Judge: Ronald F. Frank, Case: 24TRCV01488, Date: 2024-10-28 Tentative Ruling
Case Number: 24TRCV01488 Hearing Date: October 28, 2024 Dept: 8
HEARING DATE: October 28, 2024
CASE NUMBER: 24TRCV01488
CASE NAME: Mark Ozzello v. General Motors, LLC, et al.
MOVING PARTY: Defendant, General Motors, LLC
RESPONDING PARTY: Plaintiff, Mark Ozzello
TRIAL DATE: Not Set
MOTION: (1) Demurrer
(2) Motion to Strike
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Tentative Rulings: (1) SUSTAINED, with leave to amend to be discussed at the hearing. The hearing will need to be brief because the Court has a jury returning at 2:30 p.m. for an ongoing trial
(2) MOOTED, but the Court will grant a future motion to strike if in any amended Pleading Plaintiff seeks to allege punitive damages for core Song-Beverly Act claims as opposed to a fraud-based claim.
I. BACKGROUND¿¿
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A. Factual¿¿
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On May 1, 2024, Plaintiff, Mark Ozzello (“Plaintiff”) filed a complaint against Defendant General Motors (“GM”) and DOES 1 through 10. On August 14, 2024, Plaintiff filed a First Amended Complaint (“FAC”) alleging causes of action for: (1) Violation of Civil Code § 1793.2(d); (2) Violation of Civil Code § 1793.2(b); (3) Violation of Civil Code §1793.2(a)(3); (4) Breach of the Implied Warranty of Merchantability – Civil Code §§ 1791.1, 1794, 1795; and (5) Fraudulent Inducement – Concealment.
Defendant GM has now filed a Demurrer and Motion to Strike portions of the FAC.
B. Procedural¿¿
On September 13, 2024, Defendant, GM filed a Demurrer and Motion to Strike, with the hearing originally set for October 8. At the October 8 hearing, the Court permitted both sides to file further briefs to address the California Supreme Court’s recent decision in Rattigan v Uber Technologies, which in the Court’s view affected the Court’s resolution of the fraudulent concealment cause of action challenged by GM’s Demurrer. On October 21, 2024, Plaintiff filed opposition papers together with a Section 473(b) declaration of Mr. Carroll seeking leave to file the further briefing that had not been previously filed as permitted by the Court’s October 8 order. On October 21, 2024, GM filed a supplemental brief in support of its Demurrer and Motion to Strike. The Court grants Plaintiff relief from the mistake and has considered the tardy October 21 opposition brief as requested, even though it does not mention or analyze the Rattagan decision at all.
II. ANALYSIS
A. Demurrer
i. Legal Standard
A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)
A pleading is uncertain if it is ambiguous or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) A demurrer for uncertainty may lie if the failure to label the parties and claims renders the complaint so confusing defendant cannot tell what he or she is supposed to respond to. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) However, “[a] demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.)¿¿
ii. Meet and Confer Efforts
The declaration of Ryan Kay, Esq. (“Kay”), is offered in support of counsel’s compliance with Code of Civil Procedure section 430.41. Kay declares that on September 3, 2024, prior to filing the Demurrer and Motion to Strike, counsel met and conferred telephonically with Plaintiff’s counsel regarding the pleadings. (Declaration of Ryan Kay (“Kay Decl.”), ¶ 2.) However, Kay contends that after the discussions, the parties remained at an impasse. (Kay Decl., ¶ 2.) Thus, this Court finds that the meet and confer requirements have been met.
iii. Discussion – Fraudulent Inducement
GM demurs to the FAC on the grounds that it argues Plaintiff’s fifth cause of action for fraudulent inducement fails to state relevant facts as to the elements of the claim and fails to allege a transactional relationship giving rise to a duty to disclose.
