Case Name: Darmohray v. Kia Motors America, Inc.
Case No.: 18CV329904

Defendant Kia Motors America, Inc. (“Defendant”) demurs to portions of the complaint (“Complaint”) filed by plaintiff Olena Darmohray (“Plaintiff”) and moves to strike portions contained therein.

I. Factual and Procedural Background

This is a lemon law action. According to the allegations of the Complaint, on July 7, 2012, Plaintiff leased a 2012 KIA Optima (the “Subject Vehicle”) manufactured and/or distributed by Defendants, which she subsequently purchased on June 6, 2015. (Complaint, ¶ 6.) In connection with the purchase, Plaintiff received an express warranty pursuant to which Defendant was to preserve or maintain the Subject Vehicle’s utility or performance, or provide compensation in the case of failure to either in a specified period of time. (Id., ¶ 7.) During the warranty period, the Subject Vehicle contained or developed numerous defects including, but not limited to, the following: defects relating to the steering system; impairment of the fuel flow; premature engine bearing wear, stalling; and a reduction in engine acceleration. (Id., ¶ 8.)

Defendant knew since 2011, if not earlier, that the 2011-2014 KIA Optima, among other models, contained one or more design and/or manufacturing defects in their engines that resulted in the restriction of oil flow to vital areas of the vehicle and will cause it to experience catastrophic engine failure and/or stalling while in operation. (Complaint, ¶¶ 11-15.) However, Defendant failed to disclose this fact to Plaintiff at the time of sale or at any point thereafter and concealed such information from her. (Id., ¶ 16.) Had Plaintiff been aware of the foregoing defects, she would not have purchased the Subject Vehicle. (Id., ¶ 21.)

Plaintiff discovered Defendant’s wrongful conduct on April 4, 2018, when she requested a buyback and/or restitution of the Subject Vehicle from Defendant. (Complaint, ¶ 24.) However, Defendant failed to provide restitution pursuant to the Song-Beverly Consumer Warranty Act (the ‘Song-Beverly Act”) as required. (Id.)

Based on the foregoing allegations, Plaintiff filed the Complaint on June 13, 2018, asserting the following causes of action: (1) violation of Civil Code section 1793.2, subdivision (d); (2) violation of Civil Code section 1793.2, subdivision (b); (3) violation of Civil Code section 1793.2, subdivision (a)(3); (4) breach of express warranty; (5) breach of the implied warranty of merchantability; and (6) fraud by omission.

On August 6, 2018, Defendant filed the instant demurrer to the third, fourth, fifth and sixth causes 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).) Defendant also filed the motion to strike portions of the Complaint. (Code Civ. Proc., §§ 435 and 436.) Plaintiff opposes both motions.
II. Demurrer

As articulated above, Defendant demurs to the third through sixth causes of action on the grounds of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) Much of Defendant’s motion is premised on its contention that several of Plaintiff’s claims are untimely.

Defendant first addresses Plaintiff’s claim for fraud by omission, arguing that it is untimely on its face. In opposition, Plaintiff insists that the claim is timely for several reasons, specifically: (1) the face of the pleadings does not disclose a statute of limitations defense; (2) due to the discovery rule, the fraud claim has not even accrued yet; (3) the Wallis class action tolled the statute of limitations; and (4) the claim is tolled by Defendant’s own conduct, particularly its fraudulent concealment of its wrongdoing.

As a general matter, 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, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315.) A demurrer is not sustainable on statute of limitations grounds if there is only a possibility that the cause of action is time-barred; the defense must be clearly and affirmatively apparent from the allegations of the pleading. (Id. at 1315-1316.) When evaluating whether a claim is time-barred, the court must determine: (1) which statute of limitations applies, and (2) when the claim accrued. (Id. at 1316.)

The limitations period for a claim predicated on fraud is three years from the date of “the discovery, by the aggrieved party, of the facts constituting the fraud.” (Code Civ. Proc., § 338, subd. (d).; see Britton v. Girardi (2015) 235 Cal.App.4th 721, 734.) Defendant insists that Plaintiff’s claim is time-barred on its face because she first leased the Subject Vehicle on July 7, 2012, but did not file suit until June 13, 2018, over three years later. In making this argument, however, Defendant presumes that the limitations period for this claim began to run on the date of the lease transaction, but there is nothing in the Complaint which indicates that Plaintiff discovered the facts constituting the fraud on that date, and in fact, Plaintiff specifically pleads to the contrary, alleging that she did not discover Defendant’s purported wrongful conduct until April 4, 2018. (Complaint, ¶ 24.) “When a plaintiff reasonably should have discovered facts for purposes of the accrual of a cause 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 in this case, the allegations in the complaint and facts properly subject to judicial notice) can support only one reasonably conclusion.” (Broberg v. The Guardian Life Ins. Co. of America (2009) 171 Cal.App.4th 912, 921.) Again, there are no allegations in the Complaint which establish, as a matter of law, that Plaintiff discovered or should have discovered Defendant’s alleged fraudulent acts more than three years before she filed the instant action. Consequently, as Plaintiff maintains, the viability of the statute of limitations defense is not clearly and affirmatively apparent from the allegations of the Complaint and therefore the demurrer is not sustainable on this basis. Thus, the Court need not address the remaining arguments regarding the statute of limitations.

