First Community Bank v. Bank of the
West
Filed 5/24/13
First Community Bank v. Bank of the West CA1/5
NOT TO BE
PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE
DISTRICT
DIVISION FIVE
FIRST COMMUNITY BANK,
Plaintiff and
Appellant, A134168
v. (
Super.
Ct.
BANK OF THE WEST,
Defendant and
Respondent.
___________________________________/
First
Community Bank’s (FCB) second amended complaint alleged a
West. The trial court sustained Bank of
the West’s demurrer without leave to amend, concluding FCB failed to allege
facts showing it justifiably relied on Bank of the West’s alleged
misrepresentation or failure to disclose information. In reaching this conclusion, the court took
judicial notice of several documents, including deposition testimony, a
contract between the parties, property appraisals, and a credit authorization
memorandum.
On appeal,
FCB contends the court erred by: (1) taking judicial notice of and weighing
extrinsic evidence proffered by Bank of the West; (2) concluding the second
amended complaint did not state a cause of action for
Bank of the West’s demurrer to the operative
complaint.
We reverse. We assume for the sake of argument the court
properly took judicial notice of the documents proffered by Bank of the West
and the facts asserted within them (and, where relevant, the legal effect of
the documents). We conclude, however,
that the judicially noticed documents do not negate the allegations of the
operative complaint. Because the
operative complaint stated a cause of action for fraud, the court erred by
sustaining Bank of the West’s demurrer without leave to amend. We therefore reverse the judgment in favor of
Bank of the West.
FACTUAL AND
PROCEDURAL BACKGROUND
We accept
as true the following allegations in FCB’s second amended complaint for the
purpose of reviewing the order sustaining Bank of the West’s demurrer:
At some
point before April 2004, Wells Fargo made a loan to Kobra Properties, G.P.
(Kobra). In April 2004, Bank of the West
purchased a $25,000,000 participation interest that loan. In 2005, Bank of the West loaned Kobra
$14,287,000 to enable Kobra to purchase and develop 65.5 acres of property in
Loomis.
— was for a one-year period but could be extended for an additional two years
under certain conditions. During the
underwriting process, Bank of the West obtained an appraisal from PGP
Appraisers (PGP) stating the “as is†value of the property was $21,980,000
(2005 appraisal).
Bank of the West sold a $9,287,000
participation interest in the loan to two banks and retained a 35 percent
interest in the loan of $5,000,000. In
August 2007, FCB purchased a 50 percent interest in the loan for $6,298,742.52
pursuant to a Sale and
Participation Agreement (Participation Agreement).
Before the loan’s initial maturity
date, Kobra asked Bank of the West to extend the loan so it would have more
time to develop the property. At Bank of
the West’s request, PGP performed a second appraisal (2006 appraisal). A second appraisal was necessary because the
loan could not be extended unless the loan-to-value ratio remained at a certain
level, which in turn required the property to “continue to be valued in the
range of $21,980,000 as set forth in the 2005 [a]ppraisal.†Bank of the West’s internal appraiser, Edmond
Nagel, reviewed a draft of the 2006 appraisal and learned PGP had concluded
that the value of the property was $14,987,406 — not $21,980,000 — “in light of
the true purchase price of $10,000,000.â€
PGP had reached this conclusion because the property’s purchase price
could not be confirmed and had been “fraudulently reported.†Nagel told Gary Miller, another Bank of the
West employee, and Miller implored Nagel to “convince PGP to value the
[p]roperty in the range of $21,980,000.00 as set forth in the 2005 [a]ppraisal
so that the ‘Loan-to-Value’ ratio [remained proper] in order for the [ ] Loan
to be extended.†Miller also told Bank
of the West employee Stacey Michrowski about the “drastically different
conclusion reached by PGP†regarding the value of the property.
Nagel then “contacted PGP and
convinced [it] to increase the appraised valuation of the Property from
$14,987,406.00 to $22,500,000†to preserve the proper “Loan-to Valueâ€
ratio. The 2006 appraisal noted there
was no purchase price for the property listed in county records, but that the
document transfer tax for the property suggested it was purchased for
$10,000,000. The appraisal also stated
the value of the property was $14,987,406 “‘rounded to’†22,500,000. In response to a question raised by another
participant in the loan, Nagel “asked PGP to revise the draft to state that the
value of the Property was $22,495,383.00 ‘rounded to’ $22,500,000,00.†FCB and others were “led to believe that the
different value[ ]†for the property in the revised 2006 appraisal was a
typographical error that PGP had corrected.
Nagel performed an internal appraisal
and prepared a memorandum of appraisal review.
While he prepared the memorandum of appraisal review, Nagel received
information from an “acquaintance who was an appraiser†that the seller of the
property said it “was sold for less than the Purchase Price in the Purchase
Agreement.†As a result, Nagel “was made
aware that the seller of the Property had implicitly disavowed the Purchase
Agreement and repudiated the Purchase Price.â€
The memorandum of appraisal review
noted the discrepancy between the purchase price and the price reflected in the
transfer tax. Michrowski also knew of
the discrepancy but failed to investigate because she “was concerned that the
information would reveal that the Purchase Price was inaccurate and that the
Purchase Agreement was not genuine which would require [Bank of the West] to
declare a default on the . . . Loan and could potentially result in a
significant loss†for Bank of the West.
In November 2006, Bank of the West
extended the loan. In 2006, Kobra “was
making payments late†and some time before August 2007, it informed Bank of the
West that it “would be unable to make a required principal payment.â€
name="_ftnref3" title="">[3] At that point, Bank of the West decided to
refinance the loan and contacted FCB about participating. As stated above, in August 2007, FCB
purchased a 50 percent interest in the loan for $6,298,742.52 pursuant to the
Participation Agreement. After entering
into the Participation Agreement, FCB learned the “true and actual purchase
price paid by Kobra†to purchase the property “was $10,000,000.00†and that
Bank of the West had manipulated the 2006 appraisal and overstated the
property’s valuation.
FCB believed it “could not directly
contact Kobra or related third parties, including the appraisers of the
Property†before deciding whether to enter into the Participation
Agreement. Both FCB and Bank of the West
“understood that [FCB] had to rely on the information provided by†Bank of the
West concerning the loan. Before FCB
purchased the interest in the loan, Bank of the West did not disclose it: (1)
knew the “real value†of the property was $14,987,406 or less, not $22,500,000;
(2) knew the seller of the property had “implicitly disavowed the Purchase
Agreement and repudiated the Purchase Price[;]†(3) manipulated the 2006
appraisal; (4) failed to investigate to determine the property’s “actual
purchase price[;]†and (5) knew Kobra was having trouble repaying the loan and
that the loan would have “experience[d] a default on principal and interest†if
Bank of the West had not refinanced the loan in 2007.
