Demurrer to First Amended Complaint ( Judge Sunil R. Kulkarni)

Case Name: Wood, et al. v. Kia Motors America, Inc.

Case No.: 19CV352849

Defendant Kia Motors America, Inc. (“Defendant” or “KMA”) demurs to the First Amended Complaint (“FAC”) filed by plaintiffs Brian Wood and Lisa Wood (collectively, “Plaintiffs”) and moves to strike portions contained therein.

  1. Background
  1. Factual

According to the allegations of the FAC, on November 11, 2011, Plaintiffs purchased a 2012 Kia Sorento (the “Vehicle”) manufactured and/or distributed by Defendant.  (FAC, ¶ 9.)  In connection with the Purchase, Plaintiffs received an express warranty under which Defendant was to preserve or maintain the Vehicle’s utility of performance, or provide compensation in the case of failure to either in a specified period of time.  (Id., ¶ 10.)

During the warranty period, the Vehicle contained or developed numerous defects including, but not limited to, the following: defects relating to the engine; defects related to the A/C system; defects resulting in failure to start; defects resulting in lack of power; defects relating to the airbag; and defects relating to the transmission.  (FAC, ¶ 11.)  According to Plaintiffs, Defendant knew since 2009, if not earlier, that the 2012-2019 Kia Sorento, 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, ¶¶ 16-17.)  However, Defendant failed to disclose this fact to Plaintiffs at the time of sale or at any point thereafter and concealed such information from them.  (Id., ¶ 39.)  Had Plaintiffs been aware of the foregoing defects, they would not have purchased the Subject Vehicle.  (Id., ¶ 50.)  Plaintiffs discovered Defendant’s wrongful conduct shortly before filing the instant action on August 2, 2019.  (Id., ¶ 57.)

  1. Procedural

In the FAC, Plaintiffs assert 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 (Civ. Code, §§ 1791.2, subd. (a) and 1794); (5) breach of the implied warranty of merchantability (Civ. Code, §§ 1791.1, 1794 and 1795.5); and (6) fraud by omission.  On October 15, 2019, Defendant filed the instant demurrer to the third through sixth causes of action 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 its motion to strike portions of the Complaint.  (Code Civ. Proc., §§ 435 and 436.)  Plaintiffs oppose both motions.

  1. KMA’s Demurrer
  1. Fraud by Omission (6th Cause of Action)
  1. Statute of Limitations

Defendant first argues that Plaintiffs’ claim for fraud by omission is untimely on its face. 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 Plaintiffs’ claim is time-barred on its face because all of its elements were complete at the time they purchased the Vehicle in November 2011, with Plaintiff alleging that the Vehicle contained and/or developed the alleged defects and nonconformities “[a]t the time of purchase and/or lease, or within one-year thereafter” and KMA was “well aware and knew … the Vehicle was defective but failed to disclose this fact to Plaintiff at the time of sale and thereafter” (FAC, ¶ 42).

In making this argument, Defendant presumes that the limitations period for this claim began to run on the date of the sale transaction.  However, there is nothing in the FAC which indicates that Plaintiffs discovered the facts constituting the fraud on that date, and in fact, Plaintiffs specifically plead to the contrary, alleging that they did not discover Defendant’s purported wrongful conduct until shortly before they filed this action in August 2019.  (FAC, ¶¶ 57, 68.)  “When a plaintiff reasonably should have discovered facts for purposes of the accrual of a case 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 FAC which establish, as a matter of law, that Plaintiffs discovered or should have discovered Defendant’s alleged fraudulent acts more than three years before they filed the instant action.  The aforementioned allegations relate to Defendant’s knowledge only.  Whether Plaintiffs’ assertions that they were unaware of the defects in the Vehicle prior to August 2019 despite bringing it in for numerous repairs is viable is a factual question not appropriately determined on demurrer.  Moreover, the Court notes that Plaintiffs continuously allege that Defendant possessed exclusive and superior knowledge of the various defects in the Vehicle and intentionally misrepresented to them that it was repaired and/or did not require repairs.  (See, e.g., FAC, ¶¶ 16, 29, 30, 32, 35, 39, 40, 46, 82, 113.)

Consequently, as Plaintiffs maintain, the viability of the statute of limitations defense is not clearly and affirmatively apparent from the allegations of the FAC and therefore the demurrer is not sustainable on this basis. Thus, the Court need not address Defendant’s remaining arguments regarding the statute of limitations.

  1. Economic Loss Rule

Defendant next argues that Plaintiffs’ fraud claim is inadequately pleaded and is barred by the economic loss rule.  The economic loss rule 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 (Robinson).)  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.)

