Court: District Court, N.D. California; August 11, 2015; Federal District Court
The court issued an order partially granting and partially denying Volkswagen Group of America, Inc.'s motion to dismiss claims from plaintiffs Ernesto Valencia, Adelina Duncan, Lorenzo Sava, Michelle Savage, Margarito De La Rosa, and Lenelyn De La Rosa. The plaintiffs allege violations of California’s Unfair Competition Law and Legal Remedies Act, along with claims for Breach of Implied Warranty under the Song-Beverly Consumer Warranty Act and the Magnuson-Moss Warranty Act, as well as Unjust Enrichment. Their claims stem from the purchase of 2009-2012 Volkswagen Routans, which they assert were manufactured with defective brakes that could lead to premature wear and present a safety risk, affecting vehicle control.
The court reviewed the motion, considering both written and oral arguments, before rendering its decision. The plaintiffs represent a class of individuals in the U.S. who purchased or leased the affected vehicles and claim that Volkswagen was aware of the braking defect but failed to notify consumers. Specific complaints included grinding noises and brake performance issues, leading to multiple brake replacements over the years for all plaintiffs involved. The ruling indicates a nuanced evaluation of the legal sufficiency of the plaintiffs' claims, allowing some to proceed while dismissing others.
A court may dismiss a complaint under Federal Rule of Civil Procedure 12(b)(6) if it fails to present sufficient facts to establish a plausible claim. For a claim to be considered plausible, the plaintiff must provide factual content that enables the court to reasonably infer the defendant's liability for the alleged misconduct. The plausibility standard requires more than mere possibility; it necessitates that the factual allegations raise the right to relief above a speculative level without relying solely on conclusory statements or formulaic recitations of legal elements. While the court must accept the plaintiff's factual allegations as true and view them favorably, this does not extend to threadbare recitals lacking substantive support. If a complaint is dismissed, the court typically allows leave to amend unless it is clear that the deficiencies cannot be rectified. Repeated failures to correct deficiencies may lead to dismissal without leave to amend.
In the case at hand, Volkswagen seeks to dismiss the plaintiffs' claims for failure to state a claim. For claims under the California Consumer Legal Remedies Act (CLRA) or the Unfair Competition Law (UCL) based on omissions, plaintiffs must plead that the defendant had a duty to disclose the omitted information. An omission is actionable if it contradicts an actual representation made by the defendant or if it involves a fact the defendant was obligated to disclose. California law specifies four circumstances where a duty to disclose arises: 1) a fiduciary relationship exists; 2) the defendant has exclusive knowledge of material facts unknown to the plaintiff; 3) the defendant actively conceals a material fact; and 4) the defendant makes partial representations while suppressing material information.
Plaintiffs contend that Volkswagen failed to disclose a material braking defect, claiming exclusive knowledge and active concealment of this defect. Volkswagen seeks to dismiss the claims under the California Consumer Legal Remedies Act (CLRA) and the Unfair Competition Law (UCL), arguing that the defect is not a safety hazard, that it did not possess exclusive knowledge at the time of vehicle purchase, and that it did not actively conceal the defect. Under California law, a manufacturer’s duty to disclose is generally limited to warranty obligations unless a safety issue or affirmative misrepresentation is present. Volkswagen argues that consumer complaints do not indicate any accidents or sudden brake failures related to the alleged defect. However, numerous complaints within the First Amended Complaint (FAC) detail serious safety concerns, including incidents of vehicles shaking violently when braking, brake failures resulting in near accidents, and repeated brake replacements. These allegations, alongside consumer experiences cited in the FAC, support the assertion that the braking defect represents a material safety issue under California law, thus establishing a potential duty for Volkswagen to disclose the defect.
Plaintiffs claim that Volkswagen's failure to inform customers about a known safety defect constitutes active concealment, which would necessitate a duty to disclose under LiMandri. The Court disagrees, stating that active concealment requires more than mere omission; it necessitates affirmative acts aimed at suppressing information or hindering consumer awareness. Prior case law indicates that allegations must demonstrate such actions, as seen in Falk and Marsikian, where plaintiffs cited specific affirmative acts by defendants. Although Volkswagen's inaction regarding the braking defect does not establish active concealment, the Court finds that plaintiffs have presented sufficient allegations of affirmative acts. These include claims that Volkswagen replaced defective parts with similar faulty components and that dealership representatives often denied the existence of the defect. Such denials may indicate active concealment, as supported by relevant case law. Consequently, the Court denies Volkswagen's motion to dismiss the plaintiffs' claims under the CLRA and UCL, concluding that the allegations adequately support the assertion that Volkswagen had a duty to disclose the braking defect.
Volkswagen seeks to dismiss the Plaintiffs' warranty claims under the Song-Beverly and Magnuson-Moss Warranty Acts, arguing that the First Amended Complaint (FAC) fails to establish that the braking defect occurred within the first year of vehicle ownership. According to California Civil Code § 1791.1(c), the implied warranty lasts no longer than one year after the sale of new consumer goods. The Magnuson-Moss Warranty Act does not create implied warranties but allows federal jurisdiction for state law breach claims. The Plaintiffs have not alleged that the defect manifested within this one-year timeframe; the closest assertion comes from Plaintiffs Valencia and Duncan, who noted symptoms, such as a grinding noise, approximately within the first year. However, the complaint does not definitively claim that the defect arose during that period. The Court emphasizes it cannot rely on the Plaintiffs' opposition brief for new facts, as any amendments to the allegations must be included in the operative complaint. Citing various cases, the Court outlines conflicting interpretations among California courts regarding whether a Song-Beverly claim can succeed if a defect arises after the one-year warranty expires, highlighting the tension between the latent defect theory and the established limitations of implied warranties.