Specificity Requirement
Defendant GM argues that Plaintiff’s fraud claim fails as a matter of law because it is not plead with the requisite specificity. The elements of a cause of action for fraudulent concealment are: (1) concealment of a material fact; (2) by a defendant with a duty to disclose; (3) the defendant intended to defraud by failing to disclose; (4) plaintiff was unaware of the fact and would not have acted as it did had it known the fact; and (5) damages.” (Butler America, LLC v. Aviation Assurance Company, LLC (2020) 55 Cal.App.5th 136, 144.) The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) To properly allege fraud against a corporation, the plaintiffs must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)
Here, GM argues that the fraud claim fails as a matter of law because Plaintiff did not plead it with the requisite specificity. The Court disagrees. In fact, the allegations in Plaintiff’s complaint are exceptionally detailed. Although it is true that the complaint fails to allege the names of the persons who concealed facts or who knew of a transmission flaw, details of that nature are required in affirmative misrepresentation cases, not concealment cases.
However, this Court also notes that while Plaintiff’s FAC alleges that he relied on GM’s advertising materials which did not disclose the defect, but notes that Plaintiff does not allege justifiable reliance. Plaintiff does allege that had he known that the vehicle, and its 8-speed transmission were defective prior to and at the time of sale, Plaintiff would not have purchased the vehicle. (FAC, ¶ 75.) Such specificity meets the requisite pleading standard for fraudulent concealment. However, pursuant to California law and recently reaffirmed in the California Supreme Court case of Rattagan v. Uber Technologies, Inc., with fraudulent concealment, a duty to disclose material facts may arise (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant has exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; or (4) when the defendant makes partial representations but also suppresses some material facts. (Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 40 citing Civ. Code, § 1710; Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294; LiMandri v. Judkins (1997) 52 Cal.App.4th 326.) The Opposition alleges that the FAC contains allegations supporting that the transmission defect was a material fact, that it poses safety risks, and that it arose during the warranty period.
Transactional Relationship
GM argues that Plaintiff’s fraud claim fails because Plaintiff does not allege a transactional relationship between GM and Plaintiff, or other circumstances giving rise to a duty to disclose. GM contends that because the FAC does not allege that Plaintiff purchased or leased the vehicle directly from GM or otherwise entered into a transaction with GM, Plaintiff has not alleged facts demonstrating a duty to disclose. GM notes that absent a fiduciary relationship between the parties, a duty to disclose can arise in only three circumstances: (1) the defendant had exclusive knowledge of the material fact; (2) the defendant actively concealed the material fact; or (3) the defendant made partial representations while also suppressing the material fact. (BiglerEngler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 311; LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.) GM further cites to Bigler-Engler, noting that the Court of Appeals reversed a verdict for fraudulent concealment against the manufacturer of a medical device because the manufacturer and the plaintiff (who was injured by using the device) did not have the required direct transactional relationship. (Bigler-Engler, supra, 7 Cal.App.5th at 314-15.) There, the plaintiff did not obtain the device directly from the manufacturer but from a medical group that sold and leased such devices. (Id. at 287, 314.) The Court of Appeals went on to explain, the lack of direct dealings between the plaintiff and the manufacturer was fatal to the plaintiff’s argument that the manufacturer had a duty to disclose. (Id. at 312 [“Where, as here, a sufficient relationship or transaction does not exist, no duty to disclose arises even when the defendant speaks.”].)
GM argues that the same is true here. GM contends that the FAC does not allege that Plaintiff purchased the Escalade directly from GM. Thus, GM argues that any alleged concealment by GM did not arise in a direct transaction between Plaintiff and GM. In a fraud action based on nondisclosure, if the duty to disclose arises from the making of representations that were misleading or false, then those allegations should be described. (Alfaro, supra, 171 Cal.App.4th at p. 1384.) Further, “mere conclusionary allegation that the omissions were intentional and for the purpose of defrauding and deceiving plaintiffs and bringing about the purchase…and that plaintiffs relied on the omissions in making such purchase are insufficient to show fraud by concealment.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 347.) GM argues that the Complaint does not allege that Plaintiff purchased her Escalade directly from GM, and thus, any alleged concealment by GM did not arise in a direct transaction between Plaintiff and GM.
