Judge Kerry Bensinger, Case Number: 23STCV24773, Date: 2024-02-06 Tentative Ruling

On October 11, 2023, Plaintiff, Gisselle Maciel, filed a Complaint, against Defendants, CarMax Auto Superstores, Inc. (“CarMax Auto”)[1] and CarMax Business Services, LLC[2] (collectively, “CarMax Defendants”), Safeco Insurance Company of America (“Safeco”), and Does 1 through 75, alleging that she purchased a certified pre-owned vehicle from CarMax Auto without knowing or being informed that the vehicle had previously been in an accident. Plaintiff now brings causes of action for:[3]

On December 8, 2023, Defendants filed this Demurrer to the entire Complaint and concurrently filed a Motion to Strike as to punitive damages and injunctive relief allegations.

“The primary function of a pleading is to give the other party notice so that it may prepare its case [citation], and a defect in a pleading that otherwise properly notifies a party cannot be said to affect substantial rights.” (Harris v. City of Santa Monica (2013) 56 Cal.4th 203, 240.) “A¿demurrer¿tests the legal sufficiency of the factual allegations in a complaint.” (Ivanoff v. Bank of America, N.A.¿(2017) 9 Cal.App.5th 719, 725.) The Court looks to whether “the complaint alleges facts sufficient to state a cause of action or discloses a complete defense.” (Id.) The Court does not “read passages from a complaint in isolation; in reviewing a ruling on a demurrer, we read the complaint ‘as a whole and its parts in their context.’ [Citation.]” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 804.) The Court “assume[s] the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken.” (Harris, supra, 56 Cal.4th p. 240.) “The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.]” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)

A demurrer may be brought if insufficient facts are stated to support the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e).) “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

Where the complaint contains substantial factual allegations sufficiently apprising defendant of the issues it is being asked to meet, a demurrer for uncertainty will be overruled or plaintiff will be given leave to amend. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Ibid.)

Defense counsel has satisfied the meet and confer requirement. (Declaration of Adam C. Zamost, ¶¶ 2-3.)

Plaintiff purchased the Subject Vehicle on or around August 20, 2021. (Complaint, ¶¶ 1, 9, 10, 14.) CarMax Auto is a BuyHere-Pay-Here (“BHPH”) Dealer as defined by Vehicle Code § 241. CarMax Auto failed to comply with its obligations as a BHPH dealer. (Complaint, ¶¶ 11, 89, 90.) CarMax Auto informed Plaintiff the Subject Vehicle was sold as a certified pre-owned vehicle, and had not been involved in any prior collisions. (Complaint, ¶ 10.) In addition, CarMax Auto provided Plaintiff with a certification checklist which indicated all the items which had been checked and passed CarMax’s certification standards. After purchase, Plaintiff learned that the Subject Vehicle was involved in an accident prior to her purchase. (Complaint, ¶ 16.)

i. Second, Third, and Fourth Causes of Action for Intentional and Negligent Misrepresentation and Concealment (the “Fraud Claims”)[4]

The Second, Third, and Fourth Causes of Action are tort claims sounding in fraud. “Fraud must be pleaded with specificity rather than with ‘“‘general and conclusory allegations.’”’ (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645; West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)

“Causes of action for intentional and negligent misrepresentation sound in fraud and, therefore, each element must be pleaded with specificity. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1166.)

To establish a claim for deceit based on intentional misrepresentation, the plaintiff must prove seven¿essential elements: (1) the defendant represented to the plaintiff that an important fact was true; (2) that representation was false; (3) the defendant knew that the representation was false when the defendant made it, or the defendant made the representation recklessly and without regard for its truth; (4) the defendant intended that the plaintiff rely on the representation; (5) the plaintiff¿reasonably relied on the¿representation;¿(6) the plaintiff was harmed; and (7) the plaintiff's reliance on the defendant's representation was a substantial factor in causing that harm to the plaintiff.¿ (Manderville¿v. PCG & S Group, Inc.¿(2007) 146 Cal.App.4th 1486, 1498; CACI No. 1900.)¿¿

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; CACI No. 1903.)¿

“[T]he elements of an action for fraud and deceit based on a concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248.)

