2017-00223189-CU-BC

Agustin Casiano vs. General Motors, LLC

Nature of Proceeding: Hearing on Demurrer

Filed By: Arens, Mary Lynn

Defendant General Motors LLC’s (“GM”) demurrer to the seventh cause of action in plaintiff Agustin Casiano’s complaint is overruled.

Plaintiff’s request for judicial notice the class action complaint in Feliciano, et al v.

General Motors LLC, is granted.

In this Lemon Law action, Plaintiff alleges that the Vehicle, a 2011 Chevrolet Traverse, suffers from Steering System Defects which “results in the potential failure of power steering, pulling to the left and right, and loss of steering control while driving, which is material to a reasonable consumer and could lead to unsafe driving conditions for both drivers and passengers, especially at highway speeds. (Comp. ¶ 73.) Plaintiff alleges that GM was aware of the Steering Defect, in the vehicle prior to the sale, but failed to disclose the material facts at the time of the sale. (Comp. ¶ 74.) The Complaint was filed November 28, 2017.

GM demurs to the 7th cause of action for fraudulent omission on the grounds of failure to state facts sufficient to constitute a cause of action and uncertainty, contending he failed to plead the claim with the requisite specificity, and that it is barred by the statute of limitations and the economic loss rule.

Statute of Limitations

Defendant first argues that Plaintiff’s Seventh Cause of Action is barred by the three year statute of limitations CCP § 338(d) governing fraud claims. The Court disagrees.

GM contends, absent any allegations of the date the fraud was discovered, the statute of limitations accrued on the date the vehicle was purchased, April 30, 2011, and that it expired three years later on April 30, 2014. The Complaint was filed on November 28, 2017.

The statute of limitations for a fraud cause of action is three years. (CCP § 338(d).) The statute provides that a fraud cause of action does not accrue until the discovery by the aggrieved party of the facts constituting the fraud or mistake. The statute begins to run when the plaintiff “obtains knowledge of facts sufficient to make a reasonably prudent suspicious of fraud. The action therefore accrues when a plaintiff has notice

or information of circumstances sufficient to put a reasonable person on inquiry: i.e., when ‘the plaintiff’ suspects or should suspect that her injury was caused by wrongdoing.” (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110; see also Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.)

Here, Plaintiff alleged that the defects were fraudulently concealed at the time he purchased the vehicle and thus, he could not have been on notice of the defects on that date. When and how Plaintiff should have reasonably become aware that Defendant concealed facts at the time they purchased the vehicles is an inherent question of fact that cannot be resolved at the pleading stage. Resolution of a statute of limitations issue is normally a question of fact. (Fox, supra, 35 Cal.4th at 810.) To that end, “[a] demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.” (Guardian North Bay, Inc. v. Superior Court (2001) 94 Cal.App.4th 963, 971-972 [citation omitted]. [emphasis added].)

Indeed, it may have taken numerous unsuccessful repair attempts before a reasonable person would even begin to suspect fraudulent concealment. Plaintiff has pled that they were unaware of the defects in the vehicle and that Defendant had exclusive knowledge of the defect. (Comp. ¶¶ 66-78.)

The statute of limitations defect does not appear on the face of the complaint.

Given the above, the Court does not and need not address the parties’ arguments regarding whether the cause of action was tolled by the Aguilar v. General Motors, LL C class action in the Eastern District of California.

The demurrer on the basis that the Seventh Cause of Action is barred by the statute of limitations is overruled.

Adequacy of Fraud allegations

The elements of fraud “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.) A failure to disclose a material fact can constitute actionable fraud. Collins v eMachines, Inc. (2011) 202 Cal.App.4th 249, 255.

When pleading a claim for fraud/negligent misrepresentation, each and every element must be alleged, “and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made.” ( Stansfield v Starkey (1990) 220 Cal.App.3d 59, 73; Cadlo v Owens-Illinois, lnc. (2004) 125 Cal.App.4th 513, 519 (stating that “[e]ach element in a cause of action for fraud or negligent misrepresentation must be factually and specifically alleged”).

The Court first rejects GM’s arguments that the fraudulent omission claim is not pled with the requisite specificity. Plaintiff alleged that Defendant was aware that steering system installed on the subject vehicle was defective, but failed to disclose this fact at the time of the sale. (Comp. ¶ 66.) Specifically, Plaintiff alleged that GM knew, or should have known, that the steering system had one or more defects that “can have

serious consequences on the handling, maneuvering and stability of the subject vehicle while in operations, thereby contributing to car accidents, which can cause personal injury or death.” (Id. ¶ 68.) Plaintiff alleged that GM acquired knowledge of the defect prior to Plaintiff acquiring the vehicle through sources that were not available to consumers , including “pre-production and post-production testing data; early consumer complaints about the Steering Defect made directly to GM and its network of dealers; aggregate warranty data compiled from GM’s network of dealers; testing conducted by GM in response to these complaints; as well as warranty repair and part replacements data received by GM from GM’s network of dealers, amongst other sources of internal information.” (Id. ¶ 69.) Plaintiff alleged that he would not have purchased the vehicle had they been aware of the defect. (Id. ¶ 75.) Plaintiff alleged that GM had a duty to disclose the defects given its knowledge of the defects prior to Plaintiff’s purchase and due to Plaintiff’s inability to have discovered the defects until after they purchased the vehicle. (Id. ¶¶ 98-100.) Plaintiff alleged that GM knowingly and intentionally concealed these facts.

