Court: District Court, C.D. California; February 24, 2014; Federal District Court
The Court, led by District Judge David O. Carter, has partially granted and partially denied the Motion to Dismiss filed by Goodman Company LP, Goodman Global Inc., and Goodman Manufacturing Company LP. The background reveals that Anne and Archie McVicar contracted WCS Restoration to build a home in California, during which a Goodman-manufactured heating and air conditioning unit was installed. Shortly after moving in August 2012, the unit failed, and subsequent inspections revealed it was weak and required multiple repairs, costing the McVicars $1,100.
The class allegations state that Goodman has sold numerous air conditioners in California and provided express warranties that the units would be free from defects for five to ten years. Goodman also marketed its products as high-quality and reliable, claiming to offer some of the best warranties in the industry. The McVicars aim to represent a class of all individuals and entities in California who own or have owned properties with Goodman- or Amana-brand air conditioners installed.
The McVicars initiated a putative class action on August 12, 2013, alleging eleven causes of action, including violations of California's Business and Professions Code for unfair business practices and false advertising, breach of contract, fraudulent concealment, negligent misrepresentation, and unjust enrichment, among others. On November 4, 2013, Goodman filed a Motion to Stay the case pending a ruling from the Judicial Panel on Multidistrict Litigation (JPML), which the Court granted on November 25, 2013, to allow for the orderly development of the case. The stay was lifted on January 8, 2014, after the JPML declined to consolidate this case with others. The Court is now considering a Motion to Dismiss.
The applicable legal standard under Federal Rule of Civil Procedure 12(b)(6) mandates dismissal if the plaintiff's allegations do not present facts that could entitle them to relief. The Supreme Court's decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal require that claims must be plausible and supported by factual allegations rather than mere labels or conclusions. Courts must accept well-pled factual allegations as true and view them in the light most favorable to the plaintiff, but they are not obligated to accept legal conclusions as factual allegations. Typically, the evaluation of a 12(b)(6) motion is confined to the complaint and any relevant materials submitted. Under the incorporation by reference doctrine, courts may also consider documents referenced in the complaint if their authenticity is undisputed. Dismissal without leave to amend is permissible only when the court believes that the complaint's deficiencies cannot be remedied, and leave to amend should generally be granted liberally when justice requires it.
The McVicars allege a violation of California's Unfair Competition Law (UCL) by Goodman, claiming his actions were unlawful, unfair, and fraudulent. Under the UCL, standing requires a plaintiff to demonstrate injury in fact and loss of money or property due to the alleged unfair competition. Goodman seeks dismissal of the McVicars' claim, arguing they lack standing because their contractor, WCS Restoration, bought the Goodman air conditioner, not the McVicars themselves. The court disagrees, stating that UCL standing is not limited to direct purchasers. Citing case law, the court explains that prior cases focused on whether the plaintiffs suffered economic injury from the products in question, not on whether they purchased them directly. The court concludes that the critical issue for standing is the economic injury caused by the unfair business practice, rather than the plaintiff's direct purchase of the products.
The Court evaluates the standing of the McVicars under California's Unfair Competition Law (UCL), noting that the 2004 amendments significantly restricted standing to individuals who have suffered actual injury and financial loss due to unfair business practices. The California Supreme Court clarified that only those who have experienced a personal, individualized economic loss can claim standing under the UCL. The McVicars, having hired a contractor who installed a defective Goodman product, suffered approximately $1,100 in economic damages due to necessary repairs, thus meeting the standing requirement. Furthermore, the definition of "injury in fact" under Proposition 64 aligns with federal standards, requiring a concrete and imminent invasion of a legally protected interest, specifically an economic injury in the context of the UCL.
The Court finds that the McVicars' situation satisfies this requirement as they incurred financial loss from a defective air conditioner. However, Goodman argues that the McVicars lack standing because they did not see any alleged misrepresentations that could have caused their economic injury. The Court concurs that, in addition to demonstrating economic injury, plaintiffs must establish a causal link between the injury and the unfair business practice or false advertising that forms the basis of their claim.
