Judge Ralph C. Hofer, Case Number: 24GDCV00089, Date: 2024-03-29 Tentative Ruling

Plaintiff alleges that defects and nonconformities to warranty manifested themselves within the express warranty period, including transmission defects, engine defects, infotainment defects, and electrical defects, and that such defects and nonconformities to warranty substantially impair the use, value, or safety of the vehicle. Plaintiff alleges that defendant Ford had an affirmative duty to promptly offer to repurchase or replace the subject vehicle if it failed to conform the vehicle to the terms of the express warranty after a reasonable number or repair attempts, but defendant has failed to either promptly replace the vehicle or to promptly make restitution in accordance with the Song-Beverly Act.

The complaint alleges that prior to plaintiff’s purchase of the vehicle, Ford knew that vehicles equipped with the same 10-speed transmission as the vehicle suffered from one or more defects that can cause their 10-speed transmissions to experience hesitation, or delayed accelerations, harsh and hard shifting, jerking, shuddering and juddering. Plaintiff alleges that defendant Ford acquired this knowledge prior to plaintiff purchasing the vehicle through various sources of information, including through pre-production testing, pre-production design failure mode and analysis data, production failure mode and analysis data, early consumer complaints made exclusively to Ford’s network of dealers and directly to Ford, aggregate warranty data compiled from Ford’s network of dealers, testing conducted in response to consumer complaints, and repair order and parts data received from Ford’s network of dealers. Plaintiff alleges that defendant Ford issued technical service bulletins concerning the transmission defects. Plaintiff alleges that had plaintiff known about the various defects, plaintiff would not have purchased the subject vehicle, or would have paid less for it.

To state a cause of action for fraud, plaintiff must plead the following elements: A false representation, actual or implied, or concealment of a matter of fact material to the transaction which defendant had a duty to disclose, or defendant’s promise made without intention to perform; defendant’s knowledge of the falsity; defendant’s intent to deceive; plaintiff’s justifiable reliance thereon; and resulting damage to plaintiff. Pearson v. Norton (1964) 230 Cal.App.2d 1; Judicial Council Form 982.1 (23).

The complaint alleges in some detail that defendant Ford allowed the vehicle to be sold to plaintiff without disclosing that the vehicle suffered from one or more defects that can cause the vehicle’s transmissions to experience hesitation, or delayed accelerations, harsh and hard shifting, jerking, shuddering and juddering. Plaintiff alleges that defendant Ford acquired this knowledge prior to plaintiff purchasing the vehicle through various sources of information, including through pre-production testing, pre-production design failure mode and analysis data, production failure mode and analysis data, early consumer complaints made exclusively to Ford’s network of dealers and directly to Ford, aggregate warranty data compiled from Ford’s network of dealers, testing conducted in response to consumer complaints, and repair order and parts data received from Ford’s network of dealers. [Complaint, paras. 23, 24, 65, 66]. It is alleged in some detail that Ford acquired its knowledge of the defects and its potential consequences prior to plaintiff acquiring the vehicle, from sources not available to consumers such as plaintiff, that Ford intentionally concealed material facts, and breached its duty not to do so, that the facts were material, and that had plaintiff known that the vehicle and its transmission was defective, plaintiff would not have purchased the vehicle. [Complaint, paras. 33, 34, 70-72].

As argued in the opposition, with respect to fraudulent concealment claims it is held that a plaintiff is not required to allege with the usual detail required in connection with fraud claims based on affirmative representations. In Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal. App.4th 282, the Second District found that the trial court had improperly sustained a demurrer to a concealment cause of action on the ground the cause of action on the ground plaintiff had failed to allege the cause of action “with the requisite degree of specificity,” noting “The pertinent question in a concealment case is not who said what to whom…” Vega, at 296.

“As restated by Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 993 [22 Cal. Rptr. 3d 352, 102 P.3d 268], “‘[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] “Thus ‘“the policy of liberal construction of the pleadings … will not ordinarily be invoked to sustain a pleading defective in any material respect.”’ [Citation.] [¶] This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ ” ’ ” (Cf. Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, supra, 162 Cal.App.4th 858, 878.)

