Gunn v. FCA US, LLC

• Court: District Court, N.D. California
• Decided: August 22, 2023
• Docket: 3:22-cv-02229
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 JAMES GUNN and DUSTIN STAFFORD, Case No. 3:22-cv-02229-JD on behalf of themselves and all others 8 similarly situated, ORDER RE MOTION TO DISMISS Plaintiffs, 9

v. 10

11 FCA US, LLC, Defendant. 12

13 Plaintiffs James Gunn and Dustin Stafford have sued defendant-manufacturer FCA US, 14 LLC (FCA) on behalf of themselves and a putative California class of other purchasers of new 15 cars distributed for sale by FCA. Dkt. No. 1. The operative class action complaint alleges that 16 FCA artificially inflates the destination charges it assesses for transporting its new cars -- namely, 17 its Chrysler, Jeep, Dodge, Ram, Fiat, and Maserati brands, model years 2018 and later (the “Class 18 Vehicles”) -- to dealerships, and that those inflated charges are passed on to consumers in 19 violation of state law. Plaintiffs allege claims for violations of California’s Unfair Competition 20 Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq., and Consumers Legal Remedies Act 21 (CLRA), Cal. Civ. Code § 1750 et seq., as well as unjust enrichment and a common count for 22 money had and received. See Dkt. No. 1 ¶¶ 76-110. 23 FCA asks to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), on the 24 ground that the destination charges are fully disclosed to consumers prior to purchase. Dkt. No. 25 64. Plaintiffs filed an opposition. Dkt. No. 67. The complaint is dismissed with leave to amend. 26 BACKGROUND 27 FCA, formerly known as the Chrysler Corporation, manufactures and distributes the Class 1 {| 24, 37. Plaintiffs Gunn and Stafford each purchased new Ram-branded cars from authorized 2 || Dodge dealers in California. See id. J 11, 17. 3 For present purposes, Stafford’s car-buying experience is illustrative. Stafford paid a 4 || dealer, Lodi Chrysler Dodge Ram, a total purchase price of $72,220 for a 2022 Ram 2500 Laramie 5 || truck. See id. 17. When Stafford made his purchase, he “viewed the Monroney Label affixed to 6 || the window.” Jd. § 18. A Monroney label is the familiar sticker typically placed on a new 7 || vehicle’s door window that discloses “the manufacturer’s suggested retail price [MSRP] and other 8 consumer information,” 49 C.F.R. § 575.401(c)(4), as specified in the Automobile Information 9 Disclosure Act (AIDA), 15 U.S.C. § 1231 et seg. The sticker is named after Senator Mike 10 || Monroney of Oklahoma, who sponsored the AIDA to address deceptive practices in auto sales. 11 Under current law, a Monroney sticker must disclose: “(1) the retail price of [the] automobile 12 suggested by the manufacturer; (2) the retail delivered price suggested by the manufacturer for 5 13 each accessory or item of optional equipment, physically attached to [the] automobile at the time 14 of its delivery to [the] dealer, which is not included within the price of [the] automobile as stated 3 15 pursuant to paragraph (1); (3) the amount charged, if any, to [the] dealer for the transportation of

16 [the] automobile to the location at which it is delivered to [the] dealer; and (4) the total of the 3 17 amounts specified pursuant to paragraphs (1), (2), and (3).” 15 U.S.C. § 1232(f).

