Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County, No. GIC860129 Ronald S. Prager, Judge.
O'ROURKE, J.
Plaintiff Chris Peter Valdez appeals from a judgment entered after the trial court sustained demurrers of defendants Pizza Hut, Inc. and Pizza Hut of America, Inc. to Valdez's second amended class action complaint. The court ruled Valdez's complaint was barred by (1) a settlement agreement containing a release in a different class action case against Pizza Hut, Inc. and (2) the doctrine of res judicata based on the prior class action. Valdez contends the trial court erred in applying the doctrine of res judicata in this class action context; that defendants did not meet their burden of proving the elements of that doctrine including adequate representation by the attorneys in the prior class action, which Valdez maintains is a uniquely factual inquiry requiring discovery. He argues the trial court ignored case law requiring it to reject defendants' notice of the prior class settlement, which was not disclosed to his counsel in connection with the present case and insufficiently specific to provide fair notice. Finally, Valdez contends the court erred in independently sustaining defendants' demurrers to his breach of contract and fraud causes of action.
We conclude that on this record, the trial court could not determine Valdez's action was precluded by res judicata, which in this class action context required it to find Valdez received due process protections of adequate representation and constitutionally sufficient notice required to afford preclusive effect to the prior class settlement and judgment. The court accordingly erred by concluding the prior classsettlement and judgment was a complete bar to Valdez's action. However we conclude the court properly sustained the demurrers to Valdez's breach of contract and fraud causes of action without leave to amend. We reverse the judgment with directions set forth below.
FACTUAL AND PROCEDURAL BACKGROUND
The Castillo Class Action
In July 2004, Franklin Castillo, a Pizza Hut delivery driver, filed a class action lawsuit in Los Angeles County Superior Court against Pizza Hut, Inc. and RLLW, Inc., a Pizza Hut franchisee (Castillo et al. v. Pizza Hut, Inc. et al. (Super. Ct. L.A. County, 2006, No. BC318765)). In February 2005, Castillo and two additional Pizza Hut drivers, Christopher Ostrowski and Danny Ljungberg (collectively the Castillo plaintiffs), filed a first amended complaint asserting causes of action for unpaid wages under Labor Code section 1194 et seq., violation of Labor Code section 2802 and California regulations, unfair business practices under the Unfair Competition Law (UCL), and failure to allow rest and meal breaks. The Castillo plaintiffs alleged that defendants, who required them to use their own motor vehicles to make deliveries, refused to fully pay minimum wages, failed to indemnify them from necessary expenses and costs incurred as a consequence of their duties, failed to allow meal and rest breaks, and failed to pay statutory "reporting time" pay. They sought damages, unpaid wages and unpaid reporting time, restitution, and penalties, as well as injunctive relief.
In the class action allegations, Castillo alleged: "There is a well-defined community interest in the questions of law and fact involved affecting the plaintiff Class in that Defendants failed and refused to fully pay minimum wages owed to Members of the Class, failed to fully indemnify Plaintiff and the Class from all necessary expenses and costs incurred in direct consequence of the discharge of their duties, failed to allow meal breaks, failed to allow rest breaks, failed to pay statutory 'reporting time' pay, and proof of a common or single state of facts will establish the right of each member of the class to recover." In his first cause of action for unpaid wages under Labor Code sections 1194 et seq., Castillo adopted the general class allegations and alleged in part: "Since four (4) years prior to the filing of this action and continuing to the present, Plaintiff, and the Class, worked in positions requiring them to deliver food to consumers, or other goods or perishables from one Pizza Hut location to another Pizza Hut location, by means of motorized vehicles which were not owned by Pizza Hut. The drivers used their own resources to pay for gasoline, oil, maintenance and insurance. The motor vehicles used by the Class Members sustained wear and tear which diminished the value of the vehicles."
In April 2006, plaintiffs Castillo and Ostrowski entered into a class action settlement agreement with Pizza Hut, Inc., in which Pizza Hut agreed to pay $5.1 million into a settlement fund and the named plaintiffs and class members would release their claims against Pizza Hut and related "Released Parties." For purposes of the agreement, the class was defined as "any Pizza Hut employee who was employed as a driver by Pizza Hut and who actually worked in a Pizza Hut restaurant owned and operated by Pizza Hut in California or at any time during the Class Period and who did not opt-out of the Litigation."
The Castillo settlement agreement defines the "Released Claims" as "any and all claims, demands, rights, liabilities, and/or causes of action of any nature and description whatsoever, known or unknown, suspected or unsuspected, accrued or unaccrued, whether premised on statute, contract, tort or other theory of liability, in law or in equity, asserted or that could have been asserted by Named Plaintiffs or any Class Member during the Class Period against the Released Parties for . . . (ii) alleged violations of Labor Code [section] 2802 including, but not limited to, failure to reimburse employees for use of personal vehicles to conduct Pizza Hut-related business including, but not limited to, mileage for making Pizza Hut food deliveries . . . [and] (iv) alleged violations of California Business and Professions Code [section] 17200 et seq. including, but not limited to, alleged commission of unlawful and unfair business practices. . . . " The settlement agreement further provides that " 'Released Claims' also include all claims for interest and/or penalties of any kind or nature arising out of or relating to the Released Claims and further extends to and includes claims for damages, civil penalties, restitution, injunctive relief, declaratory relief, punitive damages, and any other form of relief or remedy."
In June 2006, the Los Angeles Superior Court granted preliminary approval of the Castillo class action settlement as well as a class settlement notice form, and it set a final approval and fairness hearing for October 18, 2006, indicating that class members could file objections in writing to the proposed settlement. The Castillo court temporarily and conditionally certified (for settlement purposes only) a class consisting of "any Pizza Hut employee who was employed as a driver by Pizza Hut and who actually worked in a Pizza Hut restaurant owned and operated by Pizza Hut in California at any time during the period from July 20, 2000[,] through, and including, the date of preliminary approval of this settlement." The class settlement notice set out the date and time of the fairness hearing, and indicated that class members could remain a member of the settlement class and receive money, do nothing, object to the settlement, or opt out of the class. The notice also invited the recipient to inspect the court files at a specified address, the County Clerk's office in Los Angeles. In October 2006, the superior court issued an order granting final approval of the Castillo class action settlement and dismissed the case with prejudice.
The Valdez Class Action
In January 2006, during the pendency of the Castillo class action, Valdez filed a class action complaint in the San Diego Superior Court against Pizza Hut of America, Inc. on behalf of himself and other delivery drivers "who were unknowingly employed by Defendants while carrying no applicable automobile insurance for loss while acting within the scope of their employment." Valdez alleged that Pizza Hut of America, Inc. misled him and the other delivery drivers about the scope of automobile insurance coverage for accidents occurring while making deliveries, including by failing to explain that the plaintiffs' own automobile insurance policies would not provide coverage for a work-related accident and that additional, private insurance could be purchased to protect their employees at additional cost.
In May 2006, following the defendant's filing of demurrers, Valdez filed a first amended class action complaint asserting causes of action for violations of Labor Code section 2802 and the UCL, breach of contract, money had and received, declaratory relief and fraud. Defendant demurred to the third (breach of contract) and sixth (fraud) causes of action in the first amended complaint on grounds they failed to state facts sufficient to constitute a cause of action. In July 2006, while those demurrers were pending, Valdez amended his complaint to add Pizza Hut, Inc. as a defendant. The court sustained defendants' demurrers with leave to amend.
