Opinion
Case No.: 3:20-cv-02009-AJB-BLM
2021-10-04
Lucas SCHERER and Amanda Scherer, Plaintiffs, v. FCA US, LLC and Does 1 through 10, inclusive, Defendant.
Harjap Singh Malik, Payam Shahian, Regina Lotardo, Tionna Dolin, Anh Nguyen, Strategic Legal Practices, APC, Los Angeles, CA, Dara Tabesh, EcoTech Law Group, P.C., San Francisco, CA, for Plaintiffs. Bryan Andrew Reynolds, Richard L. Stuhlbarg, Bowman and Brooke LLP, Torrance, CA, Monica Yee Hernandez, Atkinson, Andelson, Loya, Ruud & Romo, La Jolla, CA, for Defendant FCA US, LLC.
Harjap Singh Malik, Payam Shahian, Regina Lotardo, Tionna Dolin, Anh Nguyen, Strategic Legal Practices, APC, Los Angeles, CA, Dara Tabesh, EcoTech Law Group, P.C., San Francisco, CA, for Plaintiffs.
Bryan Andrew Reynolds, Richard L. Stuhlbarg, Bowman and Brooke LLP, Torrance, CA, Monica Yee Hernandez, Atkinson, Andelson, Loya, Ruud & Romo, La Jolla, CA, for Defendant FCA US, LLC.
ORDER DENYING DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS.
Anthony J. Battaglia, United States District Judge
Before the Court is FCA US, LLC's ("Defendant") motion for judgment on the pleadings. (Doc. No. 17.) Lucas Scherer and Amanda Scherer ("Plaintiffs") filed an opposition, (Doc. No. 23), and Defendant replied, (Doc. No. 26). For the reasons set forth, the Court DENIES Defendant's motion.
I. BACKGROUND
Plaintiffs commenced this action on August 24, 2020, in the Superior Court of California, County of San Diego, and asserted claims against Defendant and Bob Baker Jeep Chrysler Dodge Ram Fiat ("Bob Baker"). (Doc. No. 1 at 2.) On September 10, 2020, Plaintiffs dismissed Bob Baker and later, on September 29, 2020, filed a First Amended Complaint only against Defendant. (Id. ) Defendant then filed for removal of the case to this Court on October 13, 2021, (Id. at 1.), and Plaintiffs filed a Second Amended Complaint ("SAC") on December 7, 2020, (see SAC, Doc. No. 12). Now, Defendant moves for judgment on the SAC to dismiss the fraud by omission claim only. (Doc. No 17.)
Plaintiffs are consumers who purchased a 2018 Chrysler Pacifica vehicle manufactured by Defendant. (SAC ¶ 9.) Along with the purchase, Plaintiffs received a three-year/36,000 miles bumper-to-bumper warranty and a five-year/100,000 miles powertrain warranty that covers the engine and transmission. (Id. ¶ 10.) Plaintiffs allege the Pacifica's transmission and powertrain control module ("PCM") contain defects that cause the 2018 Pacifica vehicles to suffer from various issues, such as: the failure and/or replacement of the auxiliary battery, evaporative system integrity module, vacuum pump, and/or stop/start battery; causing the illumination of the check engine light; requiring the performance of Recalls V53, VE2, and/or RRT 19-043; causing the vehicle to stall; causing the seatbelts to malfunction; causing the illumination of the stop/start light; causing illumination of the traction control light; defects requiring the updating and/or reprogramming of the PCM and/or radio; and other defects. (Id. ¶ 17.)
The following facts are taken from Plaintiffs' Second Amended Complaint, (Doc. No 12), and are construed as true for the limited purpose of resolving the instant motion. See Brown v. Elec. Arts, Inc. , 724 F.3d 1235, 1247 (9th Cir. 2013).
