Matthew S. Payne, et al. v. Ford Motor Company, et al.

Case Number

24CV02703

Case Type

Hearing Date / Time

Wed, 11/13/2024 - 10:00

Nature of Proceedings

Defendants’ Demurrer to the Complaint

Tentative Ruling

For Plaintiffs Matthew S. Payne and Fen Liang: Tionna Carvalho, Sanam Vaziri, Strategic Legal Practices, APC

For Defendants Ford Motor Company and Perry Ford San Luis Obispo: Michael D. Mortenson, Craig A. Taggart, Chen Fei Liu, Mortenson Taggart Adams LLP

RULING

For all reasons discussed herein, the demurrer of Defendants Ford Motor Company and Perry Ford San Luis Obispo (erroneously sued as Perry Ford Lincoln Volkswagen) to Plaintiffs’ first amended complaint is sustained without leave to amend as to the fifth cause of action, and overruled as to the sixth cause of action. On or before November 27, 2024, Defendants shall file and serve their answer or answers to the first amended complaint.

Background

On May 16, 2024, Plaintiffs Matthew S. Payne (Payne) and Fen Liang (Liang) (collectively, Plaintiffs) filed a complaint in this action alleging six causes of action: (1) violation of subdivision (d) of Civil Code section 1793.2 (against Defendant Ford Motor Company only [referred to herein as Ford]); (2) violation of subdivision (b) of Civil Code section 1793.2 (against Ford); (3) violation of subdivision (a)(3) of Civil Code section 1793.2 (against Ford); (4) breach of the implied warranty of merchantability (against Ford); (5) negligent repair (against Defendant Perry Ford Lincoln Volkswagen only [referred to herein as Perry Ford]; and (6) fraudulent inducement – concealment (against Ford). As alleged in Plaintiffs’ complaint:

On May 17, 2018, Plaintiffs entered into a warranty contract (the warranty contract) with Ford regarding a 2018 Lincoln Navigator (the vehicle) manufactured and distributed by Ford. (Compl., ¶ 7.) The warranty contract included bumper-bumper, powertrain, and emission warranties. (Id. at ¶ 8 & Exh. A.)

At the time Plaintiffs purchased the vehicle, Ford knew that other vehicles equipped with the same 10-speed transmission suffered from defects that can cause the vehicles and their transmissions to experience hesitation, delayed acceleration, harsh or hard shifting, jerking, shuddering, or juddering (collectively, the Transmission Defects). (Compl., ¶ 24.) Ford acquired knowledge of the Transmission Defects through pre-production testing; design failure mode and analysis data; production failure mode and analysis data; consumer complaints made to Ford’s network of dealers and directly to Ford; warranty data compiled from Ford’s network of dealers; testing conducted by Ford in response to consumer complaints; and repair order and parts data received by Ford from its network of dealers. (Id. at ¶ 25.) As a result of its internal knowledge and investigations, Ford subsequently issued technical service bulletins or TSBs concerning the Transmission Defects. (Id. at ¶¶ 26-32.) Ford concealed and did not disclose to Plaintiffs the existence and nature of the Transmission Defects at the time of purchase or repair. (Id. at ¶ 35.) Plaintiffs would not have purchased or would have paid less for the vehicle had they known of the Transmission Defects. (Id. at ¶ 34.)

Defects manifested in the vehicle during the warranty period under the warranty contract which impair the use, value, or safety of the vehicle. (Compl., ¶¶ 12-13.) Plaintiffs delivered the vehicle to Perry Ford on one occasion for repairs, but Perry Ford failed to store, prepare, or repair the vehicle in accordance with industry standards. (Id. at ¶ 71.) In addition, the TSBs fail to fix the Transmission Defects, and Ford was unable and failed to conform the vehicle to the terms of the warranty after a reasonable number of repair attempts and failed to replace the vehicle or make restitution. (Id. at ¶¶ 15-16 & 33.)

