Dhital v. Nissan North America, Inc.

• Decision Date: 26 October 2022
• Docket Number: A162817
• Citation: 84 Cal.App.5th 828,300 Cal.Rptr.3d 715
• Parties: Sobita DHITAL, et al., Plaintiffs and Appellants, v. NISSAN NORTH AMERICA, INC., Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

84 Cal.App.5th 828

300 Cal.Rptr.3d 715

Sobita DHITAL, et al., Plaintiffs and Appellants,

v.NISSAN NORTH AMERICA, INC., Defendant and Respondent.

A162817

Court of Appeal, First District, Division 4, California.

Filed October 26, 2022

Knight Law Group, Steve Mikhov, Christopher Swanson, Roger R. Kirnos, Los Angeles; Greines, Martin, Stein & Richland, Cynthia E. Tobisman, Marc J. Poster, Alana H. Rotter, Los Angeles, for Plaintiffs and Appellants.

Shook, Hardy & Bacon, Amir Nassihi, M. Kevin Underhill, San Francisco, for Defendant and Respondent.

STREETER, J.

Plaintiffs Sobita Dhital and Daniel Newman sued defendant Nissan North America, Inc. (Nissan), alleging the transmission in a 2013 Nissan Sentra they purchased was defective. In their operative second amended complaint (SAC), plaintiffs asserted statutory claims under the Song-Beverly Consumer Warranty Act (Song-Beverly Act) ( Civ. Code, § 1790 et seq. ) and a common law fraud claim alleging that Nissan, by fraudulently concealing the defects, induced them to purchase the car.

The trial court sustained Nissan's demurrer to the fraudulent inducement claim (the fourth cause of action in the SAC) without leave to amend, holding the claim was barred by the "economic loss rule" discussed in Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 22 Cal.Rptr.3d 352, 102 P.3d 268 ( Robinson ). The court also granted an accompanying motion to strike plaintiffs’ request for punitive damages. Plaintiffs dismissed their remaining claims with prejudice, and the court entered judgment for Nissan.

Plaintiffs appeal, contending the court erred by applying the economic loss rule to bar their fraudulent inducement claim. Nissan argues the court correctly applied the economic loss rule. Nissan alternatively urges this court to affirm on the ground plaintiffs did not plead the fraudulent inducement claim with sufficient particularity, a ground for demurrer not reached by the trial court.

We conclude that, under California law, the economic loss rule does not bar plaintiffs’ fraudulent inducement claim. We also reject Nissan's argument that plaintiffs did not adequately plead a claim for fraudulent inducement. We therefore reverse the judgment entered in favor of Nissan and remand for further proceedings on plaintiffs’ fraudulent inducement claim.¹

I. BACKGROUND

A. The SAC: Plaintiffs’ Allegations About the Allegedly Defective Transmission and Nissan's Alleged Fraud

"Because this matter comes to us after the trial court sustained the defendant's demurrer, ‘we must, under established principles, assume the truth of all properly pleaded material allegations of the complaint in evaluating the validity’ of the decision below." ( Lazar v. Superior Court (1996) 12 Cal.4th 631, 635, 49 Cal.Rptr.2d 377, 909 P.2d 981.)

In the SAC, plaintiffs alleged that, on November 4, 2012, they purchased a new 2013 Nissan Sentra from a Nissan dealership in San Leandro. On three occasions in 2015, plaintiffs took the car to an authorized Nissan repair facility because of transmission problems, including stalling, jerking, and lack of power. They eventually decided to stop using the car due to their concern it posed a risk to their safety and the safety of others, because "[u]ncertain and unpredictable performance of a vehicle's engine and transmission can result in sudden and unexpected movements or stalling that greatly increase the risk of a motor vehicle accident."

Plaintiffs alleged Nissan manufactured or distributed more than 500,000 vehicles in the United States that were equipped with defective continuously variable transmissions (CVT's), including plaintiffs’ Sentra and other Sentras for model years 2013 through 2017. The SAC alleged: "The CVT is defective in that it causes hesitation from a stop before acceleration; sudden, hard shaking during deceleration; sudden, hard shaking and violent jerking (commonly known as ‘juddering’ or ‘shuddering’) during acceleration; and complete failure to function, each and all of which prevent a CVT-equipped vehicle from operating as intended by the driver, especially during acceleration from a complete stop." The SAC continued: "This transmission defect creates unreasonably dangerous situations while driving and increases the risk of a crash when trying to accelerate from a stop; at low speeds when drivers intend to accelerate to merge with highway traffic; and when attempting to drive uphill. The transmission defect creates a serious safety risk that can lead to accidents, injuries, or even death to the driver, the vehicles’ occupants, other drivers, and pedestrians."

