Judge Michael Shultz, Case 22CMCV00320 2023-01-10 Tentative Ruling

The complaint filed, September 14, 2022, alleges that Plaintiff bought a new vehicle on August 8, 2018, from Defendant. The vehicle developed transmission defects which Defendant refused to acknowledge or recall. Plaintiff alleges claims for violation of the Song-Beverly Consumer Warranty Act and for fraudulent inducement/concealment.

Defendant demurs to the second cause of action for fraudulent concealment on grounds it is barred by the three-year statute of limitations. Plaintiff bought the vehicle on August 18, 2018 but did not file suit until September 14, 2022. Plaintiff has not alleged that she had a direct transaction with Defendant from which a duty to disclose arose. Under the economic loss rule, Plaintiff cannot recover in tort if damages are purely economic in nature, ie., no physical injury. The allegations are inconsistent in that Plaintiff alleges that Defendant actively concealed the defect but goes on to allege nine examples of Defendant’s published disclosures of the transmission defect. Plaintiff alleges she was harmed by Defendant’s inducement to purchase the vehicle, however, there is no alleged contract or purchase agreement between Plaintiff and Defendant. A fraud claim must be alleged with specificity.

In opposition, Plaintiff argues that the second cause of action is not barred by the statute of limitations. The statute is tolled by Plaintiff’s delayed discovery. Equitable tolling also applies to avoid the bar of the statute of limitations. Plaintiff argues that Defendant owed a duty to disclose arising from a direct relationship between Plaintiff and Defendant, and because Defendant had exclusive knowledge of the defect prior to the sale of the vehicle to Plaintiff. The economic loss rule does not bar Plaintiff’s claim based on a recent opinion issued on October 26, 2022.

Defendant filed its reply on December 23, 2022 reiterating that Plaintiff must allege a direct transaction with Defendant wherein Defendant induced Plaintiff to enter into a contract. Plaintiff has not alleged appreciable damages caused by the alleged fraudulent conduct.

A demurrer tests the sufficiency of a complaint as a matter of law and raises only questions of law. Schmidt v. Foundation Health (1995) 35 Cal.App.4th 1702, 1706. The court must assume the truth of (1) the properly pleaded factual allegations; (2) facts that can be reasonably inferred from those expressly pleaded; and (3) judicially noticed matters. Blank v. Kirwan (1985) 39 Cal.3d 311, 318. The court may not consider contentions, deductions, or conclusions of fact or law. Moore v. Conliffe (1994) 7 Cal.4th 634, 638.

Plaintiff must allege facts sufficient to establish every element of each cause of action. Rakestraw v. California Physicians Service (2000) 81 Cal.App.4th 39, 43. Where the complaint fails to state facts sufficient to constitute a cause of action, courts should sustain the demurrer. Code Civ. Proc., § 430.10(e); Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126. The Plaintiff is required to allege facts "with reasonable precision and with particularity sufficiently specific to acquaint the defendant with the nature, source, and extent of his cause of action.” Gressley v. Williams (1961) 193 Cal.App.2d 636, 643-644. Whether the Plaintiff will be able to prove the pleaded facts is irrelevant. Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 609–610.

A demurrer may also be sustained if a complaint is “uncertain.” Uncertainty exists where a complaint’s factual allegations are so confusing, they do not sufficiently apprise a defendant of the issues it is being asked to meet. Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2; Code Civ. Proc., § 430.10 subd. (f).

The elements of a claim for fraud 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.” Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 310–311.

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.” Id. at 311. If a fiduciary relationship does not exist, but the latter three circumstances are present, Plaintiff must still show “the existence of some other relationship between the plaintiff and defendant from which a duty to disclose can arise.” Id. at 311.

A duty to disclose may arise because of some sort of transaction between the parties. However, the transaction "must necessarily arise from direct dealings between the plaintiff and the defendant; it cannot arise between the defendant and the public at large." Bigler-Engler at 312 [noting that the duty of a manufacturer to warn consumers of a product’s hazards and faults applies in the context of strict products liability actions but does not apply in a suit for intentional misrepresentation.].