In bringing this suit, Plaintiffs claim Defendant knew the 2018 Chrysler Pacifica experienced problems with its 9HP transmission and PCM that made these units defective and caused the performance issues Plaintiffs experienced. (Id. ¶ 21.) Despite knowing about these issues at the time Plaintiffs purchased their vehicle, Defendant failed to disclose any information about these defects. (Id. ¶ 25.) More specifically, Plaintiffs believe Defendant knew about these defects given that Defendant acquired knowledge through sources not available to Plaintiffs, such as: pre-production and post-production testing data; early consumer complaints about the Stalling Defect made directly to Defendant and its network of dealers; aggregate warranty data compiled from Defendant's network of dealers; testing conducted by Defendant in response to these complaints; as well as warranty repairs and part replacements data received by Defendant from Defendant's network of dealers, amongst other sources of information. (Id. ¶ 24.) Additionally, Defendant issued two safety recalls in 2017 (T23) and 2018 (U01) claiming to address the stalling issue, but Plaintiffs put forth that these recalls were nothing more than an identical software patch, and they did nothing to repair the stalling defect. (Id. ¶ 32.) Specifically, the U01 recall notice admitted that the recall simply provides software that makes vehicles "less susceptible" to a loss of engine timing. (Id. ) II. LEGAL STANDARD
"After the pleadings are closed—early enough not to delay trial—a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). "A district court will render a ‘judgment on the pleadings when the moving party clearly establishes on the face of the pleadings that no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law.’ " Enron Oil Trading & Transp. Co. v. Walbrook Ins. Co. Ltd. , 132 F.3d 526, 529 (9th Cir. 1997) (quoting George v. Pacific–CSC Work Furlough , 91 F.3d 1227, 1229 (9th Cir. 1996) ). "In considering a motion for judgment on the pleadings, a court must accept as true all material allegations in the complaint and must construe those allegations in the light most favorable to the plaintiff." United States v. In re Seizure of One Blue Nissan Skyline Auto., & One Red Nissan Skyline , 683 F. Supp. 2d 1087, 1089 (C.D. Cal. 2010) (citing Pillsbury, Madison & Sutro v. Lerner , 31 F.3d 924, 928 (9th Cir. 1994) ).
"Under California law, a claim of fraud by omission requires a showing of ‘(1) the concealment or suppression of material fact, (2) a duty to disclose the fact to the plaintiff, (3) intentional concealment with intent to defraud, (4) justifiable reliance, and (5) resulting damages.’ " Lewis v. Google LLC , 851 F. App'x 723, 725 (9th Cir. 2021) (quoting Mui Ho v. Toyota Motor Corp. , 931 F. Supp. 2d 987, 999 (N.D. Cal. 2013) (citation omitted)); see Oushana v. Lowe's Home Ctrs., LLC , No. 116CV01782AWISAB, 2017 WL 2417198, at *4 (E.D. Cal. June 5, 2017) (referring to fraudulent concealment and fraud by omission interchangeably).
III. DISCUSSION
Plaintiffs' SAC alleges the following causes of action: Violation of the Magnuson-Moss Warranty Act, Fraud by Omission, Violation of Subdivision (D) of Civil Code Section 1793.2, Violation of Subdivision (b) of Civil Code Section 1793.2, Violation of Subdivision (a)(3) of Civil Code Section 1794(c), Breach of Express Written Warranty, and Breach of Implied Warranty of Merchantability. On several grounds, Defendant only challenges the fraud by omission claim.
1) Rule 9(b) Particularity Standard
The parties pose two disputes regarding Rule 9(b)'s applicability. First, whether the usual particularity standard applies to fraud by omission claims. Second, whether the complaint sufficiently pleads the fraud by omission claim according to the correct standard. The Court addresses each issue in turn.
A. A Claim for Fraud by Omission Must Comply with Rule 9(b)'s Particularity Standard.
Rule 9(b) requires a party alleging fraud to "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). "Because the Supreme Court of California has held that nondisclosure is a claim for misrepresentation in a cause of action for fraud, it (as any other fraud claim) must be pleaded with particularity under Rule 9(b)." Kearns v. Ford Motor Co. , 567 F.3d 1120, 1127 (9th Cir. 2009). Accordingly, following the Ninth Circuit, this Court finds that fraud by omission claims must meet Rule 9(b)'s particularity requirements.