Kobra did not repay the loan and
Bank of the West did not return FCB’s money.
The Original and First
Amended Complaints
In an
August 2009 complaint, FCB sued Bank of the West for rescission of the
Participation Agreement.
name="_ftnref4" title="">[4] FCB’s theory was that both it and Bank of the
West operated under a mutual mistake of fact about the purchase price of the
property when Bank of the West made the loan.
After conducting extensive
discovery, Bank of the West moved for summary judgment. The court’s tentative ruling was to grant the
motion, but on the day of the hearing on the motion, FCB moved to amend the
complaint to replace the rescission claim with a fraud cause of action. FCB claimed it “recently obtained evidenceâ€
that Bank of the West “intentionally concealed material facts from FCB which
fraudulently induced FCB to enter into the [Participation] [A]greement.†Specifically, FCB claimed the deposition
testimony of two Bank of the West employees — Nagel and Michrowski — demonstrated
Bank of the West had “serious concerns†that Kobra had “defrauded†Bank of the
West in its loan application and that Bank of the West “failed to disclose that
information to FCB when negotiating†the Participation Agreement. Bank of the West opposed the motion to
amend.
At the
hearing on FCB’s motion to amend the complaint, Bank of the West indicated it
planned to demur to the first amended complaint and asked the court to stay
discovery — specifically 12 depositions FCB had noticed — until the court ruled
on the forthcoming demurrer. Bank of the
West indicated it had already spent $700,000 defending a “mutual mistake claimâ€
that was “being abandoned†and said it did not want to expend additional money
on discovery. FCB objected, claiming Bank
of the West had not demonstrated “there’s going to be any undue prejudice . . .
to conduct discovery that has been scheduled for a long time†and noted Bank of
the West had not moved to stay in writing.
The court took Bank of the West’s motion for summary judgment “off
calendar[,]â€granted FCB’s motion to amend the complaint, and stayed discovery
“until further order of the Court.â€
FCB filed a
first amended complaint asserting a fraud claim against Bank of the West. FCB alleged Michrowski “engaged in acts of
fraud and deceit†by concealing “the material facts†that Bank of the West had
“serious doubt and concern regarding the actual purchase price of the Property
. . . and the integrity of Kobra as a borrower.†FCB further alleged Bank of the West “failed
to disclose†that it intentionally declined to “follow up to resolve the
discrepancy regarding the actual purchase price for the Property by contacting
Kobra or the escrow company[.]â€
According to FCB, Bank of the West’s statements and omissions were
intentional and were intended to deceive FCB.
Bank of the
West demurred, contending FCB could not state a claim for fraud because FCB
“was provided with the 2006 and 2007 PGP appraisals that identify the
discrepancy between the price paid based on the purchase contract and the
transfer tax yet FCB proceeded with the purchase.†At Bank of the West’s request and over FCB’s
written objection, the court took judicial notice of the declaration of Kyle
Fisher and the deposition of Robert Bishop submitted by FCB in opposition to
Bank of the West’s motion for summary judgment.
According to Bank of the West, FCB’s fraud claim failed because, among
other things: (1) the “material fact†regarding the discrepancy between the
transfer tax and the purchase price was “fully disclosed[;]†and (2) in the
Participation Agreement, FCB agreed to make its own independent determination
regarding whether to purchase the participation interest.
The court sustained the demurrer
with leave to amend. It concluded FCB
“had notice of the discrepancy between the purchase price and county records
regarding the document transfer tax, and had no concerns about it. . . . [FCB]
has not alleged facts showing why it did not have sufficient information to
give rise to its own doubts and concerns, or how the additional information
allegedly known to [Bank of the West] was substantially different from
information it already had concerning the discrepancy.†In addition, the court rejected FCB’s allegations
regarding Bank of the West’s “failure to disclose facts which allegedly
indicated that [Kobra] was not an acceptable credit risk and was
dishonest.†Finally, the court
determined FCB “presumably had notice of this based on its knowledge of the
discrepancy in the purchase price. . . . [FCB] . . . alleges no facts to
indicate why it was entitled to rely on the absence of disclosures by [Bank of
the West] to assume that the borrower was an acceptable credit risk, and that
it had no duty of its own to discern such matters.â€
The Second Amended
Complaint and Bank of the West’s Demurrer
The second amended complaint
alleged a fraud claim against Bank of the West.
Specifically, FCB alleged Michrowski concealed the material fact that
before entering the Participation Agreement, Bank of the West “manipulated the
2006 Appraisal†to make the Property appear to have an acceptable
‘Loan-to-Value’ ratio to extend the 2005 Loan.â€
FCB also alleged Michrowski failed to disclose that Bank of the West had
“been made aware that the seller of the Property had implicitly disavowed the
Purchase Agreement†and that Michrowski failed to inform FCB about its “serious
doubt and concern about the actual purchase price and genuineness†of the
Participation Agreement. According to
FCB, the omissions and representations constituted “fraud and deceit†and were
material because they “concealed the true state†of the loan between Kobra and
[Bank of the West] “as well as the lack of integrity of Kobra as a
borrower.†FCB “was led to believe that
the Purchase Price was accurate, that the Purchase Agreement was genuine and
that Kobra was an acceptable credit risk based on its character. In reality, the . . . Loan and the collateral
which had been pledged by Kobra to secure the . . . Loan was problematic and
the borrower was dishonest. . . . [T]he omissions and representations were
material because, among other things, they concealed the fact that serious
doubt and concern existed within [Bank of the West] that Kobra had defrauded
[Bank of the West] and was not an acceptable credit risk.â€
FCB further
alleged the “statements, omissions, and acts†were false, that Bank of the West
knew they were false, and that Bank of the West intended FCB to rely on
them. FCB claimed it “would not have
entered into the [Participation] Agreement if [it] had known beforehand that
the Valuation was overstated, the Purchase Price was not accurate, the Purchase
Agreement was not genuine and the 2006 Appraisal had been manipulated†by Bank
of the West. Finally, FCB claimed its
reliance on Bank of the West was justified because Bank of the West appeared to
be acting in good faith and because FCB “reasonably believed†Bank of the West
“would disclose all material facts regarding the transactions as required by .