On June 20, 2024, Ford and Perry Ford (collectively, Defendants) filed a demurrer to the fifth and sixth causes of action alleged in the complaint which was opposed by Plaintiffs.

On July 31, 2024, the Court issued a Minute Order (the Minute Order) sustaining the demurrer of Defendants as to the fifth and sixth causes of action alleged in the complaint, with leave to amend.

On August 12, 2024, Plaintiffs filed a first amended complaint (the FAC) which repeats the facts alleged in the complaint, and adds allegations that Ford issued a TSB on August 14, 2023, which covers the vehicle; that Plaintiffs purchased the vehicle from Ford’s authorized dealership Jim Burke Lincoln (JBL); that prior to purchasing the vehicle, Plaintiffs reviewed Ford’s marketing and advertising materials, conferred with the sales representatives at JBL, and took the vehicle for a test drive; and that Plaintiffs were never advised that the vehicle or its transmission were defective. (FAC, ¶¶ 9, 34 & 78.)

On September 13, 2024, Defendants filed a demurrer to the fifth and sixth causes of action alleged in the FAC on the grounds that Plaintiffs have failed to allege facts sufficient to state a cause of action, and that these causes of action are barred by the economic loss rule. The demurrer is opposed by Plaintiffs.

Analysis

In ruling on a demurrer, the Court determines whether the complaint states a cause of action. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) The pleading subject to demurrer is given a reasonable interpretation and read as a whole, with all its parts in their context. (Ibid.) A demurrer assumes the truth of properly pleaded material allegations including facts which may be inferred from those expressly alleged, but not of contentions, deductions, or conclusions of fact or law. (Ibid.; McMahon v. Craig (2009) 176 Cal.App.4th 1502, 1509.) “If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (Quelimane).)

The fifth cause of action for negligent repair:

As grounds for demurrer to the fifth cause of action for negligent repair alleged against Perry Ford only, Defendants contend that the economic loss rule bars the cause of action. The grounds for demurrer to the fifth cause of action alleged in the FAC are the same as those asserted in Defendants’ prior demurrer to the fifth cause of action alleged in the original complaint, which the Court sustained with leave to amend.

The fifth causes of action alleged in the original complaint and the FAC are identical. As noted in the Minute Order, a reasonable interpretation of the complaint indicated that Plaintiffs do not seek personal injury damages or recovery for damages to other property caused by any conduct on the part of Perry Ford. Therefore, the damages alleged by Plaintiffs with respect to the fifth cause of action constitute economic loss. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988 (Robinson).) The same analysis and reasoning apply here with respect to the unchanged allegations of the FAC.

The Court further noted in its Minute Order that the fifth cause of action alleges a negligence theory of recovery which is limited to or arises from Perry Ford’s alleged failure to properly repair the vehicle in accordance with industry standards. In the FAC, Plaintiffs allege no new, different, or additional facts sufficient to show that Perry Ford violated a duty independent or apart from any duty to repair the vehicle within industry standards. The allegations of the FAC are also insufficient to show that Perry Ford engaged in fraudulent conduct in connection with the repair of the vehicle.

The same analysis applies to the unchanged allegations of the FAC as to the fifth cause of action for negligent repair. For all reasons discussed above, the conduct of Perry Ford amounts to a purported breach by Perry Ford of a duty to perform an effectively contractual obligation to repair the vehicle. Therefore, the economic loss rule bars the fifth cause of action. (Robinson, supra, 34 Cal.4th at pp. 989-990; see also Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 26 (Rattagan).)

In their opposition to the present demurrer, Plaintiffs offer no reasoned legal or factual argument to demonstrate why the same fifth cause of action alleged in the FAC is not barred by the economic loss rule. Plaintiffs also offer no reasoned argument showing that the deficiencies which remain in the FAC may be cured by further amendment. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Because it appears that the FAC is incapable of further amendment with respect to the cause of action for negligent repair, the Court will, for all reasons discussed above, sustain the demurrer to that cause of action without leave to amend.

