Hernandez v. FCA US LLC

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7 UNITED STATES DISTRICT COURT

8 SOUTHERN DISTRICT OF CALIFORNIA

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10 KATHRYN HERNANDEZ, an Case No.: 3:19-cv-1872-L-RBB

individual, RICK TORRES

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HERNANDEZ, an individual, ORDER (1) DENYING IN PART AND

12 GRANTING IN PART DEFENDANT

Plaintiffs,

FCA US LLC’S MOTION TO

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v. DISMISS; AND (2) DENYING

14 DEFENDANT STERICYCLE INC.’S

FCA US LLC, a limited liability

MOTION TO DISMISS

15 company; STERICYCLE INC., a

corporation; and DOES 1 through 75,

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inclusive,

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Defendants.

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Pending before the Court are Defendants’ respective motions to dismiss for failure

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to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiffs

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opposed the motions, and Defendants replied. The Court decides the matter on the papers

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submitted and without oral argument. See Civ. L. R. 7.1 (d)(1). For the reasons stated

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below, Defendant FCA US LLC’s motion to dismiss (doc. no. 5) is granted in part and

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denied in part; motion to dismiss filed by Defendant Stericycle Inc. (doc. no. 6) is denied.

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I. BACKGROUND

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Kathryn Hernandez and Rick Torres Hernandez (“Plaintiffs”) are residents of Chula

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Vista, California. (Compl. (doc. no. 1-3) ¶ 1). At the relevant time, Defendant FCA US

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1 LLC (“FCA”) was the manufacturer of the vehicle at issue in this litigation. It conducts

2 business through Mossy Alfa Romeo and Fiat in National City, California (“Mossy”).

3 (Compl. ¶ 2). Defendant Stericycle Inc. (“Stericycle”) is FCA’s agent. (Compl. ¶ 3). It has

4 the ability to repurchase vehicles and review repair orders and warranty histories on FCA’s

5 behalf. (Compl. ¶ 28).

6 On September 26, 2017, Plaintiffs purchased a new 2017 Alfa Romeo Giulia

7 (“Subject Vehicle” or “Vehicle”) from FCA through Mossy. (Compl. ¶¶ 2, 6). In addition

8 to an implied warranty of merchantability, FCA provided two express warranties for this

9 Vehicle: (1) an express basic warranty of 3 years/36,000 miles; and (2) an express

10 powertrain warranty of 5 years/100,000 miles. (Compl. ¶ 7). The warranties require FCA

11 to preserve or maintain the utility or performance of the Vehicle or provide compensation

12 if there is a failure to conform to the warranty. (Compl. ¶ 8). Plaintiffs allege the respective

13 express warranties contained representations that any breach of warranty would include

14 remedies compliant with California law.1 (Compl. ¶¶ 22, 39).

15 Plaintiffs allege the Subject Vehicle was delivered with serious defects and

16 nonconformities to warranty and developed additional nonconformities. (Compl. ¶ 10). On

17 October 2, 2017 at 433 miles, Plaintiffs presented the Vehicle to FCA at Mossy because

18 the engine shut off while in use and the default warning light was illuminated. (Compl. ¶

19 12). Mossy performed four (4) repair procedures pursuant to a Rapid Response Transmittal.

20 (Id.). Rapid Response Transmittals mandate dealerships, including Mossy, to perform

21 repairs prior to retail sale to cure existing defects. (Compl. ¶ 13). FCA did not repair the

22 defects prior to purchase. (Compl. ¶¶ 15-16). On October 17, 2017 at 1,605 miles, Plaintiffs

23 had issues with the cruise control, hard shifting, and an illuminated auto-start light. (Compl.

24 ¶ 17). On May 22, 2018 at 16,072 miles, Plaintiffs again presented the Vehicle for repairs,

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27 1 Hereinafter, the Court refers to both express warranties in the singular (“warranty”) as

the same terms and conditions apply, with the exception of the applicable duration and

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1 but FCA “elected to simply update or reflash the computers or modules on Subject

2 Vehicle” in lieu of repairing the defects. (Compl. ¶ 19). Plaintiffs allege they continued to

3 present the Vehicle for repairs, but FCA failed to conform the Vehicle to its warranty within

4 a reasonable number of attempts. (Compl. ¶¶ 20-21, 24).