Plaintiff cites Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, which undermines Plaintiff’s contention that the manufacturer’s duty can arise from the “exclusive knowledge of material facts not known to Plaintiff.” Bigler-Engler, supra, at 311. In Dhital, the Plaintiffs sued Nissan North America, Inc. (Nissan), alleging a transmission defect in the vehicle they purchased. Plaintiffs alleged claims under the Song-Beverly Consumer Warranty Act and a common law fraud claim alleging that Nissan fraudulently concealed the defects and induced them to purchase a car. Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828.

The Dhital court concluded that Plaintiffs’ allegations were sufficient to support the existence of a buyer-seller relationship between the parties as “Plaintiffs alleged 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 [the manufacturer’s] agents for purposes of the sale of Nissan vehicles to consumers. 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." Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828.

Here, Plaintiff allege they bought a vehicle, but does not identify the seller. Complaint ¶¶ 8, 49. Plaintiffs alleges they “visited” a car dealership in Carson “in hopes of finding a motor vehicle.” Complaint, ¶ 51. Plaintiff alleges they reviewed market brochures and relied on statements made during the “sales process” by undisclosed agents of American Honda. Complaint, ¶ 52. However, neither American Honda nor its authorized agents disclosed to Plaintiff any information about the transmission defect. Complaint, ¶ 51.

These allegations do not demonstrate a buyer-seller relationship between Plaintiffs and Defendant, where Plaintiff does not identify the seller or a transaction, that the seller was an agent of Defendant, or the factual circumstances surrounding a transaction. Plaintiff argues that the court could reasonably interpret from these allegations that an authorized dealership concealed facts. Opp. 14:6-12. Fraud claims are subject to strict requirements of particularity in pleading which necessitate pleading facts showing “how, when, where, to whom, and by what means the representations were tendered." Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73. The requirement “applies not only to the alleged misrepresentation, but also to the elements of causation and damage." Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 776.

Moreover, as Defendant observes, Plaintiff’s allegations contradict the claim that Defendant concealed material facts regarding the transmission defect. Plaintiff alleges that Defendant issued numerous technical service bulletins (TSBs) to its dealerships concerning issues with the transmission control module. Complaint, ¶¶ 25-33. The allegation that Defendant had exclusive knowledge of the transmission defects is undermined by the allegations that “hundreds” of consumer complaints relating to the transmission defects were reported to the National Highway Traffic Safety Administration (NHTSA), who provided these consumer complaints to Defendant. Complaint, ¶¶ 36-37.

The court grants Defendant’s request for judicial notice of NHTSA’s publications of Defendant’s TSBs relating to the transmission defects. Evid. Code, § 452 subd. (c) [permits judicial notice of “[o]fficial acts of the legislative, executive, and judicial departments of the United States and of any state of the United States."]; Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 518. ["Official acts include records, reports and orders of administrative agencies.”]. Given these public disclosures, Plaintiffs’ claim for concealment is not supported. As noted previously, the required transaction to support the fraudulent concealment claim "must necessarily arise from direct dealings between the plaintiff and the defendant … ." Bigler-Engler, supra at 312. Plaintiffs have not alleged “direct dealings” with anyone. The claim for fraudulent concealment alleges that Defendant intentionally and actively concealed information from the public regarding the transmission defect, which was never made publicly available. Defendant had exclusive knowledge of the defect. Complaint ¶¶ 109-111. These allegations are undermined by the Plaintiff’s own allegations and the records subject to judicial notice.

While Plaintiff relies on federal authority for the proposition that the duty to disclose can arise solely from the allegation that Defendant has exclusive knowledge of the defects, federal opinion interpreting state law is not binding; rather the court may rely upon federal court opinions "for their cogent reasoning and persuasive value.” McCann v. Lucky Money, Inc. (2005) 129 Cal.App.4th 1382, 1396. Dhital required more specific allegations of an agency relationship between seller and manufacturer.

Defendant argues that Plaintiff’s damage claim for fraudulent concealment is barred by the economic loss rule which provides that “[i]n general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” Dhital, supra 721-722. However, Dhital held that the tort of fraudulent inducement by concealment is excepted from the economic loss rules since "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. Dhital at 828. Accordingly, assuming Plaintiffs can adequately allege a claim for fraudulent inducement by concealment, it would not be barred by the economic loss rule.