While GM argues that Plaintiff failed to allege who made the fraudulent omission or which specific person intended to defraud him, this is a fraudulent omission cause of action, not a fraud claim based upon an affirmative misrepresentation. Plaintiff cannot plead that anyone at GM made a false representation because the claim is premised on a failure to disclose. A plaintiff asserting a concealment theory will “not be able to specify the time, place, and specific content of an omission as precisely as would a plaintiff in a false representation claim.” (Falk v. General Motors Corporation (N.D.Cal. 2007) 496 F.Supp.2d 1088, 1098-99.) Such a claim “can succeed without the same level of specificity required by a normal fraud claim.” (Id.) The specificity rule is relaxed in actions premised on intentional concealment or nondisclosure. (Alfaro v. Community Housing Improvement System & Planning Association (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?” (Id. [noting that the statement of the specificity rule “reveals that it is intended to apply to affirmative misrepresentations”].)

In order to be actionable, a fraudulent omission “must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.” (Daugherty v. Amer. Honda Motor Co., Inc.) According to the allegations, GM was under a duty to disclose material facts given the allegations that it had exclusive knowledge of the alleged defects which were not known to plaintiff and also because it actively concealed such information. (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.) Whether non-disclosed information is material is generally a question of fact. “In order for non-disclosed information to be material, a Plaintiff must show that had the omitted material been disclosed, one would have been aware of it and behaved differently.” (Mirkin v. Wsserman (1993) 5 Cal.4th 1082, 1093.) For pleading purposes, Plaintiff has pled that the steering system defects were material given the safety risks alleged posed and the allegations that he would not have purchased the vehicle if the information had been disclosed. Indeed, even non-safety risks that manifest within the warranty period are material. “[A] manufacturer has a duty to disclose any defects that fall within the warranty period, whether relating to safety or to costly repairs that would have caused the consumer to not purchase the car if they had been disclosed. (Jekowsky v. BMW of N. Am., LLC (N.D.Cal. 2013) 2013 U.S. Dist. LEXIS 175374, at *15-16.) Thus, even if Plaintiff had not alleged that the steering system defects were a safety risk, he has alleged the defect arose during the warranty period. (Comp. ¶¶ 27, 100.)

In sum, Plaintiff’s fraudulent omission claim is pled with the requisite specificity. Plaintiff alleged that GM concealed material facts regarding the Steering System Defects at the time he purchased the vehicle and thereafter by failing to disclose the defect at the time of purchase and repair at GM’s authorized dealership. Plaintiff has sufficiently alleged facts showing the “how, when, where, to whom, and by what means” the alleged fraud was accomplished.

GM also argues that Plaintiff failed to adequately allege damages. Again, he specifically alleged that he would not have purchased the vehicle had the information been disclosed. (Comp. ¶ 49) He alleged that he suffered actual damages as a result. (Comp. ¶ 55)

Economic Loss Rule

The Court rejects GM’s argument that the plaintiff’s damages on the Fraud cause of action are barred by the economic loss rule.

GM argues that because Plaintiff failed to allege that it breached any duties independent of the warranty or that he suffered any loss in tort beyond the breach of warranty that the fraud claim is barred by the economic loss rule. GM is incorrect. “[E] conomic loss consists of damage for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits-without any claim of personal injury or damages to other property.” (Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 118, 1130.) In some instances, the economic loss rule bars a tort action in the absence of personal injury or physical damage to property. (Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal.4th 979, 984.) “The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can recover harm above and beyond a broken contractual promise.” (Id. at 988.) The alleged fraudulent conduct must be independent of the breach of contract.

However, Plaintiff’s fraud by omission claim is one for fraudulent inducement to enter the contract. Indeed, he alleged that he would not have purchased the vehicle if GM had disclosed the Cooling System Defects. The economic loss rule does not apply to a claim for fraudulent inducement. (Robinson Helicopter Co., Inc., supra, 34 Cal.4th at 990; see also Erlich v. Menezes (1999) 21 Cal.4th 543, 551-552.) The allegations that GM induced Plaintiff to purchase the vehicle through its active concealment of the Steering System Defects must be accepted as true for purposes of the demurrer. Therefore on the face of the Complaint, the fraud claim is not barred by the economic loss rule.

