Judge: Yolanda Orozco, Case: 22STCV11836, Date: 2023-05-02 Tentative Ruling
Case Number: 22STCV11836 Hearing Date: May 2, 2023 Dept: 31
PROCEEDINGS: DEMURRER
TO FAC WITH MOTION TO STRIKE PUNITIVE DAMAGES
MOVING PARTY: Defendant
General Motors LLC (“GM”)
RESP. PARTY: Plaintiffs
VardaN and Anush Markosyan
DEMURRER
TO FAC WITH MOTION TO STRIKE PUNITIVE DAMAGES
TENTATIVE RULING
Defendant General Motors LLC’s (“GM”) Demurrer to the Plaintiffs’
First
Amended Complaint as to the fifth cause of action is OVERRULED.
GM’s Motion to strike punitive damages is also DENIED.
Background
On
April 07, 2022, Plaintiffs Vardan Markosyan and Anush Markosyan filed a lemon
law action against Defendant General Motors LLC (“GM”) and Does 1 to 10.
The operative First
Amended Complaint (FAC) alleges causes of action for:
1) Violation
of Civil Code sections 1793.2(d) under the Song-Beverly Act;
2) Violation
of Civil Code sections 1793.2(b) under the Song-Beverly Act;
3) Violation
of Civil Code sections 1793.2(a)(3) under the Song-Beverly Act;
4) Breach
of the Implied Warranty of Merchantability in violation of the Song-Beverly
Act; and
5) Fraudulent
Incumbent – Concealment.
On October 27, 2022,
Defendant GM filed a Motion to Strike Plaintiff’s claims for punitive damages.
On March 22, 2023,
Defendant GM filed a Demurrer to Plaintiff’s FAC as to the fifth cause of
action.
On March 16, 2023,
Plaintiff filed opposing papers to the GM’s demurrer and motion to strike.
On March 22, 2023, GM
filed a reply.
MEET AND CONFER
Before filing a demurrer or motion to strike, the moving party
must meet and confer in person or by telephone with the party who filed the
pleading to attempt to reach an agreement that would resolve the objections to
the pleading. (Code Civ. Proc., §§ 430.41, 435.5.) “Any determination by the
court that the meet and confer process was insufficient shall not be grounds to
overrule or sustain a demurrer.” (Code Civ. Proc., § 430.41, subd.
(a)(4).)
The met and confer requirement has been met. (Yaraghchian
Decl. ¶ 2.)
Legal Standard
A. Demurrer¿¿¿
¿¿
A demurrer can be used only to challenge defects that
appear on the face of the pleading under attack or from matters outside the
pleading that are judicially noticeable.¿ (Blank v. Kirwan (1985) 39
Cal.3d 311, 318.)¿ “To survive a demurrer, the complaint need only allege facts
sufficient to state a cause of action; each evidentiary fact that might
eventually form part of the plaintiff’s proof need not be alleged.”¿ (C.A.
v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861,
872.)¿ For the purpose of testing the sufficiency of the cause of action, the
demurrer admits the truth of all material facts properly pleaded.¿ (Aubry v.
Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.)¿ A demurrer
“does not admit contentions, deductions or conclusions of fact or law.”¿ (Daar
v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿¿
¿
B. Motion to Strike¿¿
¿
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 of Civ. Proc., § 435(b)(1); Cal. Rules of Court (CRC), Rule 3.1322(b).)
The court may, upon a motion or at any time in its discretion and upon terms it
deems proper: (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 of Civ. Proc., § 436, subds. (a)-(b); 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”].)¿¿¿
¿¿
C. Leave to Amend¿¿¿
¿¿
“Where the defect raised by a motion to strike or by demurrer
is reasonably capable of cure, leave to amend is routinely and liberally
granted to give the plaintiff a chance to cure the defect in question.” (CLD
Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146.)
The burden is on the complainant to show the Court that a pleading can be
amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿¿
Discussion
A. Allegations
in FAC
The FAC states on or about November 07, 2018, the Plaintiffs
entered into a warranty contract with Defendant GM regarding the subject
vehicle, a 2018 Chevrolet Bolt EV. (FAC ¶ 6, Ex. 1.) The FAC asserts that GM
was the manufacturer and distributor of the subject vehicle. (Id.)
