Judge: Teresa A. Beaudet, Case: 22STCV11826, Date: 2023-01-23 Tentative Ruling

Case Number: 22STCV11826    Hearing Date: January 23, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

            Background

Plaintiff Imelda Ortiz (“Plaintiff”) filed this lemon law action on April 7, 2022, against Defendant General Motors LLC (“GM”). Plaintiff filed the operative First Amended Complaint (“FAC”) on June 13, 2022, asserting causes of action for (1) violation of subdivision (d) of Civil Code section 1793.2, (2) violation of subdivision (b) of Civil Code section 1793.2, (3) violation of subdivision (a)(3) of Civil Code section 1793.2, (4) breach of the implied warranty of merchantability, and (5) fraudulent inducement-concealment. 

In the FAC, Plaintiff alleges that on or about June 3, 2017, she entered into a warranty contract with GM regarding a 2017 Chevrolet Bolt EV vehicle (the “Vehicle”), which was manufactured and/or distributed by GM. (FAC, ¶ 8.) Plaintiff alleges that defects and nonconformities to warranty manifested themselves within the applicable express warranty period, including, but not limited to, the battery and the electrical system; among other defects and non-conformities. (FAC, ¶ 13.)

GM now demurs to the fifth cause of action for fraudulent inducement-concealment. GM also moves to strike Plaintiff’s request for punitive damages. Plaintiff opposes both.

On October 27, 2022, one day before the original October 28, 2022 hearing on the instant demurrer and motion to strike, Plaintiff filed a “Notice of Supplemental Authority in Opposition to Defendant’s Demurrer to the First Amended Complaint.” On October 28, 2022, the Court issued a minute order providing, inter alia, that “[i]n light of the new authority provided by plaintiff on the issue of the economic loss rule, The Court continues the hearing on the Demurrer and Motion to Strike…to 01/23/23…Defendant will file a Response to the Notice of Supplemental Authority filed by Plaintiff on or before November 14, 2022.” On November 15, 2022, GM filed a response to Plaintiff’s notice of supplemental authority.[1]

Discussion

A.    Demurrer

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.)

GM asserts that the economic loss rule precludes Plaintiff’s fifth cause of action for fraudulent inducement-concealment. “[C]onduct 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 other words, “[t]he economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) Thus, “[t]ort damages have been permitted in contract cases where a breach of duty directly causes physical injury; for breach of the covenant of good faith and fair dealing in insurance contracts; for wrongful discharge in violation of fundamental public policy; or where the contract was fraudulently induced.” (Id. at pp. 989-990 [references to “citation” omitted].)

In Robinson Helicopter, the tort claim at issue was a fraud and misrepresentation claim. (Robinson Helicopter Co., Inc. v. Dana Corp., supra, 34 Cal.4th at p. 990.) The California Supreme Court held that “the economic loss rule does not bar [plaintiff’s] fraud and intentional misrepresentation claims because they were independent of [defendant’s] breach of contract.” (Id. at p. 991.) This holding was “narrow in scope and limited to a defendant’s affirmative misrepresentations on which a plaintiff relies and which expose a plaintiff to liability for personal damages independent of the plaintiff’s economic loss.” (Id. at p. 993.) In addition, the California Supreme Court in Robinson Helicopter specifically declined to address the issue of whether “intentional concealment constitutes an independent tort.” (Id. at p. 991.)

In her notice of supplemental authority, Plaintiff cites to Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 832, where “Plaintiffs Sobita Dhital and Daniel Newman sued defendant Nissan North America, Inc. (Nissan), alleging the transmission in a 2013 Nissan Sentra they purchased was defective. In their operative second amended complaint (SAC), plaintiffs asserted statutory claims under the Song-Beverly Consumer Warranty Act (Song-Beverly Act) (Civ. Code, § 1790 et seq.) and a common law fraud claim alleging that Nissan, by fraudulently concealing the defects, induced them to purchase the car. The trial court sustained Nissan's demurrer to the fraudulent inducement claim (the fourth cause of action in the SAC) without leave to amend, holding the claim was barred by the ‘economic loss rule’ discussed in Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979…”

The Court of Appeal in Dhital “conclude[d] that, under California law, the economic loss rule does not bar plaintiffs’ fraudulent inducement claim.” (Id. at p. 833.) The Dhital Court reasoned that:

“Applying Robinson here (and cognizant that our Supreme Court may soon provide additional guidance), we conclude plaintiffs’ claim for fraudulent inducement by concealment is not subject to demurrer on the ground it is barred by the economic loss rule. Robinson left undecided whether concealment-based claims are barred by the economic loss rule. What follows from its analysis, however, is that concealment-based claims for fraudulent inducement are not barred by the economic loss rule. The reasoning in Robinson affirmatively places fraudulent inducement by concealment outside the coverage of the economic loss rule. We now hold that the economic loss rule does not cover such claims. First, as discussed, Robinson identified fraudulent inducement as an existing exception to the economic loss rule, before it proceeded to analyze the particular claims at issue in that case relating to fraud during the performance of a contract. For fraudulent inducement and the other existing exceptions listed in Robinson, 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. In our view, that independence is present in the case of fraudulent inducement (whether it is achieved by intentional concealment or by intentional affirmative misrepresentations), 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 pp. 840-841 [internal quotations and citations omitted].)

In its response to Plaintiff’s notice of supplemental authority, GM asserts that irrespective of the Dhital decision and setting the economic loss rule aside, Plaintiff has still failed to sufficiently plead the essential elements of a fraud cause of action. In the demurrer, GM contends that the fraudulent inducement-concealment cause of action must also fail because Plaintiff failed to plead this cause of action with the required specificity.

The elements of an 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.” (Marketing West, Inc. v. Sanyo Fisher Corp. (1992) 6 Cal.App.4th 603, 612-613.)

GM asserts that the fraudulent-inducement concealment cause of action must fail because “Plaintiff failed to allege (i) the identity of the individuals at GM who purportedly concealed material facts or made untrue representations about her Bolt, (ii) their authority to speak and act on behalf of GM, (iii) GM’s knowledge about alleged defects in Plaintiff’s Bolt at the time of purchase, (iv) any interactions with GM before or during the purchase of her Bolt, or (v) GM’s intent to induce reliance by Plaintiff to buy the specific Bolt at issue.” (Demurrer at p. 9:15-21.)  

GM notes that “[t]he requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent 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.)

            Plaintiff counters that her fraudulent-inducement concealment cause of action is “strictly based on a failure to disclose.” (Opp’n at p. 6:16-17.) Plaintiff cites to Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384, where the Court of Appeal noted that “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice…Thus the policy of liberal construction of the [pleadings]…will not ordinarily be invoked to sustain a pleading defective in any material respect…This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered…This statement of the rule reveals that it is intended to apply to affirmative misrepresentations…it is harder to apply this rule to a case of simple nondisclosure. How does one show how and by what means something didn’t happen, or when it never happened, or where it never happened?” (Internal quotations omitted.) As discussed, here Plaintiff is alleging a cause of action for fraudulent inducement – concealment.

            GM also asserts that the allegations of the FAC do not establish GM’s intent to defraud Plaintiff, specifically, that “Plaintiff has failed to plead specific facts as to how GM specifically intended to defraud her to induce her to purchase the Subject Vehicle.” (Reply in Support of Demurrer at p. 2:21-22.) As set forth above, the Court in Marketing West, Inc. v. Sanyo Fisher Corp., supra, 6 Cal.App.4th at pp. 612-613 found that one of the elements of an action for fraud and deceit based on concealment is “the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff.” GM asserts that Plaintiff only alleges in a conclusory fashion that “[i]n failing to disclose the defects in the Vehicle’s lithium-ion battery, Defendant has knowingly and intentionally concealed material facts and breached its duty not to do so.” (FAC, ¶ 92.)

