Case Number: BC681447 Hearing Date: March 19, 2018 Dept: 47

Elianeth Medrano v. General Motors, LLC

(1) DEMURRER TO FIRST AMENDED COMPLAINT

(2) MOTION TO STRIKE

MOVING PARTY: (1) & (2) Defendant General Motors, LLC

RESPONDING PARTY(S): (1) & (2) Plaintiff Elianeth Medrano

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff alleges that there were steering, engine and other defects with the 2010 GMC Acadia he purchased.

Defendant General Motors, LLC demurs to the first amended complaint and moves to strike portions thereof.

TENTATIVE RULING:

Defendant General Motors, LLC’s demurrer to the first amended complaint is OVERRULED as to the seventh cause of action.

The motion to strike the prayer for punitive damages at Prayer, ¶ f, Page 21:10 is DENIED.

Defendant General Motors, LLC is to answer the first amended complaint within 10 days.

DISCUSSION:

Demurrer

Meet and Confer

The Declaration of Sean Morrissey reflects that the meet and confer requirement set forth in CCP § 430.41 was satisfied.

Discussion:

1. Seventh Cause of Action (Fraud by Omission).

A. Re: Statute of Limitations.

A cause of action for relief on the ground of fraud or mistake is subject to a three-year statute of limitations. CCP § 338(d). “The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” Id.

Here, Plaintiff purchased the subject vehicle on September 4 2010. 1AC, ¶ 25. Plaintiff alleges at ¶ 27 that during the warranty period the vehicle contained or developed defects, including but not limited to, steering system defects. The seventh cause of action for fraud by omission is based on the alleged concealment by Defendant that that steering system was defective and susceptible to sudden and premature failure. ¶¶ 65 – 102. Here, Plaintiff alleges that she discovered Defendant’s wrongful conduct at the time she requested a buyback of the vehicle in May 2017. 1AC, ¶ 98. Plaintiff alleges that prior thereto, from the date of the purchase in September 2010 to approximately May 2017, Plaintiff returned the vehicle no fewer than nine occasions to GM-authorized repair facilities to attempt to repair the vehicle. Id.

It is a question of fact as to whether Plaintiff should have discovered the fraudulent concealment of the alleged steering defect earlier than May 2017:

“‘[W]hen a plaintiff reasonably should have discovered facts for purposes of the accrual of a ca[u]se of action or application of the delayed discovery rule is generally a question of fact, properly decided as a matter of law only if the evidence (or, in this case, the allegations in the complaint and facts properly subject to judicial notice) can support only one reasonable conclusion.’ [Citations.]”

Rosas v. BASF Corp. (2015) 236 Cal.App.4th 1378, 1394.

Moreover, Plaintiff alleges that the applicable statute of limitations for the fraudulent omission claims was tolled by equitable tolling in the matter of Aguilar v. General Motors LLC (District Court, Case No.: 13-00437-LJO-GSA). 1AC, ¶ 6. The Aguilar Class Action was filed on March 22, 2013 (1AC, ¶ 8)—which is in the neighborhood of three years after Plaintiff purchased the vehicle. The Aguilar class action included owners of 2010 GMC Acadia vehicles and contain claims of fraud by failing to disclose to consumer at the time of sale that certain vehicles, including the 2010 GMC Acadia, suffers from defects that cause the steering system to intermittently and drastically fail while the car is in motion. 1AC, ¶¶ 9 -22.

In San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1336-40, the court applied cross-jurisdictional tolling by virtue of the filing of a class action in federal court as to later state court claims which are substantially similar such that the class action would have placed the defendant on notice of the claims at issue later asserted in the individual action, for the period of time that the individual was a member of the class action.