This statement of the rule reveals that it is intended to apply to affirmative misrepresentations. If the duty to disclose arises from the making of representations that were misleading or false, then those allegations should be described. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, supra, 162 Cal.App.4th 858, 877–878.) However, as noted above (see fn. 18, ante, at p. 1381), plaintiffs have apparently abandoned their earlier claims of intentional and negligent misrepresentations. As plaintiffs accurately respond, it is harder to apply this rule to a case of simple nondisclosure. “How does one show ‘how’ and ‘by what means’ something didn't happen, or ‘when’ it never happened, or ‘where’ it never happened?”

Plaintiff also points out that it is held that if the defendant is in a better position to know the facts concerning the alleged fraud, the requirement of specificity is relaxed. See Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217 (superseded by statute on other grounds in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235)

Moreover, plaintiff in opposition cites Dhital v. Nissan North America, Inc. (2022) 84 Cal.App. 5th 828, review granted, Dhital v. Nissan North America (2023) 523 P.3d 392. Although review has been granted by the California Supreme Court, the Court in its granting of the petition for review denied a request for an order directing depublication of the opinion. [Id.].

As argued in the opposition, this court may rely upon Dhital as persuasive authority pending review. The Dhital appeal is currently in a posture where further action in the matter is “deferred pending consideration and disposition of a related issue” in another pending case before the California Supreme Court, Rattagan v. Uber Techs, Inc. S272113, or pending further order of the Court. Dhital, 523 P.3d 392. The Rattagan matter involves a certified question from the 9th Circuit, in a case that does not involve Song Beverly claims, Rattagan v. Uber Technologies, Inc. (9th Cir. 2021) 19 F.4th 1188, 1193 (“Under California law, are claims for fraudulent concealment exempted from the economic loss rule?”).

Dhital is a case in which vehicle buyers brought an action against the manufacturer of the vehicle including a claim for fraudulent inducement by concealment arising from the manufacturer’s alleged intentional concealment of known defects in the vehicle’s transmission. The court of appeal in Dhital held that the trial court had improperly sustained a demurrer without leave to amend the cause of action, finding that claim was sufficiently specifically stated given the relaxed standard applied to concealment claims. The court of appeal found that the allegations in that case were sufficient to survive a pleading attack:

“Suppression of a material fact is actionable when there is a duty of disclosure, which may arise from a relationship between the parties, such as a buyer-seller relationship. (Id. at pp. 1186–1187, 175 Cal.Rptr.3d 820.) Fraud, including concealment, must be pleaded with specificity. (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 132, 61 Cal.Rptr.3d 221.)

Plaintiffs alleged the above elements of fraud in the SAC. As we have discussed, plaintiffs alleged the CVT transmissions installed in numerous Nissan vehicles (including the one plaintiffs purchased) were defective; Nissan knew of the defects and the hazards they posed; Nissan had exclusive knowledge of the defects but intentionally concealed and failed to disclose that information; Nissan intended to deceive plaintiffs by concealing known transmission problems; plaintiffs would not have purchased the car if they had known of the defects; and plaintiffs suffered damages in the form of money paid to purchase the car.

Similarly, in this case, plaintiff has alleged that plaintiff entered into a warranty contract with Ford in connection with the vehicle, has identified the material facts Ford knew prior to the acquisition of the subject vehicle which were withheld from plaintiff, of which Ford had superior or exclusive knowledge, and which posed identified safety risks. [Complaint, paras. 7-8, 23, 24, 65, 66, 69]. The complaint alleges that the information was material, that plaintiff reasonably relied on the non-disclosure, and that as a result plaintiff suffered damages. [Complaint, paras. 14, 21, 33, 71,72, 74-75].

“Nissan also contends plaintiffs did not provide specifics about what Nissan should have disclosed. But plaintiffs alleged the CVT transmissions were defective in that they caused such problems as hesitation, shaking, jerking, and failure to function. The SAC also alleged Nissan was aware of the defects as a result of premarket testing and consumer complaints that were made both to NHTSA and to Nissan and its dealers. It is not clear what additional information Nissan believes should have been included. We decline to hold (again in the absence of a more developed argument on this point) that plaintiffs were required to include in the SAC more detailed allegations about the alleged defects in the CVT. We conclude plaintiffs’ fraud claim was adequately pleaded.