. . Civil Code Sections 1572 and 1710.â€
The second amended complaint sought compensatory damages of
$6,298,742.52 and punitive damages.
Bank of the West again
demurred. It argued FCB failed to allege
“facts to show why it did not pursue its own investigation of the clearly
disclosed discrepancy between the purchase price per the contract and the
transfer tax.†Bank of the West further
argued the allegations in the operative complaint were “contradicted by FCB’s own testimony, which
clearly establishes FCB has no ability to state a claim for fraud.â€
As relevant
here, Bank of the West filed requests for judicial notice of exhibits 1 and 2
pursuant to Evidence Code 452, subdivisions (b), (d), and (h).
Exhibit 1
Exhibit 1 consists of excerpts of
the deposition of former FCB employee Robert Bishop and three exhibits
authenticated by Bishop during the deposition: (1) a 19-page Credit
Authorization from for Loan Committee review on August 2, 2007 (Credit
Authorization); (2) the Participation Agreement; and (3) a May 2007 appraisal
prepared by PGP (2007 appraisal).
Bishop testified the Participation
Agreement contains his signature and an integration clause. Before deciding whether to participate in the
loan and before signing the Participation Agreement, Bishop reviewed property
appraisals that suggested a “different purchase price than the actual purchase
price.†Bishop received the 2005, 2006,
and 2007 appraisals before FCB made a decision to participate in the loan. Bishop received “something like†the 2007
appraisal, reviewed it, and “incorporated parts of it into the Credit
Authorization†that he prepared.
Before Bishop signed the
Participation Agreement, he was aware of a “document transfer tax issue.†He emailed Michrowski to try to “confirm a
loan amount†when the property was purchased; she responded that “the loan
amount . . . [in] 2005, was $14 million. . . .â€
Based on the Participation Agreement, the appraisal, and “those other
things that we had, it seemed to [Bishop] that [FBC was] lending on a property
that was valued based on the appraisal and purchase price per the purchase
contract of [$]21, $22 million.†Bishop
also testified, however, that FCB’s decision to participate in the loan was not
made on Bank of the West’s analysis but on FCB’s own analysis of data provided to
it.
Exhibit 1 also consists of the
credit authorization, a 19-page document prepared by Bishop that analyzes
whether FCB should participate in the loan.
As relevant here, the credit authorization states Kobra purchased the
property in 2005 for $21,954,000 and that the 2005, 2006, and 2007 appraisals
list the value of the property as $21,980,000 and $22,500,000. The credit authorization also describes
Kobra’s financial condition.
The Participation Agreement is also
part of exhibit 1. Paragraph 7.1, titled
“Purchaser’s Review,†provides in relevant part: FCB “further acknowledges that
it has become a party hereto in reliance upon its own independent investigation
of [Kobra]’s financial condition and creditworthiness to the extent deemed
necessary or advisable by [FCB] and not in reliance on any information,
representation or advice provided by [Bank of the West]. [FCB] expressly acknowledges that [Bank of
the West] has not made any representations or warranties to it and that no act
by [Bank of the West] hereafter taken, including any review of the affairs of
[Kobra], shall be deemed to constitute any representation or warranty by [Bank
of the West] to [FCB] other than a representation herein that [Bank of the
West] is the current 100% beneficial owner of the Loan and is duly authorized
to enter into this Agreement and sell to [FCB] the Participation Percentage of
the Loan. . . . [FCB] further acknowledges that [FCB] will, independently and
without reliance on [Bank of the West] and based on such documents and
information as [FCB] deems appropriate at the time, continue to make its own
credit decisions in connection with the Loan and this Agreement.â€
Paragraph 7.2, entitled “Seller’s
Responsibilities,†provides in pertinent part, “[Bank of the West] shall not be
liable to [FCB] . . . for any error of judgment of [Bank of the West] or for
any action or failure to act by [Bank of the West] or for any losses suffered
by [FCB] which are caused by actions taken or omitted at the direction or with
the consent of [FCB] except for actual losses, if any, suffered by [FCB]
hereunder which are proximately caused by [FCB’]s own negligence or willful
misconduct.†Paragraph 7.4, titled
“Limitations on Liability†states Bank of the West “[m]akes no warranty or
representation . . . and shall not be responsible for any statement, warranty,
or representation made in . . . connection with the Loan, the Collateral, the
Loan Documents or for the financial condition or business affairs of Borrower.
. . .â€
Paragraph 10, titled “Investment
Representation; Subparticipations†provides in relevant part, “[Bank of the
West] has sold the Purchased Property to [FCB] pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the ‘Act’), in
reliance on representations of [FCB], which representations are confirmed by
[FCB] by its execution of this Agreement, that [FCB] . . . (b) has been
furnished copies of the relevant documents executed or to be executed in
connection with the Loan and all financial information with respect to the
transaction which it has requested, and has had access to such other
information as it has deemed appropriate and requested . . . (c) is acquiring
the Purchased Property solely on its own independent judgment and not upon any
representations made by [Bank of the West]. . . .â€
The final document in exhibit 1 is
the May 2007 appraisal. As relevant
here, the May 2007 appraisal states the property “was purchased on October 20,
2005. . . however, no purchase price is provided in county records. There is a document transfer tax of $11,000,
which is based on $1.10 per $1,000 of purchase price provided to the county
recorder. This would indicate a purchase
price of $10,000,000. . . .†The final
page of the 2007 appraisal lists the “as is†value of the property as
“$22,500,000.â€
Exhibit 2
Exhibit 2 is excerpts of Bishop’s
deposition testimony submitted in opposition to Bank of the West’s motion for
summary judgment. The excerpts are the
same as those in exhibit 1, but exhibit 2 contains an additional excerpt of
Bishop testifying that he reviewed the 2007 appraisal before signing the
Participation Agreement, which concluded the property had a market value of
$22,500,000 in May 2007. After reviewing
the 2007 appraisal, Bishop emailed Michrowski for “confirmation as to the loan
amount . . . when the loan was originally in 2005 made and the amount of that
loan in connection with the purchase price.â€
When Bishop signed the Participation Agreement, he did not have any
“concerns†about the conclusions reached in the 2007 appraisal.
FCB’s Opposition to
the Demurrer and Bank of the West’s Reply
FCB’s
opposition to the demurrer argued the allegations of the second amended
complaint must be accepted as true.
