Judge Salvatore Sirna, Case Number: 24PSCV03705, Date: 2025-01-21 Tentative Ruling

Judge: Salvatore Sirna, Case: 24PSCV03705, Date: 2025-01-21 Tentative Ruling

Case Number: 24PSCV03705 Hearing Date: January 21, 2025 Dept: G

Defendants Ford Motor Company and Puente Hills Ford’s Demurrer to Plaintiff’s Complaint

Respondent: Plaintiff Tomas Morales

TENTATIVE RULING

Defendants Ford Motor Company and Puente Hills Ford’s Demurrer to Plaintiff’s Complaint¿ is SUSTAINED IN PART with twenty (20) days leave to amend as to the fifth cause of action and OVERRULED IN PART as to the sixth cause of action.

BACKGROUND

This is a Song-Beverly action. In April 2024, Plaintiff Tomas Morales allegedly entered into a warranty contract with Defendant Ford Motor Company (Ford) with regards to a 2024 Ford Mustang. Subsequently, Morales alleges the vehicle exhibited transmission defects and engine defects.

On October 31, 2024, Morales filed a complaint against Ford, Puente Hills Ford, and Does 1-10, alleging the following causes of action: (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 implied warranty of merchantability, (5) negligent repair, and (6) concealment.

On December 9, 2024, Ford and Puente Hills Ford (collectively, the Ford Defendants) filed the present demurrer. Prior to filing on November 19, 2024, the Ford Defendants’ counsel met and conferred via video conference with Morales’s counsel and was unable to reach a resolution. (Liu Decl., ¶ 2.)

A hearing on the present demurrer is set for January 21, 2025, along with a CMC and OSC Re: Failure to File Proof of Service on April 1, 2025.

ANALYSIS

The Ford Defendants demur to Morales’s sixth cause of action (concealment) and fifth cause of action (negligent repair). For the following reasons, the court SUSTAINS their demurrer to Morales’s fifth cause of action with leave to amend and OVERRULES their demurrer to Morales’s sixth cause of action.

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.)

Concealment (Sixth Cause of Action)

The Ford Defendants argue Morales’s sixth cause of action for fraudulent inducement through concealment is barred by the economic loss rule and insufficiently pled. The court disagrees.

Economic Loss Rule

Pursuant to the economic loss rule, “there is no recovery in tort for negligently inflicted ‘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.) It “functions to bar claims in negligence for pure economic losses in deference to a contract between litigating parties.” (Id., at p. 922.) “Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury [Citation]; for breach of the covenant of good faith and fair dealing in insurance contracts [Citation]; for wrongful discharge in violation of fundamental public policy [Citation]; or where the contract was fraudulently induced. [Citation.] 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 (1999) 21 Cal.4th 543, 551-552.)¿ If fraud occurs independent of a breach of contract, the economic loss rule does not apply. (See Robinson v. Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 991.) For example, fraudulent misrepresentations made to induce a party to enter into an agreement are not barred because they are independent of that breach of contract. (Id., at p. 991.) And no distinction is made with regards to whether the act of fraud was an affirmative representation or concealment of material facts. (See Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 39 (Rattagan).)

The Ford Defendants argue Morales failed to adequately plead the fraudulent inducement exception to the economic loss rule. They argue Morales failed to allege that Ford did not intend to honor its warranty obligations as required by Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 1118, 1131. There, the court noted “[t]o establish a claim of fraudulent inducement, one must show that the defendant did not intend to honor its contractual promises when they were made.” (Id., at p. 1131.) But this is not the correct standard here as Morales did not allege Ford made a false promise or false representation. Rather, Morales has alleged Ford concealed material facts—transmission defects—from Morales. (Complaint, ¶ 59-60.) And as demonstrated below, Morales has adequately pled a cause of action for concealment.

In reply briefing, the Ford Defendants argue this cause of action fails because Ford’s alleged tortious conduct does not expose Morales to a risk beyond what Morales and Ford reasonably contemplated when they entered into the warranty contract. This argument is based on the following statement from Rattagan: “If the alleged breach is based on a failure to perform as the contract provides, and the parties reasonably anticipated and allocated the risks associated with the breach, the cause of action will generally sound only in contract because a breach deprives an injured party of a benefit it bargained for. However, if the contract reveals the consequences were not reasonably contemplated when the contract was entered and the duty to avoid causing such a harm has an independent statutory or public policy basis, exclusive of the contract, tort liability may lie.” (Rattagan, supra, 17 Cal.5th at p. 27.)

Here, the Ford Defendants argue the risk that the subject vehicle might be defective was contemplated when Ford issued its warranty for the vehicle. But Morales does more than allege the subject vehicle had defects. Morales alleges the defects “substantially impair the use, value, or safety of the Vehicle” and render its value worthless. (Complaint, ¶ 16-17.) There are no facts alleged that establish the parties reasonably contemplated Ford would issue warranties for vehicles it allegedly knew were defective to the point that their use, value, or safety was significantly impaired. The Ford Defendants also argue they owed no independent tort duty apart from those specified in the warranty. This argument also fails as the Ford Defendants were under a duty to disclose material facts as discussed below.

Sufficiency of Concealment Allegations

“[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.)

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.) “A duty to disclose facts arises only when the parties are in a relationship that gives rise to the duty, such as ‘seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement.’” (Shin v. Kong (2000) 80 Cal.App.4th 498, 509, quoting Wilkins v. National Broadcasting Co. (1999) 71 Cal.App.4th 1066, 1082.) “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.)