Defendants argue the Fraud Claims fail because they rest entirely on CarMax Auto’s use of the term “certified” in advertising the Subject Vehicle. If that were the only allegation, Plaintiff’s Fraud Claims would fail. However, it is not the only fact alleged here. The Complaint alleges that CarMax Auto informed her that the Subject Vehicle had not been in a prior accident. (Complaint, ¶¶ 10, 49.) Defendants attempt to explain away this allegation as lacking particularity. Specifically, they argue that the Complaint does not identify who made the misrepresentation, how it was made, or any facts to show that Defendants had actual knowledge that the Vehicle was not free of problems at the time of Plaintiff’s purchase.

The court disagrees. The Complaint alleges that she went to CarMax Auto on August 20, 2021. She purchased the Subject Vehicle based, in part, on representations that the Vehicle was certified-preowned and had not been in any prior collisions. (Complaint, ¶¶ 10, 14.) Further, CarMax Auto knew the representations were false when it made them or made the representations and omissions of material fact recklessly and without regard for their truth (Complaint, ¶ 51), and intended that Plaintiff rely on that misrepresentation (Complaint, ¶¶ 53, 80). CarMax Auto knew or reasonably should have known the Subject Vehicle’s accident history was not known or reasonably discoverable by Plaintiff, and that it was a fact material to the transaction. (Complaint, ¶¶ 62, 63.) The court finds these allegations are sufficiently particular to support the Fraud Claims. This is especially so when a defendant must necessarily possess full information concerning the facts of the controversy, or when the facts lie more in the knowledge of the opposite party. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158.) In that context, “the requirement of specificity is relaxed.” (Id.) So too here where the identity of the person who made the representations to Plaintiff is necessarily in CarMax Auto’s possession, or where that fact is at least equally in Car Max Auto’s knowledge.

Accordingly, the demurrer to the Second, Third, and Fourth Causes of Action is OVERRULED.

The Consumers Legal Remedies Act (the “CRLA”) “declares unlawful a variety of ‘unfair methods of competition and unfair or deceptive acts or practices’ used in the sale or lease of goods to a consumer.” (Bower v. AT&T Mobility, LLC (2011) 196 Cal.App.4th 1545, 1556.) Civil Code section 1770, subdivision (a)(1)-(27), provides a list of methods, acts, or practices that are unlawful under the CLRA. “An individual seeking to recover damages under the CLRA based on a misrepresentation must prove, among other things, actual injury. ‘Relief under the CLRA is specifically limited to those who suffer damage, making causation a necessary element of proof.’ [Citation.] Accordingly, ‘plaintiffs in a CLRA action [must] show not only that a defendant’s conduct was deceptive, but that the deception caused them harm...’ [Citations.] [Citations.]” (Bower, 196 Cal.App.4th at p. 1556.)

Plaintiff alleges that CarMax Auto “violated the CLRA by, at a minimum: (1) misrepresenting the condition of the Vehicle; (2) representing the Vehicle had not been involved in an accident when it had; (3) representing the Vehicle had been properly certified, when it had not; (4) concealing the condition of the Vehicle; (5) violating Vehicle Code § 11713.18(a); (6) failing to comply with the requirements of Vehicle Code § 11950, (7) failing to comply with the requirements of Civil Code § 1795.51; (8) concealing the reasonable market value of the Vehicle from Plaintiff; and (9) concealing the requirements of Vehicle Code § 11950.” (Complaint, ¶ 38.)

Defendants argue the CLRA claims fails because it is based on a misconstruction of the term “certified” and Vehicle Code section 11713.18.[5] (See Complaint, ¶¶ 18, 19.) However, the CLRA claim is based on more than the sale of the Subject Vehicle as certified. As discussed above, the court has found the Fraud Claims are adequately pleaded based on the misrepresentation that the Subject Vehicle had not been in any prior accidents. Moreover, Defendants do not address Vehicle Code section 11950 and whether a violation of that statutory provision gives rise to a CLRA claim. (See also Section E, infra, discussing Vehicle Code section 11950.)

