Judge: Margaret L. Oldendorf, Case: 23AHCV00561, Date: 2023-05-24 Tentative Ruling

Case Number: 23AHCV00561    Hearing Date: May 24, 2023    Dept: P

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

NORTHEAST DISTRICT

            I.         INTRODUCTION

            This is a lemon law case that includes a claim for fraudulent concealment. Lauren Meisler (Meisler) alleges that the new 2022 Honda Insight she purchased in December 2021 came equipped with a computerized driver-assistance safety system called “Honda Sensing,” which includes a Collision Mitigation Braking System. Meisler alleges that the system was defective. Further, she alleges that American Honda Motor Co., Inc. (American Honda) had exclusive knowledge of the defect and concealed it from buyers.

            Before the Court are American Honda’s demurrer to the 2^nd cause of action for fraudulent concealment, and its motion to strike punitive damages. American Honda urges that there is no transactional relationship between the parties that would give rise to a duty to disclose. For pleading purposes, the Court determines that the agency relationship by which Meisler purchased a Honda vehicle from American Honda through a dealer is sufficient. American Honda makes other arguments regarding the sufficiency of the pleading as well, none of which are enough to sustain the demurrer. Finally, because fraudulent concealment is sufficiently alleged, the motion to strike punitive damages is denied.      

II.        DEMURRER

A. Legal Standard

            1. Law Governing Demurrers

Code Civ. Proc. §430.10(e) provides for a demurrer on the basis that a complaint fails to state a cause of action. A demurrer admits, provisionally for purposes of testing the pleading, all material facts properly pleaded. Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1247. A demurrer tests the legal sufficiency of a complaint. Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4^th 968, 994. 

Code Civ. Proc. §430.10(f) provides for a demurrer where a pleading is uncertain.

Only where a pleading is so uncertain a defendant cannot determine what must be admitted or denied is a demurrer for uncertainty appropriate. Khoury v. Maly’s of California (1993) 14 Cal.App.4th 612, 616.

            2. Law Governing Fraudulent Concealment

A duty to disclose does not exist in all circumstances. The tort of fraudulent concealment is only viable where such a duty exists. “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.]”’ LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.

            B. Summary of Pleading

            Meisler alleges that on December 30, 2021, she purchased a new 2022 Honda Insight. She entered into an express written contract with American Honda at that time.

            Paragraphs 11-26 allege details about a “Honda ‘Sensing’ Defect.” The essence of these allegations is that American Honda developed a computerized driver-assistance safety system called “Honda Sensing” which relies on radar and cameras along with computer technology. Honda Sensing incorporates a Collision Mitigation Braking System that works to prevent collisions by automatically applying the brakes to avoid front-end collisions. The allegation is that Honda Sensing suffers from frequent malfunctions that  cause numerous warning messages; and cause the vehicle to apply brakes when no obstruction is present, resulting in other vehicles having to swerve to avoid a collision.

            Paragraphs 27-64 allege American Honda’s exclusive knowledge of the Honda Sensing Defect since 2016. In addition to the factual allegations, this section contains extensive citations to evidence, including Honda web pages, NTSB web pages, NHTSA reports, and other material.

            Paragraphs 65-83 allege a duty to disclose and failure to disclose.

            Paragraphs 84-91 allege facts particular to Meisler, including her purchase of the vehicle equipped with the allegedly defective driver-assistance safety system and defective collision mitigation system. She alleges viewing and relying on marketing materials and on American Honda’s established reputation as an experienced automobile manufacturer. Meisler alleges that she took the vehicle in for repair three times on one month because the vehicle would randomly and intermittently brake for no reason; and she alleges the technician was unable to replicate or fix the problem.

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            C. Fraudulent Concealment Is Sufficiently Alleged and Is Not Uncertain

            American Honda demurs to the fraudulent concealment claim on the bases that it lacks sufficient facts to constitute a cause of action and that it is uncertain. Demurrers for uncertainty are disfavored. Here, although American Honda raises a number of arguments regarding the sufficiency of the fraud claim, its arguments demonstrate that there is no uncertainty as to the fraud allegations.  The demurrer for uncertainty is thus overruled.

