Judge William A. Crowfoot, Case 22AHCV00984 2023-03-20 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00984, Date: 2023-03-20 Tentative Ruling

On November 2, 2022, plaintiffs Alberto Morales and Carolina Altamirano (collectively, “Plaintiffs”) filed this action for violation of the Song-Beverly Consumer Warranty Act and fraudulent concealment against defendant American Honda Motor Co., Inc. (“Defendant”). Plaintiffs’ fraud claim arises from the concealment of material facts at the time they purchased a used 2018 Honda Odyssey (the “Vehicle”). Specifically, Plaintiffs claim that Defendant concealed the existence and nature of a defect with the Vehicle’s transmission (the “Transmission Defect”).

Defendant demurs to Plaintiffs’ cause of action for fraud and moves to strike Plaintiffs’ prayer for punitive damages.

A demurrer tests the legal sufficiency of the pleadings and will be sustained only where the pleading is defective on its face. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law. We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed. [Citation.]” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007; Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 [“the facts alleged in the pleading are deemed to be true, however improbable they may be”].) Allegations are to be liberally construed. (Code Civ. Proc., § 452.) A demurrer may be brought if insufficient facts are stated to support the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e).)

Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., § 435, subd. (b)(1).) 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, subd. (a); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].) The court may also strike all or any part of any pleading not drawn or filed in conformity with California law, a court rule, or an order of the court. (Code Civ. Proc., § 436, subd. (b).) An immaterial or irrelevant allegation is one that is not essential to the statement of a claim or defense; is neither pertinent to nor supported by an otherwise sufficient claim or defense; or a demand for judgment requesting relief not supported by the allegations of the complaint. (Code Civ. Proc., § 431.10, subd. (b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc., § 437.)

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Ibid.)

Plaintiff requests the Court take judicial notice of the second amended complaint filed in Dhital v. Nissan North America, Inc., Alameda County Superior Court Case No. RGC9009260. The request is GRANTED.

Defendant demurs to Plaintiffs’ second cause of action for fraudulent inducement – concealment. The tort of deceit or fraud requires a plaintiff to plead and prove: “(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.)

The Court notes that Plaintiffs do not plead any facts demonstrating the element of reliance or resulting damage arising from any alleged omissions by the repair facilities after the Vehicle was sold. (See Compl., ¶¶ 55-57.) Accordingly, the analysis of Plaintiffs’ fraud claim need only address the omissions allegedly made before the sale, i.e., those inducing Plaintiffs to purchase the vehicle.

When any claim for fraud is based on an omission, one of the following four circumstances must apply in order to establish the defendant’s duty to disclose information to the plaintiff: (1) the defendant is the plaintiff’s fiduciary; (2) the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff; (3) the defendant actively conceals a material fact from the plaintiff; and (4) the defendant makes partial representations that are misleading because some other material fact has not been disclosed. (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.)

Defendant argues that Plaintiffs cannot prove that there was a duty to disclose because a duty to disclose cannot arise between a defendant and the public at large. (Motion, 8:19-23.) In Bigler-Engle v. Breg, Inc. (2017) 7 Cal.App.5th 276, the court of appeal reversed a jury verdict in favor of the plaintiffs on a claim for intentional concealment on the grounds that there was no “transaction” arising from direct dealings between the plaintiff and defendant manufacturer of a medical device. However, there was no evidence in Bigler that the device manufacturer “directly advertised its products to consumers” whereas here, Plaintiffs allege that they relied on statements and marketing materials by Defendant and its authorized agents. (Compl., ¶¶ 52.)

Defendant also argues that it owes no duty to disclose to Plaintiffs because it did not possess “exclusive” knowledge of the Transmission Defect. Defendant argues that the information of about the Transmission Defect was equally available to Plaintiffs because technical service bulletins (“TSBs”) are reported to the National Highway Transportation Safety Association and made public. (Motion, 9:1-16.) Plaintiffs argue in opposition that Defendant had a duty to disclose the Transmission Defect because federal courts have interpreted “exclusive” knowledge of material facts to mean “superior” knowledge, that is, if a car manufacturer is “alleged to have known a lot more about the [defect], including information unavailable to the public.” (Falk v. Gen. Motors Corp. (N.D. Cal. 2007) 496 F.Supp.2d 1088, 1096-97 [courts have not defined "exclusive" literally, but have found the standard met if the defendant had "superior" knowledge of a defect].) On reply, Defendant argues that all TSBs are publicly available on an easily accessible and searchable database.

Plaintiffs have the better argument at this point of the litigation. Whether Plaintiffs possessed actual knowledge or knowledge equivalent to that of Defendant about the Transmission Defect is an issue of proof to be determined at a later stage in the case.

