No. 82-420
I N THE SUPPSKE COURT O THE STATE OF MONTANA
F
1983
MARTIN A. GEBIIAIIDT ,
P l a i n t i f f and A p p e l l a n t ,
D. A. DAVIDSON & C O . , a Mont. for-profit
corg. ,
Defendant and Respondent.
Appeal from: D i s t r i c t Court of t h e Fourth J u d i c i a l D i s t r i c t ,
I n a n d f o r t h e County o f M i s s o u l a , The H o n o r a b l e
James B. W h e e l i s , J u d g e p r e s i d i n g .
Counsel of Record:
For Appellant:
1 . R i c h a r d G e b h a r d t , Ronan,
4 Montana
For Respondent r
G a r l i n g t o n , Lohn & R o b i n s o n ; P a u l C . M e i s m e r ,
M i s s o u l a , Montana
-
S u b m i t t e d on B r i e f s : J a n u a r y 1 3 , 1983
Decided: A p r i l 1 3 , 1983
Filed:
APR i 4 1983
Mr. Justice Frank R . Morrison, Jr. delivered the Opinion of
the Court.
This appeal results from an order entered by the
District Court of the Fourth Judicial District, Missoula
County, dismissing an action brought by Martin A. Gebhardt
against D.A. Davidson & Company (DAD). Gebhardt appeals.
Gebhardt's complaint alleged that DAD wrongfully
converted monies Gebhardt had previously invested in a
Franklin Money Fund account, by transferring such monies to a
Kemper Cash Equivalency account without Gebhardt's
authorization. As of the date of transfer, March 22, 1982,
principal and accrued interest totalled $32,502.46. The
complaint further alleged that such sum was not returned to
Gebhardt's Franklin Money Fund account until April 8, 1982,
after Gebhardt had protested the transfer.
Gebhardt sought $1,500 in actual damages, based on
Section 27-1-320, MCA, a.nd the allegation that Gebhardt had
to secure the services of an attorney and expend time, effort
and funds in pursuit of his wrongfully converted property.
Additionally, exemplary damages of $10,000 were sought, based
on an allegation that "[DAD] by fraud acquired such funds and
exerted control and authority over such funds."
On June 22, 1982 DAD filed a motion to dismiss,
specifically alleging that (1) Gebhardt failed to properly
allege conversion; (2) Gebhardt suffered no damages; and (3)
the complaint failed to state a claim upon which relief could
be granted. DAD'S motion was supported bv memorandum, an
affidavit of Paul Eichwald, an employee of DAD, and four
exhibits.
Exhibit 1 was a copy of a blank new account application
form, routinely completed by clients approaching DAD for
investment services. The application form contains language
authorizing DAD to act as broker and dealer for a client.
Exhibit 2 was a copy of a blank Franklin Money Fund
application. Part 5 of the application provides a place for
the name and address of the dealer or advisor sponsoring the
application.
Exhibit 3 was a copy of a letter sent by DAD to all
clients who had listed DAD as sponsor on Franklin Fund
applications. The letter explained DAD's rationale behind a
proposed transfer of client accounts from Franklin Money Fund
to Kemper's Cash Equivalent Fund. The letter stated the
transfer would occur automatically on March 22, 1982, unless
the client advised DAD to the contrary.
Exhibit 4 was a copy of a letter dated April 1, 1982
from Gebhardt's counsel to DAD. The letter expressed
Gebhardt's dissatisfaction with DAD regarding the transfer
from the Franklin Money Fund and included in pertinent part,
the following statements: "Mr. Gebhardt has been a client of
your firm [DAD] for many years . . . Recently, [Gebhardt]
invested in Franklin Money Fund Account No. 11100024562 using
one of D.A. Davidson's forms which listed Tom Schule as
representative and D.A. Davidson & Co. as sponsor."
Eichwald's affidavit included in pertinent part, the
following attestations: (1) Eichwald was familiar with the
transactions and occurrences which served as basis for
Gebhardt's suit; (2) clients approaching DAD for investment
services routinely complete a new account application; (3)
Eichwald believed that Gebhardt completed a new account
application prior to January 1, 1982 and that the original
application was on file in DAD's Great Falls office; (4)
clients applying for a money market investment are required
to complete a Franklin Fund application form; (5) prior to
January 1, 1982, Gebhardt completed a Franklin Fund
application, listing DAD as sponsor; (6) on or about March 5,
1982, all clients who had listed DAD as sponsor on Franklin
Fund account applications received a letter from DAD
regarding the proposed transfer from Franklin Money Fund to
Kemper Corporation Money Market Fund; (7) prior to March 22,
1982, Gebhardt did not request that his funds not be
transferred by DAD; (8) at all times the funds of Gebhardt
were listed under his name and available only for his use;
(9) DAD transferred Gebhardt's funds back to the Franklin
Fund as soon as practicable, pursuant to Gebhardt's request
dated April 1, 1982, the transfer being completed April 8,
1982; and (10) Gebhardt did not lose any accrued interest on
the transfers and in fact earned 1% to 14 percent more
interest than if his funds had been left in the Franklin Fund
account.
