Plaintiffs brought a nationwide class action lawsuit alleging an automobile manufacturer breached its express warranties and violated federal and state consumer protection laws, by failing to disclose an engine defect that did not cause malfunctions in the automobiles until long after the warranty expired. The trial court sustained the manufacturer's demurrer to the second amended complaint without leave to amend. Finding no breach of warranty and no violation of federal or state statutes in the conduct alleged in the complaint, we affirm the judgment of dismissal.
FACTUAL AND PROCEDURAL BACKGROUND
On December 31, 2003, Elizabeth A. Daugherty and eleven other plaintiffs (collectively, Daugherty or plaintiffs) filed a nationwide class action lawsuit against American Honda Motor Co. Inc. and related companies. The putative class consisted of persons and entities in the United States, Puerto Rico and the U.S. Virgin Islands who purchased or leased model-year 1990-1997 Accord and Prelude automobiles equipped with a type of engine denominated the F22 engine. The suit alleges the F22 engine manufactured by Honda had a defect resulting, over time, in the slippage or dislodgment of the front balancer shaft oil seal. According to the suit, the defect causes oil loss and contamination of nearby engine parts and, in severe cases, requires repair or replacement of the engine. The defect may be easily repaired by installing a retainer bracket designed to maintain the oil seal in its proper position.
The second amended complaint (complaint) alleges that, after the introduction of the F22 engine in the 1990 Accord and Prelude, Honda received adverse event reports and actual notice that automobiles equipped with F22 engines "were experiencing severe mechanical problems as a direct and proximate result of oil leaking from the front balancer shaft oil seal," and knew or should have known that as a result of the engine defect, the oil seal could slip or become dislodged from the engine block, causing oil to leak onto and damage the nearby timing and balancer belts, and "potentially causing further damage to the F22 Engine itself." In response to the adverse events reports,
In October 2000, Honda initiated a "product update campaign," targeting only the 1994-1996 model year Accord and Prelude automobiles and early production runs of the 1997 model year automobiles, and issued a press release announcing the details of the campaign. The campaign included an offer for free installation of a retainer bracket. In March 2001, the campaign was expanded to include an offer to replace any dislodged oil seal, contaminated timing and balancer belts, and damaged engines discovered during installation of the retainer bracket. Some, but not all, owners of 1994-1997 model year automobiles were also offered reimbursement for previous repair costs resulting from the defect. The complaint alleges owners of 1990-1993 model year Accords and Preludes were not notified of the campaign or the defect, even though the defect also affected their automobiles, and adequate notice was not given to a significant number of owners of 1994-1997 models. As a result, hundreds of thousands of owners have been or will be forced to pay to repair or replace the front balancer shaft oil seal and for damage to timing and balancer belts and other engine damage. The complaint alleges Honda, despite constructive and actual knowledge of the defect, deliberately failed to remedy it and failed to warn the public of the risk of damage by and from the defect.
The named plaintiffs first discovered the defects in their cars—most of which were purchased used—in 2001 (some discovered it in 2003), when the mileage on the cars ranged from 57,000 to 169,000 miles.
Based on the facts alleged, Daugherty asserted causes of action for breach of express warranty; violation of the Magnuson-Moss Warranty—Federal Trade Commission Improvement Act; unlawful, unfair and fraudulent business practices in violation of the unfair competition law; and violation of the Consumers Legal Remedies Act. Plaintiffs sought class certification, compensatory and punitive damages, attorney fees and injunctive relief. The injunctive relief sought included an injunction requiring Honda to continue the product update campaign begun in October 2000 and extend its provisions to include 1990-1993 model year Accords and Preludes; notify all owners of its offer to provide free installation of a retainer bracket; and replace any dislodged oil seals, contaminated belts and damaged engines found during the installation of the bracket. Alternatively, Daugherty sought an injunction compelling Honda to create a fund available to remedy the defect and requiring Honda to bear the cost of notice to class members regarding the availability of funds to remedy the defect. Daugherty also sought an injunction requiring Honda to disgorge all profits wrongfully obtained through the unlawful, unfair and fraudulent business practices alleged.
