Opp to MTD - FINAL - Gibbs Law Group Opp to MTD.pdf · GIRARD GIBBS LLP 601 California Street, 14th...

PLAINTIFFS’ OPPOSITION TO DUCATI’S MOTION TO DISMISS AND MOTION TO STRIKE CASE NO. 5:10-CV-05246-JF

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Eric H. Gibbs (State Bar No. 178658) [email protected] Dylan Hughes (State Bar No. 209113) [email protected] Geoffrey A. Munroe (State Bar No. 228590) [email protected] GIRARD GIBBS LLP 601 California Street, 14th Floor San Francisco, California 94104 Telephone: (415) 981-4800 Facsimile: (415) 981-4846 Attorneys for Plaintiffs

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

JONAS SUGARMAN and QUANG LE, on behalf of themselves and all others similarly situated, Plaintiffs, vs. DUCATI NORTH AMERICA, INC., Defendant.

Case No. 5:10-cv-05246-JF PLAINTIFFS’ OPPOSITION TO DUCATI’S MOTION TO DISMISS AND MOTION TO STRIKE Date: April 22, 2011 Time: 9:00 a.m. Judge: Honorable Jeremy D. Fogel Courtroom: 3

Case5:10-cv-05246-JF Document54 Filed03/08/11 Page1 of 33

i TABLE OF CONTENTS

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TABLE OF CONTENTS

Page

I. INTRODUCTION ....................................................................................................................... 1 II. ARGUMENT............................................................................................................................... 2

A. Plaintiffs Have Stated A Claim For Breach Of Ducati’s 2-Year Warranty. .................... 2

1. Ducati Is Providing Inadequate Repairs. .............................................................. 3

a) Ducati Has Not Complied With Its Limited Remedy. .............................. 3 b) The Limited Remedy Offered By Ducati Fails of Its Essential Purpose. . 5

2. The Exact Terms of Ducati’s Warranties Are Before The Court. ........................ 5 3. Plaintiffs Are Not Required To Allege Reliance To State A Claim..................... 6

B. Plaintiffs Have Stated A Claim For Breach of Ducati’s 5-Year Warranty. ..................... 6 C. Plaintiffs Have Stated a Claim For Breach of the Implied Covenant............................... 8 D. Plaintiffs Have Stated A Claim For Violation of the CLRA............................................ 9

1. Plaintiffs’ Safety Allegations Establish Materiality. .......................................... 10 2. Plaintiffs Have Adequately Alleged Ducati’s Exclusive Knowledge. ............... 14 3. Plaintiffs Have Adequately Alleged Active Concealment. ................................ 16 4. Plaintiffs Have Adequately Alleged Reliance. ................................................... 17

E. Plaintiffs Have Stated A Claim For Violation Of The UCL. ......................................... 18

1. Ducati’s Conduct Violates The UCL’s Unlawful Prong. ................................... 18 2. Ducati’s Conduct Violates The UCL’s Fraudulent Prong. ................................. 18 3. Ducati’s Conduct Violates The UCL’s Unfair Prong......................................... 19

F. Plaintiffs Have Alleged Sufficient Facts To Justify Application of California Law

To Out-of-State Class Members..................................................................................... 20


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G. Ducati’s Request to Strike Plaintiffs’ Class Allegations Should Be Denied. ................ 23 III. CONCLUSION....................................................................................................................... 25


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TABLE OF AUTHORITIES

Case Page Baba v. Hewlett-Packard Co., 2011 WL 317650 (N.D. Cal. 2011)............................................................................................... 4 Badie v. Bank of Am., 67 Cal. App. 4th 779 (1998).......................................................................................................... 8 Brothers v. Hewlett-Packard Co., 2007 WL 485979 (N.D. Cal. 2007)............................................................................................... 4 Burdick v. Union Sec. Ins. Co., 2009 WL 4798873 (2009) ........................................................................................................... 23 Campion v. Old Republic Home Prot. Co., Inc., 2011 WL 42759 (S.D. Cal. 2011) ............................................................................................... 23 Carma Developers (Cal.), Inc. v. Marathon Devl. Cal., Inc., 2 Cal. 4th 342 (1992)..................................................................................................................... 8 Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163 (1999)................................................................................................................. 18 Chavez v. Blue Sky Natural Beverage Co., 268 F.R.D. 365 (N.D. Cal. 2010) ................................................................................................ 20 Cirulli v. Hyundai Motor Company, 2009 WL 5788762 (C.D. Cal. 2009)..................................................................................... 12, 14 Clemens v. DaimlerChrysler Corp., 534 F.3d 1017 (9th Cir. 2008)..................................................................................................... 19 Cole v. Gen. Motors Corp., 484 F.3d 717 (5th Cir.2007)........................................................................................................ 22 Daugherty v. Am. Honda Motor Co., Inc., 144 Cal. App. 4th 824 (2006)................................................................................ 9, 10, 11, 18, 19 Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal. 4th 1036 (1999)............................................................................................................... 21 Doe 1 v. AOL LLC, 719 F. Supp. 2d 1102 (N.D. Cal. 2010) ...................................................................................... 17


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Estrella v. Freedom Fin. Network, LLC, 2010 WL 2231790 (N.D. Cal. 2010)........................................................................................... 22 Ewert v. eBay, Inc., 2010 WL 4269259 (N.D. Cal. 2010)........................................................................................... 23 Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088 (N.D. Cal. 2007) ............................................................................... passim Frisby-Cadillo v. Mylan, Inc., 2010 WL 1838729 (N.D. Cal. 2010)............................................................................................ 6 Goodman v. Kennedy, 18 Cal. 3d 335 (1976).................................................................................................................... 9 In re OnStar Contract Litig., 600 F. Supp. 2d 861 (E.D. Mich. 2009) ................................................................................ 13, 14 In re Sony PS3 Other OS Litigation, 2011 WL 672637 (N.D. Cal. 2011)............................................................................................... 6 In Re Tobacco II Cases, 46 Cal. 4th 298 (2009)......................................................................................... 10, 17, 18, 21, 23 In re Toyota Unintended Acceleration Litigation, 2010 WL 4867562 (C.D. Cal. 2010)......................................................................... 13, 14, 15, 16 In re Wal-Mart Stores Wage & Hour Litig., 505 F. Supp. 2d 609 (N.D. Cal. 2007) ........................................................................................ 25 Keilholtz v. Lennox Hearth Products Inc., 268 F.R.D. 330 (N.D. Cal. 2010) ................................................................................................ 22 Kent v. Hewlett-Packard Co., 2010 WL 2681767 (N.D. Cal. 2010)......................................................................................... 3, 4 Kohen v. Pac. Inv. Mgmt. Co. LLC, 571 F.3d 672 (7th Cir. 2009)....................................................................................................... 23 Kowalsky v. Hewlett-Packard Co., 2010 WL 5141869 (N.D. Cal. 2010)........................................................................... 4, 14, 15, 16 Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 390 (2000)................................................................................................................... 8


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Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011)................................................................................................................. 18 Ladd v. Warner Bros. Entm't, Inc., 184 Cal. App. 4th 1298 (2010)...................................................................................................... 8 Limandri v. Judkins, 52 Cal. App. 4th 326 (1997) ............................................................................................. 9, 10, 17 Linear Technology Corp. v. Applied Materials, Inc., 152 Cal. App. 4th 115 (2007)...................................................................................................... 19 Long v. Hewlett-Packard Co., 2007 WL 2994812 (N.D. Cal. 2007)............................................................................................. 4 Marsikian v. Mercedes Benz, 2009 U.S. Dist. LEXIS 117012 (C.D. Cal. 2009) ................................................................. 12, 14 McKell v. Washington Mutual, Inc., 142 Cal. App. 4th 1457 (2006).................................................................................................... 19 Menagerie Productions v. Citysearch, 2009 WL 3770668 (C.D. Cal. 2009)........................................................................................... 23 Meyer v. Sprint Spectrum L.P., 45 Cal. 4th 634 (2009)................................................................................................................. 17 Mirkin v. Wasserman, 5 Cal. 4th 1082 (1993)........................................................................................................... 10, 18 Morgan v. Harmonix Music Systems, Inc., 2009 WL 2031765 (N.D. Cal. 2009)........................................................................................... 11 Mourning v. Smithkline Beecham Corp., 2009 U.S. Dist. LEXIS 25894 (N.D. Cal. 2009)......................................................................... 20 Oestreicher v. Alienware Corp., 544 F.Supp.2d 964 (N.D. Cal. 2008) .............................................................................. 10, 11, 14 Parkinson v. Hyundai Motor Am., 258 F.R.D. 580 (C.D. Cal. 2008) ................................................................................................ 20 Patton v. Cox, 276 F.3d 493 (9th Cir. 2002)....................................................................................................... 22 Princess Cruise Lines, Ltd. v. Superior Court, 179 Cal. App. 4th 36 (2009)........................................................................................................ 17