Defendant next argues that Plaintiff’s fraud claim is inadequately pleaded, with Plaintiff failing to set forth the allegations of this claim with the requisite specificity.

The general elements of a fraud claim are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or “scienter”); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) “Active concealment or suppression of facts by a nonfiduciary is the equivalent of a false representation, i.e., actual fraud.” (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 291 [internal citations omitted].) There are four scenarios “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.” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.) Where a fraud claim is predicated on concealment or nondisclosure, the following elements are essential: (1) the defendant had a duty to disclose the concealed or suppressed fact to the plaintiff; (2) the defendant intentionally concealed or suppressed the fact with the intent to defraud the plaintiff; and (3) the plaintiff was damaged as a result. (Jones v. ConocoPhillips (2011) 198 Cal.App.4th 1187, 1198.) Fraud must be pleaded with particularity and the doctrine of liberal construction of the pleadings does not apply. (Lazar, supra, 12 Cal.4th at 638.)

Here, Defendant insists that Plaintiff’s fraud claim falls well short of the required specificity, with her failing to plead when, where and with whom she interacted relative to Defendant’s sales representatives, and also failing to articulate any statements on which she supposedly relied. In short, Defendant’s maintain, Plaintiff fails to state “how, when, where, to whom, and by what means” the alleged misrepresentations or omissions were made, and thus does not put Defendant on fair notice of the nature of the fraud claim being asserted against it.

Defendant’s argument evidences a partial misunderstanding of the theory underlying Plaintiff’s fraud claim, as this cause of action is predicated not on affirmative misrepresentations to Plaintiff, but rather nondisclosure and/or concealment of material facts. Defendant’s argument fails to take into account the differences between a fraud claim based on affirmative misrepresentations and a fraud claim based on concealment or nondisclosure. Though the particularity requirement generally mandates that a plaintiff plead facts establishing the aforementioned items, it is much more difficult to apply this rule in a case of nondisclosure because, as one court explained, “[h]ow does one show ‘how’ and ‘by what means’ something didn’t happen, or ‘when’ it never happened, or ‘where’ it never happened?” (Alfaro v. Community Housing Imp. System & Planning Ass’n., Inc. (2009) 171 Cal.App.4th 1356, 1384.) One of the purposes of the specificity requirement is to provide “notice to the defendant, to furnish the defendant with certain definite charged which can be intelligently met.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216 internal quotations omitted].) However, when “it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy, even under strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party ….” (Id. at 217.)
Such is the circumstance here, where Defendant is alleged to possess exclusive and superior knowledge regarding the engine defects in the Subject Vehicle. Given this fact and the fact that this claim is predicated on concealment/nondisclosure, the Court finds that Plaintiff has alleged the elements of her fraud claim with the requisite specificity.

With regard to the sufficiency of the fraud claim in particular, Defendant lastly argues that the 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 brought is not working properly, his remedy is said to be in contract alone, for he has suffered only economic losses.” (Robinson Helicopter Company v. Dana Corporation (2004) 34 Cal.4th 979, 988.) 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.” (Robinson, supra, 34 Cal.4th at 988.) 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.)

In Robinson, the California Supreme Court carved out an exception to this rule, holding that it does not bar claims for fraud and intentional misrepresentations, which are independent of the contract that is alleged to have been breached. (Robinson, supra, 34 Cal.4th at p. 991.) The court reasoned that a breach of contract remedy assumes the parties to a contract can negotiate the risk occasioned by a breach; 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 ….” (Ibid., 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. (Ibid.) Thus, where one party commits fraud during the contract formation or performance, the injured party may recover in contract and tort. (Ibid.; see also Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 79, 78.) Here, such conduct by Defendant has been alleged, with Plaintiff pleading that she would not have purchased the Subject Vehicle if Defendant had not failed to disclose the material fact of known engine defects. (Complaint, ¶ 66.) Defendant’s assertion that the fraudulent inducement exception is limited to claims for fraud predicated on an affirmative misrepresentation is without merit. Accordingly, the economic loss does not apply to Plaintiff’s fraud claim.