A plaintiff must plead and prove actual reliance to meet the standing requirement for fraud claims under California's UCL, but individualized reliance on specific misrepresentations is not necessary if the misrepresentations are part of a broader advertising campaign. In the case involving the McVicars, their fraud claims against Goodman failed on two counts. First, the McVicars did not show that they or their contractor saw or relied on Goodman's public representations about the air conditioners, thus failing to establish standing. Second, for their claim based on omissions, they did not allege that they would have acted differently had the omitted information been disclosed, nor did they indicate any awareness of potentially relevant materials. The court noted that while the standing requirement under the UCL is less stringent than the pleading requirements under Federal Rule 9(b), the McVicars still did not allege sufficient facts to support causation. Consequently, the court granted Goodman's motion to dismiss the McVicars' fraud UCL claim without prejudice.
Goodman contends that the plaintiffs did not adequately claim a violation under the "unlawful" prong of the Unfair Competition Law (UCL) because they failed to cite specific state or federal laws. The Court disagrees, explaining that the "unlawful" prong allows for the borrowing of violations from other laws, which can be considered unlawful practices. The plaintiffs' Complaint alleges violations, including breach of express warranty under California Commercial Code section 2313. Although Goodman argues that the plaintiffs did not explicitly reference these violations in their UCL claim, the Court determines that the UCL does not impose a strict pleading requirement, thereby validating the plaintiffs' claim.
Regarding the "unfair" prong, Goodman argues that the McVicars’ claim does not meet the threshold of conduct that threatens antitrust violations or violates their spirit. The Court rejects this definition, noting a lack of consensus in California courts on what constitutes "unfair" in a consumer context. It outlines three tests for determining unfair practices: the "balancing" test (weighing harm to victims against the utility of the conduct), the "public policy" test (requiring a connection to specific legal provisions), and the "section 5" test (borrowing from FTC standards). The Ninth Circuit has dismissed the section 5 test for consumer cases, clarifying that the California Supreme Court's references to it are concerned with anti-competitive, not anti-consumer conduct. Thus, the Court finds that the plaintiffs have sufficiently pled their claims under both prongs of the UCL, denying Goodman’s motion to dismiss.
The Court rejects the section 5 test and is hesitant to adopt either the balancing or public policy tests due to a lack of authoritative guidance. The California Supreme Court criticized the balancing test for being vague and unhelpful in antitrust contexts. The public policy test is seen as potentially conflating the "unfair" and "unlawful" prongs of legal claims, lacking clarity on its application. The Court notes that the California Supreme Court may soon clarify these ambiguities. In the interim, the Court prioritizes a hearing on the merits by weighing the gravity of harm against the utility of the defendant’s conduct. The McVicars allege Goodman sold them defective air conditioners and did not honor the warranty, resulting in over $1,000 in harm. The Court finds that the McVicars sufficiently pled a claim under the "unfair" prong of the Unfair Competition Law (UCL) and denies Goodman’s motion to dismiss that claim.
Regarding the False Advertising Law (FAL), the Court notes that Proposition 64 limits enforcement of the UCL and FAL, requiring actual reliance by class representatives for standing. Since the McVicars did not allege any exposure to advertising, the Court grants Goodman’s motion to dismiss their FAL claim without prejudice.
For the California Consumer Legal Remedies Act (CLRA) claim, Goodman argues for dismissal due to the McVicars' failure to meet the affidavit requirement of California Civil Code section 1780(d). The Court agrees, stating that the CLRA outlines specific unfair practices and mandates an affidavit upon filing a claim, which the McVicars did not provide.
The McVicars argue that the affidavit requirement in section 1780(d) is procedural and should not apply to CLRA claims in federal court. However, most federal courts have consistently applied this requirement, dismissing claims for failure to file the necessary affidavit. Although the McVicars cite a federal case, Evans v. Linden Research, Inc., which deemed the affidavit requirement procedural, this court disagrees, stating that not applying the requirement would promote forum shopping, contrary to the Erie doctrine's aims. Consequently, the court concludes that the McVicars must file an affidavit under section 1780(d) to assert a CLRA claim; since they did not, the court grants Goodman’s motion and dismisses their CLRA claim without prejudice.
