Judge Lynette Gridiron Winston, Case Number: 24PSCV00529, Date: 2024-05-21 Tentative Ruling

Judge: Lynette Gridiron Winston, Case: 24PSCV00529, Date: 2024-05-21 Tentative Ruling

Defendants Ford Motor Company’s and Puente Hills Ford’s Demurrer to the Complaint

The Court SUSTSAINS the demurrer to the Fifth Cause of Action with 20 days’ leave to amend. The Court OVERRULES the demurrer to the Sixth Cause of Action.

Defendants are ordered to give notice of the Court’s ruling within five calendar days of this order.

This is a lemon law case. On February 20, 2024, plaintiffs Hilario Yuriar and Norma Jean Yuriar (collectively, Plaintiffs) filed this action against defendants Ford Motor Company (Ford), Puente Hills Ford (Puente Hills) (collectively, Defendants) and Does 1 through 10, alleging causes of action for violation of subdivision (d) of Civil Code section 1793.2, violation of subdivision (b) of Civil Code section 1793.2, violation of subdivision (a)(3) of Civil Code section 1793.2, breach of the implied warranty of merchantability, negligent repair, and fraudulent inducement – concealment.

On March 22, 2024, Defendants demurred to the complaint. On May 8, 2024, Plaintiff opposed the demurrer. On May 13, 2024, Defendants replied.

A demurrer is a pleading used to test the legal sufficiency of other pleadings. It raises issues of law, not fact, regarding the form or content of the opposing party's pleading (complaint, answer or cross-complaint). (Code Civ. Proc., § 422.10; see Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) It is not the function of the demurrer to challenge the truthfulness of the complaint; and for purposes of ruling on the demurrer, all facts pleaded in the complaint are assumed to be true. (Id.)

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Donabedian, supra, 116 Cal.App.4th at p. 994.) No other extrinsic evidence can be considered. (Ion Equip. Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881 [error for court to consider facts asserted in memorandum supporting demurrer]; see also Afuso v. United States Fid. & Guar. Co. (1985) 169 Cal.App.3d 859, 862, disapproved on other grounds in Moradi-Shalal v. Fireman’s Fund Ins. Cos. (1988) 46 Cal.3d 287 [error to consider contents of release not part of court record].)

A demurrer can be utilized where the “face of the complaint” itself is incomplete or discloses some defense that would bar recovery. (Guardian North Bay, Inc. v. Superior Court (2001) 94 Cal.App.4th 963, 971-972.) The “face of the complaint” includes material contained in attached exhibits that are incorporated by reference into the complaint, or in a superseded complaint in the same action. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94; see also Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505 [“[W]e rely on and accept as true the contents of the exhibits and treat as surplusage the pleader’s allegations as to the legal effect of the exhibits.”])

A demurrer can only be sustained when it disposes of an entire cause of action. (Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119; Kong v. City of Hawaiian Gardens Redev. Agency (2003) 108 Cal.App.4th 1028, 1046.)

Per Code of Civil Procedure section 430.41, subdivision (a), Defendants were required to meet and confer in person or by telephone before bringing this demurrer. (Code Civ. Proc., § 430.41, subd. (a).) The Court finds Defendants’ meet-and-confer efforts sufficient. (Liu Decl., ¶ 3.)

To state a cause of action for negligence, the plaintiff must allege facts demonstrating the existence of a duty, breach of that duty, causation, and damages. (Seo v. All-Makes Overhead Doors (2002) 97 Cal.App.4th 1193, 1202.)

Defendant Puente Hills demurs to the Fifth Cause of Action for negligent repair on the grounds that it fails to allege sufficient facts to state a cause of action and is barred by the economic loss rule. Defendant Puente Hills contends the complaint does not allege that Plaintiffs paid out-of-pocket for any repairs performed by Defendant Puente Hills. Defendant Puente Hills then contends the economic loss rule bars this cause of action because it arises from and is not independent of the warranty contract. Defendant Puente Hills contends the complaint does not allege intentional conduct by Puente Hills or any physical damage to property or personal injury, but instead only seeks damages for the cost of the repair to the subject vehicle. Defendant Puente Hills also contends the economic loss rule applies to service contracts.