Citing Del E. Webb Corp. v. Structural
Materials Co. (1981) 123 Cal.App.3d 593 (Webb), FCB argued the court could not transform a demurrer into a
motion for summary judgment by taking judicial notice of documents purporting
to contradict the allegations in the complaint.
In addition, FCB emphasized the difference between the first and second
amended complaints — the first amended complaint focused on Bank of the West’s
alleged concealment of its concerns about Kobra’s integrity as a borrower,
while the second amended complaint focused on Bank of the West’s alleged
manipulation of appraisals and “affirmative misrepresentations†to induce FCB
to participate in the loan. FCB claimed
it justifiably relied on the 2006 appraisal and the update. FCB did not file written objections to Bank
of the West’s request for judicial notice.
In reply,
Bank of the West argued the second amended complaint failed to state a fraud
claim because FCB could not have justifiably relied on the 2005 purchase price
when deciding to participate in the loan.
According to Bank of the West, both banks were aware of the discrepancy
between the transfer tax and the “Purchase Contract amount†and FCB was
required by the Participation Agreement to independently investigate the
transaction and not rely on information provided by Bank of the West. Bank of the West argued the 2006 appraisal
“provides clear evidence of a ‘typographical’ error and unequivocally refutes
FCB’s claim for fraud.â€
In connection with its reply, Bank
of the West urged the court to take judicial notice of three additional
exhibits, including:
Exhibit 9
Exhibit 9 consists of “[r]elevant
portions†of FCB’s motion to file a first amended complaint and the supporting
declaration of FCB attorney Stephanie Barber Hess.
Nagel’s deposition and two exhibits from that deposition: the 2006 appraisal
and Nagel’s memorandum of appraisal review.
The 2006 appraisal states the property was purchased “on October 20,
2005. . . . However, no purchase price is provided in county records. There is a document transfer tax of $11,000,
which is based on $1.10 per $1,000 of purchase price provided to the county
recorder. This would indicate a purchase
price of $10,000,000 ($3.50/SF). [¶] Based on the indications of the
comparables, the concluded value of the subject site is $7.88/SF. [¶]
Therefore, the value of the subject property, which is 65.5 acres, is
$14,987,406 ($7.88/SF x 2,854,744 SF), rounded to: [¶] TWENTY TWO MILLION FIVE HUNDRED THOUSAND DOLLARS. [¶] $22,500,000.â€
The Hearing and Order
on the Demurrer to the Second Amended Complaint
At the
hearing on Bank of the West’s demurrer to the operative complaint, counsel for
FCB complained that “as a consequence†of the court’s stay on discovery,
“there’s a great deal of information that we can’t put before you.†Counsel also stated: “You’ve taken judicial
notice of a number of documents, and by taking judicial notice . . . you’ve
made factual determinations and value judgments concerning the truth and
falsity of certain testimony and what the [FCB] should or should not have
gleaned from an appraisal that was never even attached to the complaint and . .
. shouldn’t be before you. [¶] So the absence of discovery, plus the
utilization of facts that have been presented in a previous summary judgment
motion, has essentially turned this [demurrer] into a new summary judgment
motion.†Counsel described the court’s
tentative ruling as “replete with†inappropriate “factual findings[.]â€
After hearing argument from counsel
for Bank of the West, the court stated: “[t]he only thing that tweaked me . . .
that I want to go and check to make sure I’m on solid ground is whether you’re
telling me that I’m taking judicial notice of things that I shouldn’t, and I’ll
look at that. Because if I’m sound on
that, then I’m sound on the ruling.†In
response, counsel for FCB said, “[a]nd I also would like you to look at the
judicial notice issue[,]†“reiterate[d] the objections to the judicial
notice[,]†and asked for leave to amend the complaint.
Following
the hearing, the court issued an order sustaining the demurrer to the second
amended complaint without leave to amend, concluding the operative complaint
“still fail[ed] to allege facts showing justifiable reliance.†The court explained: “[w]hile the first
amended complaint was based on the discrepancy between the purchase price and
the transfer tax, the fraud claim in the second amended complaint now focuses
on the initial 2006 PGP appraisal that valued the property under $15 million
because of the appraiser’s inability to reconcile the contract price with the
transfer tax. Thus, [FCB] appears to
argue that it need not allege facts explaining why its own knowledge of the
discrepancy between the purchase price and transfer tax shows it could not have
justifiably relied on [Bank of the West]’s alleged failure to disclose its own
doubts and concerns regarding that issue. . . .
“The court concludes these new
allegations do not cure [FCB’s] failure to allege facts showing that it
justifiably relied upon [Bank of the West’s] failures to disclose information,
or on the newly alleged misrepresentation that [Bank of the West] caused to be
placed in the 2006 appraisal. Even
though [FCB] now appears to allege reliance on the allegedly tainted 2007
appraisal, it is still the case that [FCB] knew about the purchase price
discrepancy. [FCB] expressly alleges [ ]
that PGP concluded the value of the property to be $14,987,406.00 in the 2006
appraisal. . . . Since the gist of [FCB’]s allegations is that the property was
not worth the amount stated in the appraisal, [FCB] is not relieved from its
obligation to allege facts showing justifiable reliance on this appraisal in
light of its knowledge concerning the discrepancy in the purchase price.â€
As relevant
here, the court took judicial notice of exhibits 1 and 2 as requested in Bank
of the West’s moving papers and exhibit 9 as requested in Bank of the West’s
reply. The court, however, did not
identify the Evidence Code provisions under which it took judicial notice. The court dismissed the second amended
complaint and entered judgment for Bank of the West.
DISCUSSION
After
taking judicial notice of various documents, the court concluded the second
amended complaint’s fraud cause of action failed to allege facts showing FCB
justifiably relied on Bank of the West’s acts or omissions. FCB contends the court erred by taking
judicial notice of exhibits 1, 2, and 9 and by making improper inferences
regarding the significance of those documents.
FCB also contends the second amended complaint pleads facts sufficient
to state a fraud claim and that the court erred by staying discovery pending
the resolution of Bank of the West’s demurrer.
I.
FCB Did Not Forfeit Its Judicial Notice Objections
Bank of the
West contends FCB forfeited its objections to judicial notice by “not properly
object[ing] below.†According to Bank of
the West, FCB’s objection was untimely and insufficiently specific because FCB
“did not object to the request for judicial notice in its opposition brief nor
did it file a separate written objection.â€
An
appellate court may not reverse a judgment unless “an objection to or a motion
to exclude or to strike the evidence . . . was timely made and so stated as to
make clear the specific ground of the objection or motion.†(§ 353, subd. (a); see also Simons, Cal.
