The opinion
IN THE SUPREME COURT OF
CALIFORNIA
MICHAEL R. RATTAGAN,
Plaintiff and Appellant,
v.
UBER TECHNOLOGIES, INC.,
Defendant and Respondent.
S272113
Ninth Circuit
20-16796
Northern District of California
3:19-CV-01988-EMC
August 22, 2024
Justice Corrigan authored the opinion of the Court, in which
Chief Justice Guerrero and Justices Liu, Kruger, Groban,
Jenkins, and Evans concurred.
RATTAGAN v. UBER TECHNOLOGIES, INC.
S272113
Opinion of the Court by Corrigan, J.
At the request of the United States Court of Appeals for
the Ninth Circuit, we consider a question expressly left open in
Robinson Helicopter v. Dana Corp. (2004) 34 Cal.4th 979
(Robinson). Under California law, may a plaintiff assert a tort
claim for fraudulent concealment arising from or related to the
performance of a contract?1 The answer to the question is a
qualified yes. A plaintiff may assert a fraudulent concealment
cause of action based on conduct occurring in the course of a
contractual relationship if the elements of the claim can be
established independently of the parties’ contractual rights and
obligations, and the tortious conduct exposes the plaintiff to a
risk of harm beyond the reasonable contemplation of the parties
when they entered into the contract.
I. BACKGROUND
A. Factual Allegations
This case comes to us following dismissal of Michael R.
Rattagan’s third amended complaint (TAC) without leave to
amend. (Fed. Rules of Civ. Proc., rule 12(b)(6).) In answering
1
The Ninth Circuit framed the issue as follows: “Under
California law, are claims for fraudulent concealment exempted
from the economic loss rule?” We restated the question to
conform to a better understanding of Robinson and the
dispositive issue presented in this case. (Cal. Rules of Court,
rule 8.548(f)(5).)
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the Ninth Circuit’s question, we assume all factual allegations
in the TAC to be true. (Ixchel Pharma, LLC v. Biogen, Inc.
(2020) 9 Cal.5th 1130, 1137−1138.) Rattagan is a citizen of
Argentina and describes himself as “one of the top and most
renowned business lawyers in Buenos Aires.” He is licensed to
practice law in Argentina and the State of New York. At all
relevant times, he was the managing partner of Rattagan
Macchiavello Arocena, a law firm that “counsels large
multinational companies in various business matters, with an
emphasis on transactions, investments and interests in
Argentina.”
In February 2013, a representative of two Dutch
subsidiaries of defendant Uber Technologies, Inc. (Uber)
contacted Rattagan.2 Uber was considering launching its
ridesharing platform in Argentina and sought local counsel to
assist with the process. Under the direction of Uber’s legal
department in San Francisco, the Dutch subsidiaries retained
Rattagan and his firm to provide specific legal services,
including reserving the corporate name “Uber Argentina, S.A.”
(Uber SA); registering the Dutch subsidiaries as Uber SA’s
foreign shareholders; creating all the corporate formation
documents for Uber SA; and registering Uber SA with the
Buenos Aires Office of Corporations (the Inspección General de
Justicia or IGJ). The complaint alleges the Dutch subsidiaries
2
Uber is a corporation organized under Delaware law with
its principal place of business in San Francisco. At all relevant
times, Uber was the sole shareholder of one of the Dutch
entities, Uber International B.V., which in turn was sole
shareholder of the other, Uber International Holding B.V. Both
Dutch subsidiaries are limited liability companies organized
under the laws of the Netherlands.
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Opinion of the Court by Corrigan, J.
were merely acting as agents for their principal, Uber, when
Rattagan was retained in 2013, making Uber responsible for all
the actions of the Dutch subsidiaries based on an agency
relationship.
Rattagan also agreed to act as the Dutch subsidiaries’
registered legal representative in Argentina. He characterizes
this arrangement as being “separate and apart from the legal
services provided.” According to the TAC, any foreign company
intending to do business in Argentina must register with the
IGJ and submit certain required documents, including details
about the foreign company’s shareholders. Additionally, the
foreign shareholders must be represented by a “local resident
registered with the IGJ” who acts as the “human face of that
entity in Argentina.” Before taking on this additional role,
Rattagan expressly warned Uber in writing of the “full potential
personal exposure” he might face as legal representative if the
Dutch subsidiaries violated Argentinian law.
Rattagan and the Dutch subsidiaries also entered into
indemnity agreements. The agreements provide that the
subsidiaries would hold Rattagan “harmless from any action,
suit or proceeding, pending or threatened, whether civil,
criminal, administrative or investigative . . . by reason of the
fact that the Legal Representative is or was legal representative
of the Company” and “indemnifie[d] . . . against any and all
liabilities and expenses (including reasonable attorneys’ fees
and expenses), payable by [Rattagan] in connection with the
defense or settlement of any such action, suit or proceeding, or
any appeal with respect thereto . . . .” Additionally, the
agreements state, “[t]he Company acknowledges that the Legal
Representative was not, is not and will not become familiar with
the day-to-day operations of the Company or of Uber Argentina
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Opinion of the Court by Corrigan, J.
S.A. and was not, is not and will not be required to undertake
any executive or managerial responsibilities with respect
thereto.” Rattagan prepared papers reflecting that he would act
as the Dutch subsidiaries’ legal representative and registered
with the IGJ using his firm’s address.
Rattagan and his colleagues provided legal advice and
drafts of corporate formation documents to the Dutch
subsidiaries throughout 2013. In 2014, there was a “period of
relative inactivity.” In February 2015, efforts once again
ramped up to form a corporation in Argentina, but this time
Uber began managing Rattagan’s work directly through its San
Francisco-based paralegals, Ryan Black and Shirin Schokrpur.
Rattagan claims it was at this point Uber established a direct
attorney-client relationship with him. Rattagan and his firm
continued providing incorporation services to Uber throughout
2015 into 2016. By then, Uber had changed direction and
decided to create two Argentine entities, Uber S.R.L. and Hinter
Argentina, S.R.L. Rattagan’s firm began the process of forming
and registering these new entities with the IGJ while he
continued to act as the Dutch subsidiaries’ registered legal
representative.
Between December 2015 and April 12, 2016, Rattagan
contends that, unbeknownst to him, Uber representatives
repeatedly met with Buenos Aires city officials. On December
17, 2015, Gonzalo Araujo, Uber’s Head of Public Policy and
Government Affairs in South America, met with Juan Jose
Méndez, the Secretariat of Transportation for the City of Buenos
Aires. Méndez rejected Uber’s position that it was a technology
company, not subject to local regulations governing
transportation providers. Two additional meetings took place in
January and February 2016 with city officials and Carl
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Opinion of the Court by Corrigan, J.
Meacham, Uber’s Head of Public Policy and Government
Relations based in Washington D.C. City officials warned
Meacham against launching Uber’s ridesharing platform in
Buenos Aires unless all its drivers had professional driver’s
licenses and commercial insurance coverage, and all their
vehicles were examined and approved by the city.
In March 2016, the IGJ requested that Rattagan provide
certain changes to Uber S.R.L.’s bylaws describing its corporate
purpose. On March 22, 2016, Leonardo Orlanski, a Buenos
Aires lawyer retained by Uber to handle government relations,
told Rattagan not to file the modifications requested by the IGJ
until Orlanski could “check some implications on the regulatory
front.” Rattagan contends at some point before that
conversation, Uber had secretly decided to launch its
ridesharing platform in Buenos Aires sometime in April 2016.
They did not inform him of that decision, even though the local
corporate entities were still in formation and had not yet been
registered with local or federal tax authorities. Over the next
few weeks, Rattagan exchanged several emails and phone calls
with Orlanski, Black, Schokrpur, and Enrique Gonzalez, Uber’s
Head Counsel for Latin American Operations. He alleges they
intentionally concealed Uber’s launch plans even though they
knew local government authorities would consider the launch to
constitute “a legally non-compliant and tax evasive
transportation business” and Rattagan would consequently be
exposed to “grave personal consequences” given his position as
the Dutch subsidiaries’ registered legal representative.
Uber officially launched its ridesharing platform in
Buenos Aires on April 12, 2016. Rattagan learned about it “like
everyone else — through an email blast.” Public reaction was
immediate and hostile, sparking violent demonstrations in the
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Opinion of the Court by Corrigan, J.
streets of Buenos Aires. Rattagan’s office was at one point
surrounded by protesters who blocked the exits for hours. The
day after the launch, Rattagan contacted Head Counsel
Gonzalez and offered to “smooth things over” with local
government officials on Uber’s behalf, while also hoping to avoid
further damage to himself and his colleagues. Gonzalez
declined the offer and instead instructed Rattagan to continue
with the incorporation process of Uber S.R.L. and Hinter
Argentina, S.R.L.
Several key events took place on April 15, three days after
the launch. Rattagan emailed Gonzalez asking to be replaced
as the Dutch subsidiaries’ legal representative. According to
Rattagan, Gonzalez failed to act immediately on his request and
more than two months elapsed before Uber removed him as the
Dutch subsidiaries’ legal representative. Also on April 15, a
Buenos Aires city inspector came to Rattagan’s offices with
orders “to immediately cease [Uber’s] activities.” Police later
raided his offices armed with a search warrant based on a
charge that Rattagan, as the Dutch subsidiaries’ legal
representative, was using public space for commercial gain
without a permit. Prime-time news reported the raid and
displayed Rattagan’s firm logo, reporting his offices were the
location of “Uber’s illegal activities, which included tax evasion.”
As a result, Rattagan claims he and his colleagues were “vilified
in the media and subjected to scorn and ridicule in social and
professional gatherings.”
On May 12, 2016, Rattagan met personally with Gonzalez
for the first time since the launch of the ridesharing platform
and the raids on his offices. Rattagan repeated that he and his
colleagues had resigned and demanded that Uber replace them
in all official documents filed with the IGJ. He contends
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Opinion of the Court by Corrigan, J.
Gonzalez disregarded the request and continued to use his
firm’s name and address in informal correspondence with city
officials. Two weeks later, Rattagan sought direct involvement
from Salle Yoo, Uber’s General Counsel and Corporate
Secretary based in San Francisco. He asked that she designate
someone to whom he could turn over his client files and
demanded that Uber refrain from using his name as Uber’s
representative or his offices as its legal domicile in future
communications with Argentine government officials. Yoo
assigned another Uber attorney based in San Francisco to
handle the matter.
In April 2017, Rattagan was formally charged with
unauthorized use of public space with a commercial aim and
aggravated tax evasion. He was subjected to interrogation,
mugshots, and fingerprinting. He was also temporarily banned
from traveling abroad, which negatively affected his practice.
He alleges news of the travel ban “went viral,” further
exacerbating the reputational harm. Rattagan claims Uber paid
his criminal defense legal fees under “an indemnity agreement”
but “ceased doing so after he filed this lawsuit.”
