Judge Michael Shultz, Case Number: 23CMCV01320, Date: 2024-01-30 Tentative Ruling

INSTRUCTIONS: If the parties wish to submit on the tentative ruling and avoid a court appearance on the matter, the moving party must:

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TENTATIVE RULINGS -- http://www.lacourt.org/tentativeRulingNet/ui/main.aspx?casetype=civil

[TENTATIVE] ORDER OVERRULING DEMURRER TO SECOND CAUSE OF ACTION FOR FRAUDULENT INDUCEMENT/CONCEALMENT

[TENTATIVE] ORDER DENYING DEFENDANT’S MOTION TO STRIKE THE CLAIM FOR PUNITIVE DAMAGES

The complaint alleges that Defendant issued Plaintiff a written warranty for the purchase of a new 2021 Honda Accord made by Defendant. The vehicle’s “sensing” system and subsystems, including its Collision Mitigation Braking System (“CMBS”) developed defects which Defendant failed to repair and failed to replace with another vehicle. Plaintiff alleges (1) violations of the Song-Beverly Consumer Warranty Act (the “Warranty Act”) and (2) claim for fraudulent inducement -- concealment.

Defendant demurs to the second cause of action for failure to state a claim. The parties have met and conferred but have not been able to resolve their differences. Defendant claims that the alleged intent to deceive is conclusory. The claim is barred by the economic loss doctrine.

In opposition, Plaintiff argues that the second cause of action is adequately alleged and meets all heightened pleading standards. Plaintiff requests judicial notice of Dhital v. Nissan North America that supports Plaintiff’s claim that the economic loss rule does not apply.

In reply, Defendant argues that Plaintiff cannot rely on Dhital because petition for review of that case was granted on February 1, 2023. Defendant argues for the first time that federal law preempts Plaintiff’s breach of duty claim. California does not regulate the types of disclosures sought by Plaintiff. The alleged damages for fraud are not separate and distinct from the Song-Beverly Consumer Warranty Act (“SBA”) damages.

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).)

Plaintiff alleges that Defendant intentionally concealed and failed to disclose facts relating to the Honda sensing defect. (Complaint, ¶ 111.) Defendant had exclusive knowledge of this information which Defendant failed to make publicly available, and which Defendant actively concealed. (Complaint ¶ 112, 119.) Defendant prepared marketing materials for distribution to its dealerships and made available to the public that touted the characteristics of the vehicle and its safety system while failing to disclose defects, making the disclosure deceptive. (Complaint ¶ 113-116.)

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.) Accordingly, Defendant’s contention that a fiduciary relationship does not exist is irrelevant since Plaintiff adequately alleges the duty to disclose defects of which Plaintiff was not aware. (Dem. 11:26-28.)

Contrary to Defendant’s argument, Plaintiff adequately alleged that Defendant concealed material facts with respect to its sensing systems that were contrary to the materials “touting” the vehicle’s safety and performance. (Complaint, 113-116.) Defendant contends that the alleged misrepresentation must have concerned the Honda Sensing Defect. (Dem., 12:3-9.) Defendant interprets case authority too narrowly.

In Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, the Court determined that statements proscribed under the Consumer Legal Remedies Act (“CLRA”) included “specifically, ‘[r]epresenting that goods ... are of a particular standard, quality, or grade, ... if they are of another’ (Civ.Code, § 1770, subd. (a)(7))— included ‘a proscription against a concealment of the characteristics, use, benefit, or quality of the goods contrary to that represented.” (Daugherty at 834.) Therefore, the court concluded that plaintiff failed to allege "an omission of a fact the defendant was obliged to disclose. In Daugherty's case, no representation is alleged relating to the F22 engine, which functioned as warranted." (Daugherty at 835.)

Plaintiff has not alleged a claim under the CLRA and Daugherty does not require an allegation that the proscribed statement concerned the specific defect at issue, only that the contrary statement concerned the “characteristics, use, benefit, or quality of the goods.” (Daugherty at 834.) Plaintiff specifically describes the concealment/omission relating to the vehicle’s “sensing system”). (Complaint, ¶ 11.) This system included an “autonomous braking system” called the Collision Mitigation Braking System (“CMBS”), that purportedly avoided front-end collisions. (Id.) Plaintiff further describes the circumstances under which the CMBS is activated. (Complaint, ¶ 12.) Plaintiff alleges that he viewed marketing materials about the “qualities” of the vehicle. (Complaint ¶ 87.) The materials “touted the characteristics of the [vehicle] and its computerized driver-assistance safety system.” (Complaint, ¶ 116.) Defendant disclosed some facts about the vehicle’s performance which were allegedly deceptive given the Defendant’s exclusive knowledge of the defects in the safety system. (Complaint ¶ 116-119.) Accordingly, the alleged concealment of a material fact that was contrary to the alleged performance and safety of the vehicle is specifically and adequately alleged.