As none of the arguments asserted by Defendant in support of its demurrer to the fraud claim are persuasive, Defendant’s demurrer to the sixth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

Next, Defendant asserts that Plaintiff’s fifth cause of action for breach of the implied warranty of habitability under the Song-Beverly Act is time-barred by the applicable four-year statute of limitations set forth in Commercial Code section 2725. Defendant contends that the four-year statute of limitations begins to accrue when tender of delivery is made and therefore Plaintiff’s claim is clearly time-barred.

In opposition, Plaintiff insists that her claim did not begin to accrue until she discovered the alleged breaches and that the “future performance” exception set forth in Commercial Code section 2725 applies and operates to render her claim timely because her vehicle had a “5-year/60,000 mile express bumper to bumper warranty, a 10-year/100,000 mile powertrain warranty which, inter alia, covers the engine and transmission, and subsequently received a 10-year/120,000 mile extended coverage plan (e.g., extended warranty) which covers Theta 2.0-liter and 2.4 liter gasoline direct injection engines ….” (Complaint, ¶ 7.) Finally, she argues, this claim is tolled by the doctrine of fraudulent concealment and so-called “American Pipe” tolling.

Generally, an action for damages under the Song-Beverly Act is governed by the four-year limitations period for breach of warranty in sales contracts set forth in Uniform Commercial Code section 2725. (Jensen v. BMW of North America, Inc. (1995) 35 Cal.App.4th 112, 132; Krieger v. Nick Alexander Imports, Inc. (1991) 234 Cal.App.3d 205, 213-215.) Commercial Code section 2725, subdivision (1) states that “[a]n action for breach of any contract for sale must be commenced within four years after the cause of action has accrued.” Commercial Code section 2725, subdivision (2) further provides that “[a] cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach.” “A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.” (Com. Code, § 2725, subd. (2) [emphasis added].)

Further, under the Song-Beverly Act, the duration of the implied warranties of merchantability and fitness is coextensive with a manufacturer’s express warranty. (Civ. Code, 1791.1, subd. (c).) However, in no event will the duration of the implied warranties be less than 60 days or more than 1 year following the sale of new consumer goods to a retail buyer. (Ibid.)

The italicized language above is the “future performance” exception on which Plaintiff attempts to rely. This exception is to be narrowly construed, and applies “only when the seller has expressly agreed to warrant its product for a specific and defined period of time.” (Cardinal Health 301, Inc. v. Tyco Electronics Corp. (2008) 169 Cal.App.4th 116, 130; see Carrau v. Marvin Lumber & Cadar Co. (2001) 93 Cal.App.4th 281, 291 [stating that where an express warranty is made which extends for a specific period of time, “the policy reasons behind strict application of the limitations period do not apply …”].) However, “the argument that a warranty necessarily extends to future performance merely because it contains promises regarding the manner in which the goods will perform after tender of deliver[y]” has been rejected by the courts. (Cardinal Health 301, Inc., supra, 169 Cal.App.4th at 131.) Moreover, “[b]ecause an implied warranty is one that arises by operation of law rather than by an express agreement of the parties, courts have consistently held it is not a warranty that explicitly extends to future performance of the goods ….” (Id. at 134 [internal citations and quotations omitted].) Thus, it seems clear that Plaintiff’s implied warranty claim accrued at delivery and not at the point at which Plaintiff allegedly discovered the alleged breaches.

Relying on Erlich v. BMW of North America (2010) 801 F.Supp.2d 908, Plaintiff argues to the contrary, noting that in that case the court rejected BMW’s assertion that the statute of limitations began to run on the date the vehicle was purchased and concluded that a warranty for a specific length of time and/or amount of mileage is a warranty that “explicitly extends to future performance of the goods.” (Erlich, 801 F.Supp.2d at 924-925.) Erlich, however, is an outlier when it comes to decisions that have considered the issue of whether the future performance exception applies to implied warranty claims and, as federal authority, is not controlling in this action. The Court therefore declines to follow the Erlich court’s interpretation of the “future performance” exception set forth in Commercial Code section 2725.

Plaintiff’s additional tolling arguments do not save her claim. She first contends that the statute of limitations on the claim was tolled by the filing of the Wallis, et al. v. KIA Motors America, Inc. (“Wallis”) class action in federal court pursuant to the doctrine outlined in American Pipe & Const. Co. v. Utah (1974) 414 U.S. 538 (“American Pipe”). In American Pipe, the court ruled that the commencement of a class action tolls the limitations period for similar individual actions of each member of the purported class until certification is denied. This doctrine has been held to have limited application in California; whether it applies in state court is decided on a case-by-case basis as to “whether claims asserted in the class action have placed the defendant on notice of the claims at issue in the individual action” and whether it serves to further the economy and efficiency of litigation. (San Francisco Unified School District v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1337, internal citation omitted.)