5 Plaintiffs allege Defendants failed to uphold FCA’s statutory duty to promptly

6 repurchase the Vehicle as required by California law. (Compl. ¶¶ 25, 28, 43, 45, 47). In or

7 about May 2019, Plaintiffs requested FCA repurchase the Subject Vehicle due to the

8 alleged defects and nonconformities to warranty. (Compl. ¶ 23). Kiara Cooks,

9 Reacquisition Coordinator at Stericycle, informed Plaintiffs that FCA would repurchase

10 the Subject Vehicle. (Compl. ¶¶ 30-32). The Subject Vehicle’s down payment and eighteen

11 (18) monthly payments by Plaintiffs totaled $17,444.66 (“Credits”), and the rebate, motor

12 warranty services and a mileage/usage fee totaled $15,034.18 (“Debits”). (Compl. Ex. B

13 (doc. no. 1-3 at 21-22)). Stericycle calculated a net refund amount of $2,410.48. (Id.). The

14 net refund amount was reviewed and approved by FCA. (Compl. ¶ 33). The amount at issue

15 in the refund calculation is the mileage use offset which Defendants allegedly

16 miscalculated to be $8,249.18. (See Compl. ¶ 35; Compl. Ex. B). Due to the alleged

17 mileage miscalculation, Plaintiffs refused the repurchase offer. (Compl. ¶ 37). They were

18 informed by Stericycle that “this was a take it or leave it offer and that no further

19 adjustments would be made.” (Id.).

20 Plaintiffs assert five causes of action: (1) violation of the Song-Beverly Consumer

21 Warranty Act (“Song-Beverly Act”), Cal. Civ. Code § 1790 et seq. (as to FCA); (2)

22 violation of California's Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200

23 et seq.; (3) tortious interference with contract (as to Stericycle); (4) fraud ; and (5) negligent

24 misrepresentation. Plaintiffs filed this action in State Court on August 16, 2019. Defendants

25 removed to Federal Court on September 27, 2019. The Court has jurisdiction pursuant to

26 28 U.S.C. § 1332. FCA and Stericycle each filed a motion to dismiss.

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1 II. DISCUSSION

2 A motion under Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v.

3 Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted where the complaint

4 lacks a cognizable legal theory. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d

5 1035, 1041 (9th Cir. 2010).2 A complaint may be dismissed, however, if it presents a

6 cognizable legal theory yet fails to plead essential facts under that theory. Robertson v.

7 Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).

8 In reviewing a Rule 12(b)(6) motion, the Court must assume the truth of all factual

9 allegations and construe them most favorably to the nonmoving party. Huynh v. Chase

10 Manhattan Bank, 465 F.3d 922, 997, 999 n.3 (9th Cir. 2006). In pleading sufficient facts,

11 a plaintiff must proffer “enough facts to state a claim to relief that is plausible on its face.”

12 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007). However, legal conclusions need

13 not be taken as true merely because they are couched as factual allegations. Id. at 555.

14 Similarly, “conclusory allegations of law and unwarranted inferences are not sufficient to

15 defeat a motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). In

16 ruling on the pending motion to dismiss, the Court considers the facts alleged in the

17 complaint and documents attached to the complaint. Lee v. City of Los Angeles, 250 F.3d

18 668, 688-89 (9th Cir. 2001).

19 FCA and Stericycle each move to dismiss Plaintiffs’ Fourth and Fifth causes of

20 action, alleging fraud and negligent misrepresentation. Stericycle independently moves to

21 dismiss Plaintiffs’ Second and Third causes of action, alleging violation of California’s

22 UCL and tortious interference with contract. The Court addresses each issue in turn below.

23 A. Fraud and Negligent Misrepresentation

24 Plaintiffs allege two deceit claims against Defendants: fraud and negligent

25 misrepresentation (collectively “deceit claims”). Defendants argue Plaintiffs fail to state a

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2 Unless otherwise noted, internal quotation marks, citations, and footnotes are omitted

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1 claim because the alleged statements lack sufficient factual allegations and particularity.

2 Alternatively, FCA also argues that Plaintiffs’ deceit claims are barred by California’s

3 economic loss rule.