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1 Dkt. No. 1 ¶ 18. As shown, the sticker discloses (1) a base MSRP of $56,990, (2) optional 2 equipment priced at $13,435, (3) a destination charge of $1,795, and (4) a total price of $72,220. 3 See id. ¶¶ 18-19. 4 Plaintiffs say that FCA has revived a troubling practice, which contributed to the adoption 5 of the AIDA in 1958, whereby car manufacturers would charge dealers (and by extension, 6 consumers) “phantom freight.” See id. ¶¶ 27, 31-37. FCA is said to impose “destination charges 7 for Class Vehicles [that] are substantially higher than the true cost of delivering the vehicles to 8 dealerships for sale.” Id. ¶ 49. “Rather than charging the true cost of delivery, FCA inflates the 9 charges to generate additional profit for itself through a mechanism that consumers do not 10 understand, and which consumers cannot reasonably protect themselves against (since the charges 11 are misleadingly labeled on Monroney Stickers and are not subject to negotiation as is the base 12 sales price).” Id. FCA’s ability to derive a profit through its destination charges is said to enable 13 it to artificially lower its MSRP and “mislead[] the public into underappreciating the cost of Class 14 Vehicles.” Id. FCA does not dispute that it receives a profit from its destination charges. See 15 Dkt. No. 64 at 2-4. 16 LEGAL STANDARDS 17 The standards governing a Rule 12(b)(6) motion to dismiss are straightforward. See 18 McLellan v. Fitbit, Inc., No. 16-cv-00036-JD, 2018 WL 2688781, at *1 (N.D. Cal. June 5, 2018); 19 Swartz v. Coca-Cola Co., No. 21-cv-04643-JD, 2023 WL 4828680, at *1 (N.D. Cal. July 27, 20 2023). Rule 8(a)(2) requires that a complaint make “a short and plain statement of the claim 21 showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To meet that rule and 22 survive a Rule 12(b)(6) motion to dismiss, a plaintiff must allege “enough facts to state a claim to 23 relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A 24 claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw 25 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 26 556 U.S. 662, 678 (2009). Determining whether a complaint states a plausible claim for relief is a 27 “context-specific task that requires the reviewing court to draw on its judicial experience and 1 Under Rule 9(b), “a party must state with particularity the circumstances constituting fraud 2 or mistake.” Fed. R. Civ. P. 9(b). “This heightened pleading standard applies to claims that sound 3 in fraud, even if not formally denominated as such.” Freedline v. O Organics LLC, 445 F. Supp. 4 3d 85, 89-90 (N.D. Cal. 2020) (citing Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 5 2009); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th Cir. 2003)). 6 The touchstone of Rule 9(b) is notice. See Williams v. J.P. Morgan Chase Bank, N.A., No. 7 22-cv-07149-JD, 2023 WL 3590682, at *1 (N.D. Cal. May 22, 2023). “A pleading is sufficient 8 under rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare 9 an adequate answer from the allegations.” Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 10 540 (9th Cir. 1989). A “pleading must identify the who, what, when, where, and how of the 11 misconduct charged, as well as what is false or misleading about the purportedly fraudulent 12 statement, and why it is false.” United States ex rel. Silingo v. WellPoint, Inc., 904 F.3d 667, 677 13 (9th Cir. 2018) (internal quotations and citation omitted); see also In re Wells Fargo Forbearance 14 Litig., No. 20-cv-06009-JD, 2023 WL 3237501, at *1 (N.D. Cal. May 2, 2023). 15 DISCUSSION 16 I. UCL CLAIM 17 “California’s UCL prohibits any ‘unlawful, unfair, or fraudulent business act or practice.’” 18 Rosell v. Wells Fargo Bank, N.A., No. 12-cv-06321-JD, 2014 WL 4063050, at *5 (N.D. Cal. Aug. 19 15, 2014) (quoting Cal. Bus. & Prof. Code § 17200); see also Williams, 2023 WL 3590682, at *3. 20 Plaintiffs base their claim on the UCL’s “unfair” and “fraudulent” prongs. See Dkt. No. 1 ¶ 86 21 (“FCA’s acts and practices relating to destination charges, as alleged in this complaint, constitute 22 unfair and fraudulent business practices, in violation of the UCL.”). 23 A. “Unfair” Prong 24 “The UCL does not define the term ‘unfair.’ In fact, the proper definition of ‘unfair’ 25 conduct against consumers is currently in flux among California courts.” Hodsdon v. Mars, Inc., 26 891 F.3d 857, 866 (9th Cir. 2018) (internal quotations and citation omitted). “Under the UCL’s 27 unfairness prong, courts consider either: (1) whether the challenged conduct is tethered to any 1 violation of an antitrust law, or violates the policy or spirit of an antitrust law; (2) whether the 2 practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers; 3 or (3) whether the practice’s impact on the victim outweighs the reasons, justifications and 4 motives of the alleged wrongdoer.” Doe v. CVS Pharm, Inc., 982 F.3d 1204, 1214-15 (9th Cir. 5 2020) (internal quotations and citations omitted). 6 Plaintiffs say that FCA’s conduct qualifies as “unfair” within the meaning of the UCL 7 because it violates established public policy and causes harm to the consumer that outweighs its 8 utility. See Dkt. No. 67 at 3-4; see also Dkt. No. 1 ¶ 87. They clarified in an opposition brief that, 9 while the “fraud-based claims hinge on the deceptive aspects of FCA’s practice -- labeling the 10 surcharge a ‘destination’ charge but not disclosing the mark-up of the charge to include profit -- 11 [their] unfair-prong claim challenges only the mark-up itself.” Dkt. No. 67 at 6 (citing Dkt. No. 1 12 ¶¶ 87-88). Put more directly, plaintiffs state that the “unfair claim is not premised on a 13 misrepresentation, non-disclosure, or other act of deception.” Id. Plaintiffs make this concession 14 in an attempt to distinguish their UCL claim from the one dismissed in a materially identical case, 15 Romoff v. General Motors LLC, 574 F. Supp. 3d 782 (S.D. Cal. 2021), aff’d, No. 22-55170, 2023 16 WL 1097258 (9th Cir. Jan. 30, 2023) (unpublished). 17 On the public policy side, plaintiffs say that FCA’s conduct in marking up its destination 18 charges undermines two policy objectives that are embodied in the AIDA and its legislative 19 history: (1) promoting integrity in car marketing and sales, and (2) restoring price competition 20 among automakers. See Dkt. No. 67 at 4. With respect to marketing integrity, plaintiffs complain 21 that “FCA’s inflated freight charges mean that consumers are not presented with the ‘delivered 22 price . . . in a plain honest-to-goodness figure.’” Id. (quoting Dkt. No. 1 ¶ 35). As for price 23 competition, plaintiffs say that “[b]y artificially inflating its delivery surcharge to generate profit, 24 rather than raising its MSRP to do so, FCA avoids fair competition and thwarts consumers’ ability 25 to comparison-shop.” Id. at 4-5. 26 Plaintiffs’ acknowledgement that their UCL “unfair” claim challenges only the fact of the 27 destination charge mark-up, and not any deception, misrepresentation, or non-disclosure, is 1 of car sales or price competition among automakers. If deception and non-disclosure are removed 2 from the calculus, as plaintiffs themselves urge, then the only plausible conclusion is that FCA 3 does in fact disclose the “plain honest-to-goodness figure” for its destination charges. FCA’s 4 charges may be higher than competitors’ prices, but that fully disclosed fact does not thwart 5 consumers’ ability to comparison shop. 6 Plaintiffs also have not plausibly alleged that FCA’s conduct runs afoul of any public 7 policy that is embodied in the AIDA. Plaintiffs rely mainly on the statements of individual 8 legislators. See, e.g., Dkt. No. 1 ¶¶ 30, 33-36; Dkt. No. 67 at 4. This is a very slender evidentiary 9 reed. Attempting to divine an actionable public policy in the remarks of a handful of legislators is 10 a questionable endeavor. See People v. Wade, 63 Cal. 4th 137, 143 (2016) (“The statements of an 11 individual legislator, including the author of a bill, are generally not considered in construing a 12 statute, as the court’s task is to ascertain the intent of the Legislature as a whole in adopting a 13 piece of legislation.”) (cleaned up). Plaintiffs try to make much of comments by Senator 14 Monroney during committee hearings (among other sources), but subsequent developments in the 15 legislative history call into question whether the AIDA itself provides an anti-“phantom freight” 16 public policy, as the complaint contemplates. See Dkt. No. 1 ¶ 87. Consider the following excerpt 17 from the Senate Report about the purpose of the statute:

18 Probably the most important feature of S. 3500 is that it would in no way infringe 19 upon the freedom of the manufacturer to price his product; that it in no way would infringe upon the car purchaser’s freedom to bargain over the price of the car, while 20 at the same time the dealer would be free to sell the new car for any price he desired, or pay anything he wanted to for the trade-in allowance. The label would simply 21 assure that the purchaser would start the negotiations with the minimum necessary information. 22

23 S. Rep. No. 85-1555, at 2 (1958). Just a few pages later, the Senate Report makes clear that the 24 legislation would not restrict manufacturers’ ability to set the price for any component of the 25 transaction:

26 It is not the purpose of S. 3500 to restrict the freedom of the manufacturer to establish and announce a suggested retail delivered price for the automobile, its optional 27 equipment, and any services to be performed by the dealer in acquiring and making 1 Id. at 10-11. 2 The Senate Report’s emphasis that manufacturers would retain pricing freedom under the 3 AIDA is consistent with the legislation’s plain purpose of furnishing consumers with basic 4 information to help them navigate a major purchasing decision. If Congress wanted to eliminate 5 phantom freight or require the disclosure of actual freight costs, it could readily have done so. 6 Plaintiffs have not adequately alleged that FCA’s conduct violates public policy embodied in the 7 AIDA. 8 That leaves plaintiffs’ claim that FCA’s conduct qualifies as “unfair” within the meaning 9 of the UCL because its harm outweighs its utility. This inquiry is otherwise known as the 10 “balancing test.” Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 1000 (9th Cir. 2023) (“[T]o 11 support a finding of unfairness to consumers, a court uses the balancing test, which weighs the 12 utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”) (cleaned 13 up). To call this a “test” is generous. It has been aptly characterized as “too amorphous” and 14 “provid[ing] too little guidance to courts and businesses.” Cel-Tech Commc’ns, Inc. v. L.A. 15 Cellular Tel. Co., 20 Cal. 4th 163, 185 (1999). Its application in a consumer case such as this one 16 is not without some doubt. See Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1169-70 (9th Cir. 17 2012) (“Cel-Tech held that the balancing test was too amorphous and provided too little guidance 18 to courts and businesses. . . . Following Cel-Tech, appellate court opinions have been divided over 19 whether the definition of ‘unfair’ under the UCL as stated in Cel-Tech should apply to UCL 20 actions brought by consumers.”) (cleaned up). 21 Setting aside any deception or misrepresentation as the basis for the claim,1 plaintiffs’ sole 22 complaint under the “unfair” prong’s balancing test is that they “paid substantially more than they 23 otherwise would have” because of FCA’s practices. Dkt. No. 67 at 7. But plaintiffs received full 24 disclosure of the destination charge. They had no obligation to buy $97,000 and $72,000 trucks 25

26 1 Plaintiffs say that “[m]arking up a delivery charge provides no societal benefit; just hidden profit for FCA.” Dkt. No. 67 at 4. Plaintiffs cannot be heard to complain that FCA’s practices are unfair 27 because they generate a “hidden” profit, having disclaimed reliance on any deception, 1 that were manufactured by FCA. In essence, plaintiffs ask the Court to determine how much of a 2 profit is fair or reasonable for FCA to make on the different components of its car sales. As 3 amorphous as any balancing test warranted by the UCL might be, it does not authorize such broad 4 and limitless judicial intervention into private business affairs and transactions. See Searle v. 5 Wyndham Int’l, Inc., 102 Cal. App. 4th 1327, 1334 (2002) (“[T]he ‘unfairness’ prong of [the 6 UCL] does not give the courts a general license to review the fairness of contracts.”) (internal 7 quotations and citation omitted). 8 B. “Fraudulent” Prong 9 The fraudulent prong of plaintiffs’ UCL claim is “governed by the ‘reasonable consumer’ 10 test.” Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008). “That standard requires 11 that [plaintiffs] show that members of the public are likely to deceived.” McGinity v. Procter & 12 Gamble Co., 69 F.4th 1093, 1097 (9th Cir. 2023) (internal quotations and citation omitted). 13 Plaintiffs allege that “FCA misrepresents its phantom freight charges as ‘destination charges’ and 14 fails to disclose that the surcharges are not reflective of the actual cost of delivery and instead 15 include additional amounts that FCA adds in to generate additional and hidden profit.” Dkt. No. 1 16 ¶ 88. 17 Another district court dismissed consumer-deception claims that are materially 18 indistinguishable from those presented here, concluding “that a reasonable or average consumer 19 would not expect the Destination Charge to exclude profit”:

20 Plaintiffs allege that by calling the charge a “Destination Charge,” 21 [defendant-manufacturer] GM affirmatively “misleads reasonable consumers into believing its ‘Destination Charge’ reflects the actual cost of shipping its vehicles to 22 their ‘destination,’ not the cost of shipping its vehicles plus profit.” . . .

23 . . .

