Judicial Notice Doctrine Bolstered by Court of Appeal Decision

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A recent California decision should make it easier for insurers to attack allegations at the pleading stage in state court actions. 

In Scott v. JP Morgan Chase Bank, the California Court of Appeal clarified that, when ruling on the sufficiency of a plaintiff’s allegations, a trial court may take judicial notice not only of legally operative documents relevant to a plaintiff’s claims but also of facts that can be derived from the documents’ contents. This procedural holding should be useful to insurers when challenging complaints through a demurrer, motion to strike, or motion for judgment on the pleadings.

Federal courts have well-recognized procedures for considering documents outside the pleadings when ruling on motions to dismiss. District courts may take judicial notice of contracts or other key documents mentioned in the pleadings where there is no factual dispute about the documents’ authenticity or enforceability. In the Ninth Circuit, district courts may even take judicial notice of documents that the pleadings don’t mention, provided the documents are integral to the plaintiff’s claims. See, e.g., Parrino v. FHP, Inc., 146 F.3d 699 (1998).

In contrast to federal practice, California state court decisions have not provided clear guidance with respect to those facts that a court may consider at the pleading stage. A trial court does not have to accept the truth of allegations contradicted by documents incorporated into the pleading by reference. In many instances, however, parties do not attach contracts to complaints or expressly incorporate them by reference. Although some California decisions have permitted trial courts to take judicial notice of documents outside the pleadings, these authorities have not provided consistent guidance about what documents a court may consider and to what extent. 

The Scott decision provides some needed clarity.

The plaintiff in that case sued to challenge a foreclosure on property. The original lender went bankrupt, and JPMorgan purchased the loan from the FDIC. In support of a motion for judgment on the pleadings, JPMorgan asked the trial court to take judicial notice of the purchase and assumption agreement between JPMorgan and the FDIC. The agreement specified that JPMorgan had acquired the failed bank’s assets but none of its liabilities. JPMorgan contended that this fact precluded all claims for legal or equitable relief related to the origination of the loan and thus provided a complete legal defense to all causes of action.

The court of appeal held that trial court properly took judicial notice of the purchase agreement. Because the agreement was a legally operative document and no one challenged its authenticity or completeness, the court could take judicial notice not only of the agreement’s existence but also of facts derived from its legal effect. The Scott decision went even farther, holding that trial courts may take judicial notice of the truth of statements within a legally operative document provided the fact is not reasonably subject to dispute. The court based its ruling on Evidence Code section 452, subdivision (h), which permits 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.” Thus, the court’s holding is not limited to agreements involving government agencies but could apply to any contract.

The doctrine has limits. Judicial notice of facts derived from a document might not be proper if the parties dispute its authenticity. Judicial notice also might not be appropriate if the operative terms are ambiguous or if the document’s enforceability turns on disputed factual issues. These restrictions are in line with federal practice.

A plaintiff alleging a breach of an insurance contract is not required to describe the contract’s terms in detail or attach the policy to the pleadings. To state a claim, a plaintiff may simply describe in general terms the key policy provisions and their legal effect. Under these liberal pleading standards, a plaintiff could attempt to sidestep legal challenges by omitting key terms or other important facts that can be derived from the policy’s contents.  

The Scott decision makes it harder for a plaintiff to avoid legal challenges through artful pleading. Under Scott, an insurer may put the entire policy in front of the trial court and ask the court to take judicial notice not only of all operative terms, but also of the truth of statements that are not reasonably subject to dispute. If an application or other disclosure is part of the policy, an insurer could ask the court to take judicial notice of those documents as well, along with facts that can be derived from their contents. The decision provides insurers and other defendants a valuable procedural tool in asserting legal defenses at the earliest point in litigation.

 

Topics:  Insurers, Judicial Notice, Pleadings

Published In: Civil Procedure Updates, General Business Updates, Insurance Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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