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.
*1092 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 (Comply 7).
Plaintiff Lee Kratzer purchased a new GMC Yukon XL in 2003. In early 2007, after driving 46,000 to 47,000 miles, Krat-zer’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 (ComplY 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 (ComplY 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 defec *1093 tively designed or manufactured, would fail prematurely and were not suitable for their intended use” (Compl.1ffl 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” (Comply 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 (Compm 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. -, -,
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 pr why such statements are false or misleading.
In re GlenFed, Inc. Sec. Litig., 4
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 *1094 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 style or model, if they are of another.
Cal. Civ.Code § 1750(a) (5, 7).
A. Bardin and Daugherty Do Not Preclude CLRA Claim For Unlawful Omission When A Duty To Disclose Exists
GM bases much of its argument on two recent California Court of Appeal decisions with similar fact patterns:
Daugherty v. American Honda Motor Co., Inc.,
In
Daugherty,
the plaintiffs presented a CLRA claim for engine defects that failed to manifest themselves until long after the warranty had expired. According to plaintiffs’ allegations, certain Honda engines had a defect which would result in the dislodgement of a front balancer shaft oil seal. The plaintiffs alleged no safety concerns, aside from the cost ■ of replacing damaged parts and engines. Holding that “nondisclosure [is not] applicable in the absence of a related representation or disclosure obligation,” the
Daugherty
court dispensed with the plaintiffs’ unlawful omission claim on a demurrer, since the defendant had made no representations and had no duty to disclose an alleged defect.
Daugherty,
In both of these cases, the court’s decision to dismiss a claim for unlawful omission rested on the lack of a duty to disclose. Both
Bardin
and
Daugherty
allow CLRA claims for certain omissions, however, when the “omission [is] contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.”
Daugherty,
B. GM Had A Duty To Disclose The Alleged Defect
Plaintiffs can therefore successfully pursue a CLRA claim, despite Daugherty and Bardin, if GM was “obliged to disclose” the potential for problems with the speedometers in certain vehicles. A fail *1095 ure to disclose or concealment can constitute actionable fraud in four circumstances:
(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material fact.
LiMandri v. Judkins,
Plaintiffs do not plead a fiduciary relationship between themselves and GM. They therefore fail to state a duty to disclose under the first Judkins factor. Plaintiffs also fail to allege that any partial representations were actually made by defendant with regard to its speedometers at the time the speedometers ceased to function properly. In the case of all three plaintiffs, a warranty covered any defective components where problems occurred in the first three years or 36,000 miles of driving, whichever came first. However, all of the plaintiffs in this suit experienced their first problems with the speedometers after the expiration of the warranty. Although plaintiffs argue that defendant made “partial disclosures about the Trucks without revealing the defective speedometer,” they do not plead facts that suggest any such representations occurred. Instead of alleging any representations on the part of GM, plaintiffs merely state that GM, when faced with questions about allegedly defective speedometers, advised customers to “buy a service manual” or to get their speedometers “diagnosed” (Opp.12). Such advice conveys no information about the GM trucks or speedometers; it therefore cannot be construed as a “partial representation” of anything to do with the trucks. Plaintiffs therefore fail to plead a duty to disclose under the fourth Judkins factor.
This order now turns to the second and third Judkins factors for a duty to disclose. Both require the existence of a material fact.
C. A Defective Speedometer Is Material.
In order for non-disclosed information to be material, a plaintiff must show that “had the omitted information been disclosed, one would have been aware of it and behaved differently.”
Mirkin v. Wasserman,
In
Chamberlan v. Ford Motor Co.,
Here, however, plaintiffs allege that they did, in fact, have expectations about the product in question. Plaintiffs plead that a reasonable consumer would expect a speedometer to last for the life of a vehicle (Comply 49). Like in Chamberlan, plaintiffs also argue that had they known of the possibility of a failed speedometer, they would not have paid the full asking price for their GM vehicles. Common experience supports plaintiffs’ claim that a potential car buyer would view as material a defective speedometer. That a speedometer is prone to fail and to read a different speed than the vehicle’s actual speed, even a difference of ten miles per hour, would be material to the reasonable consumer, driver and passenger. Such a faulty speedometer easily would lead to traveling at unsafe speeds and moving-violation penalties.