In opposition, Plaintiffs contend the complaint alleges sufficient facts to state a cause of action for negligent repair, such as delivering the subject vehicle to Defendant Puente Hills for repairs. Plaintiffs contend whether Plaintiffs paid out-of-pocket for the work is irrelevant and that they do not need to plead facts necessarily in the control of Puente Hills. Plaintiffs further contend the economic loss rule does not bar their negligence claim, contending that, based on federal district courts in California, the economic loss rule does not apply to negligent repair claims where subcomponents of a vehicle cause damage to a larger component or where the component causes damage to the vehicle in which it was incorporated.

The Court finds the complaint fails to allege sufficient facts to state a cause of action for negligent repair. The complaint alleges in a conclusory manner that Puente Hills owed Plaintiffs a duty of care, that it breached that duty, and that the breach damaged Plaintiffs. (Compl., ¶¶ 58-59.) The complaint does not allege facts showing that Puente Hills owed Plaintiffs a duty of care independent of the warranty agreement. (Compl., ¶ 11; see also Seo v. All-Makes Overhead Doors (2002) 97 Cal.App.4th 1193, 1202 [“Any duty of the repairer arises out of its contract with the owner to repair the equipment for a specified fee and no justification exists to extend that contractual duty beyond the intent of the contracting parties. That the repairer has superior knowledge and may recognize the design defect is not sufficient in and of itself to create a duty to third parties.”]) The complaint alleges that Puente Hills did not cause the transmission defect. (Compl., ¶¶ 26-32.) The complaint also does not allege facts demonstrating any damages different than that sought under the lemon law statutory violations. (See Compl., ¶¶ 58-59.)

The Court also agrees with Defendant Puente Hills that this cause of action would be barred by the economic loss rule. “Not all tort claims for monetary losses between contractual parties are barred by the economic loss rule. But such claims are barred when they arise from — or are not independent of — the parties’ underlying contracts. [Citation.]” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 923.) As noted above, the complaint does not allege Puente Hills owed Plaintiffs a duty independent of the warranty agreement. (Compl., ¶ 11.) In fact, the complaint expressly alleges that Plaintiffs’ causes of action are predicated upon those warranty obligations. (Id.) Therefore, the complaint fails to state a cause of action for negligent repair.

Based on the foregoing, the Court SUSTAINS the demurrer to the Fifth Cause of Action with leave to amend.

To plead a cause of action for fraudulent concealment, the plaintiff must allege facts demonstrating, “(1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (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 not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the concealment or suppression of the fact. [Citation.]” (Hambrick v. Healthcare Partners Med. Grp., Inc. (2015) 238 Cal.App.4th 124, 162.) “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.]’ [Citation.]” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.)

Defendant FMC demurs to the Sixth Cause of Action for fraudulent inducement-concealment on the grounds that it fails to state a cause of action and is barred by the economic loss rule. Defendant FMC contends Plaintiffs fail to plead the defect that Defendant Ford allegedly concealed. Defendant FMC contends Plaintiffs fail to allege a duty to disclose, such as a direct transactional relationship, Ford’s exclusive knowledge, active concealment, or that Ford made partial representations while suppressing material facts.

Defendant FMC further contends this cause of action is barred by the economic loss rule. Defendant FMC argues the complaint does not contain any allegations that Ford did not intend to honor its contractual promises when Plaintiffs entered into the warranty agreement. Defendant FMC contends Plaintiffs’ fraud claim is the same as their warranty claims.

In opposition, Plaintiffs contend that the heightened pleading standard for fraud claims is relaxed in cases of fraudulent concealment. Plaintiffs contend they have alleged sufficient facts to comply with Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828 for purposes of a fraudulent concealment claim. Plaintiffs contend a direct transactional relationship is not required for the manufacturer to have a duty to disclose. Plaintiffs also argue that the transmission defect is a material fact, that the transmission defect poses safety risks, and that the transmission defect arose during the warranty period. Plaintiffs further contend that the economic loss rule does not bar a fraudulent concealment claim because the duty of fair dealing is independent of the contract and because the tortious conduct occurs before contract formation.

