Judge Michael Shultz, Case Number: 24CMCV00299, Date: 2024-07-18 Tentative Ruling

[TENTATIVE] ORDER OVERRULING IN PART AND SUSTAINING IN PART DEMURRER TO PLAINTIFFS’ FIRST AMENDED COMPLAINT

The first amended complaint (“FAC”) alleges that Defendant, Ford Motor Company (“Ford” or “Defendant”) issued a written warranty in connection with Plaintiffs’ purchase of a 2019 Lincoln Navigator. The vehicle allegedly developed transmission and other defects, of which Ford had exclusive knowledge. Ford allegedly failed to repair or replace the vehicle. Among other causes of action, Plaintiffs allege claims for violations under the Song-Beverly Consumer Warranty Act (“SBA”), breach of implied warranty, fraudulent inducement --concealment against Ford (fifth cause of action), and negligent repair against South Bay Ford, Inc. (“South Bay”) (sixth cause of action).

Defendant Ford demurs to the fifth cause of action for fraudulent inducement and concealment, and South Bay, demurs to the sixth cause of action for negligent repair. Defendants contend that both claims are barred by the economic loss rule. The fraud claim requires a duty owed by Ford not to disclose and must be alleged with specificity. Plaintiffs did not allege direct dealings with Ford that would give rise to a duty to disclose, and Plaintiffs did not plead facts to support the element of damages.

In opposition, Plaintiffs argue that the specificity ordinarily required in alleging a claim for fraudulent misrepresentation does not apply to a claim for concealment. The alleged facts exceed the requirements for specificity. Plaintiffs alleged a transactional relationship with Ford since Ford issued a warranty contract to Plaintiffs. The exact nature of this relationship is a matter of proof, not pleading. The economic loss rule does not apply to bar either claim.

In reply, Defendants argue that Plaintiffs’ opposition relies on “dubious authority,” and fails to address the multiple deficiencies identified. The alleged facts are insufficient to support both claims.

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).)

Plaintiffs allege that Defendant Ford was aware that the transmission system was defective but failed to disclose this fact. (FAC, ¶ 87-89.) Ford had exclusive knowledge of the 10-speed transmission’s defects causing hesitation, delayed acceleration, harsh and/or hard shifting, and jerking and shuddering. (Id.) Ford allegedly obtained this information from its testing data and data provided by its dealers among other sources of information not available to Plaintiffs. (FAC, ¶ 94.)

Contrary to Ford’s argument, Plaintiffs allege the defects that Ford purportedly concealed. (FAC, ¶ 90.) Plaintiffs specifically describe and incorporate four technical service bulletins (“TSB”) associated with the defective 10-speed transmission and other defects at issue in the vehicle and cannot be described as “generic.” (FAC, ¶¶ 55, 57, 59; Dem. 12:6-9.)

The claim for fraudulent inducement-concealment is alleged only against Ford. 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.)

Ford argues that Plaintiffs must allege “direct contact” or a “transactional relationship” with Ford that gives rise to a duty to disclose. (Dem 12:1-4.) Such a duty may arise as a result of a transaction between the parties which “necessarily arise[s] 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.].)

However, Plaintiffs allege that Ford’s direct contact with Plaintiff arose from the warranty contract that Ford issued to them. (FAC, ¶ 26.) Plaintiffs cite Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, on which the Court relies for persuasive value 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." (Dhital at 844.)

Moreover, Plaintiffs allege that Ford had exclusive knowledge of the specifically described defects obtained from its internal testing data, data provided by its dealers and from other sources, none of which were made available to Plaintiffs. (FAC, ¶¶ 52-61.) Ford argues that Plaintiffs do not allege what the purported testing revealed. (Dem. 14:24-25.) Ford relies on a federal district court opinion granting a motion to dismiss because allegations similar to those alleged here were either legal conclusions or were insufficient to infer that Ford knew or should have known of the defect at issue. (Roe v. Ford Motor Company (E.D. Mich., Aug. 6, 2019, No. 218CV12528LJMAPP) 2019 WL 3564589, at *7 [“Plaintiffs' amended complaint does not include factual allegations that make it reasonable to infer that complaints about and repairs of the water pumps were anything more than a blip on Ford's complaints-and-repairs radar.”].)

