Carreno v. 360 Painting, LLC. ( 2020 )

1 2 3 4 5 6 7 8 UNITIED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 Deborah Carreno, Case No. 3:19 CV 02239 LAB BGS 11 Plaintiff, 12 vs. ORDER DENYING MOTION TO DISMISS COUNTERCLAIM 13 360 Painting LLC., [Dkt. 21] Defendant 14 15 16 And Related Counter Claim 17 18 A pleading is only a statement of a party’s claims, designed to provide 19 “a short and plain statement of the claim showing that the pleader is entitled 20 to relief.” Fed. R. Civ. P. 8(a)(2). Dismissal under Fed. R. Civ. P. 12(b)(6) is 21 available when a pleading “fail[s] to state a claim”—that is, the pleading isn’t 22 a “statement of the claim showing . . . entitle[ment] to relief.” Fed. R. Civ. P. 23 12(b)(6); see, e.g., 5B Wright & Miller, Fed. Prac. & Proc. Civ. § 1356 (3d 24 ed.) (“Only when [a pleading] fails to meet the [Rule 8(a)(2) . . . standard . . . 25 is it subject to dismissal under Rule 12(b)(6).”) So motions under Fed. R. Civ. 26 P. 12(b)(6) call on courts to answer only this: Is the challenged pleading a 27 statement of a claim showing that the pleader is entitled to relief? It’s a 28 1 question about the pleading itself, so facts that aren’t part of the pleading 2 aren’t relevant to the answer. 3 Deborah Carreno has moved to dismiss 360 Painting’s breach of 4 contract Counterclaim under Rule 12(b)(6). Yet her Motion to Dismiss 5 doesn’t argue that the Counterclaim isn’t a statement of a claim showing that 6 360 Painting is entitled to relief. Instead, Carreno goes straight to the merits, 7 offering documents that aren’t part of the Counterclaim in support of a 8 defense that also doesn’t appear on the Counterclaim’s face. These outside 9 facts can’t change the Counterclaim’s contents, and even if they could they 10 don’t prove Carreno’s defense. Carreno hasn’t carried her burden to show 11 that the Counterclaim fails to state a claim for relief. The motion is DENIED. 12 I. Legal Standard 13 A Rule 12(b)(6) motion to dismiss is a preliminary evaluation of a 14 party’s pleading, intended only to “test[] the legal sufficiency of [the] claim.” 15 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Parties don’t need to 16 prove their claims at such an early stage, only state them sufficiently. See, 17 e.g., Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 n. 8 (complaint “may 18 not be dismissed based on . . . assessment that the plaintiff will fail to . . . 19 prove his claim”). 20 Because Rule 12(b)(6) focuses on whether the challenged pleading 21 fails to state a claim, rather than whether the pleader will prove the claim, 22 courts evaluate the pleading’s contents in isolation. See Hal Roach Studios, 23 Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir. 1990). This 24 is less restrictive than it sounds—the pleading’s contents can include 25 materials not explicitly quoted or attached, so long as the materials’ 26 authenticity is not contested and the pleading “necessarily relies” on them. 27 Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998), superseded by 28 statute on other grounds as stated in Abrego Abrego v. Dow Chemical Co., 1 443 F.3d 676, 681 (9th Cir. 2006). 2 In keeping with the limited inquiry of a Rule 12(b)(6) motion, another 3 party’s affirmative defense can support a finding that the pleading fails to 4 state a claim only when the defense “is obvious on the face of [the pleading].” 5 Rivera v. Peri & Sons Farms, Inc., 735 F.3d 892, 902 (9th Cir. 2013); see 6 also Dkt. 21-1 at 7 (citing 5B Wright & Miller, Federal Practice and Procedure 7 § 1357, at 708 (3d ed. 2004)). And even when a party restricts its dismissal 8 arguments to the pleading’s contents, the party asserting the affirmative 9 defense bears the burden of proving it. See Jones v. Taber, 648 F.2d 1201, 10 1203 (9th Cir. 1981) (“[T]he burden is always on the party advancing the 11 affirmative defense to establish its validity”). 12 II. Discussion 13 Carreno contends that 360 Painting’s claim for breach of the parties’ 14 Franchise Agreement fails to state a claim because federal and California 15 franchise law entitle her to rescission of that agreement. 360 Painting was 16 required to disclose its prior business history, but Carreno argues that it 17 didn’t. As proof, she submits business formation documents for several 18 entities that were not disclosed in the Franchise Disclosure Documents 19 (“FDD”) attached to her Complaint. But those extrinsic documents don’t alter 20 the contents of the Counterclaim, and the defense is neither obvious on the 21 Counterclaim’s face nor conclusively established by the proffered 22 documents. 23 A. The documents Carreno relies on aren’t proper for 24 consideration on a Rule 12(b)(6) motion to dismiss. 25 A document that a pleading necessarily relies on can be considered 26 part of that pleading (and thus relevant to whether the pleading states a 27 claim) if the document is incorporated by reference. See Marder v. Lopez, 28 450 F.3d 445, 448 (9th Cir. 2006). If the pleading doesn’t refer to a document, 1 or if the document isn’t central to the pleading’s claim, the pleading doesn’t 2 incorporate that document. See id. Here, the Counterclaim makes no 3 mention of Carreno’s documents and there is no indication that business 4 formation documents for these other entities are “central to” 360 Painting’s 5 breach of contract claim (as opposed to Carreno’s defense). See Harmon v. 6 Johnson & Johnson, Case No. CV 09-2979, 2009 WL 10659667 at *2 (C.D. 7 Cal. July 30, 2009).1 8 Carreno’s Reply attempts to avoid this result by pointing to the 9 Franchise Disclosure Documents (“FDD”). Dkt. 34 at 2. But not only were 10 these attached to her own Complaint, rather than the Counterclaim, they’re 11 not even the same documents. 