Shanmugam v. Mercedes-Benz USA LLC ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 ARULSENTHILK SHANMUGAM, an No. 2:20-cv-01647 individual, and SUJAI 13 SHANMUGASUNDARAM, an individual, 14 Plaintiffs, MEMORANDUM AND ORDER RE: DEFENDANT’S MOTION FOR 15 v. JUDGMENT ON THE PLEADINGS 16 MERCEDES-BENZ USA, LLC, a Delaware Limited Liability 17 Company, and DOES 1 through 20, inclusive, 18 Defendants. 19 20 ----oo0oo---- 21 Plaintiffs Arulsenthilk Shanmugam and Sujai 22 Shanmugasundaram (“plaintiffs”) brought this action against 23 Mercedes-Benz USA, LLC (“Mercedes-Benz”), seeking damages for 24 breach of implied warranty of merchantability and express 25 warranty under the Song-Beverly Warranty Act, Cal. Civ. Code § 26 1792, et seq., and fraudulent inducement/concealment. (See 27 generally Compl.) (Docket No. 1 at Ex. 2.) Mercedes-Benz has 28 1 moved for judgment on the pleadings with respect to plaintiffs’ 2 claim for fraudulent inducement/concealment and plaintiffs’ 3 prayer for punitive damages. (See Mot. for J. on Pleadings) 4 (Docket No. 7.) 5 I. Factual and Procedural Background 6 On or about November 30, 2018, defendants Mercedes-Benz 7 and Does 1 through 20, inclusive, manufactured and/or distributed 8 into the stream of commerce a new 2018 Mercedes-Benz GLE350, VIN 9 4JGDA5JB4JA995451 (“Vehicle”) for its eventual sale/lease in the 10 state of California. (See Compl. at ¶ 4.) On or about December 11 30, 2018, plaintiffs purchased the Vehicle from Niello Volkswagen 12 in Sacramento, California. (See id. at ¶ 5; see Docket No. 1 at 13 Ex. 1.) Although Vehicle was considered a “new motor vehicle” 14 under the Song-Beverly Warranty Act, it was in fact a used car 15 and had been driven over 11,000 miles by its previous owner 16 before plaintiffs purchased it. (See id. at ¶ 6.) Along with 17 the lease of the Vehicle, plaintiffs received written warranties 18 and other express and implied warranties. (See id. at ¶ 7.) 19 On or around November 28, 2018, plaintiffs delivered 20 the subject vehicle to an authorized Mercedes-Benz repair 21 facility. (See id. at ¶ 16.) Plaintiffs complained that the 22 Vehicle had a horrible smell within the air conditioning, and 23 whether the car was parked inside or outside, it still had a 24 rotten-milk smell. (See id.) The repair facility technicians 25 cleaned the evaporator and replaced the air conditioner filters. 26 (See id.) On or around March 19, 2019, plaintiffs again 27 delivered the Vehicle to an authorized Mercedes-Benz repair 28 facility with complaints of a rotten milk smell when the air 1 conditioning was turned on. (See id. at ¶ 17.) The repair 2 facility technicians could not replicate the smell. (See id.) 3 On or around August 9, 2019, plaintiffs again delivered the 4 Vehicle to an authorized Mercedes-Benz repair facility for repair 5 with complaints of “airmatic struts issues and transmission 6 shuddering.” (See id. at ¶ 18.) The repair facility technicians 7 replaced the transmission mount, airmatic struts, and performed 8 “bio-pledge anti-microbial protection treatment” due to the foul 9 smell from the air conditioning. (See id.) On or around October 10 25, 2019, plaintiffs again delivered the Vehicle to an authorized 11 Mercedes-Benz repair facility for repair with complaints of a 12 foul rotten milk smell coming from the air conditioning. (See ¶ 13 19.) The repair facility technicians once again could not 14 replicate the smell. (See id.) Each time that the Vehicle was 15 returned to plaintiffs, the service technicians represented that 16 the Vehicle had been repaired, was safe to drive, and all repairs 17 were covered under the Mercedes-Benz written warranty. (See id. 18 at ¶¶ 16–19.) Each time that the plaintiffs delivered the 19 Vehicle to a Mercedes-Benz authorized service and repair 20 facility, defendants represented to plaintiffs that they could 21 and would conform the Vehicle to the applicable warranties and 22 that all the defects had been repaired. (See id. at ¶ 12.) 