Judge: Loren G. Freestone, Case: 37-2023-00023465-CU-BC-CTL, Date: 2024-01-19 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - January 18, 2024

01/19/2024  10:30:00 AM  C-64 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Loren G. Freestone

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Civil - Unlimited  Breach of Contract/Warranty Demurrer / Motion to Strike 37-2023-00023465-CU-BC-CTL LINARES VS FORD MOTOR COMPANY [IMAGED] CAUSAL DOCUMENT/DATE FILED:

TENTATIVE RULING Defendants Ford Motor Company and Galpin Motors Inc.'s demurrer to Plaintiffs Rosa Linares and Victor Lopez's complaint is OVERRULED IN PART and SUSTAINED IN PART as set forth below.

Fraudulent Inducement – Concealment Ford demurs to Plaintiffs' second cause of action for fraudulent inducement – concealment on two grounds: (1) there are insufficient facts alleged to support the claim, and (2) it is barred by the economic loss rule.

Sufficiency of Allegations 'As with all fraud claims, the necessary elements of a concealment/suppression claim consist of (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud (i.e., to induce reliance); (4) justifiable reliance; and (5) resulting damage.

Suppression of a material fact is actionable when there is a duty of disclosure, which may arise from a relationship between the parties, such as a buyer-seller relationship. Fraud, including concealment, must be pleaded with specificity.' (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 843–844, review granted Feb. 1, 2023, S277568.) In Dhital, the plaintiffs 'alleged the CVT transmissions installed in numerous Nissan vehicles (including the one plaintiffs purchased) were defective; Nissan knew of the defects and the hazards they posed; Nissan had exclusive knowledge the defects but intentionally concealed and failed to disclose that information; Nissan intended to deceive plaintiffs by concealing known transmission problems; plaintiffs would not have purchased the car if they had known of the defects; and plaintiffs suffered damages in the form of money paid to purchase the car.' (Dhital, supra, 84 Cal.App.5th at p. 844.) The court held these allegations were sufficient to state a claim for fraudulent inducement by concealment.

Plaintiffs' allegations here are similar to those in Dhital and are sufficiently specific to satisfy the heightened pleading standard. Ford's arguments that some of the elements were not adequately pled are not persuasive.

Ford argues that Plaintiffs fail to plead the defect Ford allegedly concealed/the information that should have been revealed. A similar argument was made in Dhital. In that case, the plaintiffs 'alleged the Calendar No.: Event ID:  TENTATIVE RULINGS

3018997  35 CASE NUMBER: CASE TITLE:  LINARES VS FORD MOTOR COMPANY [IMAGED]  37-2023-00023465-CU-BC-CTL CVT transmissions were defective in that they caused such problems as hesitation, shaking, jerking, and failure to function,' and also alleged that 'Nissan was aware of the defects as a result of premarket testing and consumer complaints that were made both to NHTSA and to Nissan and its dealers.' (Dhital, supra, 84 Cal.App.5th at p. 844.) The court held this was sufficient to allege the defect with the transmission. (Id. at p. 844 & fn. 7.) Similar to Dhital, Plaintiffs here allege that defect with the 10R80 transmission causes abrupt harsh shifting, erratic shifting, jerking, 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 affecting the driver's safety. And similar to Dhital, Plaintiffs here allege that Ford learned about the defect from pre-market testing, internal investigations, an unusually large number of consumer complaints to NHTSA, consumer complaints directly to Ford, and warranty claims.

Ford also argues that Plaintiffs fail to allege that it had a duty to disclose the allege defect. This argument was also raised in Dhital, wherein the court held the plaintiffs adequately alleged facts giving rise to a duty to disclose, including 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 the purposes of the sale of Nissan vehicles to consumers.' As was the case in Dhital, Plaintiffs here allege that they bought the car from Perry Ford of Poway, an authorized Ford dealership and its agent for the purposes of the sale of Ford vehicles, and that Ford issued both a 3-year/36,000 mile bumper-to-bumper warranty and a 5-year/60,000 mile powertrain warranty.

For the reasons set forth above, the fraudulent inducement by concealment claim is sufficiently pled.

The demurrer to the second cause of action on this ground is therefore overruled.

Economic Loss Rule 'The economic loss rule provides that, in general, there is no recovery in tort for negligently inflicted purely economic losses, meaning financial harm unaccompanied by physical or property damage. For claims arising from alleged product defects, economic loss consists of damage 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.' (Dhital, supra, 84 Cal.App.5th at p. 837.) Essentially, where 'a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only economic losses. The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken promise.

Quite simply, the economic loss rule prevents the law of contract and the law of tort from dissolving one into the other.' (Dhital, supra, 84 Cal.App.5th at p. 838.) However, the economic loss rule is not without exception. Tort damages are permissible when 'the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to cause harm.' (Dhital, supra, 84 Cal.App.5th at p. 838.) In Dhital, Nissan argued that the economic loss rule barred the plaintiffs' fraudulent inducement by concealment claim. The court of appeal disagreed, explaining that '[f]raudulent inducement claims fall within an exception the economic loss rule recognized by our Supreme Court' and that the plaintiffs had alleged 'fraudulent conduct that is independent of Nissan's alleged warranty breaches.' (Dhital, supra, 84 Cal.App.5th at pp. 837–843.) Dhital is dispositive of this argument. The challenged claim is for fraudulent inducement, and the alleged pre-sale fraud is independent of Ford's alleged post-sale breaches of warranty.