Here, the Ford Defendants first argue Morales failed to allege the defect that Ford allegedly concealed. In the Complaint, Morales alleges Ford knew that the vehicles at issue had transmission defects which resulted in hesitation, delayed acceleration, harsh or hard shifting, jerking, shuddering, or juddering. (Complaint, ¶ 54.) Morales also alleges Ford failed to disclose these defects prior to and at the time of purchase. (Complaint, ¶ 53.) While the Ford Defendants attempt to undermine these allegations by claiming they merely demonstrate how the transmissions may be defective, Morales’s actual allegations do not contain such tentative language. Thus, the court finds these allegations are sufficiently alleged.

Next, the Ford Defendants contend Morales failed to allege facts establishing Ford was under a duty to disclose allegedly concealed facts. They contend Ford did not have a duty to disclose because Morales failed to allege the vehicle at issue was purchased directly from Ford. But Morales also alleges Ford made express written warranties. (Complaint, ¶ 10-11.) Express warranties are contractual in nature. (See Hauter v. Zogarts (1975) 14 Cal.3d 104, 117.) They also contend Rattagan and Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276 (Bigler-Engler) support the conclusion that the existence of warranty is insufficient to create a transactional relationship.

As discussed above, Rattagan dealt with the applicability of the economic loss rule to concealment claims. (Rattagan, supra, 17 Cal.5th at p. 38.) But while Rattagan discussed the elements of a cause of action for concealment, it did not express any opinion on whether vehicle warranties create a contractual relationship that gives rise to the duty to disclose. Nor does the Ford Defendants’ briefing provide a citation to such analysis. In Bigler-Engler, the court held the fact that an individual used a medical device manufactured by the defendant did not evidence a relationship giving rise to the duty to disclose, noting the parties did not transact in any way. (Bigler-Engler, supra, 7 Cal.App.5th at p. 314.) But Bigler-Engler was a products liability case and did not involve the issue of a defendant making express warranties. (Id., at p. 284.) Ultimately, the Ford Defendants failed to provide citation to a single binding authority that holds a manufacturer’s express warranties to a consumer is insufficient to create a transactional relationship.

The Ford Defendants next contend Morales failed to plead Ford had exclusive knowledge of the alleged defects. Morales alleges Ford was under a duty to disclose because it had knowledge of defects through sources unavailable to Morales including “including but not limited to pre-production and post-production testing data, early consumer complaints about the Transmission Defect made directly to [Ford] and its network of dealers; aggregate warranty data compiled from [Ford’s] network of dealers; testing conducted by [Ford] in response to these complaints; as well as warranty repair and part replacements data received by [Ford] from [Ford’s] network of dealers, amongst other sources of internal information.” (Complaint, ¶ 55.) Morales also alleges Morales “could not reasonably have been expected to learn of or discover of the Vehicle’s Transmission Defect and its potential consequences until well after [Morales] purchased the Vehicle.” (Complaint, ¶ 59(c).)

In response, the Ford Defendants contend Morales failed to plead what the testing revealed. But Morales does allege so, stating Ford acquired its knowledge of the transmissions defect from sources including testing data. (Complaint, ¶ 55.) To the extent the Ford Defendants are demanding Morales allege the exact results of those tests, such specificity is not required where “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.)

The Ford Defendants last contend Morales failed to plead Ford actively concealed the alleged defects and made partial representations. Neither contention has any merit. In addition to alleging Ford knew of the defects and failed to disclose them, the Complaint explicitly alleged Ford “knowingly and intentionally” concealed the material facts at issue. (Complaint, ¶ 53, 60.) As for the alleged partial representations, Ford not only issued written warranties to Morales as discussed above but also issued advertising materials without disclosing these alleged defects. (Complaint, ¶ 57.)

Accordingly, the court OVERRULES the Ford Defendants’ demurrer to this cause of action.

Negligent Repair (Fifth Cause of Action)

Puente Hills Ford contends Morales’s fifth cause of action for negligent repair is barred by the economic loss rule and fails to allege damages. The court agrees it is barred by the economic loss rule.

As noted in the previous section, the economic loss rule bars tort recovery for “purely economic losses.” (Sheen, supra, 12 Cal.5th at p. 905.) This is because “conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law.” (Erlich v. Menezes (1999) 21 Cal.4th 543, 551.) In this case, Morales alleges Puente Hills Ford owed Morales a duty “to use ordinary care and skill in storage, preparation and repair of the Subject Vehicle in accordance with industry standards.” (Complaint, ¶ 48.) But it is unclear whether Puente Hills Ford’s duty to repair Morales’s vehicle is contractual or based on an independent duty. When it is unclear if an action arises from a contract or noncontractual duty, “the action will be considered based on contract rather than tort.” (Arthur L. Sachs, Inc. v. City of Oceanside (1984) 151 Cal.App.3d 315, 322.) Thus, because Morales’s negligent repair action is based on a contractual duty to repair and Morales has not alleged any facts establishing an independent noncontractual duty, Morales’s fifth cause of action is barred by the economic loss rule.

In opposition, Morales relies on Jimenez v. Superior Court (2002) 29 Cal.4th 473, which holds “California decisional law has long recognized 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., at p. 483.) Here however, Morales fails to allege that Puente Hills Ford’s failure to repair transmission issues caused damage to other subcomponents of the vehicle.

Accordingly, Puente Hills Ford’s demurrer to Morales’s fifth cause of action is SUSTAINED with leave to amend.

CONCLUSION

Based on the foregoing, the Ford Defendants’ demurrer to Morales’s Complaint is SUSTAINED IN PART with twenty (20) days leave to amend as to the fifth cause of action and OVERRULED IN PART as to the sixth cause of action.