GRAY v. BMW OF NORTH AMERICA, LLC

Filing 38

OPINION. Signed by Judge William J. Martini on 9/23/14. (gh, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

ROBERT GRAY and MARKUM
GEORGE, individually on behalf of a class
similarly situated individuals,
Plaintiffs,

Docket No.: 13-cv-3417-WJMMF

OPINION

v.
BMW OF NORTH AMERICA, LLC and
BMW AKTIENGESELLSCHAFT,
Defendants.

WILLIAM J. MARTINI, U.S.D.J.:
Co-Defendant BMW Aktiengesellschaft (“BMW AG”) filed this motion to
dismiss pursuant Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth
below, the motion is DENIED.
I.

BACKGROUND

This is a putative class action regarding certain BMW convertible models.
The Complaint’s factual basis was fully discussed in the court’s May 28, 2014
opinion granting in part co-Defendant BMW of North America, LLC’s (“BMW
NA”) motion to dismiss. ECF No. 21; Gray v. BMW of N. Am., LLC, 13-CV-3417WJM-MF, 2014 WL 2208131 (D.N.J. May 28, 2014). BMW AG is a German entity
residing in Munich, Germany. BMW NA refused to accept service on BMW AG’s
behalf. ECF No. 19. On March 31, 2014, Plaintiffs requested an order to permit
APS International Ltd. to serve BMW AG in accordance with the Hague
Convention. ECF No. 19. On April 17, 2014, the court granted the request. ECF

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No. 20. Service was apparently successful, as BMW AG has filed this motion to
dismiss.
II.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a
complaint, in whole or in part, if the plaintiff fails to state a claim upon which relief
can be granted. The moving party bears the burden of showing that no claim has
been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding
a motion to dismiss under Rule 12(b)(6), a court must take all allegations in the
complaint as true and view them in the light most favorable to the plaintiff. See
Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d
Cir. 1998) (citing Warth v. Seldin, 422 U.S. 490, 501 (1975)).
Although a complaint need not contain detailed factual allegations, “a
plaintiff’s 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 Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Thus, the factual allegations must be sufficient to raise a plaintiff’s right to relief
above a speculative level, such that it is “plausible on its face.” See id. at 570; see
also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008).
“[D]etermining whether a complaint states a plausible claim is context-specific,
requiring the reviewing court to draw on its experience and common sense.”
Ashcroft v. Iqbal, 556 U.S. 662, 663-64 (2009). A claim has “facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
678 (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard is not akin
to a ‘probability requirement’ . . . it asks for more than a sheer possibility.” Id. at
678.
III.

DISCUSSION

By order dated May 28, 2014, the court dismissed several counts of Plaintiffs’
Complaint: Count 1 (Violation of New Jersey Consumer Fraud Act), Count III
(Breach of the Duty of Good Faith and Fair Dealing), Count 4 (Unjust Enrichment),
and Count 7 (Violation of California’s Song-Beverly Act). The findings supporting
the dismissal of these claims were not specific to BMW NA. Dismissal was effective
as to all parties.
BMW AG advances additional arguments for dismissing Count 2 (Common
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Law Fraud), Count 5 (Violation of California’s Consumer Legal Remedies Act), and
Count 6 (Violation of California’s Unfair Competition Law). Finding BMW AG’s
arguments unpersuasive, the court denies the motion in regards to those causes of
action.
A.

