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8 United States District Court 9 Central District of California
11 MAXWELL GLASSBURG, individually Case № 2:21-cv-01333-ODW (MAAx) and on behalf of all others similarly 12 situated, ORDER DENYING DEFENDANT’S 13 Plaintiff, MOTION TO COMPEL 14 v. ARBITRATION [35] AND 15 FO RD MOTOR COMPANY, GRANTING IN PART AND DENYING IN PART DEFENDANT’S 16 Defendant. MOTION TO DISMISS [33]
17 18 I. INTRODUCTION & BACKGROUND 19 Defendant Ford Motor Company is the manufacturer of the Ford Mustang. In 20 May 2018, Plaintiff Maxwell Glassburg purchased a certified pre-owned 2015 21 Mustang from a non-party authorized dealer. Glassburg alleges his vehicle has a 22 defective trunk lid wiring harness that Ford failed to repair and that causes problems 23 with the backup camera, the trunk release, the trunk light, and satellite radio reception. 24 Glassburg asserts claims against Ford for (1) breach of express warranty; (2) breach of 25 implied warranty of merchantability; (3) violation of the California Consumer Legal 26 Remedies Act; (4) violation of California’s unfair competition law; and (5) fraudulent 27 omission. (First Am. Compl. (“FAC”), ECF No. 31.) 28 Ford concurrently moves to compel arbitration, (Mot. Compel Arbitration 1 (“Mot. Arb.”), ECF No. 35), and to dismiss Plaintiff’s FAC, (Mot. Dismiss, ECF 2 No. 33). The Court resolves the arbitration motion first, because if the parties have 3 agreed to arbitrate this matter, then the arbitrator should hear any motions to dismiss. 4 Nevertheless, for the reasons set forth below, the Court DENIES Ford’s Motion to 5 Compel Arbitration and proceeds to GRANT IN PART and DENY IN PART Ford’s 6 Motion to Dismiss.1 7 II. LEGAL STANDARDS 8 Motion to Compel Arbitration. The Federal Arbitration Act (“FAA”) provides 9 that contractual arbitration agreements “shall be valid, irrevocable, and enforceable, 10 save upon such grounds as exist at law or in equity for the revocation of any contract.” 11 9 U.S.C. § 2. “[A] party aggrieved by the alleged failure, neglect, or refusal of 12 another to arbitrate under a written agreement for arbitration may petition any United 13 States district court . . . for an order directing that . . . arbitration proceed in the 14 manner provided for in [the arbitration] agreement.” 9 U.S.C. § 4. Upon a showing 15 that a party has failed to comply with a valid arbitration agreement, the district court 16 must issue an order compelling arbitration. Id. 17 The Supreme Court has repeatedly interpreted § 2 as reflecting “a liberal federal 18 policy favoring arbitration agreements.” Moses H. Cone Mem’l Hosp. v. Mercury 19 Const. Corp., 460 U.S. 1, 24 (1983). In determining whether to issue an order 20 compelling arbitration, a court may not review the merits of the dispute, and generally 21 must limit its inquiry to (1) whether the contract containing the arbitration agreement 22 evidences a transaction involving interstate commerce, (2) whether there exists a valid 23 arbitration agreement, and (3) whether the dispute falls within the scope of the 24 arbitration agreement. See Republic of Nicar. v. Std. Fruit Co., 937 F.2d 469, 477–78 25 (9th Cir. 1991). If each question is answered in the affirmative, a court must order the 26 parties to arbitrate in accordance with the terms of their agreement. 9 U.S.C. § 4. 27
28 1 Having carefully considered the papers filed in connection with the Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 1 Motion to Dismiss. A court may dismiss a complaint under Federal Rule of 2 Civil Procedure (“FRCP”) 12(b)(6) for lack of a cognizable legal theory or insufficient 3 facts pleaded to support an otherwise cognizable legal theory. Balistreri v. Pacifica 4 Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). To survive a dismissal motion, a 5 complaint need only satisfy the “minimal notice pleading requirements” of 6 FRCP 8(a)(2). Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). FRCP 8(a)(2) 7 requires “a short and plain statement of the claim showing that the pleader is entitled 8 to relief.” The factual “allegations must be enough to raise a right to relief above the 9 speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); Ashcroft v. 10 Iqbal, 556 U.S. 662, 678 (2009) (holding that a claim must be “plausible on its face” 11 to avoid dismissal). 12 The determination of whether a complaint satisfies the plausibility standard is a 13 “context-specific task that requires the reviewing court to draw on its judicial 14 experience and common sense.” Ashcroft, 556 U.S. at 679. A court is generally 15 limited to the pleadings and must construe all “factual allegations set forth in the 16 complaint . . . as true and . . . in the light most favorable” to the plaintiff. Lee v. City 17 of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001). However, a court need not blindly 18 accept conclusory allegations, unwarranted deductions of fact, and unreasonable 19 inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 20 Ultimately, there must be sufficient factual allegations “to give fair notice and to 21 enable the opposing party to defend itself effectively,” and the “allegations that are 22 taken as true must plausibly suggest an entitlement to relief, such that it is not unfair 23 to require the opposing party to be subjected to the expense of discovery and 24 continued litigation.