Although federal case law requires plaintiffs to allege fraud by omission in accordance with Rule 9(b), the particularity "pleading standard is lowered on account of the reduced ability in an omission suit ‘to specify the time, place, and specific content’ relative to a claim involving affirmative misrepresentations." In re Apple & AT & TM Antitrust Litig. , 596 F. Supp. 2d 1288, 1310 (N.D. Cal. 2008) (citing Falk v. General Motors Corp. , 496 F. Supp. 2d 1088, 1099 (N.D. Cal. 2007) ) (emphasis added). The Court notes the challenges in pleading fraud by omission and finds this standard persuasive. As a result, the Court will require the fraud by omission claim to meet Rule 9(b)'s particularity standard and will accept a lowered pleading standard when necessary, given the nature of the fraudulent omission.
B. The SAC Details the Fraud by Omission Claim with Enough Particularity.
To satisfy Rule 9(b), the complaint must detail " ‘the who, what, when, where, and how of the misconduct charged,’ as well as ‘what is false or misleading about [the purportedly fraudulent] statement, and why it is false.’ " United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc. , 637 F.3d 1047, 1055 (9th Cir. 2011) (quoting Ebeid ex rel. U.S. v. Lungwitz , 616 F.3d 993, 998 (9th Cir. 2010) ). Two main purposes are served by imposing this heightened pleading standard. First, the fraudulent allegations must be pleaded with enough specificity so the defendant may "defend against the charge and not just deny that they have done anything wrong." United States ex rel. Anita Silingo v. WellPoint, Inc. , 904 F.3d 667, 677 (9th Cir. 2018) (internal quotation marks and citations omitted). Second, the higher standard will deter plaintiffs from "filing [ ] complaints as a pretext for the discovery of unknown wrongs, [ ] protect [defendants] from the harm that comes from being subject to fraud charges, and [ ] prohibit plaintiffs from unilaterally imposing upon the court, the parties[,] and society enormous social and economic costs absent some factual basis." Id.
First, Defendant claims the SAC fails to allege the nature of Defendant's omission with particularity. (Doc. No. 17 at 11–12.) More specifically, Defendant claims the SAC "merely describes performance problems with the Subject Vehicle and does not amount to identifying the defect that [Defendant] failed allegedly to disclose." (Id. at 12.) The Court disagrees with how the Defendant characterizes the SAC's allegations. Looking at the SAC, it states, "[the Defendant] committed fraud by allowing the Subject Vehicle to be sold to Plaintiff without disclosing that the Subject Vehicle and its transmission and PCM was defective which can cause loss of engine timing and result in shutting off or stalling without warning." (SAC ¶ 51.) Although this allegation does not detail the granular defect within the transmission and PCM units, the Court finds that by identifying the transmission and PCM as the defects and describing the performance problems, (see id. ¶¶ 11–17), the SAC provides enough particularity to detail the circumstances of the alleged defects.
Moreover, this ruling aligns with Rule 9(b)'s purpose because the facts alleged present enough particularity to allow the Defendant to defend against this charge. Given that Defendant has internal knowledge about its products, it can create a defense to this claim and will not be left with simply denying they did anything wrong. At this stage in the litigation, the Court must accept the facts alleged in the complaint as true and finds the SAC provides enough particularity.
Second, Defendant claims the SAC fails to allege reliance with particularity because the SAC does not state "the content of what [Plaintiffs] supposedly should have been told or where it should have been revealed, nor do they provide representative samples of advertisements or other representations on which they relied." (Doc. No. 17 at 12.) In describing the applicable law, Defendant presents that Plaintiffs are required to plead reliance in the following manner:
[A] plaintiff must describe the content of the omission and where the omitted information should or could have been revealed, as well as provide representative samples of advertisements, offers, or other representations that plaintiff relied on to make her purchase and that failed to include the allegedly omitted information.
(Id. at 9) (quoting Garcia v. General Motors LLC , No. 1:18-CV-01313-LJO-BAM, 2019 WL 1209632 (E.D. Cal. Mar. 14, 2019) ) (internal quotations omitted). Plaintiffs neither directly nor explicitly oppose whether this standard should apply. The Court acknowledges that other district courts have relied on this standard; however, absent binding case law and sufficient reasoning explaining why this specific standard should be adopted here, the Court will assess the reliance element in accordance with Rule 9(b)'s normal particularity standard and will account for instances where the pleading standard may need to be adjusted given the nature of a fraud by omission claim.
