Dakin v. BMW of North America, LLC

[6] 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA [9] 10 ALEX DAKIN, Case No.: 3:19-cv-00818-GPC-BGS 11 Plaintiff, ORDER GRANTING MOTION TO 12 v. DISMISS 13 BMW OF NORTH AMERICA, LLC, [ECF No. 13] 14 Defendant. [15] 16 Before the Court is the Defendant BMW of North America, LLC’s (“BMW” or 17 “Defendant”) motion to dismiss the first amended complaint (“FAC”). ECF No. 13. 18 Alex Dakin (“Plaintiff” or “Dakin”) filed an opposition on October 17, 2019. ECF No. 19 14. BMW filed a reply on October 25, 2019. ECF No. 15. For the reasons discussed 20 below the Court GRANTS BMW’s motion to dismiss with partial leave to amend. 21 BACKGROUND 22 Plaintiff filed the FAC on June 24, 2019. ECF No. 8. Plaintiff alleges causes of 23 action against BMW for violations of the California Commercial Code (“Cal. Comm. 24 Code”), the Magnuson Moss Warranty Act (“MMWA”), and California’s Unfair 25 Competition Law (“UCL”). 26 Plaintiff is an “ordinary vehicle purchaser” who resides in San Diego county. FAC 27 ¶¶ 3, 11. BMW is a Delaware corporation that manufactures and sells motor vehicles, 28 with its principal place of business in New Jersey. Id. ¶ 4. Plaintiff alleges that he 1 purchased a pre-owned 2012 BMW X-1 equipped with an N20 Engine (the “Subject 2 Vehicle”) in January 2018. Id. ¶ 9. In March of 2019, Plaintiff alleges that the Subject 3 Vehicle experienced “catastrophic engine failure.” Id. ¶ 10. At this time, the vehicle had 4 84,900 miles, and the time period for unilateral express warranty for the Subject Vehicle 5 had terminated. Id. ¶ 10. A BMW service department record stated the following about 6 the Subject Vehicle: “Engine timing chain module disintegrated causing motor oil 7 starvation.” Id. 8 Plaintiff alleges that this “catastrophic engine failure” was due to the primary chain 9 guide assembly in the Subject Vehicle’s N20 engine, which Plaintiff alleges was 10 constructed of defective plastic material which caused the engine to prematurely and 11 catastrophically fail. Id. ¶ 6. The N20 engine’s chain guide assembly is made of 12 “defective polycarbonate composition, which over time becomes brittle and breaks into 13 tiny pieces.” Id. These pieces then accumulate and cause the failure of the oil pump to 14 provide lubricating oil, thereby causing the engine’s failure. Id. According to the FAC, 15 BMW has known about these issues with the N20 engine since 2013 and has since 16 redesigned the chain assembly components to correct these deficiencies in the N20 17 engine. Id. ¶ 7. 18 Plaintiff alleges that BMW intentionally failed to inform Plaintiff that the Subject 19 Vehicle had this defect that would cause the engine to prematurely fail and omitted this 20 information from the owner’s manual and warranty and maintenance pamphlet. Id. ¶¶ 21 14, 16. Plaintiff further alleges that BMW refused to replace Plaintiff’s engine and as a 22 result, Plaintiff paid $3,850 to replace the engine out of pocket. Id. ¶¶ 14, 15. 23 DISCUSSION 24 Federal Rule of Civil Procedure (“Rule”) 12(b)(6) permits dismissal for “failure to 25 state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Dismissal 26 under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or 27 sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police 28 Dep’t., 901 F.2d 696, 699 (9th Cir. 1990). Under Rule 8(a)(2), the plaintiff is required 1 only to set forth a “short and plain statement of the claim showing that the pleader is 2 entitled to relief,” and “give the defendant fair notice of what the . . . claim is and the 3 grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). 4 A complaint may survive a motion to dismiss only if, taking all well-pleaded 5 factual allegations as true, it contains enough facts to “state a claim to relief that is 6 plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, [7] 550 U.S. at 570 ). “A claim has facial plausibility when the plaintiff pleads factual 8 content that allows the court to draw the reasonable inference that the defendant is liable 9 for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of 10 action, supported by mere conclusory statements, do not suffice.” Id. “In sum, for a 11 complaint to survive a motion to dismiss, the non-conclusory factual content, and 12 reasonable inferences from that content, must be plausibly suggestive of a claim entitling 13 the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) 14 (quotations omitted). In reviewing a Rule 12(b)(6) motion, the Court accepts as true all 15 facts alleged in the complaint, and draws all reasonable inferences in favor of the 16 plaintiff. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). The Court evaluates 17 lack of statutory standing under the Rule 12(b)(6) standard. Maya v. Centex Corp., 658 18 F.3d 1060, 1067 (9th Cir. 2011). 19 Where a motion to dismiss is granted, “leave to amend should be granted ‘unless 20 the court determines that the allegation of other facts consistent with the challenged 21 pleading could not possibly cure the deficiency.’” DeSoto v. Yellow Freight Sys., Inc., [22] 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture 23 Co., 806 F.2d 1393 , 1401 (9th Cir. 1986)). In other words, where leave to amend would 24 be futile, the Court may deny leave to amend. See Desoto, 957 F.2d at 658 ; Schreiber, 25 806 F.2d at 1401. 26 I. Implied Warranty of Merchantability 27 Plaintiff alleges breach of implied warranty of merchantability under the California 28 Commercial Code, which states that “a warranty that the goods shall be merchantable is 1 implied in a contract for their sale if the seller is a merchant with respect to goods of that 2 kind” and provides that goods “to be merchantable must be at least such as . . . fit for 3 ordinary purposes for which such goods are used.” Cal. Comm. Code §§ 2314 (1)-(2). 4 Under California law, a plaintiff alleging a breach of implied warranty claim must 5 be in vertical privity with the defendant. See Clemens v DaimlerChrysler Corp., 534 6 F.3d 1017, 1023 (9th Cir. 2008) (consumer who purchased car from retailer was not in 7 vertical privity with car manufacturer). “A buyer and seller stand in privity if they are in 8 adjoining links of the distribution chain.” Id. Federal courts in this circuit have declined 9 to create new exceptions to this “tight vertical privity requirement” because California 10 courts “have painstakingly established the scope of the privity requirement . . . and a 11 federal court sitting in diversity is not free to create new exceptions to it.” Id. at 1024 . 12 “Under California law, action for breach of implied warranty requires, without exception, 13 that plaintiff be in vertical privity with defendant.” Allen v. Hyland’s Inc., 300 F.R.D. 14 643 (C.D. Cal. 2014). A limited exception to the vertical privity requirement has been 15 recognized for third-party beneficiaries. See Keegan v. Am. Honda Motor Co., 838 F. 16 Supp. 2d 929, 947 (C.D. Cal. 2012) (citing In re Toyota Motor Corp., 754 F.Supp.2d 929 , 17 at 1185 (C.D. Cal 2010)). 18 Defendant alleges that Plaintiff’s claim for breach of implied warranty should be 19 dismissed for failure to allege vertical privity.1 In the FAC, Plaintiff does not describe 20 who sold him the Subject Vehicle or where he purchased it, but only describes the car as 21 “pre-owned.” FAC ¶ 9. Therefore, Plaintiff has failed to allege sufficient facts to 22 establish vertical privity and, on this basis, Plaintiff’s claim for implied warranty of 23 merchantability should be denied. In a footnote in Plaintiff’s opposition to the motion to 24 dismiss, Dakin notes that he purchased the vehicle from his mother and concedes that he [26] 1 In the alternative, Defendant also argues that Plaintiff has failed to allege any facts to establish that the 27 Subject Vehicle fails to meet its basic purpose, and that Plaintiffs’ allegations regarding design defects are irrelevant to claims of breaches of warranty. Plaintiff opposes. Since the Court dismisses Plaintiff’s [28] 1 failed to allege this in the FAC, requesting leave to amend if his implied warranty claim 2 fails due to this omission. ECF 14 at 8 n.1. Plaintiff asserts that an exception for vertical 3 privity exists for members of the original purchaser’s family, citing Hauter v. Zogarts, 14 4 Cal.3d 104 , 115 n.8 (1975). However, the Hauter court did not recognize a privity 5 exception for actions based upon the implied warranty of merchantability. Id. Instead, it 6 observed that privity was not required for a purchaser’s family member in an action based 7 upon an express warranty. The Court declines to recognize a new exception on the basis 8 of family membership to the noted “tight vertical privity requirement” under California 9 law and therefore DISMISSES Plaintiff’s implied warranty claim with prejudice.2 10 II. Breach of Express Warranty 11 Plaintiff alleges breach of express warranty under California Commercial Code § 12 2313(1), which states: 13 (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express [14] warranty that the goods shall conform to the affirmation or promise. [15] (b) Any description of the goods which is made part of the basis of the bargain [16] creates an express warranty that the goods shall conform to the description. [17] Cal. Comm. Code § 2313 (1). Plaintiff alleges that BMW fraudulently concealed and/or [18] actively suppressed the defect during the warranty period. ECF No. 14 at 9. Plaintiff [19] further alleges that BMW failed to honor its warranty to fix the defect in the Subject [20] Vehicle during the warranty period, and that the durational limits of BMW’s warranties [21] are oppressive, unreasonable, and unconscionable. [24] 2 Plaintiff additionally alleges he is a third-party beneficiary between BMW and the original purchaser 25 but fails to sufficiently provide any factual detail to substantiate a finding of a third-party beneficiary relationship with BMW. FAC ¶ 6. Further, federal district courts are split on whether to create a third26 party beneficiary exception to the privity requirement under California law. See Mandani v. Volkswagen Grp. of Am., Inc., No. 17-CV-07287-HSG, 2019 WL 652867 , at *6 (N.D. Cal. Feb. 15, 2019) (citing In 27 re Seagate Tech. LLC Litig., 233 F. Supp. 3d 776 , 786–88 (N.D. Cal. 2017) (summarizing the split)). This Court declines to find a third-party beneficiary exception to California’s privity requirement under [28] 1 “The general rule is that an express warranty does not cover repairs made after the 2 applicable time or mileage periods have elapsed.” Clemens, 534 F.3d at 1023. “Every 3 manufactured item is defective at the time of sale in the sense that it will not last forever.” 4 Id. “If a manufacturer determines that useful life and warrants the product for a lesser 5 period of time, we can hardly say that the warranty is implicated when the item fails after 6 the warranty period expires.” Id. The Clemens court adopted the reasoning of the 7 Second Circuit in Abraham v. Volkswagen of Am., Inc., 795 F.2d 238 , 250 (2d Cir.1986) 8 where the court held that a breach-of-warranty claim for post-warranty component 9 problems could not proceed after the warranty period even if the defendant knew of the 10 defects at the time of sale. 11 Plaintiff alleges that the Subject Vehicle’s “express powertrain limited warranty” 12 provided coverage for “4 years or 50,000 miles whichever occurs first, from the date the 13 vehicle was first placed in service.” Id. at ¶ 37. Plaintiff alleges that this powertrain 14 warranty covered “all internal [engine] parts” including the engine primary and 15 secondary chain assemblies. Id. Plaintiff concedes that at the time of the engine failure 16 in March of 2019, the Subject Vehicle was no longer covered by the warranty period, and 17 that the vehicle had 84,900 miles. FAC ¶ 10. 18 Plaintiff urges this Court to follow Hicks v. Kaufman & Broad Home Corp., 89 19 Cal. App. 4th 908 (2001) and find that limitation on repair warranties should not apply 20 when the product is inherently defective at the time of delivery. ECF No. 14 at 10. In 21 Hicks, the court held that if an inherent defect in a house foundation was “substantially 22 certain to result in malfunction” then plaintiff could establish a breach of express and 23 implied warranties. However, the Hicks court also noted that house foundations “are not 24 like cars or tires,” which have a “limited useful life.” Hicks, 89 Cal. App. 4th at 923. 25 Therefore, the Court declines to apply the Hicks court’s reasoning for house foundations 26 to this instant case since, to do so, would “render meaningless any durational limits . . . as 27 every defect that arises could conceivably be tied to an imperfection existing during the [28] 1 warranty period.’ ” Daniel v. Ford Motor Co., 2013 WL 3146810 , at *5 (E.D. Cal. June 2 18, 2013) (rejecting the application of Hicks to vehicle warranty) (citations omitted). 3 Plaintiff argues in the alternative that BMW’s warranty duration and mileage 4 limitations are unconscionable. FAC ¶ 52. Under California law, “unconscionability has 5 both a procedural and substantive element.” Aron v. U–Haul Co. of Cal., 143 Cal.App.4th 6 796, 808 (2006). A contract or contractual clause is invalid as unconscionable only if 7 both elements are present, “although the degree to which each must exist may vary.” Id. 8 Procedural unconscionability exists when a contract which reflects “an inequality 9 of bargaining power which results in no real negotiation and an absence of meaningful 10 choice.” Seifi v. Mercedes-Benz USA, LLC, 2013 WL 2285339 , at *4 (N.D. Cal. May 23, 11 2013) (citing A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 486 (1982)). 12 Since Plaintiff has failed to allege the circumstances where he was denied a meaningful 13 choice – e.g., where he purchased the car and how BMW denied him the opportunity for 14 negotiation – his claim for procedural unconscionability fails. 