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 25 III. DISCUSSION 26 This case is not appropriate for arbitration because Ford is not a signatory to the 27 operative arbitration agreement, and no valid nonsignatory theory gives it the right to 28 compel. The Court therefore denies Ford’s motion to compel arbitration and proceeds 1 to dismiss the implied warranty of merchantability and fraud claims from the FAC 2 without leave to amend. 3 A. Motion to Compel Arbitration 4 The basis for Ford’s Motion to Compel Arbitration is the Retail Installment 5 Sales Contract (“Contract”) Glassburg signed when he purchased his Mustang from 6 non-party DCH Ford of Thousand Oaks (“Dealer”). The Contract’s arbitration clause 7 contains the following key provision: 8 Any claim or dispute, whether in contract, tort, statute, or otherwise (including the interpretation and scope of this Arbitration Provision, and 9 the arbitrability of the claim or dispute), between you and us or our 10 employees, agents, successors or assigns, which arises out of or relates to 11 your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such 12 relationship with third parties who do not sign this contract) shall, at your 13 or our election, be resolved by neutral, binding arbitration and not by a court action. 14 15 (Mot. Arb. Ex. 1 (“Contract”), ECF No. 35-2.) 16 The parties do not dispute that the Contract, including its arbitration language, 17 is valid and operable as between Glassburg and the Dealer. Glassburg purchased his 18 Mustang from the Dealer, and the Dealer is the party whose name appears on the 19 Contract. Ford, on the other hand, is not a signatory to the Contract. As the moving 20 party, Ford must therefore show that it is entitled to compel arbitration through an 21 applicable nonsignatory theory. See, e.g., Kramer v. Toyota Motor Corp., 705 F.3d 22 1122, 1126 (9th Cir. 2013); Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 23 1287 (9th Cir. 2009) (“The strong public policy in favor of arbitration does not extend 24 to those who are not parties to an arbitration agreement.”). 25 State contract law determines whether Ford may compel arbitration as a 26 nonsignatory. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631–32 (2009) 27 (recognizing that nonsignatory theories are “background principles of state contract 28 law regarding the scope of agreements (including the question of who is bound by 1 them)” and are therefore not altered by the FAA); Kramer, 705 F.3d at 1128 (9th Cir. 2 2013) (“[A] litigant who is not party to an arbitration agreement may invoke 3 arbitration under the FAA if the relevant state contract law allows the litigant to 4 enforce the agreement.”). 5 “Nonsignatory defendants may enforce arbitration agreements where there is 6 sufficient identity of parties.” Jenks v. DLA Piper Rudnick Gray Cary U.S. LLP, 7 243 Cal. App. 4th 1, 8 (2015) (internal quotation marks omitted). Ways to make this 8 showing include “(a) incorporation by reference; (b) assumption; (c) agency; (d) veil- 9 piercing or alter ego; (e) estoppel; and (f) third-party beneficiary.” Benaroya v. Willis, 10 23 Cal. App. 5th 462, 469 (2018). Here, Ford argues that it can compel arbitration 11 under both estoppel and agency theories. Ford is incorrect on both counts. 12 1. Estoppel 13 Arbitration is required under the estoppel principle if the non-party has asserted 14 claims that are “dependent upon, or inextricably intertwined with, the obligations” 15 imposed by the agreement containing the arbitration clause. JSM Tuscany, LLC v. 16 Superior Court, 193 Cal. App. 4th 1222, 1239 (2011); Goldman v. KPMH, LLP, 17 173 Cal. App. 4th 209, 219 (2009). The test is whether the non-party “relies on the 18 agreement” containing the arbitration provision “to establish its cause of action.” 19 Goldman, 173 Cal. App. 4th at 229–30. 20 Under binding authority of Kramer, in the typical case, a consumer’s statutory 21 and contractual claims against a vehicle manufacturer based on the condition of the 22 vehicle are not dependent on a purchase contract the consumer may have signed when 23 the consumer purchased the vehicle from a dealer. 705 F.3d at 1132. Applying this 24 holding here, Glassburg’s claims against Ford do not rely on the existence of the 25 Contract because, as the Kramer court pointed out, Glassburg would still have a claim 26 against the manufacturer even if he had purchased the vehicle from the non-party 27 dealer for cash and in the absence of a written purchase agreement. Id. Glassburg’s 28 claims against Ford “ar[i]se independently” of the terms of the Contract, and 1 accordingly, estoppel does not apply. Id. 2 Ford argues that Felisilda v. FCA US LLC, 53 Cal. App. 5th 486 (2020) compels 3 a different result, but Ford is mistaken. In Felisilda, the consumer had originally 4 brought their claim against both the dealer and the manufacturer. Id. at 491. This 5 difference is key. The existence of a claim against the dealer makes Felisilda 6 inapposite because the claim against the dealer brought the Felisildas’ claim within the 7 scope of the