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Falk v. General Motors Corp.

July 3, 2007

ROY FALK, LEE KRATZER AND BARBARA MCRAE, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
GENERAL MOTORS CORPORATION, A DELAWARE CORPORATION, DEFENDANT



The opinion of the court was delivered by: Alsup, District Judge.

ORDER ON MOTION TO DISMISS

INTRODUCTION

In this putative class action against General Motors Corporation, plaintiffs bring suit for defective speedometers in their GM trucks and sports utility vehicles, alleging violations of California's Consumers Legal Remedies Act and Unfair Competition Laws. Plaintiffs also allege damages due to fraud by omission and unjust enrichment. Defendant's motion to dismiss for failure to state a claim under Rules 12(b)(6) and 9(b) is hereby Denied as to the CLRA, UCL and fraud by omission claims and Granted as to the unjust enrichment claim.

STATEMENT

Plaintiffs are California residents who purchased trucks or sport utility vehicles from GM between 2003 and 2007. In the case of each plaintiff, the speedometer on his or her vehicle ceased to function properly after the expiration of the vehicle's warranty. Plaintiffs claim damages suffered on account of these broken speedometers.

Plaintiff Ray Falk purchased a new GMC Sierra from a dealer in 2003. In February of 2007, after driving approximately 45,000 miles, Falk noticed that his speedometer was sticking, moving in jerky increments, and reading incorrect speeds. Falk claims that the speedometer would register a speed of 20 miles per hour while he was completely stopped but would read 120 miles per hour while he drove at the speed of traffic. When Falk brought his car to a dealership, he was told that he would have to pay $500 to repair his speedometer (Compl.¶ 7).

Plaintiff Lee Kratzer purchased a new GMC Yukon XL in 2003. In early 2007, after driving 46,000 to 47,000 miles, Kratzer's speedometer failed. Kratzer states that when his vehicle was stopped, the speedometer would read 120 miles per hour; when driving on the freeway, however, the speedometer sometimes read a speed of five miles per hour. Kratzer brought the car to a dealer, who also asked for $500 to repair Kratzer's speedometer, but Kratzer negotiated a price of $100 to fix the problem ( id. at ¶ 8).

Plaintiff Barbara McRae bought a 2004 Chevy Tahoe in April of 2004. In March of 2007, McRae claims that she saw her speedometer reading 120 miles per hour while she was driving at normal traffic speeds on the freeway. Her dealer told her that, since she had driven 54,000 miles, her speedometer was no longer covered by warranty. McRae therefore agreed to pay $325 to have her speedometer replaced (Compl.¶ 9).

In the complaint, plaintiffs present a number of consumer postings on the Internet which detailed consumer problems with GM speedometers. In many of the postings, car repair shops were quoted as saying that the entire instrument cluster panel would have to be replaced. Several of the postings referenced "hundreds of similar complaints," and some of the postings concluded that there must be a "widespread problem with similar GM models." In many, the customers indicated that their speedometer problems were intermittent. Some could be fixed by "stopping and restarting the car," others were "more noticeable in the 55 to 75 mph range," and some were just "erratic." Many of the consumers who posted complaints stated that they called GM to complain, but that GM provided no information beyond a referral to the nearest GM dealer. In the cases where the customer did bring their car to a mechanic, the customer was often charged several hundred dollars to repair their vehicle (Compl.¶ 21).

Although plaintiffs raise a number of claims relating to the allegedly defective nature of GM's speedometers, plaintiffs do not rely on any warranty or strict products liability theories. Rather, plaintiffs rely on the tort proposition that GM knowingly sold vehicles with defective speedometers. Plaintiffs first allege that GM violated the California Consumers Legal Remedies Act, Cal. Civ.Code § 1750(a)(5) & (7) when it "represented that its Trucks and speedometers in its Trucks had characteristics and benefits that they do not have, and represented that its Trucks and speedometers in its Trucks were of a particular standard, quality or grade when they were another." In support of this argument, plaintiffs allege that "Defendant knew that its Trucks and speedometers were defectively designed or manufactured, would fail prematurely and were not suitable for their intended use" (Compl.¶¶ 43, 45).

Plaintiffs also allege that defendant violated California's Unfair Competition Law, California Business and Professions Code § 17200, et seq. , which bars "unfair competition" such as an "unlawful, unfair or fraudulent business act or practice" or "unfair, deceptive, untrue or misleading advertising" (Compl.¶ 54).

Additionally, plaintiffs plead a claim of fraud by omission, based on defendant's alleged knowledge that "the speedometers installed in its Trucks were defectively designed or manufactured, would fail prematurely, and were not suitable for their intended use," and defendant's alleged concealment of this information. Finally, plaintiffs raise a claim of unjust enrichment based on GM's alleged enrichment at the expense of its customers in California (Compl.¶¶ 64-65).

The complaint was filed as a class action on March 27, 2007, on the behalf of all California residents who had purchased or leased certain GM trucks and sport utility vehicles between 2003 to 2007. Defendant GM filed this motion to dismiss pursuant to Rules 12(b) (6) and 9(b). Subject-matter jurisdiction is appropriate here under 28 U.S.C. 1391(c), because plaintiffs state claims in excess of $5,000,000 for the putative class and because plaintiffs are citizens of California, while GM is a Delaware corporation.

ANALYSIS

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in the complaint. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs' obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, --- U.S. ----, ----, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007) (internal citations omitted). "Conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir.1996). The Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim. Rule 8(a)(2) only requires a "short and plain statement of the claim showing that the pleader is entitled to relief." All material allegations of the complaint are taken as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 339 (9th Cir.1996).

Allegations of fraud, however, must meet the heightened pleading standards of Rule 9(b). These require allegations of particular facts going to the circumstances of the fraud, including time, place, persons, statements made and an explanation of how or why such statements are false or misleading. In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547-48 n. 7 (9th Cir.1994) (en banc).

1. CLRA.

The California Consumers Legal Remedies Act bans certain practices that the California legislature has deemed to be "unfair" or "deceptive." The CLRA, which plaintiffs cite in their brief, bars certain unfair acts "undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer." In particular, the relevant portions of the act ban:

(5) Representing that goods or services have sponsorship, approval, characteristics, ingredients, benefits, or quantities which they do not have or that a person has a sponsorship, approval, status, affiliation, or connection which he or she does not have.

[ (7) ] Representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular ...


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