Prior to leasing the subject vehicle, Plaintiff saw an ad
for the Chevy Bolt, reviewed the features, components, and specifications of
the Chevy Bolt on GM’s website, and saw a billboard advertising a Chevy Bolt.
(FAC ¶ 8.) Plaintiffs also saw a brochure for a Chevy Boalt and reviewed the
Monroney Label window-sticker affixed to the subject vehicle. (Id., Ex.
2.) None of these materials provided written disclosures regarding a battery
defect in the subject vehicle. (Id.) Prior to leasing the subject
vehicle, Plaintiffs also interacted with dealership employees who discussed
with Plaintiff the features of the Chevy Bolt, its range, and reliability. (FAC
¶ 9.) GM omitted mention of the battery defect in its sales, marketing
campaigns, and advertisements for the Chevy Bolt. (FAC ¶ 35.) Plaintiffs
considered GM’s advertising and/or marketing materials prior to leasing the
subject vehicle and would not have leased it had they been aware of the battery
defect. (FAC ¶ 36.)
Plaintiffs allege that during the warranty period defects
and nonconformities manifested that substantially impaired the use, value, or
safety of the subject vehicle, including but not limited to the battery and
electrical system. (FAC ¶¶ 13, 14, 15.) The FAC asserts GM failed to promptly
replace the subject vehicle or make restitution in accordance with the
Song-Beverly Act. (FAC ¶ 16.)
Plaintiffs assert that prior Plaintiffs’ lease of the
subject vehicle, GM knew that model year 2017 or new Chevy Bolt models,
including the subject vehicle, contained one or more battery design and/or
manufacturing defects that causes the high voltage battery to overheat when
charged at full, or nearly full, capacity that results in overheating, loss of
propulsion power while driving, catastrophic fire, no crank, reduced range,
thermal runaway, and/or spontaneous combustion. (FAC ¶ 23.) The risk of the
battery catching fire or exploding could result in catastrophic damage to the
vehicle and surrounding property or persons presenting a serious safety hazard
and making the vehicle unreasonably dangerous. (FAC ¶¶ 24, 25.) Plaintiffs’
repair history for the subject vehicle shows that Plaintiffs experienced
symptoms with the battery defect. (FAC ¶ 24.)
The FAC asserts that GM was aware of the battery defect by
2016 and that the lithium-ion battery installed on the subject vehicle was
defective but failed to disclose this fact to Plaintiffs at the time of sale
and thereafter, making it difficult for Plaintiffs to discover Defendant’s
wrongdoing until the latent defect arose and Defendant could not repair it.
(FAC ¶¶ 26, 29.) GM and its dealership failed to disclose the battery defect
prior to purchase and during successive repair visits despite issues with the
battery defect persisting. (Id. ¶ 26) FAC states that GM actively
concealed the existence and nature of the battery defect from Plaintiffs prior
to their lease of the subject vehicle and persisted in concealing the defect
and GM’s inability to fix or repair the battery defect after the lease. (FAC ¶
33.) “GM also concealed the existence, nature, extent, and scope of the Defect
with ineffective repair procedures published directly to its dealerships and
not consumers, such as Plaintiffs.” (FAC ¶ 35.)
The FAC alleges that GM acquired knowledge of the battery
defect by 2016 through sources not available to consumers, including
pre-production and post-production testing data, early consumer complaints
about the battery defect made to GM and its dealers, aggregate warranty data
complied by GM’s dealers, testing conducted by GM in response to complaints,
warranty repair and part replacement data received by GM from GM’s dealers and
other internal sources of information. (FAC ¶ 30.) This includes communications
with the National Highway Traffic Safety Administration (“NHTSA”) relating to
the battery components in the Chevy Bolt. (FAC
31.)
On November 13, 2020, GM issued NHTSA Recall No. 20V-701/GM
Recall No. N202311730, as an interim remedy whereby dealers programmed the
hybrid propulsion control module2 (HPCM2) to limit full charge of the battery
to 90% but this fix did not resolve the battery defect that led to fire or
explosion of the battery. (FAC ¶ 38.) Consumers were left with vehicles that
had less range than was advertised by GM. (Id.)
On July 14, 2021, after the recalls/software, GM knew its
vehicle was dangerous and instructed owners and lessees of Chevy vehicles to
“park their vehicles outside away from homes and other structures immediately
after charging and…not leave their vehicles charging overnight.” (FAC ¶ 39.)