Plaintiff’s opposition does not seem to oppose the transactional relationship argument. Instead, Plaintiff contends that a transactional relationship is not required for GM to have a duty to disclose. The FAC does allege that from September 2014 to at least February 2019, Defendant issued many TSBs and service bulletin updates to its dealers in the United States, but not to its customers, acknowledging problems of harsh shifting, jerking, clunking, and delays in acceleration or deceleration releasing to the 8-speed transmission. (FAC, ¶ 69.)
Although a transactional relationship has not been alleged or argued, Plaintiff argues that the transmission defect is a material fact, poses a safety risks, and that the transmission defect arose during the warranty period. However, the other requirements besides transactional relationship is exclusive knowledge to material fact, active concealment of a material fact, or partial representation but suppression of a material fact. The FAC does not allege exclusive knowledge, but it does allege superior position. (FAC, ¶73(b).) The FAC also alleges that GM’s concealment of this safety defect was material and Plaintiff relied on Defendant GM’s advertising materials which did not disclose the defect. (FAC, ¶ 70.) The FAC also contends that GM knowingly and intentionally concealed material facts and breached its duty not to do so. (FAC, ¶ 74.) Plaintiff argues that these facts are material in that a reasonable person would have considered them to be important in deciding whether or not to purchase the Vehicle. (FAC, ¶ 75.)
The Court finds that there is no general duty owed by a motor vehicle manufacturer to disclose to a consumer that the manufacturer has had warranty complaints or reports of malfunctions or that a component or system in a prior version of a transmission has been the subject of repair recommendations or procedures. The creation of such a duty is better left to the policy-making branches of government rather than the judiciary. Such a duty seems to implicate balancing the burden that would be placed on manufacturers of such a broad duty against the perceived value that disclosures of such a wide array of information might yield for consumers. The law already recognizes a duty to recall or retrofit (see, e.g., Hernandez v. Badger Construction Equipment Co. (1994) 28 Cal.App.4th 1791, 1827; Lunghi v. Clark Equipment Co. (1984) 153 Cal.App.3d 485, 494), but such a cause of action requires harm in the form of personal injury rather than the economic losses alleged in the FAC here.
“The very existence of a warranty presupposes that some defects may occur.” (Santana v. FCA US, LLC (2020) 56 Cal.App.5th 334, 345.) The Santana Court held that it was not enough for a plaintiff to allege or prove a prior recall campaign and evidence of some customers’ complaints about the same motor vehicle system (an integrated power module in the engine) that the plaintiff there had in his Dodge Durango truck at the time of purchase.
Economic Loss Rule
This Court requested that the parties provide it with supplemental briefings as to the recent California Supreme Court case of Rattagan. Our Supreme Court in Rattagan answered that question of whether “a plaintiff [can] assert an independent claim of fraudulent concealment in the performance of a contract?” (Rattagan, supra, 17 Cal.5th at 38.) The Rattagan Court answered “yes,” noting “[a] plaintiff may assert a tort claim for fraudulent concealment based on conduct occurring in the course of a contractual relationship, if the elements of the cause of action can be established independently of the parties’ contractual rights and obligations and the tortious conduct exposes the plaintiff to a risk of harm beyond the reasonable contemplation of the parties when they entered into the agreement.” (Ibid.)
The Rattagan Court also took time to explain the economic loss rule as applied to fraudulent concealment. Our Supreme Court noted, “the economic loss doctrine applies wen the parties have entered into a contract; the plaintiff sues for tort damages, alleging defendant failed to perform as the contract requires; and negligently caused economic losses flowing from the breach.” (Id. at 44.) The Court continued, that “[i]n such a case, plaintiffs are generally limited to recovery of those economic damages and cannot seek to expand their remedies beyond those available in contract.” (Ibid.) Further, the Rattagan Court explained that “[t]he doctrine does not apply if defendant’s breach caused physical damage or personal injury beyond that economic loss caused by the contractual breach and defendant violated a duty flowing, not from the contract, but from a separate, legally recognized tort obligation.” (Ibid.) The Court stated that “[a] case in which the plaintiff sues a contractual party for fraud based on conduct committed during the course of a contractual relationship falls outside the economic loss doctrine,” citing to their reasoning in Robinson which reads, “[d]ealing with affirmative acts of fraud and misrepresentation raises different policy concerns than those raised by negligence or strict liability claims.” (Ibid citing Robinson, supra, 34 Cal.4th at 991.)
