Judge: Sandy N. Leal, Case: 2023-01327019, Date: 2023-08-31 Tentative Ruling

Demurrer to Complaint

The Demurrer brought by Defendant York Enterprises South, Inc., directed towards the Cause of Action for Negligent Repair, is SUSTAINED, with 15 days-leave to amend, on the basis the claim fails to adequately allege damages.

Initially, the Court finds the claim for Negligent Repair is not barred by the “economic loss rule.”

As noted by the California Supreme Court in Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, “there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” (Id. at 922.) Additionally, “the rule functions to bar claims in negligence for pure economic losses in deference to a contract between litigating parties.” (Ibid.) “[T]here is no liability in tort for economic loss caused by negligence in the performance or negotiation of a contract between the parties.” (Id. at 923.) “Because it involves parties who are in contractual privity, this strand of the economic loss rule is sometimes referred to as the ‘contractual economic loss rule,’ ‘contractual rule,’ or ‘consensual paradigm.’” (Ibid.)

Defendant’s reliance on the “contractual economic loss rule” is unavailing, given the Complaint does not allege the existence of a contract, between Plaintiff and moving Defendant. While the Demurrer concedes the above, it nonetheless relies on a statement within Arthur L. Sachs, Inc. v. City of Oceanside (1984) 151 Cal.App.3d 315, to assert a contract may be assumed. This assertion is unpersuasive.

“Whether an action is contractual or tortious depends upon [t]he nature of the right sued upon, and not the form of the pleading or the relief demanded. [Citations removed]. If the action is based on a breach of a promise, it is contractual; if it is based on a breach of a noncontractual duty, it is in tort. If the breach is both contractual and tortious, we must ascertain which duty is the quintessence of the action. If it is unclear, courts generally will consider the action to be in contract rather than in tort.” (Voth v. Wasco Public Util. Dist. (1976) 56 Cal.App.3d 353, 356-357 (cited in Arthur L. Sachs, supra, 151 Cal.App.3d 315.)

Here, given the lack of contractual allegations, as between moving Defendant and Plaintiff, no breach has been alleged, which is “both contractual and tortious.” Consequently, the above rule, defaulting to a contractual interpretation where both possibilities are available, is inapplicable.

Additionally, regardless, assuming a contract exists, the contract is one for services. (¶54 of Complaint.) Pursuant to binding California authority, the economic loss rule does not apply to the same, where the economic loss is foreseeable. (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 770.) Defendant does not challenge the foreseeability of any loss alleged herein.

While Defendant cites federal authorities which argue that North American Chemical has been impliedly overruled or “largely been ignored or contradicted in subsequent opinions by the California Supreme Court,” the argument within such authorities is unpersuasive. (See Vepo Design Corporation v. American Economy Insurance Company (C.D. Cal. 2021) 2021 WL 968961 at 5, citing Peregrine Pharms, Inc. v. Clinical Supplies Mgmt. (C.D. Cal. 2015) 2015 WL 13309286 at 6.)

As explained by the Court in Viveros v. Ford Motor Company (S.D. Cal. 2021) 2021 WL 5989365: “The basis for Peregrine’s conclusion is that ‘when summarizing the categories of contract cases in which tort damages have been permitted, the [California Supreme Court] made no mention of services contracts’…However, in Erlich, the California Supreme Court was not discussing the economic loss rule…” (Viveros, 2021 WL 5989365 at 7 [emphasis added].)

Likewise, while Defendant suggests Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979 overruled North American Chemical, the Robinson opinion makes no reference to North American Chemical and, in analyzing the economic loss rule, does not examine service contracts.

Similarly, while Defendant suggests that Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905 overruled North American Chemical, again no reference to this decision is included therein. Defendant cites language from Sheen which establishes the Biakanja factors (discussed in North American Chemical) “are not applicable when, as here, the litigants are in contractual privity and the plaintiff’s claim is not ‘independent of the contract arising from principles of tort law.” (Id. at 942.) The Court in Sheen held that: “Biakanja does not displace the contractual economic loss rule when that rule squarely applies.” (Id. at 937.)

Notably, however, the Court in Sheen did not hold that the contractual economic loss rule applies against service contracts. Instead, the Sheen Court acknowledged the “recognized exception to the economic loss rule for consumers who contract for certain kinds of professional services.” (Id. at 933.)

Thereafter, the Court in Sheen concluded that it could not “rely on Biakanja to impose a tort duty on a contracting party to avoid negligently causing monetary harm to another party to that contract.” (Id. at 938.) The above holding is not contrary to the holding in North American Chemical, as the Court in North American Chemical was not relying on the Biakanja factors to establish the existence of a duty. (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 774 and 785.)

As Defendant has not established that North American Chemical has been overruled, this Court follows its holding and finds that the economic loss rule does not apply to bar Plaintiffs’ claim.

Despite the above, however, the Demurrer is sustained with leave to amend, on the basis Plaintiffs do not allege damages (economic or otherwise).

“The elements of any negligence cause of action are duty, breach of duty, proximate cause, and damages.” (Peredia v. HR Mobile Services, Inc. (2018) 25 Cal.App.5th 680, 687.)

Here, at best, the Complaint alleges Defendant “breached its duty to Plaintiffs to use ordinary care and skill by failing to properly store, prepare and repair of the Subject Vehicle in accordance with industry standards.” (¶56 of Complaint.) Thereafter, the Complaint simply concludes that Defendant’s “negligent breach of its duties owed to Plaintiffs was a proximate cause of Plaintiffs’ damages.” (¶57 of Complaint.)

The assertion Plaintiffs were damaged is a mere conclusion, which the Court is not required to assume is true. “We give the pleading ‘a reasonable interpretation and treat the demurrer as admitting all material facts properly pleaded, but we do not assume the truth of contentions, deductions, or conclusions of law.” (Keffeler v. Partnership Healthplan of California (2014) 224 Cal.App.4th 322, 335, fn. 10). Similarly, “[a]llegations of damages without allegations of fact to support them are but conclusions of law, which are not admitted by demurrer.” (Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1, 12.)

The Complaint does not include factual allegations, which establish damages. At best, the Complaint suggest damage on the basis the vehicle was not repaired; however, this suggestion leaves open the possibility Defendant returned the vehicle to Plaintiffs, in the same state in which it was initially delivered. This is particularly the case, given the allegations conceding the vehicle was defective, when delivered to the authorized repair facility. (¶16-¶18 of Complaint.) Given the above and the absence of allegations which indicate a financial loss, the Complaint fails to allege damages.

As this is the first challenge to the pleading and as amendment appears possible, leave to amend is granted.