Thus, Chevy Bolt vehicles continued to be dangerous and remained unsafe. (Id.)
GM failed to repair the subject vehicle after a reasonable number of attempts, and
released a recall which was updated multiple times, but the measures were
insufficient to repair the battery defect. (FAC ¶ 40.) In addition to the harm
caused by the purchase of the subject vehicle, “Plaintiffs unknowingly exposed
themselves to the risk of liability, accident, and injury as a result of
Defendant GM’s fraudulent concealment of the Battery Defect.” (FAC ¶ 95.)
Following numerous unsuccessful attempts to repair the
subject vehicle, and the symptoms, issues, or problems associated with the
battery, Plaintiffs discovered GM’s wrongful conduct and filed this action.
(FAC ¶ 41.)
B. Demurrer
to Fifth Cause of Action: Fraudulent Inducement-Concealment
Defendant General Motors LLC (“GM”) demurs to the fifth
cause of action on the basis that it fails to state facts sufficient to
establish fraud, is barred by the economic loss rule, and is barred by the statute
of limitations.
i.
Failure to Plead Fraud with
Specificity
“In California, fraud must be pled specifically; general
and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996)
12 Cal.4th 631, 645.) “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.” (Id. at 638.)
“The requirement of specificity in a fraud action against a
corporation requires the plaintiff to allege the names of the persons who made
the allegedly fraudulent representations, their authority to speak, to whom
they spoke, what they said or wrote, and when it was said or written.” (Tarmann
v. State Farm Mut. Auto. Ins. Co.¿(1991) 2 Cal.App.4th 153, 157.) “We acknowledge
that the requirement of specificity is relaxed when the allegations indicate
that ‘the defendant must necessarily possess full information concerning the
facts of the controversy’ [Citation] or ‘when the facts lie more in the
knowledge of the opposite party[.]’ [Citation.]” (Id. at 158.)
Defendant GM asserts that the fifth cause of action is
deficient because Plaintiffs failed to identify who, what, where, when, and how
GM concealed facts from them or that they interacted with GM prior to their
purchase of the subject vehicle.
Here, Plaintiffs sufficiently alleged that GM knew by 2016,
though information not available to consumers, of the battery defect and had
superior knowledge of the battery defect. (FAC ¶ 30.) Moreover, the specificity requirement is harder to meet when
the fraud cause of action is based on nondisclosure. (See Alfaro v.
Community Housing Improvement System & Planning Assn., Inc.¿(2009) 171
Cal.App.4th 1356, 1384 [“How does one show ‘how’ and ‘by what means' something
didn't happen, or ‘when’ it never happened, or ‘where’ it never happened?”].)
“One of the purposes of the specificity requirement is ‘notice to the
defendant, to furnish the defendant with certain definite charges which can be
intelligently met.’ (Citation.)” (Id. at 1384 [internal quotations
omitted].) “Also ‘considerations of practicality enter in,’ when multiple
plaintiffs and defendants are involved.¿(Citation.)” (Id.)
In Jones v. ConocoPhillips, Co.
(2011), the Second District Appeal Court found that the plaintiff’s fraudulent
concealment claim against multiple defendants was adequately pled when material
facts known to defendants were not disclosed and the defendant had exclusive
knowledge of the material facts not known to the plaintiffs and defendants
actively concealed the material fact from plaintiffs. (See Jones v.
ConocoPhillips Co.¿(2011) 198 Cal.App.4th 1187, 1199-1200 [“Each defendant
is therefore on notice that it allegedly concealed or failed to disclose the
toxic properties of the product it sold to Goodyear and Upjohn during the course of Carlos's
employment. Although sparse, nothing more is required at this early stage of
the litigation.”].) Here, there is only one Defendant, GM, one product sold,
and a specific alleged defect. These facts are sufficient to put GM on notice
of the claims against it without Plaintiffs needing to specify the name of the
agent(s) who specifically concealed the battery defect.