Thereafter Gebhardt filed a memorandum in opposition to
the motion to dismiss, and with district court approval, an
amended complaint. The amended complaint attempted to
elaborate on Gebhardt's allegations of fraud as a
justification for exemplary damages. At no time did Gebhardt
respond to DAD'S motion to dismiss by filing
counteraffidavits or exhibits.
On August 18, 1982, the district court heard oral
argument by both counsel on the motion to dismiss. The
motion was granted by order entered August 27, 1982. The
court's reasons for granting the motion were that Gebhardt
d-id not allege sufficient facts to show either an action in
fraud or conversion, and that Gebhardt did not suffer
damages. The order specifically stated: "From the date of
[Gebhardt's] objection, April 1, 1982, until the date the
money was transferred back into the Franklin Fund, the money
was entirely within the plaintiff's control. The degree of
control that [Gebhardt] retained while the money was in
either fund was the same."
On September 10, 1982 the district court entered
judgment against Gebhardt and awarded DAD costs. Gebhardt
appeals from the order dismissing his complaint.
Gebhardt contends the district court erred in dismissing
the complaint for failure to state a claim for relief in
conversion or fraud. Gebhardt argues that it was improper
for the district court to assume from facts not in evidence
that (a) Gebhardt authorized DAD to invest his money, and (b)
Gebhardt suffered no damage as result of the transfer.
DAD argues that, according to Rule 12(b), M.R.Civ.P.,
the inclusion of the affidavit and exhibits in support of the
motion to dismiss, expanded the district court's inquiry
through operation of Rule 56, M.R.Civ.P. Under Rule 56,
M.R.Civ.P., DAD asserts that the district court correctly
determined that Gebhardt's complaint did not set forth a
claim upon which relief could be granted. DAD maintains that
it established a basis for summary judgment, e.g., there were
no genuine issues of material fact and DAD was entitled to
judgment as a matter of law, and it was incumbent upon
Gebhardt to oppose the motion by raising or demonstrating the
existence of a genuine issue of material fact, or
demonstrating that the legal issue should not be determined
in favor of DAD.
We note that Gebhardt's complaint alleged only one
count, conversion, and tha.t the fraud allegations only
pertain to his prayer for exemplary damage. Accordingly, the
only question before the court is whether the district court
committed error in dismissing the complaint for failing to
state a claim for relief based upon conversion.
We reverse the district court order dismissing the
complaint. Reversible error was committed when matters
outside the pleadings were considered by the district court
in conjunction with DAD's motion to dismiss and the district
court failed to notify Gebhardt that the effect of such
consideration was that DAD's motion to dismiss was converted
into a motion for summary judgment.
A motion to dismiss under Rule 12 (b)(6), M.R.Civ.P.,
only tests whether a claim has been adquately stated in the
complaint. Therefore, the court's inquiry properly is
limited to the content of the complaint. 5 right & Miller,
Federal Practice and Procedure, S1356, p. 592. Such motion
has the effect of admitting all the well pleaded allegations
of a complaint, and the general rule is that a complaint
should not be dismissed unless it appears beyond reasonable
doubt that the plaintiff can prove no set of facts which
would entitle him to relief. Busch v. Kammerer (1982)
Mont . , 649 P.2d 1339, 39 St.Rep. 1624.
The essential elements of an action for conversion are
the plaintiff's ownership and right of possession of the
personalty, its conversion by defendant, and resulting
damages. Johnson v. Clark (1957) 131 Mont. 454, 311 P.2d
772. Conversion has been defined as a distinct act of
dominion wrongfully exerted over one's property in denial of,
or inconsistent with, the owner's right, Interstate Mfg. Co.
v. Interstate Products Co. (1965) 146 Mont. 449, 408 P.2d
478, or an unauthorized assumption of dominion over
personalty in hostility to the right of the owner. Sorenson
v. Jacobson (1951) 125 Mont. 148, 232 P.2d 332.
