Earlier this month, the California 4th District Court of Appeals encountered a bizarre situation in Coastline Corp. v. Famers & Merchs. Bank of Long Beach.
The September 21, 2012 unpublished decision wrestles with the “sham doctrine” in California, which loosely instructs the courts to ignore any supplemental pleadings that state facts that are inconsistent with previously stated facts. If, for example, a plaintiff files a lawsuit and claims that he saw an opposing driver paying attention at the wheel right before an accident, he couldn’t later file a pleading saying he saw the same driver texting before the accident.
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The problem with this “loose” explanation is that it doesn’t quite cover the nuances of the doctrine.
The defendants in the Coastline Corp. case looked to the sham doctrine to prevent Coastline from filing a second amended complaint allegeing that the completion date was in April 2009, when it previously pled that the completion date was in August 2009. This particular fact was of significance because the mechanics lien was filed in June 2009. If completion wasn’t until August 2009, the mechanics lien would have been premature.
Coastline argued that its previous complaint was mistaken, however. Coastline contended that while work continued on the project until August 2009, the work after April 2009 was merely punchlist or warranty work. Accordingly, they were caught up in a situation where work did indeed go on at the project through August 2009, but formal “completion” of the project for the purposes of mechanics lien laws was months earlier in April 2009.
Could the contract change its story after the litigation was filed?
The trial court said no, but the appeals court reversed indicating that the sham doctrine wasn’t always black and white. Further, it hinted that when it comes to setting a formal completion date, the sham doctrine may not restrict inconsistent positions:
Under the sham pleading doctrine, allegations in an original pleading that rendered it vulnerable to demurrer or other attack cannot simply be omitted without explanation. The purpose of the doctrine is to enable the courts to prevent an abuse of process. The doctrine is not intended to prevent honest complainants from correcting erroneous allegations or to prevent the correction of ambiguous facts…
The date of “completion” of the Project is a label subject to explanation and proof, and the sham pleading doctrine therefore should not prevent Coastline from amending the second amended complaint to correct it. Indeed, the completion date of a construction project is a question of fact.