The Song-Beverly Act's requirement for alleged defects to manifest within the one-year implied warranty period is supported by a majority of cases, including Peterson v. Mazda Motor of Am. Inc. and Grodzitsky v. American Honda Motor Co. Inc. These cases indicate that claims should not rely on defects discovered long after purchase, contrasting with the outlier Mexia case, which allows for claims based on defects existing at the time of sale, regardless of when they are discovered. Mexia involved a boat with a latent defect leading to corrosion, with the plaintiff filing suit three years after purchase. The decision in Mexia emphasized that merchantability should be assessed as if latent defects were known at the time of sale, citing the pre-Song-Beverly case Moore v. Hubbard Johnson Lumber Co. However, the court in the current case finds the broader interpretation of Mexia incompatible with the Song-Beverly Act's one-year warranty limit, as it could allow for claims based on defects surfacing decades later. Consequently, the court aligns with the position that Mexia should only apply to cases where products were unmerchantable at the time of sale, which does not pertain to the present case.
Plaintiffs allege that a braking defect in their Routan minivans caused rapid brake wear requiring eventual replacement; however, they do not claim the brakes were non-functional upon purchase, noting it took thousands of miles of use for the defect to manifest. Consequently, the Court grants Volkswagen's motion to dismiss the third and fourth causes of action.
Regarding the statute of limitations, Volkswagen seeks to dismiss the CLRA, UCL, and warranty claims of Plaintiffs Margarito and Lenelyn De La Rosa as time-barred. The Court dismisses the warranty claims but denies the motion concerning the CLRA and UCL claims. Under the CLRA, the statute of limitations is three years from the act causing injury, with the delayed discovery rule tolling this period until a plaintiff suspects wrongdoing. The De La Rosas reported brake issues to the dealership on July 13, 2011, with the dealership confirming the need for repairs. Volkswagen contends this discovery should have triggered the statute of limitations, while Plaintiffs argue they were unaware of premature brake wear until a second repair was required, suggesting that "frequent repair" implies multiple incidents.
The Court concludes that differing interpretations of the facts cannot be resolved at the pleading stage; the question of when the De La Rosas were on notice is for the trier of fact. This reasoning also applies to the UCL claim linked to the CLRA violation, as claims accrue when a reasonable person would discover the factual basis for them. Therefore, Volkswagen's motion to dismiss the De La Rosa’s CLRA and UCL claims is denied.
For the warranty claims, the California Commercial Code stipulates a four-year limitations period from the date of delivery. Since the action was filed more than four years after the purchase of the Routan, the claims are barred unless tolling applies. The statute-of-limitations defense may be raised in a motion to dismiss if clearly evident from the complaint.
Plaintiffs contend that the statute of limitations for their claims was paused during Volkswagen’s one-year express warranty, citing two Central District of California cases: Ehrlich v. BMW of N. Am. LLC and Falco v. Nissan N. Am. Inc., which tolled the statute of limitations for Song-Beverly claims based on express warranties. The Court, however, disagrees with the conclusions of these cases, asserting that the intermediate appellate court decision they relied upon does not support creating an unwritten exception in Section 2725. The Court references Judge Tigar's analysis in MacDonald, emphasizing that the Krieger decision does not endorse tolling the statute of limitations on implied warranty claims for the duration of an express warranty. Consequently, the Court grants Volkswagen's motion to dismiss the warranty claims of Plaintiffs Margarito and Lenelyn De La Rosa as time-barred.
In regard to unjust enrichment under California law, the necessary elements are the receipt of a benefit and the unjust retention of that benefit at another's expense. Unjust enrichment is characterized as an effect rather than a cause of action, serving as the foundation for various legal theories, including quasi-contract. Historically, federal courts have aligned with this view, holding that unjust enrichment claims are not recognized when another cause of action for restitution exists. However, the Ninth Circuit recently clarified that while unjust enrichment is not a standalone cause of action, it can be interpreted as a quasi-contract claim seeking restitution. The Ninth Circuit noted that such claims should not be dismissed as duplicative, allowing for alternative claims for relief, and found sufficient grounds for a quasi-contract cause of action based on allegations of misleading product labeling leading to unjust enrichment.
Several decisions in the Northern District of California have allowed previously dismissed unjust enrichment claims to proceed, influenced by the Ninth Circuit's ruling in Astiana. In Trazo v. Nestle USA, the court reinstated a restitution claim based on unjust enrichment, asserting that Astiana necessitated this outcome. Similarly, Khasin v. R.C. Bigelow permitted an amendment to include an unjust enrichment claim, and Romero v. Flowers Bakeries denied a motion to dismiss such a claim, even when it overlapped with statutory claims under California consumer protection laws, stating that this duplication doesn't warrant dismissal at the pleading stage. Conversely, in Lcrnovaz v. Twinings N. Am. Inc., the court declined to reinstate an unjust enrichment claim, reasoning that restitution was already available under the UCL, thus not limiting the plaintiffs' remedies. The Court agrees that these interpretations are consistent with Astiana, which mandates viewing unjust enrichment as a quasi-contract claim for restitution at the pleading stage. The Court clarifies that the redundancy of relief sought does not justify dismissal. Furthermore, plaintiffs may plead unjust enrichment claims as alternatives, even if they seem unlikely to yield distinct relief. Volkswagen's motion to dismiss the unjust enrichment claim is denied. The Court partially grants and denies Volkswagen’s Motion to Dismiss, allowing plaintiffs to amend dismissed claims, with a deadline for submitting a Second Amended Complaint set for 28 days from the order date. The Court finds sufficient allegations of active concealment but does not address the question of exclusive knowledge. Although unpublished California cases lack precedential value, they may still inform the interpretation of California law.
