Court Opinion

ID: 3064757
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:26:55.004606+00
Date Added: 2024-06-11T09:16:42.331708
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

WILLIAM RAY KEARNS, on behalf of        
himself and all others similarly
situated,                                    No. 07-55835
                 Plaintiff-Appellant,
                 v.                           D.C. No.
                                            CV-05-05644-AG
FORD MOTOR COMPANY;                            OPINION
CLAREMONT FORD,
           Defendants-Appellees.
                                        
        Appeal from the United States District Court
           for the Central District of California
        Andrew J. Guilford, District Judge, Presiding

                  Argued and Submitted
          October 20, 2008—Pasadena, California

                      Filed June 8, 2009

    Before: Harry Pregerson, Cynthia Holcomb Hall and
             N. Randy Smith, Circuit Judges.

                Opinion by Judge N.R. Smith

                             6815
6818           KEARNS v. FORD MOTOR COMPANY

                         COUNSEL

Joseph D. Daly and Elisabeth A. Bowman, Coughlin Sotia
Geller Rudman & Robbins LLP, San Diego, California, for
the plaintiff-appellant.

Thomas M. Riordan, O’Melveny & Myers LLP, Newport
Beach, California, for the defendants-appellees.

                         OPINION

N.R. SMITH, Circuit Judge:

   William Kearns’s Third Amended Complaint (“TAC”)
claimed violations of California’s Consumers Legal Remedies
Act (“CLRA”), Cal. Civ. Code §§ 1750-1784, and Califor-
nia’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof.
Code §§ 17200-17210. Those state claims are subject to Rule
9(b) of the Federal Rules of Civil Procedure (“Rule 9(b)”)
which requires that allegations of fraud be pleaded with par-
ticularity. See Fed. R. Civ. P. 9(b). Because we find that
Kearns’s claims were all grounded in fraud, his failure to
plead the TAC with particularity merited its dismissal, and we
must affirm the district court. As the TAC was properly dis-
                KEARNS v. FORD MOTOR COMPANY                6819
missed, we need not reach the moot issue of whether the dis-
trict court abused its discretion by striking the first footnote.

      I.   FACTS AND PROCEDURAL HISTORY

   Kearns brought this diversity class action for himself and
those similarly situated (collectively “Kearns”), claiming that
Ford Motor Company and its dealerships (collectively
“Ford”) acted illegally to increase sales of their Certified Pre-
Owned (“CPO”) vehicles, in violation of the CLRA and UCL.
The district court dismissed Kearns’s TAC for failure to plead
fraud with particularity as required by Rule 9(b) and granted
Ford’s request to strike the first footnote of Kearns’s TAC.

   Ford offers potential buyers three classifications of cars to
purchase—new, used, and CPO. CPO vehicles are late model
used vehicles, which Ford purports to put through a rigorous
inspection process in order to certify that the vehicle’s safety,
reliability, and road-worthiness surpass non-certified used
vehicles. Ford advertises and markets these CPO vehicles to
purchasers at a premium (above that charged for ordinary
used cars).

   Ford Motor Company markets and sells the CPO program
to its dealerships as a way of repackaging its used car inven-
tory while increasing their profit margin. Ford Motor Com-
pany then charges each dealership (1) an annual fee for the
program and (2) a per-vehicle fee for each vehicle in the pro-
gram. Once enrolled, the dealership is supplied with market-
ing materials, instructional guides, and access to the CPO
database, which allows the dealerships to print standard
“Maroney-type” window stickers. In addition, Ford Motor
Company pays to promote, market, and advertise the CPO
program through a variety of print, broadcast, online, and
other media. Local dealerships are responsible for the imple-
mentation of the sale and service of CPO vehicles.

  Kearns makes several allegations concerning the purported
benefits of CPO vehicles. Specifically, Kearns contends that
6820            KEARNS v. FORD MOTOR COMPANY
Ford makes false and misleading statements concerning the
safety and reliability of its CPO vehicles. Kearns claims that,
by making such false statements, Ford conspires to mislead
class members into believing that the CPO program guaran-
tees a safer, more reliable, and more roadworthy used vehicle.
Such statements are allegedly made to get purchasers to rely
on the notion that CPO vehicles are safer due to the certifica-
tion process. Ford engages in such conduct to give the buyers
of CPOs “peace of mind,” which purportedly costs $1,080
dollars, an amount Kearns claims exceeds the benefit of this
“peace of mind.”