                        1. Relationship Between the Parties

            A duty to disclose only exists where there is some relationship, whether fiduciary or transactional, between the parties.  Such a relationship must be alleged. American Honda notes that CACI 1901 contains this requirement, as does case law such as Hoffman v. 162 North Wolfe, LLC (2014) 228 Cal.App.4th 1178, 1187. It urges that Meisler “quite obviously” did not engage in a direct transaction with American Honda, as she alleges making the purchase from Sierra Honda. What is alleged is a transaction through an agent.

            The complaint alleges that “American Honda’s authorized dealerships are its agents for purposes of the sale of vehicles to consumers such as Plaintiff.” Complaint, ¶114. Meisler alleges she purchased the vehicle from Sierra Honda of Monrovia, an authorized American Honda dealership. Id. at ¶84. Together, these allegations support the contention that Meisler purchased the vehicle from American Honda through its agent Sierra Honda. American Honda challenges the legal sufficiency of the agency allegation.

            American Honda relies on Williams v. Yamaha Motor Corp., U.S.A. (C.D.Cal 2015) 2015 WL 13626022 in urging that authorized dealers are not agents of automobile manufacturers. In Williams, the issue was privity for purposes of implied warranties. Williams does not speak to agency, although arguably the concepts are similar: a transactional connection between buyer and seller. The Williams court declined to find that privity of contract existed; but other courts have concluded otherwise. In re Toyota Corp. Hybrid Brake Marketing, Sales, Practices and Product Liability Litigation (C.D. Cal. 2011) 890 F.Supp.2d 1210, *1221-1222, citing Gilbert Fin. Corp. v. Steelform Contracting Co. (1978) 82 Cal.App.3d 65, 69-70 (“California cases permit a third party to bring an action even though he is not specifically named as a beneficiary, if he is more than incidentally benefitted by the contract”). See also Bryde v. General Motors, LLC (N.D. Cal. 2016) 2016 WL 6804584, *16.

            In its reply brief, American Honda cites a recent Second District case on the topic. In Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, the question was whether automobile manufacturers can rely on the arbitration provision in Retail Installment Sale Contracts (between car buyers and car dealers) when the manufacturers are sued for warranty, fraudulent concealment, and product defect claims. The court in Ford Motor disagrees with the Fourth District decision in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, which found purchaser was equitably estopped from denying the applicability of the arbitration provision in the financing agreement for three reasons: (1) the condition of the vehicle was a subject of the financing agreement; (2) the warranty allegations were grounded in the financing agreement; and (3) the financing agreement provided that it extended to third party non-signatories.

The Ford Motor court explained its rationale for declining to follow Felisilda as to each of these bases. The reasons all concern the fact that manufacturers have no connection to the financing arrangements purchasers make with dealers. As to the third argument, it explains why manufacturers are not third-party beneficiaries of financing agreements: nothing in the contract reflects a direct benefit to manufacturers; and there is no indication that a benefit to manufacturers was a motivating purpose of the contract. In that portion of the opinion relied upon by American Honda, Ford Motor discusses why the agency allegations are insufficient to permit Ford to compel arbitration: “nonsignatory agents were entitled to enforce a contract’s arbitration provision where the plaintiff sued them in their capacities as agents for the signatory and the significant issues in the dispute arose out of the contractual relationship between the parties.” Ford Motor, supra, 89 Cal.App.5th at 1340. Because there was no connection between the sales agreement and the allegation that dealers were manufacturers’ agents for purposes of vehicle repairs, manufacturers could not enforce the arbitration provision contained in that agreement. And in terms of these agency allegations, the Ford Motor court noted that there were no allegations supporting a conclusion that dealers acted as manufacturers’ agents in executing the sales contracts. Id. at 1343.

            The focus on the analysis in Ford Motor is entirely on the enforceability of the arbitration provision in the Retail Installment Sales Contract. Its agency discussion is less relevant here, where the question is whether there is a transactional relationship between Meisler and American Honda.