The Court finds Plaintiffs allege sufficient facts to state a cause of action for fraudulent concealment. First, the heightened pleading standard for fraud claims is relaxed for fraudulent concealment claims. (See Alfaro v. Community Housing Improvement System Planning Assn. (2009) 171 Cal.App.4th 1356, 1384.) Either way, the complaint alleges fraudulent concealment with sufficient specificity. The complaint identifies the material defects and facts that Ford allegedly knew and withheld from Plaintiffs before they bought the subject vehicle. (Compl., ¶¶ 62-75.) The complaint alleges facts showing that Ford had superior knowledge of the facts and how such knowledge was obtained (Compl., ¶¶ 23-34, 62-75); the safety risks posed by the transmission defect (Compl., ¶¶ 13, 33, 64, 66, 68); the materiality of that information (Compl., ¶ 70); that Plaintiffs were unaware of the concealed defect and that they would not have purchased the subject vehicle had they known of the concealed defect (Compl., ¶¶ 33, 66, 68, 70); and that Ford intended to defraud Plaintiffs by selling the subject vehicle to Plaintiffs with its known transmission defects without disclosing them to Plaintiffs, resulting in damages to Plaintiffs (Compl., ¶¶ 69, 75).

Second, with respect to a relationship imposing a duty to disclose, the Court finds the complaint adequately alleges the existence of a transactional relationship. (See LiMandri, supra, 52 Cal.App.4th at p. 336.) The complaint alleges that Plaintiffs and Ford entered into a warranty agreement for the subject vehicle. (Compl., ¶¶ 7-8, Ex. A.) As noted above, the complaint alleges that Ford was aware of the transmission defect before the subject vehicle was sold to Plaintiffs but did not disclose that knowledge to Plaintiffs. (Compl., ¶¶ 33, 66, 68, 69, 70.) The Court also finds that OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835 stands for the proposition that a manufacturer has a duty to disclose material facts to subsequent purchasers when the manufacturer has reason to expect that the item will be resold, which the Court finds applicable in the context of a manufacturer selling vehicles through a dealership. (See Id., at p. 851.)

Third, the Court finds that the economic loss rule does not bar this cause of action as the economic loss rule does not bar intentional misrepresentation claims. (See Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) The California Supreme Court in Robinson Helicopter stated that part of the reason for reaching this conclusion was that “’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 harm.’” (Id. at p. 990, internal citations omitted.) Here, the economic loss rule does not apply because Plaintiffs have alleged a cause of action for fraudulent concealment, which is an intentional misrepresentation claim. (See Hambrick, supra, 238 Cal.App.4th at p. 162 [element of intent required].)[1]

The Court notes that Plaintiffs relied extensively on Dhital v. Nissan North America (2022) 84 Cal.App.5th 828 in their opposition. The Court declines to rely on Dhital given it is currently pending review before the California Supreme Court and is therefore not binding authority. (See Dhital v. Nissan North America (2023) 523 P.3d 392; Cal. Rules of Court, rule 8.1115, subd. (e)(1).)

Based on the foregoing, the Court OVERRULES the demurrer to the Sixth Cause of Action.

The Court SUSTSAINS the demurrer to the Fifth Cause of Action with 20 days’ leave to amend. The Court OVERRULES the demurrer to the Sixth Cause of Action.

Defendants are ordered to give notice of the Court’s ruling within five calendar days of this order.

[1] The Court notes that Plaintiffs’ negligent repair is by definition not an intentional tort, (see Seo, supra, 97 Cal.App.4th at p. 1202 [absence of intent element]), and therefore does not fall under the intentional misrepresentation exception set forth in Robinson Helicopter, (see 34 Cal.4th at p. 988).