Next, the Court addresses Defendant’s claim that Plaintiffs’ fraud claim is barred by the economic loss rule. The seminal case, Robinson v. Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988 holds that “[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.” In opposition, Plaintiffs argue that tort damages are available in contract cases where a contract was fraudulently induced. Plaintiffs rely heavily on Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 838, in which the Court of Appeal applied the fraudulent inducement exception to allow a fraud claim against a car manufacturer to proceed, explaining that a defendant’s fraudulent inducement is independent of a later breach of the contract or warranty provisions that were agreed to. (Id. at p. 840-841.) On reply, Defendant points out that Dhital is currently pending review by the California Supreme Court and therefore may only be cited for persuasive value. (CRC 8.1115(e)(1).)[1] Defendant also cites to an amicus brief filed by the Chamber of Commerce of the United State of America in Rattagan, in which it was argued that allowing contract disputes to “morph into tort actions with windfall recoveries” will chill commercial activity and “threaten businesses with unlimited liability for every undisclosed idea, statement, or viewpoint that, in hindsight, a plaintiff alleges was material.” (Reply, 2:19-3:24.)

The Court agrees with the Dhital court’s expansion of Robinson. Fraudulent concealment of facts to induce the making of a contract is conduct distinguishable from a subsequent breach of said contract. In Dhital, the court of appeal reasoned that the car manufacturer defendant’s conduct before the sale forms the basis for the plaintiff’s fraud claim while defendant’s conduct after the sale forms the basis for the warranty claim. (Dhital, supra, 84 Cal.App.5th at pp. 841-842.) This Court also looks to the California Supreme Court’s discussion of public policy in Robinson. Allowing Plaintiffs’ fraudulent concealment claim to go forward “advances the public interest in punishing intentional misrepresentations” and “preserves a business climate free of fraud and deceptive practices.” (Robinson, supra, 34 Cal.4th at p. 992 [citing to Diamond Multimedia Systems, Inc. v. Superior Court (1999) 19 Cal.4th 1036, 1064].)

Last, the Court addresses the sufficiency of Plaintiffs’ allegations. Defendant argues that Plaintiffs fail to plead that it concealed or suppressed a material fact about the Transmission Defect. (Demurrer, 6:3-8:8.) This is unpersuasive. Plaintiffs plainly allege that Defendant and its agents “actively concealed the existence and nature of the Transmission Defect”; specifically, “a. any and all known material defects or material nonconformity of the [Vehicle], including defects relating to the transmission; b. that the [Vehicle], including its transmission, was not in good working order, was defective, and was not fit for the intended purposes; and, c. that [Vehicle] and its transmission were defective, despite the fact that [Defendant] learned of such defects through alarming failure rates, [sic] and customer complaints.” (Compl., ¶ 41.) Plaintiffs additionally allege that the Transmission Defect is “caused by [the] use of a 9.8 ratio speed, as opposed to 6, which ideally allows for shorter shifts between gears, and in turn, keeps the engine in a narrow, optimal band of RPMs for as long as possible, thus contributing to greater fuel efficiency.” (Compl., ¶ 12.) Further, Plaintiffs claim that the Transmission Defect causes vehicles to act erratically, including “rough and delayed shifting, loud noises during shifting, harsh engagement of gears, sudden, harsh accelerations and decelerations, and sudden loss of power.” (Compl., ¶ 13.)

The Court is also unpersuaded by Defendant’s claim that Plaintiffs fail to plead with specificity the representations that they relied on in purchasing the vehicle. The rule of specifically pleading how, when, where, to whom and by what means, misrepresentations were communicated is intended to apply to affirmative misrepresentations and not to concealment. (Alfaro v. Community Housing Improvement System & Planning Assn, Inc. (2009) 171 Cal.App.4th 1356 at 1384.) “The requirement of specificity is relaxed when the allegations indicate that ‘the defendant must necessarily possess full information concerning the facts of the controversy.” (Tarmann v. State Farm (1991) 2 Cal.App.4th 153, 58.)

Last, Defendant argues that no representations were made by Defendant because there are no allegations of direct contact with Defendant (as opposed to the dealership). Defendant claims that any representations, misstatements, or omissions by dealers are not attributable to or actionable against it without allegations of agency. However, Plaintiffs allege that they were assisted by a salesperson and that they relied on the statements made during the sales process by Defendant’s agents. (Compl., ¶¶ 51-52.) Plaintiffs also allege they relied upon marketing materials, television commercials, and radio commercials that Defendant issued. (Compl., ¶ 52.) While Plaintiffs bear the burden to prove any agency relationship, the allegations pleaded in the Complaint are sufficient for purposes of pleading at this stage of the litigation.

Defendant moves to strike Plaintiff’s prayer for punitive damages on the grounds that Plaintiffs fail to plead facts with requisite specificity to support a punitive damages claim.

Punitive damages are allowed in non-contract cases when a defendant is guilty of “oppression, fraud, or malice . . . .” (Civ. Code § 3294.) Here, because Plaintiffs have alleged a viable fraud claim, they have pleaded fraud for the purposes of entitlement to punitive damages under Civil Code § 3294.

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT27@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.

William A. Crowfoot

Judge of the Superior Court

[1] Defendant argues that this Court should not follow Dhital and points out that briefing in Dhital is deferred until a determination in Rattagan v. Uber Technologies, in which the Ninth Circuit concluded that it was an open question whether claims for fraudulent concealment are exempted from the economic loss rule and certified that question to the California Supreme Court.