On October 4, 2006, Valdez filed a second amended class action complaint including the same causes of action on behalf of himself and " '[a]ll persons in California who during at least the past four (4) years worked as a delivery driver for Pizza Hut and did not receive insurance coverage or indemnification, payment or restitution for all necessary expenditures or losses incurred by these employees in direct consequence of the discharge of these employees' duties.' " He alleged defendants concealed from their delivery driver employees that (1) the drivers' personal automobile insurance policies would likely deny coverage for car accidents by applying the business use exclusion in the policy, which exclusion included denial of the duty to defend by the employees' own insurance company; (2) in order to obtain an insurance policy that would provide coverage for an accident while working as a delivery driver, plaintiffs would need to pay an additional yearly premium or fee to obtain coverage through a rider and defendants would not reimburse their employees for such an expense; (3) it was illegal for defendants to refuse to indemnify their employees for necessary expenditures or losses incurred in direct consequence of the discharge of their duties; (4) defendants' own business or corporate insurance policies may not extend primary coverage to them in the event of an accident, regardless of the fault or severity of injuries; and (5) defendants did not secure any primary motor vehicle insurance or riders that would provide coverage for their employees' vehicles. He alleged that by misrepresenting and failing to inform class members of these facts, defendants were saving substantial money while placing their employees and the public in a position of increased risk, injury, expense and peril, in violation of California law requiring all drivers to have appropriate insurance that covers them in the event of an accident.
In November 2006, after the scheduled Castillo fairness hearing, defendants filed demurrers to Valdez's second amended class action complaint, raising the pending Castillo class action and seeking to stay Valdez's action under the theory of a statutory plea of abatement or, alternatively under the rule of exclusive concurrent jurisdiction. Defendants argued Valdez's action and the Castillo action arose out of "the same employment relationships, involve some identical causes of action, and raise substantially the same issues." Pointing out Valdez had made only minor changes to his second amended complaint, defendants again demurred to the breach of contract and fraud causes of action on grounds they failed to state facts sufficient to constitute a cause of action in part because the complaint did not allege whether the alleged contract was written, oral or implied by conduct, and that the causes of action were uncertain. Thereafter, the trial court ordered defendants to produce certain documents relating to the Castillo settlement and took their demurrers off calendar so that the parties could assess the impact of that settlement on Valdez's class action.
In January 2007, after the judgment in the Castillo class action had become final, defendants refiled their demurrers, arguing that all of the causes of action in Valdez's second amended complaint failed to state facts sufficient to constitute a cause of action in that they were barred under the theories of res judicata, contractual release due to the Castillo class action settlement, and another action pending between the parties. Pointing out the Castillo judgment had become final in December 2006, and requesting that the court take judicial notice of certified copies of certain Castillo court records, defendants argued the final judgment and release barred Valdez's claims by both claim preclusion and issue preclusion; that all of Valdez's claims involved the same injury – unreimbursed work-related expenses including insurance costs – and one corresponding primary right: the right to reimbursement of such expenses from his employer. Defendants argued the Castillo class action settlement agreement's release specifically barred Valdez's Labor Code section 2802 and UCL claims, and more generally barred his other claims as falling within its broad release language. Defendants finally argued the release encompassed Valdez's breach of contract and fraud causes of action as well, but those actions also failed for the absence of alleged facts showing he suffered actual injury caused by defendants' alleged wrongdoing.
Valdez opposed the demurrers on grounds the res judicata arguments were fact dependent and could not be resolved in the procedural context of a demurrer. He argued the trial court could not determine solely from the allegations of the second amended complaint what claims were actually litigated in and contemplated to be resolved by the Castillo settlement or what primary rights were involved; that the matter had to be addressed on summary adjudication so that the parties could present a complete factual record. According to Valdez, though the trial court could not decide the question, the primary right in Castillo involved the reasonableness of Pizza Hut's driver delivery charges, whereas in his case, the primary issue was Pizza Hut's misrepresentations and failures to disclose material facts about the lack of insurance coverage to its delivery drivers, a claim that required substantially different proof. Valdez argued defendants' failure to notify the Castillo class of the existence of his lawsuit or reveal the existence of the Castillo action in a case management conference statement in his case prevented a full and fair consideration of the adequacy of the Castillo settlement, and presented factual disputes that the court could not resolve on a demurrer.
Taking judicial notice of some of the Castillo settlement documents submitted by defendants, the trial court agreed the Castillo release barred all of Valdez's claims because they "arise out of the same employment relationship between Pizza Hut and its delivery drivers, allege the same purported injury, and seek one or more of the enumerated forms of relief encompassed by the release." It further ruled Valdez's claims were barred by res judicata since the primary right implicated by all of Valdez's claims and those in the Castillo action arose from defendants' failure to reimburse him for work-related expenses incurred as delivery drivers; the Castillo settlement contained language showing the parties intended to be bound by the terms of the stipulated judgment; Valdez and Pizza Hut were both parties in Castillo; and the Castillo class representatives were represented by qualified counsel and adequately represented the interests of the class. The court also ruled Valdez had not cured the defects in his breach of contract and fraud causes of action. On these grounds, the court sustained the demurrers to Valdez's second amended complaint without leave to amend, and entered judgment in defendants' favor.
The trial court's order states: "Defendant's request for judicial notice of Exhibits 1-4 and 7-11, which are court records in [Castillo] is granted pursuant to Evidence Code [section] 452[, subd.] (d). However, the request for judicial notice of Exhibit 5 (Declaration of Gary S. Soter) is denied, as it is not the type of document of which the Court may take judicial notice." Though that portion of the court's order did not reference exhibit 6 (the Castillo court's "Order Granting Preliminary Approval of Class Action Settlement and Scheduling Fairness Hearing"), the order otherwise reflects reliance on that exhibit. Nor did the trial court indicate whether it had noticed exhibit 12 (YUM! Brands, Inc.'s Form 10-K). Defendants maintain the omission was an oversight. We need not decide the question because the trial court did not cite to exhibit 12 in its order and it does not appear it relied on that document in reaching its ruling, nor do we find the document pertinent to our analysis.
Valdez filed the present appeal.
DISCUSSION
I. Standard of Review
On appeal from a judgment of dismissal entered after a demurrer has been sustained without leave to amend, the issue is whether, assuming the truth of all well pleaded facts and those subject to judicial notice, the complaint alleges facts sufficient to state a cause of action. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126; Crowley v. Katleman (1994) 8 Cal.4th 666, 672; Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We disregard contentions, deductions or conclusions of fact or law. (Zelig, at p. 1126.) " 'Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained . . . without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.' " (Ibid.)
II. Preclusive Effect of the Castillo Judgment
Valdez contends defendants did not meet their burden to establish each element of res judicata and thus the trial court erred in sustaining the demurrers based on the bar of the prior Castillo class action. Citing Phillips Petroleum v. Shutts (1985) 472 U.S. 797 (Shutts) and Frazier v. City of Richmond (1986) 184 Cal.App.3d 1491 (Frazier), Valdez argues that in the class action context, the inquiry as to whether a final class action settlement or judgment operates as res judicata must focus on important due process concerns and resolve whether (1) due process rights of class members were protected by appropriate notice including the disclosure of other relevant proceedings; (2) the settled class action addressed the "identical" issue and same primary rights and type of proof; and (3) the class was adequately represented in the class action settlement with regard to the barred claims. He maintains that given the procedural posture of the case, the trial court did not perform a sufficiently independent inquiry into these elements by simply taking judicial notice of the Castillo court's prior determinations; that the court should have gone beyond the pleadings, permitted discovery into the questions and considered affidavits and record evidence on these issues, including the Castillo settlement negotiations. Valdez challenges the correctness of the trial court's order granting judicial notice as incorrectly accepting the facts on which the prior court's determination was made, outside the proper scope of judicial notice.
