Garlough v. FCA US LLC

Opinion

1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 EASTERN DISTRICT OF CALIFORNIA 11 12 BRIAN GARLOUGH, No. 2:20-cv-01879-JAM-AC 13 Plaintiff, 14 v. ORDER GRANTING DEFENDANTS LITHIA MOTORS’ AND FCA’S MOTIONS TO 15 FCA US LLC, et al., DISMISS 16 Defendants. 17 18 I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND1 19 On July 5, 2018, Brian Garlough (“Plaintiff”) purchased a 20 2018 Dodge Demon after viewing various promotional materials. 21 Third Am. Compl. (“TAC”) ¶¶ 18, 26-27; ECF No. 50. One of the 22 most prominent features of the car is the 45 square inch, air- 23 grabber hood scoop (“hood scoop”). Id. ¶ 15. Plaintiff alleges 24 that Defendant FCA, who marketed and produced the Dodge Demon, 25 was aware of issues with the hood scoop but concealed this defect 26

27 1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled 28 for July 27, 2021. 1 from consumers and continued to market the car. Id. ¶¶ 21-25. 2 Specifically, Plaintiff alleges that the hood scoop expands, 3 contracts, warps, and vibrates when the car is used, which then 4 chips, scrapes, and cracks the original factory paint, causing 5 damage to the car’s hood, including rust. Id. ¶ 21. Plaintiff 6 alleges, that despite being aware of this issue, FCA continued to 7 advertise the car as having the largest functional hood scoop, 8 misleading consumers. Id. ¶¶ 14-18. 9 Plaintiff then brought this action against FCA in San 10 Joaquin Superior Court, which Defendant removed to this Court. 11 See Notice of Removal, ECF No. 1. Plaintiff filed an amended 12 complaint adding Lithia DMID, Inc., the dealership where he 13 purchased the car and Lithia Motors, Inc., Lithia DMID’s parent 14 company, as defendants. See Second Am. Compl. (“SAC”), ECF No. 15 17. All three Defendants moved to dismiss the Second Amended 16 Complaint. See FCA’s 12(b)(2) Motion, ECF No. 23; FCA’s 12(b)(6) 17 Mot., ECF No. 24; Lithia’s 12(b)(2) Mot., ECF No. 29; Lithia’s 18 12(b)(6) Mot., ECF No. 30. The Court granted Lithia DMID’s 19 motion to dismiss finding the Court lacked personal jurisdiction. 20 Dismissal Order at 11, ECF No. 49. The Court also granted Lithia 21 Motors’ motion to dismiss as Plaintiff had failed to state a 22 claim for breach of contract since it was not a party to the 23 purchase contract. Id. at 25. The Court granted in part and 24 denied in part FCA’s motion to dismiss. See generally Dismissal 25 Order. 26 Plaintiff then filed his Third Amended Complaint against FCA 27 and Lithia Motors. See TAC. Specifically, Plaintiff asserted a 28 breach of contract claim against Lithia Motors (Count Six) and a 1 False Advertising Law (“FAL”) claim (Count One); California 2 Consumer Legal Remedies Act (“CLRA”) claim (Count Two); Unfair 3 Competition Law (“UCL”) claim (Count Three); fraudulent 4 concealment claim (Count Four); negligent misrepresentation claim 5 (Count Five); and unjust enrichment claim (Count Seven) against 6 FCA. TAC at 9-16. Defendants now move to dismiss all of 7 Plaintiff’s claims. See Lithia’s Mot. to Dismiss (“Lithia’s 8 Mot.”), ECF No. 54; FCA’s Mot. to Dismiss (“FCA’s Mot.”), ECF No. 9 55. Plaintiff opposed these motions. See Opp’n to Lithia, ECF 10 No. 56; Opp’n to FCA, ECF No. 60. Defendants replied. See 11 Lithia’s Reply, ECF No. 63; FCA’s Reply, ECF No. 64. For the 12 reasons set forth below the Court grants Defendants’ Motions to 13 Dismiss. 