The trial court sustained Honda's demurrers to the original, first and second amended complaints, in the last instance
Daugherty filed a timely appeal from the subsequent judgment of dismissal.
We agree with the trial court that Daugherty failed to state a claim under any of the four causes of action alleged in the complaint, and discuss each cause of action in turn.
I. Breach of express warranty.
Honda's express warranty to purchasers covered automobiles "for 3 years or 36,000 miles, whichever comes first," and stated Honda would "repair or replace any part that is defective in material or workmanship under normal use...." It is undisputed that the defect in the F22 engines did not cause any malfunction in the automobiles of the named plaintiffs within the warranty period, and in many cases still has not done so. Daugherty argues, however, that Honda's warranty does not require discovery of the defect during the warranty period, and that a defect that exists during the warranty period is covered, particularly where it results from an "inherent design defect," if the warrantor knew of the defect at the time of the sale. We disagree.
The law governing express warranties is clear. A warranty is a contractual promise from the seller that the goods conform to the promise. If they do not, the buyer is entitled to recover the difference between the value of the goods accepted by the buyer and the value of the goods had they been as warranted. (Cal. U.Com.Code, §§ 2313, subd. (a) & 2714, subd. (2).) A seller may limit its liability for defective goods by disclaiming or modifying a warranty. (Krieger v. Nick Alexander Imports, Inc. (1991) 234 Cal.App.3d 205, 212-213, 285 Cal.Rptr. 717.) The general rule is that an express warranty "does not cover repairs made after the applicable time or mileage periods have elapsed." (Abraham v. Volkswagen of America, Inc. (2d Cir.1986) 795 F.2d 238, 250 (Abraham).)
Several courts have expressly rejected the proposition that a latent defect, discovered outside the limits of a written warranty, may form the basis for a valid express warranty claim if the warrantor knew of the defect at the time of sale. (Abraham, supra, 795 F.2d at pp. 249-250; Walsh v. Ford Motor Co. (D.D.C.1984) 588 F.Supp. 1513, 1536 (Walsh I) [citing cases].) Abraham explained:
Similarly, Walsh I observed that:
Daugherty points to Alberti v. General Motors Corp. (D.D.C.1985) 600 F.Supp. 1026 (Alberti), which found that the reasoning in Walsh I did not apply to a class action claim of breach of warranty for a defective braking system, where 72 of 127 named plaintiffs did not experience any difficulty with their automobiles during the written warranty period. Alberti observed plaintiffs alleged the defect "was patent— at least to GM—in the sense that, as each automobile was sold, it exposed the owner (and the public) to the potential of a loss of vehicle control." (Id. at p. 1028, fn. omitted.) The court concluded plaintiffs incurred the loss—the diminished value of their automobiles—at the time of sale, "for it was then that GM broke its warranty that the brakes would function safely, and that the automobiles were merchantable and fit for the purpose of providing the ordinary transportation plaintiffs expected of them." (Ibid.) Like the court in Abraham, "[w]e do not find the reasoning of Alberti persuasive and decline to follow it." (Abraham, supra, 795 F.2d at p. 250.) As Abraham points out, the Alberti court apparently confused concepts of express and implied warranty (perhaps because Alberti also involved implied warranty claims) when it concluded General Motors breached its warranty that the automobiles were "merchantable and fit for the purpose" of providing ordinary transportation. (Alberti, supra, 600 F.Supp. at p. 1028.) Daugherty makes no implied warranty claims. Alberti also is factually inapposite, because a significant number of the named plaintiffs in Alberti alleged problems during the warranty period.
