Judge Stephanie M. Bowick, Case Number: 24STCV34808, Date: 2025-03-17 Tentative Ruling

Judge: Stephanie M. Bowick, Case: 24STCV34808, Date: 2025-03-17 Tentative Ruling

Case Number: 24STCV34808 Hearing Date: March 17, 2025 Dept: 19

NATURE OF PROCEEDINGS: Defendant Hyundai Motor America’s Demurrer to Plaintiff’s Complaint. Defendant Hyundai Motor America’s Motion to Strike Portions of Plaintiff’s Complaint.

The Court overrules the Demurrer.

The Court denies the Motion to Strike.

Defendant may respond to this action by Answer within Twenty calendar days of notice of this ruling. Plaintiff to give notice.

I. BACKGROUND

On December 31, 2024, FREDRIK ODISHO (Plaintiff) filed the Complaint having Causes of Action for:

Violation of Civil Code §1793.2 (d)
Violation of Civil Code § 1793.2 (b)
Violation of Civil Code § 1793.2 (a)(3)
Breach of the Implied Warranty of Merchantability in violation of Civil Code §§ 1791.1, 1794, and 1795
Fraudulent Inducement – Concealment, alleging HYUNDAI MOTOR AMERICA (Defendant) committed fraud by allowing Plaintiff’s purchased 2024 Hyundai Tucsonto to be sold without disclosing that the vehicle and its 8-speed Transmission were defective and susceptible to unsafe, sudden and premature failure. (Complaint, ¶ 46.)

On February 10, 2025, Defendant demurred to the Fifth Cause of Action, Fraudulent Inducement – Concealment. Defendant argues that the Complaint fails to state sufficient facts to support a cause of action, does not meet the heightened pleading standard for fraud claims and the claim is barred by the Economic Loss Rule. (Code Civ. Proc., §430.10 (e).)

II. LEGAL STANDARD

Demurrers are to be sustained where a pleading fails to adequately plead any essential element of the cause of action. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879-880.)

Generally, complaints must contain ultimate facts. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550; Berger v. Cal. Ins. Guar. Ass’n (2005) 128 Cal.App.4th 989, 1006; Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 606.) The difference between conclusions and ultimate facts is not clear, but involves matters of degree, and a determination whether the complaint apprises defendants of the bases. (Doheny Park Terrace Homeowners Assn., Inc. v. Truck Ins. Exch. (2005) 132 Cal.App.4th 1076, 1099.) “‘[U]ltimate fact’ is a slippery term, but in general it refers to a core fact, such as an element of a claim or defense, without which the claim or defense must fail.” (Yield Dynamics, Inc. v. Tea Systems Corp. (2007) 154 Cal.App.4th 547, 558.)

Motions to strike punitive damages may be granted, where the alleged facts do not support the conclusions of malice, fraud or oppression. (Turman v. Turning Point of Central Calif., Inc. (2010) 191 Cal.App.4th 53, 63.)

III. ANALYSIS

A. Fifth Cause of Action

1. Applicable Claim Elements

The elements of a cause of action for fraudulent inducement are:

A fraudulent representation;
Made to induce a contract (or forbearance); and
That is not part of the contract.

(A. A. Baxter Corp. v. Colt Industries, Inc. (1970) 10 Cal.App.3d 144, 153-154.)

The elements of a cause of action for concealment are:

Defendant concealed or suppressed a material fact;
Defendant was under a duty to disclose the fact to the plaintiff;
Defendant intentionally concealed or suppressed the fact with intent to defraud the plaintiff;
Plaintiff was unaware of the fact and would have acted differently if aware of the concealed or suppressed fact;
Causation; and
Plaintiff sustained damage.

(Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868; Hahn v. Mirda (2007) 147 Cal.App.4th 740, 748.)

Defendant’s present Demurrer contends that the elements of fraud are not adequately alleged. (Demurrer, pp. 3-5.) Defendant argues the Complaint offers only conclusory allegations, specifically that Defendant “failed to disclose the defective nature of the vehicle, its 8-speed Transmission to Plaintiff prior to and at the time of sale.” Defendant further asserts Plaintiff fails to specifically allege how Defendant knew of the alleged transmission defect. (Demurrer, 5:5-9.)

In response, Plaintiff argues that all elements of fraud by concealment are alleged, including a transactional relationship, citing Dhital v. Nissan N. Am., Inc. (2022) 84 Cal.App.5th 828, 843-844, as involving analogous allegations. (Opposition, p. 1.) Plaintiff further contends that the “who said what” requirement does not apply in cases of concealment where there is a duty to disclose. (Opposition, 4:8-9.) Plaintiff asserts the Complaint sufficiently alleges: purchase of the vehicle (Complaint, ¶ 6); Hyundai’s withheld knowledge (Id., ¶ 46); Defendant’s superior knowledge of the facts (Id., ¶¶ 49, 53a-b); the safety risks posed by the defect (Id., ¶ 48); the materiality of the undisclosed information (Id., ¶¶ 55-56); Plaintiff’s reliance on the nondisclosure (Ibid.); and resulting damages. (Opposition, 4:23-28.)