arbitration agreement, that is, within the class of claims described by the 8 arbitration agreement as arbitrable. Id. at 498 (“[T]he arbitration provision in this case 9 provides for arbitration of disputes that include third parties so long as the dispute 10 pertains to the condition of the vehicle.” (emphasis added)). Because the Felisildas 11 initially brought their claim against both the dealer and the manufacturer, their dispute 12 was one that “include[d] third parties.” Id. The Court based its conclusion that 13 equitable estoppel applied primarily on the fact that the Felisildas’ claim against the 14 manufacturer fell within the scope of the operative arbitration clause. Id. 15 Here, Glassburg is suing only Ford and not the Dealer. This changes the result 16 and requires a de novo exercise in contract interpretation based on the case at hand. 17 The operative arbitration language quoted above states that certain claims between the 18 two signatories—i.e., Glassburg and the Dealer—are arbitrable. The clause referring 19 to “third parties who do not sign this contract” does not operate to bring Glassburg’s 20 claim within the agreement’s scope. That clause states that a claim between Glassburg 21 and the Dealer is arbitrable so long as it arises out of (among other things) (1) the 22 Contract or (2) a relationship with a nonsignatory that formed as a result of the 23 Contract. As for (1), under Kramer, Glassburg’s claims against Ford do not arise 24 directly out of the Contract. As for (2), it may fairly be said that Glassburg’s 25 relationship with Ford formed as a result of the Contract. But that simply means that 26 claims between Glassburg and the Dealer that might somehow relate to that 27 third-party relationship are arbitrable. It does not mean that claims between Glassburg 28 and Ford are arbitrable. 1 This case is distinguishable from Felisilda because the arbitration provision in 2 this case does not provide for arbitration of the dispute between the two parties before 3 the Court. Felisilda therefore does not change the result, and equitable estoppel 4 remains inapplicable under Kramer. 5 2. Agency 6 Next, Ford argues that an agency relationship supports its right to compel 7 arbitration. Specifically, Ford points to the ways in which Glassburg’s FAC 8 describes the agency relationship between Ford and the Dealer and urges the Court to 9 compel arbitration based on those allegations. (Mot. Arb. 13.) Under California law, 10 a nonsignatory movant can compel a signatory to arbitration “where there is a 11 connection between the claims alleged against the nonsignatory and its agency 12 relationship with a signatory.” Cohen v. TNP 2008 Participating Notes Program, 13 LLC, 31 Cal. App. 5th 840, 863–64 (2019). Something more than a mere agency 14 relationship is required, however; the nonsignatory must show that its potential 15 liability arises under the contract establishing the implied warranty (which usually 16 means that liability arose due to the agent performing on the principal’s contract in its 17 capacity as agent). Fuentes v. TMCSF, Inc., 26 Cal. App. 5th 541, 551 (2018) 18 (finding no right of nonsignatory to compel arbitration where plaintiff’s claims were 19 against nonsignatory in its own capacity, not in its capacity as the signatory’s agent). 20 Here, fatal to Glassburg’s agency theory is the observation that, if there is any 21 contract between Ford and the Dealer that establishes an agency relationship between 22 those two, that contract certainly is not the Contract under which Glassburg purchased 23 his Mustang. Glassburg’s claims against Ford are not for any liability arising from the 24 Contract—that much was made clear in Kramer. Similarly, no party contends that 25 Ford was acting in its capacity as the Dealer’s agent when Ford breached the 26 warranties, and indeed, such an argument would be absurd, because it would require a 27 party to assert that a manufacturer manufactures products as an agent of the 28 manufacturer’s distributor, when, if anything, the opposite is usually true. Thus, the 1 purported agency relationship between Ford and the Dealer is insufficient to support 2 Glassburg’s nonsignatory theory. See Pestarino v. Ford Motor Co., No. 19-cv-07890- 3 BLF, 2020 WL 3187370, at *3 (N.D. Cal. June 15, 2020) (“Ford does not contend that 4 [the dealer] acted as Ford’s agent in signing the Sale Contract. Ford has failed to 5 establish that it may enforce the arbitration provision of the Sale Contract based on an 6 agency relationship between Ford and [the dealer].”). 7 Ford fails to show an applicable nonsignatory theory. Ford is therefore deemed 8 to be a nonparty to the Contract to whom the rights under the Contract, including the 9 right to compel arbitration, are unavailable. Ford may not compel arbitration, and its 10 Motion to Compel Arbitration is accordingly DENIED. 