Defendants respond that Valdez waived any argument as to the merits of the trial court's res judicata analysis by failing to make such arguments in opposition to their demurrers. As to the merits, they concede that to bind an absent class member to a class action settlement under res judicata principles, due process requirements of adequate representation, notice, and the opportunity to opt out must be satisfied. However, they argue the res judicata effect of a prior class action settlement may be adjudicated in the context of a demurrer where all of the facts necessary to make those determinations are in the record before the trial court. Defendants maintain the trial court here had everything it needed in the record to determine that the Castillo class action settlement was a bar to Valdez's claims under res judicata.
We disagree that Valdez forfeited his substantive arguments as to the privity-related questions of adequacy of notice and representation by the Castillo plaintiffs. Rather, as we shall explain, we conclude the record before the trial court was not sufficient to make the due process determination of proper notice and adequate representation for purposes of finding privity and affording res judicata effect to the Castillo judgment and settlement, in part due to the trial court's inability to judicially notice the truth of the contents of the Castillo court's orders and other documents submitted by defendants. We proceed to address those matters.
In opposition to the demurrers to his second amended complaint, Valdez argued that to analyze res judicata in the present context, the circumstances had to be such that the " 'nonparty should reasonably have expected to be bound by the prior adjudication,' " a matter going to the questions of adequate representation and adequacy of the class notice. Valdez argued that the circumstances in his case were similar to those in Trotsky v. Los Angeles Savings & Loan (1975) 48 Cal.App.3d 134 (Trotsky), in which the court, for various reasons, found the plaintiffs in a prior class action case were not adequate representatives of other nonparties who had filed a later class action. (Trotsky, at pp. 146-147.) While defendants urge Trotsky's inapplicability to the present case, we nevertheless conclude Valdez's reliance upon it preserved his appellate contention as to the adequacy of the Castillo plaintiffs' representation for purposes of assessing the res judicata effect of the Castillo settlement. Trotsky also relied on the fact that the class settlement notice in the first case had not disclosed the subsequent class action, a circumstance that Valdez contended below was present in his case. Based on these arguments, we decline to find Valdez waived his substantive challenge to the adequacy of the Castillo class notice, as defendants assert.
A. Legal Principles Relating to Res Judicata
" 'Res judicata' describes the preclusive effect of a final judgment on the merits. Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them." (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896-897.) The doctrine applies when (1) the issues decided in the prior adjudication are identical with those presented in the later action; (2) there was a final judgment on the merits in the prior action; and (3) the party against whom the plea is raised was a party or was in privity with a party to the prior adjudication. (Pollock v. University of Southern California (2003) 112 Cal.App.4th 1416, 1427.)
"The concept of privity for the purposes of res judicata or collateral estoppel refers 'to a mutual or successive relationship to the same rights of property, or to such an identification in interest of one person with another as to represent the same legal rights [citations ] . . . .' " (Citizens for Open Access to Sand and Tide, Inc. v. Seadrift Ass'n. (1998) 60 Cal.App.4th 1053, 1069-1070 (Citizens).) The privity requirement is one of due process of law. (Citizens, at p. 1070,quoting Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 874; Victa v. Merle Norman Cosmetics, Inc. (1993) 19 Cal.App.4th 454, 464.) The key consideration is the fairness of binding a party to the result obtained in earlier proceedings in which it did not participate. (Citizens, at p.1070; Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, 1237 (Alvarez).) The circumstances must be such that that the " ' "nonparty should reasonably have expected to be bound by the prior adjudication." ' " (Citizens, at p. 1070; Frazier, supra, 184 Cal.App.3d at p. 1499.) " ' "Whether someone is in privity with the actual parties requires close examination of the circumstances of each case." ' " (Citizens, at p. 1070; Alvarez, at p. 1237.)
In California, the principles of res judicata and collateral estoppel apply in the class action context to bar later relitigation of claims by absent class members; when the prior class action wholly or predominately involves a money judgment, such principles will apply as long as there was sufficient notice and opportunity to opt out, and adequate representation of the class members in the earlier case. (Johnson v. American Airlines, Inc. (1984) 157 Cal.App.3d 427, 430-431; see Frazier, supra, 184 Cal.App.3d at pp. 1498-1499; Hansberry v. Lee (1940) 311 U.S. 32, 40, 44; Shutts, supra, 472 U.S. at pp. 811-812; Richards v. Jefferson County, Ala. (1996) 517 U.S. 793, 794; see, e.g., City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 463 [adequate representation requirement is the product in part of the relation between the res judicata effect of the class judgment on absent members and the requirements of due process]; Alvarez, supra, 143 Cal.App.4th at p. 1239 [for purposes of assessing collateral estoppel effect of prior class action certification decision, due process is satisfied when an absent class member's interest is adequately represented]; Mooney v. Caspari (2006) 138 Cal.App.4th 704, 718-720 [assessing collateral estoppel impact of prior litigation on nonparties to that litigation and explaining due process requirements in a non-class action context].) Further, "[i]t is . . . settled . . . that a court-approved settlement pursuant to a final consent decree in a class action will operate to bar subsequent suits by class members. [Citations.] . . . 'A judgment entered . . . by consent or stipulation, is as conclusive a . . . bar as a judgment rendered after trial.' " (Johnson, at p. 431; Patrowicz v. Transamerica HomeFirst, Inc. (D.Conn. 2005) 359 F.Supp.2d 140, 148 [quoting Johnson and applying California law].)
In Richards v. Jefferson County, the U.S. Supreme Court discussed the relationship between due process and res judicata: " 'The doctrine of res judicata rests at bottom upon the ground that the party to be affected, or some other with whom he is in privity, has litigated or had an opportunity to litigate the same matter in a former action in a court of competent jurisdiction. [Citations.] The opportunity to be heard is an essential requisite of due process of law in judicial proceedings. [Citations.] And as a State may not, consistently with the Fourteenth Amendment, enforce a judgment against a party named in the proceedings without a hearing or an opportunity to be heard [citations], so it cannot, without disregarding the requirement of due process, give a conclusive effect to a prior judgment against one who is neither a party nor in privity with a party therein.' " (Richards v. Jefferson County, Ala, supra, 517 U.S. at p. 797, fn. 4.)
As to the sort of due process required to bind absent class members to a prior money judgment, the U.S. Supreme Court in Shutts, supra, 472 U.S. 797, explained: "If the forum state wishes to bind an absent plaintiff concerning a claim for money damages or similar relief at law, it must provide minimal procedural due process protection. The plaintiff must receive notice plus an opportunity to be heard and participate in the litigation, whether in person or through counsel. The notice must be the best practicable, 'reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.' [Citations.] The notice should describe the action and the plaintiffs' rights in it. Additionally, we hold that due process requires at a minimum that an absent plaintiff be provided with an opportunity to remove himself from the class by executing and returning an 'opt out' or 'request for exclusion' form to the court. Finally, the Due Process Clause of course requires that the named plaintiff at all times adequately represent the interests of the absent class members. . . . We think that the procedure followed by Kansas, where a fully descriptive notice is sent first-class mail to each class member, with an explanation of the right to 'opt out,' satisfies due process." (Shutts, at pp. 811-812; see also Patrowicz v. Transamerica Home First, Inc., supra, 359 F.Supp.2d at p. 149; Frank v. United Airlines, Inc. (9th Cir. 2000) 216 F.3d 845, 851-852 [class members in a class action for monetary damages may be bound to the result of the action only if notice and opt-out requirements are satisfied]; Brown v. Ticor Title Ins. Co. (9th Cir. 1992) 982 F.2d 386, 392 [plaintiff, who was a class member in a prior multidistrict class action, was not given the opportunity to opt out of or exclude himself from the class litigation; Ninth Circuit Court of Appeals on summary judgment held res judicata would not bar plaintiff's damage claims in present case because it would violate minimal due process to apply that doctrine absent such opportunity]; see generally Hypertouch, Inc. v. Superior Court (2005) 128 Cal.App.4th 1527, 1538-1541 [discussing Shutts' requirements].)