23 Plaintiffs reasonably relied on these representations. (See id. 24 at ¶¶ 16–19.) 25 Prior to purchasing the Vehicle, plaintiffs reviewed 26 marketing brochures, listened to commercials about the qualities 27 of the Mercedes-Benz GLE350, and relied on statements made during 28 the sales process by Mercedes-Benz agents and within the 1 marketing brochures provided by Mercedes-Benz. (See id. at ¶ 2 15.) However, Mercedes-Benz and its authorized agents did not 3 publicly or privately disclose to plaintiffs any information 4 about the air conditioner system defect. (See id.) Plaintiffs 5 allege that these omissions were material to plaintiffs’ decision 6 to purchase the Vehicle and that had Mercedes-Benz and/or its 7 authorized agents publicly or privately disclosed the air 8 conditioner system defect, plaintiffs would not have purchased 9 the Vehicle. (See id.) Mercedes-Benz or its representatives 10 failed to conform the Vehicle to the applicable warranties 11 because defects, malfunctions, mis-adjustments and/or 12 nonconformities continued to exist even after a reasonable number 13 of attempts to repair were given. (See id. at ¶ 12.) 14 II. Discussion1 15 Federal Rule of Civil Procedure 12(c) provides that 16 “[a]fter the pleadings are closed –- but early enough not to 17 delay trial -- a party may move for judgment on the pleadings.” 18 In ruling on a motion for judgment on the pleadings brought 19 pursuant to Rule 12(c), “the allegations of the non-moving party 20 must be accepted as true, while the allegations of the moving 21 1 Mercedes-Benz requests that the court take judicial 22 notice of an order granting Mercedes-Benz USA’s Motion for Judgment on the Pleadings issued by Judge Percy Anderson of the 23 Central District of California. (See Request for Judicial Notice at Ex. A.) (Docket No. 7-1.); see Nafisi v. Mercedes-Benz USA, 24 LLC, Case No. 2:20-cv-9309 PA (MAAx) (C.D. Cal. Mar. 31, 2021). It is well established that a court may take judicial notice of 25 court records in another case. See United States v. Howard, 381 F.3d 873, 876 n.1 (9th Cir. 2004) (citing United States v. 26 Wilson, 631 F.2d 118, 119 (9th Cir. 1980)). Plaintiffs have not 27 objected. Accordingly, the court will take judicial notice of this decision for purposes of noting that the order was made, but 28 not for the truth of its findings or conclusions. 1 party which have been denied are assumed to be false.” See Hal 2 Roach Studios, Inc. v. Richard Feiner and Co., Inc., 896 F.2d 3 1542, 1550 (9th Cir. 1990) (internal citations omitted). 4 Judgment on the pleadings is proper when the moving party clearly 5 establishes on the face of the pleadings that no material issue 6 of fact remains to be resolved and that it is entitled to 7 judgment as a matter of law. See id. However, judgment on the 8 pleadings is improper when the district court goes beyond the 9 pleadings to resolve an issue; such a proceeding must be treated 10 as a motion for summary judgment. See id. 11 Rule 12(c) is functionally identical to Rule 12(b)(6) 12 and the same standard of review “applies to motions brought under 13 either rule.” See Dworkin v. Hustler Magazine, Inc., 867 F.2d 14 1188, 1192 (9th Cir. 1989). Accordingly, whether brought under 15 Rule 12(b)(6) or Rule 12(c), the inquiry before the court is 16 whether, accepting the allegations in the complaint as true and 17 drawing all reasonable inferences in the plaintiff’s favor, the 18 complaint has stated “a claim to relief that is plausible on its 19 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 20 “The plausibility standard is not akin to a ‘probability 21 requirement,’ but it asks for more than a sheer possibility that 22 a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 23 662, 678 (2009). “Threadbare recitals of the elements of a cause 24 of action, supported by mere conclusory statements, do not 25 suffice.” Id. Although legal conclusions “can provide the 26 framework of a complaint, they must be supported by factual 27 allegations.” Id. at 679. 