Demurrer to the sixth cause of action:

With respect to the sixth cause of action for fraudulent inducement-concealment alleged against Ford only, Defendants contend that Plaintiffs have failed to allege facts showing any direct dealings or a direct transactional relationship with Ford giving rise to a legal duty to disclose owed by Ford. Defendants further contend that Plaintiffs have failed to allege the factual elements of a claim for fraudulent concealment with the required specificity, including the name of the person to whom Plaintiffs spoke, or that Ford had exclusive knowledge of the alleged defects at the time of sale. Defendants further assert that Plaintiffs have failed to allege facts which demonstrate any active concealment by Ford, or that Ford made any partial representations to Plaintiffs. In addition, Defendants argue that the sixth cause of action is barred by the economic loss rule.

“The required elements for fraudulent concealment are (1) concealment or suppression of a material fact; (2) by a Defendant with a duty to disclose the fact; (3) the Defendant intended to defraud the Plaintiff by intentionally concealing or suppressing the fact; (4) the Plaintiff was unaware of the fact and would have acted differently if the concealed or suppressed fact was known; and (5) Plaintiff sustained damage as a result of the concealment or suppression of the material fact.” (Rattagan, supra, 17 Cal.5th at p. 40.) All fraud claims “must be pleaded with specificity.” (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 132 (Linear).) At issue here are the first through third elements of the cause of action for fraudulent concealment described above.

“A fraud claim based upon the suppression or concealment of a material fact must involve a Defendant who had a legal duty to disclose the fact.” (Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1186 (Hoffman).) There exist “ ‘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. [Citation.]’ [Citation.]” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336 (LiMandri).)

Plaintiffs do not allege in the FAC, or contend in their opposition to the demurrer, that there exists a fiduciary relationship between Ford and Plaintiffs.

Under circumstances where a fiduciary relationship is not alleged, “ ‘a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the Defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to Defendant, and Defendant knows they are not known to or reasonably discoverable by the Plaintiff; [or] (3) the Defendant actively conceals discovery from the Plaintiff.” [Citation.]’” (Linear, supra, 152 Cal.App.4th at p. 132.) Each of these circumstances “presupposes the existence of some other relationship between the Plaintiff and Defendant in which a duty to disclose can arise …. [which] can only come into being as a result of some sort of transaction between the parties…. Thus, a duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement.” (LiMandri, supra, 52 Cal.App.4th at pp. 336-337, original italics; see also Hoffman, supra, 228 Cal.App.4th at p. 1187 [to the extent a Defendant denies the existence of a transactional relationship, the factfinder must determine if such a relationship existed].)

Plaintiffs allege in the FAC that they reviewed Ford’s marketing and advertising materials before they purchased the vehicle from a Ford authorized retail dealership. Assuming the truth of these allegations, it can be reasonably inferred that a transactional relationship of buyer and seller existed between Ford, through its alleged dealership, and Plaintiffs. (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 312; Bader v. Johnson & Johnson (2022) 86 Cal.App.5th 1094, 1132.) Though the allegations are sparse, they are sufficient to show at this stage of the litigation the existence of a transactional relationship notwithstanding whether or not Plaintiffs can prove these allegations. (Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1200 (Jones); Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034.)

Plaintiffs also describe in the FAC the nature of the Transmission Defects which allegedly known to and intentionally concealed by Ford at the time Plaintiffs purchased the vehicle. (See FAC, ¶¶ 26-35.) The allegations of intent asserted in the FAC are sufficient for present purposes. (Hall v. Mitchell (1922) 59 Cal.App. 743, 749 [intent may be set forth with a “simple and direct” allegation].)

