United States District Court, Eastern District of California
PATRICIA A. SIGALA, Plaintiff,
CARMAX AUTO SUPERSTORES, LLC, Defendant.
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS AND DENYING DEFENDANT’S MOTION TO STRIKE ECF 4, 5, 12, 13, 14
Currently before the Court are Defendants’ motion to dismiss and motion to strike portions of the complaint. The Court heard oral arguments on October 29, 2014. (ECF No. 15.) Counsel Hallen D. Rosner and Joshua Charles Anaya appeared for Plaintiff Sigala, and counsel Jamie L. Keeton appeared for Defendant CarMax Auto Superstores California LLC (hereafter “CarMax”). Id. Having considered the moving, opposition and reply papers, the declarations and exhibits attached thereto, arguments presented at the October 29, 2014 hearing, as well as the Court’s file, the Court issues the following order.
I. PROCEDURAL BACKGROUND
Plaintiff Patricia A. Sigala filed this action on August 7, 2014 in the Superior Court of California, County of Fresno against Defendant CarMax alleging violation of California’s Consumer’s Legal Remedies Act (“CLRA”), California Civil Code ¶ 1750 et seq., and Unfair Competition Law (“UCL”), California Business and Professions Code § 17200 et seq., and fraud and deceit. (ECF No. 1-1.) On September 17, 2014, Defendant removed this action to the Eastern District of California on the basis of diversity under 24 U.S.C. § 1441. (ECF No. 1.) On September 24, 2014, Defendant filed a motion to dismiss and a motion to strike portions of the complaint. (ECF Nos. 4, 5.) The parties have consented to the jurisdiction of the Magistrate Judge. (ECF Nos. 8, 9.)
On October 15, 2014, Plaintiff filed an opposition to the motion to dismiss and motion to strike and request for judicial notice. (ECF Nos. 12, 13.) Defendant filed a reply on October 21, 2014. (ECF No. 14.)
II. COMPLAINT ALLEGATIONS
CarMax is a car dealership. (Compl. ¶ 1., ECF No. 1-1.) CarMax performs a “CQI/VQI Inspection” prior to advertising and selling a vehicle as “certified.” During this inspection a form, called a “CQI/VQI Checklist” is used to assist with the inspection. This form lists all components of the vehicle that were inspected as part of the Certification program for used vehicles. (Id. at ¶ 9.) There are 230 items on the list that are inspected during the certification. (Id. at ¶ 10.) This list is not provided to the consumer, instead it is destroyed after the inspection. (Id. at ¶¶ 11, 12.) Plaintiff contends that this means CarMax cannot demonstrate that all components were inspected and the destruction of the list violates the California Motor Vehicle requirement that a dealer advertising and selling vehicles as certified must keep a completed inspection report and verification. (Id. at ¶ 13.)
A “CQI CarMax Certified Quality Inspection Certificate” is provided to the consumer by being placed in the glove box of the vehicle. (Id. at ¶¶ 11, 12.) This certificate references a “125 point inspection” and does not include all components that are inspected during the certification process. The checklist does not match the certificate and there are more than 125 items inspected on the vehicle. (Id. at ¶ 12.) Plaintiff contends that although the certification states they conduct a 125 point inspection, some of the items are duplicative and cannot appear on the same vehicle, such as manual and automatic transmissions. (Id. at ¶ 14.) Furthermore, the certificate is not vehicle specific and is not a completed inspection report indicating all the components of the vehicle that were inspected. (Id. at ¶ 15.)
Plaintiff saw a television advertisement for CarMax that touted the benefits of purchasing a certified vehicle. She also heard radio advertisements and visited CarMax’s website on several occasions. Plaintiff states that she wanted to purchase a vehicle from CarMax because of the selection of inventory, and the fact that it advertises that inspections are performed on the vehicles which it certifies for sale. (Id. at ¶ 17.) Plaintiff considered the fact that CarMax certified its vehicles as a key selling point in deciding to purchase a vehicle from CarMax. (Id. at ¶ 19.)
Plaintiff had previously purchased a Hummer from CarMax after seeing it advertised on CarMax’s website. When seeing the Hummer advertised on the website, Plaintiff had seen CarMax’s representations that it inspects and certifies all its vehicles. (Id. at ¶ 18.) The representation that CarMax certified its vehicles was a key selling point in deciding to purchase a vehicle from CarMax. Plaintiff wanted to know the history of the vehicle and felt that CarMax’s certification would address her concerns regarding whether the vehicle had been in an accident or had previously been a rental. Plaintiff would not have purchased a vehicle from CarMax if it did not certify its vehicles. (Id. at ¶ 19.)