11 B. Motion to Dismiss 12 Ford seeks dismissal of each of Glassburg’s five claims. For the reasons that 13 follow, Glassburg’s warranty claims are well-pleaded, and he has standing to sue 14 under California unfair competition law and the Consumer Legal Remedies Act. 15 Finally, the Court dismisses the fraud claim on two independent bases: lack of duty to 16 disclose and the economic loss rule. 17 As a preliminary matter, Ford seeks dismissal of the proposed nationwide class 18 on the grounds that a nationwide class is not plausible under the facts Glassburg 19 alleges. (Mot. Dismiss 3–9.) But “[c]lass certification is better addressed through a 20 fully-briefed class certification hearing, rather than tacked on to the end”—or, in this 21 case, shoehorned into the beginning—“of an extensive motion to dismiss.” Davenport 22 v. Wendy’s Co., No. 2:14-cv-00931 JAM DAD, 2014 WL 3735611, at *10 (E.D. Cal. 23 July 25, 2014). The Court finds dismissal of the nationwide class would be premature 24 and defers determination of that issue by DENYING that aspect of the Motion to 25 Dismiss. See id.; see also Joseph v. J.M. Smucker Co., No. CV 17-8735 FMO (KSx), 26 2019 WL 1219708, at *4 (C.D. Cal. Mar. 13, 2019). 27 28 1 1. Breach of Express Warranty 2 Glassburg asserts an express warranty claim based on the Ford Extended 3 Service Plan he purchased. (FAC ¶ 38.) The parties agree that, for this claim to 4 survive Ford’s motion, Glassburg must allege that Ford: (1) made an affirmation of 5 fact or promise, or provided a description of its goods; and that (2) the promise or 6 description formed part of the basis of the bargain; (3) the express warranty was 7 breached; and (4) the breach caused Glassburg injury. Keegan v. Am. Honda Motor 8 Co., 838 F. Supp. 2d 929, 949 (C.D. Cal. 2012); (Mot. Dismiss 9; Opp’n to Mot. 9 Dismiss (“Opp’n”) 5, ECF No. 39). 10 Ford argues that Glassburg’s warranty had certain time period and mileage 11 limitations and that Glassburg has failed to adequately plead the details necessary to 12 ascertain whether the alleged wiring harness defect manifested within these 13 limitations. (Mot. 10–11.) This argument is not well taken because at this stage it is 14 not Glassburg’s responsibility to rebut Ford’s defenses. As long as nothing in the 15 FAC compels the conclusion that the defect manifested outside the warranty periods 16 (and it does not), then dismissal on this basis is not appropriate. 17 Ford also argues that Glassburg failed to plead what term of the warranty was 18 breached. This argument also fails. To state a claim, a plaintiff must “describe the 19 exact terms” of the express warranty at issue. Stearns v. Select Comfort Retail Corp., 20 763 F. Supp. 2d 1128, 1142 (N.D. Cal. 2010); see also Pelayo v. Hyundai Motor Am., 21 Inc., No. 8:20-cv-01503-JLS-ADS, 2021 WL 1808628, at *7 (C.D. Cal. May 5, 2021) 22 (dismissing express warranty claim where plaintiffs “failed to identify any specific 23 terms they allege were breached”). However, consistent with foundational contract 24 principles, courts generally do not interpret this rule as requiring parties to set forth 25 the terms of a written contract verbatim. Cf. In re Out of Network Substance Use 26 Disorder Claims against UnitedHealthcare, No. SACV 19-2075 JVS (DFMx), 27 2020 WL 5913855, at *6 (C.D. Cal. July 29, 2020) (“Plaintiffs need not quote the 28 1 exact contractual language or attach a copy of every relevant contract[] to survive 2 dismissal.” (internal quotation marks omitted)). 3 Here, Glassburg alleges he bought his Mustang “in May 2018, along with a 4 Ford Extended Service 132 month/125,000 mile extended warranty, from a Ford 5 dealership in Westlake Village, California.” (FAC ¶ 8.) Glassburg alleges his “Ford 6 Extended Service Plan expressly covers the cost of parts and labor for repairs to the 7 vehicle’s wiring harness and rear view camera.” (Id.; see id. ¶ 38 (same).) This 8 constitutes sufficient pleading of the terms of the warranty because it is sufficient to 9 indicate what the warrantor warranted, by what medium, and how the warrantor failed 10 to follow through on the warranty. To ask for more would be to require Glassburg to 11 quote the exact contractual language, which is not appropriate. UnitedHealthcare, 12 2020 WL 5913855, at *6. Glassburg “allege[s] the specific provisions in the contract 13 creating the obligation the defendant is said to have breached” and thus sufficiently 14 pleads the express warranty’s terms. In re Anthem, Inc. Data Breach Litig., 162 F. 15 Supp. 3d 953, 980 (N.D. Cal. 2016); UnitedHealthcare, 2020 WL 5913855, at *6. 16 Finally, Ford argues that Glassburg’s express warranty claim fails because he 17 did not give Ford an adequate chance to repair the vehicle. (Mot. 11.) In the typical 18 case, a single presentation of a vehicle does not establish that its manufacturer failed 19 to repair it after a reasonable number of attempts. See Clark v. Am. Honda Motor Co., 20 Inc., --- F. Supp. 3d ---, 2021 WL 1186338, at *5 (C.D. Cal. Mar. 25, 2021) 21 (“Plaintiffs who bought their vehicle for repair only once or not at all cannot maintain 22 a breach of warranty claim.”). Here, however, Glassburg alleges that he presented the 23 vehicle for repair at an authorized Ford servicer, and that during that visit, the servicer 24 “declined to repair the vehicle’s defective wiring on the basis that it could not identify 25 a problem.” (FAC ¶ 9.) Viewing the allegations in the light most favorable to 26 Glassburg, it is plausible in this case that the servicer’s refusal to repair was not in fact 27 a proper diagnosis of ‘no issue’ but was instead an erroneous diagnosis which should 28 have been followed by an in-warranty repair. The possibility of error on the servicer’s 1 part plausibly released Glassburg from the obligation to present the vehicle additional 2 times for repair. 