            American Honda cites Bigler-Enger v. Breg, Inc. (2017) 7 Cal.App.5th 276, arguing that that case holds that transactions with the public at large via advertising or providing warranties does not give rise to a duty to disclose. In Bigler-Enger, a high school athlete had knee surgery, followed by after-care involving the use of a medical device manufactured by Breg, Inc. The Polar Care device is used to provide cold therapy, much like ice packs would but more intensely. Her athlete’s parents rented a Polar Care device from a third party. The athlete used it as much as possible, as instructed, and suffered severe skin damage requiring further surgery to remove dead tissue. In reversing a jury verdict for intentional concealment, the appellate court found there was insufficient evidence of a transactional relationship because the manufacturer did not advertise directly to consumers; nor did it derive any monetary benefit from the athlete’s rental of the device. This case is distinguishable from the facts here.  In this case the allegation is that American Honda did advertise to the public, and that Meisler purchased her Honda from an agent of American Honda who was authorized to sell the vehicle to her.

            American Honda is correct that there is no allegation of a direct transaction between it and Meisler. As to agency, American Honda urges this theory should be rejected in light of the “ever-growing practice of dealerless, direct-to-consumer car sales.” Memorandum of Points and Authorities at 10:27-11:1. This distinction actually favors Meisler because except for those manufacturers who are dealerless (and American Honda does not state it is one of them), there is no way for a consumer to purchase a vehicle except through a dealer.     For the purposes of a demurrer, the Court finds that the existence of a transactional relationship is sufficiently alleged.

                        2.  Exclusive Knowledge

            American Honda argues that the Complaint alleges facts that contradict Meisler’s allegation that it had exclusive knowledge of the alleged defect. It notes that the complaint alleges the existence of at least six public disclosures made by American Honda regarding the alleged Sensing Defect. American Honda’s point is that its disclosures to NHTSA are public and are published on NHTSA’s website, and therefore cut against Meisler’s claim of exclusive knowledge. American Honda’s request for judicial notice of eight NHTSA publications is denied; the publications are not shown to be “official acts” of NHTSA, nor do they constitute facts or propositions that are not reasonably subject to dispute and capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy. See Evid. Code §452(c) and (h). Nevertheless, American Honda’s point is well taken that the NHTSA website provides information to the public.

            Meisler opposes this argument by citing cases holding that in these circumstances, superior rather than exclusive knowledge suffices. Falk v. General Motors Corp. (N.D. Cal. 2007) 496 F.Supp.2d 1088 [internet search provides some information, but the manufacturer is alleged to know about additional information]. The court in In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices, and Product Liability Litigation (C.D. Cal. 2010) 754 F.Supp.2d 1145, 1192 similarly held:

            “The record of complaints made by Toyota customers show that Toyota was clearly aware of the alleged SUA problem. [fn.26] While Toyota shared some information regarding SUA with NHTSA and eventually with consumers, Toyota remained in a superior position of knowledge. While prospective customers could have been tipped off to the possibility of SUA by researching past complaints filed with NHTSA, many customers would not have performed such a search, nor would they be expected to. Thus, Plaintiffs have sufficiently alleged that Toyota knew significantly more about the alleged SUA defect than the limited information that was eventually shared with the public.”

            American Honda also argues that the “TSBs, Engineering Requests for Information, Tech Line Summary articles, and formal consumer complaints,” alleged in the complaint cut against the allegations of non-disclosure, but also that none of them concerns the vehicle at issue in this lawsuit (a 2022 Honda Insight). While that is true, the reports all concern alleged defects with “Honda Sensing.”

            For pleading purposes, the Court concludes that Meisler has sufficiently alleged American Honda’s exclusive knowledge of the alleged defect.     

                        3. Partial Representation Along With Suppression Of Material Fact

            American Honda also argues that Meisler fails to allege partial representations with adequate particularity; instead making vague references to marketing brochures and television and radio commercials, as well as statements made during the sales process.

            Meisler alleges at paragraph 87 of the Complaint that American Honda drafted, produced, and distributed marketing materials containing factual representations about the vehicle, and that Meisler relied on these materials. She further alleges that these materials do not disclose the sensing defect.

            The allegation of partial representation along with suppression is somewhat bare bones, but it is still sufficient. American Honda is correct that fraud is subject to a heightened pleading standard. However, the case it relies on for the rule that a complaint must contain facts, “which show how, when, where, to whom, and by what means the representations were tendered,” governs claims of misrepresentation, not alleged omissions. Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.

D. The Economic Loss Doctrine Does Not Bar the Fraudulent Concealment Claim

            Finally, American Honda urges that the fraudulent concealment claim is barred by the economic loss rule. The economic loss doctrine bars claims for negligently inflicted economic damages unaccompanied by physical or property damage. Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922. It functions to act as a bar to negligence claims for pure economic losses in deference to a contract between the parties. Ibid., citing Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979.

