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Ferrari v. Mercedes Benz USA, LLC

United States District Court, N.D. California

July 21, 2017

Steve Ferrari, ET AL., Plaintiffs,
Mercedes Benz USA, LLC, ET AL., Defendants.


          Yvonne Gonzalez Rogers United States District Court Judge

         Plaintiffs Steve Ferrari, Mike Keynejad, Patricia Rubin, Hooshang Jowza, Celso Frazao, Renuka Narayan, Gertrud Frankrone, Ernest Salinas, Kalkhusan Sareen, Hossein Jalali, Ron Wolfe, Sohrab Rahimzadeh, Fred Grant, Ester Grant, Vincent Leung, Ken Wong, Jessica Langridge, Tony Nicolosi, Donald Lyang, Artur Semichev, John Diaz, Harold Fethe, and Raymond Gapasin, bring this action against defendants Autobahn, Inc. dba Autobahn Motors (“Autobahn”), Mercedes-Benz USA, LLC (“MBUSA”); Sonic Automotive, Inc. (“Sonic”); and Speedway Motorsports, Inc. (“SMI”). Plaintiffs bring the action on behalf of a putative class and allege claims for fraud; trespass to chattel; negligent misrepresentation; negligence; violation of California's False Advertising Law (“FAL”), Business & Professions Code section 17500; and violation of California's Unfair Competition Law (“UCL”), Business & Professions Code section 17200.

         The action was filed in San Mateo Superior Court on December 20, 2016. MBUSA removed the action to this Court under the Class Action Fairness Act, 28 U.S.C. section 1453 et seq. Plaintiffs filed their First Amended Complaint on January 25, 2017, adding an additional claim for relief for “CPO” [certified pre-owned vehicle] fraud. (Dkt. No. 14 [“FAC”].) Because the claims in the FAC, aside from the CPO Fraud and trespass to chattel claim, were nearly identical to those alleged a prior action dismissed by this Court, Ferrari, v. Autobahn, Inc., et al., Case No. 4:15-cv-04379-YGR, the instant action was related and reassigned to the undersigned.

         Defendants have each filed a motion to dismiss on grounds of failure to state a plausible claim against them. Defendant SMI also moves under Rule 12(b)(1) of the Federal Rules of Civil Procedure on the grounds that the Court lacks personal jurisdiction over it. (Dkt. Nos. 19, 22, 26, 27.)

         Having carefully considered the papers submitted[1] and the pleadings in this action, the evidence properly admissible in the context of these motions[2] and the matters judicially noticeable[3], the pleadings and orders in the prior civil action, and for the reasons set forth below, the Court: (1) Grants the Motion of SMI to Dismiss on grounds of lack of personal jurisdiction; (2) Grants In Part and Denies In Part, With Leave To Amend, the motions of MBUSA, Autobahn and Sonic to dismiss under Rule 12(b)(6).

         I. SMI's Motion to Dismiss Under Rule 12(b)(1)

         Defendant SMI has moved to dismiss the claims against it for lack of personal jurisdiction under Rule 12(b)(1). Federal courts ordinarily follow state law in determining the bounds of their jurisdiction over persons, looking to the state's long arm statute regarding service of summons. See Fed. Rule Civ. Proc. 4(k)(1)(A) (service of process effective to establish personal jurisdiction over defendant subject to jurisdiction in the state court where the district is located); Daimler AG v. Bauman, 134 S.Ct. 746, 753 (2014) (same). California's long-arm statute, in turn, permits exercise of personal jurisdiction to the fullest extent permitted by federal due process. Id. For purposes of federal due process, two types of personal jurisdiction exist: general jurisdiction (sometimes called “all-purpose”) and specific jurisdiction (sometimes called “case-linked”). Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco Cty., 137 S.Ct. 1773, 1779-81 (2017). “A court with general jurisdiction may hear any claim against that defendant, even if all the incidents underlying the claim occurred in a different State.” Id. A court with only specific jurisdiction over a defendant is limited to hearing claims deriving from the facts that establish jurisdiction in the forum. Id.

         A corporation is subject to general jurisdiction only in the states where it is incorporated or has its principal place of business. Daimler AG, 134 S.Ct. at 753, 761. Only in an exceptional case will “a corporation's operations in a forum other than its formal place of incorporation or principal place of business [ ] be so substantial and of such a nature as to render the corporation at home in that State.” Id. at 761, n.19; see also Martinez v. Aero Caribbean, 764 F.3d 1062, 1076 (9th Cir. 2014).