In support of their claim, plaintiffs present several pages of quotations containing Internet complaints about GM speedometers, all for vehicles sold between 2003 and 2007.. The amassed weight of these complaints suggests that plaintiffs’ speedometer failures were not isolated cases. Instead, when viewed in the light most favorably to the plaintiffs, these collected complaints suggest strongly that there was a defect in the design of certain GM speedometers in the years from 2003 to 2007, which caused the speedometers to fail unexpectedly and without warning.
Accordingly, under Rule 12(b)(6), plaintiffs plead adequate facts to show that the possibility of a failed speedometer would be a material fact to a reasonable consumer. This conclusion of materiality would be, of course, subject to proof. *
D. Exclusive Knowledge Of A Material Fact.
Under the second
Judkins
factor, a duty to disclose exists “when the defendant had exclusive knowledge of material facts not known to the plaintiff.”
Judkins,
It is true that prospective purchasers, with access to the Internet, could have read the many complaints about the failed speedometers (as quoted in the complaint). Some may have. But GM is alleged, to have known a lot more about the defective speedometers, including information unavailable to the public. Many customers would not have performed an Internet search before beginning a car search. Nor were they required to do so.
E. Active Concealment Of A Material Fact.
The third
Judkins
factor creates a duty to disclose “when the defendant actively conceals a material fact from the plaintiff.”
(1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.
Lovejoy v. AT & T Corp.,
Plaintiffs support their active concealment claim with several different factual allegations. First, the fact that various GM customers complained between 2003 and 2007 yet GM never made any attempt to notify other customers or effect a recall, suggests that GM may have attempted to actively conceal the alleged defect in their speedometers. Plaintiffs also argue that “[w]here' GM replaced the Trucks’ speedometers pursuant to warranty provisions, GM utilized equally defective speedometers and speedometer mechanisms such that the defect was not corrected even though GM informed consumers that it was” (Comply 24). This claim suggests that GM tried to gloss over the problems with its speedometers by replacing broken ones with the exact same model of speedometer, thereby giving the impression that any defects were unique cases. This might very well constitute active concealment of a systematic problem. Since plaintiffs provide some factual grounds for their claim of active concealment, and considering that plaintiffs adequately plead a claim that the GM speedometers were defective, plaintiffs’ active concealment claim survives this Rule 12(b)(6) motion to dismiss.
In sum, plaintiffs provide sufficient facts to state a claim under the CLRA. Although GM made no overt representations that suggested plaintiffs’ speedometers would last beyond a certain point, it had a duty to disclose any known defects in the speedometers. Under the CLRA, plaintiffs adequately plead both that GM failed to disclose a material fact within its exclusive control and that GM actively concealed the existence of a known defect in their speedometers. GM’s motion to dismiss plaintiffs’ CLRA claims is therefore Denied.
2. Section 17200.
Plaintiffs claim that GM violated California’s Unfair Competition Law. The UCL prohibits acts or practices which are (1) *1098 fraudulent, (2) unlawful, or (3) unfair. Cal. Bus. & Prof.Code § 17200. Plaintiffs adequately plead claims under all three of these prongs of the UCL.
A. Fraudulent Conduct.
In order to state a fraud claim under the UCL, a plaintiff must show that “members of the public are likely to be deceived.”
Bardin v. Daimlerchrysler Corporation,
B. Unlawful Practices.
Plaintiffs’ unlawful practices claim is premised on a violation of the CLRA: plaintiffs allege that GM committed unlawful practices by violating the CLRA. As previously discussed, plaintiffs successfully plead violations of the CLRA. Although GM made no representations about its speedometers, other than its warranty, plaintiffs successfully plead that GM violated the CLRA by breaching its duty to disclose information about its defective speedometers. Therefore, when taking all of plaintiffs’ allegations as true, GM has committed an unlawful practice under the UCL.
C.Unfair Practices.
A business practice constitutes unfair competition “if it is forbidden by any law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made[J or if it is unfair, that is, if it offends an established public policy or ... is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”
People v. Duz-Mor Diagnostic Laboratory, Inc.,
Accordingly, defendant’s motion to dismiss is Denied as to plaintiffs’ unfair competition claims.
