Case Name: Boatright v. Ford Motor Company, et al.
Case No.: 17CV316983

I. Factual and Procedural Background

This action arises from the purchase of a purportedly defective motor vehicle. According to the allegations of the Complaint, around December 2012, plaintiffs Thomas Boatright and Diane Boatright (collectively “Plaintiffs”) purchased a 2013 Ford Escape (the “Vehicle”) which was manufactured and/or distributed by defendant Ford Motor Company (“Defendant”). (Complaint, ¶ 6.) In connection with the purchase, Defendant provided Plaintiffs with an express warranty that it would maintain the utility or performance of the Vehicle or provide compensation if the Vehicle failed during a specified period of time. (Id. at ¶ 7.)

During the warranty period, the Vehicle developed numerous problems including: malfunctioning of the oxygen sensors; defects that caused the activation of the check engine light and various diagnostic trouble codes; engine overheating; fluid leaks; and defects related to the engine cooling system, fuel line jumper, restraint control system, door handles, SYNC system, navigation system, sound quality and clock accuracy. (Id. at ¶ 8.) Some of these defects pose an unreasonable safety hazard as they can result in fires in the engine compartment. (Id. at ¶ 49.) Despite these problems, Defendant and its representatives failed to service or repair the Vehicle in conformity with the express warranty. (Id. at ¶ 9.) They also did not promptly replace the Vehicle or make restitution to Plaintiffs as required by Civil Code sections 1793.1, subdivision (a)(2) and 1793.2, subdivision (d). (Ibid.)

Plaintiffs allege Defendant knew as early as 2012 that the engine cooling system installed on the Vehicle was defective and would cause it to be susceptible to sudden and premature failure. (Id. at ¶¶ 47-48, 51.) Defendant had knowledge of this defect through pre-production and post-production testing data, early consumer complaints about the cooling defect made directly to it and its network of dealers, testing it performed in response to these complaints, aggregate warranty data compiled from its dealer network, as well as warranty repair and part replacements data it received from its dealer network. (Id. at ¶ 50.) Despite these facts, Defendant concealed and failed to disclose the defect to Plaintiffs at the time of the sale. (Id. at ¶ 51.) Had they known of the defect, Plaintiffs would not have purchased the Vehicle. (Ibid.)

Plaintiffs’ Complaint asserts causes of action against Defendant for violations of the Song-Beverly Consumer Warranty Act, violations of the Magnuson-Moss Warranty Act, and fraud by omission.

Currently before the Court is Defendant’s demurrer to the seventh cause of action for fraud by omission and its motion to strike the prayer for punitive damages from the Complaint, both of which Plaintiffs oppose.

II. Demurrer

Plaintiffs’ seventh cause of action is for fraud by omission. Plaintiffs allege Defendant knew the Vehicle had an engine cooling defect that could have serious consequences on its safety yet intentionally concealed this fact at the time of the sale.

Defendant demurs to this claim on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) It argues: (1) the fraud allegations are of insufficient quality; (2) the claim is barred by the statute of limitations; and (3) the claim is barred by the economic loss rule.

A. Sufficiency of Factual Allegations

Defendant argues the fraud by omission cause of action is inadequately pled because it does not allege an intent to deceive and is not pled with the requisite specificity.

1. Intent to Deceive

The elements of an action for fraud based on concealment are as follows: “(1) [T]he defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Boschma v. Home Loan Ctr., Inc. (2011) 198 Cal.App.4th 230, 248, internal quotation marks omitted.)

Defendant argues Plaintiffs did not plead the third element of this cause of action because they do not allege it “intended to deceive plaintiff by concealing the facts.” (Dem. at p. 3:13-23.) Defendant asserts, without citation to any authority, that Plaintiffs are required at a minimum to allege it knew of the defects at the time of the sale and intentionally concealed this information. This argument is not well-taken.

First, even if Defendant was correct in its conclusory assertion about what facts must be pled to allege intent, no deficiency has been demonstrated as Plaintiffs do allege Defendant was aware of the engine cooling defect at the time of the sale and intentionally concealed this information. (See Complaint, ¶¶ 48, 54.)

