Ladanowsky v. FCA US LLC

Opinion

OLAF J. LADANOWSKY, Case No. 24-cv-07197-JST

Plaintiff, ORDER GRANTING IN PART AND v. DENYING IN PART MOTION TO DISMISS Re: ECF No. 5 Defendant.

Before the Court is Defendant FCA US LLC’s (“FCA”) motion to dismiss two of Plaintiff’s causes of actions. ECF No. 5. The Court will grant the motion in part and deny it in part. I. BACKGROUND1 Plaintiff Olaf Ladanowsky is a resident of San Francisco, California who alleges that he acquired a 2021 Jeep Grand Cherokee (the “Subject Vehicle”) that was manufactured and/or distributed by Defendant FCA. ECF No. 1-2 ¶ 7 (“Compl.”). Ladanowsky entered into a warranty contract with FCA on August 13, 2021. Id. “The warranty contract contained various warranties, including but not limited to the bumper-bumper [sic] warranty, powertrain warranty, emission warranty, etc.” Id. ¶ 8. Plaintiff identifies several defects that manifested themselves during the warranty period, including “engine defects, electrical defects, climate control defects, body defects; among other defects and non-conformities.” Id. ¶ 12. Furthermore, the Subject Vehicle was equipped with a 3.6L engine that “was defective, and which may result in loss of power, stalling, engine running rough, engine misfires, failure or replacement of the engine. It can suddenly affect the driver’s ability to control the vehicle or cause a non-collision vehicle fire.” Id. ¶ 73. Ladanowsky alleges that FCA failed to successfully repair these defects despite issuing various technical service bulletins and recalls that purported to be able to fix the defects. Id. ¶ 26. As a result, Ladanowsky “did not become suspicious of [FCA’s] concealment of the latent defects and its inability to repair it until shortly before filing of the complaint, when the issue persisted following [FCA’s] representations that the Vehicle was repaired.” Id. ¶ 27. Ladanowsky alleges that FCA knew of the engine defect prior to his acquisition of the Subject Vehicle through preproduction testing data, early consumer complaints about the engine defect made to FCA and its dealers, testing conducted by FCA in response to the complaints, and warranty repair and part replacements data that FCA received from its dealers. Id. ¶ 75. Ladanowsky further alleges that FCA and “its agents, representatives, officers, directors, employees, affiliates, and/or dealerships[] concealed the defects, minimized the scope, cause, and dangers of the defects with inadequate TSBs and/or Recalls, and refused to investigate, address, and remedy the defects as it pertains to all affected vehicles.” Id. ¶ 36. Ladanowsky brings several claims for breach of express and implied warranty under the Song-Beverly Consumer Warranty Act, Cal. Civ. Code §§ 1790 et seq. and for fraud: (i) violation of the replace or reimburse provisions of California Civil Code §§ 1793.2(d), 1793.1(a)(2); (ii) violation of the service or repair provisions of California Civil Code § 1793.2(b); (iii) violation of the service literature and replacement parts provisions of California Civil Code § 1793.2(a)(3); (iv) violation of the implied warranty of merchantability pursuant to Civil Code §§ 1791.1, 1794, 1795.5; (v) violation of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq.; and (vi) fraudulent inducement—concealment. Compl. ¶¶ 40–80. Ladanowsky asserts that the Subject Vehicle is worthless and/or worth a de minimis amount due to its defects and that he has suffered at least $35,001.00 in damages. Id. ¶¶ 14, 21. Ladanowsky seeks actual damages, a civil penalty in the amount of two times his actual damages under California Civil Code § 1794(c) or 1794(e), punitive damages, as well as attorneys’ fees and costs. See id. at 18. sixth causes of action (fraudulent inducement). The Court has subject matter jurisdiction over this case under 28 U.S.C. § 1331 and 28 U.S.C. § 1332(a). To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Dismissal “is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). “[A] complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. While this standard is not “akin to a ‘probability requirement’ . . . it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557). In