Garlough v. FCA US LLC

Opinion

BRIAN GARLOUGH, No. 2:20-cv-01879-JAM-AC Plaintiff, v. ORDER GRANTING DEFENDANTS LITHIA MOTORS’ AND FCA’S MOTIONS TO FCA US LLC, et al., DISMISS Defendants. I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND1 On July 5, 2018, Brian Garlough (“Plaintiff”) purchased a 2018 Dodge Demon after viewing various promotional materials. Third Am. Compl. (“TAC”) ¶¶ 18, 26-27; ECF No. 50. One of the most prominent features of the car is the 45 square inch, air- grabber hood scoop (“hood scoop”). Id. ¶ 15. Plaintiff alleges that Defendant FCA, who marketed and produced the Dodge Demon, was aware of issues with the hood scoop but concealed this defect

1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for July 27, 2021. from consumers and continued to market the car. Id. ¶¶ 21-25. Specifically, Plaintiff alleges that the hood scoop expands, contracts, warps, and vibrates when the car is used, which then chips, scrapes, and cracks the original factory paint, causing damage to the car’s hood, including rust. Id. ¶ 21. Plaintiff alleges, that despite being aware of this issue, FCA continued to advertise the car as having the largest functional hood scoop, misleading consumers. Id. ¶¶ 14-18. Plaintiff then brought this action against FCA in San Joaquin Superior Court, which Defendant removed to this Court. See Notice of Removal, ECF No. 1. Plaintiff filed an amended complaint adding Lithia DMID, Inc., the dealership where he purchased the car and Lithia Motors, Inc., Lithia DMID’s parent company, as defendants. See Second Am. Compl. (“SAC”), ECF No. 17. All three Defendants moved to dismiss the Second Amended Complaint. See FCA’s 12(b)(2) Motion, ECF No. 23; FCA’s 12(b)(6) Mot., ECF No. 24; Lithia’s 12(b)(2) Mot., ECF No. 29; Lithia’s 12(b)(6) Mot., ECF No. 30. The Court granted Lithia DMID’s motion to dismiss finding the Court lacked personal jurisdiction. Dismissal Order at 11, ECF No. 49. The Court also granted Lithia Motors’ motion to dismiss as Plaintiff had failed to state a claim for breach of contract since it was not a party to the purchase contract. Id. at 25. The Court granted in part and denied in part FCA’s motion to dismiss. See generally Dismissal Order. Plaintiff then filed his Third Amended Complaint against FCA and Lithia Motors. See TAC. Specifically, Plaintiff asserted a breach of contract claim against Lithia Motors (Count Six) and a False Advertising Law (“FAL”) claim (Count One); California Consumer Legal Remedies Act (“CLRA”) claim (Count Two); Unfair Competition Law (“UCL”) claim (Count Three); fraudulent concealment claim (Count Four); negligent misrepresentation claim (Count Five); and unjust enrichment claim (Count Seven) against FCA. TAC at 9-16. Defendants now move to dismiss all of Plaintiff’s claims. See Lithia’s Mot. to Dismiss (“Lithia’s Mot.”), ECF No. 54; FCA’s Mot. to Dismiss (“FCA’s Mot.”), ECF No. 55. Plaintiff opposed these motions. See Opp’n to Lithia, ECF No. 56; Opp’n to FCA, ECF No. 60. Defendants replied. See Lithia’s Reply, ECF No. 63; FCA’s Reply, ECF No. 64. For the reasons set forth below the Court grants Defendants’ Motions to Dismiss. A. Legal Standard A Rule 12(b)(6) motion challenges the complaint as not alleging sufficient facts to state a claim for relief. Fed. R. Civ. P. 12(b)(6). “To survive a motion to dismiss [under 12(b)(6)] a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citation omitted). While “detailed factual allegations” are unnecessary, the complaint must allege more than “[t]hreadbare recitals of the elements of a cause of action supported by mere conclusory statements.” Id. “In sum, for a complaint to survive a motion to dismiss, the non-conclusory ‘factual content,’ and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). B. Judicial Notice FCA requests the Court take judicial notice of the 2018 Dodge Challenger SRT Demon Customer Acknowledgement form. Req. for