14 15 II. OPINION 16 A. Legal Standard 17 A Rule 12(b)(6) motion challenges the complaint as not 18 alleging sufficient facts to state a claim for relief. Fed. R. 19 Civ. P. 12(b)(6). “To survive a motion to dismiss [under 20 12(b)(6)] a complaint must contain sufficient factual matter, 21 accepted as true, to state a claim for relief that is plausible 22 on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 23 (internal quotation marks and citation omitted). While 24 “detailed factual allegations” are unnecessary, the complaint 25 must allege more than “[t]hreadbare recitals of the elements of 26 a cause of action supported by mere conclusory statements.” Id. 27 “In sum, for a complaint to survive a motion to dismiss, the 28 non-conclusory ‘factual content,’ and reasonable inferences from 1 that content, must be plausibly suggestive of a claim entitling 2 the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 3 962, 969 (9th Cir. 2009). 4 B. Judicial Notice 5 FCA requests the Court take judicial notice of the 2018 6 Dodge Challenger SRT Demon Customer Acknowledgement form. Req. 7 for Judicial Notice, ECF No. 57. The Court did not rely on this 8 document in ruling on the instant motions and therefore denies 9 as moot FCA’s request. See Sikhs for Justice “SFJ”, Inc. vg. 10 Facebook, Inc., 144 F.Supp.3d 1088, 1091 n.1 (N.D. Cal. 2015). 11 C. Lithia Motors’ Motion to Dismiss 12 It is a general principle of corporate law that a parent 13 corporation is not liable for the acts of its subsidiaries. 14 U.S. v. Bestfoods, 524 U.S. 51, 61 (1998). “Under the alter ego 15 doctrine, however, where a corporation is used by an individual 16 or individuals, or by another corporation, to perpetrate fraud, 17 circumvent a statute, or accomplish some other wrongful or 18 inequitable purpose, a court may disregard the corporate entity 19 and treat the corporation’s acts as if they were done by the 20 persons actually controlling the corporation.” Robbins v. 21 Blecher, 52 Cal.App.4th 886, 892 (1997). 22 To successfully plead a claim based on an alter ego theory 23 two elements must be alleged: (1) a unity of interest and 24 ownership between the corporation and its equitable owner such 25 that their separate personalities do not in reality exist and 26 (2) an inequitable result will follow if the acts in question 27 are treated as those of the corporation alone. Xyience Beverage 28 Co., LLC v. Statewide Beverage Co., Inc., No. CV 15-02513 MMM 1 (AJWx), 2015 WL 13333486 at *5 (C.D. Cal. Sept. 24, 2015) 2 (quoting Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 3 523, 526 (2000)). “Some of the factors that California courts 4 consider when assessing whether there is the requisite ‘unity of 5 interest’ include: inadequate capitalization, commingling of 6 funds and other assets, holding out by one entity that it is 7 liable for the debts of the other, identical equitable 8 ownership, use of the same offices and employees, use of one as 9 a mere conduit for the affairs of the other, disregard of 10 corporate formalities, lack of segregation of corporate records, 11 and identical directors and officers.” Smith v. Simmons, 638 12 F.Supp.2d 1180, 1191 (E.D. Cal. 2009), aff’d, 409 F.App’x 88 13 (9th Cir. 2010). 14 Plaintiff brings a breach of contract claim against Lithia 15 Motors. TAC ¶¶ 75-76. Lithia Motors’ subsidiary Lithia DMID, 16 Inc., was a party to the purchase contract; Id. ¶ 76; see also 17 TAC Ex. A. Lithia Motors was not. TAC ¶ 4. Accordingly, 18 Plaintiff seeks to hold Lithia Motors liable under an alter ego 19 theory. Id. Plaintiff alleges that “Lithia Motors uses 20 corporate entities, including Lithia DMID, as mere shells, 21 instrumentalities or conduits through which it conducts its own 22 individual business with the simultaneous intent of shielding 23 itself from personal obligations.” Id. ¶ 5. Further, 24 “Plaintiff alleges that there is no difference between Lithia 25 DMID and