determining whether a plaintiff has met the plausibility requirement, a court must “accept all factual allegations in the complaint as true and construe the pleadings in the light most favorable” to the plaintiff. Knievel, 393 F.3d at 1072. But “‘the tenet that a court must accept a complaint’s allegations as true is inapplicable to threadbare recitals of a cause of action’s elements, supported by mere conclusory statements.’” Gerstle v. Am. Honda Motor Co., Inc., No. 16-CV-04384-JST, 2017 WL 2797810, at *3 (N.D. Cal. June 28, 2017) (quoting Iqbal, 556 U.S. at 678). “To be entitled to the presumption of truth, a complaint ‘must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself Medtronic, Inc. 981 F. Supp. 2d 868, 876 (N.D. Cal. 2013) (explaining that the court is not required to “assume the truth of legal conclusions merely because they are cast in the form of factual allegations” (internal quotations omitted)). A. California Civil Code § 1793.2(a)(3) California Civil Code § 1793.2(a)(3) requires a manufacturer to “make available to authorized service and repair facilities sufficient service literature and replacement parts to effect repairs during the express warranty period.” Ladanowsky pleads this cause of action largely by reciting the elements of the claim. See Compl. ¶¶ 51–53. These bare conclusions are insufficient to state a claim. Ladanowsky argues that because the complaint describes specific defects of the Subject Vehicle and the time frame they occurred, FCA can review its warranty repair records and warranty claims for the Subject Vehicle. ECF No. 15 at 9. He further argues that because he alleges that FCA’s authorized repair facilities were unable to resolve the defects, the Court can reasonably infer that there must have been insufficient replacements parts and literature provided. See id. Ladanowsky does not allege any specific facts regarding how FCA failed to provide the necessary service literature and replacement parts to FCA’s repair facilities. He does not allege when he brought his Subject Vehicle to any authorized service and repair facility or how any such facility was unable to repair the Subject Vehicle. While “[i]nsufficient literature and replacement parts is a possible explanation among many other possible explanations for why [FCA’s] dealership could not allegedly repair the vehicle,” Ladanowsky “includes no factual allegations that would make this a plausible claim.” See Correa v. Ford Motor Co., No. 2:23-CV-02389-AB- PD, 2024 WL 2107719, at *2 (C.D. Cal. Apr. 11, 2024). Indeed, Ladanowsky does not even explain whether FCA failed to provide service literature or replacement parts to adequately state a claim. See Farrales v. Ford Motor Co., No. 21-CV-07624-HSG, 2022 WL 1239347, at *7 (N.D. Cal. Apr. 27, 2022). Ladanowsky merely recites the applicable statutory language, and “conclusory allegations of law . . . are insufficient to defeat a motion to dismiss.” Adams v. under California Civil Code § 1793.2(a)(3) with leave to amend. B. Fraudulent Inducement Federal Rule of Civil Procedure 9(b) requires a party “alleging fraud or mistake” to “state with particularity the circumstances constituting fraud or mistake,” but allows “[m]alice, intent, knowledge, and other conditions of a person’s mind” to “be alleged generally.” Fed. R. Civ. P. 9(b). Claims based on a fraud by omission theory are subject to a lower pleading standard than those based on affirmative misrepresentations, as “‘a plaintiff in a fraud by omission suit will not be able to specify the time, place, and specific content of an omission as precisely as would a plaintiff in a false representation claim,’ and such a claim ‘will not be dismissed purely for failure to precisely state the time and place of the fraudulent conduct.’” Holley v. Gilead Scis., Inc., 379 F. Supp. 3d 809, 817 (N.D. Cal. 2019) (quoting Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088, 1098–99 (N.D. Cal. 2007)). The elements of a fraud claim in California 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.” Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 990 (2004). Ladanowsky asserts that FCA fraudulently concealed material facts regarding the Subject Vehicle’s engine defect. See ECF No. 15 at 11-12; Compl. ¶ 73. 