Judge: Salvatore Sirna, Case: 22PSCV01375, Date: 2023-01-04 Tentative Ruling
Case Number: 22PSCV01375 Hearing Date: January 4, 2023 Dept: G
Defendant Subaru of America, Inc.’s Demurrer to the Fifth Cause of Action of Plaintiffs’ Complaint
Respondent: Plaintiff Steven Lu
Defendant Subaru of America, Inc.’s Motion to Strike Portions of Plaintiffs’ Complaint
Respondent: Plaintiff Steven Lu
TENTATIVE RULING
Defendant Subaru of America, Inc.’s Demurrer to the Fifth Cause of Action of Plaintiffs’ Complaint is OVERRULED.
Defendant Subaru of America, Inc.’s Motion to Strike Portions of Plaintiffs’ Complaint is DENIED.
BACKGROUND
This is a lemon law action. On April 12, 2015, Steven Lu and Sue Park (collectively, Plaintiffs) entered into a warranty contract with Subaru of America, Inc. (Defendant) by purchasing a 2015 Subaru Outback that was manufactured and/or distributed by Defendant. The warranty contract included a bumper-bumper warranty (3 years/36,000 miles), powertrain warranty (5 years/60,000 miles), and an emission warranty as well as an extended powertrain warranty of 10 years/100,000 miles.
On four separate occasions, Plaintiffs took their vehicle to Defendant’s authorized repair facility for the following reasons. On March 13, 2017, with approximately 23,791 miles on the odometer, Plaintiffs reported engine and battery concerns. On January 30, 2020, with approximately 60,484 miles on the odometer, Plaintiffs reported engine, electrical, and transmission concerns. On March 3, 2020, with approximately 62,032 miles on the odometer, Plaintiffs reported engine concerns. Lastly, on November 10, 2020, with approximately 68,044 miles on the odometer, Plaintiffs reported engine and transmission concerns. Despite these repairs, Plaintiffs allege they continued to experience defects.
On October 19, 2022, Plaintiffs filed a complaint against Defendant, Puente Hills Subaru, and Does 1-10, alleging (1) violation of Civil Code section 1793.2, subdivision (d); (2) violation of Civil Code section 1793.2, subdivision (b); (3) violation of Civil Code section 1793.2, subdivision (a)(3); (4) breach of the implied warranty of merchantability; (5) fraudulent inducement – concealment; and (6) negligent repair.
On November 23, 2022, Defendant filed the present demurrer and motion to strike. Prior to filing the demurrer, on November 10, Defendant’s counsel sent correspondence to Plaintiff’s counsel requesting to meet and confer on Defendant’s objections to Plaintiff’s complaint. (Bell Decl., ¶ 4.) On November 16, Defendant’s counsel followed up telephonically but was unable to get a hold of Plaintiff’s counsel. (Bell Decl., ¶ 5.) On November 18, counsel were able to meet telephonically and could not come to an agreement. (Bell Decl., ¶ 5.)
A hearing is set for January 4, 2023. A case management conference and OSC Re: Failure to File Proof of Service are set for March 9.
LEGAL STANDARD
A party may demur to a complaint on the grounds that it “does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn).) When considering demurrers, courts accept all well pleaded facts as true. (Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, at p. 747.)
ANALYSIS
Defendant demurs to Plaintiffs’ fifth cause of action for fraudulent inducement by concealment, arguing the cause of action is insufficiently pled and barred by the economic loss rule. The court disagrees.
The court first addresses Defendant’s contention that Plaintiffs’ fraudulent inducement claim is barred by the economic loss rule, which prevents tort recovery for “‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922.) Economic loss can also include “damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988, quoting Jimenez v. Superior Court (2002) 29 Cal.4th 473, 482 (Robinson).)
Here, Defendant argues the economic loss rule applies even when breach of contract is accomplished in a fraudulent manner and for support, cites a series of federal district court decisions. In addition to the fact that these decisions are not binding precedent for this court, the court need not consider them as there is binding precedent from the Court of Appeal on this exact issue. In Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828 (Dhital), the court rejected similar arguments and held the economic loss rule does not bar the tort of fraudulent inducement by concealment “because a defendant's conduct in fraudulently inducing someone to enter a contract is separate from the defendant's later breach of the contract or warranty provisions that were agreed to.” (Id., at p. 725.)
In this case, the court finds the analysis in Dhital is applicable. Like the plaintiff in Dhital, Plaintiffs here allege presale misconduct in that Defendant knew the transmission on Plaintiffs’ vehicle was defective before the sale of the vehicle and did not disclose it to Plaintiffs. (Id., at p. 725-726; Complaint, ¶ 52-53, 54.) Because Plaintiffs allege fraudulent inducement, Defendant’s contention that the economic loss rule applies here is without merit.
The court next considers whether Plaintiffs have pled sufficient facts to state a cause of action for fraudulent inducement by concealment.