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RRX Industries, Inc. v. Lab-Con, Inc., 772 F.2d 543 (9th Cir. 1985)......................................................................................................... 5 Rush v. Whirlpool Corp., 2008 U.S. Dist. LEXIS 17210 (W.D. Ark. 2008) ...................................................................... 15 S.M. Wilson & Co. v. Smith Int'l, Inc., 587 F.2d 1363 (9th Cir. 1978)....................................................................................................... 5 Sanders v. Apple Inc., 672 F. Supp. 2d 978 (N.D. Cal. 2009) .................................................................................. 22, 23 Somerville v. Stryker Orthopaedics, 2009 WL 2901591 (N.D. Cal. 2009)........................................................................................... 18 Stearns v. Select Comfort Retail Corp., 2010 WL 2898284 (N.D. Cal. 2010)............................................................................................. 3 Stickrath v. Globalstar, Inc., 2008 U.S. Dist. LEXIS 12190 (N.D. Cal. 2008) ........................................................................ 16 The Missing Link, Inc. v. eBay, Inc., 2008 WL 1994886 (N.D. Cal. 2008)........................................................................................... 20 Ticconi v. Blue Shield of Ca. Life & Health Ins. Co., 160 Cal. App. 4th 528 (2008)...................................................................................................... 19 Tietsworth v. Sears, 720 F. Supp. 2d 1123 (N.D. Cal. 2010) ...................................................................................... 11 Washington Mutual Bank v. Superior Court, 24 Cal. 4th 906 (2001)................................................................................................................. 22 Watts v. Allstate Indem. Co., 2009 U.S. Dist. LEXIS 26618 (E.D. Cal. 2009) ......................................................................... 20 Weinstat v. Denstsply Int’l, Inc., 180 Cal. App. 4th 1213 (2010)...................................................................................................... 6 Wershba v. Apple Computer, 91 Cal. App. 4th 224 (2001)........................................................................................................ 20 Williams v. Beechnut Nutrition Corp., 185 Cal. App. 3d 135 (1986)......................................................................................................... 5 Williams v. Gerber Prods. Co., 552 F.3d 934 (9th Cir. 2008)....................................................................................................... 19


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Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713 (2007)................................................................................................................... 9 Wilson v. Hewlett-Packard Co., 2009 WL 3021240 (N.D. Cal. 2009).......................................................................................... 11 Wolin v. Jaguar Land Rover N. Am., LLC, 617 F.3d 1168 (9th Cir. 2010)..................................................................................................... 24 Statutes 40 C.F.R. § 86.408-78(a) ...................................................................................................................... 7, 8 42 U.S.C. §7541(a) ................................................................................................................................... 7 Cal. Bus. Prof. Code § 17200 ................................................................................................................. 18 Cal. Bus. Prof. Code § 17204 ................................................................................................................. 17 Cal. Civ. Code § 1770............................................................................................................................. 17 Cal. Com. Code § 2719(2) ........................................................................................................................ 5 Cal. Com. Code § 1302............................................................................................................................. 9 Cal. Com. Code § 1304............................................................................................................................. 9 Cal. Com. Code § 2313............................................................................................................................. 2 Fed. R. Civ. P. 9(b) ................................................................................................................................. 14 Miscellaneous Newberg on Class Actions................................................................................................................ 23, 24 On the “Essential” Purposes of Limited Remedies: The Metaphysics of U.C.C., 65 Cal. L. Rev. 28 (1977)............................................................................................................. 5


1 PLAINTIFFS’ OPPOSITION TO DUCATI’S MOTION TO DISMISS AND MOTION TO STRIKE

CASE NO. 5:10-CV-05246-JF

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I. INTRODUCTION

Plaintiffs are pursuing this class action to address a dangerous defect in the fuel tanks installed

on certain Ducati motorcycles. The plastic material used in the fuel tanks is incompatible with the

motorcycles’ fuel, which causes the tanks to degrade and deform and leads to a number of unsafe

conditions. (See Pls. First Am. Complaint (“FAC”) [Doc. 23], ¶¶ 1, 14.) Among other things, as the

plastic deforms, the fuel tanks interfere with the full range of steering, leak fuel onto the engine, and

destabilize the motorcycle’s weight distribution—often to the point that the motorcycle cannot be

safely operated after only a few hundred or thousand miles of use. (See id., ¶¶ 1, 15-19.)

Ducati owners were lodging their safety concerns with the National Highway Safety

Administration (NHTSA) by 2006, and Ducati had independent reasons to know of the safety issues

based on well-known principles of materials science, standard pre-release field testing, and aggregate

warranty, customer complaint, and replacement part sales data. (See FAC, ¶¶ 3, 20-22.) Yet Ducati

continued to sell motorcycles with fuel tanks made of the same defective plastic material, including to

Plaintiffs Sugarman and Le, and still has not informed its customers of the existence of the fuel tanks

defect and its attendant safety risks. (See id., ¶¶ 3, 23-24.)

Ducati is covering the defect in its plastic fuel tanks under its 2-year and 5-year warranties, but

in conducting these warranty repairs Ducati has chosen not to correct the defect in the tank’s material.

(See FAC, ¶¶ 2, 25-26.) Ducati instead installs a replacement tank made of the same incompatible

material, which likewise begins degrading and deforming upon contact with the motorcycles’ fuel.

(See id., ¶¶ 2, 27.) As a result, Plaintiffs and other Ducati owners are repeatedly exposed to unsafe

conditions as their fuel tanks repeatedly degrade and deform. (Id., ¶¶ 2, 28.) For instance, both

Plaintiffs have already had one fuel tank replaced after experiencing unsafe conditions and soon needed

to have their replacement tanks replaced as well, despite having driven their motorcycles only 2,100

miles (in Plaintiff Le’s case) and 3,900 miles (in Plaintiff Sugarman’s case). (See id., ¶¶ 29-37.)

Plaintiffs bring this action primarily seeking equitable relief that will benefit all Ducati owners

with plastic fuel tanks, and secondarily seek monetary relief as an alternative if for some reason their

requested injunctive relief is not available. (See FAC, ¶¶ 4, 60, 70, 76, 82, 89.) Pursuant to

California’s Consumers Legal Remedies Act and Unfair Competition Law, Plaintiffs seek an order




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requiring Ducati to disclose the fuel tank incompatibility and the related safety risks to all existing and

prospective customers and to replace class members’ incompatible fuel tanks with compatible fuel

tanks. (See id.) Plaintiffs further seek a declaration that when Ducati covers fuel tanks under its 2-year

or 5-year warranties, that it is obligated to correct the underlying materials defect and not simply install

a replacement tank that uses the same defective and unsafe material. (See id.)

Ducati has moved to dismiss all of Plaintiffs’ claims and to strike Plaintiffs’ class allegations.

(See Mot. [Doc. 37] at 1.) Plaintiffs request that the Court deny Ducati’s motion in its entirety, as the

facts stated in their complaint, along with the reasonable inferences that can be drawn from those facts,

establish plausible claims for relief that may, upon consideration of a developed record at the class

certification stage, be found appropriate for resolution on a class-wide basis.

II. ARGUMENT

A. Plaintiffs Have Stated A Claim For Breach Of Ducati’s 2-Year Warranty.

Under Uniform Commercial Code § 2-313, adopted by the California Legislature as California

Commercial Code § 2313, an express warranty is created by “[a]ny affirmation or promise made by the

seller to the buyer which relates to the goods and becomes part of the basis of the bargain,” whether or

not the seller uses “formal words such as ‘warrant’ or ‘guarantee.’” Plaintiffs allege that Ducati created

an express warranty through its heavily touted 2-year standard warranty, under which Ducati

“guarantees all its bikes for a period of 24 months from registration, with unlimited mileage.” (FAC ¶

54-55; see also http://www.ducati.com/services/warranty/index.do.) Plaintiffs further allege that Ducati

breached its express warranty by failing to appropriately remedy the materials defect in Plaintiffs’ fuel

tanks, leaving them with fuel tanks made of a defective material that degrades and deforms when in

contact with the motorcycles’ fuel. (See id., ¶¶ 56-60.)

Ducati argues that Plaintiffs have failed to state a claim for breach of its 2-year warranty for

three reasons: (1) Ducati complied with the limited remedy available under its 2-year warranty; (2)

Plaintiffs failed to plead the exact terms of the warranty; and (3) Plaintiffs have not alleged reliance on

the 2-year warranty in purchasing their motorcycle. (Mot. at 6-10.) As explained below, none of these

reasons provide a valid basis for dismissal.




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1. Ducati Is Providing Inadequate Repairs.

a) Ducati Has Not Complied With Its Limited Remedy.

Ducati has limited its 2-year guarantee through a number of terms that Ducati has submitted

with its motion. (See Blake Decl. [Doc. 38], Exs. A-B.) The current version of the 2-year warranty

that applies to Plaintiff Sugarman’s claim states that “[a]ny material or workmanship found to be

defective by Ducati within the twenty-four (24) month warranty term shall be repaired or replaced

without charge” (id., Ex. A, ¶ I); while the preceding version of the warranty that applies to Plaintiff

Le’s claims similarly states that “[a]ny material or workmanship found to be defective by Ducati within

the twenty-four (24) month warranty term shall be remedied without charge” (id., Ex. B, ¶ II). In other

words, “[t]he liability of Ducati under the twenty-four (24) month warranty is limited solely to the

remedying of defects in materials or workmanship.” (Id., Ex. A, ¶ V; Ex. B, ¶ V.)