Moreover, Plaintiffs sufficiently
alleged the “what”, which is the concealment of the battery defect and its
potential risk, and the “when”, which is before the purchase of the subject
vehicle and during subsequent repairs. (FAC ¶¶ 23, 29, 35.) The “how” is the
failure to disclose the defect to the Plaintiffs, omitting the defect from its
marketing materials, and then masking the defect with ineffective repairs. (FAC
¶¶ 30, 33, 35, 38, 40.) Plaintiffs also allege that the nondisclosure was
material because if Plaintiff knew about the Battery Defect, they would not
have purchased the vehicle. (FAC ¶¶ 36, 87.) Plaintiffs also pled their
reliance on the non-disclosure and the damages they suffered. (FAC ¶¶ 36, 93, 95.)
Therefore, the Court finds that the
Plaintiffs’ fifth cause of action is sufficiently pled and OVERRULES the
demurrer on this basis.
ii.
The Economic Loss Rule
GM argues that because Plaintiffs have no proof of any
affirmative misrepresentation by GM that resulted in a harm that is separate
and distinct from the purchase of the subject vehicle, the economic loss rule bars
Plaintiffs’ fraud claim. As explained by the California
Supreme Court, “the economic loss rule prevents the law of contract and the law
of tort from dissolving into the other.” (Robinson Helicopter Co., Inc. v.
Dana Corp. (2004) 34 Cal. 4th 979, 989.)
Plaintiffs point
out that tort damages have been permitted in contract cases where the contract
was fraudulently induced, where “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.” (Erlich v. Menezes
(1999) 21 Cal.4th 543, 552.) In its reply, GM argues it had no duty to disclose
the battery defects to the Plaintiffs. 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.” (Heliotis v. Schuman (1986) 181 Cal.App.3d 646, 651.)
Here, the FAC sufficiently alleged that GM has
superior knowledge about the battery defect that was not available to consumers
and failed to disclose the fact despite its superior knowledge. (FAC ¶¶ 26, 30,
85.) The FAC states “GM actively concealed the existence and nature of the
alleged defect” and instead GM dealers informed consumers that the vehicles were
functioning properly or conducted repairs that masked the defect such as
limiting the charge of the battery to 90%. (FAC ¶¶ 33, 34, 38.) Therefore, the
FAC properly alleges that GM had a duty to disclose.
In Dhital v. Nissan North America,
Inc. (2022) 84 Cal.App.5th 828, the Appeal Court held that the economic loss
rule does not bar claims for fraudulent inducement, including, as alleged here,
fraudulent concealment: “[W]e conclude that, under California law,
the¿economic¿loss¿rule does not bar plaintiffs’ claim here for fraudulent inducement
by concealment. Fraudulent inducement claims fall within an exception to
the¿economic¿loss¿rule recognized by our Supreme Court” in Robinson
Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979. (Id. at 833,
review granted (Feb. 01, 2023).) Recently, the California Supreme Court
granted the Ninth Circuit’s request for certification of the question of whether
claims from fraudulent concealment are exempted from the economic loss rule in Rattagan v. Uber Technologies,
Inc. (9th Cir. 2021) 19 F.4th 1188.
Whether claims for fraudulent concealment are barred
by the economic loss rule remains debatable, claims based on fraudulent
inducement, including claims based on concealment, are not barred by the
economic loss rule. (See
Robinson Helicopter Co., Inc., supra, 34 Cal.4th at 989-800 [“Tort
damages have been permitted in contract cases where . . . the contract was
fraudulently induced.”]; see also Lewis v. Ford Motor Company
(E.D. Cal., Feb. 8, 2023, No. 221CV02367TLNJDP) 2023 WL 1823760, at *4 [same]; Kroutilin v. FCA US, LLC (C.D. Cal., Dec. 7, 2022, No.
822CV00929FWSDFM) 2022 WL 18278602, at *5 [same]; Flier v. FCA US LLC
(N.D. Cal., Nov. 8, 2022, No. 21-CV-02553-CRB) 2022 WL 16823042, at *1 [same]; Scherer v. FCA US, LLC
(S.D. Cal. 2021) 565 F.Supp.3d 1184, 1193 [same].)
Here, the Plaintiffs fraud claim arose from GM’s
pre-fraud conduct that induced the Plaintiffs to purchase the subject vehicle despite
GM knowing at the time that the battery was defective. (FAC ¶ 38.) Plaintiffs’
Song-Beverly claims arose from GM’s alleged failure to repair the subject
vehicle after a reasonable number of repair attempts, replace the vehicle, or
make restitution to Plaintiffs.
Therefore, the Court finds that the
Plaintiffs’ fifth cause of action is not barred by the economic loss rule and
OVERRULES the demurrer on this basis.
iii.