B. Procedural Background
On April 12, 2019, Rattagan filed a complaint in federal
district court against Uber and the Dutch subsidiaries asserting
causes of action for breach of fiduciary duty, deceit, fraud,
intentional infliction of emotional distress, and negligence.
Shortly after the complaint was filed, Uber’s counsel informed
Rattagan’s counsel that the complaint was fatally flawed
because he was a foreign plaintiff suing foreign defendants,
which destroyed grounds for diversity jurisdiction.
On May 8, 2019, Rattagan filed a first amended complaint
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Opinion of the Court by Corrigan, J.
(FAC), this time naming Uber as the sole defendant and
removing the allegation that Uber controlled and directed all
operational decisions of his clients, the Dutch subsidiaries.
Otherwise, the FAC was largely unchanged from the original
complaint. Uber moved for sanctions under Federal Rules of
Civil Procedure, rule 11, arguing Rattagan’s claims were based
on the demonstrably false premise that an attorney-client
contractual relationship existed between Rattagan and Uber
when in fact he had previously alleged the Dutch subsidiaries
had retained him. Uber also filed a rule 12(b)(6) motion to
dismiss the FAC. The district court granted Uber’s sanctions
request on the grounds that “Rattagan presented the Court with
a complaint that was inaccurate and misleading.” The district
court stated, “While Mr. Rattagan could have advanced a theory
that Uber [] was somehow legally responsible based on its
indirect control over [the Dutch subsidiaries] with whom Mr.
Rattagan contracted (whether via an alter ego or other theory),
Mr. Rattagan deleted that allegation and worded the FAC so as
to imply a direct relationship with Uber . . . .” The district court
dismissed the FAC with leave to amend.
On September 18, 2019, Rattagan filed a second amended
complaint. However, the day before Uber’s deadline to respond,
Rattagan’s counsel sought leave to withdraw. The court granted
the attorney’s request and extended Uber’s deadline to respond.
On May 6, 2020, Rattagan’s new counsel filed a TAC continuing
to name Uber as the sole defendant.
The TAC asserts causes of action for fraudulent
concealment, negligence, and breach of the implied covenant of
good faith and fair dealing. As an “alternative” cause of action
“if and to the extent the trier of fact determines that [Uber] had
no direct relationship with Rattagan and/or was not the
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principal of the Dutch Entities liable for their acts,” the TAC
asserts a tort claim against Uber for aiding and abetting the
Dutch subsidiaries’ fraudulent concealment. Uber moved to
dismiss the TAC. Applying California law, the district court
granted the motion, ruling the negligence and implied covenant
claims are time-barred. Rattagan no longer contests that ruling.
The court also concluded the fraudulent concealment causes of
action are foreclosed by the economic loss rule as interpreted in
Robinson.
According to the court, Robinson provided only a narrow
exception to the economic loss rule. It reasoned that Robinson
excepted only fraud claims based on affirmative
misrepresentations and only when the tortious conduct exposed
a plaintiff to risk of liability for personal damages independent
of the plaintiff’s economic losses. The court concluded the
exception does not apply here because Rattagan alleged only
economic losses and did not allege Uber made any affirmative
misrepresentations, as opposed to concealing information.
While Rattagan claimed the alleged tortious conduct was
independent of any contractual breach, the court found that his
“complaint tells a different story.” Rattagan asserted a separate
cause of action for breach of the implied covenant of good faith
and fair dealing, alleging Uber breached “a duty to disclose all
facts known to [Uber] that were material to both Rattagan’s
legal representation and his role as legal representative of the
[Dutch subsidiaries]” and that duty was “[b]ased on the direct
attorney-client relationship between [Uber] and Rattagan.”
Likewise, he alleged the Dutch subsidiaries breached their
“duty of disclosure to Rattagan,” which existed “[b]ecause of the
Dutch [subsidiaries’] confidential attorney-client relationship.”
The court determined “[t]hese allegations are squarely
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inconsistent with his now-raised assertion that Uber [] breached
a duty that was ‘independent of the contract.’ [Citation.]”
Rattagan appealed to the Ninth Circuit, which certified a
question of state law expressly left open in Robinson. (Rattagan
v. Uber Technologies, Inc. (9th Cir. 2021) 19 F.4th 1188; Cal.
Rules of Court, rule 8.548(b)(2).) On February 9, 2022, we
granted the certification request.
II. DISCUSSION
To address the certified question, it is necessary to revisit
in some detail the origins and evolution of California’s economic
loss rule as well as a broader set of cases exploring the dividing
line between tort and contract law of which our economic loss
rule precedents are a part. This backdrop leads to our holding
here that an independent fraudulent concealment tort may arise
during an ongoing contractual relationship.
A. Economic Loss Rule and Independent Tort
Principles
The economic loss rule is a device, among others, that
courts have developed to address and protect the often elusive
boundary line between tort and contract law.3
3
The economic loss rule most generally applies to suits
between the parties to a contract. But as observed in Sheen v.
Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922 (Sheen), a
version of the doctrine may also apply in cases involving parties
not in contractual privity, such as when a plaintiff seeks to
impose “ ‘ “liability in an indeterminate amount for an
indeterminate time to an indeterminate class.” ’ ” (Id. at p. 922,
quoting Southern California Gas Leak Cases (2019) 7 Cal.5th
391, 414; Ultramares Corp. v. Touche (1931) 255 N.Y. 170 [174
N.E. 441, 444].) But this case, like Sheen, falls into the more
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“Whereas contract actions are created to enforce the
intentions of the parties to the agreement, tort law is primarily
designed to vindicate ‘social policy.’ ” (Foley v. Interactive Data
Corp. (1988) 47 Cal.3d 654, 683 (Foley), citing Prosser, Law of
Torts (4th ed. 1971) p. 613.) In contrasting contract and tort
law, the court in Applied Equipment Corp. v. Litton Saudi
Arabia Ltd. (1994) 7 Cal.4th 503, 515 (Applied Equipment)
observed: “ ‘The law imposes the obligation that “every person
is bound without contract to abstain from injuring the person or
property of another, or infringing upon any of his rights.” (Sec.
1708, Civ. Code.) This duty is independent of the
contract . . . . “[A]n omission to perform a contract obligation is
never a tort, unless that omission is also an omission of a legal
duty.” ’ ” (Id. at p. 514, quoting Jones v. Kelly (1927) 208 Cal.
251, 255.)
As a result of this distinction between contract and tort
claims, parties injured solely by a contractual breach have a
narrower set of remedies compared to those available to
litigants who suffered tortious injury. “Contract damages are
generally limited to those within the contemplation of the
parties when the contract was entered into or at least
reasonably foreseeable by them at that time; consequential
damages beyond the expectations of the parties are not
recoverable. [Citations.] This limitation on available damages
serves to encourage contractual relations and commercial
activity by enabling parties to estimate in advance the financial
traditional “contractual economic loss rule” category of cases.
(Sheen, at p. 923.)
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risks of their enterprise.” (Applied Equipment, supra, 7 Cal.4th
at p. 515, citing Civ. Code, § 3300.)
Civil Code section 3333 further provides: “For the breach
of an obligation not arising from contract, the measure of
damages, except where otherwise expressly provided by this
Code, is the amount which will compensate for all the detriment
proximately caused thereby, whether it could have been
anticipated or not.” (Italics added.) Thus, emotional distress
damages are awarded under appropriate circumstances in tort
actions but generally are not available in contract actions.
(Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85,
105−106 (Freeman & Mills); Applied Equipment, supra, 7
Cal.4th at p. 516.) Additionally, exemplary or punitive damages
may be awarded in a tort action if by clear and convincing
evidence the tortfeasor is shown to have acted with “oppression,
fraud, or malice.” (Civ. Code, § 3294, subd. (a).) But “punitive
damages ‘ “are never recoverable for breach of contract, no
matter how willful or malicious, except where the wrongful act
is also a tort.” ’ ” (Harris v. Atlantic Richfield Co. (1993) 14
Cal.App.4th 70, 77 (Harris), quoting Quigley v. Pet, Inc. (1984)
162 Cal.App.3d 877, 887.)
Given the tension created by the policy of assuring
predictability in contractual relations and the expansive scope
of potential tort recovery, the economic loss rule was developed
to ensure that the law of contract would not “drown in a sea of
tort.” (East River S.S. Corp. v. Transamerica Delaval, Inc.
(1986) 476 U.S. 858, 866.) “The rule itself is deceptively easy to
state: In general, there is no recovery in tort for negligently
inflicted ‘purely economic losses,’ meaning financial harm
unaccompanied by physical or property damage.” (Sheen, supra,
12 Cal.5th at p. 922, italics added.) Or, as Robinson phrased the
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rule: “[t]he economic loss rule requires a [contractual party] to
recover in contract for purely economic loss due to disappointed
expectations, unless [the party] can demonstrate harm above
and beyond a broken contractual promise.” (Robinson, supra,
34 Cal.4th at p. 988.)
As we explain in greater detail below, under the economic
loss rule, tort recovery for breach of a contract duty is generally
barred (but see generally, fns. 3 & 5 at pp. 10–11, ante, & 17,
post) unless two conditions are satisfied. A plaintiff must first
demonstrate the defendant’s injury-causing conduct violated a
duty that is independent of the duties and rights assumed by
the parties when they entered the contract. Second, the
defendant’s conduct must have caused injury to persons or
property that was not reasonably contemplated by the parties
when the contract was formed. A review of the cases in which
the doctrine has evolved provides context.
The doctrine first emerged in Seely v. White Motor Co.
(1965) 63 Cal.2d 9 (Seely). A buyer sued in contract alleging the
manufacturer breached an express contractual warranty of
fitness by selling a defective truck. He sought contract damages
for the money he paid for the truck, and for the profits he lost
when he could not use the truck in his hauling business. 4 (Seely,
at p. 13.) The buyer also sought strict liability damages in tort.
After the buyer prevailed on the warranty claim, both parties
appealed. The court upheld the contract damages, noting the
manufacturer had furnished an express warranty in the
contract. Its agent repeatedly accepted responsibility for, and
4
The buyer initially sued both the manufacturer and the
dealer, but ultimately proceeded at trial only against the
manufacturer.
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attempted to fix the defect, leading the buyer to reasonably rely
on the warranty to resolve the issue. (Ibid.) The manufacturer
was thus liable in contract for failing to deliver a truck that was
“free from defects . . . under normal use,” and for failing to
correct the defect as promised. (Ibid.) “Without an agreement,
defined by practice or otherwise, defendant should not be liable
for these commercial losses.” (Id. at p. 17.) The court upheld a
damages award for both the amount paid for the truck and the
loss of profits suffered by the buyer when he could not use the
defective truck. It rejected buyer’s claim that he was entitled to
broader tort damages under a theory of strict liability.