3. Fraud by Omission.
Allegations of fraud must meet the heightened pleading standards of Rule 9(b), which requires “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,
The elements of fraud in California are: “(1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scien-ter); (3) intent to defraud, i.e.,- to induce reliance; (4) justifiable reliance; and (5) resulting damage.”
Robinson Helicopter Co. v. Dana Corp.,
Plaintiffs adequately state a claim of fraud by omission. They allege that GM was bound by a duty to disclose material facts about its speedometers from 2003 to 2007. GM failed to disclose this information, and plaintiffs reasonably claim that they suffered damages after justifiably relying on GM’s failure to disclose any defects with the speedometers. GM’s motion to dismiss the fraud by omission claim under Rules 12(b)(6) and 9(b) is therefore Denied.
4. Unjust Enrichment.
Plaintiffs’ fourth claim is for unjust enrichment. California courts appear to be split on whether unjust enrichment can be an independent claim or merely an equitable remedy. “The phrase ‘unjust enrichment’ does not describe a theory of recovery, but an effect: the result of a failure to make restitution under circumstances where it is equitable to do so.”
Melchior v. New Line Productions, Inc.,
This order holds that the sole remedies available for the violations alleged have been discussed above, so. there will be no occasion for resort to unjust enrichment. *1100 Defendant’s motion to dismiss is Granted as to this claim.
5. Statute of Limitations.
Finally, GM argues that Falk and Kratzer’s CLRA and fraud claims are barred by the applicable statutes of limitations. Under the CLRA, “[a]ny action brought under the specific provisions of Section 1770 shall be commenced not more than three years from the date of the commission of such method, act or practice.” Cal. Civ.Code § 1783. The statute of limitations for a claim sounding in fraud is similarly three years and “is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting fraud or mistake.” Cal.Civ.Proc.Code § 338(d). Both Falk and Kratzer purchased their GM products in 2003 (Compm 7-8).
GM argues in effect that plaintiffs Falk and Kratzer should have been aware of the alleged defect in the speedometer at the time they purchased their cars. The crux of defendant’s argument is that plaintiffs plead that GM was on notice of the defect in the speedometers as early as 2003. Plaintiffs also plead that a number of Internet postings should have alerted GM to the defect. Defendant contends that if such information were posted on a public website, plaintiffs should have had access to it at the same time GM did. Defendant’s argument ignores that none of the Internet postings quoted in the complaint showed what dates they were posted or when the problems occurred, save for an email from GM dated in 2006 (id. at ¶ 21). Plaintiffs also plead that GM, as the company who produced the trucks, had superi- or knowledge and should have known that the speedometers were defective. Accordingly, defendant’s argument that plaintiffs should have been on notice of the defect when they purchased the vehicles fails at the pleading stage. Plaintiffs Falk and Kratzer’s claims are not barred by the statute of limitations, at least at the pleading stage.
CONCLUSION
In closing, it is worth saying that ordinarily an express warranty begins and ends the manufacturer’s duty to replace an item like the one in question. Here, however, the large number of articulate and credible Internet postings set forth in the complaint strongly indicates that GM knew of the problem and very likely had far more information on a material defect. At least at the pleading stage, this complaint states a claim that GM knew and concealed that its speedometers were defective and likely to fail far more often than expected by the consuming public. Discovery may or may not bear this claim out. But enough is alleged to authorize plaintiffs and their counsel to proceed to take discovery.
For the reasons given, defendant’s motion to dismiss plaintiffs’ unjust enrichment claim is Granted without leave to amend. Plaintiffs, however, allege sufficient factual support for all of their other claims. Although Daugherty and Bardin bar CLRA claims for omissions when there is no duty to disclose and when defendants have made no representations to the contrary, plaintiffs adequately plead that GM had a duty to disclose here, which it violated. Defendant’s motion to dismiss under Rules 12(b)(6) and 9(b) is therefore Denied as to plaintiffs’ CLRA, UCL and fraud by omission claims. Discovery may begin immediately.
IT IS SO ORDERED.
Notes
Moreover, plaintiffs successfully allege that the potential for failed speedometers constitutes a safety hazard.
Daugherty
stated that the "unreasonable risk alleged is merely ... the cost of repairs in the event the defect ever causes an oil leak."
Daugherty,