Judge: Teresa A. Beaudet, Case: 24STCV34298, Date: 2025-04-23 Tentative Ruling

Case Number: 24STCV34298    Hearing Date: April 23, 2025    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

            Background

Factual Background

This is a lemon law case. Plaintiffs in this case are purchasers Macario Garcia, and Oralia Garcia. Defendants are Ford Motor Company and Big Valley Ford Lincoln. Plaintiffs allege that in March of 2023, they purchased a 2023 Lincoln Navigator. Plaintiffs allege the vehicle suffered numerous defects. They allege Defendants failed to either fix these defects or accept the Plaintiffs’ revocation. In their Complaint, Plaintiffs allege six causes of action: 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 Implied Warranty of Merchantability, 5) Fraudulent Inducement, and 6) Negligent Repair.

Procedural Background

On December 27, 2024, Plaintiffs filed their original Complaint.

On February 25, 2025, Defendants filed their Demurrer.

On April 10, 2025, Plaintiffs filed their Opposition to Defendants’ Demurrer.

On April 16, 2025, Defendants filed their Reply to Plaintiffs’ Opposition.

Discussion

A.    Meet and Confer

Parties are required to meet and confer before filing a demurrer. (CCP § 430.41(a).) The demurring party must file a declaration stating how they met, and that they were unable to reach an agreement. (Id. 3(A).) Here, Defendants provide a Declaration from their lawyer stating that they reached out to Plaintiff. (Liu Decl., ¶ 2.) On January 22, 2025, Defendants’ counsel and Plaintiff’s counsel discussed the demurrer over video conference. (Ibid.) The parties were unable to reach an agreement. (Ibid.)

            The Court finds Defendants have fulfilled their requirement to meet and confer.

B.     Demurrer

Defendants demur to the fifth and sixth causes of action.

Fifth Cause of Action: Fraudulent Inducement

Defendants demur to this cause of action, arguing that it both fails as a matter of law, and fails to allege sufficient facts.

Analysis

In her FAC, Plaintiffs allege that Defendants committed fraud by concealment when they enticed Plaintiffs into purchasing a vehicle without disclosing multiple known defects. (Compl. ¶ 59.)

1)     Fails as a Matter of Law        

Defendants argue this claim fails as a matter of law because it is barred by the economic loss rule. (Demurrer p. 16:13-14.) The economic loss rule prevents “a plaintiff’s tort recovery of economic damages unless such damages are accompanied by some form of physical harm.” ((North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 777.) However, the rule does not apply where the conduct amounting to a breach of contract also violates a duty independent of the contract constituting a tort. (Erlich v. Menezes (1999) 21 Cal. 4th 543, 551.)

Defendants’ argument relies heavily on the recent case of Rattagan v. Uber Technologies, Inc. Defendants argue that, under Rattagan, fraud claims are barred under the economic loss rule. (Rattagan v. Uber Technologies, Inc., (2024) 17 Cal.5th 1, 461.) But as Plaintiffs points out, Rattagan only discusses fraud in the performance of a contract, whereas Plaintiffs allege fraud in the inducement. (Ibid; Compl. ¶ 67.)

The economic loss rule does not prevent claims of fraud in the inducement. In Dhital v. Nissan North America, the 1st District Court of Appeals ruled that “concealment-based claims for fraudulent inducement are not barred by the economic loss rule.” (Dhital v. Nissan North America, (2022) 84 Cal.App.5th 828, 840.) The Dhital court reasoned that, because the concealment is separate from the contract, the economic loss rule did not apply. (Id. at 841.) Similarly, in Lazar v. Superior Court, the Supreme Court held that “fraudulent inducement of contract . . . is not a context where the ‘traditional separation of tort and contract law’ . . . obtains.” (Lazar v. Sup. Ct. (1996) 12 Cal.4th 631, 645.) Thus, under California law, a claim of fraudulent inducement will not be barred by the economic loss rule.

Here, Plaintiffs alleges that Defendants concealed known defects in order to induce Plaintiffs into purchasing a vehicle. (Compl. ¶ 67.) Following Dhital and Lazar, this concealment is independent of the contract itself, and therefore Plaintiffs’ claim is not barred .

2)     Fails to Allege Sufficient Facts

Defendants also argue that Plaintiffs fail to allege facts sufficient to support their claim of fraudulent concealment. (Demurrer p. 10:4-5.)

The elements of fraudulent concealment are (1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Lazar, supra, at 638.)

Generally, fraud must be pled with particularity. (Hills Transportation Co. v. Southwest Forest Ind., Inc. (1968) 266 Cal.App.2d 702, 707.) Plaintiffs’ pleadings must allege facts as to “‘how, when, where, to whom, and by what means the representations were tendered.’” ((Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.) However, in cases claiming fraud through non-disclosure, it’s not practical to allege facts showing how, when and by what means something did not happen. (Alfaro v. Community Housing Improvement System Planning Assn. (2009) 171 Cal.App.4th 1356, 1384.) Instead, A claim of fraud based on nondisclosure may arise, “when one party to a transaction has sole knowledge or access to material facts and knows that such facts are not known to or reasonably discoverable by the other party.” ((Goodman v. Kennedy (1976) 18 Cal.3d 335, 347.)