As to Nissan's knowledge that the transmissions were defective, plaintiffs alleged in part that Nissan "knew or should have known about the safety hazard posed by the defective transmissions before the sale of CVT-equipped vehicles from premarket testing, consumer complaints to the National Highway Traffic Safety Administration (‘NHTSA’), consumer complaints made directly to Nissan and its dealers, and other sources which drove Nissan to issue Technical Service Bulletins acknowledging the transmission's defect. Nissan should not have sold, leased, or marketed the CVT-equipped vehicles without a full and complete disclosure of the transmission defect, and should have voluntarily recalled all CVT-equipped vehicles long ago."

In their statutory claims under the Song-Beverly Act (the first, second, and third causes of action in the SAC), plaintiffs alleged Nissan breached express and implied warranties and failed to repair the car within a reasonable period of time. In the common law fraud claim that is at issue in this appeal (the SAC's fourth cause of action, entitled "Fraudulent Inducement—Concealment"), plaintiffs alleged in part that "[Nissan] and its agents intentionally concealed and failed to disclose facts relating to the defective transmission"; Nissan had exclusive knowledge of the defect and did not disclose that information to plaintiffs; "Nissan intended to deceive [plaintiffs] by concealing the known issues with the CVT transmission in an effort to sell the [car] at a maximum price"; "[Nissan] fraudulently induced [plaintiffs] to enter into a contract they would not have entered into but for [Nissan's] concealment of the defective nature of the CVT transmission"; if plaintiffs had known of the defect, they would not have purchased the car; and plaintiffs suffered damages in the form of money paid to purchase the car.

Plaintiffs alleged the defect and the resulting "[u]ncertain and unpredictable performance" of the transmission increased the risk of an accident and thus placed them at risk of physical harm. But as the trial court later noted, plaintiffs did not allege the defect caused any personal injury or any damage to property other than the car.

In the SAC's prayer for relief, plaintiffs sought special and actual damages, rescission of the purchase contract and restitution of all amounts paid, "diminution in value," incidental and consequential damages, civil penalties, punitive damages, prejudgment interest, and attorney fees.

B. Procedural Background

Prior to the filing of the SAC, the court (Hon. Jo-Lynne Q. Lee) (1) sustained, with leave to amend, Nissan's demurrers to the claims for fraudulent inducement—concealment in plaintiffs’ original and first amended complaints, and (2) granted, also with leave to amend, Nissan's motion to strike the punitive damages requests in those complaints.

In its demurrer to the fraud claim in plaintiffs’ original complaint, Nissan did not contend the economic loss rule barred the claim, arguing on other grounds that plaintiffs had not stated a cause of action. But the trial court requested supplemental briefing on the economic loss rule and sustained the demurrer (with leave to amend) on the basis of that rule, concluding in part that "[t]he only injury identified by Plaintiffs is that they have purchase[d] a vehicle they would not have otherwise bought if they knew of its alleged defects. Such an injury is insufficient to overcome the economic loss rule."

In its order addressing Nissan's motion to strike portions of plaintiffs’ original complaint, the court declined to strike certain passages throughout the complaint that Nissan had alleged were irrelevant, but granted the motion (with leave to amend) as to the punitive damages allegations. The court concluded the complaint did not include sufficient allegations to support a claim for punitive damages against a corporation, stating "the allegations in the Complaint are insufficient to establish that ‘the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice [is] on the part of an officer, director, or managing agent of the corporation.’ ( [Civ. Code,] § 3294, [subd.] (b).)"

Plaintiffs filed the SAC in January 2020. Nissan again demurred to the claim for fraudulent inducement—concealment (the fourth cause of action in the SAC) and moved to strike portions of the SAC, including the punitive damages allegations. In its demurrer, Nissan argued plaintiffs’ fraud claim was barred by the economic loss rule and was not pleaded with sufficient specificity. Nissan contended in its motion to strike that the SAC's allegations supporting corporate liability for punitive damages were still insufficient, and that plaintiffs had not adequately pleaded a fraud claim that would support an award of punitive damages. A hearing on the demurrer and the motion to strike was set for May 2020, but the matter was taken under submission without hearing because plaintiffs did not contest the tentative ruling against them.

The court (Hon. Richard Seabolt) sustained the demurrer to the fraud cause of action, this time without leave to amend. The court held the fraud claim was barred by the economic loss rule because plaintiffs did not allege the defective transmission in their car caused any personal injury or any damage to property other than the car. The court con...