Judge Kerry Bensinger, Case Number: 24STCV18881, Date: 2025-03-05 Tentative Ruling

On July 30, 2024, plaintiff Sirenia Ruiz (Plaintiff) filed this Song-Beverly action against defendant General Motors, LLC (GM or Defendant). In 2023, Plaintiff purchased a certified pre-owned 2022 Chevrolet Silverado 1500 (the Vehicle). The Vehicle was manufactured by GM, purchased from GM’s authorized dealership, Sierra Chevrolet of Monrovia, and backed by express and implied warranties. According to the Complaint, the Vehicle presented with transmission problems. Plaintiff took the Vehicle to GM’s authorized service and repair facility, but the issues were not resolved. Plaintiff alleges GM concealed the defects at the time of Plaintiff’s purchase.

The operative pleading is the First Amended Complaint (FAC). The FAC alleges causes of action against GM for (1) Breach of the Implied Warranty of Merchantability under The Song-Beverly Act, (2) Breach of the Express Warranty under The Song-Beverly Act, (3) Violation of Civil Code §1793.2(b), (4), Fraudulent Concealment, and (5) Violation of Civil Code § 1750 et seq. (The Consumers Legal Remedies Act).

On October 8, 2024, Defendant filed a Demurrer to the Fourth and Fifth Causes of Action and concurrently filed a Motion to Strike punitive damages from the FAC.

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, accepting the alleged facts as true. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.) “Because a demurrer challenges defects on the face of the complaint, it can only refer to matters outside the pleading that are subject to judicial notice.” (Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4th 471, 556.)

Defendant demurs to the Fourth and Fifth Causes of Action. The court addresses the demurrers in turn.

The Fourth Cause of Action for Fraudulent Concealment is based on the following general allegations: GM knew about the problems with the defective transmission and knew that the Vehicle was equipped with the defective transmission well before Plaintiff purchased the Vehicle; (FAC, ¶ 106); GM owed a duty to disclose the transmission problems (Id.); GM had exclusive and superior knowledge of the transmission issues and knew Plaintiff could not have reasonably been expected to know of the issue (Id., ¶ 107); GM intentionally concealed the defect at the time of Plaintiff’s purchase; (Id., ¶ 109); GM knew the defect could not be repaired (Id. ¶ 110).

Fraud based on concealment requires that “(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.”¿ (Bigler-Engler v. Breg, Inc.¿(2017) 7 Cal.App.5th 276, 310-311 (Bigler-Engler); CACI No. 1901.)¿

GM argues this claim fails because: (1) the allegations lack the required specificity to state a claim for fraud; (2) GM did not owe a duty to disclose; and (3) the economic loss rule bars the fraud claim.

GM argues the FAC lacks the requisite specificity because Plaintiff does not identify the salesperson with whom she spoke, what advertisements or marketing brochures Plaintiff reviewed or relied upon in purchasing the Vehicle, how long prior to purchasing the Vehicle she viewed them, and which representation therein she relied upon; and whether those materials, if any, were prepared by GM or someone else (such as a dealership). (Demurrer, p. 8:3-8.) GM also argues Plaintiff does not allege with specificity that GM intended to defraud Plaintiff by either making affirmative statements or failing to disclose material facts.

The court disagrees. First off, Plaintiff’s fraud claim is based upon a failure to disclose the existence of the transmission defect. As alleged, the defect is a material fact which GM did not disclose. (See FAC, ¶¶ 15, 33.) Further, “[l]ess specificity should be required of fraud claims when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy . . . even under the strict rules of common law pleading, one of the cannons was that less particularity is required when the facts lie more in the knowledge of the opposite party.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384 (citations omitted).)

Here, Defendant possessed superior knowledge concerning the controversy. Plaintiff alleges GM knew about the transmission defect since at least early 2014 (FAC, ¶ 18) and received numerous complaints directly from consumers, information received directly from GM’s authorized dealers, National Highway Traffic Safety Administration complaints, and GM’s own internal records (FAC, ¶ 19). Despite GM’s knowledge of the defect, GM has “simply attempted to mask the Defective Transmission without providing a solution that addresses the defect.” (FAC, ¶ 20.) The Fourth Cause of Action does not fail for lack of specificity.

An essential element of intentional concealment includes the duty to disclose, which must be based upon a transaction, or a special relationship, between plaintiff and defendant.¿ (Bigler-Engler, supra,¿at p. 314.) “[T]o establish fraud through nondisclosure or concealment of facts, it is necessary to show the defendant ‘was under a legal duty to disclose them.’”¿ (OCM Principal Opportunities Fund v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 845 (OCM Principal).)¿

GM argues it had no duty to disclose because there was no direct transactional relationship between the parties.¿ GM relies on Bigler-Engler in support of its position.