    Kearns also alleges that Ford has failed to disclose the very
little oversight it has over the certification process. Kearns
claims that Ford misrepresents (1) the quality of the complete
repair and accident-history report; (2) the level of training of
CPO technicians; and (3) the rigorous certification inspection.
Such misrepresentations are claimed to provide the consumer
with a sense of security that their CPO has passed a rigorous
inspection, has an extended warranty, and therefore is more
safe, more reliable, and more roadworthy than a regular used
vehicle. Kearns argues that the inspection is not rigorous; the
warranty does not cover all components; and the CPO vehi-
cles are not any safer, more reliable, or more roadworthy than
a regular used vehicle.

   Kearns originally filed this suit in California state court. It
was removed to federal court for diversity jurisdiction under
28 U.S.C. § 1332(d). Kearns moved to remand under the
“local controversy exception” to the Class Action Fairness
Act which was denied. Kearns then filed an Amended Com-
plaint which was dismissed (with leave to amend) for failing
to state a claim. The district court also dismissed the Second
Amended Complaint, finding that it failed to meet the height-
ened pleading standards of Rule 9(b). Kearns then filed the
TAC, which is the operative complaint on appeal.
                   KEARNS v. FORD MOTOR COMPANY                   6821
   Ford (1) filed a Motion to Dismiss the TAC for failing to
comply with the heightened pleading standards of Rule 9(b)
and (2) moved to strike the first footnote of the TAC.1 The
district court granted Ford’s Motion to Dismiss the TAC with
leave to amend and granted Ford’s Motion to Strike. Kearns
filed a Notice of Intent Not to File an Amended Complaint,
because he believed the TAC met the standards for pleading
a cause of action under the CLRA and UCL. Following this
filing, the district court dismissed the case. Kearns timely
filed his notice of appeal.

             II.    MOTION UNDER RULE 9(b)

   Kearns argues that his claims should not be subject to Rule
9(b), because (1) California state law precedent is contrary to
Rule 9(b); (2) some of his claims are not based in fraud; and
(3) the complaint should have been evaluated under the
unfairness prong of the UCL instead.2 We review de novo dis-
  1
   The footnote stated:
      In Jahadi v. Ford Motor Co., no. GIC811883 (San Diego Super.
      Ct.), 15 year old Nasrin Jahadi died when the family’s Ford
      Explorer suddenly lost control and rolled over. A Ford authorized
      CPO dealer sold the family the Ford Explorer as part of the Ford
      CPO program. At the time, the family was assured that, pursuant
      to the CPO program, the Ford Explorer was safe and reliable, as
      it had been rigorously inspected through the Ford CPO program.
      Upon further investigation, it was revealed that the Ford Explorer
      had been previously sold to a wholesaler at an auto auction for
      a discounted price due to “frame damage.” The Ford authorized
      CPO dealer purchased the Ford Explorer from the wholesaler and
      subsequently sold it to the Jahadi family under the Ford CPO pro-
      gram. The Ford CPO program and inspection, however, failed to
      spot the frame damage that ultimately caused the death of young
      Nasrin Jahadi. Subsequent investigation into the CPO program
      led to the filing of this class action suit.
   2
     Kearns also argues that the United States Supreme Court has admon-
ished attempts to augment pleading requirements. However, the cases he
cites involved claims not based on averments of fraud or mistake. See
Swierkiewicz v. Sorema N.A., 534 U.S. 506, 513 (2002). Thus, those cases
are not inconsistent with our holding here regarding claims where fraud
is averred.
6822            KEARNS v. FORD MOTOR COMPANY
missals under Rule 9(b). Vess v. Ciba-Geigy Corp. USA, 317
F.3d 1097, 1102 (9th Cir. 2003). Thus, the panel must con-
sider the matter anew, as if no decision previously had been
rendered. See Ness v. Comm’r, 954 F.2d 1495, 1497 (9th Cir.
1992) (citing United States v. Silverman, 861 F.2d 571, 576
(9th Cir. 1988)).