3 Glassburg’s express warranty claim is otherwise well-pleaded and will not be 4 dismissed. The Court DENIES Ford’s Motion as to the express warranty claim. 5 2. Breach of Implied Warranty of Merchantability 6 Ford seeks dismissal of Glassburg’s second claim for breach of implied 7 warranty of merchantability. To state a claim, “a plaintiff must allege a fundamental 8 defect that renders the product unfit for its ordinary purpose.” T&M Solar & Air 9 Conditioning, Inc. v. Lennox Int’l Inc., 83 F. Supp. 3d 855, 878 (N.D. Cal. 2015). 10 Ford argues that Glassburg cannot maintain this claim due because (1) it is not in 11 privity with Glassburg and (2) Glassburg’s vehicle was not unfit for its ordinary 12 purpose. Ford is correct on the first of these two arguments, and the Court dismisses 13 the implied warranty claim on this basis alone, without reaching Ford’s second 14 argument. 15 California law requires a plaintiff to allege privity with the defendant to state a 16 claim for breach of implied warranty of merchantability. Clemens v. DaimlerChrysler 17 Corp., 534 F.3d 1017, 1023 (9th Cir. 2008); Bhatt v. Mercedes-Benz USA, LLC, 18 No. CV-16-03171-TJH (RAOx), 2018 WL 5094932, at *2 (C.D. Cal. Apr. 16, 2018). 19 “A buyer and a seller stand in privity if they are in adjoining links of the distribution 20 chain.” Clemens, 534 F.3d at 1023. 21 That said, under the third-party beneficiary exception, privity is not required 22 “where a plaintiff sufficiently pleads that he or she is a third-party beneficiary to a 23 contract that gives rise to the implied warranty of merchantability.” Mosqueda v. Am. 24 Honda Motor Co., Inc., 443 F. Supp. 3d 1115, 1128 (C.D. Cal. 2020); cf. Cal. Civ. 25 Code § 1559 (“A contract, made expressly for the benefit of a third person, may be 26 enforced by [the third person].”). 27 Here, Glassburg’s FAC contains a single-paragraph smattering of allegations 28 aimed at establishing privity between himself and Ford. (FAC ¶ 56.) With these 1 allegations, Glassburg seeks to establish privity directly by arguing that the 2 manufacturer-consumer relationship is sufficient to establish privity, and he 3 alternatively seeks to establish that privity is not required due to the third-party 4 beneficiary exception. In his Opposition, Glassburg fails to oppose Ford’s arguments 5 that no privity exists and instead focuses on the third-party beneficiary exception. 6 (Opp’n 11–12.) This failure to oppose constitutes Glassbrg’s concession that, but for 7 the third-party beneficiary exception to the privity requirement, the lack of privity 8 would otherwise defeat his claim. 9 Glassburg argues that he and the class members are third-party beneficiaries 10 “because their car purchases were the directly intended result of [Ford’s] contractual 11 relationship with its authorized dealers.” Bhatt, 2018 WL 5094932, at *3. This Court, 12 however, joins the Bhatt court in rejecting Glassburg’s argument, as California case 13 law does not support application of the third-party beneficiary doctrine to the type of 14 implied warranty Glassburg asserts. California courts have allowed a third-party 15 beneficiary to enforce a contract where, for example, a property owner hires a prime 16 contractor, the prime contractor hires a subcontractor, and the property owner asserts 17 an implied warranty claim against the subcontractor. Gilbert Fin. Corp. v. Steelform 18 Contracting Co., 82 Cal. App. 3d 65, 69 (1978). But the present situation, involving a 19 consumer, a dealer, and a manufacturer, is fundamentally different. In the 20 construction example, the relationship between the property owner and the prime 21 contractor preceded the relationship between the prime contractor and the 22 subcontractor, such that when the prime contractor and subcontractor established their 23 contract that gave rise to the implied warranty, both the prime contractor and the 24 subcontractor knew exactly for whose benefit they were establishing the implied 25 warranty: the property owner. Here, however, the relationship between the consumer 26 and the dealer does not precede the relationship between the dealer and the 27 manufacturer; instead, the dealer and the manufacturer first established their 28 relationship, and the consumer later participates by purchasing a car from the dealer. 1 The result is that, when the dealer and manufacturer established their relationship and 2 the implied warranty arising therefrom, neither knew exactly for whose benefit they 3 might have been establishing that implied warranty. The specific beneficiaries— 4 consumers like Glassburg—would not be known to either the manufacturer or the 5 dealer until later. 