The Court does not find the opinion persuasive as it is distinguishable from the allegations made in this case. Plaintiffs incorporate specific TSBs concerning the transmission defect and the specific symptoms exhibited that are allegedly identical to that experienced by Plaintiffs. Plaintiffs allege that Ford’s internal testing resulted in the issuance of these TSBs from which it is reasonable to infer that the testing results were “more than a blip on Ford’s” radar. (Roe at *7.)

Active concealment of these facts is also alleged. Plaintiffs allege that Ford allowed the vehicle to be sold without disclosing that the subject vehicle and its transmission were defective. (FAC, ¶ 88.) Defendant knowingly and intentionally concealed material facts. (FAC, ¶ 95-96) Despite its knowledge, Defendant “actively concealed the existence and nature of defects from Plaintiffs.” (FAC, ¶ 65) Accordingly, the concealment claim is adequately alleged.

Ford correctly argues that 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.) Although the allegations meet specificity requirements, 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.)

C. Defendant Ford has not established that the fraud claim is barred by the economic loss rule.

The economic loss rule bars tort recovery in a transaction where the plaintiff suffers only economic losses. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) Such losses consist of “damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits—without any claim of personal injury or damages to other property. (Robinson at 988.) Ford argues that since Plaintiffs’ claim is based on a breach of warranty resulting only in economic loss, Plaintiffs cannot recover in tort for fraud. The Robinson court held that the plaintiffs claims for affirmative, intentional misrepresentations of fact were not barred by the economic loss rule because the tort claims were independent of the plaintiff’s breach of contract. (Robinson at 991.)

Ford construes Robinson as limiting the exception to the economic loss rule to claims for affirmative fraud as opposed to concealment, relying on federal trial court opinions reaching similar conclusions. (Dem. 16:22-25) Dhital considered Robinson and observed other instances where tort damages were permitted in contract cases where the tort liability is “either completely independent of the contract or arises from conduct which is both intentional and intended to cause harm.” (Dhital v. Nissan North America at 838.) [1] Thus, in Dhital, the economic loss rule did not apply because the duty not to disclose arose from liability independent of contract such as intentionally concealing facts about the defective transmission and fraudulently inducing plaintiffs to purchase the car. (Dhital at 838.)

Dhital also acknowledged that despite the differing views taken by various federal district courts, the plaintiff’s fraudulent inducement by concealment was exempt from the economic loss doctrine (Dhital at 843.)

D. Plaintiff has not alleged facts to establish that the economic loss rule does not apply to the claim for negligent repair.

The fifth cause of action of action for negligent repair is alleged only against South Bay. (FAC, ¶ 102-106.) Plaintiffs allege that they delivered the vehicle to South Bay for substantial repair on at least one occasion, and that South Bay breached its duty to use ordinary care and skill in storage, preparation, and repair of the vehicle in accordance with industry standards, resulting in damage to Plaintiffs. (FAC, ¶ 104-105.)

To the extent the repairs were made pursuant to a service contract, the claim for negligence is barred by the economic loss rule. Plaintiffs may recover in tort in a contract case in cases where "breach of duty directly causes physical injury [citations omitted]; for breach of the covenant of good faith and fair dealing in insurance contracts [citations omitted]; for wrongful discharge in violation of fundamental public policy [citations omitted]; or where the contract was fraudulently induced [citations omitted]. In 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." (Erlich v. Menezes 21 Cal.4^th 543, 551-552.)

Plaintiffs do not allege a duty independent of contract that gives rise to tort liability for negligent repair. Instead, Plaintiffs argue that “the economic loss rule allows a plaintiff to recover in strict products liability in tort when a product defect causes damage to ‘other property,’ that is, property other than the product itself. (KB Home v. Superior Court (2003) 112 Cal.App.4th 1076, 1079.) The rule applies in “component-to-component” cases, where the defective component causes damage to the larger product, or “component.” (KB Home v. Superior Court at 1087.) This requires a determination of “whether the defective part is a sufficiently discrete element of the larger product that it is not reasonable to expect its failure invariably to damage other portions of the finished product.” (KB Home at 1087.)

In KB Home, whether the defective rods in a furnace could be considered a separate component apart from the furnace itself to permit KB Home to recover in tort for the cost of replacing the furnace, was a matter for the jury not the court. (Id.) Here, Plaintiffs do not allege damage to “other property” purportedly caused by the defective transmission. The FAC does not allege facts to assert a component-to-component exception to the economic-loss rule.

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