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Hart v. BHH, LLC

United States District Court, S.D. New York

July 7, 2017

JOANNE HART and SANDRA BUENO, on behalf of themselves and all others similarly situated, Plaintiffs,
BHH, LLC d/b/a BELL HOWELL, et ano., Defendants.

          OPINION & ORDER


         Defendants Bell Howell and Van Hauser (“BHH”) move to dismiss Joanne Hart (“Hart”) and Sandra Bueno's (“Bueno”) (together, “Plaintiffs”) amended complaint. Separately, Plaintiffs seek class certification. For the reasons that follow, BHH's motion to dismiss is granted in part and denied in part, and Plaintiffs' motion for class certification is granted.


         This consumer fraud class action arises from BHH's sale of ultrasonic pest repellers, which Plaintiffs claim are ineffective and worthless. Plaintiffs purchased the pest repellers from third-party retailers. Hart bought her device from the Home Shopping Network which advertised that it was an “ultrasonic pest repeller” designed to drive out mice, rats, roaches, ants, and spiders. Bueno purchased the repeller from the Harriet Carter Gifts catalogue, relying on the same representations as Hart. After receiving these devices, both plaintiffs discovered that they did not work as advertised.

         In May 2016, this Court granted in part and denied in part BHH's motion to dismiss the original complaint. See Hart v. BHH, LLC, 2016 WL 2642228, at *5 (S.D.N.Y. May 5, 2016). The Magnuson-Moss Warranty Act and unjust enrichment claims were dismissed. Hart's claims regarding Animal Repellers were also dismissed for lack of standing. However, this Court allowed the breach of warranty claims and California consumer protection claims under the Consumer Legal Remedies Act (CLRA), the Unfair Competition Law (“UCL”), and the False Advertising Law (“FAL”) to proceed.

         After fact discovery closed, Hart amended her complaint to add a common law fraud claim, and a new plaintiff-Bueno-who purports to represent two new putative classes: the fraud class and the breach of express warranty class. (See First Amended Complaint (“Compl.”), ECF No. 62.) It is unclear from the parties' submissions why Hart could not represent these new putative classes, nor why Bueno could not also represent the California class. Adding to the confusion, BHH elected to file a motion to dismiss the amended complaint rather than interpose an answer.

         Concurrently, Plaintiffs moved to certify three classes: (1) a nationwide class asserting a claim for fraud (the “Nationwide Fraud Class”); (2) a multi-state class asserting a claim for breach of warranty (the “Multistate Breach of Warranty Class”); and (3) a California-only class asserting claims under California's consumer protection laws, fraud, and breach of express warranty (the “California Class”).


         I. Motion to Dismiss

         A. Standard

         On a motion to dismiss, all allegations in the complaint are accepted as true, and all reasonable inferences are drawn in the Plaintiffs' favor. See Rescuecom Corp. v. Google Inc., 562 F.3d 123, 127 (2d Cir. 2009). The complaint must “contain sufficient factual matter” to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 663, 678 (2009) (citation omitted). For a viable claim, “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A pleading that recites conclusory allegations or a “formulaic recitation of the elements of a cause of action” fails to state a claim. Iqbal, 556 U.S. at 678 (citation omitted).

         B. Analysis

         i. Fraud Claim

         BHH contends that the common law fraud claim should be dismissed because it is barred by the economic loss rule. That doctrine provides that “a plaintiff who has suffered economic loss, but not personal or property injury, may not recover in tort if the damages are the type remedial in contract.” Weisblum v. Prophase Labs, Inc., 88 F.Supp.3d 283, 297 (S.D.N.Y. 2015) (internal quotation marks and citations omitted). The rule is rooted in the principle that “contract and warranty law should govern the economic relationship between a buyer and a seller and between a manufacturer and a consumer.” Robinson Helicopter Co. v. Dana Corp., 105 Cal.App.4th 749, 759-60 (Cal.Ct.App. 2003).

         BHH claims that because Plaintiffs allege damages amounting only to the economic cost of the pest repellers, their fraud claim doubles as a breach of warranty claim. But there are exceptions to the economic loss rule. Relevant here is the fraudulent inducement exception, which applies when “a contract is secured by fraudulent representations” and provides an option for the injured party to “elect to affirm the contract and sue for fraud.” United Guar. Mortg. Indem. Co. v. Countrywide Fin. Corp., 660 F.Supp.2d 1163, 1183 (C.D. Cal. 2009). Thus, the “economic loss rule does not bar a properly pled fraudulent inducement claim.” Missud v. Oakland Coliseum Joint Venture, 2013 WL 3286193, at *18 (N.D. Cal. June 27, 2013).