Defendant also contends that Plaintiff did not allege direct contact between Defendant and Plaintiff. Regardless, Defendant contends that any statement by the dealer is “mere puffery.” (Dem., 9:22-25.) However, whether any statements at issue are “puffery” is an issue of fact that cannot be determined at the pleading stage.

With respect to a manufacturer’s “direct contact” with Plaintiff, a duty to disclose may arise as a result 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.]).

As previously noted, Defendant’s direct contact with Plaintiff allegedly arose from the marketing materials Defendant prepared and published for distribution to buyers concerning the vehicle’s safety and performance. The contention that the dealers are not legally “agents” of the manufacturer involves a different basis for liability alleged by Plaintiff (vicarious), while Plaintiff has sufficiently alleged a basis for direct liability.

Moreover, Defendant’s contention that a dealer is not legally its agent based on numerous case authority ignores the allegation that Plaintiff relied on statements and omissions and concealments by a technician at Honda’s “authorized repair facility” and that the vehicle was repaired and safe to drive. (Complaint ¶ 89.) Plaintiff alleges numerous occasions when he brought the vehicle to an authorized repair facility, namely after the vehicle stopped suddenly while on the freeway, both before and after the safety sensors were turned off. (Complaint ¶ 91.) Plaintiff relied on the technicians, who further contacted Defendant’s “tech line” for instructions. (Complaint ¶ 90.) After eight days, the technician responded by disputing Plaintiff’s complaint and blaming the episode on Plaintiff’s driving which implicated the “lane mitigation system.” (Complaint, 22:21-28.) After each instance, the technicians allegedly advised Plaintiff that the vehicle was safe to drive.

The Court grants Plaintiff’s request for judicial notice of cites Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828,[1] on which the Court relies for persuasive value only given the case is pending review by the California Supreme Court although it has not been depublished. (Cal Rules of Court, Rule 8.1115 (e)(1).) Dhital determined that the allegations were sufficient to support the existence of a buyer-seller relationship between the Plaintiff and the manufacturer in support of the claim for fraudulent concealment since “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."

Here, Plaintiff relies on the representations of safety in the marketing materials prepared by Defendant, as well as the omissions and concealment of the authorized technicians who allegedly were advised to dispute the Plaintiff’s allegations and evidently not disclose the known defects in the braking system.

Dhital is also relevant to Defendant’s contention that Plaintiff’s claims are barred by 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 Plaintiff did not allege Defendant breached a duty independent of the warranty, or that Plaintiff suffered any independent tort loss beyond the alleged breach of warranty claims under the Song-Beverly Consumer Warranty Act. (Dem 15:26 – 16:2.)

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, the second cause of action is not barred.

Defendant argues that Plaintiff’s contention that Defendant published Technical Service Bulletins (“TSBs”) to NHTSA undermines the allegation that Defendant failed to disclose the defects. Defendant does not cite any authority to suggest that a duty to disclose does not arise if it publishes TSBs to a government entity. This argument contradicts Defendant’s claim that a direct transaction with the manufacturer is required to impose liability all which Plaintiff has adequately alleged.

In its reply, Defendant improperly raises new arguments supporting the demurrer concerning preemption and sub-arguments that the concealment claim is a common-law claim concerning disclosures otherwise regulated by NHTSA. Defendant also goes on at length explaining the duties of NHTSA.

Defendant cannot introduce new arguments in its reply brief, as Plaintiff has not had an opportunity to address them. (Tellez v. Rich Voss Trucking, Inc. (2015) 240 Cal.App.4th 1052, 1066, ["In general, “‘[p]oints raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument." Additionally, the argument is undeveloped, and therefore, unpersuasive as Defendant argues for preemption but concludes that a jury’s finding in Plaintiff’s favor would result in rulemaking.)

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 Plaintiff 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. Plaintiff must allege corporate ratification.

In opposition, Plaintiffs argue that the fraudulent concealment is not defective as alleged and supports recovery of punitive damages.

In reply, Defendant contends that punitive damages claim is not well stated because Plaintiff did not properly allege a concealment claim which is barred by the economic loss rule and federal preemption.

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 in the Court’s ruling overruling Defendant’s demurrer, the claim for fraudulent concealment is well stated and provides the predicate acts necessary to recover punitive damages based on intentional misconduct. Plaintiff also alleges that all acts of a corporate employee 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 or specific materials relied on by Plaintiff. (Mot. 8:16-9:14.) 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 reviewed by the California Supreme Court in (Rattagan v. Uber Technologies, Inc. (Feb. 9, 2022, No. S272113) ___Cal.5th___ [2022 Cal. LEXIS 490]).