Civil Code section 1795.51 prohibits a buy-here-pay here-dealer from selling or leasing a used vehicle at retail price without giving the buyer or lessee a written warranty that shall have a minimum duration of at least 30 days from the date of delivery or when the odometer has registered 1,000 miles from what is shown on the contract, whichever occurs first. Section 1795.51 also set forth what terms must be included in the written warranty. A “buy-here-pay-here” dealer is defined at Vehicle Code section 241.[6]

Plaintiff alleges that the CarMax Defendants violated Civil Code section 1795.51 because CarMax Auto failed to comply with certain obligations of BHPH dealers. Specifically, CarMax Auto did not disclose all of the components required to be covered under the warranty for the Vehicle as required by Civil Code section 1795.51(f) and failed to provide Plaintiff with a copy of the warranty explaining the terms of the warranty. (Complaint, ¶¶ 26, 27.)

Defendants argue the Fifth Cause of Action is unsupported by any factual allegations establishing that CarMax Auto is a BHPH dealer. The court disagrees. The Complaint alleges CarMax Auto is a BHPH dealer as defined by Vehicle Code section 241. (See Complaint, ¶ 11.) This is sufficient to survive demurrer.

iv. Sixth Cause of Action: Breach of the Implied Warranty of Merchantability, Civil Code § 1794

Under the Song-Beverly Act, every sale of a used car in California that includes an express warranty also includes the seller’s implied warranties of merchantability and fitness for a particular purpose, which are co-extensive with the express warranty. The threshold requirement for a breach of merchantability claim involving an automobile is that the vehicle is unusable. (American Suzuki Motor Corp. v. Superior Court (1995) 37 Cal.App.4th 1291, 1295-96 (American Suzuki).) To support a claim that a vehicle is unusable, a plaintiff must show that the vehicle was not “substantially free of defect and able to provide safe, reliable transportation.” (Brand v. Hyundai (2014) 226 Cal.App.4th 1538, 1547.) Moreover, an implied warranty of merchantability does not promise a perfect or even problem-free vehicle – it only assures the buyer that the car will at least function for its intended purpose. (American Suzuki, 37 Cal.App.4th at p. 1295, fn. 2.) It “does not ‘impose a general requirement that the goods precisely fulfill the expectation of the buyer. Instead, it provides for a minimum level of quality.’” (Id. pp. at 1295-1296 (internal citations omitted); Mocek v. Alfa Leisure, Inc. (2003) 114 Cal.App.4th 402, 405-406 (breach of implied warranty “means the product did not possess even the most basic degree of fitness for ordinary use.”).)

Defendants argue the Sixth Cause of Action does not set forth any factual allegations that the Subject Vehicle was defective, unusable, or unfit for ordinary use. The court agrees. The Complaint alleges in conclusory fashion that the Subject Vehicle developed defects but does not allege what those defects are. The “summary of allegations” section of the Complaint does not describe any problems with the Subject Vehicle.

v. Seventh Cause of Action: Violations of the Unfair Competition Law, Business & Professions Code § 17200, et seq.

Plaintiff’s UCL claim is based on the following allegations: “[CarMax Auto] violated the UCL by, at a minimum: (1) misrepresenting the condition of the Vehicle; (2) representing the Vehicle had not been involved in an accident when it had; (3) representing the Vehicle had been properly certified, when it had not; (4) concealing the condition of the Vehicle; (5) violating Vehicle Code § 11713.18(a); (6) failing to comply with the requirements of Vehicle Code § 11950, (7) failing to comply with the requirements of Civil Code § 1795.51; (8) concealing the reasonable market value of the Vehicle from Plaintiff; (9) concealing requirements of Vehicle Code § 11950; (10) violating the CLRA; (11) violating the Song-Beverly Act; and (12) violating the Vehicle Code.” (Complaint, ¶ 111.) Plaintiff lost money and suffered injury in fact as a result of CarMax Auto’s illegal conduct. (Complaint, ¶ 112.)