“[T]he elements of a cause of action for fraud 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.’” (Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 850, quoting Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 665-666.) Furthermore, 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.)
Here, Defendant argues Plaintiffs failed to specifically plead that Defendant knew and failed to disclose a material fact. The court does not find the argument persuasive. While Defendant claims Plaintiffs’ allegation that vehicle’s transmission was defective is merely opinion, Plaintiffs clarify that the transmission was defective because it was “susceptible to sudden and premature failure.” (Complaint, ¶ 51.) Plaintiffs also allege that prior to the sale of the vehicle, Defendant “was well aware and knew that the CVT transmission installed on the Vehicle was defective but failed to disclose this fact to Plaintiff at the time of sale and thereafter.” (Complaint, ¶ 52.) As evidence Defendant knew or should have known about the transmission’s defects, Plaintiffs pointed to noticeable problems such as “shuddering, shaking, jerking, vibration on acceleration, and/or vibration felt on acceleration; hesitation on acceleration; failure to accelerate; slipping; [and] premature wear of the internal components.” (Complaint, ¶ 53.)
Next, Defendant contends Plaintiffs’ pleadings on “information and belief” are insufficient to establish Defendant had knowledge of the transmission defect. Defendant claims Plaintiffs allege “no supporting facts to back up these claims” such as customer complaints or repair records. The court disagrees as Defendant’s argument fails to acknowledge the specificity requirement is relaxed “when the allegations indicate that ‘the defendant must necessarily possess full information concerning the facts of the controversy’” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158, quoting Bradley v. Hartford Acc. & Indem. Co. (1973) 30 Cal.App.3d 818, 825) or if “the facts lie more in the knowledge of the opposite party.” (Ibid, quoting Turner v. Milstein (1951) 103 Cal.App.2d 651, 658.) While Plaintiffs have alleged that Defendant knew of the defect before selling the vehicle, Plaintiffs need not point to customer complaints or repair records to claim specifically what or when Defendant exactly knew as Defendant is more likely to be aware of such facts.
Finally, Defendant maintains Plaintiffs failed to allege facts establishing Defendant was under a duty to disclose allegedly concealed facts to Plaintiffs. One party’s failure to disclose material facts unknown to another party is not fraud unless “unless there is some relationship between the parties which gives rise to a duty to disclose such known facts.” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 337, quoting BAJI No. 12.36 (8th ed. 1994.) “In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff.” (Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294.)
In this case, Plaintiffs alleged Defendant was under a duty to disclose because it had knowledge of defects through sources unavailable to Plaintiffs including “including but not limited to pre-production testing data, early consumer complaints about the transmission defect made directly to Subaru and its network of dealers, aggregate warranty data compiled from Subaru network of dealers, testing conducted by Subaru in response to these complaints, as well as warranty repair and part replacements data received by Subaru from Subaru’s network of dealers, amongst other sources of internal information.” (Complaint, ¶ 57.) Plaintiffs also allege they “could not reasonably have been expected to learn or discover of the Vehicle’s transmission defect and its potential consequences until well after Plaintiff purchased/leased the Vehicle.” (Complaint, ¶ 57.)
Defendant argues it is insufficient for Plaintiffs to plead Defendant was in a superior position to know about the vehicle’s defect. In addition to citing a series of federal cases that are not binding on this court, Defendant cites Bigler-Engler v. Berg, Inc. (2017) 7 Cal.App.5th 276 (Bigler-Engler) and Kovich v. Paseo Del Mar Homeowners’ Assn. (1996) 41 Cal.App.4th 863, 866-867 (Kovich). In Bigler-Engler, the court held there was no transaction giving rise to a relationship between a consumer and medical device manufacturer. (Bigler-Engler, supra, 7 Cal.App.5th at p. 284, 312.) In Kovich, the court held a home-owners association did not owe a duty to disclose construction defects to a prospective home purchaser where there were no facts alleging the homeowners association acted as a seller or was party to a contract. (Kovich, supra, 41 Cal.App.4th at p. 865-866.)
Unlike Kovich and Bigler-Engler, Plaintiffs here have established the existence of a transaction by alleging Plaintiffs entered into a warranty contract with Defendant and describing the warranties which included extended coverage for the powertrain. (Complaint, ¶ 10-11.) Thus, Plaintiffs have alleged sufficient facts to state a cause of action for fraudulent inducement by concealment.
Accordingly, the court OVERRULES Defendant’s demurrer. Furthermore, because Defendant’s motion to strike Plaintiffs’ prayer for punitive damages is based on the same grounds as Defendant’s demurrer, the court DENIES Defendant’s motion to strike for the same reasons described above.
CONCLUSION
Based on the foregoing, Defendant’s demurrer to Plaintiffs’ fifth cause of action is OVERRULED.
Based upon the recommendations made on the demurrer, Defendant’s motion to strike Plaintiffs’ prayer for punitive damages is DENIED.
Defendant to file its answer to the Complaint within ten (10) days.