The buyer argued that he was entitled to the additional
damages because the evolution of the law regarding strict tort
liability had supplanted the law regulating commercial sales.
The court rejected that assertion, pointing out that: “The law of
sales has been carefully articulated to govern the economic
relations between suppliers and consumers of goods. The
history of the doctrine of strict liability in tort indicates that it
was designed, not to undermine the warranty provisions of the
sales act or of the Uniform Commercial Code but, rather, to
govern the distinct problem of physical injuries.” (Seely, supra,
63 Cal.2d at p. 15.) “Final recognition that ‘The remedies of
injured consumers ought not be made to depend on the
intricacies of the law of sales’ [citations] caused this court to
abandon the fiction of warranty in favor of strict liability in tort.”
(Ibid., quoting Ketterer v. Armour & Co. (S.D.N.Y. 1912) 200 F.
322, 323.)
But the Seely court was careful to say that, just because a
warranty analysis proved unserviceable in the area of personal
injury, did “not mean that it has no function at all.” (Seely,
supra, 63 Cal.2d at p. 15.) There was no need to completely
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jettison the law of warranty which “ ‘grew as a branch of the
law[s] of commercial transactions and was primarily aimed at
controlling the commercial aspects of these transactions.’ ” (Id.
at p. 16, quoting James, Products Liability (1959) 34 Tex.L.Rev.
192; Llewellyn, On Warranty of Quality, and Society (1936) 36
Colum.L.Rev. 699, 37 Colum.L.Rev. 341.) Warranty rules
regulate the quality of the product bargained for and insulate a
manufacturer from liability of “unknown and unlimited scope”
that may arise when its product fails to meet a customer’s needs
but causes no physical injuries. (Ibid.)
The court determined that tort recovery was unavailable
because the defect did not cause any personal injury or damage
to property other than to the truck itself. Chief Justice Traynor
wrote: “The distinction that the law has drawn[,] between tort
recovery for physical injuries and warranty recovery for
economic loss[,] 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
[in tort] 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 [liable in contract] 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. at
p. 18, italics added.) In other words, because tort recovery for
strict product liability is limited to “physical harm to person or
property” and plaintiff did not suffer such harm, his remedies
were restricted to those contractually enforceable under
warranty law. (Ibid.)
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Later cases expanded the economic loss rule to
circumstances beyond commercial warranty, extending it to
limit recovery in other contractual situations. Aas v. Superior
Court (2000) 24 Cal.4th 627, 636, 640 (Aas) applied the rule to
bar homeowner claims in tort for diminution of home value due
to multiple negligent construction defects that did not otherwise
cause physical injury or property damage. The Aas court
rejected the contention that Seely “was concerned exclusively
with commercial losses or lost business profits, rather than
economic losses in a broader sense.” (Aas, at p. 642.) It
concluded that Seely relied on the rule to honor the
“fundamental difference between, on the one hand, the
consumer’s contractual interest in having a product of the
expected, bargained-for value and quality, and, on the other
hand, the consumer’s tort interest in not suffering property
damage or personal injury due to negligence in the
manufacturing process.” (Ibid.) Thus, the doctrine limits a
plaintiff to economic losses, which are generally understood to
include “pecuniary damage not arising from injury to the
plaintiff’s person or from physical harm to the plaintiff’s
property.” (Rest.3d Torts, Liability for Economic Harm (June
2020) § 2.)
Consistent with the understanding that “[a] person may
not ordinarily recover in tort for the breach of duties that merely
restate contractual obligations” (Aas, supra, 24 Cal.4th at p.
643), courts have gone on to apply the economic loss rule in a
broad range of contractual situations. The rule operates to bar
tort claims that might otherwise “disrupt the parties’ private
ordering, render contracts less reliable as a means of organizing
commercial relationships, and stifle the development of contract
law.” (Sheen, supra, 12 Cal.5th at p. 915.) But the economic loss
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rule does not act as an absolute bar to tort recovery in every case
in which the parties have a contractual relationship. Courts
generally permit tort suits if the defendant allegedly violated a
duty rooted in tort principles that is independent of the parties’
contractual rights and obligations and exposed the plaintiff to a
risk of harm beyond the parties’ reasonable contemplation when
they entered into the contract.5 The ability to recover for an
independent tort is a fundamental principle that our courts have
broadly applied even where the economic loss rule is not directly
implicated. To illustrate, the next three cases discuss the
application of this “independent tort principle” to factual
patterns involving claims of intentionally tortious conduct.
In Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167
(Tameny), the plaintiff was an at-will employee of defendant
employer. He sued for wrongful termination alleging that he
was fired for refusing to engage in illegal price fixing. He sought
punitive and treble damages in tort. Defendant demurred. It
conceded that, if the allegations in the complaint were proven,
the discharge would be illegal. However, it urged that plaintiff’s
recovery was limited to contract damages. The trial court
5
The court has also recognized a breach of contract may
sound in tort even when the claim arises from, and is not
independent of, the underlying contract if it is within the context
of a “special relationship,” such as between an insurance
company and an insured during the claim handling process, or
between a lawyer and a client for malpractice in the provision of
professional legal services. (Sheen, supra, 12 Cal.5th at p. 929,
citing Jonathan Neil & Assoc., Inc. v. Jones (2004) 33 Cal.4th
917, 923; Neel v. Magana, Olney, Levy, Cathcart &
Gelfand (1971) 6 Cal.3d 176, 180–181.) The Ninth Circuit has
indicated that Rattagan forfeited any argument that a special
relationship exception applies here (Rattagan, supra, 19 F.4th
at p. 1190) and Rattagan has disavowed any reliance on it.
17
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Opinion of the Court by Corrigan, J.
agreed and granted demurrer on the tort claims. The Tameny
court reversed. It concluded employer’s firing did not breach its
duty to plaintiff under the express or implied terms of the
employment contract. Instead, defendant violated a separate
tort duty. The tort duty was imposed, not by the contract, but
by law in order to promote the fundamental public policy
contained in the penal law to discourage price fixing. (Id. at p.
176, see also Green v. Ralee Engineering Co. (1998) 19 Cal.4th
66, 74 [extending Tameny claims to terminations violative of
any fundamental public policy rooted in a statutory or
constitutional provision].) Because the duty not to fire an
employee for refusing to commit a crime is a basic social policy
imposed by law on all employers, the plaintiff was permitted to
recover in tort.
The court rejected the employer’s argument that, because
of the contractual nature of the relationship, any injury inflicted
during that relationship “gives rise only to a breach of contract
action.” (Tameny, supra, 27 Cal.3d at p. 174.) “California
decisions . . . have long recognized that a wrongful act
committed in the course of a contractual relationship may afford
both tort and contractual relief, and in such circumstances the
existence of the contractual relationship will not bar the injured
party from pursuing redress in tort.” (Id. at pp. 174–175.) The
court characterized an independent tort action arising during
contractual relationship as “ ‘ “ex delicto” ’ ” or “ ‘ “aris[ing] from
a breach of duty growing out of the contract” ’ ” (italics omitted)
as opposed to an “ ‘ “ex contractu” ’ ” cause of action that
“ ‘ “arises from a breach of a promise set forth in the
contract” ’ ”(italics added). (Id. at p. 175.) In other words, the
simple existence of a contractual relationship between two
parties does not mean one party can tortiously injure the other
18
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
but limit its liability to a contract remedy. If a party breaches a
contractual duty but also commits an independent tort, the
injured party may recover under both theories. Thus, regardless
of whether the employer had a contractual right to fire Tameny
for any or no cause, the existence of an employment agreement
offered the employer no refuge. The tort claim arose
independently of the contract because “an employer’s obligation
to refrain from discharging an employee who refuses to commit
a criminal act does not depend upon any express or implied
‘ “promises set forth in the [employment] contract.” ’ ” (Id. at p.
176, quoting Eads v. Marks (1952) 39 Cal.2d 807, 811.) The
parties did not contemplate, nor could they allocate, the risk of
harm flowing from the employer’s demand, or Tameny’s refusal,
to violate the law under a threat of discharge. The damages
flowed from the breach of an independent tort duty “ ‘based
primarily upon social policy, and not necessarily upon the will
or intention of the parties . . . .’ ” (Ibid., quoting Prosser, Law of
Torts (4th ed. 1971) p. 613.)
Applied Equipment provides an example of how the same
legal principle may be applied to bar tort remedies for conduct
arising in the course of a contractual relationship. The issue
was whether one party could sue the other in tort for conspiring
with outsiders to breach the parties’ contract. The court
observed that conduct amounting to a breach of contract
becomes tortious only when it also violates a duty independent
of the contract arising from principles of tort law. (Applied
Equipment, supra, 7 Cal.4th at p. 515.) It held that “consistent
with its underlying policy of protecting the expectations of
contracting parties against frustration by outsiders who have no
legitimate social or economic interest in the contractual
relationship, the tort cause of action for interference with a
19
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
contract does not lie against a party to the contract.” (Id. at p.
514.) As the court explained, “Whether or not a stranger to the
contract induces its breach, the essential character of a
contracting party’s conduct remains the same — an unjustified
failure or refusal to perform. In economic terms, the impact is
identical — plaintiff has lost the benefit of a bargain and is
entitled to recover compensation in the form of contract
damages. In ethical terms, the mere entry of a stranger onto the
scene does not render the contracting party’s breach more
socially or morally reprehensible. A party may breach a contract
without any third party inducement because of personal, racial,
or ethnic animus, or for other nefarious or unethical reasons. In
contrast, a breach may be the product of naive or innocent
misunderstanding or misperception created by the aggressive
solicitation of an outsider. In any case, motivation is irrelevant.
Regardless of the presence or absence of third party
involvement, the contracting party has done nothing more
socially opprobrious than to fall short in meeting a contractual
commitment. Only contract damages are due.” (Id. at pp.
516−517.)
Similarly, in Freeman & Mills, we applied the
independent tort principle to overrule Seaman’s Direct Buying
Service, Inc. v. Standard Oil Co. of California (1984) 36 Cal.3d
752. (Freeman & Mills, supra, 11 Cal.4th at p. 103.) A decade
earlier, Seaman’s had recognized a new cause of action for
tortious bad faith denial of the existence of a contract based on
the view that such conduct so “offends accepted notions of
business ethics” that tort remedies were appropriate.
(Seaman’s, at p. 770.) The Freeman court repudiated the
Seaman’s holding and reaffirmed the general rule that, outside
the area of insurance contracts, tort recovery is not available for
20
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Opinion of the Court by Corrigan, J.
a contract breach unless “ ‘an independent duty arising from
principles of tort law’ ” is violated. (Freeman & Mills, at p. 102.)
In doing so, the court noted “[i]t seems anomalous to
characterize as ‘tortious’ the bad faith denial of the existence of
a contract, while treating as ‘contractual’ the bad faith denial of
liability or responsibility under an acknowledged contract. In
both cases, the breaching party has acted in bad faith and,
accordingly, has presumably committed acts offensive to
‘accepted notions of business ethics.’ (Seaman’s, . . . at p. 770.)
