Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-02664/USCOURTS-caed-2_06-cv-02664-0/pdf.json

Parties Involved:
Alameda County Medical Center
Cross Claimant
Sunstone Behavioral Health, Inc.
Cross Defendant

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1

 Because oral argument will not be of material

assistance, the court orders this matter submitted on the briefs. 

E.D. Cal. Local Rule 78-230(h).

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

SUNSTONE BEHAVIORAL HEALTH,

INC.,

NO. CIV. S-06-2664 FCD DAD

Plaintiff,

v. MEMORANDUM AND ORDER

ALAMEDA COUNTY MEDICAL CENTER,

Defendant.

----oo0oo----

This matter comes before the court on defendant Alameda

County Medical Center’s (“ACMC”) motion to dismiss plaintiff

Sunstone Behavioral Health, Inc.’s (“Sunstone”) complaint

pursuant to Rule 12(b)(6) of the Federal Rules of Civil

Procedure. For the reasons set forth below,1

 defendant’s motion

is DENIED.

Case 2:06-cv-02664-FCD-DAD Document 21 Filed 04/25/07 Page 1 of 12
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2 The facts of this case are taken from plaintiff’s

allegations in the complaint.

2

BACKGROUND2

Plaintiff Sunstone establishes, operates, and manages

programs that provide mental health services to treat psychiatric

disorders. (1st Am. Compl. (“FAC”), filed Feb. 14, 2007, ¶ 3). 

Defendant ACMA operates general acute care hospitals with

outpatient psychiatric programs in San Leandro and Oakland,

California. (Id. ¶ 4). On or about August 3, 2004, Sunstone and

ACMC entered into a written outpatient psychiatric consulting

contract for the San Leandro and Oakland locations (the

“Agreement”). (Id. ¶ 5). The Agreement is for a thirty-six

month term beginning on August 3, 2004, and expiring on August 2,

2007. (Id. ¶ 6). Under the terms of the Agreement, Sunstone and

ACMC agreed to maintain operation of the Behavioral Health

Programs at the San Leandro and Oakland locations to provide

professional services to patients suffering from emotional

problems and psychiatric disorders. (Id. ¶ 7). As part of the

Agreement, Sunstone agreed to provide ACMC with a Program

Director. (Id.)

On or about February 21, 2006, ACMC notified Sunstone that

it had realized that its expenditures had become greater than its

income, and therefore, wanted Sunstone to agree to end the

consulting Agreement in an effort to meet its cost containment

goal. (Id. ¶ 8). However, the Agreement provided that it may be

terminated upon material breach by the other party, only after

giving notice and the opportunity to cure. (Id. ¶ 9). On or

about February 27, 2006, Sunstone reminded ACMC that the

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3

Agreement expired August 2, 2007, and contained no provision

authorizing termination without cause. (Id. ¶ 10). 

Subsequently, on or about April 25, 2006, Sunstone received

information that its Program Director for the San Leandro

location had engaged in unacceptable conduct which required his

termination. (Id. ¶ 11). The Program Director was terminated on

May 3, 2006, and Sunstone immediately began a search for a new

Program Director. (Id.) On May 5, 2006, ACMC notified Sunstone

that it was in material breach of the Agreement due to the

departure of its Program Director, and that it intended to

terminate the agreement within 30 days. (Id. ¶ 12). On or about

May 18, 2006, Sunstone informed ACMC that it was immediately

placing a Temporary Program Director at the San Leandro location

and was in the process of locating a new Program Director. (Id.

¶ 14). On or about May 26, 2006, ACMC informed Sunstone that it

was terminating the Agreement effective June 9, 2006. (Id. ¶

15).

Sunstone alleges that the true reason for ACMC’s termination

of the Agreement was the financial situation it faced, not

plaintiff’s failure to provide a replacement Program Director. 

(Id. ¶ 16). Sunstone also alleges that it complied with all

terms of the Agreement by immediately beginning a search for a

new Program Director and putting a Temporary Program Director in

place in the interim. (Id. ¶ 19). Sunstone contends that by

attempting to prematurely terminate the Agreement and frustrating

Sunstone’s performance of the Agreement, ACMC is in breach of the

Agreement and its duty of good faith and fair dealing. (Id. ¶

20). 

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3 Defendant filed a motion to dismiss plaintiff’s

complaint on December 28, 2006. (Mot. to Dismiss, Docket # 8,

filed Dec. 28, 2006). Defendant subsequently withdrew the motion

in light of plaintiff’s filing of a First Amended Complaint. 