Judicial Notice, ECF No. 57. The Court did not rely on this document in ruling on the instant motions and therefore denies as moot FCA’s request. See Sikhs for Justice “SFJ”, Inc. vg. Facebook, Inc., 144 F.Supp.3d 1088, 1091 n.1 (N.D. Cal. 2015). C. Lithia Motors’ Motion to Dismiss It is a general principle of corporate law that a parent corporation is not liable for the acts of its subsidiaries. U.S. v. Bestfoods, 524 U.S. 51, 61 (1998). “Under the alter ego doctrine, however, where a corporation is used by an individual or individuals, or by another corporation, to perpetrate fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, a court may disregard the corporate entity and treat the corporation’s acts as if they were done by the persons actually controlling the corporation.” Robbins v. Blecher, 52 Cal.App.4th 886, 892 (1997). To successfully plead a claim based on an alter ego theory two elements must be alleged: (1) a unity of interest and ownership between the corporation and its equitable owner such that their separate personalities do not in reality exist and (2) an inequitable result will follow if the acts in question are treated as those of the corporation alone. Xyience Beverage Co., LLC v. Statewide Beverage Co., Inc., No. CV 15-02513 MMM (AJWx), 2015 WL 13333486 at *5 (C.D. Cal. Sept. 24, 2015) (quoting Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 526 (2000)). “Some of the factors that California courts consider when assessing whether there is the requisite ‘unity of interest’ include: inadequate capitalization, commingling of funds and other assets, holding out by one entity that it is liable for the debts of the other, identical equitable ownership, use of the same offices and employees, use of one as a mere conduit for the affairs of the other, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers.” Smith v. Simmons, 638 F.Supp.2d 1180, 1191 (E.D. Cal. 2009), aff’d, 409 F.App’x 88 (9th Cir. 2010). Plaintiff brings a breach of contract claim against Lithia Motors. TAC ¶¶ 75-76. Lithia Motors’ subsidiary Lithia DMID, Inc., was a party to the purchase contract; Id. ¶ 76; see also TAC Ex. A. Lithia Motors was not. TAC ¶ 4. Accordingly, Plaintiff seeks to hold Lithia Motors liable under an alter ego theory. Id. Plaintiff alleges that “Lithia Motors uses corporate entities, including Lithia DMID, as mere shells, instrumentalities or conduits through which it conducts its own individual business with the simultaneous intent of shielding itself from personal obligations.” Id. ¶ 5. Further, “Plaintiff alleges that there is no difference between Lithia DMID and Lithia Motors and that Lithia DMID acted as an agent, servant, alter-ego and/or joint venture of Lithia Motors, and in doing the things alleged herein, acted within the course and scope of such agency, alter-ego, and/or in the furtherance of the joint venture.” Id. ¶ 6. And that “there exists such a unity of interest and ownership between Lithia DMID and Lithia Motors such that any separateness between the two has ceased to exist in that Lithia DMID is completely controlled, dominated, managed, and operated by Lithia Motors to suit its convenience.” Id. Such “[c]onclusory allegations of ‘alter ego’ status are insufficient to state a viable claim. Rather, a plaintiff must allege specific facts supporting both of the elements of alter ego liability.” Xyience Beverage Co., 2015 WL 13333486 at *5; see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”) The only facts pled are that Lithia DMID and Lithia Motors share the same corporate office in Oregon and management team, and that the dealership’s website provides visitors with a link to Lithia Motors’ “Investor Relations” website. TAC ¶¶ 4, 5. The Court finds these allegations are insufficient to state a claim for alter ego liability. See Katzir’s Floor and Home Design, Inc. v. M-MLS.com, 394 F.3d 1143, 1149 (9th Cir. 2004) (“The mere