The rule requiring specific pleading of how, when, where, to whom, and by what means a misrepresentation was communicated applies to affirmative misrepresentations, not to concealment. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384; see also Jones v. ConocoPhillips (2011) 198 Cal.App.4th 1187, 1200 [concealment is sufficiently pled when the complaint as a whole provides adequate notice of the particular claims against defendants].)

Additionally, fraudulent inducement arises where a promisor consents to a contract that was induced by fraud. (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.)

As to the instant Demurrer, the Court will focus upon the applicable claim elements.

2. Reliance

Regarding an element of reliance as to concealment, Defendant cites one California and two federal opinions. (Demurrer, 5:19-28.)

The California case Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178 is distinguishable because it turned on specific facts involving a questionable legal duty of disclosure by a limited liability company, based on its relationship with certain individuals. In addition, the evidence opposing summary judgment in Hoffman showed the plaintiffs could not demonstrate justifiable reliance. (Id. at p. 1197.) Those facts bear no resemblance to the allegations in the Complaint here, which involve a car manufacturer allegedly concealing vehicle defects from an individual purchaser. The procedural context is also different—Hoffman involved evaluating evidence on summary judgment, whereas this case concerns pleading standards. Courts have repeatedly found that citations to cases addressing summary judgment are not helpful when the issue is the sufficiency of a pleading. (See, e.g., Alch v. Superior Court (2004) 122 Cal.App.4th 339, 382, fn. 37 [noting that the cases cited “were appeals from a grant of summary judgment ..., and did not address pleading requirements”].)

Further, the cited federal authorities are not controlling in California courts. Federal case law is not binding and is only persuasive in limited circumstances. (Alameida v. State Personnel Bd. (2004) 120 Cal.App.4th 46, 61.) Even assuming the federal cases are helpful in applying reliance factors, controlling California law already addresses the issue. Courts may not disregard California Supreme Court precedent in favor of advisory federal law. (Fujifilm Corp. v. Yang (2014) 223 Cal.App.4th 326, 333.)

California law is clear: a conclusory assertion of reliance is insufficient to meet the requirement of specifically pleading fraud. Facts must be alleged to show actual reliance on the misrepresentation. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) Whether reliance was reasonable is generally a question of fact for the jury, unless reasonable minds could reach only one conclusion. (Grisham v. Philip Morris U.S.A., Inc. (2007) 40 Cal.4th 623, 637.) Reliance exists where the misrepresentation or nondisclosure was an immediate cause of the plaintiff’s conduct, and without it, the plaintiff would not, in all reasonable probability, have entered into the transaction. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239.)

Plaintiff alleges he would not have purchased the vehicle if Defendant had disclosed the specified defects. (Complaint, ¶¶ 50-51.) Defendant contends these allegations do not establish reliance as a matter of law. However, a finder of fact could reasonably conclude that Plaintiff relied on the withheld information when purchasing a dangerously defective vehicle.

The Court finds that Defendant has not supported its assertion of missing reliance allegations with any governing law. “A legal proposition asserted without apposite authority necessarily fails.” (People v. Taylor (2004) 119 Cal.App.4th 628, 643.) Under controlling California case law, the pleaded facts are sufficient.

3. Duty to Disclose

Next, Defendant contends the Complaint alleges insufficient facts to support any duty to disclose the alleged vehicle defects. (Demurrer, p. 6.) In response, Plaintiff argues that a manufacturer has a transactional relationship with vehicle buyers through retail sales of its vehicles for profit. (Opposition, 5:12-6:13.)

The Complaint adequately alleges such a transactional relationship between Plaintiff and Defendant as the vehicle manufacturer, along with Defendant’s superior knowledge of its vehicles’ condition. (See Complaint ¶¶ 46-56.) (See also LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336 [identifying four circumstances where nondisclosure may constitute fraud, including when the defendant has exclusive knowledge of material facts, actively conceals them, or makes partial representations but suppresses key facts]; Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 314 [duty to disclose may arise from a transaction or relationship, such as advertising products to consumers or deriving monetary benefit from them].)

Plaintiff further alleges reliance on Defendant’s advertisements and marketing materials concerning its vehicles prior to purchase. (Complaint, ¶ 50.) “[W]here a fraud claim is based on numerous misrepresentations, such as an advertising campaign, plaintiffs need not allege the specific advertisements they relied on; a representative selection of the advertisements or statements is sufficient.” (Morgan v. AT&T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1262.)

