A dichotomy exists between California state procedural law and Ninth Circuit case law with respect when a court make take judicial notice of a document in connection with ruling on a motion to strike or demurrer/motion to dismiss. As discussed below, the rule adopted by the California state courts can lead to an injustice that does a disservice to the public and wastes judicial resources. The California state courts should follow the federal rule, which simply makes much more sense.
With respect to both a motion strike and a state court demurrer, the court is limited to the facts alleged on the face of the complaint, as well as those matters of which the court may take judicial notice pursuant to Section 452 or 453 of the Evidence Code. Code Civ. Proc. §§ 430.70, 437(b). California Evidence Code Section 452(h) provides that the court may take judicial notice of “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” Cal. Evid. Code § 452(h).
For purposes of this diatribe, let’s assume that parties entered into an agreement for the purposes of seeking a possible early settlement of a brewing (not yet filed) dispute. Assume the agreement provides that any settlement discussions would be confidential, and not disclosed in any proceeding between the parties. Now assume that, when plaintiff eventually files its lawsuit, and that lawsuit violates terms of the parties’ agreement by basing its claims on the contractually protected settlement discussions. Finally, assume the plaintiff omits any reference to that agreement in its complaint, and when the defendant moves to strike portions of the pleading because they violate the agreement (and are thus “irrelevant . . . or improper matter inserted in any pleading” under Code of Civil Procedure section 436A), the plaintiff objects that the court may not take judicial notice of the agreement. See CLD Const., Inc. v. City of San Ramon, 120 Cal.App.4th 1141, 1145 (2004) (Section 436 gives court discretion to strike all or any part of a pleading not filed in conformity with California law).
Under California state law, where the plaintiff omitted a pre-litigation agreement from inclusion in the complaint, and in opposition to a motion challenging the pleadings, disputes the validity of that agreement (even without legitimate basis), the court may deny the defendant’s motion on the grounds that it is unable to take judicial notice of the documents’ preclusive effect. Gould v. Maryland Sound Industries (1995) 31 Cal. App. 4th 1137 and Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal. App. 4th 97 would arguably support that ruling.
Both Gould and Fremont involved contracts, the terms of which were disputed by the parties. For example, in Fremont, the court held that the contents of a letter should not have been judicially noticed at the demurrer stage because the parties disputed the meaning of their contractual relationship and the enforceability of the contract. Id. at 115-117.
While both cases have been used to support the proposition that the court may not take judicial notice of a disputed contract, it should be noted that Gould is not so Draconian in its holding. It expressly limited its decision “to attempts to establish the existence of a contract under the ‘indisputable facts’ provision of Evidence Code section 452, subdivision (h). . . . We do not rule out the possibility the existence of a contract could be established by judicial notice under different circumstances, e.g. through reference to the plaintiff’s pleadings or discovery responses in the same or a different action. [Citations omitted.].” 31 Cal. App. 4th at 1145, n. 1. It is not clear, however, how much “reference” in plaintiff’s pleadings is sufficient (does it satisfy Evidence Code section 452(d) that the plaintiff acknowledges the agreement in its opposition to a motion to strike and demurrer?); nor how much acknowledgment in response to discovery might be required to overcome the bar (is it enough that plaintiff acknowledges the existence of the agreement?).
Gould is consistent with Stormedia Inc. v. Superior Court (1999) 20 Cal. 4th 449, 457, fn. 9, which states “We deem it appropriate to [take judicial notice] here as real parties in interest also refer to some of the documents in their briefs.” Also, courts have held that the truth of statements made by a party is a matter subject to judicial notice. C.R. v. Tenet Healthcare Corp. (2009) 169 Cal. App. 4th 1094, 1103 (citing to Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal. App. 3d 593, 604-605). In Del E. Webb, the court held that judicial notice could be taken of records such as admissions, answers to interrogatories, affidavits, and the like, if they contained statements made by the plaintiff which were inconsistent with the allegations of their pleadings. Del E. Webb, supra, 123 Cal. App. 3d at 604-605.
So, back to the hypothetical: Suppose that plaintiff has admitted in discovery responses that it entered into the parties’ agreement, and even quoted in its Opposition to defendant’s motion the very language defendant is relying upon. It would seem that the agreement’s content, like a party’s own statements, cannot be reasonably disputed and may be judicially noticed. Notwithstanding the caveats in Gould and the ruling from Stormedia and Del E. Webb, many state courts simply won’t go out on a judicial ledge and take judicial notice of the document at issue. Fair enough: Fremont is a leading case, but it is worth the court’s time to recognize that it and some of the other cases addressing this issue place too much emphasis on stare decisis where those earlier cases have similarly failed to dig into the public policy underpinning and effect – not to mention the federal approach in this area. This inevitably leads to bad law born of bad basics.
