Judge Lee W. Tsao, Case Number: 23NWCV02452, Date: 2023-12-07 Tentative Ruling

Judge: Lee W. Tsao, Case: 23NWCV02452, Date: 2023-12-07 Tentative Ruling

Case Number: 23NWCV02452 Hearing Date: December 7, 2023 Dept: C

FAXON, et al. v. FORD MOTOR COMPANY, et al.

CASE NO.: 23NWCV02452

HEARING: 12/7/23

TENTATIVE ORDER

Defendant Ford’s demurrer to Plaintiffs’ second cause of action for fraudulent inducement is OVERRULED.

Moving Party to give NOTICE.

Defendant Ford Motor Company demurs to the second cause of action for Fraudulent inducement – Concealment on the grounds that it fails to meet the requisite pleading requirements and is barred by the economic loss rule.

Procedural History

On August 4, 2023, Plaintiffs Sean Faxon and Veronica Faxon filed an action against Defendants Ford Motor Company, Joe Machperson Ford dba Autonation Ford Tustin, and Does 1-10, alleging

(1) Violation of Song-Beverly Act – Breach of Express Warranty;

(2) Fraudulent inducement – Concealment; and

(3) Negligent Repair.

Plaintiffs allege their fraud cause of action arises out of the facts that surround the misrepresentations and concealment of material facts at the time Plaintiffs purchased or leased a new motor vehicle. Plaintiffs allege their cause of action for violations of the Song-Beverly Act arise from warranty obligations of FORD in connection with a vehicle purchased or leased by Plaintiffs and for which FORD issued written warranties. Plaintiffs allege that FORD was unable to repair the vehicle in accordance with the written warranty or the consumer protection and warranty laws of the State of California.

On October 6, 2023, Defendant Ford Motor Company (“Ford”) filed the instant demurrer. On November 22, 2023, Plaintiff opposed. On November 30, 2023, Defendant replied.

Meet and Confer

Ford states that its counsel sent Plaintiffs’ counsel a meet-and-confer correspondence on September 1, 2023, seven (7) days before its responsive pleading was due. (Sloas Decl., ¶ 2.) The September 1, 2023, correspondence set forth the legal basis for this Demurrer. (Id.) Defense counsel declares that to date, Plaintiff’s counsel has not responded to Ford’s attempt to meet and confer ahead of the filing of this demurrer. (Sloas Decl., ¶ 3.) The Court finds this to be sufficient in satisfying the meet and confer requirement.

Merits

Ford demurs to the second cause of action for Fraudulent inducement – Concealment on the grounds that it fails to meet the requisite pleading requirements and is barred by the economic loss rule.

Moving Party’s Arguments

Ford argues that Plaintiffs’ cause of action for fraud fails as a matter of law because there is no transactional relationship between Ford and Plaintiffs, and Plaintiffs fail to plead facts supporting their claim with requisite particularity. Alternatively, Ford argues the economic loss rule bars Plaintiffs’ claim.

As to the transactional relationship, Ford relies on LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336, for the assertion that a party must “in a fiduciary relationship” to state a cause of action for fraudulent concealment. (Mot. p. 3:4-6.) Ford argues that it did not sell the Subject Vehicle to Plaintiffs, there was no relationship or transaction between Ford and Plaintiffs, and the bare assertion that dealerships are authorized retailers and repair facilities is insufficient. (Mot. p. 3:13-19.) Ford asserts that it had no duty to disclose, and that Plaintiffs’ Complaint fails to identify any individual authorized to speak on Ford’s behalf during the leasing process. (Id. at p. 4:16-21, 5:2-3.) In fact, Ford states that Plaintiffs’ Complaint does not identify a single individual with knowledge that any representations were false and/or who concealed information, or who acted with intent to induce reliance. (Id. at p. 5:3-5.)