Lithia Motors and that Lithia DMID acted as an agent, 26 servant, alter-ego and/or joint venture of Lithia Motors, and in 27 doing the things alleged herein, acted within the course and 28 scope of such agency, alter-ego, and/or in the furtherance of 1 the joint venture.” Id. ¶ 6. And that “there exists such a 2 unity of interest and ownership between Lithia DMID and Lithia 3 Motors such that any separateness between the two has ceased to 4 exist in that Lithia DMID is completely controlled, dominated, 5 managed, and operated by Lithia Motors to suit its convenience.” 6 Id. 7 Such “[c]onclusory allegations of ‘alter ego’ status are 8 insufficient to state a viable claim. Rather, a plaintiff must 9 allege specific facts supporting both of the elements of alter 10 ego liability.” Xyience Beverage Co., 2015 WL 13333486 at *5; 11 see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 12 (“Threadbare recitals of the elements of a cause of action, 13 supported by mere conclusory statements, do not suffice.”) The 14 only facts pled are that Lithia DMID and Lithia Motors share the 15 same corporate office in Oregon and management team, and that 16 the dealership’s website provides visitors with a link to Lithia 17 Motors’ “Investor Relations” website. TAC ¶¶ 4, 5. The Court 18 finds these allegations are insufficient to state a claim for 19 alter ego liability. See Katzir’s Floor and Home Design, Inc. 20 v. M-MLS.com, 394 F.3d 1143, 1149 (9th Cir. 2004) (“The mere 21 fact of sole ownership and control does not eviscerate the 22 separate corporate identity that is the foundation of corporate 23 law.”); Xyience Beverage Co., 2015 WL 13333486 at *7-8 (finding 24 the allegation that two corporations shared the same officers 25 was insufficient to satisfy the unity of interest element of 26 alter ego liability as allegations of inadequate capitalization, 27 commingling of assets, and disregard of the corporate 28 formalities are critical). 1 Finally, Plaintiff fails to plead any facts that would 2 establish the second prong of the alter ego analysis — that an 3 inequitable result will follow. That Plaintiff would be 4 burdened in having to bring his claims in Texas to recover 5 against Lithia DMID is not enough. See Smith v. Simmons, 638 6 F.Supp.2d 1180, 1192 (E.D. Cal. 2009) (“California courts have 7 rejected the view that the potential difficulty a plaintiff 8 faces collecting a judgment is an inequitable circumstance that 9 warrants application of the alter ego doctrine.”) Rather, 10 allegations of bad faith conduct on the part of Defendants is 11 required. See id. Similarly, Plaintiff’s joint venture and 12 partnership theory are conclusory and not supported by any 13 facts. See TAC ¶ 6. 14 Accordingly, Plaintiff has failed to state a claim against 15 Lithia Motors and his breach of contract claim is dismissed. 16 D. FCA’s Motion to Dismiss 17 Plaintiff alleges FCA’s misrepresentations about the Dodge 18 Demon’s hood violated California’s False Advertising Law 19 (“FAL”); Consumer Legal Remedies Act (“CLRA”); and Unfair 20 Competition Law (“UCL”). The FAL prohibits any unfair, 21 deceptive, untrue, or misleading advertising. Cal. Bus. & Prof. 22 Code § 17500. The CLRA prohibits “unfair methods of competition 23 and unfair or deceptive acts or practices undertaken by any 24 person in a transaction intended to result or that results in 25 the sale or lease of goods or services to any consumer.” Cal. 26 Civ. Code § 1770. The UCL prohibits any “unlawful, unfair or 27 fraudulent business act or practice.” Cal. Bus. & Prof. Code 28 § 17200. 