The UCL is codified at Business and Professions Code, section 17200 et seq. Section 17204 of the UCL provides that a private person “who has suffered injury in fact and has lost money or property as a result of the unfair competition” may bring a 17200 action. (Bus. & Prof. Code, § 17204.) “To bring a UCL claim, a plaintiff must show either an (1) unlawful, unfair, or fraudulent business act or practice, or (2) unfair, deceptive, untrue or misleading advertising. [Citation.] Because the UCL is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent.” (Adhav v. Midway Rent A Car, Inc. (2019) 37 Cal.App.5th 954, 970, citations and quotations omitted.)

“Unlawful” conduct includes any business practice or act forbidden by local, state or federal statutes or by regulations or case law. (Munson v. Del Taco, Inc. (2009) 46 Cal.4th 661, 676; see also Rose v. Bank of America, N.A. (2013) 57 Cal.4th 390, 396.)

The UCL’s “unfair” prong also provides an independent basis for relief. (Candelore v. Tinder, Inc. (2018) 19 Cal.App.5th 1138, 1155.) A business practice may be unfair in violation of the UCL even if the practice does not violate any law. (Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 827, citing Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) The test of whether a business practice is unfair involves an examination of that practice’s impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer. In brief, the court must weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim. An ‘unfair’ business practice occurs when the practice offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to customers.” (Candelore, 19 Cal.App.5th at p. 1155, citations and quotations omitted.)

Defendants argue the Seventh Cause of Action fails because the allegations do not adequately allege fraud or show that Defendants violated the CLRA or Song-Beverly Act. However, the Complaint also alleges:

As a BHPH dealer, Dealer was required to comply with Vehicle Code § 11950. Vehicle Code § 11950(a) required Dealer to post on the Vehicle a label indicating the reasonable market value for the Vehicle as well as the other items listed in this code section. In addition, Section 11950(b) required Dealer to provide Plaintiff with a document disclosing the reasonable market value for the Vehicle.

There was no label on the Vehicle which disclosed the items required by Vehicle Code § 11950(a), nor did Dealer provide Plaintiff with a document showing the reasonable market value for the Vehicle.

The cash price for the Vehicle was $19,998.00. The reasonable market value of the Vehicle was $18,525.00.

If it had been disclosed to Plaintiff that the reasonable market value for the Vehicle was $18,525.00, she would not have paid $19,998.00 for the Vehicle.

Under Vehicle Code section 11710, an auto dealer seeking a license to conduct business in the state must procure and file with the Department of Motor Vehicles a surety bond in the amount of $50,000, subject to a condition “that the [dealer] shall not practice any fraud or make any fraudulent representation which will cause a monetary loss” to a car buyer. (Veh. Code, § 11710, subds. (a)–(b).) Section 11711 grants any person who suffers a loss from a dealer’s fraud a cause of action against the dealer and the surety upon the dealer’s bond, in an amount not to exceed the value of the vehicle sold.

A cause of action under Vehicle Code section 11711 depends on fraudulent conduct. Given that the court has concluded Plaintiff’s Fraud Claims are sufficiently pled, the court further concludes that the demurrer to the Eighth Cause of Action fails.

Any party, within the time allowed to respond to a pleading, may serve and file a motion to strike the whole pleading or any part thereof.¿ (Code Civ. Proc., § 435, subd. (b)(1); Cal. Rules of Court, rule 3.1322(b).)¿ On a motion to strike, the court may: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court.¿ (Code Civ. Proc., § 436, subds. (a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782.)¿¿¿

“The grounds for a motion to strike are limited to matters appearing on the face of the challenged pleading or matters which must or may be judicially noticed. (§ 437, subd. (a); Evid. Code, §§ 451, 452.).” (Garcia v. Sterling (1985) 176 Cal.App.3d 17, 20.)¿¿

Defendants seek an order striking the allegations of and requests for punitive damages and equitable/injunctive relief from the Complaint. The punitive damages and injunctive relief allegations are set forth in connection to the First, Second, Third, and Seventh Causes of Action.

Upon review of the Complaint, the court finds punitive damages are not adequately pleaded. “[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 officers, directors, or managing agents.” (Cruz v. Home Base (2000) 83 Cal.App.4th 160, 167 [cleaned up].) Here, Plaintiff seeks punitive damages against corporate defendants. There are no facts to show that an officer, director, or managing agent carried out any conduct with malice. The Complaint is deficient in this regard.