In¿Bigler-Engler, a product liability case, the plaintiff, Engler, injured her knee and had surgery.¿ After the surgery, the doctor recommended use of an “ice” machine.¿ The doctor prescribed the Polar Care 500 ice machine which was manufactured by defendant Breg, Inc (Breg).¿ The ice machine made things worse and caused additional injuries.¿ Engler sued Breg for intentional concealment.¿ The jury returned a verdict in plaintiff’s favor.¿ The Court of Appeal reversed finding that Breg did not owe Engler a duty of care. The¿Bigler-Engler¿Court described the circumstances that give rise to a duty of care as follows: ¿

“There are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. [Citation.] Where, as here, a fiduciary relationship does not exist between the parties, only the latter three circumstances may apply. These three circumstances, however, presuppose the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise. [Citation.] A duty to disclose facts arises only when the parties are in a relationship that gives rise to the duty, such as seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual arrangement.¿ [Citation.]”

(Bigler-Engler,¿supra, at p. 311 [cleaned up].) “Such a transaction must necessarily arise from direct dealings between the plaintiff and the defendant; it cannot arise between the defendant and the public at large.”¿ (Id.¿at p. 312.)¿

Here, there are no allegations showing direct dealings between Plaintiff and GM. Absent such allegations, under Bigler-Engler, Plaintiff cannot maintain her fraud claim against GM.

Naturally, Plaintiff disagrees. She argues the facts in Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828 (Dhital) (review pending, (2023) 523 P.3d 392), a Song-Beverly case, is the better fit. In Dhital, the Court of Appeal reviewed a trial court’s order sustaining a demurrer to a fraudulent inducement by concealment claim without leave to amend. The Court of Appeal reversed, holding that plaintiffs’ allegations 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” were sufficient to establish a buyer-seller relationship. (Dhital, 84 Cal.App.5th at p. 844.).

The court agrees with Plaintiff. Dhital is the better fit. Like Dhital, Plaintiff alleges that she purchased the Vehicle from GM’s authorized dealership (Sierra Chevrolet), the Vehicle was backed by an express warranty, and that GM’s authorized dealerships, including Sierra Chevrolet, are GM’s agents for purposes of the sale of GM vehicles. (See FAC, ¶¶ 7, 9, 74-80.)

In reply, GM contends there are no allegations showing GM or any dealership had knowledge of the alleged defects in Plaintiff’s particular vehicle. Not so. Plaintiff alleges GM knew of the transmission defect since 2014 based in part from information received directly from GM’s authorized dealers. (FAC, ¶¶ 18, 19.) The allegations reasonably support the view that GM, through Sierra Chevrolet, knowingly sold the Vehicle to Plaintiff with the same allegedly defective transmission.

GM further argues the allegations are not enough to plead an agency relationship between GM and Sierra Chevrolet. The court is not persuaded. Plaintiff alleges with sufficient specificity the level of control GM asserts over authorized dealerships like Sierra Chevrolet. (See FAC, ¶ 75.) The demurrer fails on these grounds.

The economic loss rule provides that, “[i]n general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922.)¿¿¿ “California Courts define economic loss as ‘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.’” (Department of Water & Power v. ABB Power T & D Co. (C.D. Cal. 1995) 902 F.Supp. 1178, 1186, fn. 4.) The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations unless she can demonstrate harm above and beyond a broken contractual promise. (Robinson, supra, 34 Cal.4th at pp. 988, 993 [economic loss rule prevents law of contract and law of tort “from dissolving one into the other”].)

There exist four (4) exceptions to the economic loss rule barring recovery in tort in a breach of contract action: (1) where the breach of duty directly caused physical injury; (2) where there was a breach of the covenant of good faith and fair dealing in insurance contracts; (3) for wrongful discharge in violation of fundamental public policy; or (4) where the contract was fraudulently induced. (See Erlich v. Menezes (1999) 21 Cal.4th 543, 551-552; see Robinson, supra, 34 Cal.4th at pp. 989-990.)

GM argues the fraud claim is barred by the economic loss rule because GM’s alleged failure to disclose the transmission defect was an issue squarely in the center of the sales contract and warranty governing Plaintiff’s claims. In support, GM cites Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1 (Rattagan) wherein the Supreme Court reinforced the principle that fraudulent concealment can form the basis of a tort action only if the information allegedly concealed was outside the contemplation of the parties at the time they entered into a contractual relationship. The Rattagan Court described the exception to the rule as follows: “[U]nder the economic loss rule, tort recovery for breach of a contract duty is generally barred [citations] unless two conditions are satisfied. A plaintiff must first demonstrate the defendant's injury-causing conduct violated a duty that is independent of the duties and rights assumed by the parties when they entered the contract. Second, the defendant's conduct must have caused injury to persons or property that was not reasonably contemplated by the parties when the contract was formed.” (Rattagan, 17 Cal.5th at pp. 20–21.)