Ducati claims that it has met its limited obligation to remedy, by repair or replacement, the

defect in Plaintiffs’ fuel tank material and so cannot be sued for breaching its 2-year warranty. (See

Mot. at 2, 7.) It points to Plaintiffs’ allegations that Ducati replaced their fuel tanks when they reported

deformation in the tank. (See id. (citing FAC ¶¶ 2, 26, 57).) But Ducati acknowledges that its

obligation under the limited remedy is not simply to provide any repair or replacement. It is instead

obligated to provide a “repair or replacement as appropriate in the circumstances presented.” (Mot. at

1 (emphasis added)); see also Kent v. Hewlett-Packard Co., 2010 WL 2681767, *6 (N.D. Cal. 2010)

(“the question is whether Plaintiffs sought repairs … and, if so, whether [defendant] responded

appropriately under the warranty”) (emphasis added)); Stearns v. Select Comfort Retail Corp., 2010

WL 2898284, *13 (N.D. Cal. 2010) (finding potential breach of warranty where plaintiff alleged she

did not receive a refund or non-defective replacement).

Plaintiffs have alleged that the repairs Ducati is conducting as a matter of course when

presented with fuel tanks made of plastic material it knows to be defective is not appropriate. (See

FAC, ¶¶ 2, 26-27, 58.) An appropriate repair would correct the defect in the fuel tanks’ plastic material

by using a material that is compatible with the motorcycle’s fuel and will no longer degrade and deform

when in contact with the fuel. (See id., ¶ 26, 60.) Ducati’s repairs, by contrast, use the same defective

plastic material that degrades and deforms when in contact with the motorcycle’s fuel, exposing




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Plaintiffs to the same safety risks as the fuel tanks Ducati is replacing. (See id., ¶¶ 2, 58-60.)

Ducati maintains that using the same allegedly defective material is an appropriate repair as a

matter of law, pointing to a pair of cases involving Hewlett-Packard (HP) and its repair of computers

under warranty. In Long, the court found that when HP repaired the plaintiffs’ laptop computer using a

replacement inverter alleged to be equally defective, it had performed “an adequate repair of the

[computer]; that is, the [computer] was again fully operable when HP returned it to [plaintiff].” Long v.

Hewlett-Packard Co., 2007 WL 2994812, *5 (N.D. Cal. 2007). And in Brothers, the court found that

“[i]t is undisputed that HP replaced Brothers's motherboard at the time he made his in-warranty service

claim, and that the replacement motherboard corrected the asserted screen display problems.” Brothers

v. Hewlett-Packard Co., 2007 WL 485979, *4 (N.D. Cal. 2007).

Three other HP cases have addressed similar issues but found that whether HP tendered an

appropriate warranty repair was a question of fact that could not be resolved at the pleading stage. In

Baba, the court credited plaintiffs’ allegation that HP’s repair, which corrected the alleged jumping

cursor defect but also reduced processor speed to 50% of its capacity, was not a “satisfactory repair,”

and found that plaintiff had stated a claim for breach of express warranty. Baba v. Hewlett-Packard Co.,

2011 WL 317650, *6 -7 (N.D. Cal. 2011). In Kent, this Court found that one of the plaintiffs stated a

claim for breach of express warranty with his allegations that HP’s offered repair constituted an

unreasonable exercise of its discretion; although the plaintiff’s claim required more factual context for a

proper construction of the warranty language, the plaintiff’s construction was not implausible and thus

sufficient at the pleading stage. See Kent, 2010 WL 2681767 at *7. And in Kowalsky, while the

complaint had not plausibly alleged HP’s prior knowledge of a design defect, the court granted leave to

add more detailed allegations and specifically noted that it “does not rule out the possibility that

replacing defective printers with printers known to contain the same defect may constitute a breach of

HP's Limited Warranty.” Kowalsky v. Hewlett-Packard Co., 2010 WL 5141869, *13 (N.D. Cal. 2010).

Collectively, the 5 HP cases show that whether a plaintiff has plausibly alleged an inadequate

warranty repair depends on the circumstances of the case. Plaintiffs here have specifically alleged the

reasons that Ducati’s repair is inadequate to address the underlying materials defect and associated

safety risks. The Court should credit Plaintiffs’ allegations and permit them to proceed with their breach




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of warranty claims.

b) The Limited Remedy Offered By Ducati Fails of Its Essential Purpose.

Even if Ducati were correct that the limited remedy provisions in its 2-year standard warranty

permits Ducati to repair or replace Plaintiffs’ fuel tanks without addressing the underlying defect, that

limited remedy provision is not binding if it causes the warranty to fail of its essential purpose. See

Cal. Com. Code § 2719(2) (“Where circumstances cause an exclusive or limited remedy to fail of its

essential purpose, remedy may be had as provided in this Act”); RRX Industries, Inc. v. Lab-Con, Inc.,

772 F.2d 543, 547 (9th Cir. 1985) (“Under the Code, a plaintiff may pursue all of the remedies

available for breach of contract if its exclusive or limited remedy fails of its essential purpose.”).

The Ninth Circuit has analyzed the essential purpose of a limited repair remedy like the one

Ducati included in its 2-year warranty, finding that its fairness “rests upon at least three assumptions:

that the warrantor will diligently make repairs, that such repairs will indeed ‘cure’ the defects, and that

consequential loss in the interim will be negligible.” S.M. Wilson & Co. v. Smith Int'l, Inc., 587 F.2d

1363, 1375 (9th Cir. 1978) (quoting Eddy, On the “Essential” Purposes of Limited Remedies: The

Metaphysics of U.C.C. Section 2-719(2), 65 Cal. L. Rev. 28 (1977)). Here, the assumption that the

warrantor’s repairs will indeed cure the defect have proven false, as Ducati’s repairs do not eliminate

either the materials defect in its plastic fuel tanks or the associated safety risks. The limited remedy (if

construed as Ducati urges) therefore fails of its essential purpose and may be disregarded. Id. at 1375

(“the inability to cure substantial defects does indicate that the repair remedy so failed”). Plaintiffs

remedies are thus not limited to the repair offered by Ducati and they should be permitted to pursue

their warranty claims, which seek correction of the underlying defect or the cost of that correction.

2. The Exact Terms of Ducati’s Warranties Are Before The Court.

Ducati argues that both Plaintiffs’ 2-year warranty and 5-year warranty claims should be

dismissed because Plaintiffs did not allege the exact terms of those warranties. Plaintiffs’ complaint

does allege exact terms, however, quoting from each of the warranties. (See FAC, ¶¶ 54, 63.) The

level of detail Plaintiffs provided is beyond that found sufficient in Williams v. Beechnut Nutrition

Corp., 185 Cal. App. 3d 135 (1986), which is the case routinely quoted for the proposition that “one

must allege the exact terms of the warranty.” Id. at 142 (allegation that defendant “expressly warranted




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… that said product was effective, proper and safe for its intended use” sufficient); see also Frisby-

Cadillo v. Mylan, Inc., 2010 WL 1838729, *4 (N.D. Cal. 2010) (“Although plaintiff has not directly

quoted the ‘exact terms’ of Mylan's warranty of fitness, the Court finds that plaintiff's allegations are

sufficient,” and “indistinguishable from the allegations approved in Williams.”)

Ducati’s real objection seems to be that Plaintiffs did not quote or attach all the terms of the

warranties. While Plaintiffs would be willing to attach copies of the warranties to their complaint if the

Court prefers, the warranties are already before the Court on Ducati’s unopposed request for judicial

notice. (See Docs. 38, 39.)

3. Plaintiffs Are Not Required To Allege Reliance To State A Claim.

Ducati’s final reason for urging dismissal is that Plaintiffs did not plead their reliance on the

warranty. (Mot. at 9.) Whether reliance is a required element of an express warranty claim was

previously unclear, but last year in Weinstat v. Denstsply Int’l, Inc., 180 Cal. App. 4th 1213 (2010),

review denied (Apr. 14, 2010), the California Court of Appeals examined the issue at length and

concluded that it was not. See id. at 1227 (“The lower court ruling rests on the incorrect legal

assumption that a breach of express warranty claim requires proof of prior reliance. While the tort of

fraud turns on inducement, as we explain, breach of express warranty arises in the context of contract

formation in which reliance plays no role.”); see also In re Sony PS3 Other OS Litigation, 2011 WL

672637, *3 (N.D. Cal. 2011) (“actual reliance is no longer an element of an express warranty claim

under California law”) (citing Weinstat).

B. Plaintiffs Have Stated A Claim For Breach of Ducati’s 5-Year Warranty.

In addition to its 2-year standard warranty, Ducati also extends a 5-year emissions control system

warranty in connection with the sale of its products. (See FAC, ¶ 62.) Plaintiffs allege that Ducati is

repairing fuel tanks under the 5-year warranty, but that the limited repairs Ducati is offering do not

eliminate the safety risks associated with deforming fuel tanks and so are insufficient to bring the

motorcycles’ into compliance with the warranty. (See id., ¶¶ 67-68.)