Specificity of Fraud Pleadings

BMW AG argues that Plaintiffs’ common law and statutory fraud claims fail
to meet the specificity requirements of Federal Rule of Civil Procedure 9(b) because
Plaintiffs do not distinguish the acts of BMW NA from the acts of BMW AG.
Considering that this is a case of an alleged fraudulent concealment perpetrated by
sophisticated corporate entities that are related to each other, the Plaintiffs need not
distinguish the specific roles that each entity played in the fraudulent concealment
in order to meet the Rule 9(b) standard.
Under Rule 9(b), a plaintiff alleging fraud must state the circumstances of the
alleged fraud with sufficient particularity to place the defendants on notice of the
“precise misconduct with which they are charged.” Lum v. Bank of America, 361
F.3d 217, 223-24 (3d Cir. 2004). “The purpose of Rule 9(b) is to provide notice, not
to test the factual allegations of the claim.” Morganroth & Morganroth v. Norris,
McLaughlin & Marcus, P.C., 331 F.3d 406, 414 n. 2 (3d Cir. 2003). A plaintiff “must
plead or allege the date, time, and place of the alleged fraud or otherwise inject
precision or some measure of substantiation into a fraud allegation.” Frederico v.
Home Depot, 507 F.3d 188, 200 (3d Cir. 2007).
“Courts must be sensitive to the fact that application of Rule 9(b) prior to
discovery ‘may permit sophisticated defrauders to successfully conceal the details
of their fraud.’” Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989)
(quoting Christidis v. Pennsylvania Mortgage Trust, 717 F.2d 96, 99-100 (3d Cir.
1983)); see also Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644, 658 (3d
Cir. 1998) (“Courts should . . . apply the rule with some flexibility and should not
require plaintiffs to plead issues that may have been concealed by the defendants.”).
“Particularly in cases of corporate fraud, plaintiffs cannot be expected to have
personal knowledge of the details of corporate internal affairs.” Craftmatic, 890
F.2d at 645 (citing Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir.
1987)). “In cases where the fraud alleged is the fraudulent omission of information
within the exclusive control of the Defendant, the standard is relaxed.” Gray v. BMW
of N. Am., LLC, 13-CV-3417-WJM-MF, 2014 WL 2208131, at *9 (D.N.J. May 28,
2014) (citing Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088, 1099 (N.D. Cal.
2007)).
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BMW AG’s argument that the Plaintiffs failed to meet the Rule 9(b) standard
by not specifying how BMW AG’s acts differed from BMW NA’s acts is not
persuasive. BMW AG relies primarily upon an unpublished district court case,
Pappalardo v. Combat Sports, Inc., CIV.A. 11-1320 MLC, 2011 WL 6756949
(D.N.J. Dec. 23, 2011). Pappalardo was a putative class action against several
manufacturers of composite barrel baseball bats. The manufacturers allegedly
labeled the bats as having a “bat performance standard” or “BPF of 1.15 or lower”
when in fact, the bats did not maintain that BPF once in use. Pappalardo states,
“Failure to inform each defendant as to the specific fraudulent acts alleged against it
contravenes the pleading requirements of Rule 9(b).” Id., at *4. The Pappalardo
court stated in its analysis that the Complaint lumped all the manufacturers together
as the “Manufacturer Defendants” without “distinguishing the acts or omissions of
any one named Manufacturer Defendant from any other.” Id., at *4.
However, this particular finding of the Pappalardo court is immaterial to the
dismissal on Rule 9(b) grounds of the Pappalardo Complaint. Earlier in the
Pappalardo opinion, the court notes that each of the Manufacturer Defendants were
accused of the same action, so specifying what each Manufacturer Defendant did
would have been redundant and thus unimportant in the final analysis.
Functionally, dismissal of the fraud claims in Pappalardo relied upon other
failings of the Complaint: failure to identify the bats in question and failure to
explain the meaning of “BPF of 1.15 or lower.” Theses failures were critical, as they
went to Rule 9(b)’s underlying policy of providing notice to the Defendants.
Without informing the Manufacturer Defendants what “BPF of 1.15 or lower” meant
or which bats were affected, the Pappalardo court properly concluded that the
Complaint failed to put the Defendants on notice of the allegations.
Here, by contrast, Plaintiffs’ Amended Complaint adequately puts BMW AG
on notice of the allegations against it – that it “had exclusive knowledge” of the
defect based upon “pre-release testing data, early consumer complaints about the
defect to Defendant directly and its dealers, testing and investigations conducted in
response to these complaints, replacement parts sales data, aggregate data about the
convertible top defect from BMW’s dealers, including high number of warranty
reimbursement claims (contained in BMW’s warranty database), and from other
internal sources that are only accessible to BMW.” Gray v. BMW of N. Am., LLC,
13-CV-3417-WJM-MF, 2014 WL 2208131 (D.N.J. May 28, 2014) (quoting
Complaint at ¶ 48). Another alleged source of BMW AG’s knowledge was the
alleged communication regarding servicing and warranting between BMW NA and
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BMW AG. Complaint at ¶ 43. Moreover, the Complaint alleges that “BMW”
actively concealed the defect by advising dealers “to make temporary repairs to
ensure that the manifestation of the defects occurred outside the warranty period,
thereby shifting financial responsibility for the defect onto consumers” and by not
having a recall. Gray v. BMW of N. Am., LLC, 13-CV-3417-WJM-MF, 2014 WL
2208131, at *7 (D.N.J. May 28, 2014) (citing Complaint at ¶¶ 14, 18). The
Complaint explicitly alleges that BMW AG is involved in the manufacture,
exporting, and warranting of the subject convertibles, Complaint at ¶ 42, and thus it
is plausible that BMW AG had an interest in shirking responsibility for the alleged
defects. Taken together, all these alleged facts adequately put BMW AG on notice
that the undifferentiated “BMW” referenced in the Complaint’s interior refers in part
to BMW AG and its involvement with the intentional efforts to conceal information
about the defect from consumers and shift financial responsibility for repairs onto
them.
It would be wrong to require Plaintiffs at this procedural posture to separate
the specific role of BMW AG from the role of BMW NA in perpetrating the alleged
fraudulent concealment. Because this is a fraudulent concealment case involving
the internal doings of a sophisticated corporation, those facts are within the
Defendants’ knowledge and are properly to be determined through discovery, not on
a motion to dismiss. See Alfaro v. Community Housing Imp. System & Planning
Ass’n, Inc., 171 Cal. App. 4th 1356, 1384-85 (2009) (finding that it was not
necessary for the Plaintiffs to allege the detailed minutiae of how, when, and where
certain non-disclosures or concealment took place and that the details of the
concealment were “properly the subject of discovery, not demurrer.”).
B.