28 A. Fraudulent Concealment 1 Mercedes-Benz argues that plaintiffs have failed to 2 allege particularized facts supporting knowledge of falsity or 3 intent to conceal by Mercedes-Benz and other necessary components 4 of their fraud claim. (See Mot. for J. on Pleadings at 5.) 5 Plaintiffs respond that a claim for fraudulent concealment can 6 succeed without the same level of specificity required by a 7 normal fraud claim. (See Opp’n to Mot. for J. on Pleadings at 3.) 8 (Docket No. 9.) 9 The heightened pleading standards of Federal Rule of 10 Civil Procedure 9(b) apply to allegations of fraud.2 “In 11 alleging fraud or mistake, a party must state with particularity 12 the circumstances constituting fraud or mistake. Malice, intent, 13 knowledge, and other conditions of a person’s mind may be alleged 14 generally.” See Fed R. Civ. P. 9(b); see also Moore v. Kayport 15 Package Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989) (“A 16 pleading is sufficient under Rule 9(b) if it identifies the 17 circumstances constituting fraud so that a defendant can prepare 18 an adequate answer from the allegations. While statements of the 19 time, place, and nature of the alleged fraudulent activities are 20 sufficient, mere conclusory allegations of fraud are 21 insufficient.”) (internal citations omitted). The Ninth Circuit 22 2 Contrary to plaintiffs’ assertion, California pleading 23 standards do not govern in federal court. See Toscano v. Ameriquest Mortg. Co., No. Civ-F-07-0957-AWI-DLB, 2007 WL 24 3125023, at *6 (E.D. Cal. Oct. 24, 2007). It is well-settled that the Federal Rules of Civil Procedure apply in federal court, 25 irrespective of the source of the subject matter jurisdiction, and irrespective of whether the substantive law at issue is state 26 or federal.” See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 27 1102 (9th Cir. 2003) (citing Hanna v. Plumer, 380 U.S. 460, 462- 474 (1965)). 28 1 has made clear that this heightened pleading standard also 2 applies to fraudulent concealment claims. See Kearns v. Ford 3 Motor Co., 567 F.3d 1120, 1126–27 (9th Cir. 2009). 4 The elements of an action for fraud and deceit based on 5 concealment are: 6 (1) the defendant must have concealed or suppressed a material fact; (2) the defendant 7 must have been under a duty to disclose the fact to the plaintiff; (3) the defendant must have 8 intentionally concealed or suppressed the fact with the intent to defraud the plaintiff; (4) the 9 plaintiff must have been unaware of the fact and would not have acted as he did if he had known of 10 the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the 11 fact, the plaintiff must have sustained damage.” 12 See SCC Acquisitions Inc. v. Cent. Pac. Bank, 207 Cal. App. 4th 13 859, 864 (4th Dist. 2012). 14 The complaint’s allegations of fraudulent concealment 15 fail to satisfy the heightened pleading standards of Federal Rule 16 of Civil Procedure 9(b) in several regards. Plaintiffs fail to 17 provide any specific factual allegations to support their claim 18 that Mercedes-Benz USA knew of the alleged defect and intended to 19 conceal it from plaintiffs before the Vehicle was sold. 20 Plaintiffs do not allege how Mercedes-Benz was aware of the 21 alleged defects, when Mercedes-Benz became aware of the defect, 22 what exactly it was aware of, that Mercedes-Benz had exclusive 23 knowledge of this alleged defect in the Vehicle at the time 24 plaintiffs acquired it, or how Mercedes-Benz concealed this fact 25 from the plaintiffs. (See Mot. for J. on the Pleadings at 7.) 26 The only allegations in the complaint relating to Mercedes-Benz’s 27 knowledge of the alleged defect are conclusory statements which 28 1 state that “defendant was well-aware of the non-conformities and 2 defects relating to the air conditioning system” and had “advance 3 knowledge of which only defendant could know.” (See Compl. at ¶ 4 42.) Such conclusory statements, unsupported by specific facts, 5 do not suffice. 