Yet to include bad faith denials of liability within Seaman’s
scope could potentially convert every contract breach into a tort.
Nor would limiting Seaman’s tort to incidents involving
‘stonewalling’ adequately narrow its potential scope. Such
conduct by the breaching party, essentially telling the promisee,
‘See you in court,’ could incidentally accompany every breach of
contract.” (Id. at p. 103.)
The economic loss rule is best understood as a specific
application of the same independent tort principle reflected in
Tameny, Applied Equipment, and Freeman & Mills. Whenever
a contract breach causes physical harm to a person or property,
the economic loss rule’s limitation gives way to the recognition
that an independent tort duty of care was likely also breached,
resulting in an injury not contemplated and provided for by the
parties. This is so because any contractual breach resulting in
physical injury or property damage normally resides outside the
reasonable expectations of the parties when they entered their
contractual relationship.6 The inverse may also be true. When
6
There are, of course, some contractual relationships in
which certain risks of injury can be demonstrated to have been
21
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
a contractual breach results only in economic losses, the
pecuniary injury may fall within the scope of parties’
precontractual expectations and their allocation of risks, and it
is less likely to implicate the breach of a tort duty independent
of their contractual rights and obligations. Whether the alleged
harm arises independently from the contract can be a nuanced
question.
When evaluating whether the parties’ expectations and
risk allocations bar tort recovery, the court must consider the
alleged facts. First, applying standard contract principles, it
must ascertain the full scope of the parties’ contractual
agreement, including the rights created or reserved, the
obligations assumed or declined, and the provided remedies for
breach. Second, it must determine whether there is an
independent tort duty to refrain from the alleged conduct.
Third, if an independent duty exists, the court must consider
whether the plaintiff can establish all elements of the tort
contemplated and accounted for by the parties. For instance,
disabling injuries caused by an employment termination “are
generally within the coverage of workers’ compensation and
subject to the exclusive remedy provisions, unless the discharge
comes within an express or implied statutory exception or the
discharge results from risks reasonably deemed not to be within
the compensation bargain.” (Shoemaker v. Meyers (1990) 52
Cal.3d 1, 7, italics added.) In Hunter v. Up-Right, Inc. (1993) 6
Cal.4th 1174 (Hunter), which is discussed further post, the court
relied, in part, on Shoemaker to answer an analogous question:
“whether the breach of what we have recognized as an
essentially contractual relation can . . . support tort recovery for
fraud and deceit — in order to deter fraudulent conduct by
employers . . . or to advance some other policy goal.” (Id. at pp.
1183–1184.)
22
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
independently of the rights and duties assumed by the parties
under the contract.7
The guiding and distinguishing principle is this. If the
alleged breach is based on a failure to perform as the contract
provides, and the parties reasonably anticipated and allocated
the risks associated with the breach, the cause of action will
generally sound only in contract because a breach deprives an
injured party of a benefit it bargained for. However, if the
contract reveals the consequences were not reasonably
contemplated when the contract was entered and the duty to
7
An important part of this inquiry is determining whether
the aggrieved party was exposed to a risk of harm beyond the
reasonable contemplation of the parties when they entered into
the contract. An unanticipated harm may result from the
breach of an independent tort duty. If, however, the harm was
anticipated and the risk allocated, the conduct causing it would
not support an independent tort claim. It may, nevertheless,
constitute a breach of either an explicit term or of the covenant
of good faith and fair dealing implied in every contract. To
review, the implied covenant “exists merely to prevent one
contracting party from unfairly frustrating the other party’s
right to receive the benefits of the agreement actually made.”
(Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349.) “The
essence of the good faith covenant is objectively reasonable
conduct.” (Lazar v. Hertz Corp. (1983) 143 Cal.App.3d 128, 141;
Badie v. Bank of America (1998) 67 Cal.App.4th 779, 796; 1
Witkin, Summary of Cal. Law (11th ed. 2024) Contracts, § 825,
p. 881.) “An allegation of breach of the implied covenant of good
faith and fair dealing is an allegation of breach of an ‘ex
contractu’ obligation, namely one arising out of the contract
itself. The covenant of good faith is read into contracts in order
to protect the express covenants or promises of the contract, not
to protect some general public policy interest not directly tied to
the contract’s purposes.” (Foley, supra, 47 Cal.3d at p. 690.)
23
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
avoid causing such a harm has an independent statutory or
public policy basis, exclusive of the contract, tort liability may
lie.
Our recent analysis in Sheen provides a useful example of
how the economic loss rule applies beyond a warranty context.
Wells Fargo Bank N.A. (Wells Fargo or the bank) agreed to fund
two loans (junior loans) to Sheen, who used his home, secured
by a first loan mortgage, as collateral. (Sheen, supra, 12 Cal.5th
at p. 914.) When Sheen fell behind in payments on the junior
loans, the bank recorded notices of default and scheduled a
foreclosure sale. (Id. at p. 916.) Sheen applied for loan
modifications and the bank cancelled the foreclosure sale date.
(Id. at p. 917.) It did not act on the loan modification requests,
however, but did send Sheen letters noting the “severe
delinquency” of his loan accounts. (Ibid.) The letters notified
Sheen that the entire balance of the accounts had been
accelerated, rendering them due and owing; that the loan
accelerations had been reported to the applicable agencies; and
that the bank would “proceed with whatever action is deemed
necessary to protect our interests.” (Ibid.)
Wells Fargo ultimately sold the loans to another entity
which foreclosed on the home. Sheen sued Wells Fargo for
negligence, among other claims, alleging the bank had not
rejected his modification request; that he believed the loans had
been modified to unsecured loans; and his home “would never be
sold at a foreclosure auction.” (Sheen, supra, 12 Cal.5th at pp.
914−915, 917.) As a result, the bank’s actions caused him to
“forgo alternatives to foreclosure.” (Id. at p. 915.) He alleged
the bank was liable in tort for the value of the house; hotel, and
storage costs incurred after the foreclosure; and resulting
damage to his credit rating. (Ibid.) Wells Fargo demurred,
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RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
asserting it did not owe the duty of care on which Sheen relied.
(Ibid.) The Court of Appeal affirmed the trial court’s order
sustaining the demurrer but noted that “ ‘[t]he issue of whether
a tort duty exists for mortgage modification has divided
California courts for years.’ ” (Ibid.)
Sheen sought review in this court and urged that, as a
matter of law, when a borrower submits a loan modification
application, the lender is liable in tort for its failure to process
and respond to that application. But no language in the contract
required the lender to review or respond to Sheen’s modification
application, so the duty on which Sheen relied was not “ex
contractu.” Rejecting Sheen’s argument that the bank breached
an extracontractual or “ex delicto” obligation, we noted that
“ ‘[d]uty is not universal; not every defendant owes every
plaintiff a duty of care. A duty exists only if “ ‘the plaintiff's
interests are entitled to legal protection against the defendant’s
conduct.’ ” [Citation.] Whether a duty exists is a question of law
to be resolved by the court.’ [Citation.] ‘A duty of care may arise
through statute’ or by operation of the common law. [Citation.]”
(Id. at p. 920.)
Sheen began by determining that no federal or state
statute or regulation imposed a duty on Wells Fargo to avoid
purely economic losses related to processing Sheen’s
modification application. (Sheen, supra, 12 Cal.5th at pp.
920−922.) The court concluded the economic loss rule doomed
Sheen’s tortious negligence cause of action because “it is based
on an asserted duty that is contrary to the rights and obligations
clearly expressed in the loan contract.” (Id. at p. 925.) The
mortgage was secured through a deed of trust. Under the
contract, Wells Fargo had the right to foreclose and sell the
property to satisfy the debt if Sheen failed to make payments on
25
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
the loan. Imposing an extracontractual duty of care on the
lender to process, review, and respond to the loan modification
applications before it was permitted to foreclose on the property,
as the contract provided, “would go further than creating
obligations unnegotiated or agreed to by the parties; it would
dictate terms that are contrary to the parties’ allocation of rights
and responsibilities.” (Ibid.) Thus, to the extent any
independent duty of care could support a negligence claim under
the common law, it was barred because Sheen sought relief for
economic losses only and the tort duty he urged the court to
recognize was in conflict with the terms of the mortgage contract
between the parties. (Id. at pp. 943−944.) The terms of the
contract demonstrated that Sheen and the bank had anticipated
the possibility that the loans would not be repaid and
specifically provided what remedies would be available in that
eventuality.
The court also determined there is no compelling public
policy basis for recognizing Sheen’s proposed duty of care
because denying the negligence claim under the economic loss
rule did not foreclose alternate avenues of relief to “borrowers
who suffer injury due to missteps by a lender (or loan servicer)
in connection with the handling of a mortgage modification
application.” (Sheen, supra, 12 Cal.5th at p. 943.) For instance,
in appropriate circumstances, a borrower may be permitted to
assert causes of action for negligent misrepresentation and
promissory fraud.8
8
Additionally, the court also declined to apply the
multifactor test outlined in Biakanja v. Irving (1958) 49 Cal.2d
647 for imposing tort liability when a contractual breach causes
26
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
We concluded Wells Fargo had no tort duty, under general
negligence principles, to process Sheen’s modification
applications in a manner that would make it liable for Sheen’s
economic losses. (Sheen, supra, 12 Cal.5th at p. 948.) Instead,
the claim was based on the mortgage contract and fell within
the economic loss rule. We reasoned that imposing liability on
the lender would “disrupt the parties’ private ordering, render
contracts less reliable as a means of organizing commercial
relationships, and stifle the development of contract law.” (Id.
at p. 915.) We recognized the Legislature is free to impose, as a
matter of policy, the duty Sheen claimed by balancing the
interests served by the economic loss rule against other
competing social costs and benefits.
Sheen cited one scholar’s explanation of the rule: “ ‘Using
contract law to govern commercial transactions lets parties and
their lawyers know where they stand and what they can expect
to follow legally from the words they have written. But if a
disappointed buyer has the option of abandoning the contract
and suing in tort, the significance of the contract is diminished
and the doctrines that protect the integrity of the contractual
process are reduced in importance. Parties wrangle over
integration clauses to make clear that their obligations are the
ones stated in the contract and nothing else; the point of
bothering about such matters becomes unclear if a disappointed
party can later invoke an outside set of obligations that are
imposed on the promisor and defined by the law of tort.’ ”
injury to a third party not in privity with the defendant. (Sheen,
supra, 12 Cal.5th at pp. 936−942.) Biakanja is inapplicable here
given that the parties were in privity.
27
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Opinion of the Court by Corrigan, J.
(Sheen, supra,12 Cal.5th at p. 923, quoting Farnsworth, The
Economic Loss Rule (2016) 50 Val.U. L.Rev. 545, 553–554.)