As to requisite specificity, Ford argues that Plaintiffs’ fraudulent concealment claim is also legally inadequate because a claim for fraudulent concealment “must consist of affirmative acts or representations designed to prevent discovery of the cause of action.” (Scafidi v. Western Loan & Bldg. Co. (72 Cal.App.2d 550, 563.) Ford asserts that Plaintiffs’ Complaint is defective for the following reasons:

Plaintiffs’ Complaint fails to explain how Plaintiffs’ criticisms regarding the transmission were due to Ford’s statements. Plaintiffs’ Complaint does not state any facts to support a finding that Plaintiffs relied on any communications with Ford about the transmission. Plaintiffs also fail to include any statements by Ford that they relied upon, but instead they merely allege that they relied on brochures and commercials prior to the lease process along with oral statements made during the process. (See Complaint ¶53.) Plaintiffs do not allege any facts that support their claim that Ford “actively concealed the existence and nature of the 10R80 Transmission Defect from Plaintiffs at the time of purchase or lease, repair, and thereafter.” (Complaint ¶46.) Plaintiffs only cite Ford’s alleged concealment regarding the purported transmission defects. (Complaint ¶21.) This alleged concealment is not enough to support Plaintiffs’ claim that Ford fraudulently concealed any purported transmission defects. The Complaint is vague and does not explain how Ford’s assertions, or lack thereof, amount to an affirmative act or representation about the transmission or quality of the Subject Vehicle. Plaintiffs’ Complaint does not allege, nor could it, affirmative acts of concealment by Ford, e.g., that Ford sought to suppress information in the public domain or obscure consumers’ ability to discover it.

To the contrary, Plaintiffs’ Complaint is self-defeating as to their Fraudulent Concealment claim because it includes publicly available Technical Service Bulletins regarding the purportedly defective 10R80 transmission. Plaintiffs allege that Ford allowed the Subject Vehicle to be sold to consumers with a transmission that causes “abrupt harsh shifting, erratic shifting, jerking (commonly known as “juddering” or “shuddering”), lunging while slowing down, hesitation between gears, lack of acceleration, loss of power, stalling, slipping gears, failure to change gears, clunking or banging noises, and other drivability concerns that impede the driver's safety...” (Complaint ¶14.) Yet Plaintiffs’ Complaint also includes some of Ford’s Technical Service Bulletins, which are publicly available documents that were clearly seen by Plaintiffs, which outline “harsh/bumpy upshift, downshift and/or engagement concerns” and “harsh engagement, harsh shift, and delayed shift with or without an illuminated malfunction indicator lamp.” (See Complaint pages 6-7.) Plaintiffs cannot claim that Ford knew of this information and concealed it from the public while also asserting that the information was openly issued to the public in a Technical Service Bulletin.

(Mot. p. 5-6.)

As to the economic loss rule, Ford argues this is another basis which bars Plaintiffs’ fraud claim given that Plaintiffs’ allegations that Ford fraudulently concealed information about the Subject Vehicle and its transmission arise directly from the warranty. (Mot. p. 6:26-28, 7:1.) Ford cites Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 989: “[T]he economic loss rule allows a plaintiff to recover in strict products liability in tort when the 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.” (emphasis in original) (Id. [citing Jiminez v. Superior Court (2002) 29 Cal.4th 473, 482- 83].) (Mot. p. 7:1-6.) Defendant asserts: “The only duty that was breached, if any, was the duty created by the terms of the warranty. The only harm suffered as a result of Ford’s alleged omissions about the ‘Transmission Defect’ was that had it been disclosed, Plaintiffs would not have leased the Subject Vehicle. (Complaint ¶ 91.) Thus, any economic loss arises solely if at all from the breach of contract, not from Ford’s alleged fraudulent concealment.” (Mot. p. 7:10-14.) Given that the fraud claim is based on Ford’s “omissions” and “concealment” rather than affirmative misrepresentations, Ford asserts that the fraud claim is directly related to Ford’s alleged breach of warranty, and that the only claimed damage is of economic loss arising from the warranty and purchase contracts alone. (Id. at p. 7:19-24.)

In anticipation of Plaintiffs’ reliance on Dhital v. Nissan North America, Inc.

(2022) 84 Cal.App.5th 828 [review granted, February 1, 2023, S277568], Ford argues that this case cannot be relied upon because it is under review and no longer citable, and there is no showing of agency between Ford and the authorized dealerships as required under Ochoa v. Ford Motor Company, (April 4, 2023), Court of Appeal of the State of California, Second Appellate

District, B312262.