B. Propriety of Analyzing Res Judicata Effect of Class Action Settlement on Demurrer
We begin with Valdez's first point, which is that the res judicata effect of a class action settlement cannot be determined by the pleadings or judicially noticed settlement documents alone. He maintains that in such circumstances courts are required to make a "full inquiry into the current facts" via a summary judgment or some other proceeding where the factual record is complete. Valdez relies on class action and federal treatises, as well as Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, and other state and federal authorities in which the courts assessed the res judicata inquiry on summary judgments or after taking evidence in a bench trial. He argues we may reverse the trial court's decision solely because it improperly took judicial notice of the truth of the Castillo court's findings when it certified the class and approved the class action settlement.
We agree with defendants' observation that the authorities on which Valdez relies do not directly support the broad and general proposition that a court must necessarily consider evidence extrinsic to the pleadings (or other matters properly considered on a demurrer) on these issues. Daar v. Yellow Cab Co., supra, 67 Cal.2d 695 addressed the question of class ascertainability for purposes of deciding whether, on a demurrer, the plaintiff taxicab rider had sufficiently pleaded a class action. (Id. at pp. 703, 706.) The Daar court, in dicta, observed that such an action may be sufficiently pleaded for the action to proceed as a class suit, but in determining the res judicata effect of a class action judgment on collateral attack, " 'a more careful scrutiny of its representative character may be made in determining whether it is res judicata.' " (Daar, at p.706.) Daar does not discuss the procedural context of such scrutiny; it does not hold courts considering a collateral attack on the judgment cannot do so based on the pleadings alone. The other authorities cited by Valdez do not consider the procedural question. While these authorities were decided in a different procedural context, they do not compel us to conclude that a court can never decide whether res judicata should bar a later class action in the procedural context of a demurrer. We decline to reach such a bright line rule, instead leaving the matter for analysis on a case by case basis.
E.g., Kemp v. Birmingham New Co. (5th Cir. 1979) 608 F.2d 1049, 1054 [Fifth Circuit Court of Appeals assessed res judicata effect of prior consent decree in class action on summary judgment and held district court must conduct two part inquiry asking whether (1) the trial court in first suit correctly determined the class representative would adequately represent the class; and (2) the class representative adequately protected the interest of the class after the suit's termination], overruled with respect to use of primary rights analysis in Southmark Properties v. Charles House Corp. (5th Cir. 1984) 742 F.2d 862, 871.
Nor do we agree that Valdez's cited cases compel a trial court to permit discovery on the res judicata impact of a prior class action settlement in every instance. The court in Grigsby v. North Mississippi Medical Center, Inc. (5th Cir 1978) 586 F.2d 457, a case involving a class certified under rule 23(b)(2) of the Federal Rules of Civil Procedure requiring no notice or opt-out requirements for class members, merely emphasized the district court's duty to critically and continually scrutinize the adequacy of the named plaintiffs' representation accorded to absent class member even after class certification. (Id. at pp. 461-462.) Because in that case the motion for class certification had been made only six weeks before the date set for trial and after discovery was completed, and the named plaintiffs made no effort to expand discovery limitations to pursue class claims, the Grigsby court held there may not have been proper and adequate representation of the absent class members' rights, and remanded the matter to the district court to reconsider the propriety and adequacy of representation. (Id. at p. 462.) The court expressed no opinion on further discovery with respect to that question.
In this case and on this particular record, however, we agree the trial court's res judicata determination – and in particular, its finding that Valdez was in privity with the Castillo class representatives – could not be made on the pleadings or by judicially noticing the Castillo court documents. A court considering a demurrer may in its discretion take judicial notice of the records in the pending action, or another action pending in the same court or any other court of record in the U.S. (Evid. Code, § 452, subd. (d); Kilroy v. State (2004) 119 Cal.App.4th 140, 145-146; e.g. Unruh-Haxton v. Regents of University of California (2008) 162 Cal.App.4th 343, 364.) Judicial notice of such matters becomes mandatory on a parties' proper request and showing that the matter is one that properly may be noticed. (Evid. Code, § 453; Cal. Law Revision Com. com., 29B, pt. 1 West's Ann. Evid. Code (1995 ed.) foll. § 453, p. 529.) But " '[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. [Citation.] On a demurrer a court's function is limited to testing the legal sufficiency of the complaint. [Citation.] "A demurrer is simply not the appropriate procedure for determining the truth of disputed facts." [Citation.] The 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. [Citation.]' . . . ' "[J]udicial 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." ' " (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113-114; see also StorMedia Inc. v. Superior Court (1999) 20 Cal.4th 449, 457, fn. 9 [when judicial notice is taken of a document, the truthfulness and proper interpretation of the document are disputable]; Mangini v. R. J. Reynolds Tobacco Company (1994) 7 Cal.4th 1057, 1063, overruled on another point in In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1276; Cruz v. County of Los Angeles (1985) 173 Cal.App.3d 1131, 1134.)
The above limitations extend to court records from another action, including court orders. A court may take judicial notice of another court's action or the truth of results it reached, but may not use it to prove the truth of the facts found and recited. (O'Neill v. Novartis Consumer Health, Inc. (2007) 147 Cal.App.4th 1388, 1405 (O'Neill); Kilroy v. State of California, supra, 119 Cal.App.4th 140, 145 (Kilroy); Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882 (Lockley); Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565, 1568.) Nor may the court take judicial notice of allegations in affidavits or declarations in court records because such matters are reasonably subject to dispute and therefore require formal proof. (Lockley, at p. 882; Day v. Sharp (1975) 50 Cal.App.3d 904, 914.) " '[T]he taking of judicial notice of the official acts of a governmental entity does not in and of itself require acceptance of the truth of factual matters which might be deduced therefrom, since in many instances what is being noticed, and thereby established, is no more than the existence of such acts and not, without supporting evidence, what might factually be associated with or flow therefrom.' " (Mangini, supra,7 Cal.4th at pp. 1063-1964; 1 Witkin, Cal. Evidence (4th ed. 2000) Judicial Notice, § 19, p. 114 ["Judicial notice of the authenticity and contents of an official document does not establish the truth of all recitals therein, nor does it render inadmissible matter admissible"].)
1. Constitutionally Sufficient Notice and Opportunity to Be Heard
The parties do not dispute that in order to afford res judicata effect to the Castillo judgment in keeping with due process (Shutts, supra, 472 U.S. at pp. 811-812), the trial court in this case was required to determine on the pleadings and judicially noticeable materials before it that Valdez had received constitutionally sufficient notice of the Castillo claims as well as an adequate opportunity to opt out of the class. It attempted to do so in connection with the privity element of res judicata, ruling that both Pizza Hut and Valdez were parties in Castillo; specifically, it found Valdez was a member of the Castillo class because he fell within the class definition, he received class notice, and he did not opt out of or object to the Castillo settlement. In support of this ruling, the court relied on four exhibits attached to defendants' request for judicial notice: the Castillo stipulation and order granting certification of the class; the notice of class action settlement; paragraph 14 of the declaration of consultant David Holland; and the Castillo court's order granting final approval of the class action settlement. In its order granting final approval, the Castillo court found in part that class notice was sent to all class members by first class mail to their most recent known address, and that each class member had a full opportunity to object to the settlement and participate in the final approval and fairness hearing. Holland averred that his firm was engaged by the parties to provide settlement administration services; that notices of the class action settlement were mailed to over 18,000 class members in July 2006; and that his company was responsible for receiving exclusion requests and only received seven such requests. Holland's declaration contains an attachment listing the over 18,000 class members including Valdez. Defendants point to these documents to assert that the trial court in this case properly relied on the Castillo court's due process findings in reaching its ruling.