At its core, Daugherty's claim is that because the language of Honda's express warranty did not state that the defect must be "found," "discovered" or "manifest" during the warranty period, the warranty covers any defect that "exists" during the warranty period, no matter when or whether a malfunction occurs. We agree with the trial court that, as a matter of law, in giving its promise to repair or replace any part that was defective in material or workmanship and stating the car was covered for three years or 36,000 miles, Honda "did not agree, and plaintiffs did not understand it to agree, to repair latent defects that lead to a malfunction after the term of the warranty." Accordingly, the court properly sustained
II. Violation of the Magnuson-Moss Warranty—Federal Trade Commission Improvement Act.
The Magnuson-Moss Warranty—Federal Trade Commission Improvement Act (Magnuson-Moss), 15 U.S.C. sections 2301 et seq., authorizes a civil suit by a consumer to enforce the terms of an implied or express warranty. Magnuson-Moss "calls for the application of state written and implied warranty law, not the creation of additional federal law," except in specific instances in which it expressly prescribes a regulating rule. (Walsh v. Ford Motor Co. (D.C.Cir.1986). 807 F.2d 1000, 1012 (Walsh II).) Accordingly, the trial court correctly concluded that failure to state a warranty claim under state law necessarily constituted a failure to state a claim under Magnuson-Moss.
Daugherty asserts she has properly pled a cause of action under Magnuson-Moss, even in the absence of a state law warranty claim. However, the only authority cited in support of this contention is Alberti supra, 600 F.Supp. at p. 1028. Alberti, a class action under Magnuson-Moss, did not discuss whether a warranty claim could be stated under Magnuson-Moss if no claim could be stated under state law.
III. Violation of the Consumers Legal Remedies Act.
The Consumers Legal Remedies Act (CLRA) proscribes specified "unfair methods of competition and unfair or deceptive acts or practices" in transactions for the sale or lease of goods to consumers. (Civ. Code, § 1770, subd. (a).) The unlawful acts or practices include:
Daugherty alleges Honda violated the CLRA by "[c]oncealing and failing to disclose" that the 1990-1997 model year Preludes and Accords equipped with F22 engines contain a defect, and by continuing to market and sell defective cars notwithstanding knowledge of the defect. Daugherty further alleges Honda issued a partial product update campaign and press releases designed to and likely to mislead owners of 1990-1993 models into believing that their cars were not defective, and failed to give proper notice of the defect to 1994-1997 model year owners. We agree with the trial court that these allegations do not state a violation of the CLRA.
The complaint fails to identify any representation by Honda that its automobiles had any characteristic they do not have, or are of a standard or quality they are not. All of plaintiffs' automobiles functioned as represented throughout their warranty periods, and indeed many still have experienced no malfunction. Daugherty insists, however, that the CLRA should be broadly interpreted to include claims based exclusively on fraudulent omissions, and for this proposition cites Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 124 Cal.Rptr. 852 (Outboard Marine). In Outboard Marine, the court held that the practices proscribed by the CLRA—specifically, "[Representing that goods ... are of a particular standard, quality, or grade, ... if they are of another" (Civ. Code, § 1770, subd. (a)(7))—included "a proscription against a concealment of the characteristics, use, benefit, or quality of the goods contrary to that represented." (Outboard Marine, supra, 52 Cal.App.3d at p. 37, 124 Cal.Rptr. 852.) As the court observed, it is "fundamental that every affirmative misrepresentation of fact works a concealment of the true fact." (Id. at p. 36, 124 Cal.Rptr. 852.) While we do not disagree with Outboard Marine, it does not assist Daugherty, because the complaint does not allege any representation of fact that "works a concealment of the true fact." (Ibid.) In other words, and as Outboard Marine also opined, the CLRA proscribes a concealment of characteristics or quality "contrary to that represented," but in Daugherty's case, no representation was made to which the alleged concealment was contrary. (Id. at p. 37, 124 Cal.Rptr. 852.)
The facts in Outboard Marine clarify the point. In that case, the defendant manufactured an off-road vehicle (trackster), and represented that it "was designed
The court therefore concluded that the CLRA's proscription against "Representing that goods ... are of a particular standard ... if they are of another" includes a prohibition on "concealment of the characteristics ... contrary to that represented."
In short, although a claim may be stated under the CLRA in terms constituting fraudulent omissions, to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose. In Daugherty's case, no representation is alleged relating to the F22 engine, which functioned as warranted. Accordingly, no claim has been stated.