Plaintiff alleges that the parties in Aguilar stipulated to dismissal of the case, and the case was dismissed on January 26, 2015. 1AC, ¶ 23. As alleged by Plaintiff, the statute of limitations was tolled from March 22, 2013—the date the Aguilar class action was commenced—to January 26, 2015—the date the Aguilar class action was dismissed, i.e, a period of 674 days (1 year and 10 months):

Tolling lasts from the day a class claim is asserted until the day the suit is conclusively not a class action—which may be because the judge rules adversely to the plaintiff, or because the plaintiff reads the handwriting on the wall and decides not to throw good money after bad.”

Falk v. Children’s Hospital Los Angeles (2015) 237 Cal.App.4th 1454, 1464.

In light of the foregoing—question of fact as to whether Plaintiff should have discovered the alleged fraudulent concealment earlier, coupled with a 674 day tolling of the statute of limitations—it is for the trier of fact to determine whether the statute of limitations has run on Plaintiff’s fraudulent concealment cause of action.

Defendant’s statute of limitations argument is not persuasive.

B. Re: Failure To Sufficiently Plead.

[T]he elements of a cause of action for fraud based on concealment are: “ ‘(1) the 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. [Citation.]’ [Citation.]” (Citation omitted.)

Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 850.

“There are ‘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.]’ ” (Citations omitted.) Where, as here, there is no fiduciary relationship, the duty to disclose generally presupposes a relationship grounded in “some sort of transaction between the parties. [Citations.] 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. [Citation.]” (Citation omitted.)

OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 859 (bold emphasis added).

Here, the 1AC alleges at ¶¶ 66 – 69 allege that, at the time of the sale in September 2010 of the vehicle to Plaintiff, Defendant knew that the steering system was defective and susceptible to sudden and premature failure. Defects included: defects causing the steering gear to leak; defects causing the rack seal to leak; difficulty controlling the power steering after the vehicle has been driven for a while; premature failure of the steering gear housing, steering angle sensor, and steering wheel position sensor; fluid leakage; reduced and/or loss of steering assist; steering wheel feeling stiff and hard to turn; premature failure of the rack and pinion assembly. ¶ 69.

Such knowledge was acquired through sources not available to consumers, including testing data, consumer complaints and warranty repair data. ¶¶ 70, 75. Defendant allegedly concealed and failed to disclose the defective nature of the vehicle and its transmission to Plaintiff at the time of sale and thereafter. ¶ 76. Had Plaintiff known of the transmission defect, she would not have purchased the vehicle. Id. Plaintiff alleges that Defendant had a duty to disclose such defect because it had knowledge of such material information which Plaintiff as consumer could not have learned or discovered until after purchasing the vehicle. ¶ 77.

As such, the Complaint sufficiently pleads a cause of action for fraud by concealment. Less specificity is required to plead fraud by concealment. Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1199.

C. Re: Economic Loss Rule.

Defendant’s argument that the economic loss rule bars this fraud-based cause of action is not persuasive. The 1AC alleges that the steering defects present a safety hazard in that the defects can have serious consequences on the handling, maneuvering and stability of the vehicle while in operations, thereby contributing to car accidents and personal injury or death. ¶¶ 70, 73, 74. The defect is widespread, and manifests without warning. ¶ 75.

These facts bring Plaintiff’s claims outside the economic loss rule for fraud which exposes the plaintiff to liability to third parties, as recognized in Robinson Helicopter and its progeny. The alleged fraud exposes Plaintiff to causing harm to third persons as a result of driving a vehicle with an undisclosed defect.

Because the application of the economic loss doctrine to plaintiffs’ fraud cause of action depends on our interpretation of the California Supreme Court’s recent decision in Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal.4th 979 [22 Cal. Rptr. 3d 352, 102 P.3d 268] (Robinson), we turn to this question first.

Robinson was a breach of contract and fraud action. Dana and Robinson had contracted for Dana to supply a part for Robinson’s helicopters. Their contract required the part to be manufactured to certain specifications and prohibited changes to the manufacturing process without approval. When it delivered the parts, Dana provided Robinson with certificates required by the Federal Aviation Administration (FAA). These certificates asserted that the parts had been manufactured to the requisite specifications. (Robinson Helicopter Co. v. Dana Corp., supra, 34 Cal.4th at pp. 985–986.) After a couple of years, Dana changed its manufacturing process so that the parts did not meet Robinson’s specifications and did not comport with the required certificates. However, Dana continued to supply the required certificates and did not tell Robinson about the change. (Id. at p. 986.) After more than a year of supplying the nonconforming parts, Dana switched back to the original manufacturing process that met the required specifications. It did not notify Robinson of this change either. (Ibid.)