Although Plaintiffs have alleged (and can prove) that Ducati is covering fuel tanks under its 5-

year warranty (see id., ¶¶ 37, 67), Ducati seems to argue that its fuel tanks do not fall within the 5-year

emissions control warranty. First, Ducati argues that “the Amended Complaint nowhere alleges any




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emissions problems on the plaintiffs’ motorcycles.” (Mot. at 10.) But the 5-year emissions control

warranty does not just cover emissions problems (such as fuel leaks), it guarantees that the motorcycle

will conform with all United States Environmental Protection Agency (EPA) and California Air

Resources Board (CARB) regulations. (See FAC, ¶ 63.) The EPA regulations for modern motorcycles

include the requirement that:

Any system installed on or incorporated in a new motorcycle to enable such vehicle to conform to standards imposed by this subpart:

(1) Shall not in its operation or function cause the emission into the ambient air of any noxious or toxic substance that would not be emitted in the operation of such vehicle without such system, except as specifically permitted by regulation; and

(2) Shall not in its operation, function, or malfunction result in any unsafe condition endangering the motorcycle, its rider(s), or persons or property in close proximity to the vehicle.

40 C.F.R. § 86.408-78(a) (emphasis added). Plaintiffs have alleged that the fuel tank is part of the fuel

system, which is installed on new motorcycles to enable it to conform to the subpart that covers 1978

and later motorcycles (Chapter I, Part 86, Subpart E of the Code of Federal Regulations). (See FAC, ¶

65.) Plaintiffs have further alleged that the fuel tanks’ incompatibility with the motorcycles’ fuel results

in unsafe conditions. (See id., ¶¶ 14-19, 65.) Accordingly, Ducati’s fuel tanks render Plaintiffs’ and

class motorcycles in violation of 40 C.F.R. § 86.408-78(a), a condition that Ducati has an obligation to

correct under its federally mandated 5-year emissions control warranty. (See id., ¶¶ 65, 68-69.)

Ducati also argues that a fuel tank is not “designed for emission control” because it is not “a

catalytic converter, thermal reactor, or other component installed on or in a vehicle for the sole or

primary purpose of reducing vehicle emissions.” (Mot. at 11 (quoting 42 U.S.C. §7541(a)(3)).) That

may be true but the language Ducati quotes is from a different part of the statute than the part that

establishes the emissions control warranty. That language comes from 42 U.S.C. §7541(a)(3), which

establishes a different obligation (the obligation to pay for the replacement of certain parts designed for

emission control) and it is limited to that subsection only. See id. (“The term ‘designed for emission

control’ as used in the preceding sentence means…”). The part of the statute that establishes the

emission control warranty is 42 U.S.C. § 7541(a)(1) and does not use the term “designed for emission

control.” Instead, the underlying federal regulations, quoted above, require only that the affected system




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be “installed on or incorporated in a new motorcycle to enable such vehicle to conform to standards

imposed by [Subpart E].” The fuel system in Plaintiffs’ and class motorcycles is such a system, and is

even specifically defined by Subpart E: “Fuel system means the combination of fuel tank, fuel pump,

fuel lines, oil injection metering system, and carburetor or fuel injection components, and includes all

fuel system vents.” 40 C.F.R. § 86.402-78(a) (emphasis added).

C. Plaintiffs Have Stated a Claim For Breach of the Implied Covenant.

“Every contract in California contains an implied covenant of good faith and fair dealing that

‘neither party will do anything which will injure the right of the other to receive the benefits of the

agreement.’” Ladd v. Warner Bros. Entm't, Inc., 184 Cal. App. 4th 1298, 1306 (2010) (quoting Kransco

v. Am. Empire Surplus Lines Ins. Co. 23 Cal. 4th 390, 400 (2000)). “The implied covenant ‘finds

particular application in situations where one party is invested with a discretionary power affecting the

rights of another. Such power must be exercised in good faith.’” Id. ( quoting Carma Developers (Cal.),

Inc. v. Marathon Devl. Cal., Inc., 2 Cal. 4th 342, 372 (1992)).

One possible interpretation of Ducati’s 2-year and/or 5-year warranty is that Ducati is afforded

discretion to determine how to repair deformed fuel tanks. In that event, Plaintiffs have alleged that it is

unreasonable for Ducati to repair fuel tanks that have deformed due to an incompatible plastic material

with fuel tanks made of the same material, denies Plaintiffs the benefits of their warranties, and therefore

constitutes a breach of the implied covenant of good faith and fair dealing. (See FAC, ¶¶ 74-75.)

Ducati argues that Plaintiffs’ implied covenant claim simply restates their breach of warranty

claims under a different label, but Plaintiffs plead their warranty claims and implied covenant claims in

the alternative. Plaintiffs believe that Ducati’s repair practices violate the stated terms of its warranties

and that they should prevail on those claims. It is only if Ducati’s warranty contracts are interpreted to

afford Ducati the discretion to determine the method of warranty repair that Plaintiffs’ implied covenant

claims become pertinent. The fact-finder would then need to ask the further question of whether

Ducati’s exercise of discretion was a reasonable one or whether, while not directly prohibited by the

warranty contracts, it nonetheless deprived Plaintiffs and other Ducati owners of the benefits of the

warranty contracts. See Badie v. Bank of Am., 67 Cal. App. 4th 779, 795 (1998) (“the exercise of

discretionary powers conferred on a party by contract must also be evaluated under the implied covenant




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to assure that the promises of the contract are effective and in accordance with the parties' legitimate

expectations”).

Ducati further argues that its warranty contracts have an “exclusive” remedy provision that

“foreclose[s] reliance on implied terms.” (Mot. at 12.) But unlike implied warranties, the implied

covenant cannot be disclaimed or contracted around; it is a part of “every” contract. Wilson v. 21st

Century Ins. Co., 42 Cal. 4th 713, 720 (2007). Moreover, the Uniform Commercial Code that governs

Ducati’s warranty contracts not only specifies that each contract or duty arising under the code “imposes

an obligation of good faith in its performance and enforcement,” it specifies that “[t]he obligations of

good faith, diligence, reasonableness, and care prescribed by this code may not be disclaimed by

agreement.” Cal. Com. Code §§ 1302, 1304.

D. Plaintiffs Have Stated A Claim For Violation of the CLRA.

An automotive manufacturer violates the Consumers Legal Remedies Act when, in connection

with the sale of its vehicles, it omits facts that it is obliged to disclose. Daugherty v. Am. Honda Motor

Co., Inc., 144 Cal. App. 4th 824, 835 (2006). In general, the manufacturer has a duty to disclose under

four principal circumstances:

(1) When the defendant is in a fiduciary relationship with the plaintiff;

(2) When the defendant had exclusive knowledge of material facts not known to the plaintiff;

(3) When the defendant actively conceals a material fact from the plaintiffs; or

(4) When the defendant makes partial misrepresentations but also suppresses some material

fact.

Limandri v. Judkins, 52 Cal. App. 4th 326, 337 (1997) (emphasis added); see also, e.g., Goodman v.

Kennedy, 18 Cal. 3d 335, 347 (1976).

Plaintiffs have alleged that Ducati violated the CLRA when it sold them motorcycles without

informing them “that the plastic material used in their motorcycle[s’] fuel tank is defective in that it

degrades and deforms in the presence of the motorcycles’ fuel.” (FAC, ¶ 79.) Ducati cites to a portion

of an allegation asserted under Plaintiffs’ UCL cause of action, then incorrectly states that Plaintiffs’

CLRA claims “principally rely on the allegation that Ducati failed to meet its warranty obligations.”

(Mot. at 15.) In fact, Plaintiffs’ warranty-based claims arise from Ducati’s repair practices while




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Plaintiffs’ CLRA claim (and the majority Plaintiffs’ UCL claim) arises from Ducati’s sale of

motorcycles it knew to be defective.

Plaintiffs have alleged that Ducati was obliged to disclose the defect in its fuel tanks’ material

under the second and third circumstances outlined by Limandri: because Ducati had exclusive

knowledge of material facts not known to Plaintiffs and because Ducati actively concealed material facts

from Plaintiffs. (FAC, ¶¶ 20-24, 80.) Ducati challenges whether Plaintiffs have plausibly alleged (i)

materiality, (ii) exclusive knowledge, or (iii) active concealment, and also whether Plaintiffs have

alleged (iv) reliance on the alleged omissions. (Mot. at 12-18.) Yet an examination of Plaintiffs’

allegations and applicable law shows that Ducati’s arguments lack merit.

1. Plaintiffs’ Safety Allegations Establish Materiality.

The second and third Limandri factors require the undisclosed fact be material. A material fact

is one that, if disclosed, would have caused a reasonable consumer to behave differently. Falk v. Gen.

Motors Corp., 496 F. Supp. 2d 1088, 1095 (N.D. Cal. 2007) (citing Mirkin v. Wasserman, 5 Cal. 4th

1082, 1093 (1993)); In Re Tobacco II Cases, 46 Cal. 4th 298, 327 (2009) (a fact is material “if ‘a

reasonable man would attach importance to its existence or nonexistence in determining his choice of

action in the transaction in question.’”)