Here, the SAC states "Plaintiff is a reasonable consumer who interacted with [Defendant's] sales representatives and reviewed materials disseminated by [Defendant] concerning [Defendant's] Vehicles prior to purchasing the Subject Vehicle." (SAC ¶ 56.) Taking this statement as true, the Court finds the SAC sufficiently pleads reliance with particularity because it demonstrates if Defendant disclosed the information to the sales representatives, then Plaintiffs would have received the information from the sales representative and would have not purchased the vehicle. The statement "reviewed materials disseminated by [Defendant] concerning [Defendant's] Vehicles prior to purchasing the Subject Vehicle" is insufficient for particularity concerns because it does not provide enough specificity to allow Defendant to understand the nature of its omission (i.e., it does not detail what and where). (Id. ) However, because the statement contains Plaintiffs' interaction with the sales representative, the SAC provides enough particularity to adequately plead reliance. (Id. ) See Daniel v. Ford Motor Co. , 806 F.3d 1217, 1226 (9th Cir. 2015) (finding a genuine issue of material fact as to reliance because Plaintiffs adequately demonstrated "they would have been aware of the defect had Ford disclosed [the defect] to its" sales representatives at the dealership). Accordingly, the Court DENIES Defendant's motion on this ground.
2) The Economic Loss Rule
Second, Defendant contests the fraud by omission claim is barred by the economic loss doctrine. Specifically, it argues Plaintiffs seek purely economic damages stemming from Plaintiffs' disappointed economic expectations. (Doc. No. 17 at 13.) Additionally, Defendant contends that Robinson Helicopter Co. Inc. v. Dana Corp. 's, 34 Cal. 4th 979, 988, 22 Cal.Rptr.3d 352, 102 P.3d 268 (2004), exception to the economic loss rule does not apply. (Id. ) Alternatively, Plaintiffs claim the economic loss doctrine does not bar the fraud by omission claim because the doctrine does not bar tort damages for claims that were fraudulently induced. (Doc. No. 23 at 20.) The Court finds the economic loss doctrine does not bar the fraud by omission claim for the following reasons.
The economic loss rule limits consumers' remedies to contract claims alone when their "expectations in a sale are frustrated because the product [they] bought is not working properly" and they have "suffered only ‘economic’ losses." Robinson Helicopter Co. Inc. , 34 Cal. 4th at 988, 22 Cal.Rptr.3d 352, 102 P.3d 268 (internal quotations and citations omitted). Damages for economic losses include "damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits—without any claim of personal injury or damages to other property." Jimenez v. Sup. Ct. , 29 Cal. 4th 473, 482, 127 Cal.Rptr.2d 614, 58 P.3d 450 (2002) (internal quotation marks and citations omitted).
California courts developed the economic loss rule to draw a distinction "between tort recovery for physical injuries and warranty recovery for economic loss." Seely v. White Motor Co. , 63 Cal. 2d 9, 18, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). As outlined by the Court, this distinction
is not arbitrary and does not rest on the ‘luck’ of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands.
Id. ; see Giles v. Gen. Motors Acceptance Corp. , 494 F.3d 865, 872 (9th Cir. 2007) (discussing the economic loss rule's development in other jurisdictions).
Generally, the economic loss rule bars recovery on any tort claim "for purely economic loss due to disappointed expectations, unless [the plaintiff] can demonstrate harm above and beyond a broken contractual promise." Robinson Helicopter Co., Inc. , 34 Cal. 4th at 987, 22 Cal.Rptr.3d 352, 102 P.3d 268. California courts have indicated "several instances where tort damages were permitted in contract cases." Id. at 989, 22 Cal.Rptr.3d 352, 102 P.3d 268. For instance:
Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury; for breach of the covenant of good faith and fair dealing in insurance contracts; for wrongful discharge in violation of fundamental public policy; or where the contract was fraudulently induced. In each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm.