But in Robinson, the California Supreme Court carved out an exception to this rule, holding that the rule does not bar claims for fraud and misrepresentation that 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 Plaintiffs pleading that they would not have purchased the Vehicle if Defendant had not intentionally chosen to withhold the material facts of various known defects.  (FAC, ¶ 50.)  Defendant’s assertion that the fraudulent inducement exception is limited to claims for fraud predicated on affirmative misrepresentation lacks support.  And there are a few cases (albeit noncontrolling federal ones) that hold the economic loss rule does not apply in fraud by omission cases where the tortious conduct was intentional (as Plaintiffs allege here). (See, e.g., Kryzyanowsky v. Orkin Exterminating Co. (N.D. Cal. 2009) 2009 WL 481267, at *12; Benis v. Sallie Mae, Inc. (C.D. Cal. 2011) 2011 WL 3714783, at *5, aff’d in part, vacated in part, remanded (9th Cir. 2014) 566 Fed.Appx. 583.)  The Court agrees with those federal cases.

Accordingly, the economic loss rule does not apply to Plaintiffs’ fraud claim.

  1. Inadequate Pleading 

Defendant also contends that no claim for fraud by omission has been stated because KMA owed Plaintiffs no duty to disclose.  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. Super. Ct. (1996) 12 Cal.4th 631, 638 (Lazar).) “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.)

Defendant maintains that it did not owe Plaintiffs a duty to disclose because there was no fiduciary or transactional relationship between it and Plaintiffs.  But Plaintiffs allege that Defendant had exclusive knowledge of material facts concerning the defects in the Vehicle and actively concealed them. (See, e.g., FAC, ¶¶ 16, 29, 30, 32, 35, 39, 40, 46, 82, 113.)  In possessing such knowledge, a duty to disclose was owed.  KMA insists that it did not have such exclusive knowledge, but whether it actually did is a factual issue not appropriately resolved on demurrer.

Finally, Defendant’s contention that KMA is not alleged to have made any specific representations to Plaintiffs is of no import because the fraud claim is not predicated on affirmative misrepresentations, but rather concealment and nondisclosure.

For these reasons, the Court OVERRULES Defendant’s demurrer to the sixth cause of action.

  1. Breach of Implied Warranty of Merchantability (5th Cause of Action)

Defendant asserts that Plaintiffs’ fifth cause of action for breach of the implied warranty of habitability under the Song-Beverly Act is facially time-barred, specifically by the four-year statute of limitations set forth in Commercial Code section 2725.  Defendant contends that this limitations period begins to accrue when tender of delivery is made and therefore Plaintiffs claim is clearly time-barred.  Plaintiffs insist that their claim did not begin to accrue until they discovered the alleged breaches and that the “future performance” exception set forth in Commercial Code section 2725 applies and operates to render his claim timely because his vehicle had a “4-year/50,000 mile express bumper to bumper warranty, a 10-year/100,000 mile powertrain warranty which, inter alia, covers the engine and transmission, ….”  (FAC, ¶ 10.)

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 Plaintiffs attempt 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 Plaintiffs’ implied warranty claim accrued at delivery and not at the point at which Plaintiffs allegedly discovered the alleged breaches.

Relying on Erlich v. BMW of North America (2010) 801 F.Supp.2d 908, Plaintiffs argue 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.  As Defendant has demonstrated that the fifth cause of action is untimely and Plaintiffs offer no additional arguments which establish that it is not, 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.

  1. Violation of Civil Code § 1793.2, Subdivision (a)(3) (3rd Cause of Action) 

Next, Defendant argues that Plaintiffs’ third cause of action is deficient because they fail 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 rejects Defendant’s argument because Plaintiffs are not required to plead evidentiary facts at this stage and have 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. 

  1. Breach of Express Warranty (4th Cause of Action)

Lastly, Defendant maintains that the fourth cause of action fails because Plaintiffs have not pleaded facts demonstrating breach of an express warranty, including specifically setting form the terms of the warranty, i.e., contract, either verbatim or by attachment as is required for a cause of action predicated on a written agreement, and the claim is redundant of her first cause of action.

Defendant’s first argument fails because Plaintiffs have set forth in detail in their FAC the terms of the express warranty that was allegedly breached by Defendant.  (See FAC, ¶ 10.)  That is sufficient.  The second argument is also without merit as the court in Park City Services, Inc. v. Ford Motor Co., Inc. (2006) 144 Cal.App.4th 29 expressly held that a claim for failure to repurchase is separate and distinct from a claim for breach of an express warranty.  (Id. at 301-303.)

Accordingly, 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. 

  • KMA’s Motion to Strike

With the instant motion, Defendant moves to strike Plaintiffs’ request for punitive damages and related allegations on the ground that Plaintiffs’ Song-Beverly and fraud by omission causes of action do not allow for recovery of such damages.  But a properly pleaded fraud claim will by itself support the recovery of punitive damages. (See Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 610.)  Therefore, Defendant’s motion to strike is DENIED.