Judge Upinder S. Kalra, Case 21STCV28907 2023-05-15 Tentative Ruling

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1. Demurrer as to the 3^rd cause of action is SUSTAINED, without leave to amend.[1]

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.

On September 20, 2022, Defendant filed a Demurrer with Motion to Strike, which was OVERRULED, in part, and SUSTAINED, with leave to amend in part. The Motion to Strike was DENIED.

The current Demurrer with Motion to Strike was filed on February 28, 2023. Plaintiffs’ Opposition was filed on May 2, 2023. Defendant’s Reply was filed on May 8, 2023.

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.)

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.)

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 February 23, 2022. However, the parties were unable to resolve the issues raised in the Demurrer and Motion to Strike.

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, and are barred by the economic loss rule. Additionally, Defendant moves to strike Plaintiffs’ prayer for punitive damages.[2] Therefore, because this Court previously determined that the 4^th cause of action was sufficiently pleaded, the economic loss rule did not bar the current causes of action, and determined that punitive damages were sufficiently alleged because of the fraud cause of action, the Court will determine the merits as to the third cause of action.

“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).

Defendant argues that the third cause of action fails for various main reasons. First, any knowledge that Hyundai Motor Company had concerning the GDI engines is not imputed to Defendant. (Demurrer 3: 14-18.) Second, Defendant argues that the SAC does not provide factual support regarding the engine defect and that Defendant knew of vehicles fires in 2015 or 2009. (Id. at 5: 5-7.) Third, Defendant improperly alleges that Defendant had knowledge of the engine defects but provides no supporting facts. (Id. 5: 16-18.) Fourth, Plaintiffs did not allege that Defendant had a duty of disclosure, especially since there was no direction transaction between Plaintiffs and Defendant as it was leased from Car Pros Kia. (Id. 7: 9-10.) Lastly, Defendant argues that Plaintiff did not plead affirmative representations, as Plaintiffs did not properly allege when they reviewed marketing brochures.

Plaintiffs argue that the third cause of action is sufficiently pleaded. First, the SAC sufficiently alleges that Defendant knew of the engine defect since 2015 based on records of consumer complaints, dealership repair records, internal pre-sale durability testing, TSBs and recalls, and other information not available to the consumer. (SAC ¶¶ 20-62.) As to concealment, Plaintiffs argue that the SAC states that Defendant suppressed a material fact (SAC ¶¶ 47-53, 127-134, Defendant had a duty to disclose (SAC ¶¶ 84-88, Defendant intentionally concealed the fact (SAC ¶¶ 40, 145), Plaintiffs were unaware of the fact and would not have acted if they had (SAC ¶¶ 65-68, 144), and Plaintiffs were damaged (SAC ¶¶ 156-157.) (Opp. 5: 23-28.)

After a review of the SAC, the Court finds that Plaintiffs have failed to amend the complaint to sufficiently allege a cause of action for concealment. Comparing the FAC and the SAC, the only paragraphs that are different are Nos. 145-150. In these seven paragraphs, Plaintiffs state that Hyundai Motor Group is the largest member of the Hyundai Motor Company. Kia Motors Corporation is a subsidiary of Hyundai Motor Group, and the parent company of Kia Motors America, Inc. (SAC ¶¶ 144-147.) Additionally, it states that the GDI type engines “were developed through a shared effort of the Hyundai Motor Group between HMC and KMC” and Kia America was “involved in the design and manufacture of the GDI engine equipped Plaintiffs’ 2016 Kia Optima, and therefore had knowledge of the problems…” (SAC ¶¶ 149-150.) This is still insufficient to allege knowledge on Defendant’s part. These statements are conclusory allegations, simply that they were developed between KMC and HMC (the parent companies) and that Kia was involved in the design. No other facts are provided. Thus, the SAC still fails to allege a cause of action for fraudulent inducement – concealment.

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.) Plaintiffs have been given multiple chances to allege sufficient facts that would indicate Defendant had knowledge sufficient for a cause of action for fraudulent inducement – concealment. Yet, Plaintiffs have failed to do so each time. Therefore, because Plaintiffs have been provided multiple times and have yet to fix the defects, leave to amend is denied.

[1] The Court provides below why this ruling is as to the 3^rd cause of action only.

[2] Previously, on January 25, 2023, this Court sustained Defendant’s demurrer as to the 3rd cause of action – Fraudulent Concealment, and overruled the demurrer as to the 4th cause of action – intentional misrepresentation. Additionally, the Court found that the economic loss rule does not bar the current causes of action and denied the motion to strike punitive damages as the fraud cause of action (4^th cause of action) was sufficiently pleaded.