California Consumer Legal Remedies Act (CLRA) and Unfair
Competition Law (UCL)

BMW AG notes that the CLRA prohibits “unfair methods of competition and
unfair or deceptive acts or practices undertaken by any person in a transaction
intended to result or which results in the sale or lease of goods or services to a
consumer.” Cal. Civ. Code § 1770(a) (emphasis added). The CLRA defines “a
transaction” broadly as “an agreement between consumer and any other person,
whether or not the agreement is a contract enforceable by action, and includes the
making of, and the performance pursuant to, that agreement.” Cal. Civ. Code §
1761(e) (emphasis added); Keilholtz v. Superior Fireplace Co., 2009 WL 839076,
at *3.
BMW AG argues that the CLRA cause of action should be dismissed because
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Plaintiffs do not allege any agreement between Plaintiffs and BMW AG. This
argument is not persuasive. The CLRA is to be interpreted liberally to promote its
underlying purposes, which are to protect consumers against unfair and deceptive
business practices and to provide efficient and economical procedures to secure such
protection. Keilholtz, supra, at * 3. Although neither party has cited binding case
law directly on point, the weight of persuasive authority stacks heavily against BMW
AG. Recently, the Defendant in the case Rossi v. Whirlpool Corp., 2013 WL
5781673 (E.D. Cal. Oct. 25, 2013) made the same argument that BMW makes here.
The Rossi court agreed that the weight of persuasive authority falls heavily against
the position that BMW takes here:
Defendant contends that Plaintiffs’ CLRA claim fails because Plaintiffs
bought their refrigerators from third-party vendors and not directly
from Defendant. Defendant has not cited any cases in support of its
contention. In contrast, Plaintiffs have provided the Court with
numerous cases supporting their contention that a direct sale is not
required to allege a CLRA claim. See Tietsworth v. Sears, 720 F. Supp.
2d 1123, 1140 (N.D. Cal. 2010); Keilholtz v. Superior Fireplace
Co., No. C 08-00836 CW, 2009 WL 839076, at *3-4 (N.D. Cal. Mar.
30, 2009); Chamberlan v. Ford, 369 F. Supp. 2d 1138, 1144 (N.D. Cal.
2005). These cases demonstrate that where a manufacturer had
exclusive knowledge of a defect and the consumer relied upon that
defect, the CLRA’s protection extends to the manufacturer as well,
regardless of whether the consumer dealt directly with the
manufacturer. See Tietsworth, 720 F. Supp. 2d at 1140; Keilholtz, 2009
WL 839076, at *3-4; Chamberlan, 369 F. Supp. 2d at 1144.
Accordingly, the Court finds that Plaintiffs have adequately pled their
CLRA claim.
Id., at *10; see also McAdams v. Monier, Inc., 182 Cal. App. 4th 174, 186 (Cal. App.
1st. Dist. 2010) (“We also pause here to note that a cause of action under the CLRA
may be established independent of any contractual relationship between the
parties.”); Wang v. Massey Chevrolet, 97 Cal. App. 4th 856, 869 (2002) (“Any
consumer who suffers any damage as a result of the use or employment by any
person of a method, act or practice declared to be unlawful by section 1770 may
bring an action against that person.”).
In Chamberlan v. Ford Motor Co., C 03-2628 CW, 2003 WL 25751413 (N.D.
Cal. Aug. 6, 2003), the court explained:

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“[B]efore the [CLRA] was passed, the legislature . . . expanded the
range of illegal acts and practices to include those “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.” Nothing in the language
of the CLRA states that only a defendant who directly engaged in a
completed transaction with a plaintiff may be liable to that plaintiff.
Viewed in light of the provision to construe the statute liberally, the
broad language of the statute suggests that the legislature intended the
CLRA to cover a wide range of business activities.
Id., at * 7 (emphasis added).
BMW AG cites one unpublished district court case, Green v. Canidae Corp.,
CV 09-0486 GAF PLAX, 2009 WL 9421226 (C.D. Cal. June 9, 2009) for the
proposition that a “transaction” under the CLRA does not occur between a consumer
and a manufacturer where the manufacturer does not sell directly to the consumer.
Green was a suit that pet-owners brought against the manufacturer of a pet food that
sickened pets. The Green court dismissed the pet-owners’ claims, finding that
because the pet-owners purchased the pet food from retailers, not from the
manufacturer, there was no “transaction” giving the pet-owners standing to sue the
manufacturer. In support of this conclusion, the Green court states:
In circumstances like those in issue in this case, the manufacturer
never transacted business or intended to transact business with the
consumer. The CLRA outlaws unfair practices “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.” Cal. Civ. Code § 1770(a).
A transaction is defined as “an agreement between a consumer and any
other person.” Id. § 1761(e). Finally, the statute itself describes the
underlying purposes of the CLRA as “to protect consumers against
unfair and deceptive business practices and to provide efficient and
economical procedures to secure such protection.” Cal. Civ. Code §
1760 (emphasis added). Thus, the Court finds the legislation clearly
contemplates consumer transactions between a consumer and a retail
seller, and does not apply to commercial transactions between a retailer
and its vendors to acquire a supply of goods for resale.
In so holding, the Court declines to adopt the reasoning of
Chamberlan v. Ford Motor Co., No. C 03–2628 CW, 2003 WL
25751413, *7-8 (N.D. Cal. Aug. 6, 2003), in which the district court
held plaintiffs could bring a CLRA claim against Ford, despite the fact
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that they purchased their car from a used car dealer and not from the
car manufacturer itself. The Court is not persuaded by the Chamberlan
court’s interpretation of the CLRA’s “intended to result” language as
extending the statute’s application to transactions that do not directly
involve a consumer. The implication of that court’s holding is to apply
the CLRA to all vendor transactions as long as they are present
somewhere in the chain of sale of a consumer good. The CLRA does
not contemplate that result.
Green v. Canidae Corp., 2009 WL 9421226, at *4 (emphasis added).
Not only does the weight of the persuasive authority fall against Green, but
Green’s analysis itself is not persuasive. It is hard to say with certainty how remote
the relationship between a plaintiff-consumer and a defendant has to be before the
CLRA no longer provides a cause of action for the plaintiff-consumer. However, it
seems clear to this court that where the CLRA states that it applies to a transaction
“intended to result . . . in the sale of goods,” that it contemplates the sale of goods
between a manufacturer and a retailer who then sells directly to plaintiff-consumers.
This is because when a manufacturer sells to a retailer, the manufacturer intends for
the retailer to re-sell the goods directly to consumers. Green concludes summarily
that that permitting consumers to directly sue the manufacturers would contradict
the dual CLRA purposes of consumer protection and efficiency. Id., at *4. But
Green states no reason for so concluding. On the contrary, it seems to this court that
preventing consumers from suing manufacturers under the CLRA would require
them to resort to less consumer-friendly causes of action for breach of warranty or
common law fraud. For all the reasons stated above, the court denies BMW NA’s
motion with regard to the CLRA cause of action.
BMW AG argued that if the CLRA cause of action were to be dismissed, then
this court would also have to dismiss the UCL cause of action. This is because
allegations of unlawful and unfair practices under the UCL are premised upon the
successful pleading of CLRA violations. See Falk, 496 F. Supp. 2d at 1098. But
since BMW AG fails to persuasively argue that the CLRA cause of action should be
dismissed, the UCL cause of action will not be dismissed either.

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IV.

CONCLUSION

For the reasons stated above, BMW AG’s motion to dismiss is DENIED. An
appropriate order follows.
/s/ William J. Martini
______________________________
WILLIAM J. MARTINI, U.S.D.J.

Date: September 23, 2014

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