Whether a given fact is material is generally a question of fact not suitable for resolution at the

pleadings stage. In Re Tobacco II Cases, 46 Cal. 4th at 327. The exception is when a fact “is so

obviously unimportant that the jury could not reasonably find that a reasonable man would have been

influenced by it.” Id. (quoting Engalla, 15 Cal. 4th at 977). Many of the cases cited by Ducati show that

courts have increasingly reached this conclusion at the pleading stage with regard to certain facts,

particularly when the fact relates to a product’s tendency to fail outside of warranty. See Daugherty,

144 Cal. App. 4th at 838 (fact that engine seal might dislodge and cause an oil leak outside of warranty

not material); Oestreicher v. Alienware Corp. 544 F.Supp.2d 964, 971-973 (existence of a defect that

may cause laptops to overheat outside of warranty not material; citing cases following Daugherty).

Even those cases that have found materiality lacking at the pleading stage, however, have

consistently emphasized that they were not dealing with a safety-related defect, which by its very nature

would be considered material by a reasonable consumer. See Daugherty, 144 Cal. App. 4th at 836




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(“The complaint is devoid of factual allegations showing any instance of physical injury or any safety

concerns posed by the [undisclosed] defect.”); Oestreicher, 544 F.Supp.2d at 970, n. 6 (N.D. Cal. 2008)

(referring to the “Daugherty safety exception”), 971-73 (finding plaintiff had made no showing of safety

considerations, and declining to extend a manufacturer’s duty to disclose to “a latent non-safety related

defect in its product”); Morgan v. Harmonix Music Sys., Inc., 2009 WL 2031765, *4 (N.D. Cal. 2009)

(citing Daugherty for the proposition that a duty to disclose a known defect exists “when there are safety

concerns associated with the product’s use”); Wilson v. Hewlett-Packard Co., 2009 WL 3021240, *1

(N.D. Cal. 2009) (“the instant case does not implicate safety concerns”).

Although Plaintiffs have alleged that this case does involve safety concerns, Ducati claims that

those allegations are merely conclusory and that Plaintiffs have not plausibly alleged any safety risks

associated with its fuel tanks. (Mot. at 17-18.) Ducati likens Plaintiffs’ pleadings to those in Tietsworth,

where the plaintiffs had alleged that a defect in their washing machines posed safety concerns but could

not point to specific instances where anyone’s personal safety was at risk. Tietsworth v. Sears, 720 F.

Supp. 2d 1123, 1134 (N.D. Cal. 2010). Ducati claims that, as in Tietsworth, neither named plaintiff

alleges his motorcycle experienced any safety problem resulting from his fuel tank, but in fact both did.

Plaintiff Sugarman experienced a leaking fuel tank as a result of the undisclosed fuel tank defect, which

is never safe, especially with the motorcycles’ engine positioned directly below the leaking fuel tank.

(See FAC, ¶¶ 18, 30.) And, as a result of the undisclosed fuel tank defect, Plaintiff Quang Le’s fuel tank

came loose from its mounts and was wobbling while he was riding. (See id., ¶ 35.) This is another

fairly obvious safety problem, as a shifting fuel tank destabilizes the motorcycle and makes it more

difficult to control. (See id., ¶ 16.) Each Plaintiff has alleged that he would not have purchased his

motorcycle had the fuel tank defect and associated safety risks been disclosed to them. (See id., ¶ 82.)

It is not just Plaintiffs’ experiences that suggest a reasonable consumer would find the fuel tank

defect material. As Plaintiffs have alleged, over 240 Ducati owners have lodged complaints with the

NHTSA. (See FAC, ¶ 19.) Plaintiffs included excerpts of some of these complaints, which show that

other members of the proposed class have experienced loose and shifting fuel tanks, interference with

steering, and fuel leaking from their tanks, and are very concerned about their safety. (See id.)

Collectively, Plaintiffs’ allegations demonstrate a plausible safety-related issue that a reasonable




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consumer would consider material. Unlike the case of a computer or washing machine, where

allegations of safety concerns seem implausible in the absence of recorded injuries, in the automotive

context courts have not looked at whether or not accidents or physical injuries had definitively occurred.

These courts have focused on whether a reasonable consumer would consider the alleged defect to relate

to safety and consider that information material. Thus, in several cases where neither plaintiffs nor any

identifiable class member had yet to be involved in an automobile accident as a result of the alleged

automotive defect, courts have had little trouble finding plaintiffs had adequately alleged a CLRA claim

for failure to disclose a defect that seemed plausibly related to safety:

• Falk v. General Motors: Plaintiffs accused defendant General Motors of failing to

disclose that the automobiles’ speedometer “ceased to function properly after the expiration of the

vehicle’s warranty.” 496 F. Supp. 2d at 1092. Thus, the issue was whether it could be material to a

reasonable consumer “[t]hat a speedometer is prone to fail and to read a different speed than the

vehicle’s actual speed.” Id. at 1096. Citing the importance of safety issues to a reasonable consumer,

the court concluded that plaintiffs had satisfied the materiality requirement (subject to proof, of course)

and therefore had stated a claim under the CLRA. See id. (“Common experience supports plaintiffs’

claims that a potential car buyer would view as material a defective speedometer…. Such a faulty

speedometer easily would lead to traveling at unsafe speeds and moving violation penalties.”)

• Marsikian v. Mercedes Benz: Plaintiffs accused defendant Mercedes Benz of failing to

disclose a defect in the air intake system of the automobiles. 2009 U.S. Dist. LEXIS 117012, *1 (C.D.

Cal. 2009). The air intake system was allegedly “susceptible to clogging,” which could cause

“substantial electrical failure,” which in turn could cause traffic accidents. Id. at *2-3. Mercedes Benz

had argued that any such safety concern was purely speculative and that it would not have affected a

reasonable consumer’s decision to buy the car because consumers do not expect vehicle components to

last forever. Id. at *15-16. The court disagreed, finding Mercedes Benz’s contentions better suited to

summary judgment. Id. at * 16. Since, in construing plaintiffs’ allegations favorably to them, plaintiffs

had alleged the “plausible prospect of a safety problem,” the allegations of materiality were plainly

sufficient to survive a motion to dismiss. Id. at *16-17.

• Cirulli v. Hyundai Motor Company: Plaintiffs accused defendant Hyundai of failing to




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disclose that the vehicles’ sub-frame was susceptible to corrosion and, therefore, weakened structural

integrity. 2009 WL 5788762, *3 (C.D. Cal. 2009). The deficient corrosion protection could allegedly

cause a driver to lose control of a vehicle, though the only instance in which that occurred came eight

years (and more than 80,000 miles) after the car was purchased with a 60-month/60,000-mile warrany.

Id. at *1. The court concluded that the plaintiff had nonetheless established materiality (at least at the

pleading stage) because, had Hyundai adequately disclosed the omitted information about the vehicle’s

subframe, plaintiff alleged he would have been aware of it and behaved differently. Id. at *3.

• In re OnStar Contract Litigation: The defendant automakers in this multidistrict

litigation had failed to disclose to buyers of cars with OnStar—an in-vehicle communication system that

provides automatic crash notification and other services—that the equipment would soon stop working

unless owners paid for an upgrade. See 600 F. Supp. 2d 861, 863-64 (E.D. Mich. 2009). Plaintiffs

alleged that the defendant automakers were obliged to disclose this information prior to selling class

members their vehicles because the loss of OnStar and its safety protections would expose class

members to “an increased risk of personal injury and harm.” Id. at 870. The court found that plaintiffs

had established the materiality of the omitted information, and thus stated a claim under the CLRA:

“Plaintiffs’ allegations concerning safety are sufficient… to enable it to survive a motion to dismiss

under Rule 12(b)(6).” Id.

• In re Toyota Unintended Acceleration Litigation: In the economic-injury-only portion of

this multidistrict litigation concerning an alleged sudden unintended acceleration (SUA) defect, the court

first “agree[d] with Plaintiffs that experiencing an SUA defect is not required for standing.” 2010 WL

4867562, *6 (C.D. Cal. 2010). The court then denied Toyota’s motion to dismiss plaintiffs’ CLRA

claims on the basis that the alleged defect posed potential safety risks and would therefore be considered

material by a reasonable consumer. Id. at * 37 (“Given the fact that an average consumer would not

expect an SUA defect, combined with the high costs and risks associated with potential serious

accidents, Plaintiffs' allegations are sufficient to demonstrate materiality.”)

• Collado v. Toyota Motor Sales U.S.A.: In a case where plaintiffs had alleged a defect in

their HID headlight systems that causes one or both headlights to intermittently turn off at low mileages,

Toyota argued that plaintiffs had not adequately pled an unreasonable safety hazard. See Case No. 2:10-




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cv-03113-R, Doc. 65 (C.D. Cal.). Among other things, Toyota argued that plaintiffs had not

experienced failures of both headlights, that the failure of only one headlight is not unusual or unsafe,

and that plaintiffs had not alleged any instances of physical injuries or property damage, only alleging an

increased risk of automobile accidents in conclusory terms. Id. at 19-24. The court denied Toyota’s

motion to dismiss, stating on the record that plaintiffs had adequately alleged safety concerns giving rise

to a duty to disclose. Id., Doc. 103.