6 Importantly, in the vehicle sale context, it is the dealer who exerts primary 7 control over which consumers purchase a vehicle; practically speaking, the 8 manufacturer has no say in the matter. Thus, if Glassburg’s third-party beneficiary 9 argument is to be accepted, then Ford has contractual obligations to a class of third- 10 party beneficiary consumers whose size and composition is entirely outside Ford’s 11 control. No California case law suggests an implied warranty relationship can exist 12 between a manufacturer and such a nebulous, intractable class of third-party 13 beneficiary consumers. The Court is unwilling to extend the third-party beneficiary 14 exception to implied warranty law in a way that would create this result. See 15 Clemens, 534 F.3d at 1024 (“California courts have painstakingly established the 16 scope of the privity requirement . . . and a federal court sitting in diversity is not free 17 to create new exceptions to it.”).2 18 The Court GRANTS Ford’s Motion as to the implied warranty claim. In so 19 doing, the Court notes Glassburg already asserted a variety of allegations directed 20 toward privity. (FAC ¶ 56.) By addressing only the third-party beneficiary exception 21 in his Opposition brief, Glassburg concedes that his other privity allegations are 22 insufficient, and he does not offer any proposal for curing the deficiency. More 23 broadly, the third-party beneficiary exception does not apply to the facts of this case; 24 this legal conclusion is based on the case’s foundational fact pattern and appears 25 unlikely to change with additional pleading. Accordingly, any further amendment 26
2 There is a split of authority on this conclusion, even within this District. Compare Mosqueda, 27 443 F. Supp. 3d at 1128 (accepting third-party beneficiary exception to requirement of privity 28 between consumer and car manufacturer) with Bhatt, 2018 WL 5094932, at *3 (rejecting third-party beneficiary exception to requirement of privity between consumer and car manufacturer). 1 would be futile, and the implied warranty claim is DISMISSED WITHOUT LEAVE 2 TO AMEND. 3 3. UCL and CLRA 4 Ford seeks dismissal of Glassburg’s third and fourth claims for violations of the 5 California Consumer Legal Remedies Act (“CLRA”) and California unfair 6 competition law (“UCL”). First, Ford argues that the UCL and CLRA claims are 7 based on fraud and that they fail for the same reasons Glassburg’s fraud claim fails. 8 However, both the UCL and the CLRA cover conduct that is not merely fraudulent. 9 Cal. Bus. & Prof. Code § 17200 (prohibiting unlawful competition, defined as “any 10 unlawful, unfair or fraudulent business act or practice”); Bower v. AT&T Mobility, 11 LLC, 196 Cal. App. 4th 1545, 1556 (2011) (“The CLRA declares unlawful a variety 12 of ‘unfair methods of competition and unfair or deceptive acts or practices’ used in the 13 sale or lease of goods or services to a consumer.”). Therefore, to convince the Court 14 to dismiss Glassburg’s UCL and CLRA claims, Ford must demonstrate some other 15 basis for dismissal of these claims. 16 Ford argues that the UCL and CLRA claims must be dismissed pursuant to 17 Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020), because they are 18 equitable claims for which Glassburg already has an adequate remedy at law. (Mot. 19 Dismiss 21–23.) In Sonner, the Ninth Circuit reaffirmed the principle that plaintiffs 20 seeking equitable remedies must first show the court that no adequate remedy exists at 21 law. 971 F.3d at 844. Here, however, with his UCL and CLRA claims, Glassburg 22 seeks a prospective injunction “ordering Defendant to extend repair and replacement 23 remedies to all Class members in California.” (FAC ¶ 67; see also FAC ¶ 77.) This 24 injunctive relief is not an available remedy at law; moreover, its presence in the FAC 25 distinguishes this case from Sonner. 971 F.3d at 842 (“Injunctive relief is not at 26 issue.”). Accordingly, Glassburg has sufficiently pleaded an inadequate remedy at 27 law. See Zeiger v. WellPet LLC, 526 F. Supp. 3d 652, 687 (N.D. Cal. 2021) 28 1 (“[M]onetary damages for past harm are an inadequate remedy for the future harm [at 2 which] an injunction under California consumer protection law is aimed.”). 3 Ford presents no other basis for dismissal of the UCL and CLRA claims. 4 Accordingly, the Court DENIES Ford’s Motion as to the UCL and CLRA claims. 5 4. Fraud 6 Ford seeks dismissal of Glassburg’s fifth claim for fraudulent concealment or 7 omission. The elements of fraud that give rise to a tort action for deceit are 8 “(a) misrepresentation (false representation, concealment, or nondisclosure); 9 (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e. to induce reliance; 10 (d) justifiable reliance; and (e) resulting damage.” Engalla v. Permanente Med. Grp., 11 Inc., 15 Cal. 4th 951, 974 (1997). Glassburg’s theory is that Ford intentionally 12 concealed or failed to disclose the wiring harness defect and that he would not have 13 purchased the Mustang had he known about this defect. 14 Glassburg’s fraud claim fails for at least two separate reasons: the lack of a duty 15 to disclose and the economic loss rule. Either of these reasons provides a sufficient 16 independent basis to dismiss the fraud claim without leave to amend. 