15 The substantive element of unconscionability focuses on the actual terms of the 16 agreement and evaluates whether they create “‘overly harsh’ or ‘one-sided’ results as to 17 ‘shock the conscience.’” Seifi, 2013 WL 2285339 , at *5 (citing Aron, 143 Cal.App.4th at 18 808). Plaintiff alleges that given BMW’s concealment of the engine defect, the 19 durational limits of the warranty are unconscionable. In Seifi, court held that even 20 accepting as true plaintiffs’ allegation that the car manufacturer knew about the car’s 21 defective gears, plaintiffs failed to sufficiently allege that the warranty durational limits 22 (i.e., either 48 months or 50,000 miles) were unconscionable since these limits did not 23 “on their face shock the conscience.” Seifi, 2013 WL 2285339 , at *5. Here, BMW’s 24 warranty is even more expansive in its coverage than the warranty in Seifi since it 25 provides for repairs within either 4 years or 50,000 miles. Therefore, Plaintiff’s claim of 26 substantive unconscionability fails. 27 Accordingly, the Court DISMISSES Plaintiff’s claim of breach of express 28 warranty with leave to amend. 1 III. Magnuson-Moss Warranty Act 2 Plaintiff alleges breaches of implied warranty and express warranty under the 3 Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2130 (d)(1), 2310(e). The pleading 4 requirements for breach of express or implied warranty claims under Magnuson-Moss 5 Warranty Act are the same as those under state law and will “stand or fall with” claims 6 under state law. Daniel v. Ford Motor Co., 806 F.3d 1217, 1227 (9th Cir. 2015). Since 7 both state claims have been dismissed, the MMWA claim is accordingly also dismissed. 8 Plaintiff is granted leave to amend the MMWA claim only with respect to the express 9 warranty.3 10 IV. Unfair Competition Law 11 Finally, Plaintiff alleges breach of unfair competition law under California’s 12 Business & Professions Code §§ 17200 et seq (“Unfair Competition Law” or “UCL”). In 13 order to state a claim for a violation of UCL, the Plaintiff must allege that BMW NA 14 committed a business act that is either “fraudulent, unlawful, or unfair.” Vargas v. HSBC 15 Bank USA, N.A., 2012 WL 3957994 , at *8 (S.D. Cal. Sept. 10, 2012) (citing Levine v. 16 Blue Shield of Cal., 189 Cal.App.4th 1117, 1136 (2010)). The purpose of the law is “to 17 protect both consumers and competitors by promoting fair competition in commercial 18 markets for goods and services.” Kasky v. Nike, Inc., 45 P.3d 243 (Cal. 2002). Each 19 prong of § 17200 describes a separate and distinct theory of liability. Kearns v. Ford 20 Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009). The unlawful prong incorporates other [22] 23 3 Defendant alleges that under federal law, Plaintiff is required to first submit his claims to informal dispute settlement mechanism. 15 U.S.C. §§ 2302 , 2310(a)(3), (d)(1), (e). Plaintiff opposes, stating that [24] BMW failed to comply with federal regulations requiring certain disclosures be listed on the same page 25 where the warranty text begins. In support for his argument, Plaintiff submitted a BMW warranty Service and Warranty Information manual as an exhibit attached to his opposition. Although the Court 26 notes that the requisite disclosures in this attached exhibit are not listed on the same page where the warranty text begins, the Court also notes that the Subject Vehicle in question is not listed as one of the 27 vehicles covered by the booklet in question. ECF No. 14 at 23, Ex. A at 1. Therefore, the booklet is inapplicable and if Plaintiff files an amended complaint, Plaintiff is directed to submit the Service and [28] 1 laws and treats violations of those laws as unlawful business practices independently 2 actionable under state law. Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042 , 3 1048 (9th Cir. 2000). Since all of Plaintiff’s claims for express and implied warranty and 4 for violation of the MMWA have been dismissed, Plaintiff’s allegations fail to establish 5 breach of the UCL unlawful prong. 6 As to the fraudulent prong, “fraudulent acts are ones where members of the public 7 are likely to be deceived.” Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 , 1152 8 (9th Cir. 2008). Allegations of fraud under section 17200 must comply with Rule 9 9(b). Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (applying Rule 10 9(b) particularity requirement to UCL claim grounded in fraud). The Ninth Circuit has 11 held that in order to meet this standard, a “complaint must specify such facts as the times, 12 dates, places, benefits received, and other details of the alleged fraudulent 13 activity.” Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993); see also McMaster v. 14 United States, 731 F.3d 881, 897 (9th Cir. 2013). “Rule 9(b) demands that the 15 circumstances constituting the alleged fraud be specific enough to give defendants notice 16 of the particular misconduct ... so that they can defend against the charge and not just 17 deny that they have done anything wrong.” Kearns, 567 F.3d at 1124 (quoting Bly– 18 Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)) (internal quotation marks 19 omitted). Mere “conclusory recital[s]” of alleged misconduct without demonstrating how 20 any of the misconduct was perpetrated do not pass muster. Mosarah v. SunTrust Mortg., [21] 2012 WL 2117166 (E.D. Cal. 2012). The heightened pleading standard does not apply to 22 state-of-mind allegations. Fed. R. Civ. P. 9(b). 23 Plaintiffs allege that BMW fraudulently concealed information related to the 24 expected life of the vehicle’s engine. FAC ¶ 13. By actively concealing the engine 25 defect from Plaintiff and other Californians during the warranty period and refusing the 26 replace failed engines after the warranty period, Plaintiff argues that BMW engaged in 27 unfair conduct in violation of the UCL. FAC ¶¶ 75-78. Specifically, Plaintiff alleges 28 BMW has known about N20 Engine catastrophic failure issues since 2013, and began to 1 redesign chain assembly components in an effort to correct system deficiencies that were 2 causing N20 catastrophic engine failures, and “[w]hile the defect appears to be cured, 3 there remains a countless number of 2012 – 2015 BMW vehicles still in use and/or on the 4 market which are equipped with the defective polycarbonate module . . . BMW and its 5 authorized dealerships refuse to acknowledge the defect and refuse to replace the engine, 6 causing financial injuries to unsuspecting BMW owners.” Id. ¶¶ 7, 8 (emphasis added). 7 Here, Plaintiff has only provided conclusory allegations with respect to BMW’s active 8 fraudulent concealment of any engine defect. For these reasons, Plaintiff’s claims under 9 the fraudulent prong of the UCL are dismissed. 10 As to the unfair prong, “[a]n unfair business practice is one that either ‘offends an 11 established public policy’ or is ‘immoral, unethical, oppressive, unscrupulous or 12 substantially injurious to consumers.’ ” McDonald v. Coldwell Banker, 543 F.3d 498 , 506 13 (9th Cir. 2008) (quoting People v. Casa Blanca Convalescent Homes, Inc., 159 14 Cal.App.3d 509, 530 (1984)). Plaintiff alleges that BMW’s conduct is unfair since 15 BMW’s conduct causes harm to Californians, and that this harm outweighs the utility of 16 BMW’s conduct. FAC ¶ 74. In Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. 17 Co., 20 Cal. 4th 163 (Cal. 1999), the court rejected Plaintiff’s articulation of unfairness as 18 “too amorphous” since it provides “too little guidance to courts and businesses.” Id. at 19 185. The Cel-Tech court held that the unfairness prong requires the following instead: 20 When a plaintiff who claims to have suffered injury from a direct competitor's “unfair” act or practice invokes section 17200, the word “unfair” in that section [21] means conduct that threatens an incipient violation of an antitrust law, or violates 22 the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms [23] competition. [24] Cel-Tech, 20 Cal. 4th 163, 187 (1999). In Daugherty v. Am. Honda Motor Co., 144 Cal. 25 App. 4th 824 (2006), as modified (Nov. 8, 2006), the court applied the Cel-Tech standard [26] and held that the vehicle manufacturer’s failure to disclose a defect that may have [27] shortened the life span of the automobile part, which functioned throughout the term of [28] 1 express warranty, did not meet the standard under the UCL’s unfairness prong. The 2 || Daugherty court noted that the “use of less expensive and less durable materials in 3 || vehicles to make more money did not violate public policy . .. and no warranty or other 4 ||agreement was violated.” (citing Bardin v. Daimlerchrysler Corp. 136 Cal.App.4th 5 || 1255, 1270 (2006)). Similarly, here Plaintiff's allegations regarding BMW’s conduct fail 6 ||to meet the unfairness standard as articulated by the Cel-Tech and Daughtery courts and 7 ||is accordingly dismissed. 8 In sum, Plaintiff's claims under the UCL are DISMISSED with leave to amend. 9 CONCLUSION 10 Defendant’s motion to dismiss the first amended complaint is GRANTED. 11 || Plaintiff is granted partial leave to amend within the next 30 days. 12 IT IS SO ORDERED. [13] 14 || Dated: November 6, 2019 =< 16 United States District Judge