---

Plaintiffs’ allegations of a safety-related defect are on par with the allegations found sufficient in

the preceding cases. Reasonable consumers would likely be equally concerned—if not more

concerned—about a defect that causes destabilization and sudden shifts in weight, interferes with

steering, and results in fuel leaks as of the defects in Falk (malfunctioning speedometer), Marsikian (air

intake system susceptible to clogging), Cirulli (sub-frames susceptible to corrosion), OnStar (potential

for loss of automatic crash notification), Toyota (sudden unintended acceleration), or Collado

(intermittent headlight failure). Plaintiffs have thus adequately alleged that Ducati failed to disclose

material facts in connection with the sale of its motorcycles.

2. Plaintiffs Have Adequately Alleged Ducati’s Exclusive Knowledge.

Ducati argues that Plaintiffs’ CLRA claims should be dismissed, regardless of whether safety is

implicated, “because plaintiffs have failed to make any allegation—much less allegations with the

particularity required by Rule 9(b)—that Ducati knew that an alleged … omission was false and

intended to deceive plaintiffs at the time of sale.” (Mot. at 12.) Whether or not Ducati intended to

deceive Plaintiffs at the time of sale is not relevant to a claim under the CLRA, however, as “the CLRA

specifically contemplates that claims may be brought against persons who acted without intent.”

Kowalsky, 2010 WL 5141869 at *10; see also id. at * 6 (the UCL similarly imposes strict liability,

without regard to intent).

In addition, “the heightened pleading requirements of Rule 9(b) do not apply to allegations of

knowledge, intent, or ‘other conditions of a person’s mind.’” Id. at *4 (quoting Fed. R. Civ. P. 9(b)).

Thus, it is sufficient if Plaintiffs’ allege a “factual context in which Defendant’s prior knowledge of the

defect is plausible.” Id. Here, Plaintiffs have alleged the following factual context to establish the




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plausibility that Ducati knew of the alleged fuel tank defect when Plaintiff Le bought his motorcycle in

August 2007 and when Plaintiff Sugarman bought his motorcycle in April 2009:

(i) Consumers were complaining about deformation of Ducati’s plastic fuel tanks and

lodging safety complaints with NHTSA by 2006. (FAC, ¶ 22.) Ducati points out that merely alleging

that consumers had posted complaints without alleging when or that Ducati knew of the complaints is

insufficient. See Oestreicher, 544 F. Supp. 2d at 974, n. 9. Yet here Plaintiffs have alleged when

complaints were posted. Auto manufacturers carefully monitor these complaints and NHTSA often

forwards information about the complaints to manufacturers, so Ducati would have been aware of its

customers’ safety concerns. Ducati claims that Plaintiffs could also have discovered these complaints

by checking NHTSA’s public records and so Ducati did not have “exclusive knowledge” of these

complaints. (Mot. at 14.) Yet courts have not let the public availability of some information trump a

manufacturer’s superior knowledge. See In re Toyota, 2010 WL 4867562, *37 (“While prospective

customers could have been tipped off to the possibility of SUA by researching past complaints filed with

NHTSA, many customers would not have performed such a search, nor would they be expected to.”);

Falk, 496 F. Supp. 2d at 1097 (“Many customers would not have performed an Internet search before

beginning a car search. Nor were they required to do so.”)

(ii) Behind the scenes, Ducati was designing an aluminum fuel tank that would not degrade

or deform in the presence of the motorcycles’ fuel. (FAC, ¶ 22.) Although Plaintiffs do not yet know

when this design process began, the timing could be readily fleshed out through limited discovery. See

Kowalsky, 2010 WL 5141869 at *5 (“without the benefit of formal discovery, it is difficult to imagine

what other publically available facts [other than customer complaints] a plaintiff may rely on.”).

(iii) Ducati had exclusive access to information about its plastic fuel tanks through materials

testing data, warranty data, customer complaint data, and replacement part sales data, among other

sources of aggregate information about the problem. (FAC, ¶ 21); compare Falk, 496 F. Supp. 2d at

1096-97 (finding similar allegations sufficient to plead exclusive knowledge of a systematic defect);

Rush v. Whirlpool Corp., 2008 WL 509562, *4 (W.D. Ark. 2008) (same, applying California law).

Ducati complains that Plaintiffs have not alleged exactly what testing Ducati did or what exactly the

results showed (Mot. at 15, n. 5), but as the Kowalsky court recognized, “Plaintiffs is unlikely to have




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access to the details of [Defendant’s] product testing process without discovery.” Kowalsky, 2010 WL

5141869 at *5. Plaintiffs have been able to allege the facts that Kowalsky suggested would be sufficient

at this stage of the proceeding: “that [Defendant] tests its products … [and] based on the timing and

regularity of [the] defect experienced by Plaintiff and other putative class members, that such testing

would likely have revealed the defect.” Id.; compare FAC, ¶ 20 (“Standard pre-release field testing

would have revealed the problem, as the fuel tanks begin showing signs of the incompatibility, in the

form of wrinkling, dimpling, and other deformations within a short period of time after use, and often

degrade and deform to the point that the motorcycle cannot be safely operated within a few months or

few thousand miles of use.”).

Collectively, these allegations are sufficient to establish a factual context in which Ducati’s prior

knowledge of the alleged fuel tank defect is plausible. See Kowalsky, 2010 WL 5141869 at *4.

Plaintiffs have thus adequately alleged a CLRA violation by Ducati stemming from its exclusive

knowledge of undisclosed material facts.

3. Plaintiffs Have Adequately Alleged Active Concealment.

Plaintiffs have also plausibly alleged that Ducati violated the CLRA by actively concealing

material facts from Ducati owners. Plaintiffs’ allegations that hundreds of Ducati owners have

complained of safety issues, Ducati was aware of high repair rates, and Ducati was designing a new,

compatible fuel tank yet made no attempt to notify its customers of the compatibility issue and its

associated safety risks, plausibly establishes that Ducati was actively concealing the problem. See Falk,

496 F. Supp. 2d at 1097 (“the fact that various GM customers complained between 2003 and 2007 yet

GM never made any attempt to notify other customers or effect a recall, suggests that GM may have

attempted to actively conceal the alleged defect in their speedometers”); Stickrath v. Globalstar, Inc.,

2008 U.S. Dist. LEXIS 12190, *9-11 (N.D. Cal. 2008) (“Plaintiffs’ allegations that Defendant knew of

material defects but did not disclose them to potential customers are sufficient to allege a duty to

disclose under an active concealment theory.”).

In addition, Plaintiffs have alleged that Ducati denies that there is a known or widespread

problem when Ducati customers have called to complain about fuel tank deformation. (FAC, ¶ 24); see

In re Toyota, 2010 WL 4867562 at *38 (“Plaintiffs' allegations that Toyota repeatedly denied the




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existence of the alleged SUA defect … are sufficient to demonstrate active concealment.”) And

Plaintiffs alleged that Ducati has further concealed the fuel tank defect by repairing deformed tanks

using the same plastic fuel tanks, which suggests to a reasonable consumer that the defect was an

isolated instance rather than a widespread, systematic problem. See Falk, 496 F. Supp. 2d at 1097 (an

automaker’s replacement of defective parts with the same model can constitute active concealment of a

systematic problem).

Plaintiffs thus have plausibly alleged that Ducati was obliged to disclose its fuel tanks’

incompatibility with fuel under both the second and third Limandri factors, either of which is sufficient

to state a claim for violation of the CLRA.

4. Plaintiffs Have Adequately Alleged Reliance.

To maintain a claim under the CLRA, Plaintiffs must also adequately allege that they suffered

damage “as a result of” Ducati’s alleged violations and thus have standing. See Cal. Civ. Code § 1770

(“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 ...”); Meyer v.

Sprint Spectrum L.P., 45 Cal. 4th 634, 638 (2009). The UCL has a similar “as a result” standing

requirement, see Cal. Bus. & Prof. Code § 17204, and both have been interpreted to require allegations

of reliance on any alleged misrepresentation or omission. See Princess Cruise Lines, Ltd. v. Superior

Court, 179 Cal. App. 4th 36, 46 (2009) (citing In re Tobacco II Cases, 46 Cal. 4th 298, 324-326 (2009)).

In each case, Plaintiffs adequately plead reliance, and thus satisfy the standing requirements of the UCL

and CLRA, if they allege that defendant’s misrepresentation or omission played a substantial factor in

their purchasing decision, and thus caused them to spend money they otherwise would not have spent.

See id; see also Doe 1 v. AOL LLC, 719 F. Supp. 2d 1102, 1113 (N.D. Cal. 2010).

Ducati argues that Plaintiffs have failed to allege reliance on its alleged omission (Mot. at 18),

but in fact, Plaintiffs have alleged that they “would not have purchased their motorcycles had the fuel

tank defect and associated safety risks been disclosed to them.” (FAC, ¶ 82; see also ¶ 88 (“Plaintiffs

have purchased motorcycles they otherwise would not have purchased”).) The California Supreme

Court has recently confirmed that plaintiffs who can truthfully allege they would not have purchased a

product were it not for a defendant’s alleged misrepresentation have adequately pled loss of money as a




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result of the defendant’s conduct and thus have standing to sue. Kwikset Corp. v. Superior Court, 51

Cal. 4th 310, at *1 (2011); see also Mirkin v. Wasserman, 5 Cal. 4th 1082, 1093 (1993) (“[I]t is not

logically impossible to prove reliance on an omission. One need only prove that, had the omitted

information been disclosed one would have been aware of it and behaved differently.”) Plaintiffs

allegations are therefore adequate to establish their standing to sue Ducati for its alleged omissions

under both the CLRA and the UCL.