   Rule 8(a)(2) of the Federal Rules of Civil Procedure
requires a party’s pleading to contain “a short and plain state-
ment of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(2). However, Rule 9(b) requires
that, when fraud is alleged, “a party must state with particular-
ity the circumstances constituting fraud . . . .” Fed. R. Civ. P.
9(b). Where fraud is not an essential element of a claim, only
those allegations of a complaint which aver fraud are subject
to Rule 9(b)’s heightened pleading standard. Vess, 317 F.3d
at 1105. Any averments which do not meet that standard
should be “disregarded,” or “stripped” from the claim for fail-
ure to satisfy Rule 9(b). Id. To the extent a party does not aver
fraud, the party’s allegations need only satisfy the require-
ments of Rule 8(a)(2). Id. “Fraud can be averred by specifi-
cally alleging fraud, or by alleging facts that necessarily
constitute fraud (even if the word ‘fraud’ is not used).” Id.

   Rule 9(b) demands that the circumstances constituting the
alleged fraud “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 any-
thing wrong.’ ” Bly-Magee v. California, 236 F.3d 1014, 1019
(9th Cir. 2001) (quoting Neubronner v. Milken, 6 F.3d 666,
671 (9th Cir. 1993)). “Averments of fraud must be accompa-
nied by ‘the who, what, when, where, and how’ of the mis-
conduct charged.” Vess, 317 F.3d at 1106 (quoting Cooper v.
Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). A party alleging
fraud must “set forth more than the neutral facts necessary to
identify the transaction.” In re GlenFed, Inc. Sec. Litig., 42
F.3d 1541, 1548 (9th Cir. 1994), superceded by statute on
other grounds.
                KEARNS v. FORD MOTOR COMPANY                6823
   Rule 9(b) serves three purposes: (1) to provide defendants
with adequate notice to allow them to defend the charge and
deter plaintiffs from the filing of complaints “as a pretext for
the discovery of unknown wrongs”; (2) to protect those whose
reputation would be harmed as a result of being subject to
fraud charges; and (3) to “prohibit [ ] plaintiff[s] from unilat-
erally imposing upon the court, the parties and society enor-
mous social and economic costs absent some factual basis.”
In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1405 (9th Cir.
1996) (quoting Semegen v. Weidner, 780 F.3d 727, 731 (9th
Cir. 1985)) (internal quotations omitted, brackets in original).

                             A.

   Kearns’s first argument—that Rule 9(b) does not apply to
California’s consumer protection statutes because California
courts have not applied Rule 9(b) to the Consumer Protection
Statutes, which include the CLRA and UCL—is unavailing.
It is well-settled that the Federal Rules of Civil Procedure
apply in federal court, “irrespective of the source of the sub-
ject matter jurisdiction, and irrespective of whether the sub-
stantive law at issue is state or federal.” See Vess, 317 F.3d
at 1102 (citing Hanna v. Plumer, 380 U.S. 460 (1965)).
“ ‘[W]hile a federal court will examine state law to determine
whether the elements of fraud have been pled sufficiently to
state a cause of action, the Rule 9(b) requirement that the cir-
cumstances of the fraud must be stated with particularity is a
federally imposed rule.’ ” Vess, 317 F.3d at 1103 (quoting
Hayduk v. Lanna, 775 F.3d 441, 443 (1st Cir. 1985) (empha-
sis omitted, brackets in original)).

   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
. . . of goods or services to any consumer.” Cal. Civ. Code
§ 1770. The UCL prohibits “unlawful, unfair or fraudulent
business act[s] or practice[s]” and “unfair, deceptive, untrue
or misleading advertising.” Cal. Bus. & Prof. Code § 17200.
6824           KEARNS v. FORD MOTOR COMPANY
Rule 9(b)’s particularity requirement applies to these state-
law causes of action. Vess, 317 F.3d at 1102-05. In fact, we
have specifically ruled that Rule 9(b)’s heightened pleading
standards apply to claims for violations of the CLRA and
UCL. Id.

                              B.

  Kearns next argues that some of his claims are not
grounded in fraud, and so should not be subject to Rule 9(b).
This argument is also unavailing.