12 Attachment to Carreno’s Complaint doesn’t make the documents part 13 of the Counterclaim. The Counterclaim still doesn’t refer to them, and they’re 14 still not central to its claim. While courts often deem the contents of 15 documents attached to a complaint true, they do so because the challenged 16 pleading—usually a complaint—must be accepted as true for the purposes 17 of the motion to dismiss. U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). 18 Documents that the challenged pleading incorporates by reference are part 19 of that pleading, so those documents’ contents temporarily must be deemed 20 true, too. Id. Carreno’s Complaint and the contents of the documents 21 attached to it don’t get that deference because her Complaint isn’t the 22 pleading facing dismissal. 23 Nor would treating as true the contents of documents attached to 24 Carreno’s Complaint make a difference here: The Complaint doesn’t attach 25 or even mention the documents in question. Instead, Carreno argues that 26 27 1 While Marder itself considered a contractual release as “central to” the plaintiff’s claims, it appears to have done so because the plaintiff sought 28 declaratory relief as to the meaning of the contract. See Marder, 450 F.3d at 1 the attached FDD should have included the other documents. Dkt. 34 at 2-4. 2 Carreno didn’t even hint at this unguessable connection to the Counterclaim 3 until she filed her reply brief, so she waived the argument and the Court need 4 not consider it. See, e.g., Graves v. Arpaio, 623 F.3d 1043, 1048 (9th Cir. 5 2010) (“[A]rguments raised for the first time in a reply brief are waived.”). In 6 any event, if the Counterclaim’s closest connection to these documents is 7 that they weren’t part of a document attached to a different pleading, then 8 the Counterclaim plainly didn’t refer to them and can’t have incorporated 9 them by reference. 10 Alternatively, Carreno asks the Court to take judicial notice of the 11 documents. Courts can judicially notice facts that “can be accurately and 12 readily determined from sources whose accuracy cannot reasonably be 13 questioned,” Fed. R. Evid. 201 (b)(2), but they have discretion to decline to 14 do so. See Madeja v. Olympic Packers, LLC, 310 F.3d 628, 639 (9th Cir. 15 2002). The documents aren’t central to the Counterclaim and the rescission 16 defense they relate to isn’t “obvious on the [Counterclaim’s] face.” See 17 Rivera, 735 F.3d at 902. They don’t tell the Court anything about the 18 Counterclaim’s sufficiency and considering them wouldn’t make the 19 rescission defense any more obvious (as discussed infra). The Court 20 declines to take judicial notice of the documents. 21 B. The documents don’t establish that Carreno is entitled to 22 rescission. 23 Even if Carreno’s proffered documents were part of the Counterclaim, 24 they don’t establish the defense she urges. She contends that the documents 25 and the FDD demonstrate that 360 Painting didn’t disclose its prior business 26 experience. This, she argues, entitles her to rescission. See Dkt. 21-1 at 7-9. 27 Considered together with the FDD and the Counterclaim, the documents 28 don’t establish that 360 Painting had to disclose them, and even so, Carreno 1 hasn’t shown that she could claim rescission under federal law. 2 First, federal law: The regulations Carreno cites implement the Federal 3 Trade Commission Act. See 16 C.F.R. § 436.5 (identifying authority for 4 issuance as FTC Act). That Act doesn’t provide any private right of action, 5 so violation of its implementing regulations won’t support a private defense 6 of rescission. See Carlson v. Coca Cola Co., 483 F.2d 279, 280 (9th Cir. 7 1973) (no private right of action under FTC Act). 8 California law, on the other hand, would grant Carreno a right to 9 rescission if she had proved that the franchisor willfully failed to disclose its 10 prior business experience, but Carreno hasn’t proven it. Cal. Corp. Code §§ 11 31101, 31202, 31300. The documents and Counterclaim, without more, don’t 12 indicate any connection to 360 Painting. Two of the documents reference 13 Paul Flick, whom 360 Painting identifies as its CEO in separate briefing. See 14 Dkt. 21-3, 21-5, 39-1. Even if this were part of the Counterclaim, Carreno 15 offers no authority to suggest that 360 Painting was required to disclose 16 Flick’s, rather than 360 Painting’s, prior business experience. See Cal. Corp. 17 Code § 31101 (requiring disclosure of “business experience of the 18 franchisor”); Dkt. 1-2 at 193, 237 (Franchise Agreement identifying 360 19 Painting as “Franchisor”). 20 Even if the additional documents could be treated as part of the 21 Counterclaim, they aren’t sufficient to meet Carreno’s burden to prove her 22 right to rescission under California or federal law. They can’t justify dismissal. 23 III. Conclusion 24 On a motion to dismiss, the Court is restricted to considering the 25 pleading’s contents, broadly construed. It can’t consider documents that the 26 pleading’s claim doesn’t rely on, nor can it consider defenses that aren’t 27 obvious on the pleading’s face. Carreno’s Motion to Dismiss asks the Court 28 1 | and end by concluding that her non-obvious defense bars 360 Painting’s 2 breach of contract claim. The Court can’t do either on a motion to dismiss, 3 | so it DENIES Carreno’s Motion and her associated Request for Judicial Notice. Dated: August 12, 2020 (auf Ae Fan 7 Hon. Larry Alan Burns 8 Chief United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28