The complaint clearly alleges that there was a direct relationship between plaintiff and defendant Ford by virtue of the warranty extended with the purchase of the vehicle. [Complaint, para. 7, 8, Ex, A]. It is alleged in some detail that defendant Ford had superior or exclusive knowledge of the transmission defect prior to plaintiff’s acquisition of the vehicle. [Complaint, paras. 23-25, 63-76].

“Nissan argues plaintiffs did not adequately plead the existence of a buyer-seller relationship between the parties, because plaintiffs bought the car from a Nissan dealership (not from Nissan itself). At the pleading stage (and in the absence of a more developed argument by Nissan on this point), we conclude plaintiffs’ allegations are sufficient. 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 its 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.”

Plaintiff argues in the opposition that the complaint alleges each element of the subject fraud, and again cites to Dhital, in which the court of appeal found that the trial court had improperly sustained a demurrer based on the bar of the economic loss rule, noting that the California Supreme Court in Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, had “affirmed that tort damages are available in contract cases where the contract was fraudulently induced.” Dhital, at 839, italics in original, citing Robinson, at 989-990. The Court in Robinson Helicopter, in fact concluded that the economic loss rule did not bar the claim in that action, as the fraud and intentional misrepresentation claim, “is an independent action based in tort…” Robinson Helicopter, at 982.

To plead a claim of negligence, a plaintiff must allege the following elements: The existence of a duty of care, breach of that duty, and an injury proximately caused by the breach. Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917. The parties agree that a claim for negligent repair requires pleading of the elements of negligence, that is, “duty, breach, causation, and damages.” Lytle v. Ford Motor Company (E.D. Cal. 2018) 2018 WL 4793800, *2, citing Burgess v. Superior Court (1992) 2 Cal.4th 1064, 1072; Valdez v. J.D. Diffenbaugh Co. (1975) 51 Cal.App.3d 494, 508.

The complaint alleges that plaintiff “delivered the Subject Vehicle to Defendant STAR FORD for substantial repair on at least one occasion,” that defendant “owed a duty to Plaintiff to use ordinary care and skill in the storage, preparation, and repair of the Subject Vehicle in accordance with industry standards,” that defendant “breached its duty to use ordinary care and skill by failing to properly store, prepare and repair the Subject Vehicle in accordance with industry standards,” and that defendant’s “negligent breach of its duties owed to Plaintiff were the proximate cause of Plaintiff’s damages.” [Complaint, paras. 57-60].

“Economic loss consists 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....’ ” ' [Citation.]” (Jimenez v. Superior Court (2002) 29 Cal.4th 473, 482, 127 Cal.Rptr.2d 614, 58 P.3d 450.) Simply stated, the economic loss rule provides: “ ‘ “[W]here a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only ‘economic’ losses.” ' This doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts.” (Neibarger v. Universal Cooperatives, Inc. (1992) 439 Mich. 512, 486 N.W.2d 612, 615, fns. omitted.) The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise. (Redarowicz v. Ohlendorf (1982) 92 Ill.2d 171, 65 Ill.Dec. 411, 441 N.E.2d 324, 327.) Quite simply, the economic loss rule “prevent[s] the law of contract and the law of tort from dissolving one into the other.” (Rich Products Corp. v. Kemutec, Inc. (E.D.Wis.1999) 66 F.Supp.2d 937, 969.)”

Defendant also cites Erlich v. Menezes (1999) 21 Cal.4th 543, 551, in which the California Supreme Court noted that conduct amounting to a breach of contract becomes tortious when it violates an independent duty arising from principles of tort law. Erlich, at 551-552. This is clearly a case where an independent duty to exercise due care in repair of the vehicle is alleged, as discussed above.

It is clear that Robinson Helicopter is not controlling here, as it involved the applicability of the economic loss rule to fraud claims, not to negligent repair claims. See Robinson Helicopter, at 984 (“In this case, we decide whether the economic loss rule… applies to claims for intentional misrepresentation or fraud in the performance of a contract.”). As noted above in connection with the demurrer of Ford to the sixth cause of action, the Court in Robinson Helicopter, in fact concluded that the economic loss rule did not bar the claim in that action, as the fraud and intentional misrepresentation claim, “is an independent action based in tort…” Robinson Helicopter, at 982.