(Notice, Docket # 14, filed Mar. 1, 2007).

4

Sunstone alleges that it provided notice of its claims to

ACMC under the California Government Claims Act on or about June

7, 2006, October 3, 2006, and November 16, 2006. (Id. ¶ 22). 

Plaintiff attached a true and correct copy of the claim against

ACMC as Exhibit A to the First Amended Complaint. This claim is

dated November 16, 2006. Plaintiff further alleges that it was

not required to provide notice to ACMC under the California

Government Claims Act because ACMC failed to file a statement

with the California Secretary of State’s Roster of Public

Agencies as required under the Act. (Id. ¶ 22). 

On November 22, 2006, plaintiff filed its Complaint for

damages in this court for breach of contract and breach of the

implied covenant of good faith and fair dealing. Plaintiff filed

its First Amended Complaint on February 14, 2007.3 On March 6,

2007, defendant filed a motion to dismiss the First Amended

Complaint (1) for failure to comply with the California

Government Claims Act; and (2) for failure to state a claim upon

which relief can be granted. 

STANDARD

On a motion to dismiss, the allegations of the complaint

must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322

(1972). The court is bound to give plaintiff the benefit of

every reasonable inference to be drawn from the “well-pleaded”

allegations of the complaint. Retail Clerks Int’l Ass’n v.

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4 Both parties have filed declarations and exhibits in

support of their filings. Where matters outside the pleading are

presented to and not excluded by the court, the motion to dismiss

is treated as one for summary judgment pursuant to Rule 56. Fed.

(continued...)

5

Schermerhorn, 373 U.S. 746, 753 n.6 (1963). Thus, the plaintiff

need not necessarily plead a particular fact if that fact is a

reasonable inference from facts properly alleged. See id. 

Given that the complaint is construed favorably to the

pleader, the court may not dismiss the complaint for failure to

state a claim unless it appears beyond a doubt that the plaintiff

can prove no set of facts in support of the claim which would

entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45

(1957); NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th

Cir. 1986).

Nevertheless, it is inappropriate to assume that plaintiff

“can prove facts which it has not alleged or that the defendant[]

ha[s] violated the . . . laws in ways that have not been

alleged.” Associated Gen. Contractors of Calif., Inc. v. Cal.

State Council of Carpenters, 459 U.S. 519, 526 (1983). Moreover,

the court “need not assume the truth of legal conclusions cast in

the form of factual allegations.” United States ex rel. Chunie

v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986).

In ruling upon a motion to dismiss, the court may consider

only the complaint, any exhibits thereto, and matters which may

be judicially noticed pursuant to Federal Rule of Evidence 201. 

See Mir v. Little Co. Of Mary Hospital, 844 F.2d 646, 649 (9th

Cir. 1988); Isuzu Motors Ltd. v. Consumers Union of United

States, Inc., 12 F.Supp.2d 1035, 1042 (C.D. Cal. 1998).4

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4(...continued)

R. Civ. Proc. 12(b). The court has discretion to accept or

reject such evidence, but conversion of a motion to dismiss into

a motion for summary judgment is generally disfavored in the

early stages of litigation. See Rubert-Torres v. Hosp. San

Pablo, Inc., 205 F.3d 472, 476 (1st Cir. 2000). Therefore, the

court will not consider any extrinsic evidence in support of the

motion to dismiss and does not convert this filing into a motion

for summary judgment.

Defendant also asks the court to consider the Agreement,

which it attached to its Motion to Dismiss. This document was

referred to in plaintiff’s First Amended Complaint, but not

attached to it. The Ninth Circuit has held that documents not

attached to the complaint, but “whose contents are alleged in . .

. [the] complaint and whose authenticity no party questions” are

part of the complaint, such that the court may also consider them

in ruling on a motion to dismiss. Blanch v. Tunnell, 14 F.3d

449, 454 (9th Cir. 1994), overruled on other grounds by Galbraith

v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). 

Plaintiff’s claims are founded on the alleged breach of this

Agreement, and it did not dispute the authenticity of this

document in its opposition. Therefore, the court will consider

the Agreement as part of plaintiff’s First Amended Complaint for

the purposes of this motion. 

