Norwest Bank Black Hills, N.A. v. Rapid City Teachers Federal Credit Union (No. 4122)

433 N.W.2d 560, 1988 S.D. LEXIS 182, 1988 WL 132704

• Court: South Dakota Supreme Court
• Decided: December 14, 1988
• Docket: 16007
• Status: Published

Opinions

MILLER, Justice (on reassignment).

In this appeal we hold that the trial court erred in granting a motion to dismiss for failure to state a claim and in converting a motion to dismiss into a motion for summary judgment.

FACTS AND PROCEDURAL HISTORY

Because of the nature of this holding, a detailed recitation of the facts is not necessary. Generally stated, Norwest Bank (Norwest) commenced an action against the Rapid City Teachers Federal Credit Union (Credit Union) seeking both actual and exemplary damages. Norwest, in a two-count complaint, alleged (1) that Credit Union, through its officers and agents, knowingly participated in a check-kiting scheme with John W. and Nancy Ashley, d/b/a A-l Used Car Sales and Rentals, and that such conduct was fraudulent and oppressive; and (2) that Credit Union was guilty of negligence in the supervision, management and control of its manager, who is alleged to have knowingly participated in the check-kiting scheme.

In its answer, Credit Union made a general denial and affirmatively alleged that Norwest failed to state a claim, was guilty of contributory negligence greater than slight, assumed the risk and failed to join indispensable parties.

Credit Union then filed a motion to dismiss, claiming that Norwest’s pleadings failed to allege a breach of any duty owed to it by Credit Union. In response to this motion, Norwest’s counsel asked the court to consider selected depositions. The court presumably decided to convert the motion to dismiss into one for summary judgment, since its judgment granted both the motion to dismiss and summary judgment,¹ even though the court gave no notice to either party of its decision to convert. This appeal followed.

DECISION

1. The trial court improperly converted the motion to dismiss to one for summary judgment.

Under SDCL 15-6-12(b)(5), where one moves to dismiss for failure to state a claim and “matters outside of the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in § 15-6-56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by § 15-6-56.” SDCL 15-6-12(b). (Emphasis added.)

There is nothing in this record² which reflects that the trial court advised or notified the parties of its intent to convert the motion to dismiss into one for summary judgment. We have clearly stated that such notice is mandatory. Schaub By Schaub v. Moerke, 338 N.W.2d 109 (S.D. 1983); Olson v. Molko, 86 S.D. 365, 195 N.W.2d 812 (1972).

Obviously, the “reasonable opportunity” language in SDCL 15-6-12(b) is designed to prevent unfair surprise to the parties. Dayco Corporation v. Goodyear Tire & Rubber Co., 523 F.2d 389 (6th Cir.1975). As stated by Wright and Miller:

It is important that the court give the parties notice of the changed status of the motion and a ‘reasonable opportunity to present all material made pertinent to such a motion by Rule 56.’ In this way no one will be taken by surprise by the conversion. Once the proceeding becomes one for summary judgment, the moving party’s burden changes and he is obliged to demonstrate that there exists no genuine issue as to any material fact and that he is entitled to a judgment as a matter of law.

5 C. Wright & A. Miller, Federal Practice and Procedure § 1366 (1969) (footnotes omitted).

The trial court, having failed to follow these mandatory steps, erred in converting the motion to dismiss into one for summary judgment.

2. The trial court erred in granting the motion to dismiss.

That part of the trial court’s judgment which adjudged that Norwest’s complaint failed to state a cause of action, recited, in salient part:

In considering the Complaint, (Norwest) has failed to produce any authority assessing civil liability against an entity in the position of the Credit Union which was incurring losses as a result of the activities of Mr. Ashley to a banking institution which also allegedly suffered losses. Therefore, to that extent, the Court finds and concludes that (Nor-west’s) Complaint fails to state a claim.

The trial court seems to overlook the fact that Norwest has not claimed that Credit Union owed it a duty to discover Ashley’s check-kiting scheme or that Credit Union breached any duty of good faith under the Uniform Commercial Code. Rather, Nor-west relies on the general law on liability for torts found at SDCL 20-9-1 which states:

Every person is responsible for injury to the person, property, or rights of another caused by his willful acts or caused by his want of ordinary care or skill, subject in the latter cases to the defense of contributory negligence.

SDCL 15-6-8(a) sets forth the mandatory minimum requirements for a pleading seeking a claim for relief. That section merely requires that pleadings contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”

Although Norwest’s complaint does not allege an abundance of facts, and certainly could be improved upon, the allegations meet the basic requirements of SDCL 15-Obviously, Credit Union did not 6-8(a). find the allegations insufficient for the purpose of making a responsive pleading and made no request for a more definite statement as authorized by SDCL 15-6-12(e).

If we are to assume that all of the allegations in the complaint are true (as we must for the purposes of the motion to dismiss, Akron Savings Bank v. Charlson, 83 S.D. 251, 158 N.W.2d 523 (1968)), plaintiff would be entitled to recover. In other words, in Count I, if Norwest can establish that Credit Union “knowingly participated” in a check-kiting scheme and that Credit Union’s conduct was “oppressive and fraudulent,” Norwest is entitled to recover. Akron, supra. Similarly, regarding Count II, if Norwest can prove that Credit Union’s manager “knowingly participated” with Ashleys in the check-kiting scheme and that Credit Union was “guilty of negligence in the supervision, management, and control” of its officer, proximately causing detriment, Norwest may recover, assuming that Credit Union had a duty to Norwest. Akron, supra.

Under SDCL 15-6-8(a) it is not necessary to plead “duty” in negligence cases where the existence of a duty may be logically inferred from the claim stated in one’s complaint. See, e.g., Christensen v. Shelby County, 287 N.W.2d 560 (Iowa 1980); see also Johnson v. Weyerhaeuser Co., 189 F.Supp. 735 (D.C.Or.1960) (where the court ruled on Oregon’s version of Rule 8(a); 2A Moore’s Federal Practice ¶ 8.13 (1987); 5 C. Wright & A. Miller, Federal Practice and Procedure § 1202 (1969). This is an issue to be addressed by the parties and the court after the facts have been developed. (Here the record contains only the pleadings and the lengthy deposition of Credit Union’s former manager.) Of course, “duty” is seldom, if ever, an issue in a fraud case and it is certainly not a necessary element to be pleaded in those cases. See SDCL 20-10-2, 15-6-8(c) and 15 — 6—9(b); see also Littau v. Midwest Commodities, Inc., 316 N.W.2d 639 (S.D.1982).

The trial court therefore erred in granting the motion to dismiss.

REVERSED.

WUEST, C.J., and MORGAN and SABERS, JJ., concur. ERICKSON, Circuit Judge, concurs in part and dissents in part. ERICKSON, Circuit Judge, sitting for HENDERSON, J., disqualified.

1 . Here we are dealing with an anomalous order. One paragraph dismisses plaintiffs complaint and the next grants summary judgment. After the complaint is dismissed, what is left to grant summary judgment against? This appears to be an “overkill."

2 . There is no transcript of the hearing nor any written memorandum decision by the trial court.