Judge Lynette Gridiron Winston, Case Number: 24PSCV01954, Date: 2024-08-22 Tentative Ruling

Judge: Lynette Gridiron Winston, Case: 24PSCV01954, Date: 2024-08-22 Tentative Ruling

Case Number: 24PSCV01954 Hearing Date: August 22, 2024 Dept: 6

CASE NAME: Julian Sanchez, et al. v. Ford Motor Company, et al.

Defendants Ford Motor Company’s and Ken Grody Ford’s Demurrer to the Complaint

TENTATIVE RULING

The Court OVERRULES the demurrer to the Fifth Cause of Action and SUSTAINS the demurrer to the Sixth Cause of Action. The Court will hear from Plaintiffs’ counsel whether leave to amend should be granted.

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

BACKGROUND

This is a lemon law case. On June 17, 2024, plaintiffs Julian Sanchez and Moises Sanchez (collectively, Plaintiffs) filed this action against defendants Ford Motor Company (Ford), Ken Grody Ford (erroneously sued as Ken Grody Ford – Buena Park) (Ken Grody) (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, fraudulent inducement – concealment, and negligent repair.

On July 16, 2024, Defendants demurred to the complaint. On August 9, 2024, Plaintiff opposed the demurrer. On August 15, 2024, Defendants replied.

LEGAL STANDARD

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.)

DISCUSSION

Meet and Confer

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.)

Fifth Cause of Action – Fraudulent Inducement-Concealment

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.)

Defendants demur to the Fifth Cause of Action for fraudulent inducement-concealment on the grounds that the complaint fails to state a cause of action and on the grounds that it is barred by the economic loss rule. Defendants contend Plaintiffs fail to plead the defect that Defendant Ford allegedly concealed. Defendants contend 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.

Defendants further contend this cause of action is barred by the economic loss rule. Defendants argue the complaint does not contain any allegations that Ford did not intend to honor its contractual promises when Plaintiffs entered into the warranty agreement, and that 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 (Dhital) 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 that Plaintiffs have alleged 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.) Notwithstanding, 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., ¶¶ 71-85.) The complaint alleges facts showing that Ford had superior knowledge of the facts and how such knowledge was obtained, (Compl., ¶¶ 39-50, 71-85); the safety risks posed by the transmission defect, (Compl., ¶¶ 13, 49, 74-78); the materiality of that information, (Compl., ¶ 80); 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., ¶¶ 49, 76, 78, 80); 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., ¶¶ 79, 84-85).

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 v. Judkins, supra, 52 Cal.App.4th at p. 336.) The Court reviewed Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 313-315 and is not persuaded otherwise at the pleading stage. 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., ¶¶ 49, 76-80.) 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 fraudulent concealment claim. The Court agrees with Defendants that the holding in Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 993 (Robinson Helicopter) was limited to affirmative misrepresentations. However, the Court still finds that the economic loss rule does not apply to Plaintiff’s fraudulent concealment claim.

The California Supreme Court granted review in Dhital on February 1, 2023, such that Dhital no longer has precedential effect on the issue of the economic loss rule; however, it may be cited for persuasive value. (Cal. Rules of Court, rule 8.1115, subd. (e).) Defendant argues that the limited ruling in Robinson Helicopter should not extend to fraudulent omission claims.

The California Supreme Court in Robinson Helicopter specifically refused to address the issue of whether the economic loss rule applies to concealment. (Robinson Helicopter, supra, 34 Cal.4th at p. 991.) This issue is currently pending before the California Supreme Court in Rattagan v. Uber Technologies, review granted February 9, 2022, S272113. In Dhital, however, the Court of Appeal expressly found that the economic loss rule did not apply to the plaintiffs’ concealment claim, stating:

To hold, at the demurrer stage, that plaintiffs’ fraud claim is barred by the economic loss rule, we would need to conclude, as Nissan urges us to do, that (1) despite the Supreme Court's statement in Robinson, there is no exception to the economic loss rule for fraudulent inducement claims (or at least no exception that encompasses the claim plaintiffs allege in the SAC), or (2) plaintiffs have not adequately pleaded a claim for fraudulent inducement under California law …. We reject both arguments and conclude the economic loss rule does not bar plaintiffs’ claim.

(Dhital, supra, 84 Cal.App.5th at p. 839.) The Court of Appeal further stated:

Robinson left undecided whether concealment-based claims are barred by the economic loss rule. What follows from its analysis, however, is that concealment-based claims for fraudulent inducement are not barred by the economic loss rule. The reasoning in Robinson affirmatively places fraudulent inducement by concealment outside the coverage of the economic loss rule. We now hold that the economic loss rule does not cover such claims. First, as discussed, Robinson identified fraudulent inducement as an existing exception to the economic loss rule, before it proceeded to analyze the particular claims at issue in that case relating to fraud during the performance of a contract. [Citation.] For fraudulent inducement and the other existing exceptions listed in Robinson, “ ‘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.’ ” [Citation.]

In our view, that 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 that were agreed to.

(Id., at pp. 840-841.) This Court is persuaded by the reasoning in Dhital and similarly finds the duty exists independent of the contract. Plaintiff’s fraudulent concealment claim therefore falls outside the coverage of the economic loss rule.

Accordingly, the Court OVERRULES the demurrer to the Fifth Cause of Action.

Sixth Cause of Action – Negligent Repair

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.)

Defendants demur to the Sixth 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. Defendants contend the economic loss rule bars this cause of action because it arises from and is not independent of the warranty contract. Defendants contend the complaint does not allege intentional conduct by Ken Grody or any physical damage to property or personal injury, but instead only seeks damages for the cost of the repair to the subject vehicle. Defendants also contend the economic loss rule applies to service contracts. Defendants contend the complaint does not allege facts evidencing damages or that Plaintiffs paid out-of-pocket for any repairs performed by Defendant Ken Grody.

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 Ken Grody for repairs, who breached its duty to use the proper skills. 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 Ken Grody. Plaintiffs further contend the economic loss rule does not bar their negligence claim, contending that, based on federal district court cases 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 Ken Grody owed Plaintiffs a duty of care, that Ken Grody breached that duty, and that the breach damaged Plaintiffs. (Compl., ¶¶ 87-90.) The complaint does not allege facts showing that Ken Grody 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 Ken Grody did not cause the transmission defect. (Compl., ¶¶ 42-48.) The complaint also does not allege facts demonstrating any damages different than that sought under the lemon law statutory violations. (See Compl., ¶¶ 87-90.)

The Court also agrees with Defendants 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 Ken Grody 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 Sixth Cause of Action. The Court will hear from Plaintiffs’ counsel whether leave to amend should be granted.

CONCLUSION

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