   While fraud is not a necessary element of a claim under the
CLRA and UCL, a plaintiff may nonetheless allege that the
defendant engaged in fraudulent conduct. Id. at 1103. A plain-
tiff may allege a unified course of fraudulent conduct and rely
entirely on that course of conduct as the basis of that claim.
In that event, the claim is said to be ‘grounded in fraud’ or to
‘sound in fraud,’ and the pleading . . . as a whole must satisfy
the particularity requirement of Rule 9(b). Id. at 1103-04.

   Reviewing the complaint, Kearns alleges that Ford engaged
in a fraudulent course of conduct. Kearns’s TAC alleges that
Ford Motor Company conspires with its dealerships to mis-
represent the benefits of its CPO program to sell more cars
and increase revenue. Kearns alleges that Ford’s marketing
materials and representations led him to believe that CPO
vehicles were inspected by specially trained technicians and
that the CPO inspections were more rigorous and therefore
more safe. Kearns alleges he was exposed to these representa-
tions through (1) Ford’s televised national marketing cam-
paign; (2) sales materials found at the dealership where he
bought his vehicle; and (3) sales personnel working at the
dealership where he bought his vehicle. In reliance on these
representations, Kearns claims he purchased a CPO vehicle.
Therefore he alleges that Ford engaged in a fraudulent course
of conduct.
                KEARNS v. FORD MOTOR COMPANY                6825
   However, Kearns fails to allege in any of his complaints the
particular circumstances surrounding such representations.
Nowhere in the TAC does Kearns specify what the television
advertisements or other sales material specifically stated. Nor
did Kearns specify when he was exposed to them or which
ones he found material. Kearns also failed to specify which
sales material he relied upon in making his decision to buy a
CPO vehicle. Kearns does allege that he was specifically told
“CPO vehicles were the best used vehicles available as they
were individually hand-picked and rigorously inspected used
vehicles with a Ford-backed extended warranty.” Kearns does
not, however, specify who made this statement or when this
statement was made. Kearns failed to articulate the who,
what, when, where, and how of the misconduct alleged. The
pleading of these neutral facts fails to give Ford the opportu-
nity to respond to the alleged misconduct. Accordingly, these
pleadings do not satisfy the requirement of Rule 9(b) that “a
party must state with particularity the circumstances constitut-
ing fraud . . . .” Because Kearns failed to plead his averments
of fraud with particularity, we affirm the district court’s dis-
missal of his TAC.

   Kearns counters that his entire TAC was not grounded in
fraud because all of his allegations were not averments in
fraud. For example, Kearns contends that his claims against
Ford for their failure to disclose information pertinent to con-
sumers are not based in fraud. Kearns argues that his nondis-
closure claims are similar to those found not to be grounded
in fraud in Vess v. Ciba-Geigy. We disagree.

   To determine if the elements of fraud have been pleaded to
state a cause of action we look to state law. Vess, 317 F.3d at
1105-06. The elements of a cause of action for fraud in Cali-
fornia are: “(a) misrepresentation (false representation, con-
cealment, or nondisclosure); (b) knowledge of falsity (or
‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d)
justifiable reliance; and (e) resulting damage.” Engalla v. Per-
6826           KEARNS v. FORD MOTOR COMPANY
manente Med. Group, Inc., 15 Cal. 4th 951, 974 (Cal. 1997)
(emphasis added) (internal quotation marks omitted).

   The court in Vess held that “where fraud is not an essential
element of a claim, only allegations (‘averments’) of fraudu-
lent conduct must satisfy the heightened pleading require-
ments of Rule 9(b).” Vess, 317 F.3d at 1105. Applying this
rule, the court found that, “[b]ecause Vess’s allegations . . .
do not rely entirely on a unified fraudulent course of conduct,
his claims . . . are not ‘grounded in fraud’ ” as a whole. Id.
at 1106. The court found that some of Vess’s claims were
“not based on fraud . . . neither mention[ing] the word ‘fraud,’
nor alleg[ing] facts that would necessarily constitute fraud.”
Id. at 1105-06. The claims of failure to disclose in Vess were
held to “describe non-fraudulent conduct.” Id. at 1106.