24 The word “charge -- as used in the Complaint -- is defined as “the price 25 demanded for something.” Reasonable or average consumers would not be surprised to learn that the price of goods often includes profit for the seller. The term 26 “Destination Charge” does not reasonably imply an absence of profit. See Becerra v. Dr Pepper/Seven Up, Inc., 945 F.3d 1225, 1230 (9th Cir. 2019) (rejecting an 27 argument that a term in a label was misleading “[j]ust because some consumers may As alleged in the Complaint, the amount and existence of the Destination 1 Charge and the total listed sticker price of GM’s vehicles were fully disclosed. 2 Plaintiffs received the vehicles they were promised at the prices they agreed upon. GM’s alleged disclosure of the Destination Charge complied with the AIDA 3 requirement that manufacturers divulge “the amount charged, if any, to such dealer for the transportation of such automobile to the location at which it is delivered to 4 such dealer.” 15 U.S.C. § 1232(f)(3). The statutory language contained in the AIDA -- requiring disclosure of “the amount charged” to the dealer -- no more 5 suggests the absence of profit than the term “Destination Charge” itself. In summary, 6 the allegations concerning the context of the vehicles’ sales do not alter the common- sense understanding that a charge can include profit. . . . [T]he Complaint fails to 7 allege facts to support an inference that Defendant made any affirmative misrepresentation. 8 9 Romoff, 574 F. Supp. 3d at 787-89 (some citations omitted). The Romoff court also rejected the 10 plaintiffs’ omission theory of liability -- “that GM had a duty to disclose the existence of profit in 11 the Destination Charge and failed to do so” -- on the ground that “additional disclosure of the fact 12 that the charge includes profit would not affect a reasonable or average consumer’s understanding 13 of the composition of the Destination Charge,” and “GM’s omission of additional information 14 regarding the Destination Charge is not material.” Id. at 789. 15 The discussion in Romoff is persuasive with respect to the UCL’s fraud prong, and our 16 circuit has so indicated in an affirmance in an unpublished disposition. Overall, a reasonable 17 consumer would not be misled by FCA’s fully disclosed destination charge. 18 Plaintiffs try to distinguish Romoff on the ground that the complaint in that case “never 19 mentions (i) the concept of phantom freight, (ii) that Congress spent years eliminating it, (iii) that 20 the automakers made a commitment to Congress to stop marking up their delivery charges, and 21 (iv) that behavioral economics studies have corroborated Congress’s condemnation of these 22 marked-up charges.” Dkt. No. 67 at 8. Additionally, plaintiffs suggest that their claims are 23 different because they do not “allege that the destination charges are paid by dealerships”: “[t]he 24 dealers are a mere intermediary, passing consumers’ money on to FCA.” Id. at 9-10 (citing Dkt. 25 No. 1 ¶¶ 30, 47, 93). 26 Taking these observations as true for present purposes only, they do not make a material 27 difference. To start, the complaint’s disjointed, incomplete discussion of the 1950s debate over 1 practices are fraudulent. The complaint’s foray into behavioral economics, see Dkt. No. 1 ¶¶ 40- 2 42, bears no clear relationship to FCA’s alleged misconduct. For example, the complaint 3 mentions “drip pricing,” which “refers to purchases where consumers are first presented with an 4 element of the price upfront -- like a new vehicle’s MSRP, which is mentioned universally in 5 vehicle marketing and advertising -- and then learn about compulsory price increments (like a 6 destination charge) later in the buying process.” Id. ¶ 40. But the allegations in the complaint are 7 directed to FCA’s disclosure of the destination charge on the Monroney label -- where the charge 8 appears in small font immediately above a box that contains the “TOTAL PRICE.” Id. ¶¶ 12, 18. 9 Contrary to plaintiffs’ suggestion, the complaint does allege that dealers actually pay the 10 destination charges, even if the dynamics of the exchange between dealers and manufacturers 11 might have changed in some instances. See id. ¶ 47 (“Whereas dealerships once paid cash upfront 12 for vehicles, it is now common for them to acquire vehicles on credit, paying FCA after selling the 13 vehicles.”). Plaintiffs do not adequately explain how this change in the dealer-manufacturer 14 financing arrangement is enough to render FCA’s practices fraudulent to consumers. 15 II. CLRA AND OTHER CLAIMS 16 Plaintiffs have not plausibly alleged that FCA’s conduct was unfair, fraudulent, or 17 deceptive, nor that FCA is unlawfully or unjustly retaining money that belongs to them. 18 Consequently, plaintiffs’ remaining claims -- which arise out of the same conduct that is the 19 subject of their UCL claim -- are dismissed. See McGinity, 69 F.4th at 1097 (CLRA); Berryman v. 20 Merit Prop. Mgmt., Inc., 152 Cal. App. 4th 1544, 1557, 1559-60 (2007) (unjust enrichment; 21 money had and received). 22 CONCLUSION 23 The complaint is dismissed in its entirety. Plaintiffs will have an opportunity to amend. 24 See Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). Plaintiffs may file an amended 25 complaint that is consistent with this order by September 5, 2023. The amended complaint may 26 not add any new claims or defendants without express prior approval from the Court. Plaintiffs 27 are advised that further opportunities to amend are not likely to be granted. A failure to meet the 1 amendment deadline will result in a dismissal with prejudice under Federal Rule of Civil 2 Procedure 41(b). 3 IT IS SO ORDERED. 4 || Dated: August 22, 2023 5 6 JAMEYPONATO 7 United{f tates District Judge 8 9 10 11 a 12

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