The statute of limitations on a claim for fraud is three years from the date of accrual. The claim “is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." Code Civ. Proc., § 338 subd. (d). Defendant argues that more than three years have passed since Plaintiff bought the vehicle. Plaintiff alleges that accrual was delayed by the discovery rule.

To rely on the discovery rule for delayed accrual of a cause of action, “[a] plaintiff whose complaint shows on face that the claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. … In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to show diligence; conclusory allegations will not withstand demurrer.” Doe v. Roman Catholic Bishop of Sacramento (2010) 189 Cal.App.4th 1423, 1430.

Plaintiff has adequately alleged delayed discovery. She first became aware that the transmission issues were not unique to her vehicle, but was a pervasive issue, when she presented her vehicle to an authorized dealership for service on October 30, 2020. Complaint, ¶ 67. Plaintiff alleges that she could not have discovered these issues prior to that time with reasonable diligence because Defendant allegedly concealed these defects and their dealers continued to conceal the extent of the defect. Id. Accordingly, assuming Plaintiff adequately alleges a claim for fraudulent concealment, the allegations of her delayed discovery are sufficient to delay accrual.

Based on the foregoing, demurrer to the claim for fraudulent concealment is SUSTAINED with 10 days leave to amend. Colvig v. RKO General, Inc. (1965) 232 Cal.App.2d 56, 69–70 [noting the “well-established rule that, even where the defect is one of substance, a demurrer should not be sustained without leave to amend if there is a possibility that subsequent amendments will supply omitted allegations and the plaintiff has not had a fair opportunity to so amend."].

Defendant separately moves to strike the claim for punitive damages on grounds Plaintiff has not alleged facts showing that Defendant acted with malice, fraud, or oppression to warrant recovery of such damages. The fraudulent concealment claim is defective and cannot serve as a predicate facts to support recovery of punitive damages. The pleading standards are higher where Plaintiff seeks punitive damages against a corporate entity.

In opposition, Plaintiff argues that the fraudulent concealment claim is well pleaded and supports recovery of punitive damages. In reply, Defendant again argues that the allegations are not sufficient to support recovery of punitive damages specifically with against a corporate entity.

The court may, upon motion or at any time in its discretion and upon terms it deems proper: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of the pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the Court. Code Civ. Proc., § 436 subd (a)-(b). Grounds for the motion to strike are limited to matters that appear on the face of the pleading or on any matter which the court shall or may take judicial notice. Code Civ. Proc., § 437.

Defense counsel complied with the statutory obligation to meet and confer with Plaintiff’s counsel prior to filing the motion to strike. Code Civ. Proc., § 435.5, Declaration of D. Tucker Dowling. Plaintiff may recover on a claim for exemplary damages if Plaintiff establishes “by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” Civ. Code, § 3294 subd. (a). The predicate acts to support a claim for punitive damages must be intended to cause injury or must constitute “malicious” or “oppressive” conduct as defined by statute. “Malice” is defined as “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” Civ. Code, § 3294 subd. (c)(1); College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 725 ["malice involves awareness of dangerous consequences and a willful and deliberate failure to avoid them"]. "Oppression" is defined as “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.” Civ. Code, § 3294 subd. (a) subd. (c)(2).

Absent an intent to injure the plaintiff, the conduct must be “despicable” which is defined as “base, vile, or contemptible.” College Hospital Inc. at 725. Plaintiffs must demonstrate that “the defendant acted in such an outrageous and reprehensible manner that the jury could infer that he knowingly disregarded the substantial certainty of injury to others." Dawes v. Superior Court (1980) 111 Cal.App.3d 82, 90. Conduct constituting negligence, gross negligence or recklessness is insufficient to support a claim for punitive damages. Dawes at 87. Additionally, liability for punitive damages will not be imposed against a corporate employer absent proof of advance knowledge or ratification by an officer, director or managing agent. Civ. Code, § 3294 subd. (b).

For reasons previously explained, the claim for fraudulent concealment is not well pleaded and cannot support recovery of punitive damages. Nor has Plaintiff alleged facts to support liability for punitive damages against a corporate employer.

Based on the foregoing, Defendant’s motion to strike is GRANTED with 10 days leave to amend.