1. Duty to Disclose Under California law, “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, 891 F.3d 857, 861 (9th Cir. 2018) (emphasis omitted) (quoting Daugherty v. Am. Honda Motor Co., Inc., 144 Cal. App. 4th 824, 835 (2006)). In Hodsdon, the Ninth Circuit explained that a plaintiff sufficiently pleads a duty to disclose where: (1) the plaintiff alleges the omission was material; (2) the alleged defect was central to the product's function; and (3) the defendant (a) is plaintiff’s fiduciary, (b) has “exclusive knowledge” of material facts, (c) “actively conceals” a material fact, or (d) makes misleading partial representations. Id. at 863 applicable to a partial, not pure, omission claim.” Anderson, 500 F. Supp. 3d at 1014. FCA argues that it had no duty to disclose the alleged omission to Ladanowsky because there was no transactional relationship between them, and the dealership that Ladanowsky purchased the Subject Vehicle from was not FCA’s agent. ECF No. 5 at 11; ECF No. 7 at 6–7. But as Ladanowsky points out, ‘“a vendor has a duty to disclose material facts not only to immediate purchasers, but also to subsequent purchasers when the vendor has reason to expect that the item will be resold.”’ ECF No. 15 at 15 (quoting OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp., 157 Cal. App. 4th 835, 859 (2007), as modified (Dec. 26, 2007) (emphasis in original)). As a car manufacturer, FCA cannot shirk its duty to disclose material facts to subsequent purchasers of its vehicles just because consumers purchase those vehicles from FCA’s dealerships rather than from FCA directly. Moreover, Ladanowsky adequately alleged that FCA had a duty to disclose because it possessed superior knowledge of material facts and actively concealed the material facts. Ladanowsky specifically alleges that FCA had knowledge of the engine defect “through sources not available to consumers,” including pre-production testing data, consumer complaints about the engine defect, testing conducted by FCA in response to these complaints, and aggregate warranty data compiled from FCA’s dealers. Compl. ¶ 75. Ladanowsky further alleges that FCA covered up the known defects by failing to notify owners of the affected vehicle and instead issuing unsuccessful recalls and technical service bulletins. Id. ¶¶ 26–27, 36. Ladanowsky sufficiently pleads the other elements of a fraud by omission claim. He alleges that the omitted fact—the Subject Vehicle’s defective engine—was material because it affected the vehicle’s safety and was central to the functioning of the product. See id. ¶ 73. And he alleges that he “would not have leased and/or purchased [the Subject Vehicle] had [he] known the true facts about the Engine Defect,” id. ¶ 79, which is sufficient to demonstrate reliance. See Daniel v. Ford Motor Co., 806 F.3d 1217, 1225 (9th Cir. 2015) (“A plaintiff may [prove reliance on an omission] by simply proving ‘that, had the omitted information been disclosed, one would have been aware of it and behaved differently.’”) (quoting Mirkin v. Wasserman, 5 Cal. 4th 1082, 2. Economic Loss Rule FCA argues that the economic loss rule bars Ladanowsky’s fraud by omission claim because he cannot recover in tort for ‘“financial harm unaccompanied by physical or property damage.”’ ECF No. 5 at 13 (quoting Sheen v. Wells Fargo Bank, N.A., 12 Cal. 5th 905, 922 (2022)). It contends that Ladanowsky’s sixth cause of action would more properly be characterized as a claim for fraud in the performance of FCA’s warranty obligations rather than fraud in the inducement of the contract, citing to the allegations in the complaint regarding FCA’s ongoing fraud and failure to resolve the defects. ECF No. 17 at 9–10.2 “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., 34 Cal. 4th at 988. One exception to the economic loss doctrine is “where the contract was fraudulently induced” due to an affirmative misrepresentation. Id. at 989–91 (citation omitted). Two recent California cases address whether the fraud exception to the economic loss rule extends to fraudulent concealment