Daugherty asserts the complaint alleges facts showing Honda had a duty to disclose the alleged defect in its F22 engine and "made affirmative representations at the time of sale and thereafter," thus meeting the standards stated in Bardin. Neither assertion is correct. Daugherty alleged no facts that would establish Honda was "bound to disclose" the defect in the F22 engine. (Bardin, supra, 136 Cal.App.4th at p. 1276, 39 Cal.Rptr.3d 634.) Daugherty claims the complaint alleges Honda's knowledge of "unreasonable risk" to plaintiffs at the time of sale, but the "unreasonable risk" alleged is merely the risk of "serious potential damages"—namely, the cost of repairs in the event the defect ever causes an oil leak. The sole allegation mentioning "safety" is the paragraph claiming punitive damages, and that paragraph merely asserts a legal conclusion: that Honda's conduct was "carried on with a willful and conscious disregard for the safety of Plaintiffs and others, entitling Plaintiffs to exemplary damages under Civil Code § 3294." (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58 [courts treat a demurrer as admitting all properly pleaded material facts, but not contentions, deductions, or conclusions of fact or law].) The complaint is devoid of factual allegations showing any instance of physical injury or any safety concerns posed by the defect. (See Bardin, supra, 136 Cal.App.4th at pp. 1261-1262, 1270, 39 Cal.Rptr.3d 634 [plaintiffs alleged the manufacturer knew and concealed fact that tubular steel exhaust manifolds prematurely cracked and failed much earlier than conventional cast iron manifolds; plaintiffs did not allege any personal injury or safety concerns and did not allege use of the manifolds violated any warranty or other agreement].) Honda's "affirmative representations at the time of sale" were its express warranties, as to which no breach occurred. (See part I, ante.) As in Bardin, no facts are alleged which show Honda "ever gave any information of other facts which could have the likely effect of misleading the public `for want of communication' of the defect in the F22 engine; Daugherty's complaint "did not allege a single affirmative representation" by Honda regarding the F22 engine.
IV. Violation of the unfair competition law.
Daugherty asserts the conduct alleged in the complaint constitutes unlawful, unfair and fraudulent business practices within the meaning of the unfair competition law (UCL), Business and Professions Code section 17200 et seq. Again, we disagree.
Conduct violating the UCL includes "any unlawful, unfair or fraudulent business act or practice...." (Bus. & Prof. Code, § 17200.) By proscribing unlawful business practices, the UCL borrows violations of other laws and treats them as independently actionable. In addition, practices may be deemed unfair or deceptive even if not proscribed by some other law. Thus, there are three varieties of unfair competition: practices which are unlawful, unfair or fraudulent. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (Cel-Tech).) Daugherty fails to allege a violation of the UCL under any of the three prongs.
First, we rejected Daugherty's claims that Honda's conduct violated Magnuson-Moss and the CLRA. Consequently, Daugherty cannot state a violation of the UCL under the "unlawful" prong predicated on a violation of either statute, as there were no violations.
Second, the conduct alleged does not constitute a fraudulent business act or practice. Unlike common law fraud, a Business and Professions Code section 17200 violation can be shown even without allegations of actual deception, reasonable reliance and damage. Historically, the term "fraudulent," as used in the UCL, has required only a showing that members of the public are likely to be deceived. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 211, 197 Cal.Rptr. 783, 673 P.2d 660.) Daugherty contends Honda's failure to disclose the defect in the F22 engine at the time of sale, failure to include 1990-1993 model years in its product update campaign and press releases, and failure to give proper notice to purchasers of 1994-1997 model year cars is "likely to deceive" those customers "into believing that no such defect exists." We cannot agree that a failure to disclose a fact one has no affirmative duty to disclose is "likely to deceive" anyone within the meaning of the UCL. As observed in Bardin, supra, 136
Third, Daugherty asserts in its opening brief, without elaboration, that Honda's conduct was "inherently `injurious' to consumers" and thus an unfair business practice under the UCL.
The judgment is affirmed. Respondents are to recover their costs on appeal.
We concur: RUBIN, Acting P.J., and FLIER, J.