Second, Defendant provides no legal substantiation for its position and Plaintiffs otherwise argue persuasively in their opposition that, for purposes of pleading a fraudulent concealment claim, the element of intent to defraud may be inferred from other facts in the Complaint. (See Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85 (“Lovejoy”).) In Lovejoy, the defendant was a telephone company that surreptitiously acquired the 800 number used by the plaintiff for his business. (Id. at 90.) It then concealed this fact from the plaintiff by hiding the charges for the 800 service in his long-distance bill. (Ibid.) Based on these facts, the court stated it could be “inferred that [the defendant] concealed the switch with fraudulent intent, for the purpose of making a profit” and held a cause of action for fraudulent concealment had been adequately stated. (Id. at 97.)

Here, as in Lovejoy, Plaintiffs have sufficiently alleged facts from which it can be inferred that Defendant acted with an intent to defraud when they concealed the engine cooling defect. Specifically, Plaintiffs allege Defendant knew of but intentionally concealed facts relating to the engine cooling defect at the time of the sale and further aver they would not have purchased the Vehicle had they known of such defect. (Complaint, ¶¶ 48, 54.) Based on these facts, it can be inferred Defendant failed to disclose the defect with the intent to defraud consumers because it wanted to make a profit. (See, e.g., Lovejoy, supra, 92 Cal.App.4th at 97.)

As such, the demurrer is not sustainable on the basis Plaintiffs fail to plead the element of intent to defraud.

2. Requisite Specificity

Defendant contends Plaintiffs failed to allege facts describing the “how, when, where, to whom and by what means the fraud occurred.” (Dem. at p. 4:10-12.) It further argues that because it is a corporate defendant, the requirement of specificity is especially important and Plaintiffs must 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.” (Id. at p. 4:13-21.) In support, Defendant cites several cases – all of which discuss the pleading requirements for a fraud claim based on an affirmative misrepresentation. In doing so, it fails to appreciate that the pleading requirements for a fraud claim based on a misrepresentation differ from those of a fraud claim based on concealment or nondisclosure.

It is well-established that where a concealment or nondisclosure is alleged, it is more difficult to apply the requirement of specificity that exists for fraud claims based on misrepresentations. (Alfaro v. Community Housing Imp. System & Planning Ass’n., Inc. (2009) 171 Cal.App.4th 1356, 1384; see also Jones v. ConocoPhillips (2011) 198 Cal.App.4th 1187, 1199.) This is simply because “it is harder to apply this rule to a case of simple nondisclosure.” (Ibid.) “How does one show ‘how’ and ‘by what means’ something didn’t happen, or ‘when’ it never happened, or ‘where’ it never happened?” (Ibid.) Therefore, less specificity is required when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy. (Ibid.) So long as the fraudulent concealment allegations provide the defendants with sufficient notice of the claims alleged against them, they are adequately plead. (See Jones, supra, 198 Cal.App.4th at 1200.)

Here, it is alleged Defendant possesses exclusive and superior knowledge regarding the engine cooling defect in vehicles like the one purchased by Plaintiffs. Moreover, the seventh cause of action adequately apprises Defendant of the claims brought against it – namely, that it failed to disclose the defect to Plaintiffs despite having knowledge of it before the Vehicle was sold. (Complaint, ¶¶ 46-55.) These allegations provide Defendant with sufficient notice of the claims alleged against it and, therefore, do not fail for lack of particularity.

Next, Defendant contends the fraud allegations are insufficiently specific because they include facts that are alleged upon information and belief, citing Findley v. Garrett (1952) 109 Cal.App.2d 166 (“Findley”) in support. This argument is not well-taken.

In Findley, the plaintiffs added nine members of a company’s board of directors to their complaint and attempted to charge them with fraud and conspiracy. (Findley, supra, 109 Cal.App.2d at 177.) However, its allegations against these members only consisted of broad averments, made on information and belief, that they “participated” in and “knowingly shielded” the conspiracy without reference to any specific facts. (Ibid.) The court held “it [was] not sufficient to allege fraud or its elements upon information and belief, unless the facts upon which the belief is founded are stated in the pleading.” (See Id. at 177.)