Plaintiff in opposition relies on case law in which it recognized that the economic loss rule does not apply to cases involving negligent performance of services. Plaintiff relies on, for example, North American Chemical Co. v. Superior Court (1997) 59 Cal. App.4th 764, 777-781, in which the Second District ordered issuance of a writ of mandate directing the trial court to vacate its order sustaining a demurrer to a negligence cause of action without leave to amend, finding that in cases arising from a contract for the performance of services rather than the sale of goods, the economic loss rule did not limit plaintiff’s tort damages in all cases, as a contract for the performance of services, “necessarily carries with it both the reasonable expectation and implied in law promise that it will be performed with reasonable care.” American Chemical, at 785, see, also, discussion at 777-785.

Plaintiff also points to case law in which it is recognized by federal courts, applying California law, that the economic loss rule does not apply to negligent repair claims where subcomponents of a vehicle cause damage to a larger component or where the component causes damage to the vehicle in which it has been incorporated.

In Velasco v. Ford Motor Co. (USDC S.D. Cal. 2022) 2002 WL 2287258, the United States District Court for the Southern District of California granted a motion to remand an action which had been removed to federal court by a vehicle manufacturer invoking diversity jurisdiction. Plaintiff in that case amended his complaint to add a defendant which had allegedly failed to properly store, prepare, diagnose or repair the vehicle in accordance with industry standards. The court in that case directly considered as a factor in its remand determination whether plaintiff’s negligence claim appeared valid, and rejected the economic loss argument being asserted by Star Ford here:

“First, Defendant FMC argues Plaintiff's negligent repair claim against Defendant RP is barred by California's economic loss rule. Doc. No. 17 at 7–8. Under the economic loss rule, a plaintiff may not recover purely economic damages for tort claims. Jimenez v. Superior Court, 29 Cal.4th 473, 127 Cal.Rptr.2d 614, 58 P.3d 450, 455–56 (Cal. 2002). However, the component exception recognizes that “the economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated.” Id., 127 Cal.Rptr.2d 614, 58 P.3d at 457. Multiple district courts, including this Court, have recognized the potential applicability of the component exception in cases involving negligent repair claims against parties sought to be joined in breach of warranty cases against manufacturers. See Diiullo v. FCA US LLC, No. 20-CV-382-MMA (BLM), 2020 WL 1921927, at 3 (S.D. Cal. Apr. 21, 2020) (collecting cases); Viveros, 2021 WL 5989365, at 8.

Plaintiff alleges defects in the Vehicle's engine and electrical system. FAC ¶ 12. Plaintiff further asserts those “defects have substantially impaired the safety, use, and/or value of the Vehicle.” Id. ¶ 16. Given these allegations, the Court finds the component exception facially applicable in this matter.”

While this court recognizes that the Velasco case applies a different standard, in effect, that required in making a remand determination, the rationale with respect to application of the economic loss rule in negligent repair cases appear well founded. The complaint here includes allegations that there are defects in the vehicle’s transmission and other specific systems, which “substantially impair the use, value, or safety of the vehicle.” [Complaint, para. 13].

As discussed above, the cause of action sufficiently alleges all elements of the cause of action. The allegations support arguments identified in state court case law, as well as persuasive federal case law discussed above, which would support a reasoned argument that the economic loss rule does not bar the negligent repair cause of action against the moving defendant. The complaint includes sufficient allegations to withstand demurrer on this ground. The demurrer accordingly is overruled.

Defendant Star Ford also argues that the cause of action fails to plead facts to show that Star Ford’s conduct resulted in any damages. As noted above, the complaint alleges that defendant Star Ford’s negligence “was a proximate cause of Plaintiff’s damages.” [Complaint, para. 60]. There is no case law cited in the demurrer pursuant to which damages are subject to some heightened specificity in a negligent repair claim at the pleading stage. In addition, as argued in the opposition, this is arguably a case comparable to cases discussed above, in which even a recognized heightened level of specificity is relaxed where the factual details are within the knowledge of the defendant. See Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217 (superseded by statute on other grounds in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235) (“[e]ven under the strict rules of common law pleading, one of the canons was that less particularity is required when the fact lie more in the knowledge of the opposition party…”, citation omitted.)

As plaintiff argues, the facts involving the nature of the repairs and the damages caused by Star Ford are within the superior knowledge of Star Ford, as the entity which performed the repairs, and which presumably maintained detailed records regarding those repairs and the nature of plaintiff’s damages. Hence, particularity of pleading is required in the ordinary circumstances which exist here.