fact of sole ownership and control does not eviscerate the separate corporate identity that is the foundation of corporate law.”); Xyience Beverage Co., 2015 WL 13333486 at *7-8 (finding the allegation that two corporations shared the same officers was insufficient to satisfy the unity of interest element of alter ego liability as allegations of inadequate capitalization, commingling of assets, and disregard of the corporate formalities are critical). Finally, Plaintiff fails to plead any facts that would establish the second prong of the alter ego analysis — that an inequitable result will follow. That Plaintiff would be burdened in having to bring his claims in Texas to recover against Lithia DMID is not enough. See Smith v. Simmons, 638 F.Supp.2d 1180, 1192 (E.D. Cal. 2009) (“California courts have rejected the view that the potential difficulty a plaintiff faces collecting a judgment is an inequitable circumstance that warrants application of the alter ego doctrine.”) Rather, allegations of bad faith conduct on the part of Defendants is required. See id. Similarly, Plaintiff’s joint venture and partnership theory are conclusory and not supported by any facts. See TAC ¶ 6. Accordingly, Plaintiff has failed to state a claim against Lithia Motors and his breach of contract claim is dismissed. D. FCA’s Motion to Dismiss Plaintiff alleges FCA’s misrepresentations about the Dodge Demon’s hood violated California’s False Advertising Law (“FAL”); Consumer Legal Remedies Act (“CLRA”); and Unfair Competition Law (“UCL”). The FAL prohibits any unfair, deceptive, untrue, or misleading advertising. Cal. Bus. & Prof. Code § 17500. The CLRA prohibits “unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or that results in the sale or lease of goods or services to any consumer.” Cal. Civ. Code § 1770. The UCL prohibits any “unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. Plaintiff also alleges liability for fraudulent concealment and negligent misrepresentation. Under California law, to be liable for fraudulent concealment, “(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.” Linear Tech. Corp v. Applied Materials, Inc., 152 Cal.App.4th 115, 131 (2007). Negligent misrepresentation requires (1) a misrepresentation, (2) justifiable reliance, and (3) resulting damage. Small v. Fritz Companies, Inc., 30 P.3d 1255, 1259 (Cal. 2003). “A negligent misrepresentation claim requires a positive assertion, not merely an omission.” Lopez v. Nissan North American, Inc., 201 Cal.App.4th 572, 596 (Ct. App. 2011)(internal quotation marks and citation omitted). 1. Affirmative Misrepresentations Particularity Requirement of Rule 9(b) FCA first argues that Plaintiff’s affirmative allegations of fraud under the FAL, CLRA, fraudulent prong of the UCL, common law fraudulent concealment, and negligent misrepresentation, fail to state a claim as they are not pled with the particularity required of Rule 9(b). See FCA’s Mot. at 4-5. Rule 9(b) requires that allegations of fraud be pled with “particularity of the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). Even if fraud is not an essential element of a claim, claims that are grounded in fraud must satisfy the particularity requirement of Rule 9(b). Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). To satisfy the particularity of Rule 9(b), “[a]verments of fraud must be accompanied by the ‘who, what, when, where, and how’ of the misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). In Kearns, the plaintiff alleged that Ford engaged in a fraudulent course of conduct by misrepresenting that certified pre-owned vehicles were subject to more rigorous inspections than non-certified pre-owned vehicles. Kearns, 567 F.3d at 1125. Plaintiff alleged he was exposed to these representations through Ford’s televised national marketing campaign, sales materials from the dealership, and sales personnel. Id. at 1223-26. The Ninth