SANTINO DE LOS SANTOS WALKER; ET AL. vs. VOLKSWAGEN GROUP OF AMERICA, INC.; ET AL.

Sufficiency of Pleading Fraudulent Inducement. Dhital v. Nissan North America Inc. (2022) 84 Cal.App.5th 828 (Dhital), an opinion issued in our own First District Court of Appeal, offers applicable precedent as to the sufficiency of Plaintiff’s fraudulent inducement cause of action.

In Dhital the plaintiff brought a lemon law action over his Nissan vehicle’s faulty transmission and additionally alleged fraudulent inducement. (Dhital, supra, 84 Cal.App.5th at p. 834.) The trial court sustained Nissan’s demurrer on the fraudulent inducement cause of action, deciding that the economic loss rule barred the claim. (Id. at p. 835-836.) The appellate court reversed, finding both that the economic loss rule did not bar the claim and that the plaintiff’s allegations sufficiently stated fraudulent inducement (insufficiency of pleading being an alternative ground for affirming the trial court ruling that Nissan urged on appeal). (Id. at p. 845.)

Regarding the economic loss rule, the Dhital court first described the rule: “[i]n general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922; Dhital, supra, 84 Cal.App.5th at p. 837.) “[W]here 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...The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.” (Robinson Helicopter Co., Inc. v.

Dana Corp. (2004) 34 Cal.4th 979, 988 (Robinson).) Examples of such harm include “where a breach of duty directly causes physical injury; for breach of the covenant of good faith and fair dealing in insurance contracts; for wrongful discharge in violation of fundamental public policy; or where the contract was fraudulently induced.” (Id. at pp. 989-990.) “[I]n each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm. (Ibid.)

The Dhital court noted that Robinson states its point quite plainly: fraudulent inducement is an exception to the economic loss rule. (Dhital at p. 839.) Dhital further observed that although Robinson discussed affirmative misrepresentations from the defendant as opposed to fraudulent concealment it did not state that only cases of affirmative misrepresentation qualify for the exception. (Ibid.) Rather, Robinson’s plain statement was that tort recovery should be allowed where the underlying duty is independent of the contract, and fraudulent inducement by concealment originates independent of the resulting contract because it literally predates formation of the contract. (Id. at pp. 840-841.)

Robinson and Dhital make it clear that the economic loss rule should not bar Plaintiffs’ fraudulent inducement claim in the instant case. Plaintiffs’ claim is based on conduct independent of the resulting contract and is expressly authorized in Robinson.

Regarding sufficiency of pleading, the Dhital court first discussed the basic law. Fraudulent inducement is a subset of fraud and so requires the same elements be proven: (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) justifiable reliance, and (5) damages. (Dhital, supra, 84 Cal.App.5th at p. 843; Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.) Fraud must always be pleaded with specificity. (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 132.)

The Dhital plaintiff’s allegations included that Nissan manufactured and distributed more than 500,000 vehicles with faulty transmissions; that Nissan knew or should have known of the faults from premarket testing and consumer complaints to both the National Highway Traffic Safety Administration (“NHTSA”) and to Nissan itself; and that Nissan issued Technical Service Bulletins (“TSBs”) regarding the transmission problem. (Dhital at pp. 833-834.) The Dhital court found all of this sufficient: the allegations stated that Nissan made lemons with transmission defects, Nissan knew of the transmission defects and the hazards they posed, Nissan had exclusive knowledge of the defects but did not disclose them to consumers, Nissan intended to conceal the information, and the plaintiff would not have bought the vehicle in question had the plaintiff known the information. (Id. at p. 844.)

Allegations that the plaintiff bought the car from a Nissan dealership with a Nissan-backed warranty and that dealerships are Nissan’s agents for purposes of sale sufficed to state a buyer-seller relationship between the parties. (Ibid.) The court rebuffed Nissan’s argument that the plaintiff was not specific enough about what it should have disclosed where the plaintiff described the effects of the transmission defect and alleged that Nissan knew of these effects from premarket testing and consumer complaints. (Ibid.)

Plaintiffs’ allegations in the instant complaint almost line up well with those of the Dhital plaintiff. Plaintiffs here describe the driver assistance system defect at issue as causing unwarranted sudden braking and false alerts to the driver of imminent collision. (Complaint at ¶¶ 48-50.) Plaintiffs allege that VW knew or should have known of the transmission system defect from pre- and post-production market testing, consumer complaints, and warranty data. (Id. at ¶¶ 51-52.) Plaintiffs allege that VW concealed information about the driver assistance system defect that would have changed Plaintiffs’ purchase decision had it been known to Plaintiffs. (Id. at ¶ 57.)

However, Plaintiffs merely allege obtaining the Vehicle under a warranty with VW. (Complaint at ¶¶ 10-11.) They do not say anything more than that. Plaintiffs are not clear about how precisely they obtained the Vehicle and so do not state facts supporting a buyer-seller transactional relationship that imposed on VW a duty of disclosure.

Economic Loss and Negligent Repair. Per the above, the economic loss rule prevents “recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922; Dhital, supra, 84 Cal.App.5th at p. 837.) Plaintiffs’ cause of action for negligent repair states that they took the Vehicle to Dealer for repair but Dealer did not properly store, prepare, and/or repair the Vehicle, causing damages. (Complaint at ¶¶ 61-65.) The complaint does not state that the cause of action is based on a contract between Plaintiffs and Dealer, nor does it show that Plaintiffs suffered only economic loss. The economic loss rule does not bar Plaintiffs’ cause of action for negligent repair.

Sufficiency of Pleading Negligent Repair. Plaintiffs’ cause of action for negligent repair fails for lack of facts supporting its conclusions. The complaint states only conclusions, without supporting facts, that Dealer did not properly store, prepare, and/or repair the Vehicle.

Leave to Amend. Leave to amend is proper where identified defects are amenable to cure. (Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768.) It is the pleading party’s burden to show the trial court that a reasonable possibility exists that amendment can cure identified defects in that party’s pleading. (Murphy v. Twitter, Inc. (2018) 60 Cal.App.5th 12, 42.) The court finds Plaintiffs demonstrate a reasonable possibility that amendment can cure identified defects.

Conclusion. Defendants’ motion for judgment on the pleadings is granted with leave to amend.

ROBERT ALLEN ENGLAND vs. BIANCA NICOLE PAPPA