17 a. Duty to Disclose 18 When, as here, a claim for fraud is based on an omission, one of the following 19 four scenarios must apply to establish the defendant’s duty to disclose information to 20 the plaintiff: (1) the defendant is the plaintiff’s fiduciary; (2) the defendant has 21 exclusive knowledge of material facts not known or reasonably accessible to the 22 plaintiff; (3) the defendant actively conceals a material fact from the plaintiff; or 23 (4) the defendant makes partial representations that are misleading because some other 24 material fact has not been disclosed. LiMandri v. Judkins, 52 Cal. App. 4th 326, 336 25 (1997). Lemon law plaintiffs usually establish a manufacturer’s duty to disclose by 26 way of the second or the fourth scenario or some combination of the two; the third 27 scenario may also be present in some degree. 28 1 In Hoffman v. 162 N. Wolfe LLC, 228 Cal. App. 4th 1178 (2014), the California 2 Court of Appeal explained that the second and third ways of establishing a duty to 3 disclose “presuppose[] the existence of some other relationship between the plaintiff 4 and defendant in which a duty to disclose can arise.” Id. at 1187. In other words, 5 there must be a relationship between the parties, such as a contractual or other 6 economic or legal relationship, that creates the need for the defendant to disclose its 7 exclusive knowledge to the plaintiff. For example, a retail consumer can sue the retail 8 seller of a product for fraud if that seller conceals material information about the 9 product in connection with the sale because the direct sales transaction between the 10 consumer and the seller constitutes the “some other relationship” described by the 11 California Court of Appeal in Hoffman. Here, no such special relationship exists, and 12 as a result, the second and third LiMandri scenarios do not apply. 13 Glassburg’s allegations of the representations Ford made regarding the Mustang 14 are likewise insufficient to indicate a set of partial misleading representations 15 (LiMandri scenario four). The only case-specific allegation of a representation Ford 16 might have made to Glassburg is by way of the Monroney label3 on the Mustang that 17 listed “REAR VIEW CAMERA” and “AM/FM CD/MP3 SAT CAPABL” as features 18 of the vehicle. (FAC ¶ 8.) Even generously assuming that the Monroney label was 19 proffered by Ford, this list of features does not amount to a partial representation 20 about the quality or characteristics of the wiring harness. The only other allegations 21 of Ford’s partial representations and active concealment are conclusory and therefore 22 not well-pleaded. (See, e.g., FAC ¶ 82.) 23 California law also recognizes an exception to the special relationship 24 requirement (or, perhaps, establishes that the special relationship requirement is met) 25 when the alleged defect creates a safety risk of which the manufacturer was aware. 26 Gray v. Toyota Motor Sales, U.S.A., No. CV 08-1690 PSG (JCx), 2012 WL 313703, 27 3 A Monroney label is a window sticker that displays certain mandatory information about the 28 vehicle for sale. Yung Kim v. Gen. Motors, LLC, No. CV 11-06459 GAF (MRWx), 2012 WL 13069995, at *5 (C.D. Cal. Mar. 9, 2012). 1 at *5 (C.D. Cal. Jan. 23, 2012); See Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088, 2 1095–96 (framing this inquiry in terms of the second LiMandri scenario). The safety- 3 related defect at issue here affects Glassburg’s backup camera, which he alleges has 4 failed once in his vehicle and which he alleges fails intermittently in similar vehicles. 5 (FAC ¶¶ 9, 13–14.) 6 Ultimately, the Court must determine whether a defect that causes a backup 7 camera to malfunction once for an unspecified amount of time constitutes a 8 safety-related defect that establishes a duty on the manufacturer’s part to inform 9 consumers and remedy the defect. On one hand, defects that do not relate to safety, 10 such as defects related only to the vehicle’s mileage per gallon, do not qualify. Gray, 11 2012 WL 313073, at *7. On the other hand, defects that create material safety risks, 12 such as a faulty speedometer that “easily would lead to traveling at unsafe speeds,” do 13 qualify. Falk, 496 F. Supp. 2d at 1096. 14 A careful reading of the well-pleaded factual allegations regarding Glassburg’s 15 backup camera and the Iqbal/Twombly plausibility standard reveals that the defect in 16 Glassburg’s vehicle is closer to the non-qualifying defect in Gray than the qualifying 17 defect in Falk. It is, simply put, implausible that a backup camera’s single malfunction 18 of unspecified length evidences a safety-related defect Ford was required to disclose 19 or cure. While the backup camera may be a safety feature of the Mustang, its 20 intermittent, momentary malfunction does not constitute a material safety risk in the 21 fraud context. Gray, 2012 WL 313703, at *5 (noting that a defect affecting the gas 22 mileage of a vehicle was indisputably not a safety-related defect). Even when a 23 backup camera malfunctions, a driver is still able to operate the mechanical 24 components of the vehicle safely. See Daugherty v. Am. Honda Motor Co., Inc., 25 144 Cal. App. 4th 824, 836–37 (2006) (finding no relation to safety in defect that 26 caused front balancer shaft oil seal to dislodge). Indeed, courts have repeatedly found 27 that particular mechanical malfunctions that do not result in the vehicle being 28 generally and pervasively dangerous to drive are not