Ford notes that Dhital is currently under review by the California Supreme Court and therefore is not binding. (Cal. Rules of Court, rule 8.115(e)(1).) However, the California Supreme Court denied a request to depublish the opinion, and therefore the opinion may still be cited as persuasive authority.

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3018997  35 CASE NUMBER: CASE TITLE:  LINARES VS FORD MOTOR COMPANY [IMAGED]  37-2023-00023465-CU-BC-CTL (Ibid.) The economic loss rule does not apply to Plaintiffs' claim for fraudulent inducement. The demurrer to the second cause of action on this ground is therefore overruled.

Negligent Repair Galpin demurs to the third cause of action for negligent repair on two grounds: (1) it is barred by the economic loss rule, and (2) no damages are alleged.

The two arguments are somewhat related, as the existence of certain types of damage impacts whether the economic loss rule applies. Mega RV Corp. v. HWH Corp. (2014) 225 Cal.App.4th 1318 is instructive.

In Mega RV, the plaintiffs (the Ertzes) purchased an allegedly defective Country Coach motor home.

After an authorized warranty repair center (Mega RV) unsuccessfully attempted to repair the motor home, the Ertzes sued both Country Coach and Mega RV under Song-Beverly. Mega RV then cross-complained against the manufacturer of the allegedly defective component parts (HWH) for indemnity. HWH responded with its own cross-complaint for equitable indemnity. HWH's cross-complaint alleged that Mega RV was 'negligent in the way [it] . . . diagnosed the causes and conditions in the motor home, and effectuated and failed to effectuate repairs to the motor home.' The trial court entered judgment in favor of HWH on its cross-complaint pursuant to the tort of another rule, 'based on Mega RV's negligence with regard to a service that it performed on the motor home owned by the plaintiffs.' On appeal, HWH defended the judgment 'on the notion that Mega RV (the 'other' party) was negligent (the 'tort') in its servicing of the Ertzes' motor home, thereby causing HWH to incur damages (its attorney fees in [the] action).' The court of appeal rejected HWH's position 'as a matter of law because there was no tort in [the] case.' The court explained, in pertinent part: 'There was no tort committed by any defendant vis-à-vis the Ertzes. The Ertzes never sued Mega RV or any other party for negligence (or any other tort), and never alleged they suffered any personal injury or damages to other property (besides the portions of the motor home that were alleged to be defective) as a result of the alleged defects in the motor home. It appears doubtful that a cause of action could be stated in tort under these circumstances, as a claim based on negligence or even strict liability will not lie where the wrong resulted only in economic loss rather than actual damage to person or property. . . . HWH's pleading of the case as one sounding in tort for purposes of indemnity did not change the essential nature of this warranty dispute.' (Mega RV, supra, 225 Cal.App.4th at p. 1338.) Here, unlike Mega RV, Plaintiffs are attempting to sue Galpin for negligence. But as Mega RV makes clear would have been the case had the Ertzes attempted to sue Mega RV in tort, such a claim is not viable under the circumstances. The repairs are not independent of the contract (i.e., the warranty), but arise from it. And whereas Plaintiffs allege that Galpin's negligent repairs were 'a proximate cause of Plaintiffs' damages,' the only damages alleged in the complaint are economic (e.g., the difference in value between a non-defective vehicle and their still allegedly defective vehicle). The economic loss rule thus bars this claim.

Plaintiffs rely on Sheen v. Wells Fargo Bank N.A. (2022) 12 Cal.5th 905, for the proposition that there is a 'recognized exception to the economic loss rule for consumers who contract for certain kinds of professional services.' (Id. at p. 933, citing Rest.3d Torts, § 4.) Plaintiffs argue that they 'delivered their vehicle for repair-a professional service.' However, in this context, 'professionals' include occupational groups such as 'lawyers, doctors, and accountants.' (Rest.3d Torts, § 4, com. b.) Occupational groups such as 'construction contractors and tradesmen' are not 'professionals' for purposes of this exception.

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3018997  35 CASE NUMBER: CASE TITLE:  LINARES VS FORD MOTOR COMPANY [IMAGED]  37-2023-00023465-CU-BC-CTL (Ibid.) Automobile repair technicians fall within the latter category.

Plaintiffs also rely on Jimenez v. Superior Court (2002) 29 Cal.4th 473 for the proposition that 'the economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated.' (Id. at p. 483.) Plaintiffs argue that Galpin 'has failed to foreclose the possibility that the repair attempt to the subcomponents did not cause damage to the vehicle as a whole.' But again, as was the case in Mega RV, Plaintiffs do not allege any such damage to the vehicle. (See Kramer v. Intuit Inc. (2004) 121 Cal.App.4th 574, 578 ['Doubt in the complaint may be resolved against plaintiff and facts not alleged are presumed not to exist'].) As currently pled, the negligent repair cause of action is barred by the economic loss rule. The demurrer to the third cause of action is therefore sustained.

Conclusion The demurrer to the second cause of action is overruled. The demurrer to the third cause of action is sustained.

Plaintiffs request leave to amend, indicating they can add 'more fact-specific allegations' if needed. The court will hear as to what additional facts Plaintiffs can allege, and how those facts may impact the application of the economic loss rule.

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