6 Moreover, to plead the circumstances of omission with 7 specificity, plaintiffs must describe the content of the omission 8 and where the omitted information should or could have been 9 revealed, as well as provide representative samples of 10 advertisements, offers, or other representations that plaintiff 11 relied on to make her purchase and that failed to include the 12 allegedly omitted information. See Marolda v. Symantec Corp., 13 672 F. Supp. 2d 992, 1002 (N.D. Cal. 2009). Plaintiffs have 14 provided none of this information and simply state that “[p]rior 15 to purchasing the Vehicle, plaintiffs reviewed marketing 16 brochures, viewed television commercials and/or heard radio 17 commercials about the qualities of the Mercedes-Benz GLE350” and 18 that plaintiffs “relied on statements made during the sales 19 process.” (See Compl. at ¶ 15.) Such allegations fall far short 20 of the specificity required for fraudulent concealment claims. 21 Plaintiffs have additionally failed to plausibly allege 22 circumstances that would impose upon Mercedes-Benz a duty to 23 disclose the alleged defect to them. (See Reply in Supp. of Mot. 24 for J. on the Pleadings at 10.) “[W]here material facts are 25 known to one party and not to the other, failure to disclose them 26 is not actionable fraud unless there is some relationship between 27 the parties which gives rise to a duty to disclose such known 28 facts.” LiMandri v. Judkins, 52 Cal. App. 4th 326, 336 (4th 1 Dist. 1997). Plaintiffs have alleged in their complaint that 2 Mercedes-Benz was not involved in the sales transaction of the 3 Vehicle; rather, plaintiffs obtained the Vehicle from Niello 4 Volkswagen in Sacramento, California. (See id. at ¶ 5; see 5 Docket No. 1 at Ex. 1.) 6 Plaintiffs argue that they “do not need to show a 7 direct contractual nexus or special relationship where there is a 8 safety issue . . . .” (See Opp’n to Mot. for J. on Pleadings at 9 8.) Although plaintiffs posit in their opposition that the 10 alleged air-conditioning defect is “a significant vehicle defect 11 because it relates to a known mold growth issue that renders the 12 air conditioning unstable and, ultimately, unsafe because of the 13 possibility that mold and mold spores could be injected into the 14 cabin environment and inhaled by vehicle occupants,” (see id. at 15 1), they allege no such information in the complaint. Instead, 16 they simply aver that “malodorous odors emanat[ed] from the air 17 conditioning system” and then assert in a conclusory fashion that 18 “the vehicle is defective and unsafe.” (See Compl. at ¶¶ 42–47.) 19 Plaintiffs failed to allege any specific facts in their complaint 20 which would indicate that the alleged air conditioner defect 21 caused the vehicle to be unsafe, and they admit that Mercedes- 22 Benz was not a party to the transaction of the Vehicle here. 23 Accordingly, plaintiffs have failed to allege facts to establish 24 that Mercedes-Benz owed them a duty to disclose any alleged 25 defects. 26 In sum, plaintiffs have failed to adequately allege 27 particularized facts supporting knowledge of falsity or intent to 28 conceal by Mercedes-Benz, the circumstances surrounding the 1 alleged omissions of evidence, or that Mercedes-Benz owed a duty 2 to disclose the alleged defects to plaintiffs. Plaintiffs’ 3 fraudulent concealment claim therefore fails to meet Rule 9(b)’s 4 pleading standard, and the court will dismiss it. 5 B. Economic Loss Doctrine 6 Mercedes-Benz additionally argues that plaintiffs’ 7 fraudulent concealment claim is barred by the economic loss rule. 8 (See Mot. for J. on Pleadings at 10.) “Economic loss consists of 9 damages for inadequate value, costs of repair and replacement of 10 the defective product or consequent loss of profits -- without 11 any claim of personal injury or damages to other property.” 