Judge Thomas D. Long, Case 21STCV36605 2022-07-29 Tentative Ruling

On May 3, 2022, Plaintiffs Ani Melkonyan and Hayk Melkonyan filed a first amended complaint (“FAC”) against Defendant General Motors LLC arising from Plaintiffs’ lease of an allegedly defective vehicle. On June 8, 2022, Defendant filed a demurrer and motion to strike.

Defendant argues this cause of action is not pleaded with the required specificity. (Demurrer at p. 8.) Fraud based on concealment requires that “(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.” (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 310-311.) An essential element of intentional concealment includes the duty to disclose, which must be based upon a transaction, or a special relationship, between plaintiff and defendant. (Id. at p. 314.) “There are ‘four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.’” (Id. at p. 311.)

Less specificity is required to plead fraud by concealment. (Ibid.) “Even under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1256, 1384.)

Plaintiffs allege Defendant knew since at least 2016 that the lithium-ion battery had defects that could result in various particular problems, which could cause overheating, losses of propulsion power while driving, catastrophic fire, no crank, reduced range, thermal runaway, and/or spontaneous combustion. (FAC ¶¶ 36-39.) These defects could expose Plaintiffs, their passengers, and others on the road to a serious risk of accident and injury. (Id. at ¶ 36.) Plaintiffs did not know about these defects and problems, and Defendant did not disclose the defects when Plaintiffs leased the vehicle. (Id. at ¶¶ 38-39.) The allegations are specific enough to allege the information that was concealed, and the danger posed. (See Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1199-1200.)

Defendant also argues this cause of action is barred by the economic loss rule. (Demurrer at p. 10.) Under the economic loss rule, “[w]here a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only ‘economic’ losses.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988 (Robinson Helicopter), quotation marks omitted.) sHowever, tort damages may be permitted when the breach of contract is accompanied by a tort such as fraud. (Id. at pp. 989-990.) To plead around the economic loss rule, a party must plead the existence of a duty that arises independent of any contractual duty and independent injury, other than economic loss, that arises from the breach of that duty. (Id. at pp. 988-991.)

In Robinson Helicopter, the defendant provided components to the plaintiff for more than ten years under a contract requiring certain specifications. Over the years, the defendant changed its manufacturing process without telling the plaintiff and provided components that did not meet the plaintiff’s specifications, but the defendant continued to certify that the products in fact did comply with the specifications. These components failed at a high rate, causing the plaintiff to have to recall and replace parts, thereby incurring over $1.5 million in costs. (Robinson Helicopter, supra, 34 Cal.4th at pp. 986-987.) The court held that the defendant had made false misrepresentations in the certifications, which the plaintiff relied upon for years in accepting and using the defective parts, causing the plaintiff to incur the over $1.5 million in recalling and replacing parts. (Id. at pp. 990-991.) Nothing in the case supports the conclusion that if the plaintiff had incurred no costs, the unrealized risk of a potential accident would have been sufficient alone to support a fraud cause of action.

Here, Plaintiffs did not allege with specificity any damages caused by the alleged fraud that are distinct from the warranty damages. Unlike in Robinson Helicopter, Plaintiffs did not allege they incurred costs engaging in a recall effort. Instead, they allege they would not have leased the vehicle they did if they had known it was defective. (FAC ¶ 42.) This is conclusory and is no different than the economic damages covered by the warranty. This allegation merely states that Plaintiffs had “disappointed expectations” in the vehicle that did not work properly, which is exactly the type of damages that “[t]he economic loss rule requires a purchaser to recover in contract.” (Robinson Helicopter, supra, 34 Cal.4th at p. 988.) In sum, Plaintiffs have not alleged “harm above and beyond a broken contractual promise.” (Ibid.)

Additionally, in Robinson, the defendant had “unquestionably made affirmative representations that [the plaintiff] justifiably relied on to its detriment.” (Id. at p. 990.) The case expressly did “not address the issue of whether [the defendant’s] intentional concealment constitutes an independent tort.” (Id. at p. 991.) Rather, the holding was “narrow in scope and limited to a defendant’s affirmative misrepresentation on which a plaintiff relies, and which exposes a plaintiff to liability for personal damages independent of the plaintiff’s economic loss.” (Id. at p. 993.) Here, there are no allegations of an affirmative representation or personal damages independent of the plaintiff’s economic loss. Plaintiffs allege only economic damages, including consequential and incidental damages (FAC ¶ 44), which Plaintiffs may recover under the Song-Beverly Act. (Civ. Code, §§ 1793.2, subd. (d)(2)(B), 1794, subd. (b); Com. Code, §§ 2714, 2715; Kirzhner v. Mercedes-Benz USA, LLC (2020) 9 Cal.5th 966, 982.)

Because this case does not fall within the exception to the economic loss rule identified in Robinson, the demurrer to the sixth cause of action is sustained.

In the alternative, Plaintiffs request that any order sustaining the demurrer be without prejudice pending the California Supreme Court’s disposition in Rattagan v. Uber Technologies, Case No. S272113. (Opposition at p. 7.) On December 6, 2021, the United States Court of Appeals for the Ninth Circuit certified a question to the California Supreme Court: “Under California law, are claims for fraudulent concealment exempted from the economic loss rule?” The Supreme Court granted the request for certification on February 9, 2022. The answer brief has not yet been filed, and there is no public timeline of when the Supreme Court will issue an answer to the question. If the Supreme Court does hold that claims for fraudulent concealment are exempted from the economic loss rule, Plaintiffs may seek leave to amend to re-plead this cause of action.

The court may, upon a motion or at any time in its discretion: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc., § 436, subds. (a)-(b).)

Defendant moves to strike Plaintiffs’ prayer for punitive damages on the grounds that Plaintiffs cannot receive both a civil penalty under the Song-Beverly Act and punitive damages for the first five causes of action. A plaintiff is not entitled to recover both punitive damages and civil penalties under Song-Beverly. (Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 228.) Plaintiffs cite three federal district court decisions. (Opposition at p. 5.) The courts in Brilliant v. Tiffin Motor Homes, Inc. (N.D. Cal., July 7, 2010, No. C 09-04568 SI) 2010 WL 2721531 and Clark v. LG Electronics U.S.A., Inc. (S.D. Cal., Oct. 29, 2013, No. 13-CV-485 JM JMA) 2013 WL 5816410 cited Romo v. FFG Ins. Co. (C.D. Cal. 2005) 397 F.Supp.2d 1237, for the assertion that the Song-Beverly Act provides for punitive damages. In Romo, the district court stated, “California law . . . does provide for civil penalties that are akin to punitive damages under the Song-Beverly Act.” (Romo, supra, 397 F.Supp.2d at pp. 1241-1242.) The district court recognized that “these civil penalties are not punitive damages per se.” (Id. at p. 1240.) The unpublished decisions in Brilliant and Clark are therefore incorrect in citing Romo for the legal proposition that the Song-Beverly Act provides for punitive damages in addition to civil penalties. While the recent case Anderson v. Ford Motor Co. (2022) 74 Cal.App.5th 946, 964-973 holds that punitive damages may be available under other causes of action based on different conduct, it does not hold that punitive damages are available for violations of the Song-Beverly Act.

The remaining basis for Plaintiffs’ prayer for punitive damages is the sixth cause of action for fraud by omission, to which the Court sustains the demurrer.

The demurrer is SUSTAINED. The motion to strike is GRANTED. Because Plaintiffs did not show how they could amend to remedy the deficiencies, no leave to amend is granted at this time, without prejudice to a future motion for leave to amend.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court