Erlich v. Menezes , 21 Cal. 4th 543, 551–52, 87 Cal.Rptr.2d 886, 981 P.2d 978 (1999) (internal citations omitted).
In Robinson Helicopter Co., Inc. , the California Supreme Court addressed "whether the economic loss rule, which in some circumstances bars a tort action in the absence of personal injury or physical damage to other property, applies to claims for intentional misrepresentation or fraud in the performance of a contract." 34 Cal. 4th at 984, 22 Cal.Rptr.3d 352, 102 P.3d 268. The Court narrowly held the economic loss rule does not apply to claims for intentional misrepresentation and declined to address whether the economic loss rule applied to the plaintiff's intentional concealment claims. Id. at 991, 22 Cal.Rptr.3d 352, 102 P.3d 268. The Court finds the Robinson Helicopter Co., Inc. court limited their holding to intentional misrepresentation claims and did not make their decision with intentional concealment claims in mind. Id. at 991, 22 Cal.Rptr.3d 352, 102 P.3d 268 ("Because Dana's affirmative intentional misrepresentations of fact (i.e., the issuance of the false certificates of conformance) are dispositive fraudulent conduct related to the performance of the contract, we need not address the issue of whether Dana's intentional concealment constitutes an independent tort.") Therefore, the Court refuses to extend Robinson Helicopter Co., Inc. 's exception to the economic loss rule to Plaintiffs' fraud by omission claim. Both Plaintiffs and Defendant agree Robinson Helicopter Co., Inc. 's holding is narrow; however, Defendant contests that absent an exception from Robinson Helicopter Co., Inc. , the fraud by omission claim is subject to dismissal by the economic loss doctrine. (Doc. No. 26 at 3–4.) Alternatively, Plaintiffs tangentially assert Robinson Helicopter Co., Inc. does not apply either, but contends their claim survives because another exception to the economic loss doctrine exists. (Doc. No. 23 at 24–26.) The Court agrees with Plaintiffs.
As previously noted, the California Supreme Court allows tort damages in contract cases "where the contract was fraudulently induced." Erlich , 21 Cal. 4th at 551–52, 87 Cal.Rptr.2d 886, 981 P.2d 978 ; see Lazar v. Sup. Ct. , 12 Cal. 4th 631, 645, 49 Cal.Rptr.2d 377, 909 P.2d 981 (1996) ("[T]his area of the law traditionally has involved both contract and tort principles and procedures. For example, it has long been the rule that where a contract is secured by fraudulent representations, the injured party may elect to affirm the contract and sue for the fraud."); Robinson Helicopter Co., Inc. , 34 Cal. 4th at 979, 22 Cal.Rptr.3d 352, 102 P.3d 268 (quoting and, thus, reaffirming Erlich 's proposition stated above); see also Cty. of Orange v. Tata Consultancy Servs. Ltd. , No. SACV1300683JLSJCX, 2016 WL 6542728, at *7 (C.D. Cal. Apr. 1, 2016) (collecting the above cases).
Reading the complaint in a light most favorable to the Plaintiffs, the Court finds the crux of the SAC's fraud allegation is that Defendant fraudulently induced Plaintiffs into the warranty by concealing the transmission and PCM issues. The SAC provides Defendants "committed fraud by allowing the Subject Vehicle to be sold to Plaintiff without disclosing that the Subject Vehicle and its transmission and PCM was defective." (SAC ¶ 51.) Accordingly, based on California law, this claim is not barred by the economic loss rule, and the Court DENIES the Defendant's motion on this ground.
Defendant asserts that its "allegedly tortious omission was its failure to disclose a defect in the Vehicle," which "overlaps with [Defendant's] alleged breach of its warranty obligations." (Doc. No. 26 at 4.) However, the SAC states the Defendant's fraudulent conduct differs from the conduct that allegedly violates the Magnuson-Moss and Song-Beverly Consumer Warranty Act claims. Plaintiffs state that when they purchased the car, Defendant concealed information that, if known, would have prevented them from purchasing the vehicle. (SAC ¶ 55.) For the warranty claim, the SAC states the Defendant did not adequately repair or replace the vehicle given the numerous defects and problems it presented. (Id. ¶ 42.) Therefore, given the distinction between the nature of conduct alleged, the Court does not find that Plaintiffs' fraud claim overlaps with the warranty claims.