Arguments in Opposition

In opposition, Plaintiffs argue that they have sufficiently pled their fraud claim and that the economic loss rule does not apply under California law.

As to the economic loss rule, Plaintiffs argue that “California has a longstanding exception to the economic loss rule in cases of fraudulent inducement to enter into a contract because, unlike tortious conduct in the performance of a contract, the fraudulent conduct is a violation of an independent duty that occurs before the contract is ever breached—indeed, before the contract is even formed.” (Opp. p. 2:4-7.) Plaintiffs rely on Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, where the court allowed tort damages where the contract was induced by fraud. (See Opp. p. 3:6-20.) Plaintiffs argue that “[t]he economic loss rule does not apply to fraudulent inducement because the duty not to commit fraud is independent of the contract and the fraud occurs prior to the contract formation.” (Opp. p. 3:21-22.) Plaintiffs argue that Robinson addressed the application of the economic loss rule to fraud committed during the performance of a contract rather than to induce its formation, and further created a new and separate exception for fraud in the performance of an existing contract. (See Opp. p. 4-5.) Plaintiffs also cite Dhital, where the Court of Appeal held that the economic loss rule does not bar a claim for fraudulent inducement by concealment. (See id.) Plaintiffs argue Ford’s reliance on Robinson because that case did not consider whether fraudulent inducement was barred by the economic loss rule, but rather fraud committed during the performance of a contract. (Id. at p. 5.) Rather, Robinson allowed tort damages “where the contract was fraudulently induced” (Robinson, supra, 34 Cal.4th at p. 990, quoting Erlich, supra, 21 Cal.4th 543, at 551-552), and further expanded protections against fraud by allowing claims for fraud based on a defendant’s affirmative representations during the performance of the contract which expose the plaintiff to liability for personal damages independent of the plaintiff’s economic loss. (See Opp. p. 6:3-21.) Plaintiffs request that the Court disregard Ford’s citation to federal district court rulings since there are California cases directly on point, such as Dhital.

As to requisite specificity, Plaintiffs assert that “the rule of specifically pleading how, when, where, to whom, and by what means, misrepresentations were communicated, is only intended to apply to affirmative misrepresentations and not to concealment. (Alfaro, supra, 171 Cal.App.4th 1356, 1384 [“This statement of the rule [of specificity] reveals that it is intended to apply to affirmative misrepresentations . . . it is harder to apply this rule to a case of simple nondisclosure—How does one show ‘how’ and ‘by what means’ something didn’t happen, or ‘when’ it never happened, or ‘where’ it never happened?”].)” (Opp. p. 7:13-19.) Plaintiffs argue they have sufficiently pled facts to establish a claim for concealment by alleging “the 10R80 transmissions installed in numerous Ford vehicles (including the one plaintiffs leased) were defective; Ford knew of the defects and the hazards they posed; Ford had exclusive knowledge of the defects but intentionally concealed and failed to disclose that information; Ford intended to deceive plaintiffs by concealing known transmission problems; plaintiffs would not have leased the car if they had known of the defects; and plaintiffs suffered damages in the form of money paid to lease the car.” (Opp. p. 7:28, 8:1-5.)

Plaintiffs also argue that they sufficiently pled a duty to disclose which “may arise when a defendant possesses or exerts control over material facts not readily available to the plaintiff,’ including when those material facts concern allegedly concealed safety risks known only to the manufacturer” (Jones v. ConocoPhillips (2011) 198 Cal.App.4th 1187, 1198-1199.) (See Opp p. 8:8-26.) Plaintiffs assert they have pled sufficient facts to show that Ford had superior knowledge of the transmission and its defects since at least 2018 and that Ford actively concealed this information from Plaintiffs. (See Opp p. 8-9; Complaint ¶ 16-40, 41-46.)

The Complaint alleges that “FORD knew or should have known about the safety hazard posed by the defective transmissions before the sale of 10R80-equipped vehicles from pre-market testing, consumer complaints to the National Highway Traffic Safety Administration (“NHTSA”), consumer complaints made directly to FORD and its dealers, warranty claims for repairs to the 10R80 transmission from its dealers, and other sources which drove FORD to issue Technical Service Bulletins and Recalls acknowledging the transmission’s defect.” (Complaint ¶ 16.)

