Case Name: Zhao v. Ford Motor Company
Case No.: 16-CV-294864

Defendant Ford Motor Company (“Defendant”) demurs to the complaint (“Complaint”) filed by plaintiff Xiaolin Zhao (“Plaintiff”).

This action arises out of the purchase of a motor vehicle. On July 13, 2013, Plaintiff purchased a 2013 Ford Focus vehicle which was manufactured and/or distributed by Defendant. (Complaint, ¶ 7.) In connection with the purchase, Plaintiff received an express written warranty which provided that in the event a defect developed with the vehicle during the warranty period, Plaintiff could deliver the vehicle for repair services to Defendant’s representative. (Id., ¶ 8.)

During the warranty period, the vehicle contained or developed numerous defects relating to the transmission which substantially impaired the use, value or safety of the vehicle. (Complaint, ¶ 9.) Defendant and its representatives have been unable to service or repair the vehicle to conform to the applicable express warranties after a reasonable number of opportunities and despite this, have failed to promptly replace the vehicle or make restitution to Plaintiff as required by Civil Code section 1793.2, subdivision (d), and Civil Code section 1793.1, subdivision (a)(2). (Id., ¶ 10.)

As relevant here, Plaintiff alleges that Defendant committed fraud by allowing the vehicle to be sold to her without disclosing that its DPS6 transmission was defective and susceptible to sudden and premature failure. (Complaint, ¶ 47.) Defendant knew, or should have known, that problems caused by the defects presented a safety hazard in that they can suddenly and unexpectedly affect the driver’s ability to control the vehicle’s speed, acceleration, and deceleration. (Id., ¶ 49.) Defendant is alleged to have known about the transmission defect and its safety risks since 2012. (Id., ¶ 51.) Had she known about the defect, Plaintiff alleges, she would not have purchased the vehicle. (Id., ¶ 51.)

On May 6, 2016, Plaintiff filed the Complaint asserting the following causes of action: (1) violation of Civil Code section 1793.2, subdivision (d); (2) violation of Civil Code section 1792.3, subdivision (b); (3) violation of Civil Code section 1793.2, subdivision (a)(3); (4) breach of express warranty (Civil Code §§ 1791.2, subd. (a) and 1794); (5) breach of implied warranty of merchantability (Civil Code §§ 1791.1 and 1794); (6) violation of the Magnuson-Moss Warranty Act; and (7) fraud by omission.

On June 17, 2016, Defendant filed the instant demurrer to the seventh cause of action in the Complaint on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) Plaintiff filed her opposition on July 6, 2016.

Plaintiff’s request for judicial notice is GRANTED. (Evid. Code, § 452, subds. (a) and (d).)

In arguing that its demurrer to the seventh cause of action for fraud by omission should be sustained, Defendant first asserts that Plaintiff has not pleaded her claim with the necessary specificity, particularly the elements of intent and damages. As a general matter, the essential elements of a fraud claim are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud (i.e., to induce reliance); (4) justifiable reliance; and (5) resulting damage. (Anderson v. Deloitte & Touche (1997) 56 Cal.App.4th 1468, 1474.)

“Fraud must be pleaded with specificity rather than with general and conclusory allegations. The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made.” (West v. JP Morgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793 [internal citations and quotation marks omitted].) Specificity for fraud claims is required in order to give the defendant adequate notice of the charges they must meet and to allow the court to weed out meritless claims. (Id.)

Here, Defendant contends, unpersuasively, that Plaintiff has not met the foregoing standard by failing to set forth specific facts as to its alleged intent to defraud her and who made the allegedly fraudulent omission and their authority to speak on behalf of the company. Defendant insists that Plaintiff only makes conclusory allegations of its intent to deceive, rendering her fraud claim demurrable. However, intent is a fact and therefore the averment that a representation (or nondisclosure of a material fact) was made with the intent to deceive the plaintiff, or any other general allegation with similar purport, is sufficient. (Woodroof v. Howes (1981) 88 Cal. 184, 190; Wennerholm v. Stanford University School of Medicine (1942) 20 Cal.3d 713, 716.) In the Complaint, Plaintiff alleges that Defendant “knowingly and intentionally concealed material facts and breached its duty not to do so.” (Complaint, ¶ 54.) Accordingly, Plaintiff has sufficiently pleaded the element of intent.

Defendant also misunderstands the nature of Plaintiff’s fraud claim, which is based on an omission, in asserting that she has insufficiently pleaded the seventh cause of action by failing to set forth who “made” the fraudulent omission and whether that person had the authority to do so. The thrust of Plaintiff’s fraud claim is that material facts were not disclosed to her by Defendant. An omission cannot be “made” at someone because it consists of the absence of information. Thus, though it is generally true that fraud claims against a corporation require allegations regarding who made a representation and their authority to speak on behalf of the corporation, this standard presumes that an affirmative misrepresentation has been made, which is not the case here.

As for the element of damages, Defendant similarly argues that no supporting facts are pleaded and Plaintiff only pleads damages resulting from the alleged concealment as a legal conclusion. This argument is not well-taken, however, because Plaintiff clearly alleges that but for Defendant’s fraudulent omissions, she would not have purchased the subject vehicle in the first place. (Complaint, ¶ 55.) Consequently, Plaintiff has sufficiently set forth the injury or damages she purportedly suffered and their causal connection to Defendant’s alleged fraud, and thus has adequately pleaded the element of damages. (See, e.g., Williams v. Graham (1948) 83 Cal.App.2d 649, 652.)

Defendant lastly argues that Plaintiff’s claim is barred by the economic loss rule, which provides that “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 done in contract alone, for he has suffered only ‘economic losses.’” (Robinson Helicopter Company v. Dana Corporation (2004) 34 Cal.4th 979, 988 [internal citations and quotations omitted].) This doctrine hinges on a “distinction drawn between transactions involving the sales of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts.” (Id. [internal citations omitted].) The rule requires a purchaser to recover solely in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm “above and beyond a broken contractual promise.” (Id. [internal citations omitted].)

In Robinson Helicopter Company, supra, the California Supreme Court carved out an exception to the rule, holding that it does not bar claims for fraud and intentional misrepresentation which are independent of the contract that is alleged to have been breached. (Robinson Helicopter Company, 34 Cal.4th at 991.) The court reasoned that a breach of contract remedy assumes the parties to a contract can negotiate the risk occasioned by a breach, and thus, given this negotiation, it is “appropriate to enforce only such obligations as each party voluntarily assumed, and to give him only such benefits as he expected to receive ….” (Id., citing Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 517.) However, because a party to a contract could not “rationally calculate the possibility that the other party will deliberately misrepresent terms critical to that contract,” the court explained that public policy demanded that the party who is deceived be permitted to recover damages not limited to the contract. (Id.) Thus, where one party commits fraud during the contract formation or performance, the injured party may recover in contract and tort. (Id.; see also Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 70, 78.) Here, such fraudulent conduct by Defendant has been alleged, with Plaintiff pleading that she would not have purchased the vehicle, i.e., entered into the sales agreement, if Defendant had not failed to disclose the known material fact of a defective transmission. Accordingly, Plaintiff’s fraud claim is not barred by the economic loss rule.

As none of Defendant’s arguments are persuasive, its demurrer to the seventh cause of action for fraud by omission on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.