            Robinson permitted the recovery of economic damages stemming from a fraud that was separate and apart from the breach of contract. In that case, a helicopter manufacturer sued a parts supplier that not only breached the contract but was found to have committed fraud by, among other things, issuing false certificates of conformance.

            “We hold the economic loss rule does not bar Robinson’s fraud and intentional misrepresentation claims because they were independent of Dana’s breach of contract. (Citation.) Because Dana’s affirmative intentional misrepresentations of fact (i.e., the issuance of the false certificates of conformance) are dispositive fraudulent conduct related to the performance of the contract, we need not address the issue of whether Dana’s intentional concealment constitutes an independent tort.” Id. at 991.

            In the context of fraudulent concealment claims against automobile manufacturers, the case of Dhital v. Nissan North America (2022) 84 Cal.App.5th 828 is illuminating. As review has been granted, Dhital is not binding authority, but it may nevertheless have persuasive value. Cal. Rules of Court, rule 8.1115(e)(1). The plaintiffs in Dhital sued Nissan for Song-Beverly violations. They alleged the transmission was faulty and unreliable, and that it placed them at risk for an accident though they did not allege they had actually been injured. The pleading included a claim for fraudulent inducement. The plaintiffs alleged that Nissan concealed defects it had a duty to disclose in order to induce the purchase. The trial court sustained Nissan’s demurrer to the fraudulent inducement cause of action on the basis that it was barred by the economic loss doctrine. The appellate court reversed, holding that the fraudulent inducement claim was not barred. The First District Court of Appeal observed:

            “The Robinson court also described instances where tort damages are permitted in contract cases. [fn. 3] ‘ “Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury [citation]; for breach of the covenant of good faith and fair dealing in insurance contracts [citation]; for wrongful discharge in violation of fundamental public policy [citation]; or where the contract was fraudulently induced. [Citation.]” [Citation.] “[I]n each of these cases, 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.” ’ (Robinson, supra, 34 Cal.4th at pp. 989–990, 22 Cal.Rptr.3d 352, 102 P.3d 268.)

            “Here, the fraudulent inducement exception to the economic loss rule applies. Plaintiffs allege that Nissan, by intentionally concealing facts about the defective transmission, fraudulently induced them to purchase a car. Fraudulent inducement is a viable tort claim under California law.” Dhital, supra, 84 Cal.App.5th at 838.

            For the time being, and unless and until Dhital is reversed, the Court finds it persuasive and overrules the demurrer based on the economic loss doctrine.

III.      MOTION TO STRIKE

            A. Legal Standard

                        1. Motions to Strike

            Code Civ. Proc. §436: “The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper:

(a) Strike out any irrelevant, false, or improper matter inserted in any pleading.

(b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.”                    

                        2. Punitive Damages

Civ. Code §3294(a) provides that where it is proven by clear and convincing evidence that a defendant has been guilty of oppression, fraud, or malice, the plaintiff may recover punitive damages. Bolding added.

Subdivision (b) provides that with respect to a corporate employer, the fraud must be “on the part of an officer, director, or managing agent of the corporation.”

B. The Motion to Strike is Denied

American Honda seeks to strike the fraudulent concealment cause of action, and the prayer for punitive damages. As discussed above, fraudulent concealment is sufficiently alleged to survive demurrer. This fraud claim is also sufficient to support the request for punitive damages; although it will have to be proved by clear and convincing evidence.

Paragraph 7 of Meisler’s Complaint alleges, “All acts of corporate employees as alleged were authorized or ratified by an officer, director or managing agent of the corporate employer.” This is a sufficient factual allegation, and it tracks with the requirements of the statute.

As fraud is sufficiently pleaded, there is no basis for striking the second cause of action. Further, the punitive damages allegations are not improper and there is no basis to strike them.

IV.      CONCLUSION AND ORDER

            The demurrer is overruled, and the motion to strike is denied.

            American Honda is granted 10 days to answer.

            Plaintiff Meisler is ordered to give notice of this ruling.

Dated:                                                                        _______________________________

                                                                                          MARGARET L. OLDENDORF

                                                                                 JUDGE OF THE SUPERIOR COURT