2017-00222822-CU-BC

Clarisse Davis vs. General Motors, LLC

Nature of Proceeding: Hearing on Demurrer to Plaintiffs’ Complaint

Filed By: Arens, Mary Lynn

Defendant General Motors LLC’s (“GM”) demurrer to the seventh cause of action in plaintiffs Clarisse Davis and Gary Davis’ Complaint for Fraudulent Omission is overruled.

In this Lemon Law action, Plaintiffs allege that the Vehicle, a 2012 GMC Acadia, has numerous defects including defects in the Steering System. Complaint, ¶ 27) Plaintiffs allege Defendant has been unable to service or repair the Vehicle to conform to the applicable express warranties after a reasonable number of opportunities. Plaintiff alleges that GM was aware of the defects in the vehicle prior to the sale, but failed to disclose the material facts at the time of the sale. (Complaint ¶ 47.) The Complaint was filed November 28, 2017.

GM challenges the 7th cause of action on the following grounds:

(1) The seventh cause of action is barred by the statute of limitations
(2) The seventh cause of action fails to state facts sufficient to constitute a cause of action.

(3) The seventh cause of faction is uncertain, ambiguous, and/or unintelligible

(4) The seventh cause of action violates the Economic Loss Rule, therefore it fails to state facts sufficient to constitute a cause of action.

The 7th cause of action for Fraudulent Omission alleges:

GM committed fraud by allowing the Vehicle to be sold to Plaintiffs without disclosing that the Vehicle and its steering system was defective and susceptible to sudden and premature failure. GM knew that the Vehicle contained one or more design and/or manufacturing defects in the steering system that could cause it to intermittently and drastically fail while the car is in motion (the “Steering Defect”), thus creating a serious safety risk. Specifically, GM knew (or should have known) that the steering system had

one or more defects, including but not limited to, those causing the premature bleeding of the power steering system, defects causing the power steering to make abnormal noises such as whining,

and/or defects causing the need to prematurely replace the steering gear, and/or any other similar concern identified in the repair history for the Vehicle. These defects 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. (Complaint ¶¶ 66-68)

Plaintiffs are informed, believe and thereon allege that GM acquired its knowledge of the Steering Defect prior to Plaintiffs acquiring the Vehicle, through sources not available to consumers such as Plaintiffs, including but not limited to 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. (¶69)

Plaintiffs are informed, believe, and thereon allege that while GM knew about the Steering Defect, and its safety risks at the time the Vehicle was manufactured and/or thereafter, if not before, GM nevertheless concealed and failed to disclose the defective nature of the Vehicle and its Steering system to Plaintiffs at the time of sale and thereafter. Had Plaintiffs known that the Vehicle suffered from the Steering Defect, they would not have purchased the Vehicle. (¶75)

Statute of Limitations

GM contends, absent any allegations of the date the fraud was discovered, the statute of limitations (three years for fraud, CCP §338(d)) accrued on the date the vehicle was purchased, December 31, 2012, and that it necessarily expired three years later on December 31, 2015. The Complaint was filed on November 28, 2017. The Court disagrees that the statute of limitations as a matter of law accrued on the date of the sale.

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, Plaintiffs alleged that the defects were fraudulently concealed at the time they purchased the vehicle and thus, they could not have been on notice of the defects on that date. When and how Plaintiffs 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. Plaintiffs have pled that they were unaware of the defects in the vehicle and that Defendant had exclusive knowledge of the defect. (Comp. ¶¶ 46-55.)

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.

Adequacy of Fraud allegations

The demurrer on this ground is overruled.
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. 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 defects were material given the safety risks alleged posed and the allegations that they 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)

In sum, Plaintiff’s fraudulent omission claim is pled with the requisite specificity. Plaintiffs alleged that GM concealed material facts regarding the Steering defects at the time they purchased the vehicle and thereafter by failing to disclose the defect at the time of purchase and repair at GM’s authorized dealership. Plaintiffs 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, they specifically alleged that he would not have purchased the vehicle had the information been disclosed. (Comp. ¶ 75) He alleged that he suffered actual damages as a result. (Comp. ¶ 29-30)

Economic Loss Rule

The demurrer on this basis is overruled.

The Court rejects GM’s argument that the plaintiffs’ 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 they would not have purchased the vehicle if GM

had disclosed the Steering 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 Plaintiffs 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

Overruled. Demurrers for uncertainty are disfavored. Demurrer’s for uncertainty are strictly construed and should not be granted unless the Complaint is so incomprehensible that the Defendants cannot reasonably respond. Lickiss v Financial Indus. Regulatory Auth. (2012) 208 Cal.App.4th 1125, 1135. Plaintiffs’ Complaint is adequate.

Answer to be filed on or before April 2, 2018.