According to Plaintiff’s Complaint, the Wallis class action was filed on June 2, 2016 and dismissed on November 7, 2016, and therefore the statute was tolled during that time. However, even if this was the case, Plaintiff’s claim is still not timely. Here, tender of delivery occurred on July 7, 2012, giving Plaintiff until July 7, 2016, absent tolling, to sue for breach of implied warranty. When the Wallis action was filed, Plaintiff only had a little over a month left to file her case under American Pipe as, pursuant to that case, when the tolling period installed by the class action ends, an individual plaintiff only has whatever time is left to run under the applicable statute of limitations in which to file their own claim. (See American Pipe, supra, 414 U.S. 538 at 539.) Thus, when Wallis was dismissed on November 7, 2016, tolling ceased, and Plaintiff had a little over a month to file her lawsuit. She did not file until June 2018, more than a year later. American Pipe tolling therefore does not render Plaintiff’s implied warranty claim timely.

As for fraudulent concealment, this doctrine operates such that “the defendant’s fraud in concealing a cause of action against him tolls the applicable statute of limitations.” (Regents of University of California v. Super. Ct. (1999) 20 Cal. 4th 509, 533.) Because fraud is the basis of the estoppel, the same pleading and proof is required in the fraud cases (i.e., the plaintiff must show the substantive elements of fraud and an excuse for late discovery of the facts). (See Snapp & Associates Ins. Services, Inc. v. Robertson (2002) 96 Cal.App.4th 884, 890-891.) “When a plaintiff relies on a theory of fraudulent concealment, delayed accrual, equitable tolling, or estoppel to save a cause of action that otherwise appears on its face to be time-barred, he or she must specifically plead facts which, if proved, would support the theory.” (Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 641.) With regard to belated discovery due to fraudulent concealment in particular, the complaint must allege “(1) when the fraud was discovered; (2) the circumstances under which it was discovered; and (3) that the plaintiff was not at fault for failing to discover it or had no actual or presumptive knowledge of facts sufficient to put him on inquiry.” (Community Cause v. Boatwright (1981) 124 Cal.App.3d 888, 900.) Here, Plaintiff’s Complaint falls short of the foregoing standard, with a dearth of facts establishing active concealment on the part of Defendant. The Court, however, will provide Plaintiff with an opportunity to amend her pleading to address this deficiency. Consequently, Defendant’s demurrer to the fifth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

Next, Defendant argues that Plaintiff’s third cause of action is deficient because she fails to plead facts demonstrating that repair facilities were not provided with sufficient service literature or replacement parts by Defendant. This claim alleges a violation of part of the Song-Beverly Act, particularly Civil Code section 1793.2, subdivision (a)(3), which provides that every manufacturer of consumer goods for which it has made an express warranty shall “[m]ake available to authorized service and repair facilities sufficient service literature and replacement parts to effect repairs during the express warranty period.” The Court finds Defendant’s argument unavailing, noting that Plaintiff is not required to plead evidentiary facts at this stage and has otherwise adequately apprised Defendant of the factual basis for this claim. (See Birke v. Oakwood Worldwide (2009) 169 Cal.App.4th 1540, 1548.) Therefore, Defendant’s demurrer to the third cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

Lastly, Defendant maintains that the fourth cause of action fails because Plaintiff has not pleaded facts demonstrating breach of an express warranty and the claim is redundant of her first cause of action. The latter argument is demonstratively false, as the court in Park City Services, Inc. v. Ford Motor Co., Inc. (2006) 144 Cal.App.4th 29 expressly recognized in holding that a claim for failure to repurchase is separate and distinct from a claim for breach of an express warranty. (Id. at 301-303.) Defendant’s first argument is also without merit, as Plaintiff has set forth in detail in her Complaint the terms of the express warranty that was allegedly breached by Defendant. (See Complaint, ¶ 7.) Consequently, Defendant’s demurrer to the fourth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

III. Motion to Strike

With the instant motion, Defendant moves to strike Plaintiff’s request for punitive damages and allegations relating thereto on the ground that Plaintiff’s Song-Beverly and fraud by omission causes of action do not allow for recovery of such damages.

Ultimately, the Court need not reach the merits of Defendant’s Song-Beverly Act argument because, having sufficiently pleaded a claim for fraud, Plaintiff has established a basis for the recovery of punitive damages. (See Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 610 [stating that a properly pleaded fraud claim will by itself support the recovery of punitive damages].) Therefore, Defendant’s motion to strike is DENIED.