claims. First, in Rattagan v. Uber Techologies, Inc., the California Supreme Court held that “a plaintiff may assert a cause of action for fraudulent concealment based on conduct occurring in the course of a contractual relationship, if the elements of the claim can be established independently of the parties’ contractual rights and obligations and the tortious conduct exposes the plaintiff to a risk of harm beyond the reasonable contemplation of the parties when they entered into the contract.” Rattagan v. Uber Techs., Inc., 17 Cal. 5th 1, 45 (2024) (emphasis added). Second, in Dhital v. Nissan North America, Inc., a California appellate court held that 2 FCA argues in its reply brief that even if Ladanowsky properly pleads a fraudulent inducement claim, his claim is barred by the three-year statute of limitations under Code Civil Procedure Section 338(d). ECF No. 17 at 10 n.1. As a preliminary matter, the Court notes that FCA did not properly raise this argument in its initial motion. See Sharma v. Volkswagen AG, 524 F. Supp. 3d 891, 912 n.8 (N.D. Cal. 2021) (“Because it was raised in reply, the Court does not reach this argument.”). Furthermore, Section 338(d) provides that a cause of action for fraud does not accrue “until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” Here, Ladanowsky alleges in the complaint that he “did not discover [FCA’s] wrongful conduct alleged “concealment-based claims for fraudulent inducement are not barred by the economic loss rule.” 84 Cal. App. 5th 828, 840 (2022) (emphasis added).3 The facts alleged in Dhital are nearly identical to those alleged here. In Dhital, the plaintiffs alleged that after purchasing a car from a Nissan dealership, they took the car to an authorized Nissan repair facility because of transmission problems. Id. at 833. Because the transmission problems persisted, the plaintiffs eventually stopped using the car altogether. Id. The plaintiffs there alleged that Nissan “knew or should have known about the safety hazard posed by the defective transmissions before the sale of [the affected] vehicles from premarket testing [and] consumer complaints . . . .” Id. at 834. The plaintiffs alleged that Nissan, “by intentionally concealing facts about the defective transmission, fraudulently induced them to purchase a car.” Id. at 838. The court held that the fraudulent inducement claim fell within the exception to the economic loss rule recognized by the California Supreme Court in Robinson. Id. at 843. The court reasoned that, as in Robinson, fraudulent inducement—whether achieved by intentional concealment or by intentional affirmative misrepresentations—constitutes tortious activity independent of the contract and is thus outside of the economic loss rule. Id. at 841. Here, as in Dhital, Ladanowsky alleges that FCA engaged in fraudulent conduct— independent of the alleged warranty breaches—to induce him to purchase the subject vehicle. Ladanowsky specifically alleges that FCA had knowledge of the engine defect prior to Ladanowsky’s purchase of the vehicle but did not disclose the defect to him. See Compl. ¶¶ 75–77. While Ladanowsky also alleges that FCA continued concealing the defects after the purchase of the vehicle, this cause of action focuses on the fraudulent inducement. The reasoning in Dhital thus applies, and the economic loss rule does not bar Ladanowsky’s claim. For the foregoing reasons, the Court grants FCA’s motion to dismiss as to Ladanowsky’s claim under California Civil Code § 1793.2(a)(3) and denies the motion as to Ladanowsky’s 3 The California Supreme Court granted review of Dhital on February 1, 2023, 304 Cal. Rptr. 3d 82, but has yet to issue a decision. While this Court holds that the economic loss rule does not bar 1 fraudulent inducement claim. Within 21 days from this order, Ladanowsky may file an amended 2 complaint solely to cure the deficiencies identified in this order. If Ladanowsky does not file an 3 amended complaint, the case will proceed without his claim under California Civil 4 Code § 1793.2(a)(3). ® 6 Dated: December 30, 2024 7 JON S. TIGAR 8 nited States District Judge 9 10 11 12

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