Here, Plaintiff’s fraud claim is based on GM’s alleged violation of a duty independent from the sales contract and warranty: the duty to disclose the alleged defect. If GM had disclosed the defect, Plaintiff alleges she would not have purchased the Vehicle. GM’s alleged duty to disclose preexisted the sales contract and warranty. This makes sense. After all, accepting Plaintiff’s allegations as true, Plaintiff would have avoided the purchase of the Vehicle upon disclosure of the defect. In other words, no sale, no contract.[1]

Plaintiff’s Fifth Cause of Action for violation of the Consumer Legal Remedies Act (CLRA) is based in part on GM’s concealment of the transmission defect. (FAC, ¶¶ 121-122.)

The CLRA “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, supra, 196 Cal.App.4th at p. 1556.)¿¿

GM argues the CLRA claims fails because (1) Plaintiff failed to provide the adequate notice required under Civil Code section 1782 to properly plead a CLRA violation, and (2) Plaintiff does not state a viable CLRA claim.

(a) Thirty days or more prior to the commencement of an action for damages pursuant to this title, the consumer shall do the following: (1) Notify the person alleged to have employed or committed methods, acts, or practices declared unlawful by Section 1770 of the particular alleged violations of Section 1770.

(d) An action for injunctive relief brought under the specific provisions of Section 1770 may be commenced without compliance with subdivision (a). Not less than 30 days after the commencement of an action for injunctive relief, and after compliance with subdivision (a), the consumer may amend his or her complaint without leave of court to include a request for damages. The appropriate provisions of subdivision (b) or (c) shall be applicable if the complaint for injunctive relief is amended to request damages.

Here, the FAC alleges that “Plaintiff complied with the notice provisions of Civ. Code § 1782 by notifying Defendants on July 30, 2024, of the particular alleged violations of Civ. Code § 1770 and demanding that it correct, repair, replace, or otherwise rectify the goods or services alleged to be in violation of Civ. Code § 1770. The notice was given in writing and was sent by certified mail, return receipt requested, to Defendants. Defendants have failed, within thirty (30) days of receipt, to respond to Plaintiff’s demand and/or provide Plaintiff with an appropriate correction, repair, replacement, relief, cure or any other remedy.” (FAC, ¶ 125.)

As noted above, Plaintiff’s CLRA claim is based on the same allegations supporting Plaintiff’s fraud claim. Because the court has found Plaintiff’s fraud claim is supported by sufficient allegations, GM’s demurrer to the Fifth Cause of Action is OVERRULED.

GM moves to strike Plaintiff’s prayer for punitive damages on the ground that punitive damages are not available for violations of the Song-Beverly Consumer Warranty Act (“Song-Beverly”). GM also contends that Plaintiff’s fraud and CLRA causes of action do not support punitive damages because Plaintiff has not sufficiently pleaded fraud. The court agrees punitive damages should be stricken, but on different grounds.

“In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.”¿ (Civ. Code, § 3294, subd. (a).)¿ When the defendant is a corporation, an award of punitive damages against it must be based on the malice of its employees; however, the law does not impute every employee’s malice to the corporation. Instead the oppression or malice must be perpetrated, authorized, or knowingly ratified by an officer, director, or managing agent of the corporation.”¿ (Civ. Code, § 3294, subd. (b); Tilkey v. Allstate Ins. Co. (2020) 56 Cal.App.5th 521, 554 (corporation ratifies managing agent’s decision when it knows about and accepts that decision); see also Wilson v. Southern California Edison Co. (2015) 234 Cal.App.4th 123, 164-165 (assuming employees were managing agents, conduct they ratified “was far from despicable”).)

Here, Defendant is a corporation. However, the Complaint does not allege that the oppression, fraud, or malice was “perpetrated, authorized, or knowingly ratified by an officer, director, or managing agent of the corporation.”¿¿¿(Wilson, supra, 234 Cal.App.4th at p. 164, citing Civ. Code, § 3294, subd. (b).)¿¿¿¿

Accordingly, the motion to strike punitive damages is GRANTED.¿ Leave to amend is DENIED without prejudice.

Based on the foregoing, the demurrers to the Fourth and Fifth Causes of Action are Overruled.

The Motion to Strike is Granted. Leave to amend is Denied without prejudice. Plaintiff may seek leave to amend if she uncovers additional facts during discovery which support a claim for punitive damages.

Defendant is ordered to serve and file their Answer to the First Amended Complaint within 10 days of the date of this order.

Kerry Bensinger

Judge of the Superior Court

[1] This conclusion also accords with Dhital. In Dhital, the Court of Appeal determined independence is present in the case of fraudulent inducement (whether it is achieved by intentional concealment or by intentional affirmative misrepresentations), because a defendant’s conduct in fraudulently inducing someone to enter a contract is separate from the defendant’s later breach of the contract or warranty provisions. (Dhital, at p. 841.) The Dhital court determined, at the pleading stage, plaintiffs’ fraudulent inducement claim alleges presale conduct by Nissan (concealment) that is distinct from the defendant’s alleged subsequent conduct in breaching its warranty obligations. (Id.)