1 Plaintiff also alleges liability for fraudulent concealment 2 and negligent misrepresentation. Under California law, to be 3 liable for fraudulent concealment, “(1) the defendant must have 4 concealed or suppressed a material fact, (2) the defendant must 5 have been under a duty to disclose the fact to the plaintiff, 6 (3) the defendant must have intentionally concealed or 7 suppressed the fact with the intent to defraud the plaintiff, 8 (4) the plaintiff must have been unaware of the fact and would 9 not have acted as he did if he had known of the concealed or 10 suppressed fact, and (5) as a result of the concealment or 11 suppression of the fact, the plaintiff must have sustained 12 damage.” Linear Tech. Corp v. Applied Materials, Inc., 152 13 Cal.App.4th 115, 131 (2007). Negligent misrepresentation 14 requires (1) a misrepresentation, (2) justifiable reliance, and 15 (3) resulting damage. Small v. Fritz Companies, Inc., 30 P.3d 16 1255, 1259 (Cal. 2003). “A negligent misrepresentation claim 17 requires a positive assertion, not merely an omission.” Lopez 18 v. Nissan North American, Inc., 201 Cal.App.4th 572, 596 (Ct. 19 App. 2011)(internal quotation marks and citation omitted). 20 1. Affirmative Misrepresentations 21 Particularity Requirement of Rule 9(b) 22 FCA first argues that Plaintiff’s affirmative allegations 23 of fraud under the FAL, CLRA, fraudulent prong of the UCL, 24 common law fraudulent concealment, and negligent 25 misrepresentation, fail to state a claim as they are not pled 26 with the particularity required of Rule 9(b). See FCA’s Mot. at 27 4-5. Rule 9(b) requires that allegations of fraud be pled with 28 “particularity of the circumstances constituting fraud.” Fed. 1 R. Civ. P. 9(b). Even if fraud is not an essential element of a 2 claim, claims that are grounded in fraud must satisfy the 3 particularity requirement of Rule 9(b). Kearns v. Ford Motor 4 Co., 567 F.3d 1120, 1125 (9th Cir. 2009). To satisfy the 5 particularity of Rule 9(b), “[a]verments of fraud must be 6 accompanied by the ‘who, what, when, where, and how’ of the 7 misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 8 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 9 616, 627 (9th Cir. 1997)). 10 In Kearns, the plaintiff alleged that Ford engaged in a 11 fraudulent course of conduct by misrepresenting that certified 12 pre-owned vehicles were subject to more rigorous inspections 13 than non-certified pre-owned vehicles. Kearns, 567 F.3d at 14 1125. Plaintiff alleged he was exposed to these representations 15 through Ford’s televised national marketing campaign, sales 16 materials from the dealership, and sales personnel. Id. at 17 1223-26. The Ninth Circuit found that Kearns had failed to 18 plead his claims with the requisite particularity as he did not 19 specify what the advertisements or sales materials stated, when 20 he was exposed to them, or which he found material. Id. at 21 1126. Accordingly, he failed to allege the who, what, when, 22 where, and how of the misconduct. 23 Contrastingly here, Plaintiff does allege which specific 24 advertisements he saw and what statements he found material— 25 that the hood scoop was functional. TAC ¶¶ 12-18. He explains 26 these statements were false as the hood scoop “expands, 27 contracts, warps, and vibrates when the Dodge Demon is used, 28 which in turn, chips, scrapes, and cracks the original factory 1 paint and causes damage to the Dodge Demon’s hood, including 2 rust.” Id. ¶ 21. He also specifies when the advertisements 3 were released and that he saw them on or around that date. Id. 4 Accordingly, Plaintiff has alleged the who, what, when, where, 5 and how satisfying the particularity requirement of Rule 9(b). 