Statute of Limitations
GM asserts the plaintiffs’ fraud claim is barred by the
three-year statute of limitations. (Code Civ. Proc., § 338 subd. (d).) The FAC
states that Plaintiffs purchased the subject vehicle on November 07, 2018, but
did file a claim until April 07, 2022. (FAC ¶ 6.)
GM asserts that the delayed discovery rule does not apply because
Plaintiffs became aware of the defects and nonconformities to warranty within
the applicable express warranty period. (FAC ¶ 13.) The delayed discovery rule
postpones the accrual of a cause of action until the plaintiff discovers or has
reason to discover the cause of action. (Fox v. Ethicon Endo–Surgery, Inc. (2005)
35 Cal.4th 797, 807.) “[A] plaintiff invoking ‘the discovery rule must
specifically plead facts to show (1) the time and manner of discovery and (2)
the inability to have made earlier discovery despite reasonable diligence. The
burden is on the plaintiff to show diligence, and conclusory allegations will
not withstand demurrer.’ [Citations.]” (E-Fab, Inc. v. Accountants, Inc.
Services (2007) 153 Cal.App.4th 1308, 1324 [italics original].)
GM fails to show where on the face of the FAC do Plaintiffs
allege they discovered GM’s fraud regarding the non-disclosure of the battery
defect such that the statute of limitations began to accrue. The FAC states
Plaintiffs brought the subject vehicle in for repair on May 03, 2021, for issues
with the battery. (FAC ¶ 43.) Plaintiff brought in the subject vehicle for a
second repair on June 07, 2021, but GM again failed to fix the battery defect.
(FAC ¶ 44.) Plaintiffs continued to have issues with the battery and GM continued
to issue various TSBs and Recalls purporting to be able to fix various symptoms
of the defects such that Plaintiffs did not suspect that GM was unable to fix
the latent battery defects. (FAC ¶¶ 45-53.)
GM fails to show that on the face of the FAC, the Plaintiffs
allege they discovered GM’s fraud regarding the non-disclosure of the battery
defect such that the statute of limitations began to accrue at the time of sale
rather than at the time of discovery. Moreover, Plaintiffs allege facts that GM
concealed the battery defect behind software updates that masked the battery
defect but did not fix it or the danger it posed to consumers. (FAC ¶¶ 26, 34, 38, 39, 41.) Therefore, there is no
defect on the face of the FAC to show that Plaintiffs’ fraud cause of action is
barred.
“The doctrine of fraudulent concealment tolls the statute of
limitations where a defendant, through deceptive conduct, has caused a claim to
grow stale.” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th
1185, 1192.) Here, Plaintiff pled sufficient facts to apply the doctrine of
fraudulent concealment such that Plaintiffs’ fraud claims based on
non-disclosure of the battery defect is tolled.
Accordingly, the demurrer to the fifth cause of action is
OVERRULED on the basis that it is barred by the statute of limitations.
C. Motion
to Strike Punitive Damages
Defendant GM moves to strike the demand for punitive damages
in the Prayer for Relief. (FAC at 18:7.) Defendant argues that Plaintiff cannot
demand both a civil penalty under the Song-Beverly Act and punitive damages. (Troensegaard
v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 228.)
Plaintiff does not dispute this but asserts that
under Anderson v. Ford Motor Co. (2022) 74 Cal.App.5th 946,
Plaintiff can recover both punitive damages and civil penalties because the
conduct punished by the fraud action is different from the conduct addressed by
the Song-Beverly Act civil penalty. “[P]unitive damages punished Ford for oppression,
fraud, or malice related to its pre-sale fraud and concealment.
It separately received a penalty
for willfully failing to comply with its Song-Beverly Act obligations — a
penalty that was based on conduct that took place after the conduct underlying
the pre-sale fraudulent concealment. (Id. at 971.)
Therefore, because the demurrer to Plaintiffs’ fifth cause
of action was OVERRULED, Plaintiff’s prayer for punitive damages survives.
GM’s Motion to Strike is DENIED.
Conclusion
Defendant General Motors LLC’s (“GM”) Demurrer to the Plaintiffs’
First
Amended Complaint as to the fifth cause of action is OVERRULED.
GM’s Motion to strike punitive damages is also DENIED.
Moving party to give notice.