Here, the fraud claim does not suffer from a similar defect. Rather, Plaintiffs allege numerous, detailed facts that form the basis of their belief Defendant fraudulently concealed the engine cooling defect. Specifically, they allege Defendant was well aware of the specific defects in the Vehicle, including defects relating to the loss of engine coolant through leakage, water pump leaking and engine overheating; that it acquired such knowledge through pre-production and post-production testing data, early consumer complaints, and aggregate warranty data; and that it intentionally concealed this information from them at the time of the sale. (See Complaint, ¶¶ 48-54.) As such, though these allegations are alleged upon information and belief, Plaintiffs have sufficiently stated the facts upon which their belief is founded.

Finally, Defendant argues for the first time in its reply that Plaintiffs are required to plead specific details relating to the time and means by which it acquired knowledge of the defect. Because this argument was not raised in Defendant’s demurrer, the Court will not consider it. (See REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500 [courts generally do not consider arguments raised for the first time on reply for the simple reason that opposing counsel is deprived of an opportunity to address them]; Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764; In re Tiffany Y. (1990) 223 Cal.App.3d 298, 302-303.)

The demurrer is therefore not sustainable on the basis the fraudulent concealment claim has not been pled with the requisite specificity.

B. Statute of Limitations

Code of Civil Procedure section 338, subdivision (d) (“Section 338”), establishes a three-year limitations period for a fraud claim. It further provides that a cause of action “is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud.” (Code. Civ. Proc., § 338, subd. (d).)

Defendant argues the seventh cause of action is barred by Section 338’s three-year statute of limitations because Plaintiffs allege they purchased the Vehicle on December 27, 2012, but the Complaint was not filed until September 6, 2017. Presuming December 27, 2012 was the date the cause of action accrued, Defendant asserts the claim was filed after the limitations period expired and Plaintiffs were therefore required to plead facts related to the time and circumstances of their discovery of the fraud and their inability to discover these facts earlier. This argument is not well-taken.

A court may sustain a demurrer on the ground of failure to state sufficient facts if “the complaint shows on its face the statute [of limitations] bars the action.” (E-Fab, supra, 153 Cal.App.4th at 1315.) If it appears from the face of the complaint the action is time-barred, a plaintiff must then plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. (Id. at 1319.) Conversely, a demurrer is not sustainable if there is only a possibility the cause of action is time-barred. (Id. at pp. 1315-16.) Rather, the bar by the statute of limitations must be clearly and affirmatively apparent from the allegations in the pleading. (Ibid.) Under Section 338, a cause of action does not accrue until the discovery by the aggrieved party of the facts constituting the fraud. (Code. Civ. Proc., § 338, subd. (d).)

Here, Defendant cites the date of purchase – December 27, 2012 – as the date the statute of limitations accrued but there is no indication in the Complaint that this is the date Plaintiffs discovered the facts constituting the fraud. In fact, it appears Plaintiffs were not aware of the defect in the Vehicle much less facts related to Defendant’s fraudulent omission of the defect until after December 27, 2012. (See Complaint, ¶ 8.) As such, as alleged, this could not have been the date on which the statute of limitations accrued as it does not appear any discovery of the facts of the fraud had occurred at that point. Defendant fails to otherwise point to any other allegation from which it can be concluded that, based on the face of the Complaint, the cause of action accrued more than three years before the filing of this action.

Accordingly, the demurrer is not sustainable on the basis it is barred by the statute of limitations.

C. Economic Loss Rule

Under the economic loss rule, “where a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only ‘economic’ losses.” (Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal.4th 979, 988 (“Robinson”), internal citations and quotation marks omitted.) The purpose of the rule is to prevent the law of contract and the law of tort from dissolving into one another by drawing a distinction between economic loss such as damages for inadequate value, costs of repair, or loss of profits due to the unsatisfactory purchase (which would be governed by contract law) and physical harm to person and property (which would be governed by tort law). (Ibid.) As such, unless the purchaser can demonstrate a “harm above and beyond a broken contractual promise,” he or she can only recover in contract due to disappointed expectations in the purchase. (Ibid.) The crux of the analysis in determining whether the economic loss rules applies is whether there has been intentional tortious conduct apart from the breach itself. (Id. at 990-991.)