4 1. Sufficient Factual Allegations

5 First, Defendants argue Plaintiffs fail to state sufficient facts to allege fraud and

6 negligent misrepresentation. Under California law, the elements of a cause of action for

7 fraud are: “(1) misrepresentation, (2) knowledge of the falsity or scienter, (3) intent to

8 defraud—that is, induce reliance, (4) justifiable reliance, and (5) resulting damages.”

9 Glaski v. Bank of Am., Nat'l Ass'n, 218 Cal. App. 4th 1079, 1090 (2013). The elements of

10 negligent misrepresentation “are similar to fraud except for the requirement of scienter; in

11 a claim for negligent misrepresentation, the plaintiff need not allege that the defendant

12 made an intentionally false statement, but simply one as to which he or she lacked any

13 reasonable ground for believing the statement to be true.” Charnay v. Cobert, 145 Cal.

14 App. 4th 170, 184 (2006).

15 Defendants contend Plaintiffs’ deceit claims are premised upon the alleged improper

16 mileage use offset and Plaintiffs neither relied on the mileage use offset nor were Plaintiffs

17 harmed by the allegedly inadequate repurchase offer. (Docs no. 5-1 at 9, 6-1 at 6). Thus,

18 the Court limits its discussion to whether Plaintiffs sufficiently allege the elements of

19 reliance and harm.

20 Plaintiffs’ deceit claims are not limited to the mileage miscalculation. As to both

21 Defendants, Plaintiffs sufficiently allege reliance on the rights and remedies, including

22 prompt repurchase, represented in the warranty. (See, e.g., Compl. ¶¶ 6-22, 36, 39-40, 45,

23 53, 90, 92-93, 97-100). Specifically, FCA retained Stericycle as its agent and delegated to

24 Stericycle its statutory duty relative to repurchase. (Compl. ¶ 28). Plaintiffs also sufficiently

25 allege damages resulting from Defendants’ failure to provide a repurchase amount

26 compliant with California law as represented in the warranty. (See, e.g., Compl. ¶¶ 35, 37,

27 43-47, 91-92, 94-95, 101). Defendants’ argument that Plaintiffs fail to establish reliance or

28 harm is rejected.

1 2. Sufficient Particularity

2 Defendants next argue Plaintiffs’ deceit claims fail to meet the heightened pleading

3 standard under Rule 9(b). Claims “grounded in fraud ... must satisfy the particularity

4 requirement of Rule 9(b).” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th

5 Cir. 2003). In alleging deceit, a plaintiff “must state with particularity the circumstances

6 constituting fraud.” Fed. R. Civ. P. 9(b). Fraud allegations must be “specific enough to

7 give defendants notice of the particular misconduct ... so that they can defend against the

8 charge and not just deny that they have done anything wrong.” Vess, 317 F.3d at 1106.

9 Therefore, a complaint must include “the who, what, when, where, and how of the

10 misconduct charged.” Id. Therefore, Rule 9(b) applies to the extent Plaintiffs’ deceit claims

11 are based on fraudulent conduct, deception or misrepresentation. See Kearns v. Ford Motor

12 Co., 567 F.3d 1120, 1124-25 (9th Cir. 2009).

13 The Court disagrees with Defendants’ contention that Plaintiffs fail to allege deceit

14 with the required particularity. (Docs no. 5-1 at 8-10, 6-1 at 3-6). Plaintiffs’ allegations

15 sufficiently identify the particularities of the alleged deceit and provide Defendants notice

16 of their respective roles in the alleged fraud. See United States v. United Healthcare Ins.

17 Co., 848 F. 3d 1161, 1167 (9th Cir. 2016). Plaintiffs’ complaint provides a detailed timeline

18 of events including, the individuals involved and the alleged false representations. (See,

19 e.g., Compl. ¶¶ 2-10, 12-13, 17-43). As to both Defendants, Plaintiffs’ deceit claims satisfy

20 the heightened pleading standard of Rule 9(b).

21 3. Economic Loss Rule

22 Finally, FCA argues California’s economic loss rule bars Plaintiffs’ tort recovery

23 based solely on economic damages.3 Jimenez v. Superior Court, 29 Cal. 4th 473, 483

24 (2002); Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 988-89 (2004). In

25 opposition, Plaintiffs argue the rule does not apply. In determining whether the economic

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1 loss rule applies, courts analyze: (1) whether a defendant made affirmative

2 misrepresentations upon which a plaintiff relied; and (2) whether the affirmative

3 misrepresentations expose a plaintiff to liability for personal damages independent of the

4 plaintiff’s economic loss. See Robinson, 34 Cal. 4th at 993.

