Judge: Upinder S. Kalra, Case: 21STCV28907, Date: 2023-01-05 Tentative Ruling

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Case Number: 21STCV28907    Hearing Date: January 5, 2023    Dept: 51

Tentative Ruling

Judge Upinder S. Kalra, Department 51

HEARING DATE:   January 5, 2023                                              

CASE NAME:           Cree Powell, et al. v. Kia Motors America, Inc.

CASE NO.:                21STCV28907

DEMURRER WITH MOTION TO STRIKE

MOVING PARTY: Defendant Kia Motors America, Inc.

RESPONDING PARTY(S): Plaintiffs Cree Powell and Tamara Lanett Johnson

REQUESTED RELIEF:

1.      An order sustaining the demurrer as to the 3^rd and 4^th causes of action

2.      An order striking portions of the FAC requesting punitive damages.

TENTATIVE RULING:

1.      Demurrer as to the 3^rd cause of action is SUSTAINED, with leave to amend

2.      Demurrer as to the 4^th cause of action is OVERRULED

3.      Motion to Strike is DENIED.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

On August 5, 2021, Plaintiffs Cree Powell and Tamara Lanett Johnson (“Plaintiffs”) filed a complaint against Defendant Kia Motor America, Inc. (“Defendant”). The complaint alleged four causes of action based on violations of Song-Beverly and fraud. The complaint alleges that Plaintiffs purchased the Subject Vehicle, which contained warranties. Defendant manufactured the Subject Vehicle; however, the Subject Vehicle contained defects that were unable to be repaired properly. Plaintiff also alleges that the engine defect was known to Defendant and Defendant actively concealed this defect.

Defendant filed a Demurrer with a Motion to Strike on September 8, 2021, which was SUSTAINED with leave to amend.

On February 8, 2022, the Court issued a Minute Order, granting leave to amend within 20 days.

Defendant filed an Answer on April 13, 2022.

The First Amended Complaint was filed on August 19, 2022.

The current Demurrer with Motion to Strike was filed on September 20, 2022. Plaintiffs’ Opposition was filed on December 21, 2022. Defendant filed a Reply on December 28, 2022.

LEGAL STANDARD

Demurrer

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. …. The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn 147 Cal.App.4th at 747.)

Motion to Strike

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436(a).) The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Id., § 436(b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id. § 437.) “When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.” (Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768.)

Meet and Confer:

Prior to filing a demurrer, the demurring party is required to satisfy their meet and confer obligations pursuant to Code of Civ. Proc. §430.41, and demonstrate that they so satisfied their meet and confer obligation by submitting a declaration pursuant to Code of Civ. Proc. §430.41(a)(2) & (3). The Declaration of Khachatur Ourkhan indicates that the parties met and confer via letter, sent through email, on September 15, 2022. However, counsel indicates that Plaintiffs’ counsel did not respond to this letter.

ANALYSIS:

Defendant Kia America, Inc., demurs on the grounds that the third and court causes of action fail to allege sufficient facts to constitute causes of action, the causes of action are uncertain, are barred by the 3-year statute of limitations, and are barred by the economic loss rule.

1.      Fraudulent Inducement – Concealment

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

“Suppression of a material fact is actionable when there is a duty of disclosure, which may arise from a relationship between the parties, such as a buyer-seller relationship. Fraud, including concealment, must be pleaded with specificity.” (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828.)

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice…this particularity requirements necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tenders.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “[W]hen averments of fraud are made, the circumstances constituting the alleged fraud must be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003) (internal quotations and citations omitted). The allegations “must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” (Arikat v. JP Morgan Chase & Co. (N.D. Cal. 2006) 430 F.Supp.2d 1013, 1022).

Defendants argue that the third cause of action fails for three main reasons. One, any knowledge that Hyundai Motor Company had concerning the GDI engines is not imputed to Defendant. (Demurrer 3: 22-28.) Second, the FAC does not allege that Defendant had knowledge of the allege defect, specifically that the defect could cause a fire. (Id. at 4: 13-22.) Third, the FAC does not plead affirmative representations with the require specificity, pleading facts about unidentified agents but no actual statements or how this person at the unidentified dealership was “directed to act by KA, a separate corporate entity.” (Id. at 5: 10-18.)