Accordingly, the Court finds the Complaint sufficiently alleges ultimate facts supporting Defendant’s duty to disclose the alleged vehicle defects to buyers.

4. Transactional Relationship

Regarding Defendant’s assertion that no transactional relationship exists to support a duty (Demurrer, 6:20-23), Plaintiff responds that a direct sale from the manufacturer is not required. (Id., 2:1-11.)

Plaintiff’s allegations of purchasing Defendant’s manufactured vehicle, combined with claims of Defendant’s incomplete publications and, indirectly, the salespeople’s concealment, are sufficient. As a matter of law, a manufacturer can be liable for concealment by vehicle dealers. (See, e.g., Shapiro v. Sutherland (1998) 64 Cal.App.4th 1534, 1549 [recognizing the principle of indirect deception, as reflected in BAJI No. 12.50 concerning concealment and deceit toward persons not in privity with the defendant]; McClung v. Watt (1922) 190 Cal. 155, 161 [“one who accepts the fruits of a fraud, with knowledge of the misrepresentations or concealments by which the fraud was perpetrated, thereby inferentially ratifies the fraud complained of and will be liable therefor even though he did not personally participate in the fraud”].)

Therefore, the Court concludes that Plaintiff’s allegations are sufficient regarding the purchase of Defendant’s manufactured vehicle from a seller.

5. Economic Loss Rule

Defendant contends the fraud claim is barred by the Economic Loss Rule. (Demurrer, p. 7.) Plaintiff responds that the rule does not apply to claims for fraudulent inducement by concealment. (Opposition, 2:12-28.)

The Court agrees that the Economic Loss Rule is inapplicable to the fraud allegations. (See, e.g., Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 13 [fraudulent concealment may be independent of contractual rights where the risk of harm exceeds what the parties reasonably contemplated]; County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 328 [economic loss rule does not apply to fraud actions]; Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 840 [“concealment-based claims for fraudulent inducement are not barred by the economic loss rule”]; Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 929 [in some contexts, tort claims are authorized even where they arise from contracts, despite the economic loss rule].)

Additionally, the Economic Loss Rule is not a complete bar to a cause of action but limits certain damages. (See Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194, 1215 [the rule relates to the damages element of a tort claim, requiring a present, appreciable, and non-speculative injury, such as property damage or involuntary out-of-pocket loss in construction cases].)

In sum, the Court concludes the Economic Loss Rule is inapplicable to the demurrer to this Complaint.

B. Motion to Strike Punitive Damages

Defendant moves to strike Plaintiff’s punitive damages allegations, arguing that Plaintiff asserts only conclusory claims of entitlement, fails to meet the heightened standard required to show malicious, oppressive, or fraudulent conduct, and that the Song-Beverly Act expressly prohibits punitive damages. (Motion, 6:1-10.)

First, particularized allegations are not required. “In order to survive a motion to strike an allegation of punitive damages, the ultimate facts showing an entitlement to such relief must be pled by a plaintiff.” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255; accord Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1055; Blegen v. Superior Court (1981) 125 Cal.App.3d 959, 962.)

Further, fraudulent acts of concealment can support an award of punitive damages. (Werschkull v. United Cal. Bank (1978) 85 Cal.App.3d 981, 1004.) In product liability cases, punitive damages may be awarded when a defendant places a product on the market in conscious disregard of public safety. Here, Plaintiff alleges Defendant knew of the probable dangerous consequences of its conduct and deliberately failed to avoid them. (Cf. Ehrhardt v. Brunswick, Inc. (1986) 186 Cal.App.3d 734, 741.) “Marketing a product that is known to be defective and dangerous to consumers supports an inference of malice for purposes of punitive damages.” (Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th 1202, 1230.) “The interpretation of the word ‘malice’ as used in section 3294 to encompass conduct evincing callous and conscious disregard of public safety by those who manufacture and market mass produced articles is consonant with and furthers the objectives of punitive damages.” (Grimshaw v. Ford Motor Co. (1981) 119 Cal.App.3d 757, 810 [involving automotive defects].)

Specifically, in Lemon Law claims against vehicle manufacturers, punitive damages may be available based on concealment. (See Santana v. FCA US, LLC (2020) 56 Cal.App.5th 334, 346 [to support punitive damages, plaintiffs need evidence that, before the vehicle’s purchase, the defendant manufacturer knew of a defect it was either unwilling or unable to repair].)

The Court finds that Plaintiff sufficiently alleges ultimate facts showing Defendant knowingly sold vehicles with concealed defects that posed serious risks of accident and injury to drivers, passengers, and others on the road, and willfully failed to repair those defects. (E.g., Complaint, ¶¶ 36, 48.)

There is no sound basis to strike the punitive damages allegations.

IV. CONCLUSION

The Court overrules the Demurrer and denies the Motion to Strike.

Consequently, the Court need not consider Plaintiff’s alternative request for leave to amend.