We also explained: “According to the Restatement [of
Torts], the [economic loss rule] . . . ‘serves several purposes.’
[Citation.] For one, it ‘protects the bargain the parties have
made against disruption by a tort suit.’ [Citation.] For another,
‘the rule allows parties to make dependable allocations of
financial risk without fear that tort law will be used to undo
them later.’ [Citation.] ‘Viewed in the long run,’ therefore, ‘the
rule prevents the erosion of contract doctrines by the use of tort
law to work around them.’ ” (Sheen, at p. 923, quoting Rest.3d
Torts, Liability for Economic Harm (June 2020) § 3, com. b., pp.
12–13.)
B. Robinson Majority Opinion
With these principles in mind, we turn to Robinson, which
presented the court with its first opportunity to address
whether, and to what extent, the economic loss rule applies to
an intentional tort, specifically fraudulent misrepresentation in
the performance of a contract.
Robinson made helicopters and used sprag clutches
supplied under contract by Dana Corp. (Dana). Sprag clutches
are a safety mechanism allowing pilots to maintain control of a
helicopter in the event of a power failure. (Robinson, supra, 34
Cal.4th at p. 985.) Before producing an aircraft, manufacturers
like Robinson were required to obtain approval of a “type
certificate” from the Federal Aviation Administration (FAA),
which essentially froze an aircraft’s design in place. (Ibid.) The
aircraft had to be produced in exact accordance with those
specifications unless modifications were approved by the FAA.
(Ibid.) The type certificate for Robinson’s R22 and R44 model
28
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
helicopters required sprag clutches to be ground at a particular
level of hardness. (Ibid.) For nearly 12 years, Dana supplied
compliant clutches with a failure rate of 0.03 percent. (Id. at pp.
985−986.)
At some point, Dana changed its grinding process which
produced clutches with a higher level of hardness, but Dana did
not notify either Robinson or the FAA of the change.9 (Robinson,
supra, 34 Cal.4th at p. 986.) With each delivery of noncompliant
clutches over the ensuing 15-month period, Dana included a
written certificate stating the parts had been manufactured in
conformance with federally approved specifications, which was
untrue. (Ibid.) Robinson did not learn it had unwittingly
accepted the noncompliant clutches until after Dana reverted to
the original grinding process. (Ibid.) By then, Robinson was
experiencing a 9.86 percent failure rate attributable to the
noncompliant clutches. (Ibid.) The broken clutches did not
cause any personal injuries or additional property damage
beyond the broken clutches themselves. (Ibid.)
Upon learning of the defect, the FAA and its British
agency equivalent required Robinson to recall and replace all
the faulty clutches. (Robinson, supra, 34 Cal.4th at p. 986.)
Robinson repeatedly demanded Dana provide a list of the serial
and lot numbers for the noncompliant clutches. The first list
Dana provided included only the lot numbers and hardness
levels for the clutches but not the serial numbers. A jury later
found Dana had intentionally redacted the serial numbers from
9
Robinson did not claim Dana had any fraudulent intent
when it changed its grinding standard. (Robinson, supra, 34
Cal.4th at p. 986, fn. 3 (maj. opn. of Brown, J.); Id. at p. 994 (dis.
opn. of Werdegar, J.).)
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Opinion of the Court by Corrigan, J.
the list it provided. (Id. at p. 987, fn. 4.) Dana did not disclose
the serial numbers until several months later. (Id. at p. 987.)
Dana also refused to replace the clutches because it disputed
causation, contending the higher failure rate was due not to the
change in its grinding process, but to Robinson’s inadequate
design. (Ibid.)
Robinson sued. The jury returned a verdict for Robinson,
finding Dana breached its contract and warranties, and had “(1)
made false representations of material fact, (2) knowingly
misrepresented or concealed material facts with intent to
defraud, (3) and by clear and convincing evidence was guilty of
oppression, fraud, or malice in its intentional
misrepresentations and concealments.” (Robinson, supra, 34
Cal.4th at pp. 987, 990.) Robinson was awarded over $1.5
million compensatory contract damages for the cost of
replacement parts and wages for the employee time spent
identifying and replacing the defective clutches. (Id. at p. 987.)
Robinson also was awarded $6 million in punitive damages.
(Ibid.) The Court of Appeal affirmed the contract damages but
reversed judgment on the fraud claims and punitive damages
award, finding Robinson could not recover in tort because it had
suffered only economic losses. (Id. at p. 988.) We reversed.
After reviewing the history of the economic loss rule in the
context of strict liability and negligence actions (Robinson,
supra, 34 Cal.4th at pp. 988−989), the majority set out a
nonexhaustive list of instances in which courts had permitted
tort damages in contract cases, including “ ‘where a breach of
duty directly causes physical injury [citation]; for breach of the
covenant of good faith and fair dealing in insurance contracts
[citation]; for wrongful discharge in violation of fundamental
public policy [citation]; or where the contract was fraudulently
30
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
induced. [Citation.]’ ” (Id. at pp. 989−990, quoting Erlich v.
Menezes (1999) 21 Cal.4th 543, 551−552 (Erlich).) The court
observed, “With respect to situations outside of those set forth
above . . . ‘ “a tortious breach of contract . . . may be found when
(1) the breach is accompanied by a traditional common law tort,
such as fraud or conversion; (2) the means used to breach the
contract are tortious, involving deceit or undue coercion; or (3)
one party intentionally breaches the contract intending or
knowing that such a breach will cause severe, unmitigable harm
in the form of mental anguish, personal hardship, or substantial
consequential damages.” [Citation.] Focusing on intentional
conduct gives substance to the proposition that a breach of
contract is tortious only when some independent duty arising
from tort law is violated. [Citation.] If every negligent breach
of a contract gives rise to tort damages the limitation would be
meaningless, as would the statutory distinction between tort
and contract remedies.’ ” (Robinson, at p. 990, quoting Erlich,
at pp. 553−554.)10
Turning to Robinson’s intentional fraud claims, the
majority relied only on the affirmative misrepresentations Dana
10
The general rule is “[t]he law eschews inquiry into a
breaching party’s motives; whether acting in good faith or bad
faith, a party that breaches a commercial contract must pay only
contract damages.” (Applied Equipment, supra, 7 Cal.4th at p.
516; Foley, supra, 47 Cal.3d at p. 699; Harris, supra, 14
Cal.App.4th at 82.) This principle ensures economic certainty
in contractual relationships while preventing a breaching party
from avoiding liability for economic losses caused by its breach
simply by asserting it did not mean to do so. Critically, Erlich
involved a defendant found liable for breaching the parties’
contract and negligently causing economic losses, but not liable
for engaging in an independent fraudulent, and therefore
intentionally tortious, act.
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Opinion of the Court by Corrigan, J.
made in the false certificates it provided with the noncompliant
clutches. It held these affirmative misrepresentations were
“dispositive fraudulent conduct related to the performance of the
contract.” (Robinson, supra, 34 Cal.4th at p. 991.) It expressly
declined to address whether Dana engaged in acts of fraudulent
concealment by the redaction and withholding of serial numbers
independent of its contractual breach. (Robinson, at p. 990.)
Based on the record, the court concluded Robinson
unquestionably established all the required elements for a
fraudulent misrepresentation by proving Dana knowingly
furnished the false certificates. That deceptive conduct was
independent of the contractual breach Dana committed when it
delivered the noncompliant clutches. In other words, Dana’s
conduct was more than a mere contract breach based on its
delivery of the parts. Dana not only knew it was delivering
nonconforming parts, it took the additional step of intentionally
deceiving Robinson into believing it was delivering parts that
satisfied its contractual obligation. The act of deception could
not be said to have violated a duty “arising from the contract.”
Instead, it established the commission of an independent fraud
and supported an award of tort damages.
Dana was aware its grinding method rendered its parts
noncompliant but delivered them anyway. That action was an
intentional breach, followed by a separate intentional act of
fraudulently claiming the parts did comply with the contract.
However, even if Dana had been initially unaware that its
grinding method produced noncompliant parts, it could still
have been liable in tort if, subsequent to delivery, it learned of
the impact of the grinding change, understood it posed a risk of
serious harm to the public and possible government penalties
for Robinson, knew Robinson was unaware of this information,
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Opinion of the Court by Corrigan, J.
and continued to falsely certify, or otherwise maintain the parts
were compliant. (See further discussion at p. 50, fn. 13, post.)
“ ‘The elements of fraud . . . are: (a) misrepresentation
(false representation, concealment, or nondisclosure); (b)
knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to
induce reliance; (d) justifiable reliance; and (e) resulting
damage.’ ” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638
(Lazar), quoting 5 Witkin, Summary of Cal. Law (9th ed. 1988),
§ 676, p. 778.) But for Dana’s affirmative misrepresentations in
the false certificates, “Robinson would not have accepted
delivery and used the nonconforming clutches over the course of
several years, nor would it have incurred the cost of
investigating the cause of the faulty clutches. Accordingly,
Dana’s tortious conduct was separate from the breach itself,
which involved Dana’s provision of the nonconforming clutches.
In addition, Dana’s provision of faulty clutches exposed
Robinson to liability for personal damages if a helicopter
crashed and to disciplinary action by the FAA. Thus, Dana’s
fraud is a tort independent of the breach.” (Robinson, supra, 34
Cal.4th at p. 990.) Dana was liable in tort, not because it
breached the contract by providing the faulty clutches, but
because it lied when it represented the clutches met the contract
specifications.
Dana argued the economic loss rule should be applied to
“promote[] predictability in contracts in commercial
transactions,” contending that Robinson’s fraud claims were
“simply part of the alleged breach of contract.” (Robinson,
supra, 34 Cal.4th at p. 992.) The majority disagreed. “A breach
of contract remedy assumes that the parties to a contract can
negotiate the risk of loss occasioned by a breach . . . No rational
party would enter into a contract anticipating that they are or
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RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
will be lied to. ‘While parties, perhaps because of their technical
experience and sophistication, can be presumed to understand
and allocate the risks relating to negligent product design or
manufacture, those same parties cannot, and should not, be
expected to anticipate fraud and dishonesty in every
transaction.’ ” (Id. at pp. 992−993, quoting Tourek et
al., Bucking the “Trend”: The Uniform Commercial Code, the
Economic Loss Doctrine, and Common Law Causes of Action for
Fraud and Misrepresentation (1999) 84 Iowa L.Rev. 875, 909.)
California public policy supported the holding because
fraud is considered such a “deviation from socially useful
business practices that the effect of enforcing such tort duties
will be . . . to aid rather than discourage commerce.’ ” (Erlich,
supra, 21 Cal.4th at 554.) Quoting Lazar, supra, 12 Cal.4th at
page 646, the majority emphasized that, “ ‘[i]n pursuing a valid
fraud action, a plaintiff advances the public interest in
punishing intentional misrepresentations and in deterring such
misrepresentations in the future. [Citation.] Because of the
extra measure of blameworthiness inhering in fraud, and
because in fraud cases we are not concerned about the need for
“predictability about the cost of contractual relationships”
[citation], fraud plaintiffs may recover “out-of-pocket” damages
in addition to benefit-of-the bargain damages.’ ” (Robinson,
supra, 34 Cal.4th at p. 992.)