The Complaint adds that “Plaintiffs is informed and believes that by March 2018, if not earlier, FORD was aware that the 10R80 transmission installed in the vehicles was defective and would manifest symptoms as described above when it began receiving consumer complaints from NHSTA and issued Technical Service Bulletins, which are internal memorandums from the manufacturer to its dealerships on how to diagnose and repair recurring problems with a particular line of vehicles. FORD knew that the 10R80 transmissions installed in its vehicles were prematurely failing, requiring repeated repair or replacement. FORD knew that the repairs were inadequate and had no fix for the rampant problems, and merely states that the abrupt and harsh shifting is normal.” (Complaint ¶ 17)

(Id. p. 9.) Plaintiffs state “[n]one of this information was disclosed to consumers or Plaintiffs. In sum, Plaintiffs have alleged sufficient facts to demonstrate that Ford had a duty to disclose.” (Id. p. 9:7-8.) Plaintiffs also cite two federal cases: Falk v. Gen. Motors Corp. (N.D. Cal. 2007) 496 F.Supp.2d 1088, 1096-97, where the court found that General Motors had a duty to disclose based under the exclusive knowledge prong; and In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, & Prods. Liab. Litig. (C.D. Cal. 2010), 754 F.Supp.2d 1145, 1174, 1192, where the court found that the plaintiffs had established “a duty to disclose because they allege[d] that Toyota has superior knowledge of the SUA defects.”

Plaintiffs argue that they have sufficiently alleged a transactional relationship under Dhital, which found the 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 support the fraudulent concealment

cause of action. (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 844 [“In light of these allegations, we decline to hold plaintiffs’ claim is barred on the ground there was no relationship requiring Nissan to disclose known defects.”].) (See Opp. p. 10:24-28, 11:1-4.) Here, Plaintiffs allege that they leased the subject vehicle from a Ford dealership, (Complaint ¶ 9, 54,) that Ford provided an express warranty, (Complaint ¶ 10,) and that Ford’s authorized dealerships are its agents for purposes of the sale of Nissan vehicles to consumers.” (Complaint ¶ 57, 84.) (See Opp. p. 11:5-9.)

Finally, Plaintiffs argue that the economic loss rule does not bar Plaintiffs’ negligent repair claim.

Arguments in Reply

In reply, Ford argues that Plaintiffs’ claim is barred by the economic loss rule and that Plaintiffs’ arguments that the fraud claim relies on conduct separate from the contract claims, that the economic loss rule categorically does not apply to fraudulent inducement claims, and that Plaintiffs’ claims fit within various exceptions, are meritless.

Ford argues that any economic losses that Plaintiffs claim arise from Ford’s alleged breach of contract because the only duty that was breached was the duty created by the terms of the warranty. (See Reply p. 2:20-24.) Ford also explains that Plaintiffs misread Robinson in that its holding was “narrow in scope and limited to 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.” (Robinson, 34 Cal.4th at 276.) Ford argues that Plaintiffs fail to provide a California case that rejected the economic loss rule where the fraud claim was based on an alleged omission, where the plaintiff alleged only contractual harm or where the alleged omission related directly to a matter addressed by the parties’ contract. (See Reply p. 3.) Ford distinguishes the cases Plaintiffs cite, which addressed the border between tort and contract, as they fail to expand the scope of Robinson or create additional exceptions to the economic loss rule. Ford argues that Robinson is inapplicable because Plaintiffs do not allege that Ford made any affirmative misrepresentations and its alleged inducement and concealment are directly related to its alleged breach of warranty. Ford relies on Ochoa, for the proposition that economic loss doctrine bars fraudulent inducement claims.

Ford also argues that Plaintiffs fail to address the pleading requirements of factual specificity for their fraud claim. “Plaintiffs have utterly failed to allege who at Ford Motor Company purportedly failed to disclose material information to Plaintiffs specifically. Plaintiffs have likewise failed to allege the scheme by which Ford purportedly affirmatively sought to withhold material information pertaining to the Subject Vehicle specifically from Plaintiffs. (Reply p. 5:11-15.) Ford also claims that Plaintiffs identify no facts demonstrating a “specific relationship” between Plaintiffs and Ford giving rise to a duty to disclose. (See Reply p. 7-8.)

