Judge Michael Shultz, Case 22CMCV00320 2023-04-06 Tentative Ruling

[TENTATIVE] ORDER DENYING MOTION TO STRIKE PORTIONS OF THE FIRST AMENDED COMPLAINT

The first amended complaint (“FAC”) filed, on January 20, 2023, after the Court sustained Defendant’s demurrer to the complaint, alleges that Plaintiff bought a new vehicle made by Defendant, which subsequently developed transmission defects. Defendant allegedly refused to remedy the defects as required by its express warranty. Plaintiff alleges claims for violation of the Song-Beverly Consumer Warranty Act and for fraudulent inducement/ concealment.

Defendant again demurs to the second cause of action for fraudulent concealment on grounds it is vague, ambiguous, and uncertain, and is barred by the three-year statute of limitations and the economic loss rule. A claim for fraud must be alleged with specificity.

In opposition, Plaintiff argues that the second cause of action is tolled by Plaintiff’s delayed discovery. The economic loss rule does not bar Plaintiff’s claim, and the fraud claim is adequately alleged.

In reply, Defendant argues that Plaintiff must allege a direct transactional relationship with Defendant to support the fraud claim. Plaintiff has alleged only economic damages caused by the alleged fraudulent conduct which alone does not support the claim.

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 fraud claim 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 as a result of a 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, wherein the Plaintiffs sued Nissan North America, Inc. (Nissan), alleging a transmission defect. 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 at 838).

Since the Court ruled on Defendant’s demurrer on January 10, 2023, the California Supreme Court granted review of Dhital on February 1, 2023, however, the request for depublication was denied. (Dhital v. Nissan North America (Cal. 2023) 304 Cal.Rptr.3d 82, 83). Since review is pending and the Supreme Court did not otherwise order, Dhital does not have binding effect, however, “it may be cited for potentially persuasive value only.” (Cal Rules of Court, Rule 8.1115 (e)(1).

The Dhital court concluded that 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 at 845). Plaintiff’s amended allegations conform with the allegations found by the Court of Appeal to establish a relationship with the manufacturer sufficient to withstand demurrer. (FAC ¶ 8-11).

Defendant contends that no agency relationship can exist between the dealer and manufacturer as a matter of law. Plaintiff is not required to allege evidentiary facts supporting the existence of an agency relationship, only allegations of ultimate fact. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal. 4th 26, 47). The existence of an agency relationship requires an examination of the degree of control over the agent, evidence of the dealer agreement with the manufacturer, and the actual operation of the dealership at issue, according to Defendant’s case authority. (Arnson v. General Motors Corp. (N.D.Ohio 1974) 377 F.Supp. 209, 213). These are factual issues that cannot be resolved at the demurrer stage.

Ordinarily, 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.) However, the specificity rule is intended to apply to affirmative misrepresentations and not to concealment. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 89 Cal.Rptr.3d 659). Accordingly, the allegation that Defendant had exclusive knowledge of the transmission defects and the alleged facts supporting the existence of a direct transactional relationship with Defendant’s agent are sufficient to support a duty not to conceal material facts.

Defendant again argues that the allegations of the existence of eight separate Technical Service Bulletins (TSBs) published by Defendant to NHTSA cuts against the allegation that Defendant failed to disclose the defects. Defendant does not cite any authority to suggest that it owes no duty to Plaintiff as a consumer if it publishes TSBs to the public at large. This argument contradicts Defendant’s argument that a direct transaction with the manufacturer and a relationship with the dealer is required to impose liability. The concealment claim is adequately alleged.

Defendant repeats its argument 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, since Plaintiff’s claim for inducement by concealment is adequately alleged, it is not barred by the economic loss rule. [1]

While Defendant states in its notice that the claim is also barred by the three-year statute of limitations, Defendant does not articulate the argument in its points and authorities. In its prior ruling, the Court determined that Plaintiff adequately alleged delayed discovery to avoid the bar of the statute of limitations.

Based on the foregoing, demurrer to the claim for fraudulent concealment is OVERRULED. Defendant is ordered to answer within 10 days.

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 to support recovery of punitive damages.

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 against a corporate entity.

In reply, Defendant contends that punitive damages may not be presumed as Plaintiff argues. Plaintiff’s allegations supporting corporate liability for punitive damages are mere conclusions.

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).

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). 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)).

As explained previously, Plaintiff is not required to allege specific facts where the claim is based on fraudulent concealment. Notwithstanding, Plaintiff has added allegations describing the materials that induced Plaintiff to buy the vehicle although Defendant allegedly concealed the defects. (FAC ¶¶ 42, 44-49, 120-123).

The claim for fraudulent concealment survives demurrer and provides a predicate for recovery of punitive damages. Plaintiff also alleges that all acts of a corporate employee were authorized by an officer, director, or managing agent of the corporate employer. (FAC ¶ 7). Defendant relies on White v. Ultramar, Inc. (1999) 21 Cal.4th 563, contending that Plaintiff is required to identify the corporate agent who engaged in the unlawful acts. White considered whether plaintiff’s evidence at trial was sufficient to establish that plaintiff’s supervisor was a managing agent for purposes of imposing punitive damages. (White at 573). The White Court did not address the requirements of pleading. Whether a corporate employee has broad discretionary powers and exercises substantial discretionary authority in the corporation to be considered a managing agent requires evidence, which Plaintiff is not required to allege. (White at 577).

Based on the foregoing, Defendant’s motion to strike is DENIED. Defendant is ordered to answer within 10 days.

[1] Review of the issue of whether claims for fraudulent concealment are exempted from the economic loss rule is an issue on review by the California Supreme Court in (Rattagan v. Uber Technologies, Inc. (Feb. 9, 2022, No. S272113) ___Cal.5th___ [2022 Cal. LEXIS 490]).