Eventually, Robinson’s helicopters began to experience a high failure rate for this part. (Robinson Helicopter Co. v. Dana Corp., supra, 34 Cal.4th at p. 986.) It was only after Robinson complained to Dana about the high failure rate that Dana disclosed that the parts were nonconforming. (Id. at pp. 986–987.) The defective parts did not cause any physical injury to person, property or other components of the helicopters. However, Robinson was required to recall and replace the nonconforming parts. And Dana was not very cooperative in providing the information necessary to identify the nonconforming parts so that they could be rapidly replaced. (Ibid.) Robinson incurred more than $ 1.5 million in expenses for replacement parts and employee time spent investigating the matter, identifying the nonconforming parts and replacing them. (Id. at p. 987.)

The jury found that Dana had breached its contract with Robinson, breached the warranties, and committed fraud. (Robinson Helicopter Co. v. Dana Corp., supra, 34 Cal.4th at pp. 987–988.) It awarded Robinson nearly all of its claimed expenses as compensatory damages and also awarded Robinson $ 6 million in punitive damages. (Id. at p. 987.) The Court of Appeal held that Robinson had no tort action (and therefore could not recover punitive damages) because it had suffered only economic loss. (Id. at p. 988.) The California Supreme Court granted review to decide that issue. (Ibid.)

The court held that Dana’s provision of false certificates of conformance supported a cause of action for fraud even absent physical injury. (Robinson Helicopter Co. v. Dana Corp., supra, 34 Cal.4th at p. 988.) Initially, the court noted that the economic loss rule was intended to separate contract from tort. (Ibid.) “ ‘[T]he economic loss rule allows a plaintiff to recover in strict products liability in tort when a product defect causes damage to “other property”, that is, property other than the product itself. The law of contractual warranty governs damage to the product itself.’ ” (Id. at p. 989.)

Robinson claimed that its fraud cause of action was permitted because it arose independently from the contract breach: the contract was breached by the supply of nonconforming parts; the fraud was providing false certificates claiming that the parts conformed. (Robinson Helicopter Co. v. Dana Corp., supra, 34 Cal.4th at p. 989.) Dana argued that its fraud was not independent of the breach of contract. (Id. at p. 992.) The court concluded that, because Robinson had relied on the certificates and its lack of knowledge of the nonconformity had led to economic loss and exposed Robinson to liability if any of the affected helicopters failed and caused physical injury, the fraud was “independent” of the breach. (Id. at pp. 990–991.)

The court then reasoned that the economic loss rule did not bar Robinson’s fraud cause of action “because [the fraud cause of action was] independent of Dana’s breach of contract.” (Robinson Helicopter Co. v. Dana Corp., supra, 34 Cal.4th at p. 991, italics added.) “ ‘Because of the extra measure of blameworthiness inhering in fraud, and because in fraud cases we are not concerned about the need for “predictability about the cost of contractual relationships,” … fraud plaintiffs may recover “out-of-pocket” damages in addition to benefit-of-the bargain damages.’ ” (Id. at p. 992, citation omitted.)

“ ‘… [a] party to a contract cannot rationally calculate the possibility that the other party will deliberately misrepresent terms critical to that contract.’ … No rational party would enter into a contract anticipating that they are or will be lied to. ‘While parties, perhaps because of their technical expertise and sophistication, can be presumed to understand and allocate the risks relating to negligent product design or manufacture, those same parties cannot, and should not, be expected to anticipate fraud and dishonesty in every transaction.’ … Dana’s argument therefore proposes to increase the certainty in contractual relationships by encouraging fraudulent conduct at the expense of an innocent party. No public policy supports such an outcome. [¶] Nor do we believe that our decision will open the floodgates to future litigation. 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.” (Robinson Helicopter Co. v. Dana Corp., supra, 34 Cal.4th at p. 993, citations and fn. omitted.)