In his amended complaint Gebhardt alleged he had
invested approximately thirty two thousand dollars in
Franklin Money Fund prior to March 22, 1982, that DAD
wrongfully and without authority removed the monies from the
Franklin Money Fund to the Kemper Cash Equivalent Fund, and
that Gebhardt was damaged by the actions of DAD in the amount
of $1,500 as he had to secure services of an attorney and
expended time and effort, and funds in pursuit of his
property. That is sufficient to constitute a claim for
relief based upon conversion.
It is apparent that the error committed by the district
court was precipitated by DAD'S submission of exhibits and
affidavit in support of its motion to dismiss. While it is
permissible to present such materials in conjunction with a
motion to dismiss, there are very definite procedural
consequences which attend such action. These procedures were
not adhered to in the instant case.
Gehhardt was entitled to reasonable opportunity to
present all materials made pertinent to such motion by Rule
56. Rule 12(b), M.R.Civ.P.; Graveley v. MacLeod (1978) 175
Mont. 338, 573 P.2d 1166; State ex rel. Dept. of Health and
Environmental Sciences v. Livingston (1976) 169 Mont. 431,
548 P. 2d 155. Even though Gebhardt must be presumed to have
knowledge of the automatic conversion requirements of Rule
12 (b), since the district court has discretion as to whether
or not extra-pleading materials will be excluded, it is
incumbent on the district court to affirmatively notify the
parties that the materials were not excluded and that the
conversion was effected.
It is imperative that the non-moving party appreciate
the consequences of the automatic conversion, e.g., that
he/she may not rest upon mere allegations in pleadings but
must come forth with affidavits or other materials which
specifically set forth facts which show that there is a
genuine issue for trial, so that the non-moving party has a
reasonable opportunity to present all material made pertinent
to such motion under Rule 56.
The memorandum filed by Gebhardt before hearing in the
district court and the brief filed on appeal here reveal that
Gebhardt at all times believed that the court was considering
a motion to dismiss the complaint, based on the sufficiency
of the pleadings alone, and nothing more.
To ensure a party has reasonable opportunity to present
pertinent materials, we require strict compliance with the
requirements of Rules 12(b) and 56 in instances such as the
case at bar. The district court must give the parties notice
that a Ru:Le 12(b) motion is to be treated as a motion for
summary judgment, and absent notice, extra-pleading materials
must be excluded from the court's consideration in ruling on
a motion to dismiss.
The district court's order is reversed and this cause
remanded for further proceeedings consistent with this
opinion.
We concur:
Mr. Justice L . C. Gulbrandson d i s s e n t i n g :
I respectfully dissent.
I n D. A. Davidson's memo i n s u p p o r t of motion to d i s m i s s ,
f i l e d June 28, 1 9 8 2 , w i t h t h e c l e r k of D i s t r i c t C o u r t , counsel
a r g u e d t h e l e g a l e f f e c t o f t h e a f f i d a v i t and e x h i b i t s p r e v i o u s l y
s e r v e d on G e b h a r d t s c o u n s e l .
I n D. A. D a v i d s o n ' s r e p l y memo, f i l e d J u l y 29 , 1 9 8 2 , c o u n s e l
again argued the l e g a l e f f e c t s of the affidavit and exhibits,
a n d , o n p a g e o n e , s p e c i f i c a l l y r e f e r r e d to R u l e 56.
On A u g u s t 1 8 , 1 9 8 2 , a t t h e h e a r i n g on t h e m o t i o n to d i s m i s s ,
G e b h a r d t l s c o t i n s e l made t h e f o l l o w i n g comment: " I f I m i g h t , on
t h e summary j u d g m e n t o r m o t i o n t o d i s m i s s R u l e 1 2 b , I t h i n k . . ."
( T r a n s c r i p t p. 5 , l i n e 1 2 ) , and l a t e r d e c l i n e d t h e c o u r t ' s o f f e r
to submit a d d i t i o n a l b r i e f s .
I n my v i e w , G e b h a r d t l s c o u n s e l had s u f f i c i e n t o p p o r t u n i t y to
s u b m i t a l l m a t e r i a l s he deemed a p p r o p r i a t e i n r e s p o n s e t o D . A.
D a v i d s o n ' s a f f i d a v i t and e x h i b i t s , and s h o u l d h a v e known t h a t t h e
c o u r t was p r o c e e d i n g u n d e r R u l e 56.
Under t h e f a c t s o f t h i s case I would n o t r e q u i r e t h e D i s t r i c t
C o u r t t o a f f i r m a t i v e l y n o t i f y t h e p a r t i e s t h a t t h e c o n v e r s i o n to
Rule 56 had been effected, and
D i s t r i c t Court.