GM’s argument that the fraudulent inducement exception to the economic loss rule required Plaintiff to allege that he was exposed to liability for personal damages is incorrect. Robinson expressly recognized the fraudulent inducement exception to the economic loss rule and did not modify it. Rather, it created a new and limited exception to the economic loss rule based affirmative misrepresentations on which the plaintiff relies and which expose the plaintiff to liability for personal damages. Neither Robinson, nor any other case, requires a Plaintiff to allege exposure to liability for personal damages in order to avoid the economic loss rule when asserting a fraudulent inducement claim. The fraudulent inducement is tortious conduct independent from any breach of the contract.

The court does perceive the distinction which Defendant attempts to make between affirmative misrepresentation and fraudulent concealment, and rejects it. The theory behind a fraud in the inducement exception to the economic loss rule is that contracts entered into under false pretenses cannot promote the proper ordering of risks and responsibilities between parties. Contract negotiations that begin with the assumption that the other party is lying will hardly encourage free and open bargaining. The specific duty encompassed by fraud in the inducement is the duty of the parties entering into the contract to speak honestly regarding negotiated terms. How can parties freely allocate risk if they cannot rely on the opposite party to speak truthfully during negotiations regarding the subject matter of the contract–if they cannot tell what is a lie and what is not? Thus, a fraud in the inducement exception to the economic loss rule is appropriate for a number of reasons. Intentional misrepresentations undermine the ability of parties to negotiate freely. Sound public policy supports placing the burden of loss resulting from a misrepresentation on the seller, who caused the loss and is best situated to assess and allocate the risk, rather than upon the buyer. The question posed in the instant case is whether a fraudulent concealment squares with the policy rationale articulated. The court perceives that it does. As noted, the economic loss rule’s stated purposes are to maintain the distinction between tort law and contract law, to protect freedom of contract, and to encourage the party best situated to assess the risk of economic loss and to insure against, assume, or allocate the loss. In the fraudulent concealment context (as opposed to affirmative misrepresentation) a plaintiff asserting a concealment theory will “not be able to specify the time, place, and specific content of an omission as precisely as would a plaintiff in a false representation claim.” (Falk, supra, 496 F.Supp.2d at 1098-99.) Such a claim “can succeed without the same level of specificity required by a normal fraud claim.” (Id.) The specificity rule is relaxed in actions premised on intentional concealment or nondisclosure. (Alfaro, supra, 171 Cal.App.4th at 1384. In order to be actionable, a fraudulent omission “must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.” ( Daugherty v. Amer. Honda Motor Co., Inc. (2006) 144 Cal. App. 4th 824, 835) It is also instructive to note that “Fraud or deceit may consist of the suppression of a fact by one who is bound to disclose it or who gives information of other facts which are likely to mislead for want of communication of that fact.” (Outboard Marine Corp. v.Superior Court (1975) 52 Cal. App. 3d 30, 37.) Indeed, in Outboard Marine Corp. our Third District Court of Appeal has determined that “Where failure to disclose a material fact is calculated to induce a false belief, the distinction between concealment and affirmative misrepresentation is tenuous. Both are fraudulent. An active concealment has the same force and effect as a representation which is positive in form.” (37 Am.Jur.2d, Fraud and Deceit, § 144, p. 197.) (Fns. omitted.) ¶ The offer of goods for sale is a representation of the characteristics, uses, benefits, or qualities of the goods. Civil Code section 1770 listing proscribed practices such as “Representing that goods or services are of a particular standard, quality, or grade, . . . if they are of another,” includes a proscription against a concealment of the characteristics, use, benefit, or quality of the goods contrary to that represented.” Id. A fraudulent concealment suffices, if properly pleaded, to bar application of the economic loss rule to the subject claim. See, also, Alejandre v. Bull (2007) 159 Wn. 2d 674.

Uncertainty

Defendant’s demurrer for uncertainty is overruled. Demurrers for uncertainty are disfavored and only sustained where the pleading is so muddled that the defendant

cannot reasonably respond. The favored approach is to clarify any uncertainty or ambiguity through discovery. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) The complaint is not so uncertain that Defendants cannot respond. Any uncertainties can be clarified through discovery.

The notice of demurrer does not provide notice of the Court’s tentative ruling system as required by Local Rule 1.06(D). Defendant’s counsel is directed to immediately provide notice to Plaintiff’s counsel of the tentative ruling system and to be available at the hearing, in person or by telephone, in the event Plaintiff’s counsel appears without following the procedures set forth in Local Rule 1.06(B).

In sum, the demurrer is overruled.

No later than April 6, 2018, Defendant shall file and serve its answer to the complaint.