Regarding the breach of contract claim, the court agrees with Goodman that the McVicars failed to allege the existence of a contract, a necessary element to establish this claim. Their assertion that supplying a defective product constitutes breach does not suffice, as the cited case pertains to tort and fraud rather than contract. Additionally, the McVicars' claim of being third-party beneficiaries lacks supporting allegations in the complaint. Thus, the breach of contract claim is deemed insufficiently pled, leading the court to grant Goodman’s motion to dismiss this claim as well, also without prejudice.
Goodman's arguments against the McVicars’ breach of warranty claim are rejected by the Court. The elements required for a breach of express warranty claim include the warranty's terms, reasonable reliance, and a breach causing actual injury. The Court finds the precedent set in Weinstat v. Dentsply Int'l, Inc. more applicable than that in Williams v. Beechnut Nutrition Corp. Weinstat clarifies that under California's UCC, reliance on seller promises is not necessary. The McVicars adequately pleaded that Goodman promised the air conditioners would be free from defects and that they malfunctioned, fulfilling the first and third elements of their claim. The Court notes that the timing of seller affirmations is irrelevant, as even post-purchase statements can constitute affirmations if considered part of the contract. Goodman's claim that the McVicars failed to provide pre-suit notice is also dismissed, as notice is not required when consumers sue manufacturers with whom they have not directly interacted.
Regarding the breach of implied warranty claim, Goodman contends it is defective due to the McVicars not alleging a breach within one year. The Court agrees, stating that the duration of implied warranties must align with express warranties but cannot exceed one year. The McVicars argue that the latent defects extend this limitation, referencing Mexia v. Rinker Boat Co., but the Court notes the one-year timeframe is a statutory requirement that cannot be bypassed.
The McVicars' reliance on the case Mexia has faced criticism for conflicting with established California law, leading this Court to conclude that Mexia should be restricted to instances where products are "unmerchantable from the outset," a claim the McVicars do not make. Their complaint is deficient in detail, particularly regarding purchase dates, complicating the assessment of their pleadings, prompting the Court to grant Goodman’s Motion to Dismiss their breach of implied warranty claim without prejudice.
Regarding the Magnuson-Moss Warranty Act (MMWA) claim, the Court acknowledges that while the MMWA serves as a remedy for warranty violations, the McVicars fail to state they provided Goodman a reasonable opportunity to cure the alleged warranty breach. Their mere request for replacement parts does not satisfy the requirement that Goodman be notified of the defects. Consequently, the Court grants Goodman's Motion to Dismiss the MMWA claim without prejudice.
For the claims of fraudulent concealment and negligent misrepresentation, the Court finds them insufficiently pleaded. To establish fraudulent concealment, the elements include a misrepresentation, knowledge of its falsity, intent to defraud, justifiable reliance, and resultant damage. Negligent misrepresentation shares similar elements but lacks the intent to deceive. Since the McVicars have not met these pleading standards, their claims are dismissed.
Defendants can be liable for negligent misrepresentation if they make false statements, genuinely believing them to be true, without reasonable grounds for such belief. In this case, the McViears failed to allege justifiable reliance on Goodman’s representations, leading the Court to grant Goodman’s motion to dismiss their fraudulent concealment and negligent misrepresentation claims without prejudice. The Court expressed skepticism regarding Goodman’s argument that the negligent misrepresentation claim should adhere to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), noting that the Ninth Circuit has not definitively addressed this issue.
Regarding the unjust enrichment claim, the Court concurred with Goodman that it is not a valid cause of action under California law, being merely a principle related to restitution rather than a standalone remedy. Consequently, the unjust enrichment claim was dismissed with prejudice.
Goodman also argued that the McViears’ declaratory relief claim was redundant and unsustainable, a stance the Court supported. Since the claim was duplicative of other claims, the Court granted the motion to dismiss it with prejudice as well.
In summary, the Court granted Goodman’s motion in part and denied it in part, resulting in the dismissal with prejudice of the unjust enrichment and declaratory relief claims, and the dismissal without prejudice of other claims, allowing the McViears to file a First Amended Complaint by March 31, 2014.