Finally, Ford asserts that its demurrer does not address Plaintiffs’ negligent repair claim and that this analysis is irrelevant.

In Robinson Helicopter Co., Inc., the Court found at page 993 that the fraudulent representations exposed the plaintiff to personal damages independent of the economic loss caused by the failure to deliver conforming products, e.g., injuries that could result from the defect helicopter parts. There was no claim that the fraud induced the helicopter manufacturer into the contract; instead, the fraudulent conduct occurred after the parties entered into the contract when the parts supplier provided false certificates with the goods.

In the pending case, Plaintiff alleges that Defendant knew of the defects in the Vehicle before it sold the vehicle to the Plaintiff. (Compl., ¶¶ 77-78.) Plaintiff alleges that Defendant concealed the defect and that Plaintiffs would not have purchased the vehicle if she had known that the Vehicle suffered from the defect in the engine. (Id., ¶¶ 77-82.) These allegations show that Plaintiff was induced into the contract by Defendant’s fraudulent conduct, i.e., the intentional concealment of facts regarding the defects in the Vehicle and its engine.

These allegations show that the Plaintiffs’ claim arises from a tort duty independent of the contractual duties, i.e., the tort duty not to engage in fraud. California also has a legitimate and compelling interest in preserving a business climate free of fraud and deceptive practices. (Diamond Multimedia Systems, Inc. v. Superior Court (1999) 19 Cal.4th 1036, 1064.) As a result, the Court does not find that the Economic Loss Rule bars Plaintiff’s claim for fraudulent omission.

Legal Standard for Fraud Based on Concealment or Omission

“[T]he elements of an action for fraud and deceit based on 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.)

“Witkin sets out the 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. (Heliotis v. Schuman (1986) 181 Cal.App.3d 646, 651 (Heliotis); see also Warner Constr. Corp. v. L.A. (1970) 2 Cal.3d 285, 295 (Warner).)

Fiduciary Relationship

The parties dispute whether Ford had a fiduciary relationship with Plaintiffs. Ford argues that the parties did not enter into a transaction and that dealerships are not agents of automobile manufacturers. Ford relies on federal case law to support its argument that dealerships are not agents of manufacturers, and that Plaintiffs’ transaction with Ford’s dealership does not constitute a transaction with Ford itself. On the other hand, Plaintiffs rely on Dhital, where the court found that the plaintiffs’ purchase of a car from a Nissan dealership which came with an express warranty and allegation that Nissan’s authorized dealerships are agents for purposes of sale of Nissan vehicles, were sufficient to support the fraudulent concealment claim. Plaintiffs make similar allegations. (See Complaint ¶ 57, 84.) Although the Court notes that Dhital is pending review by the Supreme Court of California, the case may still be cited for persuasive value. (See Cal. Rules of Court, 8.1115 subdiv. (e)(1) [“Pending review and filing of the Supreme Court’s opinion, unless otherwise ordered by the Supreme Court under (3), a published opinion of a Court of Appeal in the matter has no binding or precedential effect, and may be cited for potentially persuasive value only. Any citation to the Court of Appeal opinion must also note the grant of review and any subsequent action by the Supreme Court.”].) The Court finds Dhital to be more persuasive in establishing the existence of a fiduciary relationship between the parties than Ford’s reliance on federal cases.

However, even if the parties did not have a fiduciary relationship, the Court finds that there are sufficient facts to show that Ford had exclusive knowledge of material facts not known to Plaintiffs, which is sufficient to establish nondisclosure or concealment for a fraud claim.

Materiality of the Alleged 10R80 Transmission Defect

Courts have recognized that a manufacturer’s failure to inform its customers of a product’s defects that pose “safety” concerns constitutes a material omission. (See, e.g., Keegan v. Am. Honda Motor Co. (C.D.Cal. 2012) 838 F.Supp.2d 929, 942-944 (Keegan) [“In other words, under California law, and as recently described by the Ninth Circuit: ‘A manufacturer's duty to consumers is limited to its warranty obligations absent either an affirmative misrepresentation or a safety issue.’ ”]; see also Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1198 [“[G]enerally speaking, manufacturers have a duty to warn consumers about the hazards inherent in their products. [Citation.] The requirement's purpose is to inform consumers about a product's hazards and faults of which they are unaware, so that they can refrain from using the product altogether or evade the danger by careful use.”].)