After purchasing the Hummer, Plaintiff discovered that it had a faulty odometer. CarMax refused to repurchase the Hummer or assist Plaintiff so she filed a complaint with the California Department of Motor Vehicles. After Plaintiff filed her complaint, CarMax agreed to repurchase the vehicle from her. (Id. at ¶ 20.)
Plaintiff needed to purchase another vehicle, so the day that she returned the Hummer she spoke with Alma Lopez, a CarMax employee, about a 2010 Mercedes Benz GLK350 that was on the lot. (Id. at ¶¶ 1, 21.) Ms. Lopez took Plaintiff on a test drive of the vehicle and they discussed that CarMax inspects its vehicles. Ms. Lopez also informed Plaintiff that CarMax provides vehicle history reports to its customers. (Id. at ¶ 22.) Plaintiff was shown a vehicle history report for the Mercedes which showed it was a “one-owner vehicle” and did not list any accident history. (Id. at ¶ 23.)
Plaintiff entered into a contract with CarMax to purchase the 2010 Mercedes Benz GLK350 on August 8, 2011. (Id. ¶¶ 1, 6.) CarMax advertised and sold the car as a “certified” vehicle. (Id. at ¶ 7.) When Plaintiff purchased the vehicle she not provided with the “CQI Certificate” prior to signing the contract and did not receive a completed inspection report indicating all the components that had been inspected. (Id. at ¶¶ 7, 24, 25.) Plaintiff only purchased the vehicle because CarMax advertised it as a certified vehicle. (Id. at ¶ 26.)
At some point after purchasing the vehicle, Plaintiff began having extensive problems with it including, 1) the rear differential needed to be replaced at a cost of approximately $3, 200.00; 2) the electrical wiring harness for the solenoid of the camshaft needed to be replaced; and 3) the electric driver’s seat switch failed. (Id. at ¶ 27.) Plaintiff alleges upon further inspection she discovered that the vehicle had been a former rental vehicle and had been in a rear-end collision on or about May 25, 2011. (Id. at ¶ 28.) Although Plaintiff was informed that the vehicle was free from accident damage, CarMax’s used certification program does not contain a standard for how much accident damage a vehicle can have sustained and still be advertised and sold as “certified”. (Id. at ¶ 8.)
Plaintiff contends that CarMax’s certification of the vehicle did not comply with the requirements of California Vehicle Code section 11713.18 because Plaintiff was not provided with “a completed inspection report indicating all the components inspected.” (Id. at ¶ 29.) Plaintiff states that it is CarMax’s policy not to provide the inspection checklist to buyers and this violates both the Vehicle Code and the Unfair Competition Law. (Id. at ¶ 30-44.)
Plaintiff brings three causes of action. The first cause of action seeks injunctive relief under the CLRA. Plaintiff alleges the CLRA was violated by 1) advertising the vehicle as “certified” without providing, prior to sale, a completed inspection report indicating all components of the vehicle that had been inspected to meet CarMax’s certification program; 2) selling the vehicle as certified without providing the inspection checklist; 3) labeling the vehicle as certified without providing the inspection checklist prior to sale; 4) failing to disclose the prior accident damage; 5) misrepresenting that the vehicle had not sustained accident damage; 6) inducing Plaintiff’s reliance by providing her with a clean vehicle history report that did not disclose the prior accident damage; 7) advertising the vehicle as certified when it had sustained prior accident damage; 8) selling the vehicle as certified when it had sustained prior accident damage; 9) failing to clearly identify the vehicle’s prior rental status; 10) advertising a defective vehicle as certified; 11) selling a defective vehicle as certified; 12) violating Vehicle Code § 11713.18(a); and 13) failing to maintain completed inspection reports. (Id. at ¶ 53.) Plaintiff seeks injunctive relief enjoining CarMax from such conduct in the future. (Id. at ¶ 57.)
In cause of action two, Plaintiff contends that these same actions constitute violation of the UCL. (Id. at ¶¶ 60-62.) Plaintiff seeks injunctive relief enjoining CarMax from such conduct in the future. (Id. at ¶ 65.)
The third cause of action alleges that CarMax’s representation that its vehicles are certified and that it performs a rigorous 125 inspection on all its vehicles, the vehicle history report shown to Plaintiff without reference to prior accident damage, and the representation that the Mercedes was not a former rental were false. (Id. at ¶¶ 68-69.) Plaintiff contends that CarMax knew the representations were false when they were made and intended Plaintiff to rely on them when she purchased the vehicle. (Id. at ¶¶ 70-71.) Plaintiff was harmed by being induced to purchase a vehicle she would otherwise not have purchased. (Id. at ¶ 72.) Plaintiff contends that CarMax concealed and intentionally failed to disclose facts related to the condition of the vehicle which were known only to CarMax and Plaintiff could not have known. (Id. at ¶¶ 75-78.) CarMax’s representations substantially influenced Plaintiff to purchase the vehicle. (Id. at ¶ 79.) Plaintiff seeks monetary damages and equitable relief. (Id. at p. 17-18.)