E. Plaintiffs Have Stated A Claim For Violation Of The UCL.

The Unfair Competition Law (UCL) prohibits “any unlawful, unfair or fraudulent business act or

practice.” Cal. Bus. & Prof. Code § 17200. Accordingly, Plaintiffs’ complaint states a claim under the

UCL if it alleges facts tending to show that Ducati’s conduct is either unlawful (i.e., forbidden by law),

unfair (i.e., the harm to consumers outweighs any legitimate competitive benefit), or fraudulent (i.e., is

likely to deceive members of the public). See Somerville v. Stryker Orthopaedics, 2009 WL 2901591,

*2 (N.D. Cal. 2009). Plaintiffs have alleged that Ducati’s conduct violates all three prongs of the UCL,

but need only plead one violation to state a claim. (See Compl., ¶¶ 45-52.)

1. Ducati’s Conduct Violates The UCL’s Unlawful Prong.

The UCL’s unlawful prong “borrows” violations of other laws and treats them as independently

actionable under the UCL. Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th

163, 180 (1999). Ducati’s violation of the CLRA thus also constitutes an unlawful practice actionable

under the UCL. See Falk, 496 F. Supp. 2d at 1098 (“[P]laintiffs successfully plead that GM violated the

CLRA by breaching its duty to disclose information about its defective speedometers. Therefore … GM

has committed an unlawful practice under the UCL.”)

2. Ducati’s Conduct Violates The UCL’s Fraudulent Prong.

In spite of its name, the UCL’s fraudulent prong is “distinct from common law fraud.” In re

Tobacco II, 46 Cal. 4th at 312. To establish that Ducati’s conduct constituted a fraudulent practice

under the UCL, Plaintiffs need not prove actual deception, reliance, or damage; instead, they need only

show that “members of the public are likely to be deceived.” Daugherty, 144 Cal. App. 4th at 838.

As Plaintiffs have alleged, a reasonable consumer would not expect fuel tanks to be

incompatible with fuel, and so by selling consumers motorcycles with fuel tanks that degrade and




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deform when in contact with fuel, Ducati has engaged in conduct likely to deceive members of the

public. See also Falk, 496 F. Supp. 2d at 1098 (where an automaker has a duty to disclose the existence

of a known safety defect to its customers, yet fails to follow through with it, “members of the public

would very likely be deceived”); contrast Daugherty, 144 Cal. App. 4th at 838 (members of the public

are not likely to be deceived by automaker’s failure to disclose a non-safety related defect that it had no

obligation to disclose).

Ultimately, whether Ducati’s practices are deceptive is a question of fact that requires

consideration and weighing of evidence from both sides, and thus not ordinarily suitable for decision on

demurrer. See Linear Tech. Corp. v. Applied Materials, Inc., 152 Cal. App. 4th 115, 134-35 (2007).

Consumer surveys, anecdotal evidence, and expert testimony regarding consumer assumptions are often

integral to the court’s ultimate determination. See Clemens v. DaimlerChrysler Corp., 534 F.3d 1017,

1026 (9th Cir. 2008). Because it is plausible that Plaintiffs will be able to present such evidence to

support their allegation that a reasonable consumer was likely to be deceived by Ducati’s conduct, this is

not one of those “rare situations” where granting a motion to dismiss is appropriate. Williams v. Gerber

Prods. Co., 552 F.3d 934, 939 (9th Cir. 2008).

3. Ducati’s Conduct Violates The UCL’s Unfair Prong.

“A business practice is unfair within the meaning of the UCL if it violates established public

policy or if it is immoral, unethical, oppressive or unscrupulous and causes injury to consumers which

outweighs its benefits.” McKell v. Washington Mutual, Inc., 142 Cal. App. 4th 1457, 1473 (2006). This

prong of the UCL is intentionally broad to give “courts maximum discretion to prohibit new schemes to

defraud.” Ticconi v. Blue Shield of Ca. Life & Health Ins. Co., 160 Cal. App. 4th 528, 539 (2008). To

determine whether a business practice is unfair, the court must review the evidence from both parties

and weigh any legitimate utility of the practice against the harm to consumers; this decision “cannot

usually be made on demurrer.” See id.

Here, Plaintiffs have alleged that Ducati engaged in and profited from practices that should be

considered unfair and barred from a fair and efficient consumer marketplace: selling consumers

motorcycles with fuel tanks that degrade and deform upon contact with the motorcycles’ fuel, causing

several unsafe conditions; and repairing defects in the fuel tank material by installing a replacement fuel




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tank that uses the same defective plastic material, exposing consumers and members of the public to the

same unsafe conditions in the future. (See FAC, ¶87.) Upon review of all the evidence, these practices

very well may prove to be contrary to public policy, unethical, unscrupulous, and/or substantially

injurious to consumers, making a resolution of Plaintiffs’ UCL claims in Ducati’s favor inappropriate at

the pleading stage. See Mourning v. Smithkline Beecham Corp., 2009 U.S. Dist. LEXIS 25894, *12

(N.D. Cal. 2009) (“Failing to provide safety information is a practice that violates public policy.”); see

also Watts v. Allstate Indem. Co., 2009 U.S. Dist. LEXIS 26618, *29-30 (E.D. Cal. 2009) (court could

not conclude, as a matter of law, that defendants’ conduct was fair where plaintiff alleged that

defendants put consumers at risk by interfering with proper auto repair procedures). And while Ducati

argues that by alleging its repair practices are unfair, Plaintiffs are attempting to transform a contractual

dispute into a UCL claim (Mot. at 15), “[a] breach of contract may … form the predicate for Section

17200 claims, provided it also constitutes conduct that is ‘unlawful, or unfair, or fraudulent.’” The

Missing Link, Inc. v. eBay, Inc., 2008 WL 1994886, *8 (N.D. Cal. 2008) (collecting cases).

F. Plaintiffs Have Alleged Sufficient Facts To Justify Application of California Law To Out-of-State Class Members.

Ducati argues California law should not be applied to either Plaintiff Sugarman’s claims or to the

claims of other out-of-state class members. (See Mot. at 18-20, 23-24.) It therefore asks that Plaintiff

Sugarman’s UCL and CLRA claims be dismissed and that Plaintiffs’ nationwide class allegations be

stricken. (See id.)

When a California corporation engages in unfair conduct that affects both in-state and out-of-

state consumers, California courts have recognized that California’s consumer protection laws may be

uniformly applied to all affected consumers. See, e.g., Chavez v. Blue Sky Natural Beverage Co., 268

F.R.D. 365, 379 (N.D. Cal. 2010) (applying the UCL to claims of out-of-state class members where

“Defendants are headquartered in California and their misconduct allegedly originated in California”);

Wershba v. Apple Computer, 91 Cal. App. 4th 224, 241-242 (2001) (applying the UCL to out-of-state

claims where the defendant did business in California, its principal office were located in California, a

significant number of class members were located in California, and the allegedly unfair conduct at issue

originated in California); Parkinson v. Hyundai Motor Am., 258 F.R.D. 580, 598 (C.D. Cal. 2008)




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(applying the CLRA and UCL to out-of-state claims where the alleged omissions originated from the

defendant automaker’s California headquarters).

So long as the wrongful conduct originates from within California, the uniform application of

California law to both in-state and out-of-state consumers affected by the conduct is consistent with the

California Supreme Court’s declaration that the State “has a “clear and substantial interest in preventing

fraudulent practices in this state which may have an effect both in California and throughout the

country.” Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal. 4th 1036, 1063 (1999)

(emphasis added); see also id. at 1064 (“California also has a legitimate and compelling interest in

preserving a business climate free of fraud and deceptive practices.”). California could not give effect to

this important state policy if it could only prohibit its companies from engaging in unfair and deceptive

practices in one of the fifty states. See id. at 1054-55 (“It is apparent that extending … remedies to any

person affected by the proscribed forms of manipulative conduct has a far greater deterrent impact than

limiting a defendant's exposure to civil liability for in-state transactions.”); Tobacco II, 46 Cal. 4th at

312 (the UCL was enacted to serve the California Legislature’s “goal of deterring unfair business

practices in an expeditious manner”).

The deceptive practices alleged by Plaintiffs originated within California and so application of its

laws to out-of-state consumers affected by that conduct, like Mr. Sugarman, is appropriate. Ducati

personnel responsible for customer and dealership communications are located at its Cupertino,

California, headquarters and the core decision not to disclose the fuel tank incompatibility to class

members was made and implemented from there. (FAC, ¶ 49.) In addition, Ducati personnel

responsible for setting Ducati’s warranty repair policies with respect to its fuel tanks are located at

Ducati’s California headquarters, as are the personnel responsible for communicating those policies to

Ducati dealerships and for distributing replacement fuel tanks to Ducati dealerships. (Id., ¶ 50.)

Applying California law to Plaintiff Sugarman’s unfair competition claims under these circumstances is

both permissible and logical.