It is alleged in the Complaint that the Subject Vehicle suffers from a defect in its automatic transmission in that it “causes consumers to experience the following unexpected manifestations of the defect: abrupt harsh shifting, erratic shifting, jerking (commonly known as ‘juddering’ or ‘shuddering’), lunging while slowing down, hesitation between gears, lack of acceleration, loss of power, stalling, slipping gears, failure to change gears, clunking or banging noises, and other drivability concerns that impede the driver’s safety, each and all of which prevent a 10R80 equipped vehicle from operating as intended by the driver.” (Compl. ¶¶ 12-14.) The Complaint alleges that “[t]his Transmission Defect creates unreasonably dangerous situations while driving and increases the risk of a crash when trying to accelerate from a stop; when slowing down to a stop, at low speeds when drivers intend to accelerate to merge with highway traffic; and when attempting to drive uphill. The Transmission Defect creates a serious safety risk that can lead to accidents, injuries, or even death to the driver, the vehicles’ occupants, other drivers, and pedestrians.” (Compl. ¶ 15.)

On demurrer, the court must treat all properly pled allegations of material fact as admitted. (See Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) Here, the Complaint alleges that the Transmission Defects can occur when slowing down to a stop, at low speeds when drivers intend to accelerate, or when attempting to drive uphill. (See Compl. ¶ 15.) At this stage of the proceedings, these allegations are sufficient for Plaintiffs to plead that the alleged Transmission Defects constituted a safety concern sufficient to qualify as “material facts” that Ford was required to disclose, if known.

Duty to Disclose Material Facts

Plaintiffs allegedly leased the Subject Vehicle on August 5, 2020. (Compl. ¶ 9.) The Complaint alleges that Ford acquired exclusive knowledge of the Transmission Defect as early as March 2018, if not earlier, “when it began receiving consumer complaints from NHSTA and issued Technical Service Bulletins, which are internal memorandums from the manufacturer to its dealerships on how to diagnose and repair recurring problems with a particular line of vehicles.” (Compl. ¶ 17.) Plaintiffs allege that “FORD knew that the 10R80 transmissions installed in its vehicles were prematurely failing, requiring repeated repair or replacement. FORD knew that the repairs were inadequate and had no fix for the rampant problems, and merely states that the abrupt and harsh shifting is normal.” (Id.) Plaintiffs also provide specific examples of TSBs and service campaigns issued by Ford which identified the 10R80 Transmission Defect. (See Compl. ¶¶ 24-36.)

At this stage of the proceedings, these allegations are sufficient for Plaintiffs to plead that Defendant had exclusive knowledge of the alleged Engine Oil Defects (the material facts at issue) prior to Plaintiffs’ lease of the Subject Vehicle. (See Falk v. GMC (N.D.Cal. 2007) 496 F.Supp.2d 1088, 1096-1097.) These allegations are sufficient to state a cause of action for fraud based on nondisclosure of exclusively known material facts. (See Heliotis v. Schuman (1986) 181 Cal.App.3d 646, 651.)

Sufficient Specificity

Unlike with fraud based on misrepresentation, the specificity requirements do not apply to actions for fraud based on omission or concealment. (Alfaro v. Cmty. Hous. Imp. Sys. & Planning Ass'n Inc. (2009) 171 Cal.App.4th 1356, 1384 (Alfaro) [“This statement of the rule reveals that it is intended to apply to affirmative misrepresentations. ...As plaintiffs accurately respond, it is harder to apply this rule to a case of simple nondisclosure. How does one show ‘how’ and ‘by what means' something didn't happen, or ‘when’ it never happened, or ‘where’ it never happened?”]; see also Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1198-1199 (Jones).)5

Here, Plaintiffs allege that they purchased the Subject Vehicle on August 5, 2020 (Compl., ¶ 9), that the Subject Vehicle contained the alleged Transmission Defects (id., at ¶ 80), that these defects became apparent during the warranty period (id., at ¶ 58), that Ford knew that the engine installed on the Subject Vehicle was defective but failed to disclose this fact to Plaintiffs at the time of lease and thereafter (id., at ¶¶ 16-52), and that Plaintiffs could not reasonably have been expected to learn or discover the alleged Transmission Defects until after they leased the subject Vehicle (id. at ¶ 88).