3) Duty to Disclose
Third, the Defendant argues that the SAC does not allege a transaction between the Defendant and Plaintiffs that gives rise to a duty to disclose as required by Bigler-Engler v. Breg. Inc. , 7 Cal. App. 5th 276, 213 Cal.Rptr.3d 82 (2017). (Doc. No. 17 at 16.) Conversely, Plaintiffs reason that Bigler-Engler does not require the SAC to allege a transaction before a duty to disclose may arise. (Doc. No. 23 at 16–17, n.6.) Instead, Plaintiffs suggest Bigler-Engler only requires Plaintiffs to show one of the four duties to disclose is present to satisfy the transactional component. (Id. at 17 n.6.) The Court notes there is a dispute between the parties regarding the relevant law for when a duty to disclose arises, specifically whether Bigler-Engler 's transactional aspect must be considered before a duty to disclose may arise. The Court finds Plaintiffs must show a transaction before a duty to disclose may arise for the following reasons.
Although Plaintiffs contest Bigler-Engler does not impose a separate duty requirement, a plain reading of the case proves otherwise. The Court states, "a duty to disclose, is absent here because there was no evidence of a relationship between Engler (or her parents) and Breg sufficient to give rise to a duty to disclose." Bigler-Engler , 7 Cal. App. 5th at 314, 213 Cal.Rptr.3d 82. This statement explicitly highlights the Court's intent to refrain from giving rise to a duty to disclose unless a relationship or transaction existed between the parties. Further, the Court detailed what a relationship or transaction would look like. The Court stated, "[a] duty to disclose facts arises only when the parties are in a relationship that gives rise to the duty, such as seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual arrangement." Id. at 311, 213 Cal.Rptr.3d 82 (quoting Shin v. Kong , 80 Cal. App. 4th 498, 509, 95 Cal.Rptr.2d 304 (2000) ) (internal quotations marks omitted). "Our Supreme Court has described the necessary relationship giving rise to a duty to disclose as a ‘transaction’ between the plaintiff and defendant." Id. "Such a transaction must necessarily arise from direct dealings between the plaintiff and the defendant; it cannot arise between the defendant and the public at large." Id. at 313, 213 Cal.Rptr.3d 82.
In Bigler-Engler , no seller and buyer or contractual relationship existed between the plaintiff and manufacturing defendant. Id. at 314, 213 Cal.Rptr.3d 82. There, the manufacturing defendant sold medical devices to the doctor defendant several years before the plaintiff rented one of the manufacture's devices from the doctor's office. Id. Therefore, the manufacturing defendant had no contact with the plaintiff, did not know plaintiff was a potential user of their products or used the device, and did not derive any direct monetary benefit from the plaintiff's rental of the device. Id. Conversely, here, the Plaintiffs do present a contractual relationship with Defendant, because they entered into a warranty agreement. Accordingly, this contractual relationship or transaction gives rise to a duty to disclose.
Given that a relationship or transaction exists between the parties, the Court will evaluate whether the SAC sufficiently states Defendant had a duty to disclose. Concealment may constitute fraud when "(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts." LiMandri v. Judkins , 52 Cal. App. 4th 326, 336, 60 Cal.Rptr.2d 539 (1997) (internal quotation marks, alternations, and citation omitted); see Gutierrez v. Carmax Auto Superstores Cal. , 19 Cal. App. 5th 1234, 1260, 248 Cal.Rptr.3d 61 (2018), as modified on denial of reh'g (Feb. 22, 2018) (concluding there is no "independent duty to disclose safety concerns that exist outside the four situations where a duty to disclose is recognized by California courts"). Here, as confirmed by Plaintiffs, the second and third circumstances apply.
A. Exclusive Knowledge of Material Facts
Here, Defendant does not contest whether the SAC alleges a material fact. The Defendant only contests whether the SAC provides sufficient facts to show it had exclusive knowledge and actively concealed the information. Therefore, the Court does not address whether the defects are material.