         “Courts applying both New York and California law have allowed intentional misrepresentation claims to proceed, notwithstanding the economic loss rule.” Weisblum, 88 F.Supp.3d 283, 297 (S.D.N.Y. 2015); see also EED Holdings v. Palmer Johnson Acquisition Corp., 387 F.Supp.2d 265, 278-79 (S.D.N.Y. 2004) (allowing fraud claim to proceed in tandem with contract claims to recover economic loss). In such cases, misrepresentations that induce a party into contract stand separate and apart from the misrepresentations inherent to the contract. Put another way, the “plaintiff's claim does not depend upon whether the defendant's promise is ultimately enforceable as a contract.” Lazar v. Sup. Ct., 12 Cal.4th 631, 638 (Cal. 1996). Thus, an independent fraud claim may exist if a false promise was made to consummate the contract. EED Holdings, 387 F.Supp.2d at 279 (“[I]t is well established that a misrepresentation of present fact which is the inducement for a contract … can support a separate fraud claim.”); StreamCast Networks, Inc. v. IBIS LLC, 2006 WL 5720345, at *10 (C.D. Cal. May 2, 2006) (“[C]ourts have routinely recognized the availability of both a fraud and a contract action . . . in which a party contends that it was fraudulently induced to enter into a contract.”). In essence, the question this Court must ask has less to do with “whether the damages for contract and tort claims necessarily overlap, and more [with] whether the conduct giving rise to the separate claims is distinct. The economic loss rule does [not] bar tort claims for fraud or intentional misrepresentation if the allegedly tortious conduct is independent of the conduct constituting a breach.” Sherwin-Williams Co. v. JJT, Inc., 2014 WL 2587483, at * 6 (S.D. Cal. June 10, 2014) (emphasis added).

         Under the fraudulent inducement exception to the economic loss rule, Plaintiffs' common law fraud claim may proceed. While not technically pled as “fraudulent inducement, ” the amended complaint sufficiently alleges the elements of such claim: (1) misrepresentation; (2) knowledge of the falsity of the representation; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damages. Swingless Golf Club Corp. v. Taylor, 732 F.Supp.2d 899, 908 (N.D. Cal. 2010). And a “claim of fraudulent inducement . . . has the same elements as fraud under California law.” Romero v. San Pedro Forklift, Inc., 266 Fed. App'x. 552, 556 n.2 (9th Cir. 2008). Here, Plaintiffs allege (1) three principal misrepresentations regarding the pest repellers (Compl. at ¶¶ 14, 67); (2) that BHH knew about the falsity of these misrepresentations (Compl. at ¶¶ 15-20, 68); (3) that such misrepresentations were made to induce reliance (Compl. at ¶ 69); (4) that Plaintiffs justifiably relied on them (Compl. at ¶¶ 6, 7, 69); and (5) that Plaintiffs suffered damages (Compl. at ¶ 70).

         The alleged misrepresentations at issue-namely that the pest repellers can drive out certain pests from the home-also form the basis of the breach of warranty claim. But if Plaintiffs, as they allege, can prove that BHH knowingly made and endorsed these false statements, then their claim becomes less about the product's value and quality-elements that are usually at the heart of express and implied warranties-and more about blatant lies and deception characteristic of fraud claims. Thus, the fraudulent inducement exception here acknowledges the “extra measure of blameworthiness inherent in fraud, ” allowing plaintiffs to “recover ‘out-of-pocket' damages in addition to benefit-of-the-bargain damages.” Robinson Helicopter, 34 Cal.4th at 992.

         Plaintiffs primarily seek relief in the form of restitution-i.e., the return of monies paid for the devices. (Compl. at ¶ 71(f); Hearing Transcript dated May 19, 2017 at 7:15-23.) But the amended complaint also seeks “compensatory and punitive damages” arising from the fraud claim. (Compl. at ¶ 71(d).) While relief “may be limited by the rule against double recovery of tort and contract compensatory damages, ” Plaintiffs nevertheless have “a cause of action in tort as an alternative at least, and perhaps in some instances in addition to [their] cause of action on the contract.” Lazar, 12 Cal.4th at 638.

         Finally, BHH challenges the sufficiency of the allegations underlying the fraud claim. However, as this Court discussed in its prior order-albeit with respect to the fraud elements of the California consumer protection claims-Plaintiffs' allegations at this stage satisfy Rule 9(b)'s heightened pleading standard for claims sounding in fraud. BHH, 2016 WL 2642228, at *5 (allegations regarding the falsity of representations in conjunction with two scientific studies undermining the efficacy of the ultrasonic technology suffice at the pleadings stage).

         In the amended complaint, Plaintiffs allege that the products did not work as advertised. (Compl. at ¶¶ 6-7.) Moreover, they cite a number of scientific studies discrediting the ultrasonic technology embedded into the products (Compl. at ¶¶ 15-16) and regulatory investigations into ultrasonic pest repeller manufacturers who sell products like BHH (Compl. at ¶¶ 17-20). Such allegations are sufficient, at the pleadings stage, to support an inference of knowledge and an intent to deceive. Finally, the amended complaint alleges that Hart and Bueno believed the product representations to be true and relied on them in purchasing the pest repellers-facts ...

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