Products Liability Law Daily Fraud claim against Tesla dismissed in car crash case
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Tuesday, July 20, 2021

Fraud claim against Tesla dismissed in car crash case

By Joshua Frumkin, Esq.

The consumer was unable to show that he relied on specific material misstatements or omissions about the vehicle’s Autopilot feature on Tesla’s website or that Tesla agents had an intent to defraud him in the showroom.

In an action stemming from a car accident involving a Model X Tesla vehicle whose Autopilot feature allegedly failed to engage its "Automatic Emergency Braking" function, a federal district court in New York dismissed the consumer's fraud claim. The court also denied Tesla's motion to dismiss the consumer's prayer for punitive and exemplary damages, and denied the automaker's motion to strike portions of the consumer’s amended complaint (Wang v. Tesla, Inc., July 16, 2021, Garaufis, N.).

The consumer purchased a Model X vehicle from Tesla, Inc. in September 2016, after relying on representations about the vehicle’s Autopilot feature made on Tesla's website and by Tesla agents in a Tesla showroom. The consumer alleged that Tesla and its agents never warned him about the limitations of the Model X and the Autopilot feature or provided him with proper operating instructions for them. In December 2017, the consumer was involved in a car accident after the Autopilot feature failed to engage its "Automatic Emergency Braking" function; he claimed that he had operated the vehicle reasonably and was alert the entire time. He brought suit against Tesla for property damage to his vehicle and two others. Among other claims, he alleged that Tesla intentionally made false representations of material fact relating to the safety and readiness of the Autopilot function and that those representations were the direct and proximate causes of his accident. Tesla moved to dismiss on the grounds that the claimant failed to state a claim for fraud and that he did not state a cognizable claim for punitive or exemplary damages. Tesla also moved to strike portions of the amended complaint as immaterial and impertinent.

Common law fraud. The court granted Tesla's motion to dismiss the common law fraud claim. To state a claim for fraud, a plaintiff must establish "a misrepresentation or a material omission of fact which was false and known to be false by [the] defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury." Claimants must state with particularity the circumstances constituting the fraud. Tesla argued that the consumer failed to plead all the elements of common law fraud, failed to satisfy the particularity standard, and that there was no fiduciary relationship between the parties. The court noted that the amended complaint did not allege that the consumer viewed and relied on the specified statements on Tesla's website when he decided to purchase the Model X. As such, the court determined that he failed to satisfy the particularity requirement as to the fraud allegations concerning Tesla's website.

No demonstrated intent to defraud. To demonstrate a strong inference of fraudulent intent, the consumer was required to allege facts indicating that Tesla had both motive and opportunity to commit fraud, or facts that amounted to strong circumstantial evidence of conscious misbehavior or recklessness. The consumer alleged that he was misled by statements made by Tesla representatives at multiple showrooms, including that a driver of the Model X could "close his eyes and relax" when using the Autopilot feature. However, the court found that this statement did not give rise to a strong inference of fraudulent intent.

No duty to disclose. To allege fraud based on a failure to disclose, there must be a fiduciary or similar relationship between the parties. When parties are engaged in an arm's-length transaction, they only have a duty to disclose pursuant to the "special facts doctrine," under which a duty to disclose arises when one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair. The consumer alleged that Tesla fraudulently failed to adequately disclose the limitations of the Autopilot system. The court found that the consumer failed to allege with specificity what alleged defects were known to Tesla and concealed from him. He also failed to adequately allege that details concerning the limitations of the Autopilot system were unavailable via the Tesla website, the Model X owner's manual, or other publicly available sources. Consequently, the court found that the facts did not give rise to a claim that Tesla committed fraud.

Prayer for punitive and exemplary damages not dismissed. Under New York law, claimants can recover punitive damages when the defendant's actions were "gross, wanton, or willful fraud or other morally culpable conduct." Courts tend to deny attempts to dismiss such prayers at the motion to dismiss stage of litigation because it is an evidentiary matter that cannot be decided on a motion to dismiss. Consequently, the court denied Tesla's motion to dismiss the prayer as procedurally premature.

Motion to strike portions of amended complaint denied. The court also rejected Tesla's motion to strike six paragraphs of the amended complaint that alleged facts concerning the safety of Tesla vehicles. The court rejected Tesla's argument that the paragraphs were not relevant to the instant car accident. The paragraphs related to alleged defects with Tesla's Autopilot technology and the extent to which Tesla knew about and disclosed information regarding those defects.

The case is No. 20-CV-3040 (NGG) (SJB).

Attorneys: Michael R. Nelson (Nelson Law, LLC) for Jing Wang. Jessica Bradburn Loucks (Nelson Law, LLC) for Wai-Leung Chan. Peter Joseph Fazio (Aaronson Rappaport Feinstein & Deutsch, LLP) and Matthew Berard (Bowman and Brooke LLP) for Tesla, Inc.

Companies: Tesla, Inc.

MainStory: TopStory DesignManufacturingNews WarningsNews DamagesNews MotorVehiclesNews NewYorkNews

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