safety-related defects. See, e.g., 1 Bardin v. DaimlerChrysler Corp., 136 Cal. App. 4th 1255, 1261–62, 1270 (2006) 2 (finding no relation to safety in defect that caused tubular steel exhaust manifolds to 3 prematurely crack and fail). To hold otherwise in this context would be to hold car 4 manufacturers responsible for proactively disclosing to potential buyers a large class 5 of potential vehicle issues in a way that is unsupported by California case law. The 6 Court therefore finds no duty on the part of Ford as a matter of law. 7 b. Economic Loss Rule 8 Dismissal of Glassburg’s fraud claim is also appropriate on the basis of the 9 economic loss rule. This rule provides that, where purchasers’ expectations in a sale 10 are frustrated because the product they bought is not working properly, their remedy is 11 said to be in contract alone, for they have suffered only economic losses. Robinson 12 Helicopter, Inc. v. Dana Corp., 34 Cal. 4th 979, 988 (2004). The economic loss rule 13 requires a purchaser to recover in contract for purely economic loss due to 14 disappointed expectations unless the purchaser can demonstrate harm above and 15 beyond that caused by a contractual promise. Id. 16 Ford contends the economic loss rule bars Glassburg’s cause of action for fraud. 17 (Mot. Dismiss 18–19.) Ford is correct; Glassburg fails to allege that Ford’s fraudulent 18 concealment exposed him to liability for personal damages independent of his 19 economic loss. See Robinson Helicopter, 34 Cal. 4th at 991; NuCal Foods, Inc. v. 20 Quality Egg LLC, 918 F. Supp. 2d 1023, 1032 (E.D. Cal. 2013). 21 Glassburg forcefully asserts that a faulty backup camera is a “critical safety 22 feature in automobiles” that exposes him to liability beyond mere diminution in the 23 value of the vehicle. (FAC ¶ 14.) However, mere speculation about the heightened 24 risk of accidents is not the same kind of exposure to liability the court in Robinson 25 Helicopter was describing as sufficient to remove a case from the economic loss rule’s 26 ambit. In Robinson Helicopter, the defendant had repeatedly misrepresented the state 27 of certain faulty clutches that it had sold to the plaintiff, a helicopter manufacturer. 28 The helicopter manufacturer used the faulty clutches in manufacturing its helicopters, 1 which it sold to customers. Some of those customers informed the helicopter 2 manufacturer that the clutches had actually cracked. 34 Cal. 4th at 986. The 3 California Supreme Court noted that the helicopter manufacturer was harmed not only 4 from the potential for liability due to helicopter crashes, but also due to 5 (1) disciplinary action by the Federal Aviation Administration, (2) the cost of 6 investigating the cause of the faulty clutches, and (3) the cost of sending its employees 7 to replace the faulty clutches in helicopters that had already been sold to customers, 8 which in that case cost over $1.5 million. Id. at 987, 991. Thus, although the 9 California Supreme Court described some of the manufacturer’s liability as 10 ‘potential,’ there was actual, concrete liability on which the claim was based. 11 The exposure to third-party liability Glassburg alleges in this matter is of an 12 entirely different character. Glassburg’s allegations of third-party liability are 13 speculative and are based off descriptions of potential dangers associated with a faulty 14 backup camera. Given that Glassburg alleges his backup camera malfunctioned only 15 once and for an unspecified period of time, Glassburg’s allegation of a safety defect 16 establishing harm beyond economic loss is particularly weak. (SAC ¶ 9.) 17 Finally, Glassburg argues for application of the fraud exception to the economic 18 loss rule, under which a defendant’s fraudulent inducement of a contract gives rise to 19 tort liability independent from contract and not barred by the economic loss rule. 20 Arechiga v. Ford Motor Co., No. SACV 17-01915 AG (DFMx), 2018 WL 5904283, 21 at *4 (C.D. Cal. Apr. 23, 2018). Glassburg argues that this rule applies because Ford 22 fraudulently induced the sale by failing to disclose the wiring harness defect, which, 23 as alleged, was a material fact within its exclusive knowledge. (Opp’n 15; FAC 24 ¶¶ 82–84.) In this case, however, Ford never committed fraudulent inducement 25 because, as discussed, Ford never had a duty to disclose information about the wiring 26 harness to Glassburg. The economic loss rule remains applicable and bars 27 Glassburg’s fraud claim as a matter of law. 28 1 For these reasons, the Court GRANTS Ford’s Motion as to the fraudulent 2 || inducement claim and DISMISSES this claim WITHOUT LEAVE TO AMEND. 3 IV. CONCLUSION 4 For the reasons discussed above, the Court DENIES Ford’s Motion to Compel 5 || Arbitration (ECF No. 35) and GRANTS IN PART AND DENIES IN PART Ford’s 6 || Motion to Dismiss (ECF No. 33). The Court DISMISSES the implied warranty of 7 || merchantability and fraudulent omission claims WITHOUT LEAVE TO AMEND. 8 || The Motion to Dismiss is otherwise denied. 9 Ford shall file its Answer within twenty-one (21) days. 10 11 IT IS SO ORDERED. 12 13 November 2, 2021 14 oe
16 OTIS D. HT, II 4 UNITED STATES DISTRICT JUDGE
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