6 Non-Actionable Puffery 7 FCA also argues that Plaintiff has failed to state a claim 8 based on affirmative misrepresentations as the alleged false 9 statements constitute non-actionable puffery. FCA’s Mot. at 6. 10 Generalized, vague, unspecific assertions constitute mere 11 puffery which is not actionable under California law. Glen 12 Holly Entertainment, Inc. v. Tektronix Inc., 343 F.3d 1000, 1015 13 (9th Cir. 2003) (statements that constitute puffery cannot be 14 the basis for a fraud or negligent misrepresentation claim); 15 Frenzel v. AliphCom, 76 F.Supp.3d 999, 1010-12 (N.D. Cal. 2014) 16 (noting statements that amount to puffery are not actionable 17 under the CLRA, UCL, and FAL). 18 Plaintiff alleges FCA’s advertisements stated the hood 19 scoop was the “largest functional ‘Air Grabber’ cold air intake 20 hood.” TAC ¶ 15. Plaintiff contends this statement was false 21 as the hood scoop expands, contracts, warps, and vibrates when 22 the Dodge Demon is used, which in turn chips the original 23 factory paint and causes damage to the hood, making it non- 24 functional. TAC ¶ 21. The Court finds that FCA’s statements 25 regarding the hood’s general functionality are the kind of 26 generalized, vague, and unspecific assertions that constitute 27 non-actionable puffery. See Milisits v. FCA US LLC, No. 20-cv- 28 11578, 2021 WL 3145704, at *8 (E.D. Mich. July 26, 2021) 1 (finding statement that cars were fully functional, safe, 2 durable, and/or reliable to be non-actionable puffery); In re 3 Seagate Tech. LLC Litig., 233 F.Supp.3d 776, 793 (N.D. Cal. 4 2017) (“use of terms like ‘quality,’ ‘reliability,’ and 5 ‘performance’ generally constitutes puffery.”); Frenzel v. 6 AliphCom, 76 F.Supp.3d 999, 1011-12 (N.D. Cal. 2014) (“vague 7 statements about general functionality [. . .] are not 8 actionable under California’s consumer protection statutes.”) 9 Accordingly, Plaintiff has failed to state a claim under the 10 FAL, CLRA, fraudulent prong of the UCL, fraudulent concealment, 11 and negligent misrepresentation2, based on FCA’s affirmative 12 misrepresentations. 13 2. Omissions 14 “Omissions may be the basis of claims under California 15 consumer protection laws [and fraudulent concealment], but ‘to 16 be actionable the omission must be contrary to a representation 17 actually made by the defendant, or an omission of a fact the 18 defendant was obliged to disclose.” Hodsdon v. Mars, Inc., 891 19 F.3d 857, 861 (9th Cir. 2018)(quoting Daugherty v. Am. Honda 20 Moto Co., 144 Cal.App.4th 824, 835 (2006)); Ahern v. Apple Inc., 21 411 F.Supp.3d 541, 561 (N.D. Cal. 2019). A manufacturer has a 22 duty to disclose only when a defect affects the central function 23 of the product or causes an unreasonable safety hazard. 24 Hodsdon, 891 F.3d at 861-65; see also Ahern, 411 F.Supp.3d at 25 567 (noting that in Hodsdon, the Ninth Circuit held that under 26 2 Because a claim of negligent misrepresentation cannot be based 27 on an omission, Plaintiff’s claim for negligent misrepresentation also fails. Lopez v. Nissan North American, Inc., 201 28 Cal.App.4th at 596. 1 California law, a defendant only has a duty to disclose material 2 defects that impair the product’s central function or safety). 3 A defect affects the central function of a product when it 4 renders the product incapable of use by any consumer. Hodsdon, 5 891 F.3d at 864. 