Plaintiffs argue that the FAC properly alleges that Defendant had knowledge of the Theta II engine defect in the Kai Optima. Specifically, because Defendant was the manufacturer, it knew, or should have known, that this type of GDI engine had defects. Defendant had exclusive knowledge of “non-public information, which included “pre-release reviews and testing, and early (and foreign) consumer complaints and repairs as early as 2015. (Opp. 9: 6-10, FAC ¶¶ 20-62.) Plaintiffs also argues that the FAC sufficiently pleads concealment. The FAC states that Defendants knew of the engine defect through consumer complaints, but continued to suppress the information. (FAC ¶ 47-53.)

The Court finds that the FAC is insufficient as to concealment allegations. Previously, this Court determined that the concealment cause of action failed because the allegations of knowledge were unclear. The complaint did not explain “why Kia should be imputed with Hyundai’s knowledge in 2015 and 2017.” While Hyundai issued recalls in 2015 of GDI engines in Hyundai vehicles, the complaint fails to allege that Kia was aware of these recalls or that they specifically involved the same Theta II engine in the subject vehicle. Stated otherwise, the FAC fails to indicate how Kia knew of the engine defects when it sold the car in 2016, when the FAC first states that Kia issued a recall in 2017. (FAC 38.) Moreover, as of December 2017, Kia Motors Corporation is a subsidiary member of Hyundai Motor Group, Hyundai Motor Company is the Kia Motors Corporation’s largest shareholder, and Kia Motors Corporation is a minority owner of more than twenty Hyundai subsidiaries. (FAC ¶ 6.) The FAC states that Hyundai Motor Group utilized these GDI engines in 2009, 2010, 2012, 2013. However, there are no facts, only conclusory allegations, that indicate Kia had knowledge of these defects. The FAC states “because of its longstanding involvement in the design and manufacture of Hyundai Motor Group (KMC and HMC) GDI type engines, Defendant was aware of feasible means and technology…” (FAC ¶ 32.) This is insufficient for a fraudulent cause of action as to Defendant Kia.

Demurrer as to the Third Cause of Action is SUSTAINED.

2.      Fraudulent Inducement – Intentional Misrepresentation

Defendant argues that Plaintiff has failed to allege specific facts that would constitute factual misrepresentations. The allegations contained in the FAC about the GDI engine are descriptions of the injection system and are “non-factual representations.” (Demurrer 10: 3-8.) The FAC does not contain specific language or statements, or how these alleged statements caused harm alleged. (Id. at 10-12.)

Plaintiffs argue that the FAC sufficiently alleges misrepresentations. Specifically, there were brochures distributed about the engine’s performance, with the promise of “deliver[ing] inspiring performance and an ideal balance of strong acceleration and efficiency.” (FAC ¶ 161, 163.) Moreover, Plaintiffs relied on the marketing issued by Defendant and were “essential to Plaintiffs’ decision to lease the Subject Vehicle.” (Opp. 15: 7-10.)

As stated above, fraud requires specificity. “In California, fraud must be pled specifically; general and conclusory allegations do not suffice…this particularity requirements necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tenders.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “[W]hen averments of fraud are made, the circumstances constituting the alleged fraud must be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003) (internal quotations and citations omitted). The allegations “must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” (Arikat v. JP Morgan Chase & Co. (N.D. Cal. 2006) 430 F.Supp.2d 1013, 1022).

Here, the FAC sufficiently alleges a cause of action for fraudulent inducement via misrepresentation. “When a statement, although in the form of an opinion, is ‘not a casual expression of belief’ but ‘a deliberate affirmation of the matters stated,’ it may be regarded as a positive assertion of fact…Moreover, when a party possesses or holds itself out as possessing superior knowledge or special information or expertise regarding the subject matter and a plaintiff is so situated that it may reasonably rely on such supposed knowledge, information, or expertise, the defendant's representation may be treated as one of material fact.” (Public Employees' Retirement System v. Moody's Investors Service, Inc. (2014) 226 Cal.App.4th 643, 662.) Here, the FAC indicates that on September 4, 2016, a salesperson from Car Pros Kia informed Plaintiffs, via a brochure for the 2016 Kia Optima, that the engine would deliver “inspiring performance.” (FAC 13, 64-66, 160-163.) Thus, the FAC contains sufficient information, specific enough to allow Defendant to “give defendants notice of the particular misconduct.” (Vess, supra, 317 F.3d at 1106.)

Demurrer as to the Fourth Cause of Action is OVERRULED.