While the trial court here could judicially notice the existence of those Castillo court documents, it could not accept the truth of factual assertions made in them, particularly those within Holland's declaration as to the mailing of class notice, on which the Castillo court's order granting final approval was based. (E.g. Williams v. Hartford Ins. Co. (1983) 147 Cal.App.3d 893, 899 [court could properly notice fact of grand jury indictment but not of testimony of prosecution witnesses on which it was based].) Nor could the trial court in this case judicially notice the Castillo court's finding that all of the approximately 18,000 Castillo class members had a full opportunity to object to the settlement and participate in the final approval and fairness hearing. These factual matters, though contained in a court order, are reasonably subject to dispute and are thus not the proper subject of judicial notice. (O'Neill, supra, 147 Cal.App.4th 1388, 1405; Kilroy, supra,119 Cal.App.4th at pp. 145-148; Lockley, supra, 91 Cal.App.4th at p. 882; Sosinsky v. Grant, supra, 6 Cal.App.4th at p. 1565.) The record simply does not permit the trial court in this case to conclude that these due process protections were afforded to Valdez, an absent class member, in connection with approval of the Castillo settlement and judgment.
Alvarez, supra, 143 Cal.App.4th 1223, relied upon by defendants, does not change our conclusion. First, the issue presented there was the res judicata effect of the trial court's class certification decision, which did not implicate rights of notice and the opportunity to opt out, as here. (Id. at pp. 1236, 1238.) The main issue addressed by the court was whether the Alvarez plaintiffs were adequately represented by the representatives of the prior class action and in that respect, the matter was undisputed. The Alvarez plaintiffs did not allege the representation provided to the prior class was inadequate, and unlike Valdez here, they did not claim their interests were not adequately represented in the prior class action, nor did they argue there was any evidence or argument the prior class action plaintiffs had failed to present. (Id. at p. 1237.) Thus, the Court of Appeal reviewing the trial court's order sustaining defendant's demurrer concluded the circumstances were such that the appellants should reasonably have expected to be bound by the prior class certification decision. (Id. at p. 1238.) Alvarez is inapposite.
Defendants further argue the class notice alone was sufficient to permit the trial court to assess its adequacy, citing Twigg v. Sears, Roebuck & Co. (11th Cir. 1998) 153 F.3d 1222 (Twigg). In Twigg, however, the Eleventh Circuit analyzed the sufficiency of notice in the summary judgment context, looking "solely to the language of the notices and the manner of their distribution." (Id. at p. 1227, italics added.) Ultimately, the court did not decide whether nationwide publication satisfied the requirements of due process, because it concluded the language of the notice was insufficient to notify the appellant that his claims were being litigated in the action. (Ibid.)
Further, we are persuaded by Valdez's contention that even if the trial court could properly conclude Valdez received the Castillo settlement notice, it erred by ruling that the content of the Castillo settlement notice was sufficient to notify Valdez that claims like his were being litigated in the action and allow him to make an informed decision about whether to remain a class member or opt out of the action. Valdez relies on Trotsky, supra,48 Cal.App.3d 134 and Twigg, supra, 153 F.3d 1222. Trotsky emphasized that the "notice given to the class must fairly apprise the class members of the terms of the proposed compromise and of the options open to dissenting class members.' [Citation.] The notice must be structured to enable class members rationally to decide whether to intervene or object, 'opt out,' or accept the settlement." (Trotsky, at p. 151-152; see also Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 251-252.) "As a general rule, class notice must strike a balance between thoroughness and the need to avoid unduly complicating the content of the notice and confusing class members." (Wershba, at p. 252.)
In Trotsky, the Court of Appeal invalidated a class action settlement in part on grounds the settlement notice given to the class in that case (the Trotsky action) made no mention of another class action (the Barwig action) that had overlapping claims. In the Trotsky action, the plaintiffs initially challenged the validity of three clauses of a trust deed (clauses 9, 10 and 12) but later amended their pleadings to omit the challenge to one of the clauses (clause 10). (Trotsky, supra, 48 Cal.App.3d at pp. 140-141.) Thereafter another person, Barwig, unaware of the Trotsky action, filed a class action complaint challenging clause 10 of the same trust deed. (Id. at p. 141.) The Trotsky plaintiffs and the defendant savings and loan association (the same defendant in Barwig) entered into a settlement that encompassed not only the clause 9 and 12 claims but also the previously omitted clause 10 claims and made a joint application for a hearing on the settlement and prescribing the form of notice. (Id. at pp. 142-143.) Neither their joint application or the settlement notice mentioned the existence of the Barwig action. (Id. at p. 143.) The Barwig plaintiff eventually learned of the settlement and, appearing in the Trotsky action, objected to it having any binding effect in his action. (Ibid.) The court approved the settlement over his objections.
On appeal, the Court of Appeal reversed the judgment. It first disapproved the manner in which the parties expanded the Trotsky settlement to include clause 10 claims, observing that its intended effect was to foreclose the Barwig action. (Trotsky, supra, 48 Cal.App.3d. at p. 145.) It questioned the Trotsky plaintiffs' ability to adequately represent the interests of the settlement's defined class (which was defined to include all present borrowers who had executed the particular trust deed), since they had not challenged all of the trust deed's provisions, including clause 10, and had not personally suffered any monetary damage as a result of that clause. (Id. at p. 147.) The court held the purported settlement of clause 10 claims was outside the scope of the action and thus invalid. (Id. at p. 148.) But apart from that, the court noted that the defendant, who was aware of the Barwig case, failed to notify the class or inform the Trotsky court of the existence and significance of the Trotsky settlement to the Barwig case, which impaired the trial court's ability to consider whether it was desirable to approve the settlement including clause 10 claims even assuming Trotsky's complaint could have been amended to allow it. (Ibid.) It held those failures "prevented a full and fair consideration of the adequacy of the settlement" and that the expansion of the settlement under the circumstances flouted the "salutary principal that, in order to prevent fraud, collusion or unfairness to the class, the settlement or dismissal of a class action requires court approval and notice to the class." (Id. at pp. 145-146, 149.) The Court of Appeal found that because the Barwig class action clearly involved overlapping claims that would have been extinguished by the settlement, it should have been disclosed to the settling class and to the court not only to assure fairness to those persons having clause 10 claims, but also for the efficient administration of justice to determine whether the cases should have been consolidated. (Trotsky, supra, 48 Cal.App.3d at pp. 150-151.) "[T]he existence of another purported class action relating to clause 10 would have been highly significant to the members of the temporary class in deciding whether they should object to the Trotsky settlement or request exclusion from the class. Given notice that the Barwig case also involved clause 10, class members would have had a powerful incentive to investigate to determine whether the Trotskys or [Barwig] better represented their interests." (Id. at p. 152.) The Court of Appeal observed that class members may have advanced different evidence or objections at the hearing, and other class members might have opted out because they preferred to be represented by Barwig. (Ibid.) These deficiencies compelled the court to invalidate the entire settlement and reverse the judgment in its entirety, putting the "parties back in their positions prior to settlement, when the court and the class should have been informed of the relevant circumstances." (Id. at p. 154.)