Evidence Manual (2013 ed.) § 1:20, p. 26 (Simons) [“to preserve an objection on
appeal, a party must state it in a timely fashion, and it must be accompanied
by a reasonably definite statement of the groundsâ€].)
In its
opposition to the demurrer, FCB warned the court not to transform the demurrer
into a summary judgment motion by taking judicial notice of documents
purporting to contradict the allegations of the operative complaint. And at the hearing on Bank of the West’s
demurrer, counsel for FCB objected to the propriety of judicial notice. Counsel stated, “You’ve taken judicial notice
of a number of documents, and by taking judicial notice . . . you’ve made
factual determinations and value judgments concerning the truth and falsity of
certain testimony and what the [FCB] should or should not have gleaned from an
appraisal that was never even attached to the complaint and . . . shouldn’t be
before you.†Counsel claimed the court
was turning the demurrer into a motion for summary judgment by considering
“facts that have been presented in a previous summary judgment motion. . .
.†Counsel also characterized the
court’s tentative ruling as “replete with†inappropriate “factual
findings.†At the end of the hearing,
counsel urged the court to “look at the judicial notice issue†and
“reiterate[d] the objections to the judicial notice[.]â€
We conclude
FCB preserved its claim of error. The
Evidence Code does not “specify the form in which the objection must be made. .
. .†(Simons, op. cit. supra, at
§ 1:20, p. 26; see also People v.
Valdez (2012) 55 Cal.4th 82, 130 [“no ‘particular form of objection’ is
requiredâ€].) “‘What is important is that
the objection fairly inform the trial court, as well as the party offering the
evidence, of the specific reason or reasons the objecting party believes the
evidence should be excluded, so the party offering the evidence can respond
appropriately and the court can make a fully informed ruling.’†(People
v. Abel (2012) 53 Cal.4th 891, 924, quoting People v. Partida (2005) 37 Cal.4th 428, 435 (Partida).) Moreover,
“California courts construe broadly the sufficiency of objections that preserve
appellate review, focusing on whether the trial court had a reasonable
opportunity to rule on the merits of the objection before the evidence was
introduced.†(Melendez v. Pliler (9th Cir. 2002) 288 F.3d 1120, 1125.)
Here, FCB’s objection informed Bank
of the West of the “specific reason or reasons the objecting party believes the
evidence should be excluded†(Abel,
supra, 53 Cal.4th at p. 924) and the objection was timely in that it gave
Bank of the West an opportunity to respond at the hearing on the demurrer. The objection also allowed the court to
“‘make a fully informed ruling[,]’†(ibid.,
quoting Partida, supra, 37 Cal.4th at
p. 435) as demonstrated by the court’s statement that it would “go back and
check†that its decision to take judicial notice was correct. Although it would have been better practice
for FCB to object to the requests for judicial notice in writing before the
hearing (as it did when it opposed Bank of the West’s demurrer to the first
amended complaint), FCB’s failure to file written objections to the requests
for judicial notice offered in support of Bank of the West’s demurer to the
second amended complaint is not dispositive, particularly where Bank of the
West sought judicial notice in connection with its reply brief.
Bank of the
West’s reliance on two cases, Younan v.
Caruso (1996) 51 Cal.App.4th 401 (Caruso)
and Aquila, Inc. v. Superior Court
(2007) 148 Cal.App.4th 556 (Aquila),
does not alter our conclusion. In
order dismissing his malpractice complaint against his former lawyer. (Caruso,
supra, at p. 405.) The
— in a footnote — noted the plaintiff had moved for reconsideration of the
dismissal order but did not “timely object to the propriety of judicial notice
in opposition to [the] dismissal motion[.]â€
The Caruso court determined
the plaintiff’s failure to object in the trial court was “a waiver of that
objection†on appeal.
conclusion is dicta because the plaintiff “raised no arguments on appeal
concerning†the motion for reconsideration.
(Id. at p. 406, fn. 3.)
Bank of the West because it illustrates one method — but not the exclusive
means — of objecting to requests for judicial notice. In that case, the defendant moved to quash
service of summons and the plaintiffs opposed the motion and sought judicial
notice of various documents. (
court should not take judicial notice or receive into evidence the exhibits
submitted by plaintiffs to show the alleged contacts. [The defendant] argued these exhibits were
not proper matters for judicial notice for numerous reasons, such as hearsay
and lack of sufficient authentication or relevance. Also, the documents could not properly be
judicially noticed for the truth of their factual contents to establish
sufficient minimum contacts.†(
than the defendant in Aquila’s, it
was sufficient under section 353.
II.
Judicially Noticed, They
Do Not Negate the Operative Complaint’s Allegations
We now turn to FCB’s claim the
court erred by taking judicial notice of exhibits 1, 2, and 9 and by making
“factual determinations†regarding that evidence.
In reviewing an order sustaining a
demurrer without leave to amend, we accept as true the complaint’s properly
pleaded factual allegations — “however improbable they may be†— and give them
a liberal construction. (
604.) “In addition to the complaint’s
allegations, we consider matters that must or may be judicially noticed.†(Hoffman
v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400.) This rule discourages plaintiffs from filing
sham pleadings: “Under the doctrine of
truthful pleading, the courts ‘will not close their eyes to situations where a
complaint contains allegations of fact inconsistent with attached documents, or
allegations contrary to facts which are judicially noticed.’ [Citation.]â€
“False allegations of fact, inconsistent with annexed documentary
exhibits [citation] or contrary to facts judicially noticed [citation], may be
disregarded. . . . [Citations.]’†(
169 Cal.App.4th 1094, 1102 (Tenet
Healthcare) [allegations “contrary to the law or to a fact of which
judicial notice may be taken will be treated as a nullityâ€];
Estates, LLC (2007) 152 Cal.App.4th 1106, 1117 [when ruling on a demurrer,
“[a] court may take judicial notice of something that cannot reasonably be
controverted, even if it negates an express allegation of the pleadingâ€].)
On the other hand, “‘[t]he hearing
on demurrer may not be turned into a contested evidentiary hearing through the
guise of having the court take judicial notice of documents whose truthfulness
or proper interpretation are disputable.’â€
(Silguero v. Creteguard, Inc.