In fact, under California’s choice-of-law rules, California law presumptively applies to Plaintiff

Sugarman’s claims unless Ducati demonstrates, using a three-step comparative impairment analysis, that

some other state’s interests would be more impaired than California’s interests if its law were not




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applied. Washington Mutual Bank v. Superior Court, 24 Cal. 4th 906, 919 (2001); see also Patton v.

Cox, 276 F.3d 493, 495 (9th Cir. 2002) (“When a federal court sits in diversity, it must look to the forum

state's choice of law rules to determine the controlling substantive law.”) Ducati has not even attempted

that analysis. While Ducati apparently believes that the Court should apply Florida law to Mr.

Sugarman’s claims, it has not shown that Florida’s unfair competition law is materially different than

California’s (such that the allegations would state a claim under one state’s laws but not another’s) or

identified Florida’s governmental interest in having its law applied. The Court thus need not reach the

third step of the analysis, which calls for an evaluation of which state’s policies would suffer greater

impairment if its law were not applied, and should apply California law to Mr. Sugarman’s claims for

the purpose of this motion to dismiss. See Estrella v. Freedom Fin. Network, LLC, 2010 WL 2231790,

*6 (N.D. Cal. 2010) (applying California law where defendant failed to identify a material conflict in the

two states’ laws or establish the other state’s interest in having its own law applied).

Whether California law should likewise apply to the claims of all out-of-state class members is a

question best addressed in the context of class certification. At that point, the Court should “presume[s]

that [California] law applies to the claims of the nation-wide class unless Defendants meet the

‘substantial burden’ of showing that foreign law, rather than California law, applies.” Keilholtz v.

Lennox Hearth Products Inc., 268 F.R.D. 330, 340 (N.D. Cal. 2010). Ducati has cited to cases where a

defendant has met that burden and overcome the presumption that California law applies, but it is far

from certain that Ducati will be able to meet that burden here, and so striking the nationwide class

allegations at this point in the proceeding would be inappropriate. As the cases cited above illustrate,

UCL and CLRA claims have been certified on a nationwide basis where a developed factual record

shows that the allegedly deceptive practices originate from a corporation’s California headquarters. And

while this Court has noted that “warranty claims are difficult to maintain on a nationwide basis and

rarely are certified,” the issues like reliance and economic injury that can raise individualized issues in

warranty claims should not necessarily preclude certification here. Sanders v. Apple Inc., 672 F. Supp.

2d 978, 991 (N.D. Cal. 2009) (citing Cole v. Gen. Motors Corp., 484 F.3d 717, 724-30 (5th Cir.2007)).

That is because the relief class members are seeking is primarily injunctive in nature. In other words,

they are not requesting a money judgment in the first instance, but rather a declaration that if Ducati




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covers fuel tanks under warranty, then Ducati must install a compatible fuel tank rather than using the

same defective plastic material in its replacement tanks. (See FAC, ¶¶ 59-60, 69-70; see also Doc. 42, ¶

11 (describing relief).) Rather than issues of warranty coverage, which Ducati appears to be

determining appropriately (despite its attempt in its motion papers to distance itself from the 5-year

warranty), this case raises issues of contract interpretation—i.e., what type of repair is required under the

2-year and 5-year warranty contracts when warranty coverage is granted. Issues of contract

interpretation are ideal candidates for nationwide class treatment, and while an ultimate determination

should not be made until class certification, it appears that in this case Ducati owners nationwide would

benefit from a determination of Ducati’s contractual obligations under its warranties. See, e.g., Ewert v.

eBay, Inc., 2010 WL 4269259, *7 (N.D. Cal. 2010) (“When viewed in light of Rule 23, claims arising

from interpretations of a form contract appear to present the classic case for treatment as a class

action.”); Menagerie Productions v. Citysearch, 2009 WL 3770668, *9 (C.D. Cal. 2009) (same).

G. Ducati’s Request to Strike Plaintiffs’ Class Allegations Should Be Denied.

In addition to challenging the nationwide scope of Plaintiffs’ proposed class, Ducati requests that

the Court strike Plaintiffs’ class allegations on the grounds that (i) Plaintiffs’ proposed class contains

members who do not have standing, and (ii) Plaintiffs’ claims raise predominantly individualized issues.

On the issue of standing, it is settled that absent class members need not have statutory standing

to proceed under California’s unfair competition laws. See In re Tobacco II, 46 Cal. 4th at 324.

Whether absent class members must have Article III standing, however, remains an open question

within the Ninth Circuit, with at least one district court concluding that Article III standing is required

only for the named class representative and others requiring it is required of all class members. See

Campion v. Old Republic Home Prot. Co., Inc., 2011 WL 42759, *3 (S.D. Cal. 2011) (only the class

representative must have standing); Sanders, 672 F. Supp. 2d at 991 (all class members must have

standing); Burdick v. Union Sec. Ins. Co., 2009 WL 4798873, *4 (2009) (construing narrowly the Ninth

Circuit’s statement that “standing is satisfied if at least one named plaintiff meets the [Article III]

requirements”). It is often inevitable that some class members will not have suffered injury, especially

without the assistance of discovery to appropriately narrow the class. See Kohen v. Pac. Inv. Mgmt. Co.

LLC, 571 F.3d 672, 677 (7th Cir. 2009) cert. denied, 130 S. Ct. 1504 (2010); see also Newberg on Class




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Actions § 2:7 (4th ed.) (“passive members need not make any individual showing of standing, because

the standing issue focuses on whether the plaintiff is properly before the court, not whether represented

parties or absent class members are properly before the court.”) Nonetheless, Article III standing is not

likely to be an issue in this case, as each proposed class member was injured when they purchased a

Ducati motorcycle that had an undisclosed defect. Whether or not they have suffered from fuel tank

problems as a result of the undisclosed defect, they still have been injured in fact and may be

appropriately included in a class. See Wolin v. Jaguar Land Rover N. Am., LLC, 617 F.3d 1168, 1174

(9th Cir. 2010) (in a case alleging warranty and consumer protection claims from an undisclosed defect,

“we hold that the district court erred when it required [plaintiffs] to show that a majority of proposed

class members' vehicles manifested the results of the defect.”) In addition, each class member’s

motorcycle is covered by the same basic warranty language, and each has an interest in a declaration

establishing Ducati’s duties under that warranty. See Newberg on Class Actions, §4:11 (under Rule

23(b)(2), “ the defendant's conduct described in the complaint need not be directed or damaging to every

member of the class”).

Ducati’s other ground for striking Plaintiffs’ class allegations is that individual issues will

predominate over common issues under Rule 23(b)(3). Plaintiffs are likely to seek class certification

under Rule 23(b)(2), which does include a predominance requirement. But even if Plaintiffs seek class

certification under Rule 23(b)(3), they have identified several key common issues, including (i) whether

the plastic used in class motorcycles is incompatible with fuel; (ii) whether and when Ducati knew of

this incompatibility; (iii) whether the tanks pose an unreasonable safety hazard; and (iv) whether

Ducati’s practice of installing replacement tanks made of the same material satisfies its contractual

obligations under the 2-year and 5-year warranties. (See FAC, ¶ 41.) Ducati does not argue that these

issues are not common, but instead lists five issues that it believes are individualized and will

predominate over common issues. (See Mot. at 22.) Several of the issues, such as whether class

members improperly misused or cared for their motorcycles or whether any other warranty exclusions

apply, seem to misconstrue what Plaintiffs are seeking through their claims. Ducati has warranty

procedures set up to determine whether a Ducati owner should be denied warranty coverage due to

improper use or other factors, and Plaintiffs are not currently contesting the validity of those procedures.




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The issue is whether, when Ducati does decide to provide warranty coverage, it may install a

replacement tank using the same allegedly defective material. That issue does not require individual

determinations and is well-suited for adjudication on a class-wide basis. Similarly, while Ducati makes

much of the fact that 24 different models of motorcycles are included in the proposed class, Plaintiffs

allege that these models all use the same plastic material. (See FAC, ¶ 13.) Whether that material is

compatible with the fuel will be a central, common issue in this case.

Even if the issues raised by Ducati are relevant to Plaintiffs’ claims, whether they will

predominate over the common issues Plaintiffs have identified is a fact-intensive inquiry that should be

subject to rigorous analysis after discovery and full briefing on the issue. Making that determination

now, prior to discovery and outside of the class certification briefing process, would be premature. See

In re Wal-Mart Stores Wage & Hour Litig., 505 F. Supp. 2d 609, 615 (N.D. Cal. 2007) (“the granting of

motions to dismiss class allegations before discovery is commenced is rare”) (collecting cases).

III. CONCLUSION

For the reasons stated, Plaintiffs request that the Court deny Ducati’s motion to dismiss as well

as Ducati’s motion to strike Plaintiffs’ class allegations.

Dated: March 8, 2011 Respectfully Submitted

GIRARD GIBBS LLP By: /s/ Geoffrey A. Munroe Eric H. Gibbs Dylan Hughes 601 California Street, 14th Floor San Francisco, CA 94108 Telephone: (415) 981-4800

Facsimile: (415) 981-4846

Attorneys for Plaintiffs


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