The majority disagreed with Dana’s contention that its
decision would open the “floodgates to future litigation” because
the holding was narrowly confined to “affirmative
misrepresentations on which a plaintiff relies and which expose
a plaintiff to liability for personal damages independent of the
plaintiff’s economic loss.” (Robinson, supra, 34 Cal.4th at p.
993.) Furthermore, the requirement that a fraud cause of action
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RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
must be pled with factual specificity provides an additional
safeguard to ensure trial courts are well-positioned at the
pleading stage to assess whether the tort claim is truly
independent of the contract, rather than arising from it. (Ibid.)
It is inaccurate to conclude Robinson announced an
exception to the economic loss rule. The more accurate
understanding is that the case clarified the extent of the rule by
demonstrating why the doctrine simply did not apply to the case
at issue. Robinson suffered economic losses due to Dana’s
intentionally tortious conduct, not just those attributable to its
breach of contract. While Robinson incurred only economic
losses, it was also exposed to a risk of harm far beyond the
disappointment of its expectancy interest in contract fulfillment.
In this instance, the risk included potential liability for personal
injury or property damage and disciplinary action by the FAA
that may have resulted from a catastrophic failure of the
defective clutches. In short, rather than apply the economic loss
rule, Robinson applied the broader independent tort principle.
An examination of the Robinson dissent sheds further light on
the distinction between cases in which the economic loss
doctrine applies and those, like Robinson, involving
intentionally tortious conduct arising independently during a
contract relationship.
C. The Robinson Dissent
In dissent, Justice Werdegar urged a bright-line
application of the economic loss rule to recognize tort liability
only when a misrepresentation led to actual property damage or
personal injury. (Robinson, supra, 34 Cal.4th at p. 998 (dis. opn.
of Werdegar, J.).) Applying the rule in this way, she urged,
would both punish and deter “opprobrious conduct.” (Ibid.)
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Opinion of the Court by Corrigan, J.
“[B]y excluding tort recovery in those cases, like this one, where
the only damages are economic, [her approach] preserves the
valuable distinction between tort and contract remedies and
avoids the problems that would arise if every routine breach
were susceptible to both tort and contract claims.” (Ibid.) The
majority disagreed. “While the bright-line rule the dissent
advocates has the advantage of being clear and easily applied, it
is worth noting that the rule’s development in the context of
product liability claims and its extension to claims for negligent
breach of contract were not mere fortuities. Dealing with
affirmative acts of fraud and misrepresentation raises different
policy concerns than those raised by negligence or strict liability
claims. [¶] . . . The economic loss rule is designed to limit
liability in commercial activities that negligently or
inadvertently go awry, not to reward malefactors who
affirmatively misrepresent and put people at risk.” (Id. at p. 991,
fn. 7, italics added.)
The dissent also expressed concern the court’s decision
might “breathe[] new life into the heretofore moribund doctrine
of bad faith denial of breach of contract.” (Robinson, supra, 34
Cal.4th at 994 (dis. opn. of Werdegar, J.); see also Freeman &
Mills, supra, 11 Cal.4th at p. 103.) The majority, however,
declined to accept the dissent’s characterization of Dana’s false
certificates as mere representations “that its parts satisfied the
contract,” and thus nothing more than a “refus[al] to admit that
it was breaching the contract while in fact it was doing so.”
(Robinson, at p. 994.) The majority recognized the principle that
“[t]he law eschews inquiry into a breaching party’s motives;
whether acting in good faith or bad faith, a party that breaches
a commercial contract must pay only contract damages.” (Id. at
p. 995, citing Applied Equipment, supra, 7 Cal.4th at p. 516;
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RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
Foley, supra, 47 Cal.3d at p. 699; Harris, supra, 14 Cal.App.4th
at 82.) “This rule applies even when the breach is accomplished
in a fraudulent manner.” (Robinson, at p. 995, citing Hunter,
supra, 6 Cal.4th 1174.)
The majority explained that the flaw in the dissent’s
argument rested in its conflation of two separate threads of its
analysis. The majority did not inquire into Dana’s motive for
breaching the contract. It observed that Robinson never claimed
Dana acted with fraudulent intent when it changed its grinding
standard. (Robinson, supra, 34 Cal.4th at p. 986, fn. 3.) The
majority’s tort analysis focused instead on factual
misrepresentations Dana made in its conformance certificates.
Beyond a contract breach for delivering noncompliant parts,
Dana knowingly mispresented that the clutches complied with
FAA specifications and intentionally induced Robinson to rely
detrimentally on that representation. Dana’s
misrepresentations created a serious risk of injury to the wider
public and potential governmental sanction. (Id. at pp.
990−991.) This intentionally tortious conduct stood apart from
Dana’s contractual breach.
Even if, as the dissent insisted, Dana was required under
the terms of the purchase orders to provide conformance
certificates with each shipment, it would go too far to say Dana
was contractually compelled to knowingly provide false ones.
“ ‘Simply put, a contract is not a license allowing one party to
cheat or defraud the other.’ ” (Robinson, supra, 34 Cal.4th at p.
992, quoting Grynberg v. Citation Oil & Gas Corp. (1997) 1997
SD 121 [573 N.W.2d 493, 501].) Dana had a choice. It could
have either provided truthful certificates or none at all, but it
was not free to defraud Robinson by falsely claiming it was
providing compliant clutches when it knew it was not, then hide
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Opinion of the Court by Corrigan, J.
behind the legal principle that it was not obligated to admit it
had breached the parties’ contract. Had Dana simply failed to
provide the certificates, Robinson had every right under the
contract to demand them. If Dana still failed to comply,
Robinson could have claimed a contractual breach based on the
failure. In that case, the broader breach for delivering
noncompliant clutches would likely have been discovered
sooner, avoiding the danger of societal harm caused by
Robinson’s unknowing use of defective parts.
A brief examination of Hunter, relied upon by the dissent
and cited by Uber in support of its arguments, is instructive.
Properly viewed it is wholly consistent with Robinson as well as
our holding here. In Hunter, an employee’s supervisor falsely
informed an employee that his position was to be eliminated and
he would be terminated if he did not resign. (Hunter, supra, 6
Cal.4th at p. 1179.) Relying on the misrepresentation, Hunter
resigned and later sued after he learned his job had not been
eliminated. (Ibid.) A jury found in favor of Hunter on three
causes of action: breach of implied contract not to terminate
employment without good cause, breach of implied covenant of
good faith and fair dealing, and fraud. (Id. at p. 1180.)
Upright did not challenge the jury’s verdict on Hunter’s
contract theories, only his tortious fraud claim. We reversed
judgment on his tort claim, observing the employer “simply
employed a falsehood to do what it otherwise could have
accomplished directly [i.e., by firing him in breach of the implied
contract]. It cannot be said that [the employee] relied to his
detriment on the misrepresentation in suffering constructive
dismissal.” (Hunter, supra, 6 Cal.4th at p. 1184.) In other
words, the employee was unable to independently establish the
elements of the fraud cause of action. Rather than inducing
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Opinion of the Court by Corrigan, J.
detrimental reliance, the falsehood was “the means to the end
desired by the employer, i.e., termination of employment.” (Id.
at p. 1185.) Furthermore, the result of the misrepresentation
was “indistinguishable from an ordinary constructive wrongful
termination” (id. at p. 1184), which involved the same harms one
would have reasonably expected to suffer from a contractual
breach.
By contrast in Robinson, Dana did not use its affirmative
misrepresentations as a means of breaching its contract with
Robinson. It did that when it shipped noncompliant parts. The
affirmative misrepresentations were instead used for a different
purpose, to induce Robinson to accept the parts, something Dana
could not have accomplished independently without engaging in
fraudulent conduct. Thus, as the court observed, nothing
prevented Robinson from establishing the required elements of
fraud independent of Dana’s contractual breach. Additionally,
Dana’s tortious conduct exposed Robinson to potential liability
for personal injuries and governmental disciplinary actions —
something beyond the reasonable contemplation of the parties
that might result from a breach when they entered into their
contract.11
11
The parties debate whether the penultimate paragraph in
Robinson, supra, 34 Cal.4th at page 993, conveys a requirement
that plaintiffs must demonstrate the fraudulent conduct
exposed them to the risk of personal injury liability, in
particular, even if they can establish the elements of the cause
of action independently. That specific liability risk as well as
the threat of potential governmental disciplinary action to
which Robinson was exposed are merely illustrative of the types
of harm that may fall beyond the reasonable expectations of the
parties when they entered into their contract. Under a factually
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RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
The lesson to be drawn from this review is that contract
and tort obligations are different. (See, generally Applied
Equipment, supra, 7 Cal.4th at pp. 515–518.) The “independent
tort principle,” and its specific application in our economic loss
rule cases, honors those differences. The law of contracts
protects the interests of parties who enter into an agreement
that secures rights and obligations of their choosing. The
parties make clear those rights and obligations by the terms
they put in the contract. Contract law functions to facilitate
commerce by enforcing the agreement the parties adopt. Tort
law operates on a different principle. A tort remedy arises, not
based on an agreement between the parties, but because the
defendant has violated a societal duty that the law itself imposes
on everyone. A tortfeasor is held liable not for violating a
contract, but for violating an independent legal duty.
But to be held liable in tort, a defendant must commit a
tort. If all the defendant has allegedly done is violate the terms
of the parties’ contract, depriving the plaintiff of the benefits the
contract ensures, the defendant’s liability is limited by the
contract. Broader tort liability only arises if a defendant
distinct set of circumstances, the extracontractual,
unanticipated harm caused by the intentionally tortious conduct
might be quite different. Additionally, Rattagan has expressed
some concern that this language from Robinson could be
misconstrued as placing a bar on the types of recoverable
damages available for an independent fraud claim. It does not.
Our holding specifically stated that Robinson’s “fraud and
intentional misrepresentation claim . . . is an independent
action based in tort,” thus “the economic loss rule does not bar
tort recovery.” (Id. at p. 984, italics added.) Meaning, plaintiffs
were entitled to recover tort damages permitted under the Civil
Code according to proof and subject to the rule against double
recovery. (See Lazar, supra, 12 Cal.4th at p. 649.)
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Opinion of the Court by Corrigan, J.
violates an independent legal duty and the type of harm that
ensues was not reasonably contemplated or accounted for by the
contractual parties.