"A defendant has exclusive knowledge giving rise to a duty to disclose when ‘according to the complaint, [defendant] knew of this defect while plaintiffs did not, and, given the nature of the defect, it was difficult to discover.’ " Andren v. Alere, Inc. , 207 F. Supp. 3d 1133, 1142 (S.D. Cal. 2016) (quoting Collins v. eMachines, Inc. , 202 Cal. App. 4th 249, 256, 134 Cal.Rptr.3d 588 (2011) ; Falk , 496 F. Supp. 2d at 1096 ). " ‘[G]eneralized allegations with respect to exclusive knowledge’ are insufficient to defeat a dismissal motion." Id. (citing Hovsepian v. Apple, Inc. , No. 08-5788 JF, 2009 WL 5069144, at *3 (N.D. Cal. Dec. 17, 2009) ).
Initially, Defendant contests there was no exclusive knowledge because "documents available to the public show that [Defendant] was addressing any potential issues." (Doc. No. 17 at 17.) Beyond this assertion, Defendant fails to detail the specific documents the public had access to. Therefore, the Court cannot determine what information is public knowledge and finds this argument unpersuasive.
Next, Defendant alleges that Plaintiffs' allegations are conclusory. (Doc. No. 17 at 17.) More specifically, Defendant states the SAC provides that Defendant had internal information and data on the Pacifica, but the SAC is void of any facts showing Defendant had exclusive knowledge about the transmission and PCM defects. (Id. at 18.) Plaintiffs argue their references are not conclusory because the SAC states the Defendant knew about the transmission and PCM issues through its issuing of the stalling safety recalls and various internal information sources. (Doc. No. 23 at 10–11.) The Court agrees with Plaintiffs.
Defendant also argues they did not have knowledge of the defects because "none of the three Safety Recalls identified by Plaintiffs are applicable to the Subject Vehicle." (Doc. No. 17 at 17.) However, at this stage in the litigation, the Court must accept all statements in the complaint as true and draw all reasonable inference in Plaintiffs' favor. Defendant's argument presents a factual distinction the Court cannot currently assess.
The SAC's allegations regarding Defendant's knowledge of the defects are not conclusory. The SAC indicates "[i]n January 2018, [Defendant] issued a Safety Recall ‘U01’ that purported to address the Stalling Defect." (SAC ¶ 32.) Further, it also states Defendant's "own U01 recall notice admits that, at best, the recall simply provides software that makes vehicles ‘less susceptible’ to a loss of engine timing (crankshaft position synchronization)." (Id. ) This information coupled with the SAC's other allegations, that Defendant acquires knowledge and data on its vehicles, makes it plausible that Defendant knew about the transmission and PCM defects. (See id. at 6–7 (listing Defendant's internal information sources).)
At this stage in litigation, the Court must assess the SAC according to its plausibility, meaning the Court must ask, given the facts alleged, whether it is plausible the Defendant knew about these defects. The Court believes the SAC presents such plausibility. See Wildin v. FCA US LLC , No. 3:17CV-02594-GPC-MDD, 2018 WL 3032986, at *5 (S.D. Cal. June 19, 2018) ("Instead, the Court must ask whether it is at least plausible that Defendant knew that the PCM problems addressed in the first two TSBs, and discussed in the following TSBs soon after, would lead to stalling. The Court concludes that it is."). Accordingly, a duty to disclose arose because the SAC allegations regarding the safety recalls and Defendant's internal information make it plausible Defendant possessed exclusive knowledge about the transmission and PCM defects. The Court DENIES Defendant's motion on this ground.
B. Active Concealment of Material Facts.
Defendant next argues that the SAC presents conclusory statements that Defendant concealed the alleged defects and provides no facts to show how Defendant concealed the defects. (Doc. No. 17 at 17.) The Court disagrees. "Mere nondisclosure does not constitute active concealment. Rather, to state a claim for active concealment, plaintiff must allege specific ‘affirmative acts on the part of the defendants in hiding, concealing or covering up the matters complained of.’ " Lingsch v. Savage , 213 Cal. App. 2d 729, 734, 29 Cal.Rptr. 201 (1963) (concluding the complaint alleges "mere nondisclosure, rather than active concealment" since it fails to allege such affirmative acts) (internal quotation marks and citations omitted). "As with exclusive knowledge, ‘generalized allegations with respect to ... active concealment’ will not do." Herron v. Best Buy Co. Inc. , 924 F. Supp. 2d 1161, 1176 (E.D. Cal. 2013) (citing Hovsepian , 2009 WL 5069144, at *3.).