Plaintiff counters that the requisite intent here is the intent to induce reliance. As Plaintiff notes, the Court of Appeal in Lovejoy v. At&T Corp. (2001) 92 Cal.App.4th 85, 93 found that “the only intent by a defendant necessary to prove a case of fraud is the intent to induce reliance. Moreover, liability is affixed not only where the plaintiff’s reliance is intended by the defendant but also where it is reasonably expected to occur.” (Emphasis in original.) As to Plaintiff’s reliance, Plaintiff points to her allegations that “GM failed to disclose the existence of the Battery Defect at GM’s authorized dealership and during direct calls to Defendant. Had Plaintiff known that the Vehicle suffered from the Battery Defect, he would not have purchased the Vehicle.” (FAC, ¶ 89.) Plaintiff further alleges that “prior to the sale of the Vehicle to Plaintiff, Defendant knew that the Vehicle and its lithium-ion battery suffered from an inherent defect, was defective, would fail prematurely, and was not suitable for its intended use” and that “[i]n failing to disclose the defects in the Vehicle’s lithium-ion battery, Defendant has knowingly and intentionally concealed material facts.” (FAC, ¶¶ 90, 92.) Plaintiff asserts that she has thus alleged that she was fraudulently induced into purchasing the subject Vehicle.

Based on the foregoing, the Court does not find that GM has demonstrated that Plaintiff failed to plead the fifth cause of action for fraudulent inducement-concealment with the requisite specificity.

Lastly, the Court notes that GM raises new arguments for the first time in its reply and in its response to Plaintiff’s notice of supplemental authority, which concern Plaintiff’s purported failure to plead fraud with the requisite specificity. Specifically, GM argues that it had no duty to disclose to Plaintiff, and that Plaintiff fails to plead damages with sufficient specificity. However, such arguments were not raised in GM’s demurrer. Moreover, such arguments in GM’s response to Plaintiff’s notice of supplemental authority do not pertain to the Dhital case, rather, they concern Plaintiff’s alleged failure to plead fraud with specificity. The Court notes that “[p]oints raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument.” (American Drug Stores, Inc. v. Stroh (1992) 10 Cal.App.4th 1446, 1453.)

Based on the foregoing, the Court overrules the demurrer to the fifth cause of action.

            Motion to Strike

GM also moves to strike the demand for punitive damages contained in the FAC. (FAC, p. 17:9.) A court may strike any “irrelevant, false, or improper matter inserted in any pleading” or all or any part of a pleading “not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.” (Code Civ. Proc., § 436.) “The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (Code Civ. Proc., § 437.)

A motion to strike may lie where the facts alleged do not rise to the level of “malice, oppression or fraud” required to support a punitive damages award. (Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 63-64.) “‘Fraud’ means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.” (Civ. Code, § 3294, subd. (c)(3).)

As set forth above, the Court finds that Plaintiff has sufficiently alleged a cause of action for fraudulent inducement – concealment, which supports a punitive damages claim as to this cause of action.

As to the remaining causes of action, GM asserts that Plaintiff cannot demand both a civil penalty under the Song-Beverly Act and punitive damages. In the prayer for relief, Plaintiff seeks “a civil penalty in the amount of two times Plaintiff’s actual damages pursuant to Civil Code section 1794, subdivision (c) or (e)” as well as “costs of the suit and Plaintiff’s reasonable attorneys’ fees pursuant to Civil Code section 1794, subdivision (d).” (FAC, p. 17:4-5; 17:7-8.) GM Cites to Troensegaard v. Silvercrest Indus. (1985) 175 Cal.App.3d 218, 228, where the Court of Appeal found that “[w]e are of the opinion that had the Legislature, by Civil Code sections 3294 (permitting punitive damages) and 1794 (permitting a civil penalty), intended a double recovery of punitive and penal damages for the same willful, oppressive, malicious, and oppressive acts, it would in some appropriate manner have said so. And we believe that by seeking a ‘civil penalty’ and also attorney’s fees and all reasonable expenses as allowed by Civil Code section 1794, plaintiff had in effect elected to waive punitive damages under section 3294.” (Emphasis in original.) The Court notes that Plaintiff does not cite to any binding legal authority in support of her assertion that punitive damages are available under the Song-Beverly Act.

Based on the foregoing, the Court grants the motion to strike only to the extent Plaintiff seeks punitive damages in connection with the first, second, third, and fourth causes of action of the FAC. 

Conclusion

For the foregoing reasons, the Court overrules GM’s demurrer to the fifth cause of action for fraudulent inducement-concealment. GM’s motion to strike is granted only to the extent Plaintiff seeks punitive damages in connection with the first, second, third, and fourth causes of action. 

GM is ordered to file its answer to the FAC within 10 days of this Order.

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Plaintiff is ordered to give notice of this Order.

DATED:  January 23, 2023                            ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court