III. LEGAL STANDARD
Under Federal Rule of Civil Procedure 12(b)(6), a party may file a motion to dismiss on the grounds that a complaint “fail[s] to state a claim upon which relief can be granted.” A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). “[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations, ’ but it demands more than an unadorned, the-defendant-unlawfully harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In assessing the sufficiency of a complaint, all well-pleaded factual allegations must be accepted as true. Iqbal, 556 U.S. at 678-79. However, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678.
In deciding whether a complaint states a claim, the Ninth Circuit has found that two principles apply. First, to be entitled to the presumption of truth the allegations in the complaint “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). Second, so that it is not unfair to require the defendant to be subjected to the expenses associated with discovery and continued litigation, the factual allegations of the complaint, which are taken as true, must plausibly suggest an entitlement to relief. Starr, 652 F.3d at 1216.
Defendant moves to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that the complaint and each cause of action fail to state a claim upon which relief can be granted. (Mot. to Dismiss Pl.’s Compl. 3, ECF No. 4.) Defendant argues that the complaint is largely premised on the false premise that Vehicle Code § 11713.18(a)(6), which requires auto dealers to provide a buyer with a list of “all components inspected”, also requires the dealer to disclose the results of the inspection and any repairs made. (Mem. of P. & A. 7, ECF No. 4-1.) Further, Defendant argues that Plaintiff has not pled the actual damages required to obtain standing under the CLRA and UCL. (Id.)
A. Heightened Pleading Standard
Defendants contend that the heightened pleading standard of Rule 9 of the Federal Rules of Civil Procedure applies to the claims alleging fraud under either the CLRA or UCL. (ECF No. 4-1 at 13.) Plaintiff contends that the complaint contains two separate but related claims. A claim that Defendants misrepresented the condition of the vehicle purchased by Plaintiff and a claim that Defendants illegally represented the vehicle as certified. (ECF No. 12 at 1.)
In a case similar to this, the Ninth Circuit considered the pleading standard to be used in claims under the CLRA and UCL where the plaintiff alleged a car dealer used a certification process to mislead customers to purchase vehicles. Kearns v. Ford Motor Co., 567 F.3d 1120, 1123 (9th Cir. 2009). The court decided that Rule 9(b)’s heightened pleading standard applied to the claims for violations of the CLRA and UCL. Kearns, 567 F.3d at 1125.
While fraud is not a necessary element of a claim under the CLRA or UCL, a claim that a defendant engaged in a unified course of fraudulent conduct is grounded in fraud and the complaint as a whole must satisfy the particularity pleading requirement of Rule 9(b). Kearns, 567 F.3d at 1125; Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1104 (9th Cir. 2003). Here, Plaintiff’s claims are based upon a unified course of fraudulent conduct. Plaintiff contends that CarMax misrepresents its used vehicles as certified in television and radio advertising, and that salespeople misrepresent the vehicles are certified to induce consumers to purchase them.
Specifically, Plaintiff contends that she was misled by CarMax’s advertising and the salesperson that the vehicle she purchased was certified. She claims that the salesperson informed her the vehicle had a single owner when it had been a rental vehicle, and also that the vehicle had not been in an accident when it had sustained accident damage. Plaintiff’s damages arise from her reliance on the alleged fraudulent misrepresentations and omissions of Defendant. Therefore, the Court finds that Plaintiff’s claims are grounded in fraud and the complaint “must state with particularity the circumstances constituting fraud. . . .” Fed.R.Civ.P. 9(b).
This requires Plaintiff to plead with “more specificity including an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (internal punctuation and citations omitted). When a complaint or claim that is grounded in fraud fails to meet the heightened pleading requirements of Rule 9, the complaint or claim may be dismissed. Vess, 217 F.3d at 1107. As with dismissals pursuant to Rule 12(b)(6) the dismissal should be without prejudice if it appears that the pleading could be cured by amendment. Id. at 1108.
B. Statutory Claims
Plaintiff contends that CarMax violated the CLRA and UCL by 1) advertising the vehicle as “certified” without providing, prior to sale, a completed inspection report indicating all components of the vehicle that had been inspected to meet CarMax’s certification program; 2) selling the vehicle as certified without providing the inspection checklist; 3) labeling the vehicle as certified without providing the inspection checklist prior to sale; 4) failing to disclose the prior accident damage; 5) misrepresenting that the vehicle had not sustained accident damage; 6) inducing Plaintiff’s reliance by providing her with a clean vehicle history report that did not disclose the prior accident damage; 7) advertising the vehicle as certified when it had sustained prior accident damage; 8) selling the vehicle as certified when it had sustained prior accident damage; 9) failing to clearly identify the vehicle’s prior rental ...