6

ANALYSIS

A. California Government Claims Act

Defendant alleges that plaintiff’s claims should be

dismissed because the complaint fails to plead compliance with

the California Government Claims Act (“CGCA”). In order to state

a claim against a public entity, the CGCA requires the timely

presentation of a written claim in whole or in part. Cal. Gov’t

Code § 900 et seq. (West 2007). Plaintiff must present claims to

the government entity for money or damages with few exceptions. 

Cal. Gov’t Code § 905 (West 2007). Plaintiff does not dispute

that the CGCA would apply to its claims for breach of contract

and breach of the implied covenant of good faith and fair

dealing. Moreover, under § 945.4,

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7

no suit for money or damages may be brought against a

public entity on a cause of action for which a claim is

required to by presented in accordance with Chapter 1

(commencing with section 900) and Chapter 2 (commencing

with section 910) of Part 3 of this division until a

written claim therefore has been presented to the

public entity and has been acted upon by the board, or

has been deemed to have been rejected by the board.

Cal. Gov’t Code § 945.4 (West 2007). Pursuant to § 912.4, the

board shall act on a claim within 45 days after it has been

presented. Cal. Gov’t Code § 912.4 (West 2007). If the board

fails or refuses to act upon the claim within those 45 days, the

claim is deemed rejected by the board. Id. 

Plaintiff has the burden of pleading compliance with the

CGCA in their complaint. Wood v. Riverside General Hospital, 25

Cal. App. 4th 1113, 1119 (1994). Moreover, compliance with the

California claims statutes is mandatory. City of San Jose v.

Superior Court, 12 Cal. 3d 4447, 454 (1974). Federal courts have

recognized these requirements. See Ortega v. O’Connor, 764 F.2d

701, 707 (9th Cir. 1985), rev’d on other grounds, 107 S. Ct. 1492

(1987) (failure to comply with claim-filing requirements imposed

by California Tort Claims Act bars pendent state claims).

Defendant argues that plaintiff’s claims are barred because

the board had not acted upon plaintiff’s written claim submitted

on November 16, 2006, nor had 45 days passed before plaintiff

filed its complaint in this court. Plaintiff contends that it

was not required to comply with the CGCA because defendant ACMC

failed to comply with the listing requirement under § 946.4 of

the California Government Code.

Section 946.4 provides that 

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the failure to present a claim does not constitute a

bar or defense to the maintenance of a suit against

such public agency if, during the 70 days immediately

following the accrual of the cause of action . . . [n]o

statement pertaining to the public agency is on file .

. . in the Roster of Public Agencies in the office of

the Secretary of State . . . as required by Section

53051.

Cal. Gov’t Code § 946.4 (West 2007). Therefore, a plaintiff is

excused from compliance with the CGCA if the public agency has

not registered with the Secretary of State and provided certain

information, including the full, legal name of the public agency

and the official mailing address of the governing body of the

public agency. Cal. Gov’t Code § 53051 (West 2007). The

exception set forth in § 946.4 contains no requirement of a

showing of actual deception or confusion. Wilson v. San

Francisco Redevelopment Agency, 19 Cal. 3d 555, 562 (1977). 

Rather, the California Supreme Court has held that a fair reading

of § 946.4 “suggests that the agency’s failure to comply with

section 53051 entitles the claimant to ignore the claim-filing

requirement entirely.” Id. at 561. The public agency bears the

burden of proof on any issue of fact regarding whether it has

complied with the filing requirements set forth in § 53051. Cal.

Gov’t Code § 946.4(b). 

Sunstone alleges in its First Amended Complaint that

defendant ACMC failed to register with the California Secretary

of State as required under the CGCA, and that therefore, no

notice was required under the CGCA. (FAC ¶ 22). As such,

plaintiff has alleged facts excusing compliance with the claim

presentation requirement. Cf. State v. Superior Court (Bodde),

32 Cal. 4th 1234, 1239 (2004). 

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9

In response, defendant ACMC requests that the court take

judicial notice of the fact that ACMC is registered with the

California Secretary of State pursuant to § 53050 and that it is

listed on the California Roster of Public Agencies. (Def.’s Mot.

to Dismiss, filed Mar. 6, 2007, at 5 n.5). However, in its

moving papers, defendant attached no documentation or evidence to

support this request. The burden of proof in this inquiry lies

with defendant ACMC. Cal. Gov’t Code § 946.4. In its untimely

filed reply brief, defendant attaches documentation from the

Secretary of State regarding ACMC’s listing on the California

Roster of Public Agencies since 1998. Plaintiff has been given

no opportunity to challenge the authenticity or accuracy of these

documents. As such, the court will not consider defendant’s

untimely filed submissions. 