12 Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 988 13 (2004). “The economic loss rule requires a purchaser to recover 14 in contract for purely economic loss due to disappointed 15 expectations unless he can demonstrate harm above and beyond a 16 broken contractual promise.” See id. Although plaintiffs 17 contend that Robinson Helicopter supports their position that 18 their fraudulent concealment claim is not barred by the economic 19 loss rule, the California Supreme Court made clear that the 20 exception to the economic loss rule only applies to fraud claims 21 involving affirmative misrepresentations, and does not extend to 22 fraudulent concealment claims based exclusively on omissions. 23 See id. at 993 (“Our holding today is narrow in scope and limited 24 to a defendant’s affirmative misrepresentations on which a 25 plaintiff relies, and which expose plaintiff to a liability for 26 personal damages independent of the plaintiff’s economic loss.”). 27 Accordingly, “in actions arising from the sale or purchase of a 28 defective product, plaintiffs seeking economic losses must be 1 able to demonstrate that either physical damage to property 2 (other than the defective product itself) or personal injury 3 accompanied such losses; if they cannot, then they would be 4 precluded from any tort recovery in strict liability or 5 negligence.” Ladore v. Sony Comput. Ent. Am., LLC, 75 F. Supp. 6 3d 1065, 1075 (N.D. Cal. 2014) (internal citations omitted). 7 Plaintiffs’ complaint does not include any allegations 8 that plaintiffs suffered personal injury or any other damages 9 apart from the economic damages associated with their warranty 10 claims. Nor does it include any affirmative misrepresentations 11 prior to or at the time of sale. Federal courts throughout 12 California have recently held in analogous “lemon law” cases that 13 the economic loss rule bars fraud claims premised solely on 14 concealment and omissions where plaintiffs have failed to allege 15 personal injury or damage to property. See Sloan v. Gen. Motors 16 LLC, Case No. 16-cv-07244-EMC, 2020 WL 1955643, at *23 (N.D. Cal. 17 Apr. 23, 2020); Thompson v. BMW of N. Am. LLC, Case No. SACV 17- 18 01912-CJC-KS, 2019 WL 988694, at *5 (C.D. Cal. Jan. 10, 2019); 19 Hsieh v. FCA US LLC, 440 F. Supp. 3d 1157, 1162–63 (S.D. Cal. 20 2020). The economic loss doctrine therefore provides an 21 additional basis to dismiss the complaint’s fraudulent 22 concealment claim. 23 Because plaintiffs have not adequately alleged a 24 fraudulent concealment claim, their prayer for punitive damages 25 arising out of that claim also fails. Plaintiffs have 26 additionally failed to plead specific allegations demonstrating 27 malicious or oppressive conduct by Mercedes-Benz that would 28 entitle them to punitive damages. Under California law, a 1 plaintiff may recover punitive damages “where it is proven by 2 clear and convincing evidence that the defendant has been guilty 3 of oppression, fraud, or malice.” See Harper Const. Co., Inc. v. 4 Nat’l Union Fire Ins. Co., Case No. 18-cv-00471-BAS-NLS, 2020 WL 5 1820124, at *7 (S.D. Cal. Apr. 10, 2020) (citing Cal. Civ. Code § 6 3294(a)). Moreover, “[a] request for punitive damages against a 7 corporation must include allegations relating to the 8 corporation’s officers, directors, or managing agents.” See id. 9 Here, plaintiffs merely make a conclusory statement that “[t]he 10 conduct of the defendant in failing to disclose this information 11 to plaintiffs [was] done in malice.” (See Compl. at 9 44.) Such 12 conclusory allegations, utterly unsupported by specific facts, 13 are insufficient to support a claim for punitive damages under 14 California law. 15 IT IS THEREFORE ORDERED that defendant’s Motion for 16 Judgment on the Pleadings as to plaintiffs’ third claim for 17 fraudulent concealment and plaintiffs’ prayer for punitive 18 damages (Docket No. 7) be, and the same hereby is, GRANTED. 19 Plaintiffs have twenty days from the date this Order is signed to 20 file an amended complaint if they can do so consistent with this 21 Order. 22 | Dated: June 2, 2021 Atte A hd. 33 WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 24 25 26 27 28 12