For example, in Robinson, a supplier sold clutches to a helicopter manufacturer that did not conform to the Federal Aviation Administration requirements and further issued false certificates of conformance for the clutches. (Id. at 986.) As a result, the manufacturer was required to recall and replace all the faulty clutch assemblies. (Id. at 986-87.) It sued the supplier for breach of contract and breach of warranty as well as for negligent and intentional misrepresentation. (Id. at 987.) The supplier argued the economic loss rule barred the manufacturer’s fraud claims because they were not independent of the contract. (Id. at 992.) The California Supreme Court disagreed and held the issuance of false certificates of conformance was intentional tortious conduct separate from the breach of contract. (Id. at 991.) Whereas the breach only involved the supplier’s provision of nonconforming clutches under the contract, the tortious conduct consisted of affirmative misrepresentations made by the supplier regarding the conforming nature of the clutches which the manufacturer relied on to its detriment. (Ibid.)

Here, Defendant argues Plaintiffs’ fraudulent omission claim is barred by the economic loss rule because they do not allege the breach of an independent tort duty or exposure to damages beyond their own economic loss. It also contends the Robinson court carved out only a very narrow exception to the rule which is limited to situations where the plaintiff relies on a defendant’s affirmative misrepresentations. These arguments are not well-taken.

Here, as in Robinson, the seventh cause of action alleges intentional tortious conduct beyond the breach of the sales and warranty contracts the parties entered into when Plaintiffs purchased the Vehicle. Specifically, Plaintiffs allege Defendant committed fraud by failing to disclose the engine cooling defect despite having exclusive knowledge of the defect since 2012 and its omission led to their purchase of a defective vehicle. (Complaint, ¶¶ 51-55.) This alleged concealment did not arise out of the parties’ obligations under either the sales or warranty contracts. In fact, it predates the parties’ entry into these contracts as the omission occurred before the Vehicle was purchased. As such, Plaintiff’s claim alleges intentional tortious conduct apart from the breach itself.

With respect to the assertion Plaintiffs must plead damages beyond their own economic loss, Defendant does not legally support its position apart from a reference to the following language in Robinson: “Our holding today is narrow in scope and limited to a defendant’s affirmative misrepresentations on which a plaintiff relies and which expose a plaintiff to liability for personal damages independent of the plaintiff’s economic loss.” (34 Cal.4th at 993.) It does not otherwise cite any authority for the proposition that the fact of damages beyond economic loss must be pled to avoid application of the economic loss rule. In any event, the Court observes Plaintiffs do allege damage beyond their own economic losses, namely in the form of exposure to liability because they now possess a Vehicle that poses a significant and unreasonably dangerous safety hazard. (Complaint at ¶ 49.)

Finally, Defendants’ contention an exception to the economic loss rule exists only in cases of affirmative misrepresentations lacks merit. Though it is true the court in Robinson only addressed the issue of whether the misrepresentations constituted tortious conduct apart from the breach of contract, numerous courts have held tort damages are available in breach of contract cases where other forms of intentional tortious conduct has occurred. (See, e.g., Erlich v. Menezes (1999) 21 Cal.4th 543, 551-52, citing Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 433–434; Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 175–176; Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1238–1239.) Moreover, as pointed out by Plaintiffs in their opposition, at least one federal court has stated the Robinson decision “suggests no meaningful distinction exists between intentional concealment and intentional misrepresentation.” (NuCal Foods, Inc. v. Quality Egg LLC (E.D. Cal. 2013) 918 F.Supp.2d 1023, 1031.) This Court agrees with the conclusion that intentional fraudulent concealment is not distinguishable from intentional misrepresentation for purposes of determining if the economic loss rule bars a given claim.

Accordingly, the demurrer is not sustainable on the basis the fraud by omission claim is barred by the economic loss rule.

D. Conclusion

For the reasons stated, the demurrer to the seventh cause of action on the ground of failure to state sufficient facts is OVERRULED.

