Judge Lee W. Tsao, Case Number: 23NWCV01576, Date: 2024-11-13 Tentative Ruling

Defendant’s motion to strike is DENIED in part and GRANTED in part with 20 days leave to amend.

This is a Song-Beverly action. On May 22, 2023, Plaintiffs Elizabeth Portillo, Blanca Ramirez, and Jay Portillo (Plaintiffs) filed this action against Defendant General Motors, LLC (Defendant). Plaintiffs filed the operative First Amended Complaint (FAC) on February 2, 2024 alleging causes of action for violation of Civil Code section 1793.2, subdivisions (a)(3), (b) and (d); breach of the implied warranty of merchantability; and fraudulent inducement – concealment.

On March 4, 2024, Defendant demurred to Plaintiffs’ fifth cause of action and filed a motion to strike punitive damages and the fifth cause of action from the FAC. Plaintiffs filed oppositions on October 30, 2024. Defendant replied on November 5, 2024.

The FAC alleges the following: On April 30, 2021, Plaintiffs entered into a warranty contract with Defendant regarding a 2021 Chevrolet Silverado 1500 (the Subject Vehicle), which Defendant manufactured and distributed. (FAC, ¶ 6.) The warranty contract contained several warranties including a bumper-to-bumper warranty, a powertrain warranty, and an emission warranty. (FAC, ¶ 7.) Several defects and nonconformities manifested in the Subject Vehicle during the express warranty period including transmission defects, engine defects, and electrical defects. (FAC, ¶ 11.)

On six occasions, between November 2021 and July 2022, Plaintiffs presented the Subject Vehicle to Defendant’s authorized repair facility with various concerns. These concerns included electrical issues, suspension issues, transmission jerking, engine issues, and catalytic converter issues. (FAC, ¶¶ 23-28.) On each occasion, the authorized repair facility performed the warranty repairs and represented to Plaintiffs that the Subject Vehicle had been repaired. (FAC, ¶¶ 23-28.) The Subject Vehicle continued to have issues.

Plaintiffs state the value of the Subject vehicle is worthless. (FAC, ¶ 13.) Defendant failed to promptly replace the Subject Vehicle or promptly make restitution in compliance with the Song-Beverly Act. (FAC, ¶ 15.) Plaintiffs allege Defendant knew of these defects and nonconformities before the parties executed the warranty agreement and failed to disclose these issues to Plaintiffs beforehand.

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “‘treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .’” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

Motions to strike are used to reach defects or objections to pleadings that are not challengeable by demurrer (i.e., words, phrases, prayer for damages, etc.). (Code Civ. Proc., §§ 435-437.) A motion to strike lies only where the pleading has irrelevant, false, or improper matter, or has not been drawn or filed in conformity with laws. (Code Civ. Proc., § 436.) The grounds for moving to strike must appear on the face of the pleadings or by way of judicial notice. (Code Civ. Proc., § 437.) A party may file a motion to strike in whole or in part within the time allowed to respond to a pleading, however, if a party serves and files a motion to strike without demurring to the complaint, the time to answer is extended. (Code Civ. Proc., §§ 435, subd. (b)(1), 435, subd. (c).)

Before filing a demurrer or motion to strike, the moving party must engage in a specified meet and confer process with the party who filed the pleading at issue for the purpose of determining whether an agreement can be reached as to the filing of an amended pleading that would resolve the objections to be raised in the demurrer/motion to strike. (Code Civ. Proc., § 430.41, subd. (a).) If the parties are unable to come to an agreement, a declaration setting forth such meet and confer efforts must accompany the demurrer and motion to strike. (Code Civ. Proc., § 430.41, subd. (a)(3).)

Here, Defendant’s counsel, Ryan Kay, declares he attempted to meet and confer telephonically with Plaintiffs’ counsel to discuss the issues with the FAC. (Declaration of Ryan Kay, ¶ 2.) Kay states he was unsuccessful in his attempts. (Ibid.) Kay also notes that he did meet and confer with Plaintiffs’ counsel regarding the original complaint, but that the FAC contains the same deficiencies from the original complaint. (Ibid.)

Defendant demurs to Plaintiffs’ fifth cause of action for fraudulent inducement – concealment on that grounds that FAC fails to state facts sufficient and specific enough to constitute a cause of action. Specifically, the FAC fails to allege a transactional relationship giving rise to a duty to disclose: Plaintiffs do not claim they spoke to Defendant’s personnel before deciding to purchase the Subject Vehicle; Plaintiffs do not allege Defendant had knowledge of the alleged defects or that Defendant intended to defraud Plaintiffs; and Plaintiffs lack privity with Defendant. (Demurrer, p. 5:22-25.) The FAC alleges conclusory statements. (FAC, ¶ 45.)