The determination of whether the economic loss rule applies to plaintiffs’ fraud cause of action depends on whether the California Supreme Court intended in Robinson to obviate the application of the economic loss rule to all intentional affirmative fraud causes of action where the fraud exposes the plaintiff to liability or the court intended to provide a narrow exception to the economic loss rule that applies only where that fraud cause of action also accompanies, but is independent of, a breach of contract cause of action. We believe that the California Supreme Court’s decision in Robinson precludes the application of the economic loss rule to any intentional affirmative fraud action where the plaintiff can establish that the fraud exposed the plaintiff to liability.

The structure of the Robinson opinion supports this conclusion. The first part of the Robinson opinion was concerned with whether Dana’s wrongful conduct constituted tortious conduct, not whether the economic loss rule applied to it. It was only after the court held that Dana’s conduct was a tort independent of Dana’s breach of contract that the court addressed the application of the economic loss rule. (Robinson Helicopter Co. v. Dana Corp., supra, 34 Cal.4th at p. 991.) The analysis that followed suggested that fraud itself is immune from application of the economic loss rule because fraud is particularly blameworthy and therefore unlike both contract causes of action and products liability causes of action. Although the court suggested that its decision was a narrow one, its explicit limits did not exclude a fraud cause of action such as the one pleaded by plaintiffs.

Here, plaintiffs alleged that defendants’ affirmative misrepresentations about the dangers of low-level lead exposure, upon which they justifiably relied, had caused plaintiffs to fail to make timely efforts to prevent and treat low-level lead exposure. The delay in instituting prevention and treatment caused more people to be exposed and increased the cost of treatment for those who had been exposed or continued to be exposed. In addition, plaintiffs, as the owners of numerous buildings containing unremediated lead, continued to expose people to low levels of lead that plaintiffs believed were not harmful due to defendants’ misrepresentations. These people who were exposed to low levels of lead in plaintiffs’ buildings may hold plaintiffs liable for the permanent damage to their bodies that no amount of prevention or treatment can now completely remediate. Thus, plaintiffs’ potential liability to these people is independent of the economic harm to plaintiffs from the additional costs of prevention and treatment. Accordingly, we conclude that the economic loss doctrine does not apply to plaintiffs’ fraud cause of action, and we proceed to address whether defendants established that plaintiffs’ fraud cause of action had accrued more than three years prior to the March 2000 filing of the original complaint. (Code Civ. Proc., § 338, subd. (d) [three-year limitations period for fraud].)

County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 326-329 (bold emphasis and underlining added).

Defendants’ argument that the economic loss rule bars Plaintiff’s fraud-based causes of action is not persuasive.

The demurrer to the seventh cause of action is OVERRULED.

Motion To Strike

Meet and Confer

Defendant did not present a declaration reflecting that the meet and confer requirement set forth in CCP § 435.5 (effective January 1, 2018) was satisfied. indeed, the Declaration of Sean Morrissey in support of the demurrer attaches a meet and confer letter dated January 10, 2018, which does not reflect a meet and confer effort regarding the motion to strike punitive damages.

Nonetheless, because the Court has ruled in connection with the demurrer that Plaintiff has sufficiently pled fraud, such allegations would support an award of punitive damages. Civil Code § 3294(c)(3): “ ‘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 of thereby depriving a person of property or legal rights or otherwise causing injury.”

Accordingly, the motion to strike the prayer for punitive damages at Page 21:10, ¶ f is DENIED.

Defendant is ordered to answer the first amended complaint within 10 days.

Plaintiff to give notice, unless waived.

IT IS SO ORDERED.

Dated: March 19, 2018 ___________________________________

Randolph M. Hammock

Judge of the Superior Court