Hale v. Norcold Inc.

          ORDER

          HONORABLE STEVEN P. LOGAN UNITED STATES DISTRICT JUDGE.

         Before the Court is Norcold Incorporated, Thetford Corporation, and Dyson-Kissner-Moran Corporation (together, the “Defendants”) Motion to Dismiss Fraudulent Concealment Claim and to Dismiss Complaint Pursuant to Rule 8, or Alternatively, Motion to Strike (the “Motion”). (Doc. 5) The Motion was fully briefed on November 27, 2018. (Docs. 12, 14) The Court's ruling is as follows.

         I. Background

         On or about September 4, 2010, Suzanne and Jerry Hale (together, the “Plaintiffs”) purchased from a third party a recreational vehicle (“RV”) that came equipped with a Norcold 1200 gas absorption refrigerator (“Refrigerator”). (Doc. 1-3 at 41-42) Norcold Incorporated (“Norcold”) is a corporation whose stock is owned entirely by Thetford Corporation (“Thetford”) and Dyson-Kissner-Moran Corporation (“DKM”).^[1] (Doc 1-3 at 5) The Refrigerator in the Plaintiffs' RV was manufactured by the Defendants on February 12, 2006, and installed in the RV thereafter. (Doc. 1-3 at 41-42)

         On the morning of September 29, 2016, Plaintiffs' RV was parked in Dewey, Arizona with neither Plaintiff inside. (Doc. 1-3 at 42) Shortly after 9:30 a.m., Jerry Hale saw the RV on fire with flames coming from the top refrigerator vent on the roof. (Doc. 1-3 at 42) The fire destroyed the RV and most of Plaintiffs' personal property. (Doc. 1-3 at 42) On January 20, 2017, an inspection of the RV revealed burn patterns on the Refrigerator consistent with the fire originating from a leak in the Refrigerator's boiler tube. (Doc. 1-3 at 45) The results of another inspection on July 26-28, 2017, were consistent with the fire having been caused by defective boiler tube design and a corrosion defect in the Refrigerator. (Doc. 1-3 at 46-47) Since at least 1997, the Defendants have designed, manufactured, and sold gas absorption refrigerators such as the one in the Plaintiffs' RV. (Doc. 1-3 at 11) The Plaintiffs allege that the Defendants concealed and misrepresented defects in their refrigerators to customers and federal regulators in a variety of ways between 1999 and 2012. (Doc. 1-3 at 26-39)

         On July 16, 2018, the Plaintiffs filed a complaint (the “Complaint”) (Doc. 1-3) in Maricopa County Superior Court with claims against the Defendants for strict liability due to design defect, strict liability due to failure to warn, negligence, negligence due to post-sale duty to warn, negligence per se, negligence due to post-sale duty to conduct adequate recall/retrofit, and fraudulent concealment. (Doc. 1-2 at 1; Doc. 1-3 at 56-66) On October 30, 2018, the Defendants removed the case to this Court based on diversity jurisdiction. (Doc. 1-1 at 1) On November 5, 2018, the Defendants filed the Motion seeking to dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6), 9(b), 8, and 12(f). (Doc. 5 at 1)

         II. Legal Standard

         To survive a FRCP 12(b)(6) motion to dismiss, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief” such that the defendant is given “fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007) (quoting Fed.R.Civ.P. 8(a)(2); Conley v. Gibson, 355 U.S. 41, 47 (1957)). The Court may dismiss a complaint for failure to state a claim under FRCP 12(b)(6) for two reasons: (1) lack of a cognizable legal theory, and (2) insufficient facts alleged under a cognizable legal theory. Balistreri v. Pacificia Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

         In deciding a motion to dismiss, the Court must “accept as true all well-pleaded allegations of material fact, and construe them in the light most favorable to the non-moving party.” Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). In comparison, “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences” are not entitled to the assumption of truth, and “are insufficient to defeat a motion to dismiss for failure to state a claim.” Id.; In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). A plaintiff need not prove the case on the pleadings to survive a motion to dismiss. OSU Student All. v. Ray, 699 F.3d 1053, 1078 (9th Cir. 2012).

         III. Analysis

         A. Dismissal of Fraudulent Concealment Claim Under FRCP 9(b)

         A motion to dismiss a complaint or claim “grounded in fraud” under FRCP 9(b) for failure to plead with particularity is the functional equivalent of a motion to dismiss under FRCP 12(b)(6) for failure to state a claim. Blue Cross of California Inc. v. Insys Therapeutics Inc., 2019 WL 2099945, at 7 (D. Ariz. May 14, 2019) (citing Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003)). Under FRCP 9(b), a claim alleging fraud must “state with particularity the circumstances constituting fraud. . . .” Fed.R.Civ.P. 9(b). “[A]llegations of fraud must be ‘specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong.'” Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (quoting Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993)). An allegation of fraud must be accompanied by “the who, what, when, where, and how” of the misconduct charged. Vess, 317 F.3d at 1106 (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997)). When a claim within a complaint is grounded in fraud and the claimant fails to meet the FRCP 9(b) standard for that claim, the claim may be dismissed. Vess, 317 F.3d at 1107.

         The Defendants argue that the Plaintiffs have failed to meet the FRCP 9(b) standard for their fraudulent concealment claim. (Doc. 5 at 2-4) Under Arizona law, a fraudulent concealment claim transpires when “[o]ne party to a transaction who by concealment or other action intentionally prevents the other from acquiring material information is subject to the same liability to the other, for pecuniary loss as though he had stated the nonexistence of the matter that the other was thus prevented from discovering.” Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Tr. Fund, 38 P.3d 12, 34 (Ariz. 2002) (quoting Restatement (Second) of Torts § 550 (1976)). Under this definition, it is clear that the Plaintiffs' claim should immediately fail because the Plaintiffs and the Defendants were never parties to the same transaction; rather, the Plaintiffs bought their RV from a third party with the Refrigerator made by the Defendants already installed. (Doc. 1-3 at 41-42); see also Sullivan v. Pulte Home Corp., 290 P.3d 446, 454-55 (Ariz.Ct.App. 2012) (affirming dismissal of a fraudulent concealment claim by a subsequent home buyer against the original builder because “being a party to a transaction is a necessary element of a fraudulent concealment claim”), vacated in part on other grounds, 306 P.3d 1 (Ariz. 2013).

         The District of Arizona has also consistently applied the fraudulent concealment elements stated in Coleman v. Watts, 87 F.Supp.2d 944 (D. Ariz. 1998)-which does not include a transactional requirement. Both the Wells Fargo and Coleman cases involved common law fraudulent concealment claims in Arizona. However, since the Court is hearing this case on diversity jurisdiction and thereby applying state law, decisions of the Arizona Supreme Court-such as Wells Fargo-are more authoritative than the case law of this District-such as Coleman. See Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938). In addition, Coleman is older case law than Wells Fargo and borrowed its elements for fraudulent concealment from a much older case in Colorado. Coleman, 87 F.Supp.2d at 951 (citing Morrison v. Goodspeed, 68 P.2d 458 ...