   However, in Vess, this court derived its elements of fraudu-
lent misrepresentation from the California Court of Appeals
case, Hackethal v. National Casuality Co., 234 Cal. Rptr. 853,
857 (Ct. App. 1987). Id. at 1105 (stating the elements as
“false representation, knowledge of its falsity, intent to
defraud, justifiable reliance, and damages”). These elements,
however, have been changed by the Supreme Court of Cali-
fornia to include nondisclosure. See Engalla, 15 Cal. 4th at
974. Because the Supreme Court of California has held that
nondisclosure is a claim for misrepresentation in a cause of
action for fraud, it (as any other fraud claim) must be pleaded
with particularity under Rule 9(b). Therefore, Kearns’s con-
tention that his nondisclosure claims need not be pleaded with
particularity is unavailing. Kearns’s claims of nondisclosure
were couched in general pleadings alleging Ford’s intent to
conceal from customers that CPO vehicles were essentially
the same as ordinary used vehicles. Such general pleadings do
not satisfy the heightened pleading requirements of Rule 9(b).
Therefore, we hold that Kearns’s nondisclosure claims are
claims of fraud and were properly dismissed for not being suf-
ficiently pleaded.
                KEARNS v. FORD MOTOR COMPANY                 6827
                              C.

  Finally, Kearns contends that the district court erred by fail-
ing to specifically evaluate his complaint under the unfairness
prong of the UCL. Specifically, Kearns contends that a deter-
mination of whether a business practice violates the unfair-
ness prong is fact intensive and not conducive to resolution on
a motion to dismiss. We disagree.

   The UCL prohibits unfair competition, which it broadly
defines as including “any unlawful, unfair or fraudulent busi-
ness act or practice and unfair, deceptive, untrue or mislead-
ing advertising.” Cal. Bus. & Prof. Code § 17200. Each prong
of the UCL is a separate and distinct theory of liability; thus,
the “unfair” practices prong offers an independent basis for
relief. South Bay Chevrolet v. General Motors Acceptance
Corp., 85 Cal. Rptr. 2d 301, 316 (Ct. App. 1999).

   We held in Vess that if “the claim is said to be ‘grounded
in fraud’ . . . the pleading of that claim as a whole must satisfy
the particularity requirement of Rule 9(b).” Id. at 1103-04
(emphasis added). Kearns’s TAC alleges a unified course of
fraudulent conduct, namely that Ford Motor Company and its
“co-conspirator” dealerships knowingly misrepresent to the
public that CPO vehicles are safer and more reliable, with an
intent to induce reliance and defraud consumers. Because
Kearns’s TAC alleges a unified fraudulent course of conduct,
his claims against Ford are grounded in fraud. His entire com-
plaint must therefore be pleaded with particularity. Thus, the
TAC was properly dismissed and no error was committed by
not separately analyzing his claims under the unfairness prong
of the UCL.

                III.   MOTION TO STRIKE

   Kearns also contends that the district court abused its dis-
cretion when it struck the first footnote in the complaint,
because it “la[id] an important piece of the foundation for the
6828           KEARNS v. FORD MOTOR COMPANY
current action against defendants by providing necessary
background information.” “A claim is moot if it has lost its
character as a present, live controversy.” United States v.
Geophysical Corp. of Alaska, 732 F.2d 693, 698 (9th Cir.
1984); see also Ruvalcaba v. City of L.A., 167 F.3d 514, 521
(9th Cir. 1999) (“If there is no longer a possibility that an
appellant can obtain relief for his claim, the claim is moot and
must be dismissed for lack of jurisdiction.”). Because
Kearns’s whole TAC was properly dismissed, the issue of
whether this footnote was properly struck is moot. Therefore,
we need not reach it.

                    IV.   CONCLUSION

   The requirement in Rule 9(b) of the Federal Rules of Civil
Procedure that allegations of fraud be pleaded with particular-
ity applies to claims which are made in federal court under the
CLRA and UCL. We hold that Kearns’s entire TAC was
grounded in fraud. Thus, under Rule 9(b), Kearns’s failure to
plead his claims with particularity merited that complaint’s
dismissal. We therefore must affirm the district court. As the
TAC was properly dismissed, we need not reach the moot
issue of whether the district court abused its discretion by
striking the first footnote.

  AFFIRMED.