Notably, even Stormedia did not spend much time analyzing this issue, and Gould v. Maryland contains some fairly significant carve-out language that courts should heed. Moreover, even Gould does not account for the obvious short coming of the hard-line rule by ignoring the calculating plaintiff who intentionally ignores the preclusive effect of an agreement when drafting the complaint, then claims to “dispute” that agreement when the court is asked to take judicial notice of it for purposes of trimming the complaint to fit the contractual limitations set by the parties themselves. Of course, that is asking a lot of those who take the bench, and I recognize that most don’t want to be overturned on appeal. But that’s the risk that comes from exerting intellectual courage and blazing judicial trail.
The 9th Circuit’s approach makes more sense, is founded on better public policy, and provides for greater judicial efficiency. Recognizing that a plaintiff may try to skate past the pleading stage by withholding any mention of a preclusive pre-litigation agreement, it has ruled that “documents critical to plaintiff’s claims, but not explicitly incorporated in his complaint” may be considered by a district court when ruling on a motion to dismiss provided neither party questions the authenticity of that document. Parrino v. FHP, Inc. et. al 146 F.3d 699, 705-706 (9th Cir. 1997).
In Parrino, Mr. Parrino’s estate sued FHP, his HMO, alleging the defendants had improperly denied his initial claim for therapy. The defendants asserted that the plaintiff’s claims were preempted by ERISA, and sought to introduce the FHP Master Group Application (in support of that defense) when ruling on their motion to dismiss. The district court considered that plan – which had not been referenced in or attached to the complaint – and based in part thereon, granted the defendants’ 12(b)(6) motion to dismiss. Plaintiff appealed.
In ruling on this issue, the Ninth Circuit stated that public policy supported a rule that prevented “plaintiffs from surviving a 12(b)(6) motion by deliberately omitting references to documents upon which their claims are based. [Citations omitted.] At least one other circuit has held that if a plaintiff’s claims are predicated upon a document, the defendant may attach the document to his Rule 12(b)(6) motion, even if the plaintiff’s complaint does not explicitly refer to it. See Cortec Indus., Inc. v. Sum Holding, L.P., 949 F.2d 42, 47 (2d Cir. 1991) . . . . We therefore hold that a district court ruling on a motion to dismiss may consider a document the authenticity of which is not contested, and upon which the plaintiff’s complaint necessarily relies.” 146 F.3d at 706.
Based on the foregoing, Parrino held that because the plaintiff’s claims rested on his membership in the FHP plan, documents governing that plan were “essential to his complaint.” Id. Since that ruling, Parrino has been followed by a number of other courts in the Ninth Circuit. See e.g. Mehmet v. Paypal, Inc., 2008 U.S. Dist. Lexis 64018, *6 (“court may take notice of a document outside the complaint if [it] is referenced in, or relied on by, the complaint”); Wietschner v. Monterey Pasta Co., 294 F. 2d 1102, 1110 (where plaintiff fails to attach document upon which complaint is premised, defendant may attach a copy of same to its motion to dismiss in order to show that document does not support plaintiff’s claim.)
The California state courts should look closely at Parrino and its progeny, and take careful note of the policy unpinning those rulings. Where a document is integral to the plaintiff’s claims and its authenticity is not disputed, the plaintiff should not be heard to complain when the defendant asks the court to take judicial notice of it. (Indeed, the court should consider the plaintiff’s omission with some degree of skepticism, much as we ask our triers of fact to consider inconsistent statements when ruling on a witnesses’ credibility.) Public policy dictates that we not waste judicial resources, or permit parties to waste each others financial resources, by allowing claims to proceed beyond the pleading stage where a clear, uncontested written agreement between the parties precludes such an action.
While it is true that, under the facts I’ve proposed, the agreement will – at some point in the litigation – have the preclusive effect urged by the defendant, does it really advance the interest of justice to force the defendant to go deeper into the legal woods to get there? I don’t think so. California states courts should adopt the 9th Circuit’s approach and consider a document whose authenticity is not contested, and upon which the plaintiff’s complaint necessarily relies, when ruling on an initial challenge to the complaint.
Jonathan Pink is a commercial litigator with a specialty in high-stakes copyright, trademark and patent infringement lawsuits. He is Co-Chair of the Internet and New Media Team at Bryan Cave, LLP, and is resident in the firm’s Los Angeles and Irvine (Orange County) offices. He can be reached at 949-223-7173, or at firstname.lastname@example.org.