In opposition, Plaintiffs assert that in cases claiming fraud through nondisclosure—where the concealment is based on providing false or incomplete statements—the complaint need only set forth the substance of the statements at issue. (Opposition, p. 2:5-9.) Plaintiffs also state the specificity requirement is “relaxed when it is apparent from the allegations that the defendant necessarily possesses knowledge of the facts.” (Opposition, p. 2:9-12.) Plaintiffs also assert that California law does not require a transactional relationship for a manufacturer to have a duty to disclose material facts. Regardless, Plaintiffs argue the FAC alleges a transactional relationship giving rise to Defendant’s duty to disclose the transmission defects by stating: Plaintiffs and Defendant entered into a warranty contract; Defendants had superior knowledge of the true extent of the transmission defect; Defendants actively concealed this information with the intent to induce Plaintiff to purchase the Subject Vehicle. (Opposition, p. 5:1-6.)

To plead a claim for fraudulent concealment, the plaintiff must plead “(1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact; (3) the defendant intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would have acted differently if the concealed or suppressed fact was known; and (5) plaintiff sustained damage as a result of the concealment or suppression of the material fact.” (Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 40.) A fraud claim must be alleged with specificity, even at the pleading stage. (Id. at p. 43.)[1]

“A plaintiff may assert a cause of action for fraudulent concealment based on conduct occurring in the course of a contractual relationship, if the elements of the claim can be established independently of the parties’ contractual rights and obligations and the tortious conduct exposes the plaintiff to a risk of harm beyond the reasonable contemplation of the parties when they entered into the contract.” (Id. at p. 13.)

The economic loss rule bars tort recovery for breach of a contact duty, unless: (1) the plaintiff “demonstrate[s] 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”; and (2) “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, supra, 17 Cal.5th at pp. 20-21.)

The economic loss rule does not apply where the conduct giving rise to a fraudulent inducement claim is distinct from the alleged subsequent conduct in breaching a warranty contract. (See Dhital, supra, 84 Cal.App.5th at p. 841 [“[H]ere, plaintiffs’ fraudulent inducement claim alleges presale conduct by Nissan (concealment) that is distinct from Nissan’s alleged subsequent conduct in breaching its warranty obligations.”].)

To determine whether the economic loss rule bars a tortious claim, the court must: (1) ascertain the full scope of the parties’ contractual agreement; (2) determine whether the plaintiff has adequately plead an independent duty to refrain from tortious conduct exists; and (3) determine whether the plaintiff can establish all elements of the tort independent of the rights and duties assumed by the parties under the contract. (Id. at p. 38.)

Here, the FAC’s factual allegations focus on Defendant’s pre-contractual conduct and knowledge of these defects before Plaintiffs signed the warranty agreement. The FAC alleges fraudulent inducement based upon Defendant’s failure to disclose defects and nonconformities in the Subject Vehicle. The FAC alleges the parties entered into a warranty agreement for the Subject Vehicle which included a bumper-to-bumper warranty, powertrain warranty, and an emission warranty. (FAC, ¶¶ 6-7.) The FAC states Defendant knew of the alleged defects and nonconformities and made misrepresentations to Plaintiffs prior to entering into the agreement.

Thus, the Court finds that the economic loss rule does not bar Plaintiffs’ fraudulent inducement claim.

An independent duty to disclose a material fact may arise when (1) imposed by statute; (2) “ the defendant is acting as plaintiff’s fiduciary or is in some other confidential relationship with plaintiff that imposes a disclosure duty under the circumstances”; (3) the material fact is known or accessible only to the defendant, and the defendant knows the facts are not known or reasonably discoverable to the plaintiff; (4) the defendant “makes representations but fails to disclose other facts that materially qualify the facts disclosed or render the disclosure misleading”; or (5) the “defendant actively conceals discovery of material fact from plaintiff (i.e., active concealment).” (Rattagan, supra, 17 Cal.5th at p. 40.)

Circumstances 3, 4, and 5 arise when the plaintiff and defendant have a preexisting transactional relationship such as “‘between seller and buyer.’ (Citation)” (Ibid.; see also LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 337 [“All of these relationships are created by transactions between parties from which a duty to disclose facts material to the transaction arises under certain circumstances.”].) The transactional relationship must arise from the “direct dealings” between the parties rather than the public at large. (Ibid.; see also Warner Construction Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294.)