An examination of the parties’ agreement and the
reasonable expectations for which they provide is informed by
an objective evaluation of the terms of the contract. Case law
provides examples. In Seely, it was reasonable to conclude the
parties envisioned the manufacturer might deliver a defective
truck. The warranty guarded against that possibility by
ensuring the manufacturer would deliver a serviceable truck
and repair any defect. The parties could not have reasonably
expected, however, that the manufacturer would be liable in
strict liability for “all the detriment proximately caused” by the
breach of the warranty whether “anticipated or not.” (See Civ.
Code, § 3333, italics added.) In Robinson, the parties envisioned
the supplier might deliver nonconforming parts. To ensure
otherwise, the contract provided precisely the kind and quality
of parts the manufacturer agreed to deliver. Objectively, the
parties did not consider, or allocate the risk for, the
manufacturer lying about the quality of the parts it did deliver,
and thus, they could not have been reasonably expected to
allocate the risks of harm that resulted when the manufacturer
did so. In Tameny, the parties bargained for at-will
employment. There was no indication, however, the employee
reasonably could have envisioned the employer would demand
that he break the law or would fire him for refusing to do so.
We now turn to the Ninth Circuit’s certified question.
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Opinion of the Court by Corrigan, J.
D. Fraudulent Concealment in the Performance of
a Contract
The Ninth Circuit asked: “Under California law, are
claims for fraudulent concealment [as opposed to affirmative
deception] exempted from the economic loss rule?” This is the
question the majority left open in Robinson. The answer is yes
because, as explained, the economic loss rule does not apply to
limit recovery for intentional tort claims like fraud. The
doctrine only applies to bar tort recovery for negligently inflicted
economic losses unaccompanied by physical or property damage
under the limits recognized in Sheen. (Sheen, supra, 12 Cal.5th
at p. 922, see, discussion at pp. 21–28, ante.) This conclusion,
however, does not provide the dispositive answer the Ninth
Circuit has requested.
Therefore, we have reformed the question as follows (Cal.
Rules of Court, rule 8.548(f)(5)): Can a plaintiff assert an
independent claim of fraudulent concealment in the
performance of a contract? The answer to this question is also
yes. A plaintiff may assert a tort claim for fraudulent
concealment based on conduct occurring in the course of a
contractual relationship, if the elements of the cause of action
can be established independently of the parties’ contractual
rights and obligations and the tortious conduct exposes the
plaintiff to a risk of harm beyond the reasonable contemplation
of the parties when they entered into the agreement.
Within the context of the broader independent tort
principles previously summarized (see, discussion at pp. 22-24,
ante), our answer encapsulates steps one and three of the
required analysis: (1) a court must ascertain the full scope of
the parties’ contractual agreement; and (3) the court must
determine whether the plaintiff can establish all elements of the
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Opinion of the Court by Corrigan, J.
tort independent of the rights and duties assumed by the parties
under the contract. Step two is satisfied here because, as
discussed post, the independent tort duty to refrain from
engaging in fraudulent conduct is well established by statute
and common law.
As a threshold matter, it should be noted the district court
granted Uber’s motion to dismiss, in part, based on its
misreading of Robinson. The district court understood Robinson
to bar the assertion of a fraud claim based on concealment as
opposed to affirmative deception, even when the tort arises
independently of the parties’ contract. But the Robinson
majority expressly declined to decide that issue. (Robinson,
supra, 34 Cal.4th at p. 990.) “It is axiomatic . . . that a decision
does not stand for a proposition not considered by the court.”
(People v. Harris (1989) 47 Cal.3d 1047, 1071.)
California law has generally not treated fraud claims
differently based on whether they allege affirmative deception
or concealment. Thus, we see no principled reason to treat
fraudulent concealment claims in the performance of a contract
any differently from those based on affirmative
misrepresentations, so long as a plaintiff can establish all the
required elements of the cause of action independently of the
parties’ contractual rights and obligations and can demonstrate
an exposure to risks of harm beyond those that would be
reasonably expected as the result of a contractual breach.
However, certain unique aspects of a claim of fraudulent
concealment related to a contractual performance must be
considered when making such a determination.
First, from a public policy perspective, California has long
viewed fraud as being equally blameworthy whether
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RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
accomplished through affirmative misrepresentation or
concealment. The Legislature enacted the general fraud statute
in 1872, enshrining common law “fraudulent deceit” as a cause
of action sounding in tort (Civ. Code, § 1709), while expressly
defining acts of deceit as including “[t]he suppression of a fact,
by one who is bound to disclose it, or who gives information of
other facts which are likely to mislead for want of
communication of that fact . . . .” (Civ. Code, § 1710, subd. (3).)
At the same time, the Legislature included fraud among the
grounds available for defeating claims of contractual consent
(Civ. Code, § 1567, subd. (3)), and it defined “actual fraud” as
including “[t]he suppression of that which is true, by one having
knowledge or belief of the fact.” (Civ. Code, § 1572, subd. (3).)
Civil Code section 3294 was also enacted in 1872 to authorize
exemplary damages to punish fraud, which it defined as “. . . an
intentional misrepresentation, deceit, or concealment of a
material fact known to the defendant with the intention on the
part of the defendant of thereby depriving a person of property
or legal rights or otherwise causing injury.” (Italics added.)
California case law similarly has viewed fraud by
concealment on equal footing with fraud by affirmative
misrepresentation. “Where failure to disclose a material fact is
calculated to induce a false belief, the distinction between
concealment and affirmative misrepresentation is tenuous.
Both are fraudulent.’ ” (Outboard Marine Corp. v. Superior
Court (1975) 52 Cal.App.3d 30, 37, quoting 37 Am.Jur.2d, Fraud
and Deceit, § 144.) “[I]ntentional concealment of a material fact
is an alternative form of fraud and deceit equivalent to direct
affirmative misrepresentation.” (Stevens v. Superior Court
(1986) 180 Cal.App.3d 605, 608−609.)
Thus, from a policy standpoint, there is no logical reason
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Opinion of the Court by Corrigan, J.
to distinguish among various species of actionable fraud
committed while otherwise performing a contract, assuming the
tort elements can be established independently of the
contractual rights and obligations that each party voluntarily
assumed at the outset of the relationship. If that is the case, a
fraudulent concealment plaintiff can be said to have advanced
the same compelling and legitimate public interest as a plaintiff
prosecuting an independent and valid affirmative
misrepresentation claim. Both suits “discourage[] such
practices in the future while encouraging a ‘business climate
free of fraud and deceptive practices.’ ” (Robinson, supra, 34
Cal.4th at p. 992, quoting Diamond Multimedia Systems, Inc. v.
Superior Court (1999) 19 Cal.4th 1036, 1064.) If, however, the
duty of disclosure underlying a fraudulent concealment claim
cannot be shown to stand independently from the parties’
contractual rights and obligations, the public policy calculus
shifts considerably. (See, e.g., Hunter, supra, 6 Cal.4th at p.
1186.)
The required elements for fraudulent concealment are (1)
concealment or suppression of a material fact; (2) by a defendant
with a duty to disclose the fact; (3) the defendant intended to
defraud the plaintiff by intentionally concealing or suppressing
the fact; (4) the plaintiff was unaware of the fact and would have
acted differently if the concealed or suppressed fact was known;
and (5) plaintiff sustained damage as a result of the concealment
or suppression of the material fact. (Graham v. Bank of
America, N.A. (2014) 226 Cal.App.4th 594, 606; see also CACI
No. 1901.) A duty to disclose a material fact can arise if (1) it is
imposed by statute; (2) the defendant is acting as plaintiff’s
fiduciary or is in some other confidential relationship with
plaintiff that imposes a disclosure duty under the
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Opinion of the Court by Corrigan, J.
circumstances; (3) the material facts are known or accessible
only to defendant, and defendant knows those facts are not
known or reasonably discoverable by plaintiff (i.e., exclusive
knowledge); (4) the defendant makes representations but fails
to disclose other facts that materially qualify the facts disclosed
or render the disclosure misleading (i.e., partial concealment);
or (5) defendant actively conceals discovery of material fact from
plaintiff (i.e., active concealment). (Civ. Code, § 1710, subd. (3);
Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285,
294; LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336; see
generally, 5 Witkin, Summary of Cal. Law (11th ed. 2023) Torts
§§ 913−919.) Circumstances (3), (4), and (5) presuppose a
preexisting relationship between the parties, such as “between
seller and buyer, employer and prospective employee, doctor and
patient, or parties entering into any kind of contractual
agreement. [Citation.] All of these relationships are created by
transactions between parties from which a duty to disclose facts
material to the transaction arises under certain circumstances.”
(LiMandri, at p. 337.) “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.” (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276,
312.)
With this framework in mind, it is not surprising that
most fraudulent concealment allegations stem from
precontractual negotiations (as demonstrated by three of the
four LiMandri examples: “between seller and buyer, employer
and prospective employee, . . . or parties entering into any kind
of contractual agreement”) and are ultimately presented as
causes of action for fraudulent inducement or promissory fraud.
As we observed in Lazar, “fraudulent inducement of contract —
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Opinion of the Court by Corrigan, J.
as the very phrase suggests — is not a context where the
‘traditional separation of tort and contract law’ [citations]
obtains. To the contrary, this 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.” (Lazar, supra,
12 Cal.4th at p. 645, citing Campbell v. Birch (1942) 19 Cal.2d
778, 791; see generally 5 Witkin, Summary of Cal. Law (9th ed.
1988) Torts, § 726, pp. 825-826.)12
The same may not necessarily be true of fraudulent
concealment claims based on conduct occurring after the
contract has been formed. As observed in Applied Equipment,
“ ‘when two parties make a contract, they agree upon the rules
and regulations which will govern their relationship; the risks
inherent in the agreement and the likelihood of its breach. The
parties to the contract in essence create a mini-universe for
themselves, in which each voluntarily chooses his contracting
partner, each trusts the other’s willingness to keep his word and
honor his commitments, and in which they define their
12
Rattagan’s tort claims are, of course, based on alleged
conduct committed during the contractual relationship but
purportedly outside the parties’ chosen rights and obligations.
This court has granted review in two other cases — Dhital v.
Nissan North America, Inc. (2022) 84 Cal.App.5th 828, review
granted Feb. 1, 2023, S277568 and Kia America v. Superior
Court (Feb. 3, 2022, D079858) [nonpub. opn.], review granted
Apr. 20, 2022, S273170 — both of which involve claims of
fraudulent inducement by concealment claims as well as the
potential interplay with remedies available under the Song-
Beverly Consumer Warranty Act (Civ. Code, § 1791 et seq.). We
do not address these issues here.
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Opinion of the Court by Corrigan, J.
respective obligations, rewards and risks. Under such a
scenario, it is appropriate to enforce only such obligations as
each party voluntarily assumed, and to give him only such
benefits as he expected to receive; this is the function of contract
law.’ ” (Applied Equipment, supra, 7 Cal.4th at p. 517.)