Plaintiffs additionally allege reliance, in that they would not have purchased the Subject Vehicle if she had known of the alleged Transmission Defects. (Compl., ¶ 94.) The requisite intent is the intent to induce reliance. (Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, 93.) Intent is a fact, and when it comes to pleading an intent to commit fraudulent conduct, an averment that the particular act was committed with that intent (or any other general allegation with similar purport is sufficient. (See Hall v. Mitchell (1922) 59 Cal.App. 743, 749.) The Complaint makes clear that Plaintiffs allege Ford knowingly and intentionally failed to disclose the alleged Transmission Defects in order to induce Plaintiffs to purchase the Subject Vehicle. (Compl., ¶¶ 79-82; see also Duval v. Board of Trustees (2001) 93 Cal.App.4th 902, 906.)

At this stage of the proceedings, these allegations are sufficiently specific for Plaintiff to plead a cause of action for fraud based on omission. (See Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.)

For the foregoing reasons, Ford’s demurrer is OVERRULED on this basis.

Economic Loss Rule

The Court also finds that the Economic Loss Rule does not bar the claim. This is a doctrine created to ensure that tort and contract claims are kept separate and that tort remedies cannot be recovered on a contract claim. For example, when there is a claim based on the difference between price paid and value receive or deviations of quality that do not result in property damage or personal injury, the claims are primary in the domain of contract or fraud. When there are personal injuries, the claims are primary in negligence. The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless the purchaser can demonstrate harm above and beyond a broken contractual promise. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.)

Further, under California law, conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law. (Erlich v. Menezes (1999) 21 Cal.4th 543, 551.) An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.¿(Id.) Examples of cases permitting tort damages in contract cases are the following:

1) breaches of contractual duties that cause physical injuries;

2) breaches of the covenant of good faith and fair dealing in insurance contracts;

3) wrongful discharge in violation of public policy;

4) the fraudulent inducement of a contract.

(Id. at 551-552.)

As a result, the analysis of a claim is based on whether the duty arises from contract or tort. For example, in Robinson Helicopter Co., Inc., a helicopter manufacturer brought an action against a parts supplier after the parts supplier changed the manufacturing process for the parts. The parts supplier provided parts that failed more often and the parts supplier provided certificates that falsely stated that the parts were in conformance with written specifications. The helicopter manufacturer brought claims for breach of contract, breach of warranty, and fraud. The court found that the fraud claims based on the false statements in the certificates were independent of the breach of contract and, as a result, were not barred by the economic loss rule. (Robinson, supra, 34 Cal.4th 979, 991.) The court also found that the fraudulent representations exposed the plaintiff to personal damages independent of the economic loss caused by the failure to deliver conforming products, e.g., injuries that could result from the defect helicopter parts. (Id. at p. 993.) There was no claim that the fraud induced the helicopter manufacturer into the contract; instead, the fraudulent conduct occurred after the parties entered into the contract when the parts supplier provided false certificates with the goods.

Here, Plaintiffs allege that Ford knew of the defects in the Vehicle before it sold the vehicle to the Plaintiffs. (Compl., ¶¶ 16-39.) Plaintiffs allege that Ford concealed the defect and that Plaintiffs would not have purchased the vehicle if she had known that the Vehicle suffered from the defect in the engine. (Id., ¶¶ 46-52, 79-98.) These allegations show that Plaintiffs were induced into the contract by Ford fraudulent conduct, i.e., the intentional concealment of facts regarding the defects in the Vehicle and its engine.

These allegations show that the Plaintiffs’ claim arises from a tort duty independent of the contractual duties, i.e., the tort duty not to engage in fraud. California also has a legitimate and compelling interest in preserving a business climate free of fraud and deceptive practices. (Diamond Multimedia Systems, Inc. v. Superior Court (1999) 19 Cal.4th 1036, 1064.) As a result, the Court does not find that the Economic Loss Rule bars Plaintiff’s claim for fraudulent omission.

Accordingly, Ford’s demurrer is OVERRULED on this basis.