Judge: John C. Gastelum, Case: 21-01224103, Date: 2022-08-30 Tentative Ruling
(1) Demurrer to First Amended Complaint (2) Motion to Strike (3) CMC
Tentative Ruling: The demurrer to the 5th cause of action for fraudulent inducement in the First Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND. The motion to strike is GRANTED.
(1) Demurrer to the 5th COA: The economic loss rule was developed in the context of commercial sales of products. (See Jimenez v. Superior Court (2002) 29 Cal.4th 473, 477-483 [summarizing caselaw].) “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.... [Citation.] [Citation.] Simply stated, the economic loss rule provides: [W]here a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only economic losses. This doctrine 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. [Citation.] The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise. [Citation.] Quite simply, the economic loss rule prevent[s] the law of contract and the law of tort from dissolving one into the other. [Citation.]” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988, internal quotation marks omitted (“Robinson”).)
The economic loss rule does not bar claims for fraud that are independent of a breach of contract. (Robinson, supra, 34 Cal.4th at p. 991.) That exception is limited to instances where “a defendant's affirmative misrepresentations on which a plaintiff relies and which expose a plaintiff to liability for personal damages independent of the plaintiff's economic loss. In addition, [i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.]… This particularity requirement necessitates pleading facts which “show how, when, where, to whom, and by what means the representations were tendered.[Citation.]” (Id. at p. 993, internal quotation marks omitted.)
Plaintiffs assert their fraud cause of action is based on fraudulent inducement or concealment, and is exempt from the economic loss rule. Robinson did not address that issue because that case involved affirmative misrepresentations. Plaintiffs rely on Erlich v. Menezes (1999) 21 Cal.4th 543, 551 (Erlich), where, in passing, the California Supreme Court noted tort damages have been permitted in contract cases where a contract was fraudulently induced. However, Erlich did not involve an issue of whether the economic loss rule bars a cause of action for fraudulent concealment. Instead, it was considering whether emotional distress damages were recoverable for a negligent breach of contract to construct a house, and held that such damages were not recoverable. (Erlich, supra, 21 Cal.4th at p. 552.) Furthermore, the case Erlich cited for the proposition Plaintiffs advance, Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, involved affirmative misrepresentations.
Plaintiffs also cite Benavides v. State Farm General Ins. Co. (2006) 136 Cal.App.4th 1241 (Benavides), for the proposition that the economic loss rule does not apply to fraudulent inducement. However, Benavides also did not involve a cause of action for fraudulent inducement, but a claim for negligent investigation of an insurance claim. The court held plaintiff could not recover because her policy did not cover the loss claimed. (Benavides, supra, 136 Cal.App.4th at p. 1248-1252.)
The California Supreme Court recently applied the economic loss rule in the mortgage lending context and reiterated that, in general, there is no tort recovery for financial harm unaccompanied by physical or property damage and that such tort liability for purely economic losses is the exception to the rule. (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922.) Robinson carved out an exception for fraud based on affirmative misrepresentations. Plaintiffs do not allege affirmative misrepresentations by Defendant. Furthermore, Plaintiffs do not claim that the battery defect caused them bodily injury or injury to property. They only allege that, but for the concealment, they would not have purchased the Vehicle and exposed themselves to the possibility of liability or injury. [FAC, ¶ 75] As such, Plaintiffs have only alleged economic loss and their fraudulent inducement by omission/concealment cause of action falls within the economic loss rule.
Lemon Law cases have been inundating California courts. Our appellate courts have yet to decide a case on the application of the economic loss rule in a Lemon Law case alleging fraudulent concealment/omission or fraudulent inducement based on concealment/omission. However, numerous cases from the federal district courts in the Central District of California, sitting in diversity jurisdiction, have been addressing the issue. In 2022, the Central District has ruled on nine Lemon Law cases and in all of them, applied Robinson to bar claims of fraudulent inducement or concealment/omission based on the economic loss rule when no other damage has been alleged. (Tilahun v. Nissan North America, Inc. (C.D. Cal. 2022) 2022 WL 3591068; Pineda v. Nissan North America, Inc. (C.D. Cal. 2022) 2022 WL 2920416 [fraudulent omission]; Tappana v. American Honda Motor Co., Inc. (C.D. Cal. 2022) 2022 WL 2526971 [fraud by omission]; Lemus v. Nissan North America, Inc. (C.D. 2022) 2022 WL 2057738 [inducement by fraudulent concealment]; Avila v. Ford Motor Co. (C.D. Cal. 2022) 2022 WL 2283310 [fraudulent concealment]; Gannon v. FCA US, LLC (C.D. 2022) 2022 WL 3013101 [fraudulent concealment]; Sum v. FAC US, LLC (C.D. Cal. 2022) 2022 WL 2189628 [fraudulent inducement]; Smith v. FCA US, LLC (C.D. 2022) 2022 WL 1417110 [inducement by fraudulent omission]; Friche v. Hyundai Motor, America (C.D. Cal. 2022) 2022 WL 1599868 [fraudulent inducement].) While not binding, lower federal courts cases can be cited as persuasive authority. (Balsam v. Trancos, Inc. (2012) 203 Cal.App.4th 1083, 1100.)
Plaintiffs did not contend that they can allege the requisite damages in their opposition. As such, the demurrer to the 5th cause of action for fraudulent inducement is SUSTAINED WITHOUT LEAVE TO AMEND.
(2) Motion to Strike Defendant also moves to strike the prayer for punitive damages. Absent the fraud claim, nothing supports a prayer for punitive damages, and the motion to strike is GRANTED.
Defendants to give notice of ruling.