(2010) 187 Cal.App.4th 60, 64, quoting Joslin
v. H.A.S. Ins. Brokerage (1986) 184 Cal.App.3d 369, 374 (
demurrer is simply not the appropriate procedure for determining the truth of
disputed factsâ€].) Rather, “‘judicial
notice of matters upon demurrer will be dispositive only in those instances
where there is not or cannot be a factual dispute concerning that which is
sought to be judicially noticed.’†(
quoting Cruz v. County of Los Angeles
(1985) 173 Cal.App.3d 1131, 1134 (Cruz);
accord, Unruh-Haxton v. Regents of
University of California (2008) 162 Cal.App.4th 343, 364-365;
1548, 1569 & fn. 9.)
We review the court’s decision to
take judicial notice of documents for abuse of discretion. (Fontenot
v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264;
166 Cal.App.4th 1249, 1271, citing cases.)
Citing Aquila, supra, 148
Cal.App.4th 556, Bank of the West urges us to apply a harmless error standard
of review. Aquila — where the court reviewed a judicial notice ruling for
harmless error — appears to be the minority view. We have found only one case other than
standard in a civil context: West
Valley-Mission Community College Dist. v. Concepcion (1993) 16 Cal.App.4th
1766, 1778, where the Sixth District concluded taking judicial notice of
transcripts of community college teacher’s criminal trials, on judicial review
of disciplinary action, constituted harmless error where the transcripts were
redundant to the administrative record.
We will follow the cases that review judicial notice rulings for abuse
of discretion; we note, however, that we would reach the same conclusion under
either standard of review.
A.
Exhibits
1 and 2
As a
preliminary matter, FCB notes the difficulty ascertaining “what exactly the
trial court took judicial notice of when it granted the request for judicial
notice of Exhibit 1†and contends it was improper for the court to judicially
notice defense counsel’s declaration. We
agree the court could have been more careful to note it was not taking judicial
notice of defense counsel’s declaration under well-established authority
holding the “declaration of an adverse party is not a proper subject for
judicial notice.â€
title="">[8] (Big
Valley Band of Pomo Indians v. Superior Court (2005) 133 Cal.App.4th 1185,
1192.) However, we do not think the
court took judicial notice of defense counsel’s declaration when it granted
judicial notice of exhibit 1, because exhibit 1 does not appear to include
defense counsel’s declaration. The
request for judicial notice describes exhibit 1 as Bishop’s deposition testimony
and specific exhibits attached to the deposition.
FCB argues the court erred by
taking judicial notice of Bishop’s deposition testimony in exhibits 1 and
2. Courts have articulated different
standards for when a trial court may take judicial notice of deposition testimony
on demurrer. At least one court has held
that a court addressing a demurrer will not take judicial notice of the truth
of statements contained in deposition testimony. (Garcia
v. Sterling (1985) 176 Cal.App.3d 17, 21-22 (Garcia).) As the
existence of statements contained in a deposition transcript filed as part of
the court record can be judicially noticed, their truth is not subject to
judicial notice.†(Id. at p. 22.)
In Webb, however, the Second District held a trial court could
properly “take judicial notice of records such as admissions, answers to
interrogatories, affidavits, and the like, when considering a demurrer, only
where they contain statements of the plaintiff or his agent which are
inconsistent with the allegations of the pleading before the court.†(Webb,
supra, 123 Cal.App.3d at pp. 604-605 [court could “properly take judicial
notice of any inconsistent statements . . . contained in . . . depositions†of
the plaintiff or its representatives].)
Most recently, in Joslin, the
Fourth District explained that “[t]aking judicial notice of a document is not
the same as accepting the truth of its contents or accepting a particular
interpretation of its meaning,†and held that “‘judicial notice of matters upon
demurrer will be dispositive only in those instances where there is not or
cannot be a factual dispute concerning that which is sought to be judicially
noticed.’†(Joslin, supra, 184 Cal.App.3d at p. 375, quoting
and not disputed could be considered in ruling on a demurrer, but facts
disclosed in the deposition that were disputed could not be].)
Under Webb, we conclude the court erred by taking judicial notice of
Bishop’s deposition testimony because his testimony is not “inconsistent†with
the allegations of the second amended complaint. Bishop’s deposition testimony suggests two
things: (1) FCB was aware of the discrepancy between the purchase price and the
transfer tax before it decided to participate in the loan; and (2) FCB’s
decision to participate in the loan was based on its own analysis on the “data
that was provided to it.†This testimony
is not inconsistent with the operative complaint’s allegations that Bank of the
West manipulated the 2006 appraisal, that Bank of the West knew the seller had
“disavowed†the purchase agreement, and that Bank of the West had “serious
doubt and concern†about the purchase agreement and Kobra’s “integrity†as a
borrower.
Even if the court properly
judicially noticed Bishop’s deposition testimony under Joslin on the theory that there was and could not be a factual
dispute concerning FCB’s knowledge of the existence of a transfer tax issue
before FCB signed the Participation Agreement, Bishop’s testimony does not
negate the operative complaint’s allegations that Bank of the West knew the
purchase price of the property was inaccurate and manipulated the 2006
appraisal. Bishop’s testimony that FCB
decided to participate in the loan after conducting its own analysis does not
alter our conclusion. At most, Bishop’s
testimony created a factual issue about whether FCB’s reliance was reasonable,
given the information FCB possessed before signing the Participation Agreement
— including the doctored appraisal — and given the analysis it conducted before
signing the agreement. (
176 Cal.App.4th 591, 600 [court could not infer from judicially noticed
documents the defendant was unaware of defects in the wall furnace where such
knowledge of the defects was “obviously a sharply contested factâ€]; see also
(2013) 214 Cal.App.4th 1047, 1058 [assuming facts stated in a declaration could
be judicially noticed, “the most these averments could do is create a factual
dispute as to whether respondents complied with†Civil Code section
2923.5].)
Next, FCB contends the court erred
by taking judicial notice of the Credit Authorization, the Participation
Agreement, and the 2007 appraisal because these documents do not “contain any
statements by [FCB] which are inconsistent with the allegations of the [second
amended complaint] or render [FCB’]s fraud claim invalid as a matter of
law.†In response, Bank of the West
claims the court properly judicially noticed these documents because there was
no factual dispute concerning their contents and because the documents are
“inconsistent with FCB’s claims of justifiable reliance.â€
FCB does not challenge the
authenticity of the Credit Authorization, Participation Agreement, or the 2007
appraisal. Nor does FCB contend there is
a factual dispute regarding the contents of these documents. In Scott
v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743 (
“judicial notice is requested of a legally
operative document—like a contract—the court may take notice not only of
the fact of the document and its recording or publication, but also facts that
clearly derive from its legal effect. [Citation.]