Circuit found that Kearns had failed to plead his claims with the requisite particularity as he did not specify what the advertisements or sales materials stated, when he was exposed to them, or which he found material. Id. at 1126. Accordingly, he failed to allege the who, what, when, where, and how of the misconduct. Contrastingly here, Plaintiff does allege which specific advertisements he saw and what statements he found material— that the hood scoop was functional. TAC ¶¶ 12-18. He explains these statements were false as the hood scoop “expands, contracts, warps, and vibrates when the Dodge Demon is used, which in turn, chips, scrapes, and cracks the original factory paint and causes damage to the Dodge Demon’s hood, including rust.” Id. ¶ 21. He also specifies when the advertisements were released and that he saw them on or around that date. Id. Accordingly, Plaintiff has alleged the who, what, when, where, and how satisfying the particularity requirement of Rule 9(b). Non-Actionable Puffery FCA also argues that Plaintiff has failed to state a claim based on affirmative misrepresentations as the alleged false statements constitute non-actionable puffery. FCA’s Mot. at 6. Generalized, vague, unspecific assertions constitute mere puffery which is not actionable under California law. Glen Holly Entertainment, Inc. v. Tektronix Inc., 343 F.3d 1000, 1015 (9th Cir. 2003) (statements that constitute puffery cannot be the basis for a fraud or negligent misrepresentation claim); Frenzel v. AliphCom, 76 F.Supp.3d 999, 1010-12 (N.D. Cal. 2014) (noting statements that amount to puffery are not actionable under the CLRA, UCL, and FAL). Plaintiff alleges FCA’s advertisements stated the hood scoop was the “largest functional ‘Air Grabber’ cold air intake hood.” TAC ¶ 15. Plaintiff contends this statement was false as the hood scoop expands, contracts, warps, and vibrates when the Dodge Demon is used, which in turn chips the original factory paint and causes damage to the hood, making it non- functional. TAC ¶ 21. The Court finds that FCA’s statements regarding the hood’s general functionality are the kind of generalized, vague, and unspecific assertions that constitute non-actionable puffery. See Milisits v. FCA US LLC, No. 20-cv- 11578, 2021 WL 3145704, at *8 (E.D. Mich. July 26, 2021) (finding statement that cars were fully functional, safe, durable, and/or reliable to be non-actionable puffery); In re Seagate Tech. LLC Litig., 233 F.Supp.3d 776, 793 (N.D. Cal. 2017) (“use of terms like ‘quality,’ ‘reliability,’ and ‘performance’ generally constitutes puffery.”); Frenzel v. AliphCom, 76 F.Supp.3d 999, 1011-12 (N.D. Cal. 2014) (“vague statements about general functionality [. . .] are not actionable under California’s consumer protection statutes.”) Accordingly, Plaintiff has failed to state a claim under the FAL, CLRA, fraudulent prong of the UCL, fraudulent concealment, and negligent misrepresentation2, based on FCA’s affirmative misrepresentations. 2. Omissions “Omissions may be the basis of claims under California consumer protection laws [and fraudulent concealment], but ‘to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.” Hodsdon v. Mars, Inc., 891 F.3d 857, 861 (9th Cir. 2018)(quoting Daugherty v. Am. Honda Moto Co., 144 Cal.App.4th 824, 835 (2006)); Ahern v. Apple Inc., 411 F.Supp.3d 541, 561 (N.D. Cal. 2019). A manufacturer has a duty to disclose only when a defect affects the central function of the product or causes an unreasonable safety hazard. Hodsdon, 891 F.3d at 861-65; see also Ahern, 411 F.Supp.3d at 567 (noting that in Hodsdon, the Ninth Circuit held that under 2 Because a claim of negligent misrepresentation cannot be based on an omission, Plaintiff’s claim for negligent misrepresentation also fails. Lopez v. Nissan North American, Inc., 201 Cal.App.4th at 596. California law, a defendant only has a duty to disclose material defects that impair