6 Here, Plaintiff has alleged a cosmetic issue with the hood. 7 Specifically, he claims that the hood scoop “expands, contracts, 8 warps and vibrates when the Dodge Demon is used, which in turn 9 chips, scrapes, and cracks the original factory paint” causing 10 damage to the hood, including rust. TAC ¶ 21. Plaintiff does 11 not contend that this defect renders the Dodge Demon incapable 12 of use or that it causes an unreasonable safety hazard. See 13 generally TAC; see also Opp’n 10-11. Because Plaintiff has 14 alleged a cosmetic issue with the hood that does not render the 15 car incapable of use or cause an unreasonable safety hazard, FCA 16 had no duty to disclose the issue with the hood scoop. 17 Accordingly, Plaintiff has failed to state a claim under the 18 FAL, CLRA, fraudulent prong of the UCL, or of fraudulent 19 concealment. See Hodsdon, 891 F.3d at 865; see also Ahern v. 20 Apple Inc., 411 F.Supp.3d 541, 568 (N.D. Cal. 2019). 21 3. Non-Fraud Based UCL Claims 22 “California’s UCL provides a cause of action for business 23 practices that are (1) unlawful, (2) unfair, or (3) fraudulent.” 24 Bankhaut v. Apple, Inc., 7 F.Supp.3d 1033, 1050 (N.D. Cal. 2014) 25 (citing Cal. Bus. & Prof. Code § 17200). “A ‘business act or 26 practice’ is ‘unlawful’ under the unfair competition law if it 27 violates a rule contained in some other state or federal 28 statute.” Sandoz Inc. v. Amgen Inc., 137 S. Ct. 1664, 1673 1 (2017) (citing Rose v. Bank of American, N.A., 57 Cal.4th 390, 2 396 (2013)). In effect, the UCL “borrows violations of other 3 laws and treats them as unlawful practices that the unfair 4 competition law makes independently actionable.” Davis v. HSBC 5 Bank Nevada, N.A., 691 F.3d 1152, 1168 (9th Cir. 2012) 6 (citations and internal quotation marks omitted). 7 Plaintiff’s theory of liability under the unlawful prong of 8 the UCL is based on the alleged violations of the FAL and CLRA. 9 TAC ¶ 59. However, as explained above he has not viably alleged 10 a violation of either. Accordingly, he has failed to state a 11 claim under the unlawful prong of the UCL. See Poghosyan v. 12 First Fin. Asset Mgmt., Inc., No. 1:19-cv-01205-DAD-SAB, 2020 WL 13 433083, at *8 (E.D. Cal. Jan. 28, 2020). 14 Further, a cause of action based on the unfair prong of the 15 UCL does not survive when it overlaps entirely with a 16 plaintiff’s claims alleging fraud that also do not survive. 17 Hauck v. Advanced Micro Devices, Inc., No. 18-cv-00447, 2019 WL 18 1493356, at *15 (N.D. Cal. April 4, 2019), aff’d, 816 F.App’x 39 19 (9th Cir. 2020). Here, Plaintiff’s claim under the unfair prong 20 is premised on FCA’s allegedly fraudulent conduct. See TAC 21 ¶¶ 56, 57. Because his unfair prong claim overlaps entirely 22 with his fraud claim, it also fails. See Hauck, 2019 WL 1493356 23 at *15. 24 4. Unjust Enrichment Claim 25 In California, a claim for unjust enrichment is not a 26 stand-alone cause of action and must be dismissed when the 27 Plaintiff has failed to state a predicate claim warranting such 28 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

1 (N.D. Cal. 2012). Because Plaintiff has failed to sufficiently 2 | plead a predicate cause of action for the reasons detailed 3 | above, his unjust enrichment claim must also be dismissed. See ia. 5 6 Til. ORDER 7 For the reasons set forth above, the Court GRANTS Defendants 8 Lithia Motors’ and FCA’s Motions to Dismiss. Plaintiff has had 9 | three opportunities to amend his complaint and cure any 10 deficiencies. Accordingly, the Court finds amendment would be 11 futile and dismisses Plaintiff’s claims WITH PREJUDICE. See 12 Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1007 (9th 13 Cir. 2009) (noting that where the plaintiff has previously been 14 granted leave to amend and subsequently failed to cure 15 deficiencies the district court’s discretion to deny leave to 16 amend is particularly broad). 17 IT IS SO ORDERED. 18 Dated: September 2, 2021 19 ke Me 20 teiren staves odermacr 7008 21 22 23 24 25 26 27 28 14