Here, Plaintiffs sufficiently allege the elements of fraud. First, Plaintiffs allege Ford withheld material facts prior to Plaintiffs’ acquisition of the vehicle. (Compl. ¶ 26). Plaintiffs specifically identify the problem, alleging that the vehicle had a defective transmission that could cause, “hesitation and/or delayed acceleration; harsh and/or hard shifting; jerking, shuddering, and/or juddering.” (Ibid.) Second, Plaintiffs allege that Ford was aware of this issue, as they learned about it through pre-product testing, customer complaints, and repairs. (Id. ¶ 27.) Plaintiffs even reference a 2018 technical service bulletin Ford issued to its dealers and repair shops that specifies the exact issues Plaintiffs’ vehicle suffered from. (Id. ¶ 28.) Third, Plaintiffs allege that Defendants intended to defraud them. (Id. ¶ 66.) Fourth, Plaintiffs allege that their reliance was reasonable. (Id. ¶ 68.) Fifth, Plaintiffs alleged they have suffered damages as a result of their vehicles numerous malfunctions. (Id. ¶ 70.) Finally, Plaintiffs allege that, as the vehicle’s manufacturer, Ford had sole access to the material facts surrounding the transmission defects, and that Plaintiffs could not have discovered those facts themselves. (Id. ¶ 65(a)-(d).)

            Defendants argue that Plaintiffs’ allegations of Ford’s exclusive knowledge are conclusory. (Demurrer p. 13:22-24.) But Plaintiffs make multiple specific allegations about Defendants’ knowledge. They allege that Defendants have received complaints about these same defects since 2018. (Compl. ¶ 65(a).) Plaintiffs also allege that Ford has aggregate warranty data that points to an ongoing transmission problem in this model of vehicle. (Ibid.) Taken as true, these allegations are sufficient to allege exclusive knowledge. Defendants might argue that these allegations are not specific enough, but less specificity is required when, “it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy." (Bradley v. Hartford Acc. & Indem. Co. (1973) 30 Cal.App.3d 818, 825 (overruled on other grounds).) In this case, Defendants are the manufacturer of the disputed vehicle and thus would have full information about what their own customer complaints and warranty data contained. Therefore there is less need for specificity.

Conclusion

For these reasons, the Court OVERRULES Defendants’ demurrer to the fifth cause of action.

Sixth Cause of Action: Negligent Repair

Defendants demur to this cause of action, arguing it both fails as a matter of law, and fails to allege specific facts.

Analysis

            In her FAC, Plaintiffs alleges Defendant Big Valley was negligent when they failed to adequately repair Plaintiffs’ vehicle.

1)     Fails as a Matter of Law

Defendants argue this negligence claim is barred by the economic loss rule. (Demurrer p. 18:11-13.) As explained above, the economic loss rule bars recovering for the same wrongful act in both tort and contract law. (North American Chemical Co., supra.) However, the rule does not apply when there is a duty independent of the contract constituting a tort. (Erlich, supra.)

Here, Plaintiffs claim that defendant Big Valley failed to repair Plaintiffs’ vehicle to conform to warranty.(Compl. ¶¶ 73-77.) This claim arises from, and is not independent of, the warranty contract. We know this, because Plaintiffs specifically allege that, “[t]hese causes of action arise out of the warranty obligations of FORD in connection with a motor vehicle for which FORD issued a written warranty.” (Id. ¶ 14.) This allegation was incorporated into Plaintiffs’ negligence cause of action. (Id. ¶ 73.) At no point do Plaintiffs allege that defendant Big Valley owed them a separate duty. (See generally, Id. ¶¶ 73-77.) Accordingly, this cause of action is not independent of the contract.

            Plaintiffs argue that the economic loss rule only applies to the purchase of goods, not services. (Opp. p. 14:6-9.) However, in the case of Sheen v. Wells Fargo Bank, N.A., the California Supreme Court applied the economic loss rule to a case relating to a service contract for a mortgage. (Sheen, 12 Cal.5th 905, 933.) Thus, the economic loss rule can be applied beyond contracts for the sale of goods.

In this case, Plaintiffs have specifically alleged that their negligence claim arises out of their warranty agreement with defendant Ford Motor Company. (Compl. 14.) This puts the claim  within the scope of the economic loss rule. Therefore, the Court agrees that Plaintiffs’ negligence claim is barred.

2)     Fails to Allege Sufficient Fact

Because this Court has already determined that this cause of action fails as a matter of law, there is no need to address whether it also fails to allege sufficient facts.

Conclusion

            For these reasons, the Court SUSTAINS Defendants’ demurrer to the sixth cause of action with leave to amend.

Conclusion

The Court OVERRULES Defendants’ demurrer to the fifth cause of action.

The Court SUSTAINS Defendants’ demurrer to the sixth causes of action.

The Court grants Plaintiff leave to amend.

DATED:  April 23, 2025                               

________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court