the product’s central function or safety). A defect affects the central function of a product when it renders the product incapable of use by any consumer. Hodsdon, 891 F.3d at 864. Here, Plaintiff has alleged a cosmetic issue with the hood. Specifically, he claims that the hood scoop “expands, contracts, warps and vibrates when the Dodge Demon is used, which in turn chips, scrapes, and cracks the original factory paint” causing damage to the hood, including rust. TAC ¶ 21. Plaintiff does not contend that this defect renders the Dodge Demon incapable of use or that it causes an unreasonable safety hazard. See generally TAC; see also Opp’n 10-11. Because Plaintiff has alleged a cosmetic issue with the hood that does not render the car incapable of use or cause an unreasonable safety hazard, FCA had no duty to disclose the issue with the hood scoop. Accordingly, Plaintiff has failed to state a claim under the FAL, CLRA, fraudulent prong of the UCL, or of fraudulent concealment. See Hodsdon, 891 F.3d at 865; see also Ahern v. Apple Inc., 411 F.Supp.3d 541, 568 (N.D. Cal. 2019). 3. Non-Fraud Based UCL Claims “California’s UCL provides a cause of action for business practices that are (1) unlawful, (2) unfair, or (3) fraudulent.” Bankhaut v. Apple, Inc., 7 F.Supp.3d 1033, 1050 (N.D. Cal. 2014) (citing Cal. Bus. & Prof. Code § 17200). “A ‘business act or practice’ is ‘unlawful’ under the unfair competition law if it violates a rule contained in some other state or federal statute.” Sandoz Inc. v. Amgen Inc., 137 S. Ct. 1664, 1673 (2017) (citing Rose v. Bank of American, N.A., 57 Cal.4th 390, 396 (2013)). In effect, the UCL “borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1168 (9th Cir. 2012) (citations and internal quotation marks omitted). Plaintiff’s theory of liability under the unlawful prong of the UCL is based on the alleged violations of the FAL and CLRA. TAC ¶ 59. However, as explained above he has not viably alleged a violation of either. Accordingly, he has failed to state a claim under the unlawful prong of the UCL. See Poghosyan v. First Fin. Asset Mgmt., Inc., No. 1:19-cv-01205-DAD-SAB, 2020 WL 433083, at *8 (E.D. Cal. Jan. 28, 2020). Further, a cause of action based on the unfair prong of the UCL does not survive when it overlaps entirely with a plaintiff’s claims alleging fraud that also do not survive. Hauck v. Advanced Micro Devices, Inc., No. 18-cv-00447, 2019 WL 1493356, at *15 (N.D. Cal. April 4, 2019), aff’d, 816 F.App’x 39 (9th Cir. 2020). Here, Plaintiff’s claim under the unfair prong is premised on FCA’s allegedly fraudulent conduct. See TAC ¶¶ 56, 57. Because his unfair prong claim overlaps entirely with his fraud claim, it also fails. See Hauck, 2019 WL 1493356 at *15. 4. Unjust Enrichment Claim In California, a claim for unjust enrichment is not a stand-alone cause of action and must be dismissed when the Plaintiff has failed to state a predicate claim warranting such relief. See Donohue v. Apple, Inc., 871 F.Supp.2d 913, 932-33 ——ee me me IEE INE OS OE IRIE III IIR III I EIEIO □□□ IIE IIE ISIE ISIE IE ESOS SEE

(N.D. Cal. 2012). Because Plaintiff has failed to sufficiently plead a predicate cause of action for the reasons detailed above, his unjust enrichment claim must also be dismissed. See ia. Til. ORDER For the reasons set forth above, the Court GRANTS Defendants Lithia Motors’ and FCA’s Motions to Dismiss. Plaintiff has had three opportunities to amend his complaint and cure any deficiencies. Accordingly, the Court finds amendment would be futile and dismisses Plaintiff’s claims WITH PREJUDICE. See Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1007 (9th Cir. 2009) (noting that where the plaintiff has previously been granted leave to amend and subsequently failed to cure deficiencies the district court’s discretion to deny leave to amend is particularly broad). Dated: September 2, 2021 ke Me teiren staves odermacr 7008 14