Here, the same considerations arise in the context of a class action defendant seeking to assert the bar of a previous class settlement in the absent class member's action. On defendant's assertion of res judicata, the trial court here was required to carefully scrutinize the due process protections afforded to Valdez and other absent class members in connection with the Castillo settlement, including the adequacy of the class notice. (E.g., Daar v. Yellow Cab Co., supra, 67 Cal.2d at p. 706.)The Castillo settlement papers and class notice reveal no mention of the Valdez action, which (as we may properly judicially notice) was filed in January 2006. Valdez's original complaint asserted a cause of action for violation of the UCL (like the Castillo complaint) as well as the Consumer Legal Remedies Act (CLRA); Valdez later omitted the CLRA claim and added in his first amended complaint a cause of action for violation of Labor Code section 2802. At the same time, Valdez's claims (as set out in his original and subsequent complaints) do not entirely overlap those asserted in Castillo; they relate to defendants' alleged nondisclosures about the unavailability of motor vehicle liability insurance coverage for damages or bodily injury sustained by drivers during the course of their deliveries or the fact the drivers' own personal automobile insurance coverage would exclude any such losses, as well as defendants' failure to reimburse him for his purchase of an insurance rider to ensure coverage for himself in the event of a work-related accident. Nevertheless, at the time of the Castillo court's approval of the Castillo settlement in June 2006, and the Castillo fairness hearing in October 2006, Valdez's action potentially sought relief similar to that sought in Castillo, which should have compelled the Castillo defendants to disclose the pendency of that action to the Castillo court. (Trotsky, supra, 48 Cal.App.3d at pp. 150-151.)
Further, as to reimbursement claims, the Castillo notice is nonspecific. The notice states that the Castillo plaintiffs and the class sought restitution, damages, penalties, interest, costs and attorney fees on allegations "inter alia, that Pizza Hut (i) failed to pay additional compensation to Pizza Hut drivers who did not take rest breaks and/or meal breaks, (ii) failed to pay Pizza Hut drivers for a half day of regularly scheduled work upon cancellation of a scheduled work shift, (iii) failed to reimburse Pizza Hut drivers for certain job-related costs related to the personal use of employee vehicles for Pizza Hut-related business including, without limitation, making Pizza Hut food deliveries, and (iv) failed to pay Pizza Hut drivers unpaid wages including, without limitation, failure to pay drivers the legally allowed minimum wage." (Italics added.) The notice states that the Castillo plaintiffs and the class also contended that Pizza Hut engaged in unspecified unfair business practices. Yet, the Castillo release purports to include all UCL and Labor Code section 2802 claims by any person employed as a Pizza Hut driver at any time from July 20, 2000, to June 5, 2006, including Valdez. We disagree with defendants' characterization that, with respect to reimbursement of job-related expenses, the notice provided a "detailed description" of the claims at issue. Under all of the circumstances presented in the record before us, we cannot say the trial court in this case could properly determine that the Castillo representatives, absent class members, and the Castillo trial court itself were fully informed so as to give preclusive effect to the judgment in this case.
Defendants challenge this conclusion in part by distinguishing Trotsky. They argue that unlike in Trotsky, the parties in Castillo had executed the settlement by May 2, 2006, and submitted it to the court days later, "before Valdez first asserted claims [in his first amended complaint] on May 12, 2006, that could have been affected by the already-executed-and-filed Castillo Settlement." They argue that the scope of the Castillo settlement could not have been expanded to foreclose claims asserted for the first time on May 12, 2006. But the argument ignores Valdez's UCL claims asserted in his original complaint, and it misses the point of Trotsky, in which the nondisclosure of related actions and incomplete notice denied effective intervention and assessment of the settlement by absent class members in Castillo. Trotsky's underlying principles are not rendered inapplicable by the fact that here, the issues are presented in the context of defendants' offensive assertion of res judicata as a bar to Valdez's suit. The due process analysis required to apply that doctrine necessitates an assessment of the class settlement notice and adequacy of representation by settling class members as to protect the rights of absent class members, similar to the analysis made by a court for purposes of approving a class action settlement. (See Wershba, supra, 91 Cal.App.4th at pp. 245, 252-253 [court must evaluate the proposed class action settlement agreement with the purpose of protecting the rights of the absent class members who will be bound by the settlement, including by scrutinizing the proposed settlement to the extent necessary to reach a reasoned judgment that the settlement taken as a whole is fair, reasonable and adequate to all concerned; court of appeal assessed class notice and distinguished Trotsky on grounds all pending class actions had been consolidated at the time of settlement, and a prior Federal Trade Commission proceeding (which could not have been consolidated and extinguished in any event) was disclosed to the trial court in papers accompanying request for conditional certification and preliminary approval of the settlement].)
Defendants also suggest it was incumbent on Valdez to challenge the Castillo judgment directly and advise the Castillo court of the existence of his action when provided the opportunity to do so. However, this argument is premised on the assertion that a Pizza Hut representative mailed (and Valdez received) the class settlement notice before the fairness hearing in October 2006, facts that are not judicially noticeable on this record. Further, defendants provide no authority for the proposition that Valdez's sole option was to appear in and object to the Castillo settlement, as opposed to defending against defendants' offensive use of the settlement by demurring on res judicata grounds.
In short, the breadth of the Castillo release and the absence of disclosure of the related Valdez action should have compelled the trial court here to reject, on the record before it, the adequacy of the Castillo settlement notice in deciding the preclusive effect of the Castillo settlement on Valdez's claims in his case and the fairness of binding Valdez to it. The trial court could not reasonably conclude that the Castillo class notice gave Valdez, or other absent Castillo class members for that matter, a full and fair opportunity to assess the impact of the Castillo settlement on any potential insurance-related claims and their options for either accepting the Castillo settlement's benefits, objecting to the settlement, or opting out of the Castillo class to pursue their own remedies.
2. Adequacy of Representation in Castillo
In sustaining defendants' demurrer, the trial court resolved the question of adequate representation by stating that "the Castillo court determined that class counsel in Castillo was qualified to represent the class when it certified the class, appointed class counsel, and found the settlement agreement to be fair [citations] and that the class representatives adequately represented the interests of the class and that there was no conflict of interest which would warrant their disqualification." The court relied on two certified Castillo court orders: The order granting preliminary approval of the Castillo settlement and the order granting final approval of the class action settlement. In its order granting final approval, the Castillo court repeated its prior findings made after its fairness hearing that the settlement "was the product of serious, informed non-collusive negotiations conducted at arms' length by the parties" and indicated it had considered numerous factors to conclude that the terms of the settlement were fair, reasonable and adequate.
The Castillo court stated that in granting final approval, it had considered "the estimate of the Class Members' potential total recovery, Pizza Hut's proportionate potential liability, the amounts and kinds of benefits paid in settlement and non-monetary benefits derived from the settlement, the allocation of settlement proceeds among the Class Members, the financial condition of the parties, and the fact that a settlement represents a compromise of the parties respective positions rather than the result of a finding of liability at trial."
Asserting that the trial court merely "rubber-stamped" the Castillo court's determination, Valdez contends inadequacy of representation by the Castillo class is apparent from the face of the submissions, because (1) his action was not mentioned in any of the Castillo settlement filings and the Castillo class was not informed about his alternative action; (2) the release did not clearly provide it was releasing insurance-related claims as it would had representation been adequate; (3) the release terms were excessively broad; and (4) there appeared to be no money or injunctive relief given in consideration for any purported relinquishment of insurance-related claims. Valdez maintains these matters strongly indicate a potential conflict of interest between him and the Castillo class representatives.