         The Ninth Circuit applies a three-part test to determine whether a court has specific personal jurisdiction, taking into account whether: (1) the defendant has performed some act or consummated some transaction within the forum or otherwise purposefully availed himself of the privileges of conducting activities in the forum; (2) the claim arises out of or results from the defendant's forum-related activities; and (3) the exercise of jurisdiction is reasonable. Bancroft & Masters, Inc. v. Augusta Nat. Inc., 223 F.3d 1082, 1086 (9th Cir. 2000). Plaintiffs bear the burden on the first two factors. Boschetto v. Hansing, 539 F.3d 1011, 1016 (9th Cir. 2008); Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990). Agency relationships may be relevant to the existence of specific jurisdiction, and “a corporation can purposefully avail itself of a forum by directing its agents or distributors to take action there.” Daimler AG, 134 S.Ct. at 759 n.13 (citing Asahi, 480 U.S. at 112 (defendant's act of “marketing [a] product through a distributor who has agreed to serve as the sales agent in the forum State” may amount to purposeful availment)). However, if “a parent and a subsidiary are separate and distinct corporate entities, the presence of one . . . in a forum state may not be attributed to the other.” Holland Am. Line Inc. v. Wartsila N. Am., Inc., 485 F.3d 450, 459 (9th Cir. 2007) (passive website and advertising presence in a state does not establish personal jurisdiction).

         Here, the evidence in the record does not support a finding of either general or specific jurisdiction over SMI in this Court. SMI has its headquarters in North Carolina, and is incorporated in Delaware. (Declaration of William R. Brooks, Dkt. No. 29 at ¶ 2.) SMI does not have any offices or employees in California and does not regularly conduct business in California. (Id. ¶ 3.) It is not registered to do business in California and has no agent for the service of process in California. (Id. ¶ 4.) SMI does not make, manufacture, or sell any product in California, including zMax, the oil-additive product that is at the center of many of plaintiffs' allegations in this action. (Id. at ¶¶ 8-9.) Rather, Oil-Chem Research Corporation (“Oil-Chem”), a wholly owned subsidiary of SMI and a separate legal entity, manufactures and markets zMax. (Id. at ¶¶ 9-10.) The legally separate subsidiary's activities are irrelevant to the Court's jurisdiction over SMI.

         Plaintiffs do not dispute these facts, but rather offer other facts which they contend establish personal jurisdiction over SMI. They contend that SMI is “connected” with a California company (MOC) that distributes zMAX; that bottles of zMAX include the statement “recommended by” SMI; and SMI is listed as holder of the copyright on the website. None of these contacts is sufficient to find that SMI is subject to this Court's jurisdiction. Plaintiffs' arguments-that zMax is sold in California and regularly used by defendants Autobahn and Sonic in California-do not support specific jurisdiction in the face of evidence that SMI does not make or sell that product. Further, plaintiffs' assertion that SMI's CEO owned or owns property in California likewise does not support general or specific jurisdiction here.

         Consequently, the motion of SMI to be dismissed for lack of jurisdiction is Granted Without Leave To Amend. The Court does not reach the additional pleading deficiencies raised by SMI.

         II. Motions Of Defendants MBUSA, Autobahn, And Sonic To Dismiss Under Rule 12(b)(6)

         A. Fraud Claims (First, Third, Fourth, and Fifth Claims for Relief)

         Plaintiffs allege the following fraud-based claims for relief: (i) “CPO Fraud” or fraud by all defendants in the course of selling Certified Pre-Owned vehicles [First claim for relief]; (ii) false representations that genuine Mercedes Benz parts and accessories were used in repairs and service by Autobahn (third claim for relief); and (iii) false representations that genuine Mercedes Benz parts are superior to or longer-lasting than non-genuine parts (fourth claim for relief). Plaintiffs also allege a claim for negligent misrepresentation based upon the use of non-genuine parts (fifth claim for relief).

         “The elements of a cause of action for fraud in California are: (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity; (c) intent to defraud; (d) justifiable reliance; and (e) resulting damage.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1126 (9th Cir. 2009) (internal quotations and citations omitted). “The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal.App.4th 226, 243 (2007). Federal Rule of Civil Procedure 9(b) requires that “a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). “Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Id. While a federal court will examine state law to determine whether the elements of fraud have been pleaded sufficiently to state a cause of action, Rule 9(b)'s specificity requirements apply to the circumstances of the fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). Thus, “[a]verments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged.” Id. at 1106 (internal quotations and citations omitted).

         1. First Claim for Relief: Certified Pre-Owned (CPO) Vehicle Fraud

         With respect to the CPO fraud claim, plaintiff Harold Fethe alleges that, in 2009, he purchased a certified pre-owned Mercedes-Benz vehicle from Autobahn, with a warranty covering the period up to September 23, 2011. (FAC ¶ 5.) He thereafter purchased an extended warranty, offered by a third party, which expired in December 2016. (Id. ¶ 5.) Fethe alleges that he obtained later obtained information indicating that, at some time prior to his purchase from Autobahn, Autobahn had placed the zMax oil additive in the car. (Id.¶ 5.) Fethe alleges that he attempted to obtain warranty repair of the damage done to his vehicle on account of the use of zMax, but that his claim was denied in November 2016 on the grounds that damage caused by oil additives was not covered. (Id.¶ 46.) Fethe alleges that, had he known about the use of zMax by Autobahn, he would not have purchased the vehicle from Autobahn. (Id.¶¶ 87, 101, 104, 107.) He alleges that he paid $2, 000 to $3, 000 more for the vehicle than one without a CPO designation, and that the use of zMax placed his warranty “in jeopardy” since damage due to use of non-genuine parts is not covered. (Id.¶¶ 87, 109.) Fethe seeks to represent a class of individuals who purchased CPO vehicles from Autobahn “in which zMax was placed, during the period 2004 - present, and/or purchased [a] pre-owned vehicle from any dealership owned by Sonic Automotive.” (Id.¶ 6.)