The Rattagan Court explained that the analysis “focuses on whether the plaintiff can establish the elements of the cause of action independently of the parties’ contractual rights and obligations.” (Rattagan, supra, 17 Cal.5th at 44.) In other words, “the question will turn on the nature of the alleged conduct, the provisions of the contract itself, and whether the conduct exposed a party to a risk of harm neither reasonably contemplated nor allocated by the parties before entering their agreement.” (Ibid.) The Court clarified in Rattagan, that “[p]arties generally do not enter a contract expecting that its terms will be intentional ignored…[h]owever, to assure greater certainty between themselves, they may choose at the outset to contractually guard against certain risks by imposing specific obligations on the other party and allocate their agreed-upon remedies should a breach occur.” (Ibid.) The Rattagan Court continued that “[a]mong other reasons, they may choose to provide for how violations will be treated, to provide greater deterrence for some kinds of violations, or to eliminate the need to litigate regardless of whether the breach was intentional or negligent. The freedom to do so, however, is limited to agreements that do not violate public policy.” (Ibid.) Rattagan stated that “California public policy strongly supports imposing a tort duty on contractual parties to refrain from fraudulent deceit and favors enforcement of valid fraud actions, which the Legislature has facilitated through the enactment of the general fraud statute.” (Ibid.)
Here, GM’s supplemental brief argues that Plaintiff’s claim fail to meet both prongs of the Rattagan standard. First, GM contends that Plaintiff’s concealment claim focuses on GM’s alleged failure to disclose a transmission issue with the vehicle. (FAC, ¶¶ 94, 97.) GM contends that where the duty is tied to contractual performance, fraudulent concealment cannot survive the economic loss rule. Second, GM asserts that Plaintiff’s alleged injury – impaired value, use, or safety of the vehicle due to an allegedly unrepaired defect – was within the contemplation of the parties at the time they entered into the sales contract, as evidenced by the warranty from GM. GM notes that the warranty expressly contemplates that the vehicle might have a defect or nonconformity and allocates the risk of the cost of repairing such issue to GM or to plaintiffs depending on, among other things, when the issue occurs. GM argues that Plaintiff’s allegations are confined to purely economic loss tied to the vehicle’s quality and performance, which are foreseeable risks when a vehicle is purchased.
In Plaintiff’s supplemental opposition brief, no specific mention is made of the Rattagan decision, but Plaintiff vaguely argues that the losses claimed are not economic losses but rather are potential, future, not-yet-occurring claimed safety risks. The California Supreme Court in Rattagan noted that “the question will turn on the nature of the alleged conduct, the provisions of the contract itself, and whether the conduct exposed a party to a risk of harm neither reasonably contemplated nor allocated by the parties before entering their agreement.” (Rattagan, supra, 17 Cal.5th at 44.).
The FAC alleges that GM committed fraud by allowing the Vehicle to be sold to Plaintiff without disclosing that the Vehicle and its 9-speed transmission were defective and susceptible to sudden and premature failure. (FAC, ¶ 62.) Here, while the warranty (or contract) between Plaintiff and GM does not state that “its 9-speed transmission [was] defective and susceptible to sudden and premature failure,” the court notes that the warranty (or contract) was to deliver a defect-free vehicle to Plaintiff. In fact, the warranty suggests otherwise – noting the many sections in the warranty that speak to GM’s agreement to provide repairs to the vehicle during the warranty for many types of defects. The FAC also alleges that GM was aware and knew that the 8-speed transmission installed on the Vehicle was defective but failed to disclose this fact to Plaintiff prior to and at the time of sale and thereafter. (FAC, ¶ 63.) Next, Plaintiff asserts that GM knew of this information through sources unavailable to Plaintiff, including but not limited to pre-production and post-production testing data; early consumer complaints about the Transmission Defect made directly to Defendant GM and its network of dealers; aggregate warranty data compiled from Defendant GM’s network of dealers; testing conducted by Defendant GM in response to these complaints; as well as warranty repair and part replacements data received by Defendant GM from Defendant GM’s network of dealers, amongst other sources of internal information. (FAC, ¶ 65) Plaintiff also alleges that he relied on GM’s advertising materials which did not disclose the defect. (FAC, ¶ 70.) However, the Court notes that the FAC does not explain why this reliance was justifiable. Despite this, as noted above, Plaintiff alleges that had he known that the vehicle, and its 8-speed transmission were defective prior to and at the time of sale, Plaintiff would not have purchased the vehicle. (FAC, ¶ 75.)