" 'A party is adequately represented for purposes of the privity rule "if his or her interests are so similar to a party's interest that the latter was the former's virtual representative in the earlier action. [Citation.]" [Citation.] [Courts] measure the adequacy of "representation by inference, examining whether the . . . party in the suit which is asserted to have preclusive effect had the same interest as the party to be precluded, and whether that . . . party had a strong motive to assert that interest. . . ." ' " (Mooney v. Caspari, supra, 138 Cal.App.4th at p. 719, quoting Citizens, supra, 60 Cal.App.4th at pp. 1070-1071; see also Capitol People First v. Department of Developmental Services (2007) 155 Cal.App.4th 676, 697 [to resolve the question of adequate representation the court will evaluate the seriousness and extent of conflicts involved compared to the importance of issues uniting the class; the alternatives to class representation available; the procedures available to limit and prevent unfairness; and any other facts bearing on the fairness with which the absent class member is represented].) Here again, the Castillo court's determination as to adequate representation was grounded in inherently factual findings that are reasonably subject to dispute and thus not amenable to judicial notice. The trial court in this case was required to ensure that Valdez's interests were adequately represented by "close examination" (Citizens, at p. 1070)of the rights and interests of the Castillo plaintiffs as well as by looking to whether the Castillo plaintiffs had an incentive to vigorously litigate those interests so that giving preclusive effect to the Castillo judgment would satisfy due process. It could not, however, fully explore those questions and decide whether it was fair to bar Valdez's suit on the papers before it.
Further, we agree the matters that may be noticed on this record tend to negate adequate representation. Valdez is not in this case represented by the same counsel as the Castillo plaintiffs, nor is there any indication he participated closely in concert with the Castillo plaintiffs. (Compare with Alvarez, supra, 143 Cal.App.4th at p. 1236 [adequate representation found where plaintiffs in both classes were represented by the same counsel, plaintiffs by definition belonged to the same class of employees, and their claims were the same]; Mooney v. Caspari, supra, 138 Cal.App.4th at p. 720 [respondent reasonably expected to be bound by prior decisions involving different parties; he knew his claims were dependent for success on resolutions favorable to the other party, he was aware of the binding effect of prior actions, and he provided considerable assistance to legal efforts of other party such that his interests were represented and due process was satisfied].) And the record raises questions as to whether the Castillo court had sufficient facts to assess Valdez's insurance-related claims vis a vis the Castillo claims because there is no indication the Valdez action was disclosed to that court or the Castillo class counsel. Finally, while the classes may be similar, the Castillo claims and Valdez's claims do not necessarily overlap, since Valdez alleges he suffered unreimbursed losses for purchasing additional insurance. The extent to which the Castillo plaintiffs made specific claims of reimbursement for insurance related expenses, or losses incurred while driving uninsured on Pizza Hut's behalf, and their motives to assert such claims, is not apparent on this record. Under the circumstances, the trial court should have denied defendants' demurrer.
III. Effect of Release
Defendants maintain we may uphold the trial court's decision separately and independently on grounds of the Castillo release, of which the trial court could properly take judicial notice on their demurrer. They argue the Castillo release language specifically bars Valdez's UCL and Labor Code section 2802 claims and is broad enough to generally encompass Valdez's remaining claims for declaratory relief, unjust enrichment and fraud, which are "related to" the other claims having arisen out of the same employment relationship between Pizza Hut and its delivery drivers, involved the same facts and alleged the same injury. For these arguments, defendants rely on Laughner v. Bryne (1993) 18 Cal.App.4th 904, McNeill v. State Farm Ins. Co. (2004) 116 Cal.App.4th 597, Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, and Nottingham Partners v. Trans-Lux Corp. (1st Cir. 1991) 925 F.2d 29 (Nottingham). Defendants also argue that Valdez twice waived any arguments on the effect of the Castillo release when he did not mention it in opposition to their demurrers and when he did not challenge their reliance on the release in his opening brief on appeal.
Defendants' arguments are unpersuasive because the trial court's reliance on the Castillo class action release suffers from the same flaws as the court's res judicata analysis above. Citing Nottingham, supra, 925 F.2d at p. 33, defendants concede a court approved settlement may be applied against an absent class member "so long as acceptable procedural safeguards have been employed." In Nottingham, for example, all prospective class members including the appellants in that case received notice of the proposed settlement, and appellants appeared and had the opportunity to object to the settlement at the ensuing hearing. (Id. at p. 31; see also Reppert v. Marvin Lumber and Cedar Co., Inc. (1st Cir. 2004) 359 F.3d 53, 57-59 [relying upon Nottingham, court of appeals reviewing defendant's motion to dismiss held the release in prior class action was an independent bar to new action where the record showed all known class members received direct mail notice and notice was placed in 33 newspapers of general circulation throughout the United States; court of appeals held as applied to the plaintiffs, the newspaper notices met the legal requirements of due process].) In Brinton, supra, 76 Cal.App.4th 550, it was undisputed on summary judgment that the plaintiff had participated in the prior class action, was represented by counsel in that action and had agreed to the class settlement agreement. (Id. at pp. 558, 559.) Brinton presented no issue of plaintiff being an absent class member requiring notice of the proposed settlement and an opportunity to be heard or opt out. Thus, the Court of Appeal was called upon to determine only whether the settlement agreement's release of claims language was broad enough to encompass the plaintiff's cause of action in the case before it, and whether the defendant was a third party beneficiary of that release. (Id. at pp. 558-560.)
Defendants' reliance on McNeill v. State Farm Life Insurance Company, supra, 116 Cal.App.4th 597, does not assist them. McNeill involved the settlement of a prior Illinois class action involving certain misrepresentations made by State Farm Life Insurance Company, the plaintiff insurance policy holder was a member of the Illinois class who had received compensation in that lawsuit, and, unlike Valdez in the present case, she admitted being bound by the settlement in that case. (Id. at pp. 599, 601.)
Valdez's arguments challenging the trial court's ability to assess whether he received fair and adequate representation in the Castillo action as well as his due process arguments as to notice equally apply to, and thus sufficiently preserved, any challenge to the effect of the Castillo release standing alone. For the same reasons expressed above in connection with the res judicata analysis, the record was not sufficient for the trial court in this case to conclude Valdez's action was barred by the settlement and release in Castillo.
IV. Causes of Action for Breach of Contract and Fraud
Valdez contends the trial court erred in sustaining defendants' demurrers to his causes of action for breach of contract and fraud; that he had cured the defects identified by the trial court in sustaining the demurrers to his first amended complaint by attaching the written contracts and specifying the basis for an implied contract, specifically pleading causation, and alleging a basis for defendants' duty to disclose the material fact of insurance non-coverage.
The trial court had sustained defendants' demurrers to Valdez's first amended complaint as follows: With regard to Valdez's breach of contract cause of action, it ruled Valdez had not attached a copy of the written contract nor had he set out any oral contractual terms verbatim. It ruled the first amended complaint was vague as to alleged terms of any purported implied contract, and Valdez had not sufficiently alleged damages caused by breach of the contract terms or by defendants' representations regarding, or failure to provide, insurance. As for Valdez's fraud cause of action, the court ruled Valdez did not sufficiently plead damages from defendant's alleged failure to reimburse the cost of his insurance rider or from its purported concealment of the business use exclusion in Valdez's own policy, nor did he allege facts showing defendant's duty to disclose that exclusion.
In demurring to the causes of action for breach of contract and fraud in Valdez's second amended complaint, defendants argued Valdez had not cured his deficient allegations as to whether he suffered actual injury from defendants' alleged failures to verify the adequacy of his personal automobile insurance policy and disclose at the time of his hiring that his personal insurance policy excluded coverage for on-the-job accidents or that he should purchase an insurance rider to obtain coverage. The court sustained the demurrers on grounds Valdez had "failed to cure the defects that led the Court to sustain the demurrer[s] to these claims in the first amended complaint." We review the trial court's order, not its reasoning, and affirm it if it is correct on any theory apparent from the record. (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 312.)