5 Plaintiffs’ fraud claim satisfies both prongs. First, Plaintiffs adequately allege

6 reliance on affirmative misrepresentations in the warranty. (See, e.g., Compl. ¶¶ 8, 22, 39,

7 90, 93-94, 97-100). Second, Plaintiffs seek damages arising from FCA’s duty to not

8 commit fraud or act deceitfully, a duty independent from FCA’s contractual duty under the

9 warranty. (See Compl. ¶¶ 95, 101; doc. no. 12 at 6-7.) Specifically, Plaintiffs allege FCA

10 has a policy of lowballing repurchase offers. (Compl. ¶ 40; see also Robinson, 34 Cal. 4th

11 at 991; Erlich v. Menezes, 21 Cal. 4th 543, 551-52 (1999) (“Tort damages have been

12 permitted in contract cases . . . where the contract was fraudulently induced . . . [T]he duty

13 that gives rise to tort liability is either completely independent of the contract or arises from

14 conduct which is both intentional and intended to harm.”).) Plaintiffs’ fraud claim against

15 FCA is therefore not barred by the economic loss rule.

16 Plaintiffs’ negligent misrepresentation claim fails both prongs because there is no

17 affirmative misrepresentation. In determining whether a misrepresentation is affirmative,

18 the distinction lies in whether the tortious conduct was intentional or negligent. See

19 Robinson, 34 Cal. 4th at 991 n.7 (“The economic loss rule is designed to limit liability in

20 commercial activities that negligently or inadvertently go awry, not to reward malefactors

21 who affirmatively misrepresent and put people at risk”). By its very nature, a negligent

22 misrepresentation cannot be affirmative. See Robinson, 34 Cal. 4th at 991 n.7 (“Dealing

23 with affirmative acts of fraud and misrepresentation raises different policy concerns than

24 those raised by negligence. . . .”). Consequently, Plaintiffs fail to satisfy the second prong

25 of the exception. Therefore, as to FCA, Plaintiffs’ negligent representation claim is barred

26 by the economic loss rule.

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1 B. Unfair Competition Law

2 Stericycle contends Plaintiffs’ UCL claim is insufficient because Plaintiffs do not

3 sufficiently allege statutory standing. Only a “person who has suffered injury in fact and

4 has lost money or property as a result of” a UCL violation has standing to bring an action.

5 Cal. Bus. & Prof. Code § 17204. For purposes of standing, the phrase “as a result of” means

6 “caused by” and “requires a showing of a causal connection or reliance on the alleged

7 misrepresentation.” Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 326 (2011).

8 Accordingly, to allege standing, Plaintiffs must “(1) establish a loss or deprivation of

9 money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show

10 that that economic injury was the result of, i.e., caused by, the unfair business practice . . .

11 that is the gravamen of the claim.” Id. at 322.

12 Stericycle argues Plaintiffs did not sufficiently allege injury in fact, economic harm

13 or reliance. The Court disagrees. First, Plaintiffs expressly allege they “have lost money

14 and suffered injury in fact as a result of illegal conduct of both FCA and Stericycle” and

15 request “equitable monetary relief.” (Compl. ¶ 76). Because Plaintiffs adequately allege

16 economic loss, they also sufficiently allege injury in fact. See Kwikset, 51 Cal. 4th at 323

17 (“Notably, lost money or property—economic injury—is itself a classic form of injury in

18 fact”). At the pleading stage, allegations of economic injury suffice. Hinojos v. Kohl's

19 Corp., 718 F.3d 1098, 1104 n.4 (9th Cir. 2013). Second, Plaintiffs’ UCL claim is based in

20 part upon their fraud claim. (See Compl. ¶ 76). As discussed above, Plaintiffs sufficiently

21 allege reliance on the representations in the warranty associated with the Vehicle. (See,

22 e.g., Compl. ¶¶ 22, 36, 39-40, 45, 92-93, 100).

23 C. Tortious Interference with Contract

24 Plaintiffs allege Stericycle interfered with FCA’s performance under the warranty

25 by imposing additional repurchase conditions and offering an insufficient amount of funds

26 to repurchase the Vehicle. (Compl. ¶¶ 45, 85). Stericycle argues it is not liable because it

27 is an agent for FCA, who is a party to the warranty. (Doc. no. 6-1 at 8). In opposition,

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1 Plaintiffs claim Stericycle remains liable because they allege Stericycle acted outside of its

2 agency. (Doc. no. 13 at 5; Compl. ¶47).