3.      Statute of Limitations:

Defendant argues that under CCP § 338(d), there is a three-year statute of limitation to bring claims based on fraud, both concealment and intentional misrepresentation. While the FAC states that October 2019 service date, for engine-related problems, was the earliest that Plaintiff had notice of any sort of defect, Defendants argue that the Vehicle was presented starting back in September 2016, and in June 2017, and twice in March 2018. (Demurrer 12: 11-16; FAC ¶ 69-72, 74.) Additionally, while the FAC claims that the statute is tolled under the American Pipe doctrine, Defendants argue that Plaintiffs “cannot use a class action filed in another jurisdiction to toll their causes of action.”

Plaintiffs argue that even though the Subject Vehicle was brought in for fixing, they believed and were told that the vehicle could be repaired. It was only until October 2019[1] that Plaintiffs were made aware that the vehicle’s engine was unable to be repaired. (Opp. 7: 8-14.) Additionally, Plaintiffs argue that under San Francisco Unified School Dist. V. W.R. Grace & Co, when a class action was filed in federal court, the statute of limitations was tolled in the California case. (San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1340.)  

            As stated previously, this Court determined that the statute of limitations issue was that of fact, which could not be determined at this time. Moreover, taking the facts as true in the complaint, Plaintiffs did not discover the defect until October 2019, as Plaintiffs were told repeatedly that the car was repairable. However, it was not until October 2019 that Plaintiffs became aware that the defects were unable to be repaired. Thus, with the matter being filed in 2021, the statute of limitations does not bar the current matter. Even still, as stated, the issue of whether the matter is time barred is one of fact, which is not appropriate for a demurrer.

            The claims based on fraud are not barred under the statute of limitations. 

4.      Economic Loss Rule

Lastly, Defendant once again argues that the fraud claims are barred under the economic loss rule. Even if it were to apply, Plaintiffs did not allege any damage other than contractual damages, only alleging that Plaintiffs were “harmed by Defendant’s concealment of the Engine Defect because Plaintiffs were induced to enter into the sale of a vehicle that Plaintiff would not have other wise purchase” (FAC ¶ 156) and similar assertions at paragraph 166 for the fraudulent intentional misrepresentation cause of action.

Plaintiffs argue that under Song-Beverly, fraudulent inducement is always a separate wrong as they occur at different points in time, “and the existence of one does not ensure the other.” (Opp. 15: 23-28.)

Additionally, the economic loss rule does not bar the current causes of action. Despite the economic loss rule, “tort 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. In each of these cases, 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.” (Robinson Helicopter Co., Inc. v Dana Corp. (2004) 34 Cal.4th 979, 989-990.)

      Thus, tort damages are permitted in contract cases where the contract has been fraudulently induced. Here, the Plaintiff has sufficiently alleged fraudulent inducement via intentional misrepresentations. Therefore, the economic loss rule does not apply.

Economic Loss Rule DOES NOT BAR the current causes of action.

Motion to Strike:

Defendant moves to strike the punitive damages prayer for relief, page 27, line 8, of the FAC. Defendant argues that the fraud causes of action are not pleaded sufficiently and therefore cannot support a recovery of punitive damages.

To obtain punitive damages, a plaintiff must plead sufficient facts in support of punitive damages.  (See Hilliard v. A.H. Robins Co. (1983) 148 Cal.App.3d 374, 391-92.)  In addition, punitive damages are allowed only where “it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.”  (Civ. Code, § 3294, subd. (a).)  Fraud is “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(c)(3).)

As the Court found above, the fourth cause of action for fraud is sufficiently pleaded. Thus, the Plaintiffs have sufficiently alleged fraud.

Therefore, the Motion to Strike is DENIED.

Leave to Amend:

Leave to amend should be liberally granted if there is a reasonable possibility an amendment could cure the defect.  (County of Santa Clara v. Superior Court (2022) 77 Cal.App.5th 1018,1035.)  The Plaintiff has the burden of demonstrating that leave to amend should be granted, and that the defects can be cured by amendment. (“Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.” Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) It is likely that Plaintiffs are able to amend the FAC to allege more specific facts rather than conclusory allegations.

CONCLUSION:

For the foregoing reasons, the Court decides the pending motion as follows:

            Demurrer as to the 3^rd cause of action is SUSTAINED, with 20 days leave to amend.

            Demurrer as to the 4^th cause of action is OVERRULED.

            Motion to Strike is DENIED.

Moving party is to give notice.

IT IS SO ORDERED.

Dated:             January 5, 2023                       __________________________________                                                                                                                Upinder S. Kalra

                                                                                    Judge of the Superior Court