At times, the SAC's statements regarding Defendant's active concealment are conclusory, but these statements are not fatal. The SAC also provides facts illuminating Defendant's alleged active concealment by detailing how Defendant's issued Safety Recalls that supposedly would address the stalling defect. The Plaintiffs use these facts to demonstrate that Defendant knew about the defects and tried to cover them up by issuing recalls that would allegedly cure them. (SAC ¶¶ 31–33.) However, as the SAC later claims, Defendant later clarified with their second recall (U01), which allegedly presented nothing new and simply repackaged the first recall (T23), that the software update would only make the "vehicles less susceptible to a loss of engine timing." (Id. ¶ 32.) Given these allegations, the SAC presents facts to state it is plausible Defendant actively concealed the defects because, as alleged, the U01 and T23 updates were used by Defendant to cover up the real underlying issues with the transmission and PCM. (Id. ¶¶ 31–33.) Accordingly, the Court DENIES Defendant's motion on this ground.
4) Virginia law – Standard for Fraudulent Omission
"When a federal court sits in diversity, it must look to the forum state's choice of law rules to determine the controlling substantive law." Patton v. Cox , 276 F.3d 493, 495 (9th Cir. 2002). "As the forum state, California will apply its own law ‘unless a party litigant timely invokes the law of a foreign state.’ " Chen v. L.A. Truck Ctrs., LLC , 7 Cal. 5th 862, 867, 249 Cal.Rptr.3d 594, 444 P.3d 727 (2019) (citing Hurtado v. Sup. Ct. , 11 Cal. 3d 574, 581, 114 Cal.Rptr. 106, 522 P.2d 666 (1974) ). A litigant timely invokes when they shoulder the burden of demonstrating the foreign law should apply by "satisfy[ing] California's three-step governmental interest test, used to resolve choice of law issues." Senne v. Kansas City Royals Baseball Corp. , 934 F.3d 918, 928 (9th Cir. 2019), cert. denied , ––– U.S. ––––, 141 S. Ct. 248, 208 L.Ed.2d 22 (2020) (internal quotation marks and citations omitted); see Washington Mut. Bank, FA v. Sup. Ct. , 24 Cal. 4th 906, 919, 103 Cal.Rptr.2d 320, 15 P.3d 1071 (2001) (same). The government interest test is as follows:
First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question is the same or different. Second, if there is a difference, the court examines each jurisdiction's interest in the application of its own law under the circumstances of the particular case to determine whether a true conflict exists. Third, if the court
finds that there is a true conflict, it carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law "to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state" and then ultimately applies "the law of the state whose interest would be the more impaired if its law were not applied."
Kearney v. Salomon Smith Barney, Inc. , 39 Cal. 4th 95, 107–08, 45 Cal.Rptr.3d 730, 137 P.3d 914 (2006) (citing Bernhard v. Harrah's Club , 16 Cal. 3d 313, 320, 128 Cal.Rptr. 215, 546 P.2d 719 (1976) ).
Here, the Defendant fails to demonstrate that Virginia law should apply because it did not engage in the above three-step governmental interest test. (See Doc. No. 17 at 19.) To be sure, the Defendant's only argument for why Virginia law should apply is that Defendant "is informed and believes that Plaintiffs were residents of Virginia at the time of purchase, [Defendant] discusses herein whether Plaintiff had alleged a viable fraudulent omission claim under Virginia law." (Id. ) Accordingly, because Defendant did not timely invoke Virginia law, the Court DENIES Defendants motion on this ground.
IV. CONCLUSION
Based on the foregoing, the Court DENIES Defendant's Motion for Judgment on the Pleadings as to Plaintiffs' fraud by omission claim.