Moreover, whether the fact derives from the legal effect of a document
or from a statement within the document, the fact may be judicially noticed
where, as here, the fact is not reasonably subject to dispute.†(Id.
at p. 754.) Under Scott, we assume the court could take judicial notice of the
existence of the credit authorization, the Participation Agreement, and the
2007 appraisal as well as the “legal effect†of those documents. But as we explain, we cannot take judicial
notice —that is declare to be indisputably true — a factual inference Bank of
the West urges should be drawn from the exhibits’ legal effect.
First, Bank of the West contends it
is indisputable that FCB could not justifiably rely on information Bank of the
West provided (or did not provide) because FCB agreed in the Participation
Agreement to conduct its own investigation.
We disagree. The disclaimers and
due diligence contemplated by the Participation Agreement do not negate the
operative complaint’s allegations regarding reasonable reliance because they do
not contradict the allegations that Bank of the West fraudulently manipulated
an appraisal to induce FCB to participate in the loan.
Bank of the West claims FCB cannot
plead justifiable reliance and relies on two cases, Bank of America v. Vannini (1956) 140 Cal.App.2d 120 (
Nat. Bank of Arizona (9th Cir. 1994) 41 F.3d 471 (Valley National Bank).
Vannini
involved the purchase and sale of an abandoned gold mine. The purchasers entered into an option
agreement to buy the mine, but “expressly and specifically agreed to
investigate the property before exercising the option by clearing water and
debris out of the mine and, at their election, digging an exploratory tunnel
within a specified period of time from the date of the agreement. [Citation.]
The purchasers did not clear the mine and complete the investigation
within the period specified in the agreement.
[Citation.] Years later, after
exercising the option to buy the mine, the purchasers discovered the falsity of
the sellers’ representation that ore in commercial quantities existed in the
mine. [Citation.]†(Manderville
v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1504.) The sellers sued the purchasers to recover
money the purchasers allegedly owed the sellers under the option agreement; the
purchasers filed an amended answer and cross-complaint predicated on the theory
that the sellers had fraudulently induced them to enter into the option
agreement. (Id. at p. 1504.) The trial
court sustained the sellers’ demurrer to the purchaser’s amended answer and the
appellate court affirmed.
The Vannini court determined “the real question [is] not whether [the
purchasers] relied on the false representations, but whether they had the legal
right to rely upon them.†(
131.) The court concluded the
purchasers’ express agreement to conduct their own investigation “amounted to
an agreement [they] were not to rely on the representations made by [the
sellers], but were to rely on their own investigation.†(Id.
at p. 131.) The court then held, “[a]s a
matter of law,†“the alleged misrepresentations were not intended, nor could
not have been intended, by [the sellers] to induce [the purchasers] to exercise
their option. It must also be held, as a
matter of law, that [the purchasers] had no legal right to rely on the false
representations at the time that they exercised the option,†and thus the trial
court had properly sustained the demurrer to the purchasers’ amended answer. (Id.
at p. 132.) According to the
performed their contractual duty to clear the mine and investigate the
property, “they would have gained full knowledge of the falsity of the
representations made to induce the contract.â€
(Ibid.)
The Vannini court, however, suggested the purchasers would have a fraud
claim if they incurred damages after entering into the purchase agreement and
before they failed to conduct their investigation. As the court explained, the purchasers’ amended
answer alleged the sellers “made the false representations as to the existence
of the ore in commercial quantities with intent to induce [the purchasers] to
enter into the contract, and [the purchasers] had a right to rely on them. At this point, however, [the purchasers] had
not been damaged because they had paid nothing for the option. They were supposed to make an investigation
in the next 17 months. Clearly, the
facts above stated, would have supported a cause of action for expenses
incurred in that investigation.†(
132.)
This language from
have been entitled to rely on false representations made by the sellers to
induce them to enter into the option agreement.
The same is true here. Paragraph
7.1 — where FCB acknowledged it
entered into the Participation Agreement “in reliance upon its own independent
investigation of [Kobra’s] financial condition and creditworthiness†and
without reliance on [Bank of the West] . . . continue to make its own credit
decisions in connection with the Loan and [the Participation] Agreement†— does
not alter our conclusion. The due
diligence contemplated by paragraph 7.1 of the Participation Agreement
pertained to Kobra’s creditworthiness, not to the genuineness of the appraisal
allegedly manipulated by Bank of the West.
In Valley National Bank, Bank of the West and Valley National Bank
(Valley National) entered into a loan participation agreement with provisions
similar to the ones at issue here. For
example, under paragraph 5 of the agreement, “the parties agreed that Valley
National made its own decision on Technical Equities’ creditworthiness, without
relying on Bank of the West, and would continue to do so. [Citation.]
Bank of the West was not to be responsible for errors or omissions
regarding Technical Equities’ creditworthiness ‘except for [its] own gross
negligence, bad faith, or willful misconduct.’
[Citation.]†(
p. 474.) Technical Equities filed for
bankruptcy and Bank of the West sued Valley National to recover “‘extraordinary
expenses’†pursuant to the loan participation agreement. (Id.
at p. 476.)
Valley National “counterclaimed for
fraud based on Bank of the West’s concealment of the Anderson and Robbins
reports[,]†two “devastating reports about Technical Equities†prepared by
employees of Bank of the West and its parent company. (Valley
National, supra, 41 F.3d at p. 476.)
The district court granted summary judgment in favor of Bank of the West
on liability for the extraordinary expenses claim, but let the reasonableness
of the amount of expenses, and the fraud counterclaim, go to trial. . . .
Valley National won a jury verdict on its fraud counterclaim, for $2 million
compensatory and $4 million in punitive damages. The district court granted judgment in favor
of Bank of the West notwithstanding the verdict and “set aside the fraud
verdict†because it found, among other things, that “Valley National was
contractually obligated to make its own independent assessment of Technical
Equities’ creditworthiness, so could not have justifiably relied on Bank of the
West. . . .†(Id. at pp. 476-477.)