         Plaintiffs allege that MBUSA, through its CPO program standards, sets certain inspection criteria, with factory-trained technicians reconditioning used vehicles using genuine Mercedes Benz parts to insure the vehicles perform to MBUSA's standards. Plaintiffs' allegations reference the MBUSA website, an MBUSA YouTube video regarding the CPO program, and an MBUSA CPO program guide setting forth these provisions. (Id.¶¶ 74-78, 82-83.) Plaintiffs allege that Autobahn, as an authorized dealership and agent of MBUSA, has intentionally used products not approved by MBUSA in reconditioning vehicles for CPO certification, including an oil additive called zMax, and other non-genuine Mercedes-Benz parts. (Id.¶¶ 84, 89.) Plaintiffs further allege that zMax is used in CPO cars conditioned by Autobahn at the direction of Sonic, Autobahn's parent company. (Id.¶ 92.) Plaintiffs contend that use of zMax is prohibited by MBUSA, citing this statement allegedly appearing on an MBUSA website:

Up to now, Daimler AG has not approved any product that is allowed to be introduced or mixed into approve, read-formulated [sic] lubricants for engines, transmissions, or major assemblies in Mercedes-Benz vehicles as a special additive! The vehicle owner is solely responsible if special additives are used in lubricants! If damage occurs the legal warranty and guarantee claims may be limited.

(Id.¶ 86, emphasis supplied.)[4]

         As to Autobahn, plaintiffs contend they used non-genuine parts, contrary to the CPO program rules, and failed to provide customers with certification inspection reports as required by Vehicle Code section 11713.18. (Id.¶¶ 100, 102.) Plaintiffs assert that Autobahn deliberately withheld information about use of zMax and misrepresented compliance with the CPO program. (Id.¶ 103.) Plaintiffs argue that they reasonably and detrimentally relied on the misrepresentations by Autobahn and were harmed by paying higher prices for CPO-designated vehicles and jeopardizing their warranties. (Id. ¶¶ 107, 108, 109.)

         a. Autobahn & Sonic

         Autobahn first argues that the CPO fraud claim is time-barred. Autobahn contends Fethe has alleged no basis for delayed accrual of the statute of limitations, such as that he could not have discovered the use of zMax sooner had he acted with diligence. The Court agrees that, with respect to the CPO Fraud claim, the FAC has not alleged when Fethe, the representative plaintiff on this alleged class claim, discovered the use of zMax in his CPO vehicle. See Creditors Collection Serv. v. Castaldi, 38 Cal.App.4th 1039, 1044 (1995) (limitations period commences to run when the aggrieved party could have discovered the basis for the claim with an exercise of reasonable diligence).

         The allegations of the FAC are ambiguous as to when he learned, or should have learned that zMax was used in his car and caused damage. While Fethe purchased the vehicle in 2009, he alleges: (1) he obtained a VMI report sometime after that, the VMI report did not indicate use of zMax (Id. ¶ 6); (2) some unspecified time later he learned that he needed “desludging” due to use of zMax; and (3) he was denied a warranty repair in December 2016. The motion of Autobahn to dismiss the CPO Fraud claim is Granted With Leave to Amend on statute of limitations grounds. Plaintiffs are given leave to amend to allege a basis for delayed discovery.

         In its scattershot motion, Autobahn has also seeks to dismiss the CPO Fraud (and other fraud claims) on the grounds that the allegations do not meet the particularity requirements of Rule 9(b), are internally inconsistent, and fail to allege reliance, damages, or injury sufficiently. In connection with the CPO Fraud claim, Fethe alleges that his vehicle was damaged by use of a non-genuine/non-OEM product contrary to the CPO program requirements, that he paid more for the vehicle than he otherwise would have paid without the false CPO certification, and that his warranty did not cover the damage resulting from Autobahn's conduct. These allegations are not conclusory or implausible on their face. The Court concludes that the allegations of the CPO Fraud claim are sufficiently particular, [5] and state a plausible basis for consequent damages.

         As to Sonic, plaintiffs allege that it is liable for CPO fraud because it directed the use of zMax in all cars, and thereby aided and abetted the conduct of Autobahn in falsely asserting vehicles were CPO certified. (Id. ΒΆΒΆ 92, 112.) The allegations are sufficient to state the basis for Sonic's liability ...

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