CU-BC-CTL 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 a 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.

In Las Palmas Associates v. Las Palmas Center Associates, the opinion states: 'We are aware of the 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 Calendar No.: Event ID:  TENTATIVE RULINGS

3039290  9 CASE NUMBER: CASE TITLE:  MCCLELLAN VS FORD MOTOR COMPANY [IMAGED]  37-2023-00035386-CU-BC-CTL 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., supra.

Again, although review has been granted this is still persuasive authority. 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. I d. at 989–90, 22 Cal.Rptr.3d 352, 102 P.3d 268 ('Tort damages have been 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.

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3039290  9 CASE NUMBER: CASE TITLE:  MCCLELLAN VS FORD MOTOR COMPANY [IMAGED]  37-2023-00035386-CU-BC-CTL 2. Defendant's Motion (ROA # 13) to strike portions of Plaintiff's Complaint, is GRANTED.

Plaintiff is permitted leave to file and serve a First Amended Complaint addressing the deficient facts, as discussed below.

As discussed within the concurrent ruling overruling the Demurrer, the claim for fraudulent concealment is sufficiently pled. A properly pled fraud claim will itself support recovery of punitive damages. No allegations of 'malice' or intent to injure Plaintiff are required because fraud is an alternative and independent basis for recovery. See Civ. Code 3294(a) and Stevens v. Superior Court (1986) 180 Cal. App. 3d 605, 610. Thus, the facts and circumstances supporting the claim for punitive damages are sufficiently alleged.

On the other hand, ratification or authorization is not sufficiently alleged and the motion is granted on this alternative basis.

Section 3294(b) states: 'An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.' Plaintiff's opposition does not address Defendant's corporate ratification argument. The Court notes that paragraph 8 of the Complaint states: 'All acts of corporate employees as alleged were authorized or ratified by an officer, director or managing agent of the corporate employer.' This allegation is conclusory and not sufficient. Therefore, the Motion to strike is granted on this basis.

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