This Court finds that although the FAC fails to allege the second factor of Rattagan, which is that the “conduct exposed a party to a risk of harm neither reasonably contemplated nor allocated by the parties before entering their agreement.” (Rattagan, supra, 17 Cal.5th at 44.) This Court finds that the warranty accounts for repair issues and contemplates a remedy allocated by the parties if and when that issue might arise during Plaintiff’s use of the subject product. The Song-Beverly Act’s use, value, and safety parameters for measuring substantiality and the cause of action for failure to recall a motor vehicle adequately account for the claim of a potential, possible, future physical harm or property damage that might occur because of a malfunction or failure of a component or system covered byte GM warranty. Thus, the Court seeks oral argument on how Plaintiff can allege that GM’s conduct exposed him to a risk of harm neither reasonably contemplated nor allocated by the parties before entering their agreement. The court’s tentative ruling is to SUSTAIN the demurrer.
A. Motion to Strike
Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., § 435, subd. (b)(1).) The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436, subd. (a); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].) The court may also strike all or any part of any pleading not drawn or filed in conformity with California law, a court rule, or an order of the court. (Code Civ. Proc., § 436, subd. (b).) An immaterial or irrelevant allegation is one that is not essential to the statement of a claim or defense; is neither pertinent to nor supported by an otherwise sufficient claim or defense; or a demand for judgment requesting relief not supported by the allegations of the complaint. (Code Civ. Proc., § 431.10, subd. (b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc., § 437.)¿¿
Here, GM bases its Motion to Strike Plaintiff’s prayer for Punitive Damages on the argument that Plaintiff has not plead the fraud cause of action with the specificity required. Plaintiff’s prayer for punitive damages, and Defendant’s argument against it, are intrinsically intertwined with the fraudulent inducement – concealment cause of action, and as such, the Court’s ruling as to the Motion to Strike is determined by the Court’s ruling of the demurrer. The Motion to Strike is thus mooted. However, Plaintiff’s opposition argued that he can validly alleged entitlement to punitive damages for the tortious breach of the warranty contract, citing to a series of trial-level decisions from the federal district courts that purport to support such an argument. The Legislature imposed only a quasi-punitive civil penalty for breach of express warranty obligations under the Act, evidencing legislative intent to limit extra-contractual damages to just the civil penalty provisions rather than punitive damages. Plaintiff’s trial-level federal court decisions are not persuasive on this point. The civil penalty under section 1794(c) is imposed as punishment or deterrence of the defendant, and in that sense it is “akin” to punitive damages. (Kwan v. Mercedes-Benz of North America, Inc. (1994) 23 Cal.App.4th 174, 184.) However, it is improper to impose both punitive damages and the Legislature’s restricted form of a deterrence remedy in a Lemon Law case. (Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 226-28.) While punitive damages and statutory penalties can both be recovered in the same case, they would be recoverable only if based on different conduct that took place at different times rather than for the same purported malfeasance. (Anderson v. Ford Motor Co. (2022) 74 Cal.App.5th 946, 966.)
The Legislature instead invoked the concept of willfulness in the civil penalty calculus, rather than the moral blameworthiness and “reckless disregard of the rights of the consumer,” associated with the oppression, fraud, or malice required by Civil Code section 3294 for the recovery of punitive damages. (See Ibrahim v. Ford Motor Co. (1989) 214 Cal.App.3d 878, 894.) Punitive damages cannot be recovered for a Lemon Law violation.
IV. CONCLUSION
For the foregoing reasons, Defendant’s Demurrer is SUSTAINED. Additionally, Defendant’s Motion to Strike is MOOTED.
GM is ordered to give notice.