Judge Michael Shultz, Case Number: 23CMCV01051, Date: 2023-10-05 Tentative Ruling

The complaint alleges that Plaintiff bought a vehicle made by Defendant. The vehicle developed defects which Defendant failed to repair or replace. Plaintiff alleges violations of the Song-Beverly Consumer Warranty Act (the “Warranty Act”) and a claim for fraudulent concealment.

II. ARGUMENTS

Defendant argues that all claims are barred by the three-year statute of limitations for fraud and the four-year statute of limitations for violations of the Act. The limitations period is not tolled. The fraud claim does not meet the heightened standard of pleading.

The claim for fraudulent concealment fails because Defendant would owe a duty if Defendant knew of the defect, and there was a direct transaction between Defendant and Plaintiff such that the material information could be disclosed. Neither element is supported by the facts. The allegations are inconsistent. Defendant separately moves to strike the claim for punitive damages.

In opposition, Plaintiffs argue that the statute of limitations is tolled by delayed discovery. The fraudulent concealment claim is alleged with specificity. Alternatively, Plaintiffs request leave to amend. The claim for punitive damages is adequately supported by the alleged facts.

III. LEGAL STANDARDS

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.)j

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).)

IV. DISCUSSION

An action for breach of contract of a contract for sale must be commenced within four years after the cause of action has accrued. (Cal. U. Com. Code, § 2725.) The claim does not accrue on the date of sale as Defendant argues as the statute provides for an exception based on delayed discovery “where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered." (Id.)

The Court in Krieger v. Nick Alexander Imports, Inc. (1991) 234 Cal.App.3d 205 rejected the contention that the claim accrued on the date of sale reasoning that "[i]f we adopted the position urged by respondent and held that a cause of action for breach of express warranty accrues on tender of delivery, before the seller has an opportunity to repair any defects, we would undermine the legislative purpose that the parties attempt to resolve any deficiencies in performance before resorting to the remedies provided in the [Warranty] Act.” (Id. at 218-219.) Plaintiffs expressly allege that the warranty issued by Defendant covered any repairs needed to correct defects in material or workmanship of a covered part. (Complaint, ¶ 9.) The warranty assured consumers that Defendant would repair any defect in materials or workmanship under normal use. (Complaint, ¶ 9.) Plaintiffs complained of numerous problems involving the transmission and other defects all within the warranty period commencing on February 2, 2018, through February 17, 2023. Plaintiffs allege that it was not until November 22, 2021, that they discovered information indicating that the transmission defect was not unique but was a pervasive problem. (Complaint, ¶ 80.) Plaintiffs commenced this action on July 13, 2023, 20 months later. The claim under the Warranty Act is not clearly barred by the four-year statute of limitations based on the allegations of the Complaint.

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 again argues that the fraud claim accrued on the date of sale.

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.)

Plaintiffs have adequately alleged delayed discovery and reasonable diligence. Plaintiffs allege they attempted repair on the vehicle 17 times over a five-year period. (Complaint, ¶ 9.) Plaintiffs allege that they could not have discovered these issues prior to that time despite their reasonable diligence because Defendant allegedly concealed these defects by representing that the transmission issues were repaired. (Complaint, ¶ 80.) The allegations of delayed discovery are sufficient to delay accrual.

Whether Plaintiffs are entitled to the benefit of other tolling doctrines applicable to class action plaintiffs is superfluous. Defendant improperly states the date of accrual for these claims although the statutes governing both claims expressly provide for accrual based on delayed discovery.

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.].)

Plaintiffs cite 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). The California Supreme Court granted review of Dhital on February 1, 2023, however, the request for de-publication 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.) Plaintiffs’ allegations conform with the allegations found by the Court of Appeal to establish a relationship with the manufacturer sufficient to withstand demurrer. (Complaint, ¶¶ 8-9, 50.)

In its reply brief, Defendant contends in a footnote, that none of Plaintiffs’ case authority applies since they are federal cases that precede Bigler-Engler. As previously explained, Dhital, a state court decision, remains persuasive authority.

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 argues that the allegations that Defendant published Technical Service Bulletins (TSBs) to NHTSA cuts against the allegation that Defendant failed to disclose the defects. (Dem. 16:9-14.) 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.

In its reply, Defendant contends that Plaintiff misconstrues the economic loss rule which states 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.) Defendant argues that because the economic loss doctrine bars Plaintiff’s claim for fraudulent concealment, Plaintiffs attempt to recast the concealment claim as one for fraud in the inducement of a contract, is without merit because Defendant and Plaintiffs did not enter into a contract. (Reply, 9:18-26.)

The complaint alleges that the dealership was Defendant’s agent and that Defendant, and its agents concealed material facts relating to the transmission defect. (Complaint ¶ 122-123.) Plaintiffs also allege that Defendant produces and distributes marketing materials touting the characteristics of the vehicle’s performance. (Complaint, ¶ 127.) These allegations support Plaintiffs’ contention that they were induced to enter into a sale contract with Defendant’s agent.

Additionally, the Dhital court 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 Plaintiffs’ claim for inducement by concealment is adequately alleged, it is not barred by the economic loss rule. [1]

V. CONCLUSION

Based on the foregoing, demurrer to Plaintiff’s complaint is overruled. Defendant shall file an answer within 10 days.

Defendant separately moves to strike the claim for punitive damages on grounds Plaintiffs did not allege 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, Plaintiffs argue that the fraudulent concealment claim is well pleaded and supports recovery of punitive damages.

In reply, Defendant contends that punitive damages may not be presumed as Plaintiffs argue. Plaintiffs’ 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.)

Plaintiffs may recover on a claim for exemplary damages if Plaintiffs establish “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, Plaintiffs are not required to allege specific facts where the claim is based on fraudulent concealment. Notwithstanding, Plaintiffs allege that the published materials and Defendant’s active concealment induced Plaintiffs to purchase the vehicle. (Complaint ¶ 77, ¶ 131, ¶ 136.)

The claim for fraudulent concealment survives demurrer and provides a predicate for recovery of punitive damages. Plaintiffs also allege that all acts of a corporate employees were authorized by an officer, director, or managing agent of the corporate employer. (Complaint, ¶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. (Mot. 6:18-21.) 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 Plaintiffs are 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]).

I. BACKGROUND

II. ARGUMENTS

III. LEGAL STANDARDS

IV. DISCUSSION

V. CONCLUSION