However, even if the court were to consider this

documentation, defendant’s motion to dismiss would fail on other

grounds. Plaintiff also alleges in its First Amended Complaint

that it provided notice of its claims to defendant ACMC on June

7, 2006, and October 3, 2006. The California Supreme Court has

held that “a plaintiff need not allege strict compliance with the

statutory claim presentation requirement.” Bodde, 32 Cal. 4th at

1245. The California Supreme Court has also acknowledged that

“[c]ourts have long recognized that ‘a claim that fails to

substantially comply with [the CGCA], may still be considered a

claim as presented if it puts the public entity on notice both

that the claimant is attempting to file a valid claim and that

litigation will result if the matter is not resolved.’” Id.

(quoting Del Real v. City of Riverside, 95 Cal. App. 4th 761, 769

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(2002)). Sunstone’s allegations that it provided notice of its

claim to ACMC under the CGCA in June and October 2006

sufficiently allege substantial compliance with the claim

presentation requirement. To the extent that defendant disputes

that such notice was sufficient, an inquiry into sufficiency

would require the court to examine the merits of these factual

allegations. This is beyond the purview of a motion to dismiss

pursuant to Rule 12(b)(6). 

Plaintiff’s complaint alleges that Sunstone is excused from

the claim presentation requirement of the CGCA because defendant

ACMC failed to register with the Secretary of State. Plaintiff’s

complaint also alleges facts that give rise to the inference that

Sunstone substantially complied with CGCA by providing ACMC with

notice of its claims. These allegations are sufficient to

withstand defendant’s motion to dismiss on the basis that

plaintiff failed to comply with the CGCA. As such, defendant’s

motion to dismiss on this ground is DENIED.

B. Failure to State a Claim

Defendant also moves to dismiss plaintiff’s First Amended

Complaint on the grounds that it fails to state a claim against

ACMC. Specifically, defendant contends that plaintiff’s

allegation that ACMC breached the Agreement by refusing to allow

Sunstone to replace its terminated Program Manager with a

“Temporary Program Director” does not support a claim for breach

of contract. Defendant also contends that because plaintiff

cannot state a claim for breach of contract, it cannot state a

claim for breach of the implied covenant of good faith and fair

dealing. Plaintiff asserts that defendant’s arguments require

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the court to decide the factual merits of the case, which is

inappropriate on a motion to dismiss. The court agrees.

Defendant’s argument is based upon the premise that its

termination of the Agreement was justified because Sunstone was

in material breach of the contract. Plaintiff’s claims are based

upon the allegations that Sunstone was not in material breach,

but that ACMC used the termination of the Program Manager as a

pretext to unjustifiably rescind the contract. The central

determination in both plaintiff’s complaint and defendant’s

motion to dismiss is whether Sunstone, through its actions or

inactions, materially breached the Agreement. “Whether a breach

constitutes a failure of consideration sufficient to be deemed

material and thus to warrant rescission of a contract is a

question of fact . . . .” Fed. Deposit Ins. Corp. v. Air Fla.

Sys., Inc., 822 F.2d 833, 840 (9th Cir. 1987) (citing Calabrese

v. Rexall Drug & Chem. Co., 218 Cal. App. 2d 774 (1963);

Bonadelle Constr. Co. v. Hernandez, 169 Cal. App. 2d 396 (1959)

(substantial performance is a question to be determined case-bycase, based on the particular facts and circumstances)); see

Whitney Inv. Co. v. Westview Dev. Co., 273 Cal. App. 2d 594, 601

(1969) (“Whether a breach is so material as to constitute cause

for the injured party to terminate a contract is ordinarily a

question for the trier of fact.”). 

On a motion to dismiss, taking plaintiffs allegations as

true and drawing all reasonable inferences therefrom, the court

cannot determine whether Sunstone materially breached the

Agreement as a matter of law. Therefore, defendant’s motion to

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dismiss plaintiff’s First Amended Complaint for failure to state

a claim upon which relief can be granted is DENIED.

CONCLUSION

For the foregoing reasons, defendant’s motion to dismiss

plaintiff’s complaint pursuant to Rule 12(b)(6) is DENIED. 

 IT IS SO ORDERED.

DATED: April 25, 2007

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