A. Breach of Contract
The elements of a breach of contract cause of action are the existence of the contract, performance by the plaintiff or excuse for nonperformance, breach by the defendant and damages. (First Commercial Mortgage Co. v. Reece (2001) 89 Cal.App.4th 731, 745.) In his breach of contract cause of action, Valdez alleges defendants entered into a series of standardized contracts "either written or implied in fact" in which they represented to their driver employees expressly or impliedly that they would only hire them if they first verified appropriate automobile insurance coverage that would cover the employee in the event of an accident, or that defendants would provide or pay for such primary coverage and "pay all amounts due them under California law." He alleges that, alternatively, class members and defendants' agents entered into such contracts, and defendants were third party beneficiaries of those contracts. Valdez alleges that as part of a "Vehicle Safety Check" performed by defendants as a condition of his employment, "defendants promised to review and check for 'current insurance' " including "verification of all 'limits of coverage.' " He further alleges defendants' conduct created an implied-in-fact agreement to the same effect. Valdez alleges defendants violated the contracts and covenants by not verifying or providing insurance coverage and refusing to pay for insurance riders, necessary expenditures, losses or moneys paid in the course or scope of such employment, and that the breaches caused the class members to suffer damages. In particular, Valdez alleges he was denied the benefit of his bargain and "sustained damage by having to pay for additional insurance that defendants had promised was unnecessary and upon which promise plaintiff relied in forsaking other employment," as well as damages "in the form of uncompensated gas, mileage, maintenance and other expenditures."
Valdez attached copies of a Delivery Driver Agreement and Vehicle Safety Check document with "Pass" and "Fail" columns, in which a Pizza Hut representative had checked a space in the "Pass" column for "Current Insurance." Valdez also attached a document entitled "Instructions for Conducting Vehicle Safety Checks" providing: "Current Insurance. File a copy of the declaration page listing insurance company name, vehicle, name of driver, effective dates, and limits of coverage in the employee's file folder. Liability coverage must meet or exceed state requirements."
Valdez's allegation that defendants entered into standardized "written or implied in fact" contracts is a legal conclusion that we disregard. Yet we accept as true the contents of documents Valdez attached to the second amended complaint. (Building Permit Consultants, Inc. v. Mazur (2004) 122 Cal.App.4th 1400, 1409.) "Indeed, the contents of an incorporated document . . . will take precedence over and supercede any inconsistent or contrary allegations set out in the pleading. In the case of such a conflict, we will look solely to the attached exhibit." (Ibid.) With regard to an express written contract, the documents attached to Valdez's second amended complaint contradict his allegations that defendants promised to verify and/or ensure current and adequate insurance coverage. These exhibits show Valdez acknowledged that Pizza Hut provided no insurance coverage for damages occurring to his vehicle. He also accepted responsibility "to check with my auto insurer to ensure that my policy covers bodily injury and property damages to others, in the event of an accident while on duty." These exhibits take precedence over Valdez's allegations. (Ibid.; Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627.)
A cause of action for breach of implied contract has the same elements as does a cause of action for breach of contract, except that the promise is not expressed in words but is implied from the promisor's conduct. (Yari v. Producers Guild of America, Inc. (2008) 161 Cal.App.4th 172, 182.) "An implied contract 'consists of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words.' [Citations.] In order to plead a cause of action for implied contract, 'the facts from which the promise is implied must be alleged.' [Citation.] A course of conduct can show an implied promise." (California Emergency Physicians Medical Group v. PacifiCare of California (2003) 111 Cal.App.4th 1127, 1134; see also Silva v. Providence Hospital of Oakland (1939) 14 Cal.2d 762, 773 ["The true implied contract, then, consists of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words"].)
The documents appended to Valdez's second amended complaint suggest a course of conduct, namely, Pizza Hut's practice of routinely requiring prospective drivers as a condition of employment to provide proof of automobile liability insurance and verifying insurance information including liability limits that "meet or exceed state requirements." Yet, exercising our independent judgment on the question as we must, we cannot reasonably infer from these documents that defendants acted in such a manner that evinced a promise to pay for automobile liability insurance covering all losses or damages suffered by Valdez or any other delivery driver in the event of a work-related accident, or a promise only to hire those drivers having insurance coverage for business use of their personal vehicle. Nor can we say Valdez's complaint reasonably alleges damage as a result of any breach of promise, an essential element of the cause of action. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.) The allegation that Valdez was "denied the benefit of his bargain . . ." is a conclusion. And Valdez's damage allegations – that he had to pay for additional insurance and gave up other employment – are premised on the existence of an implied promise to pay for additional insurance in the form of business use coverage, a promise that we conclude is not reasonably inferable from the course of conduct apparent on the face of the pleadings. For these reasons, the trial court correctly sustained defendants' demurrer to Valdez's breach of contract cause of action.
B. Fraud Cause of Action
With respect to his fraud cause of action, Valdez contends he adequately alleged causation as well as the basis for defendants' duty to disclose the material fact that he would not be covered by his own personal automobile insurance, namely, that defendants were under an obligation to disclose those facts "having undertaken the duty to review and assess the coverage limitations of employee policies, and having spoken on the issue to their employees." Citing Randi W. v. Muroc Joint Unified School Dist. (1997) 14 Cal.4th 1066, he argues "a party to a transaction has an affirmative duty to avoid misleading half-truths" and "a party that makes affirmative representations may not knowingly conceal material facts which qualify such assertions."
" 'The elements of fraud . . . are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or "scienter"); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.' " (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Concealment is a species of fraud that must be pleaded with specificity. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868.) General and conclusory allegations will not suffice at the pleading stage, and the policy of liberal construction of the pleadings will not ordinarily be invoked to sustain materially defective fraud allegations. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73, 74; Lazar, at pp. 644-645; Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.) A plaintiff's burden in asserting a fraud claim against a corporate employer is even greater. In such a case, the plaintiff must " 'allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.' " (Lazar, at p. 645.)
" 'In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff.' " (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 613, quoting Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294; see also Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 292 ["Even where no duty to disclose would otherwise exist, 'where one does speak he must speak the whole truth to the end that he does not conceal any facts which materially qualify those stated' "]; Rogers v. Warden (1942) 20 Cal.2d 286, 289.) Further, with respect to a concealment claim, "the defendant must have intentionally concealed or suppressed the [material] fact with the intent to defraud the plaintiff," and "the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact." (Marketing West, supra,6 Cal.App.4th at p. 613.)
Valdez's fraud allegations– in which an unidentified Pizza Hut manager is alleged to have failed to disclose material facts about Valdez's automobile insurance coverage limitations and represented to Valdez "that as a matter of policy [Valdez] was required to provide insurance information to defendants as a condition of his employment" – plainly do not meet the strict pleading standards referenced above. Nor do his allegations sufficiently plead a concealment claim; they do not state that an identified Pizza Hut representative made an affirmative representation about the nature or scope of Valdez's automobile insurance coverage that was materially misleading because of the failure to state qualifying matters. Rather, Valdez alleged that "based on his [Valdez's] belief defendants would use such information to confirm such coverage applied during the course and scope of his employment," he began working as a delivery driver. Setting aside the deficiencies as to specificity, the allegations show that Valdez began working for Pizza Hut not because of Pizza Hut's purported representation, but because of his assumption that Pizza Hut would confirm his automobile insurance would cover him for work-related losses. In sum, Valdez's second amended complaint does not contain sufficient allegations of actionable fraud by concealment, and thus the court properly sustained the demurrer to Valdez's fraud cause of action without leave to amend.
DISPOSITION
The judgment is reversed and the trial court directed to enter an order denying defendants' demurrers to Valdez's complaint on the ground of res judicata, and sustaining the demurrers to Valdez's third and sixth causes of action for breach of contract and fraud without leave to amend. We leave it to the trial court to determine the extent and nature of discovery on the preclusive effect of the Castillo settlement and judgment should defendants move for summary judgment on that ground and Valdez seek discovery on the matter. (Code Civ. Proc., § 437c, subd. (h).) Valdez shall recover his costs on appeal.
WE CONCUR: McCONNELL, P. J., BENKE, J.