In Robinson, the majority concluded the public policy of
ensuring certainty in contract relations must give way when a
party engages in affirmative misrepresentation fraud during
contractual performance because “[n]o rational party would
enter into a contract anticipating that they are or will be lied
to.” (Robinson, supra, 34 Cal.4th at p. 993.) But rational parties
often do enter into a contract anticipating that there may be
certain factual matters of which they wish to be made aware
during the performance of a contract, and in negotiations, they
often can allocate the risk of not learning that information by
imposing a duty of disclosure during performance on the other
party with the right to pursue particular contractual remedies
in the event of breach. (See, e.g., Smith v. Wells Fargo Bank,
N.A. (2005) 135 Cal.App.4th 1463, 1484 [parties may contract
for more stringent disclosure notices than is required under
regulations implementing the Truth in Savings Act (12 U.S.C. §
4301 et seq.)].) Alternatively, there may be instances in which
a party obtains a contractual waiver of any obligation to disclose
certain information, and such provisions are generally
enforceable assuming the waiver is knowing and voluntary, and
the duty itself can be lawfully waived. (Compare Fam. Code, §
1615, subd. (a)(2) [a knowing and voluntary waiver of additional
financial disclosures in a premarital agreement is permitted]
with Civ. Code, § 1102, subd. (c) [a waiver of a landlord’s
statutory disclosure obligations is void as against public policy].)
As the Robinson majority observed, parties do not generally
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Opinion of the Court by Corrigan, J.
enter into a contract anticipating their counterparts will
affirmatively lie to them, or otherwise expose them to risks not
reasonably anticipated and independent of losses normally
occasioned by a contractual breach. They may, however, enter
into a contract anticipating the other party may withhold or
conceal certain facts during performance unless they demand an
agreement not to do so. Thus, depending on a variety of
circumstances, they may, and often do, find it prudent to hope
for the best but plan for the worst.
When a potential injury stemming from a nondisclosure is
determined to have been within the reasonable contemplation of
known risks to the parties before entering into their agreement
and the parties accounted for that risk, the resulting action is
“ ‘ “ex contractu” ’ ” or “ ‘ “aris[ing] from a breach of a promise
set forth in the contract.” ’ ” (Tameny, supra, 27 Cal.3d at p.
175.) In such a case, public policy considerations tip away from
the objective of encouraging a business climate free of fraud and
toward the goal of enforcing the contractual obligations that the
parties voluntarily assumed in the “mini-universe” they agree
to inhabit. (Allied Equipment, supra, 7 Cal.4th at p. 517.) In
other words, in such situations, a plaintiff asserting a
fraudulent concealment claim in the performance of a contract
generally cannot demonstrate that the defendant violated a tort
duty independent of the parties’ contractual rights and
obligations. If, on the other hand, an independent duty to
disclose certain material facts arises for a party in the course of
a contractual relationship but the party intentionally conceals
or suppresses such facts, inducing detrimental reliance and
exposing the other party to risks of harm not reasonably
contemplated when the contract was formed, the party suffering
the injury may assert an “ ‘ “ex delicto” ’ ” tort action for
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Opinion of the Court by Corrigan, J.
fraudulent concealment, one “ ‘ “aris[ing] from a breach of duty
growing out of the contract.” ’ ” (Tameny, supra, 27 Cal.3d at p.
175.)13
As an additional point, Robinson emphasized California’s
pleading requirement that fraud must be alleged with
specificity. The requirement provides an important safeguard
against the risk of tort recovery for fraud in every case involving
conduct occurring during a contractual relationship. (Robinson,
supra, 34 Cal.4th at p. 993.) When affirmative
misrepresentation fraud is alleged, “This particularity
requirement necessitates pleading facts which ‘show how, when,
where, to whom, and by what means the representations were
tendered.’ ” (Ibid.; Hills Trans. Co. v. Southwest Forest
Industries, Inc. (1968) 266 Cal.App.2d 702, 707.) Uber argues
that, because a fraudulent concealment claim “concerns a
defendant’s alleged failure to speak,” the pleading standard is
necessarily more relaxed, thus weakening this safeguard. Not
so.
13
Suppose, for example, a seller negligently manufactures
and delivers a product under warranty without being aware of
a latent defect. Later, the seller learns of the defect, knows it
poses a risk of serious harm beyond the parties’ reasonable
contemplation when they formed their warranty contract, and
knows these facts are unknown or not reasonably discoverable
by the buyer. If the seller fails to disclose this information or
actively conceals it, the buyer may assert an independent tort
for fraudulent concealment during performance against the
seller, assuming all the other elements of the cause of action can
be established. If, however, the defect did not cause or expose
the buyer to any harm other than what was reasonably
contemplated by the parties under their warranty contract, then
the buyer would likely be unable to assert an independent fraud
claim.
50
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
California courts apply the same specificity standard to
evaluate the factual underpinnings of a fraudulent concealment
claim at the pleading stage, even though the focus of inquiry
shifts to the unique elements of the claim. (Goodman v. Kennedy
(1976) 18 Cal.3d 335, 347; Boschma v. Home Loan Center, Inc.
(2011) 198 Cal.App.4th 230, 248; Cansino v. Bank of America
(2014) 224 Cal.App.4th 1462, 1472.) For instance, in a case such
as this, the court must determine whether the plaintiff has
alleged a sufficient factual basis for establishing a duty of
disclosure on the part of the defendant independent of the
parties’ contract. If the duty allegedly arose by virtue of the
parties’ relationship and defendant’s exclusive knowledge or
access to certain facts, as Rattagan has alleged here, the
complaint must also include specific allegations establishing all
the required elements, including (1) the content of the omitted
facts, (2) defendant’s awareness of the materiality of those facts,
(3) the inaccessibility of the facts to plaintiff, (4) the general
point at which the omitted facts should or could have been
revealed, and (5) justifiable and actual reliance, either through
action or forbearance, based on the defendant’s omission.
“[M]ere conclusionary allegations that the omissions were
intentional and for the purpose of defrauding and deceiving
plaintiff[] . . . are insufficient for the foregoing purposes.”
(Goodman, at p. 347.)
Of course, it will remain for the federal courts to test the
adequacy of Rattagan’s complaint in light of the answer to the
certified question that we provide here. In summary, the
economic loss doctrine applies when the parties have entered
into a contract; the plaintiff sues for tort damages, alleging
defendant failed to perform as the contract requires; and
negligently caused economic losses flowing from the breach. In
51
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
such a case, plaintiffs are generally limited to recovery of those
economic damages and cannot seek to expand their remedies
beyond those available in contract. The doctrine does not apply
if defendant’s breach caused physical damage or personal injury
beyond the economic losses caused by the contractual breach
and defendant violated a duty flowing, not from the contract, but
from a separate, legally recognized tort obligation.
A case in which the plaintiff sues a contractual party for
fraud based on conduct committed during the course of a
contractual relationship falls outside the economic loss doctrine.
As we explained in Robinson, “[d]ealing with affirmative acts of
fraud and misrepresentation raises different policy concerns
than those raised by negligence or strict liability claims.”
(Robinson, supra, 34 Cal.4th at p. 991, fn. 7.) California public
policy strongly supports imposing a tort duty on contractual
parties to refrain from fraudulent deceit and favors enforcement
of valid fraud actions, which the Legislature has facilitated
through the enactment of the general fraud statute. Thus, the
analysis focuses on whether the plaintiff can establish the
elements of the cause of action independently of the parties’
contractual rights and obligations. In other words, the question
will turn on the nature of the alleged conduct, the provisions of
the contract itself, and whether the conduct exposed a party to
a risk of harm neither reasonably contemplated nor allocated by
the parties before entering their agreement. Parties generally
do not enter a contract expecting that its terms will be
intentionally ignored. However, to assure greater certainty
between themselves, they may choose at the outset to
contractually guard against certain risks by imposing specific
obligations on the other party and allocate their agreed-upon
remedies should a breach occur. Among other reasons, they may
52
RATTAGAN v. UBER TECHNOLOGIES, INC.
Opinion of the Court by Corrigan, J.
choose to provide for how violations will be treated, to provide
greater deterrence for some kinds of violations, or to eliminate
the need to litigate regardless of whether the breach was
intentional or negligent. The freedom to do so, however, is
limited to agreements that do not violate public policy.
III. CONCLUSION
Accordingly, we answer the certified question, as
reframed: Under California law, a plaintiff may assert a cause
of action for fraudulent concealment based on conduct occurring
in the course of a contractual relationship, if the elements of the
claim can be established independently of the parties’
contractual rights and obligations and the tortious conduct
exposes the plaintiff to a risk of harm beyond the reasonable
contemplation of the parties when they entered into the
contract.
CORRIGAN, J.
We Concur:
GUERRERO, C. J.
LIU, J.
KRUGER, J.
GROBAN, J.
JENKINS, J.
EVANS, J.
53
See next page for addresses and telephone numbers for counsel who
argued in Supreme Court.
Name of Opinion Rattagan v. Uber Technologies, Inc.
__________________________________________________________
Procedural Posture (see XX below)
Original Appeal
Original Proceeding XX on request by 9th Circuit (Cal. Rules of
Court, rule 8.548)
Review Granted (published)
Review Granted (unpublished)
Rehearing Granted
__________________________________________________________
Opinion No. S272113
Date Filed: August 22, 2024
__________________________________________________________
Court:
County:
Judge:
__________________________________________________________
Counsel:
Steyer Lowenthal Boodrookas Alvarez & Smith, Andrew A. August,
Allan Steyer, Jill K. Cohoe; Greines, Martin, Stein & Richland,
Cynthia E. Tobisman, Alana H. Rotter, Jeffrey E. Raskin and Laura G.
Lim for Plaintiff and Appellant.
Strategic Legal Practices, Payam Shahian, Tionna Dolin and Caitlin J.
Scott for Leslie Spellman as Amicus Curiae on behalf of Plaintiff and
Appellant.
Knight Law Group, Roger R. Kirnos, Lauren A. Ungs and Christopher
Swanson as Amicus Curiae on behalf of Plaintiff and Appellant.
Covington & Burling, Beth S. Brinkmann, Clara J. Shin, Jeffrey M.
Davidson and Amy S. Heath for Defendant and Respondent.
Horvitz & Levy, Jeremy B. Rosen, Lisa Perrochet, Rebecca G. Powell
and Cameron Fraser for the Chamber of Commerce of the United
States of American as Amicus Curiae on behalf of Defendant and
Respondent.
Counsel who argued in Supreme Court (not intended for
publication with opinion):
Cynthia E. Tobisman
Greines, Martin, Stein & Richland LLP
6420 Wilshire Boulevard, Suite 1100
Los Angeles, CA 90048
(310) 859-7811
Jeffrey M. Davidson
Covington & Burling LLP
415 Mission Street, Suite 5400
Salesforce Tower
San Francisco, CA 94105
(415) 591-7021