3 Stericycle is relying on the agent immunity defense. A complaint may be dismissed

4 under Rule 12(b)(6) based on an affirmative defense "only if the defense is clearly indicated

5 and appears on the face of the pleading." Harris v. Amgen, Inc., 788 F.3d 916, 943 (9th

6 Cir. 2014), rev'd on other grounds in Amgen, Inc. v. Harris, 136 S. Ct. 758 (2016); see also

7 Jones v. Bock, 549 U.S. 199, 211-12 & 215 (2007); Rivera v. Peri & Sons Farms, Inc., 735

8 F.3d 892, 902 (9th Cir. 2013) (dismissal appropriate "[w]hen an affirmative defense is

9 obvious on the face of a complaint").

10 Plaintiffs allege that Stericycle is an agent of FCA. (See, e.g., Compl. ¶¶ 3

11 (“Defendant Stericycle Inc. is a business entity and agent for FCA”), 28 (“FCA has retained

12 Defendant Stericycle as its agent in so to delegate affirmative statutory duty to review

13 repair order and warranty history and repurchase vehicles”)). At issue, however, is whether

14 Stericycle acted independently of its role as FCA’s agent. Stericycle argues that whether it

15 acted within or outside of its agency is immaterial because “in either case they [Plaintiffs]

16 are alleging that Stericycle was FCA US’s agent.” (Doc. no. 15 at 5). The Court disagrees.

17 Whether Stericycle acted within or outside of its capacity as FCA’s agent is material in

18 determining whether the agent immunity defense applies. See Mintz v. Blue Cross of

19 California, 172 Cal. App. 4th 1594, 1604 (2009) (quoting Applied Equip. Corp. v. Litton

20 Saudi Arabia Ltd., 7 Cal.4th 503, 512 n.4 (1994)). Plaintiffs expressly allege that Stericycle

21 acted outside of its agency to interfere with Plaintiffs’ repurchase.4 (Compl. ¶¶ 47, 84-85).

22 Stericycle’s defense of agent immunity is therefore not apparent on the face of the

23 pleadings and cannot be dismissed at the pleading stage.

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4 Stericycle raises the issue of inconsistent factual allegations, noting that Plaintiffs’

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allegations that Stericycle acted outside of its capacity (Compl. ¶ 47) conflict with

27 Plaintiffs’ allegations that FCA and Stericycle worked in conjunction to harm Plaintiffs

(Compl. ¶ 28-46). This is not improper because Rule 8 allows a party to plead

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1 D. Leave to Amend

2 The Court next considers whether to grant Plaintiffs leave to amend their negligent

3 || misrepresentation claim. Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d

4 || 1393, 1401 (9th Cir. 2004). Rule 15 advises leave to amend shall be freely given when

5 justice so requires. Fed. R. Civ. P. 15(a)(2). “This policy is to be applied with extreme

6 || liberality.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003).

7 In the absence of any apparent or declared reason — such as undue delay, bad

g faith or dilatory motive on the part of the movant, repeated failure to cure

deficiencies by amendments previously allowed, undue prejudice to the

9 opposing party by virtue of allowance of the amendment, futility of the

10 amendment, etc. — the leave sought should, as the rules require, be freely

given.

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12 || Foman v. Davis, 371 U.S. 178, 182 (1962). Dismissal without leave to amend is not

13 || appropriate unless it is clear the complaint cannot be saved by amendment. /d. Because

14 |}amendment of the negligent misrepresentation claim does not seem possible under the

15 |}economic loss rule and because Plaintiffs have not argued that they can amend this claim,

16 || leave to amend is denied as futile.

17 Hit. CONCLUSION

18 Defendant FCA’s motion to dismiss (doc. no. 5) is GRANTED with respect to the

19 ||negligent misrepresentation claim and DENIED in all other respects. Defendant

20 ||Stericycle’s motion to dismiss (doc. no. 6) is DENIED.

21 IT IS SO ORDERED.

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23 Dated: August 14, 2020

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95 H . James Lorenz,

United States District Judge

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