III. Motion to Strike

The motion to strike the prayer for punitive damages is brought pursuant to Code of Civil Procedure sections 435 and 436. Under these statutes, a party may move to strike “irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., §§ 435, 436.) If a claim for punitive damages is not properly pleaded, the claim and/or related allegations may be stricken. (Grieves v. Superior Court (1984) 157 Cal.App.3d 159, 164.)

Defendant argues that none of the causes of action contained in the Complaint can support a claim for punitive damages. With respect to the Song-Beverly and Magnuson-Moss causes of action, Defendant contends punitive damages are not an available form of relief. With respect to the claim of fraud by omission, Defendant contends the Complaint does not state facts sufficient to allege a cause of action for fraud.

The argument the Song-Beverly and Magnuson-Moss causes of action cannot support a claim of punitive damages is well-taken. Punitive damages are not available under the Song-Beverly and Magnuson-Moss Acts. (See Troensegaard v. Silvercrest Indust. (1985) 175 Cal.App.3d 218, 228 [punitive damages not available under Song-Beverly Act]; Kelly v. Fleetwood Enterprises, Inc. (9th Cir. 2004) 377 F.3d 1034, 1039 [punitive damages not independently available under the Magnuson-Moss Act].)

In opposition, Plaintiffs cite two unpublished federal district court cases in support of the proposition punitive damages are recoverable under the Song-Beverly and Magnuson-Moss Acts. Their reliance on these cases is misplaced. In stating that the Song-Beverly Act (and the Magnuson-Moss Act through its resort to state law remedies) provides for the recovery of punitive damages, both of these cases relied on the holding of a third district court case – Romo v. FFG Ins. Co. (2005) 397 F.Supp.2d 1237 (“Romo”). Romo, however, did not hold punitive damages were available under the Song-Beverly Act (the “Act”). Rather, the court in its decision stated that because the Act authorizes civil penalties of up to two times the amount of actual damages, California courts have analogized them to punitive damages because they are intended to punish and deter defendants rather than compensate plaintiffs. (Id. at 1240.) As such, the court treated the Song-Beverly civil penalties as punitive damages for purposes of calculating the amount in controversy in determining diversity jurisdiction. (Ibid.) Therefore, the Romo opinion cannot be properly read as holding punitive damages are an available remedy under either the Song-Beverly or Magnuson-Moss Acts.

Turning to the fraud by omission cause of action, in order to plead a claim for punitive damages, a plaintiff must allege the defendant was guilty of malice, oppression, or fraud and the ultimate facts underlying such allegations. (Civ. Code, § 3294, subd. (a) (“Section 3294”); Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) The Complaint does not contain an allegation specifically charging Defendant with malice, oppression or fraud for purposes of punitive damages. It does however include a cause of action for fraud by omission. As malice or oppression are not otherwise pled, the parties only discuss the issue of fraud, and Plaintiffs do not suggest their request for punitive damages is predicated on malice or oppression, the question presented is whether fraud has been sufficiently alleged within the meaning of Section 3294.

Fraud means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant to deprive a person of property or legal rights or a resulting injury. (Civ. Code, § 3294, subd. (c)(3).)

Defendant argues Plaintiffs are not entitled to punitive damages because they have not sufficiently stated a claim for fraud. It does not substantiate this contention, discuss what facts of fraud must be pled to support a punitive damages claim under Section 3294, and merely references the arguments it raised in its demurrer to the seventh cause of action. Defendant’s attempt to incorporate its demurrer arguments into the present motion to strike is essentially a challenge to the propriety of the fraud claim. This is inapt. (See Quiroz v. Seventh Ave. Ctr. (2006) 140 Cal.App.4th 1256, 1281 [where a whole cause of action is subject to a challenge, the proper procedural vehicle is a demurrer and not a motion to strike]; see also CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146 [motion to strike is not the appropriate vehicle for raising defects properly raised by demurrer].) Even if it were not, as discussed above, a cause of action for fraud has been sufficiently stated. That pleading is therefore sufficient to support a request for punitive damages. (See Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 610.)

Accordingly, the motion to strike is DENIED.