The court does not reach the same conclusion as to injunctive relief. Defendants arguments appears to be that Plaintiff cannot seek injunctive relief on behalf of others because this is not a class action. The CLRA, Song-Beverly Act, and UCL, however, all authorize equitable and injunctive relief to consumers in their individual capacity. (See Civ. Code, § 1780, subd. (a)(2) [“Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against that person to recover or obtain… (2) An order enjoining the methods, acts, or practices.”]; Civ. Code § 1794 [Any buyer of consumer goods who is damaged by a failure to comply with any obligation under this chapter or under an implied or express warranty or service contract may bring an action for the recovery of damages and other legal and equitable relief.”]; Bus. & Prof. Code, § 17203 [“Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction”].) The Complaint prays for relief as permitted under these statutes. Defendants are not entitled to an order striking the requests for equitable and injunctive relief.

The Demurrer to the First, Second, Third, Fourth, Fifth, Seventh, and Eighth Causes of Action is OVERRULED.

Leave to amend is GRANTED. Plaintiff is ordered to serve and file her First Amended Complaint within 30 days of this order.

[1] Referred to in the Complaint as “Dealer”.

[2] Referred to in the Complaint as “Holder”.

[3] The Eighth Cause of Action is asserted against Safeco and Does 71-75 only.

[4] The court tracks the arguments raised in Defendants’ demurrer and thus begins with Plaintiff’s Fraud Causes of Action.

[5] Vehicle Code section 11713.18 provides:

It is a violation of this code for the holder of any dealer’s license issued under this article to advertise for sale or sell a used vehicle as “certified” or use any similar descriptive term in the advertisement or the sale of a used vehicle that implies the vehicle has been certified to meet the terms of a used vehicle certification program if any of the following apply:

(6) Prior to sale, the dealer fails to provide the buyer with a completed inspection report indicating all the components inspected.

(9) The term “certified” or any similar descriptive term is used in any manner that is untrue or misleading or that would cause any advertisement to be in violation of subdivision (a) of Section 11713[5] of this code or Section 17200[5] or 17500 of the Business and Professions Code.

(Veh. Code, § 11713.18, subd. (a)(6), (9), footnotes added.)

If the crux of Plaintiff’s allegations was that the use of “certified” necessarily means that a used vehicle does not have an accident history, Vehicle Code section 11713.18 does not support that construction. Section 11713.18 requires that a dealer provide a buyer with a completed inspection report (subdivision (a)(6)), and prohibits the use of the term “certified” in a manner that is untrue or misleading (subdivision (a)(9)). Under Section 11713.18, the term “certified” does not mean that a used vehicle has never been in a prior accident; nor is the reference to the term in this regard misleading. Plaintiff does not allege that the Subject Vehicle failed to pass the certification inspection or that CarMax Auto failed to provide Plaintiff with a completed inspection report. And tellingly, she does not allege whether the inspection report includes a review of the Subject Vehicle’s accident history. Further, there is no authority which states that the “certified” designation cannot be applied to a vehicle that was previously involved in an accident.

[6] A “buy-here-pay-here” dealer is a dealer, as defined in Section 285, who is not otherwise expressly excluded by Section 241.1, and who does all of the following:

(a) Enters into conditional sale contracts, within the meaning of subdivision (a) of Section 2981 of the Civil Code, and subject to the provisions of Chapter 2b (commencing with Section 2981) of Title 14 of Part 4 of Division 3 of the Civil Code, or lease contracts, within the meaning of Section 2985.7 of the Civil Code, and subject to the provisions of Chapter 2d (commencing with Section 2985.7) of Title 14 of Part 4 of Division 3 of the Civil Code.

(b) Assigns less than 90 percent of all unrescinded conditional sale contracts and lease contracts to unaffiliated third-party finance or leasing sources within 45 days of the consummation of those contracts.

(c) For purposes of this section, a conditional sale contract does not include a contract for the sale of a motor vehicle if all amounts owed under the contract are paid in full within 30 days.

(d) The department may promulgate regulations as necessary to implement this section.