The Court finds the FAC fails to sufficiently plead facts giving rise to a duty to disclose under a theory of fraud because the FAC does not allege a transactional relationship between Plaintiffs and Defendant. The FAC does not allege a transactional buyer-seller relationship, where Plaintiffs purchased the Subject Vehicle directly from Defendant. The FAC states the parties executed a warranty agreement. The FAC alleges Defendant had a duty to disclose the defective nature of the Subject Vehicle, the transmission issues, its safety consequences, and the associated repair costs because Defendant had prior knowledge of material defects with the 8-speed transmission prior to Plaintiffs’ purchase of the Subject Vehicle. (FAC, ¶ 77(a)-(c).) Although the FAC includes specific dates on which Defendant acknowledged and discussed the issues with the transmission, the FAC does not allege the basis of the duty to disclose: a direct transactional relationship between Plaintiffs as buyers of the Subject Vehicle from Defendant as seller. The FAC also fails to allege facts showing that only Defendant had access to the knowledge of the defects. Thus, the FAC does not sufficiently allege a transactional relationship giving rise to a duty to disclose. Without alleging this duty, the FAC fails to allege a claim for fraudulent inducement.

Therefore, Defendant’s demurrer to Plaintiffs’ fifth cause of action for fraudulent inducement is SUSTAINED with 20 days leave to amend.

Defendant moves to strike punitive damages from the FAC on the grounds that claims based upon contractual breaches do not give rise to punitive damages. Defendant argues that the FAC’s fifth cause of action for fraudulent inducement fails to state facts describing Defendant’s state of mind or motive to cause harm. (Motion to Strike, p. 4:25-28.) Defendant also notes Plaintiffs’ failure to allege what specific representations Defendant made about the Subject Vehicle and its transmission, and whether Defendant’s agent made any such representations. (Motion to Strike, p. 4:15-22.)

In opposition, Plaintiffs assert they are entitled to punitive damages for the fraudulent inducement cause of action because the FAC alleges specific conduct, outside the warranty contract, giving rise to punitive damages. Plaintiffs also argue the economic loss doctrine does not apply here because Plaintiffs base their fraudulent inducement claim on Defendant’s conduct before the parties signed the warranty contract.

“The Song–Beverly Act authorizes civil penalties of up to two times the amount of actual damages for violations.” (Romo v. FFG Ins. Co. (C.D. Cal. 2005) 397 F.Supp.2d 1237, 1240 [citing Civ. Code, § 1794, subds. (c)-(d).].) “While these civil penalties are not punitive damages per se, the California courts have, on numerous occasions, analogized the two because both are intended to punish and deter defendants rather than compensate plaintiffs.” (Ibid. [citing Suman v. Superior Court (1995) 39 Cal.App.4th 1309, 1317.].) Plaintiffs need only allege causes of action for breach of warranty under the Song-Beverly Act.

The statutory elements for punitive damages require that a defendant is guilty of “fraud, oppression, or malice.” (Civ. Code, § 3294, subd. (a).) “Fraud” is “an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.” (Civ. Code, § 3294, subd. (c)(3).) “When a statute recognizes a cause of action for violation of a right, all forms of relief granted to civil litigants generally, including appropriate punitive damages, are available unless a contrary legislative intent appears.” (Commodore Home Systems, Inc. v. Superior Court (1982) 32 Cal.3d 211, 215 [authorizing punitive damages in an FEHA action].)

The court finds that the FAC sufficiently alleges breaches of warranty under the first, second, third, and fourth causes of action to support claims for Song-Beverly civil penalties.

However, because the court sustained Defendant’s demurrer to the fraudulent inducement claim, Plaintiffs’ one tort claim, Plaintiffs cannot pray for punitive damages on that cause of action.

Therefore, the motion to strike as to punitive damages for the fifth cause of action is GRANTED in part with 20 days leave to amend. The motion to strike for “punitive” damages for the first, second, third, and fourth causes of action is DENIED in part.

[1] For example, if the plaintiff alleges the defendant had a duty, independent of the parties’ contract, to disclose which “allegedly arose by virtue of the parties’ relationship and defendant’s exclusive knowledge or access to certain facts, . . . the complaint must also include specific allegations establishing all the required elements, including (1) the content of the omitted facts, (2) defendant’s awareness of the materiality of those facts, (3) the inaccessibility of the facts to plaintiff, (4) the general point at which the omitted facts should or could have been revealed, and (5) justifiable and actual reliance, either through action or forbearance, based on the defendant’s omission.” (Rattagan, supra, 17 Cal.5th at pp. 43-44.) Conclusory allegations that omissions were intentional with the purpose of defrauding or deceiving a plaintiff are insufficient. (Rattagan, supra, 17 Cal.5th at p. 44 [citing Goodman v. Kennedy (1976) 18 Cal.3d 335, 347.].)