In addition, Plaintiffs have alleged the manner in or sources from which Ford obtained its knowledge of the Transmission Defects, which Plaintiffs allege resulted in the issuing of TSBs by Ford. These allegations are also, at this stage of the litigation, sufficient to show Ford’s knowledge of the defects notwithstanding whether Plaintiffs have alleged the manner in which the sources revealed the alleged defects. (City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 803 [“[a]llegations of the Defendant’s knowledge … may use conclusive language”].) Furthermore, “even in the pleading of fraud, the rule [of particularity in pleading] is relaxed when it is apparent from the allegations that the Defendant necessarily possesses knowledge of the facts.” (Quelimane, supra, 19 Cal.4th at p. 47.)

Moreover, while Plaintiffs do not specifically allege the identity of individuals at Ford or its authorized dealership who purportedly failed to disclose material facts regarding the Transmission Defects, the requirement of specificity is intended to apply to affirmative representations and not concealment. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384; see also Jones, supra, 198 Cal.App.4th at p. 1200 [fraudulent concealment claim sufficiently pled when the complaint, read as a whole, provided Defendants with sufficient notice of the claims against them].) In the FAC, Plaintiffs do not allege that any affirmative representations were made by Ford or its authorized dealership. Instead, Plaintiffs allege that Ford’s authorized dealership failed to disclose defects in the vehicle that were known to Ford at the time of sale. For this reason, any failure by Plaintiffs to identify the specific individuals who failed to disclose the Transmission Defects is not, alone, a sufficient ground upon which to sustain the demurrer.

For all reasons discussed above, Plaintiffs have for present purposes sufficiently alleged the existence of a transactional relationship giving rise to a duty of disclosure on the part of Ford with respect to the Transmission Defects which Plaintiffs allege were known only to Ford. Plaintiffs have also sufficiently alleged “(1) the content of the omitted facts, (2) [Ford’s] awareness of the materiality of those facts, (3) the inaccessibility of the facts to Plaintiff[s], (4) the general point at which the omitted facts should or could have been revealed, and (5) justifiable and actual reliance, either through action or forbearance, based on the [Ford’s] omission.” (Rattagan, supra, 17 Cal.5th at pp. 43-44.) Therefore, Plaintiffs have alleged facts which are sufficient to plead a cause of action for fraudulent concealment.

With respect to Defendants’ contention that the economic loss rule bars the sixth cause of action, in some instances, tort damages are permitted in cases involving a breach of contract. (Erlich v. Menezes (1999) 21 Cal.4th 543, 551-554 (Erlich) [“[c]onduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law”].) Tort damages are permissible in contract cases where the contract was fraudulently induced. (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1238-1239 [also noting “no public policy is served by permitting a party who never intended to fulfill his obligations to fraudulently induce another to enter into an agreement”].)

Though the damages alleged in the FAC constitute economic loss, Plaintiffs’ fraud cause of action is not limited to allegations involving a breach of contract obligations. As further described above, the FAC alleges that Ford knew about the purported Transmission Defects before Plaintiffs acquired the vehicle through Ford’s authorized dealership but did not disclose their existence including at the time of sale. (FAC, ¶¶ 78-83.) It can be inferred from the alleged concealment of material facts with respect to the Transmission Defects that the loss sustained by Plaintiffs was not contemplated or provided for by the parties with respect to any purported sales contract or warranty. For this reason, the allegations of the FAC are sufficient to show a duty independent of the rights assumed and reasonably contemplated by the parties. For these reasons, at the present pleading stage, the economic loss rule does not bar the sixth cause of action for fraudulent inducement-concealment. (See Erlich, supra, 21 Cal.4th at pp. 552-554; Rattagan, supra, 17 Cal.5th at pp. 20-21, 26, 38 [also noting that “the economic loss rule does not apply to limit recovery for intentional tort claims like fraud”].)

For all reasons discussed above, Plaintiffs have alleged facts sufficient to state a viable cause of action for fraudulent concealment which is not, on the face of the FAC, barred by the economic loss rule. Therefore, the Court will overrule the demurrer to the sixth cause of action.