The Ninth Circuit Court of Appeals
affirmed the district court’s grant of judgment notwithstanding the verdict in
favor of Bank of the West, concluding “[t]he justifiable reliance element for
fraud was entirely absent.†(
p. 477.) The court rejected Valley National’s
claim that “regardless of the contractual terms, it did, in fact, rely on Bank
of the West for important information concerning the borrower.†(Ibid.) The court held it was not reasonable for
Valley National to rely on representations made by Bank of the West when the
parties agreed in writing “that Valley National would make its own judgment
about Technical Equities’ creditworthiness, without reliance on Bank of the
West†and where Valley National agreed to make its own decisions “‘[i]ndependently
and without reliance upon’†Bank of the West.
(Id. at pp. 477-478.)
As the Valley National Bank
court explained, the parties “expressly agreed to a relationship in which each
would investigate independently and exercise independent judgment[, and] [t]here
was no lack of clarity in the contract, no mutual mistake, no reason to suppose
that the parties mutually intended any relationship other than what the
contract said.†(Id. at p. 477.)
The Valley National Bank court continued, “[t]o the extent that any
reliance might have been justifiable during the period when Bank of the West
arguably hid negative information, . . .Valley National proved no conduct in
justifiable reliance, and no damages.
Neither bank loaned any money to Technical Equities after February. Valley National did not advance any money to
Bank of the West during the period when information was hidden.†(Valley
National Bank, supra, 41 F.3d at p. 478.)
Valley
National Bank is distinguishable. In
that case, Valley National was not fraudulently induced to enter the loan
participation agreement and was not damaged by Bank of the West’s nondisclosure
of the Anderson and Robbins reports.
Here, FCB has alleged Bank of the West fraudulently induced it into
entering the Participation Agreement by manipulating the appraisal; FCB has
also alleged it acted in justifiable reliance and suffered damages.
Next, Bank of the West claims FCB’s
reliance was unreasonable because the Credit Authorization and the 2007
appraisal disclosed the transfer tax issue and Kobra’s cash flow problems. This misapprehends FCB’s charging
allegations. The second amended
complaint alleges Bank of the West manipulated the 2006 appraisal to convince
FCB that the property had sufficient value notwithstanding the discrepancy. In addition, we conclude the contents of the
Credit Authorization, the Participation Agreement, and the 2007 appraisal do
not defeat FCB’s fraud claim as a matter of law. (See Tenet,
supra, 169 Cal.App.4th at pp. 1103-1104 [judicially noticed medical center’s
annual licenses did “not conclusively negate†the operative complaint’s
allegations; “the judicial notice order . . . does not permit the demurrer to
be sustainedâ€].) The documents merely
establish FCB had an awareness of the transfer tax issue and Kobra’s financial
condition; they do not establish indisputably that FCB could not (and did not)
reasonably rely on Bank of the West’s fraudulent manipulation of the 2006
appraisal.
“‘Except in the rare case where the
undisputed facts leave no room for a reasonable difference of opinion, the
question of whether a plaintiff’s reliance is reasonable is a question of
fact.’†(Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226,
1239.) We do not think this is that
“rare case where the undisputed facts leave no room for a reasonable difference
of opinion[.]†(Id. at p. 1239; see also Superior
Dispatch, Inc. v. Insurance Corp. of New York (2010) 181 Cal.App.4th 175,
190-191 [reasonableness of the plaintiff’s reliance was a question of
fact].) The reasonableness of FCB’s
reliance is a question of fact that cannot be resolved on demurrer.
B.
Exhibit 9
Finally, FCB contends the court erred by taking judicial
notice of exhibit 9 because “[a] memorandum of points and authorities by a
party is not properly the subject of judicial notice; it is argument and not
fact.†FCB also argues that to the
extent Hess’s declaration “cites evidence, it consists of testimony by [FCB’s] own
employees which is. . . an entirely inappropriate use of judicial
notice.†In response — and without
citing to the record — Bank of the West claims it made it clear in its reply
brief in the trial court that “the subject of judicial notice was the 2006
Appraisal.†Although we think neither the
request for judicial notice of exhibit 9 nor Bank of the West’s reply brief in
the trial court necessarily make it clear that Bank of the West sought judicial
notice of solely the 2006 appraisal
in exhibit 9, we take the Bank’s argument on appeal as a concession that it
would have been improper for the court to take judicial notice of FCB’s motion
to file a first amended complaint and supporting declaration. We therefore analyze whether the court abused
its discretion by taking judicial notice of the 2006 appraisal.
According
to Bank of the West, the court properly judicially noticed the fact that the
computation of the property value in the 2006 appraisal was not the product of
manipulation but rather a “typographical error.†Based on the rules articulated above, we
assume the court could take judicial notice of the 2006 appraisal and the legal
effect of that document. (
754-755.) While we assume the court
could take judicial notice of the 2006 appraisal and its contents, we are
unwilling to draw a factual inference regarding the import of the calculations
in the appraisal where the complaint alleges there was no typographical error
and that PGP changed the property valuation at Bank of the West’s
insistence. At best, there is a factual
dispute here precluding the sustaining of Bank of the West’s demurrer.
III.
Conclusion
We assume
for the sake of argument the court did not err by taking judicial notice of
exhibits 1, 2, and 9. The court,
however, erred by concluding — based on these documents — that FCB could not,
as a matter of law, show its reliance on Bank of the West’s acts or omissions
was reasonable. Assuming — as we must —
the truth of the operative complaint’s allegations, the issue of the
reasonableness of FCB’s reliance “cannot be resolved at t
| Description | First Community Bank’s (FCB) second amended complaint alleged a fraud claim against Bank of the West. The trial court sustained Bank of the West’s demurrer without leave to amend, concluding FCB failed to allege facts showing it justifiably relied on Bank of the West’s alleged misrepresentation or failure to disclose information. In reaching this conclusion, the court took judicial notice of several documents, including deposition testimony, a contract between the parties, property appraisals, and a credit authorization memorandum. On appeal, FCB contends the court erred by: (1) taking judicial notice of and weighing extrinsic evidence proffered by Bank of the West; (2) concluding the second amended complaint did not state a cause of action for fraud; and (3) staying discovery pending Bank of the West’s demurrer to the operative complaint. We reverse. We assume for the sake of argument the court properly took judicial notice of the documents proffered by Bank of the West and the facts asserted within them (and, where relevant, the legal effect of the documents). We conclude, however, that the judicially noticed documents do not negate the allegations of the operative complaint. Because the operative complaint stated a cause of action for fraud, the court erred by sustaining Bank of the West’s demurrer without leave to amend. We therefore reverse the judgment in favor of Bank of the West. |
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