No. DA 06-0136 IN THE SUPREME COURT OF THE STATE OF MONTANA 2007 MT 129

MYKL MEAGHER, Plaintiff and Appellant,

v. BUTTE-SILVER BOW CITY-COUNTY, A Municipal Corporation and Political Subdivision of the State of Montana, Defendant and Respondent.

APPEAL FROM: The District Court of the Second Judicial District, In and For the County of Silver Bow, Cause No. DV 2005-193, Honorable Kurt Krueger, Presiding Judge

COUNSEL OF RECORD: For Appellant: Kevin E. Vainio, Attorney at Law, Butte, Montana For Respondent: Eileen Joyce, Butte-Silver Bow Deputy County Attorney, Butte, Montana
Submitted on Briefs: December 28, 2006 Decided: June 5, 2007 Filed:

__________________________________________ ClerkJustice Patricia O. Cotter deliver ed the Opinion of the Court. ¶1 Mykl Meagher appeals the Second Judici al District Court’s grant of summary judgment in favor of Butte-S ilver Bow City-County (BSB or the County). Meagher filed a Complaint against BSB alleging that the County breached an oral agreement under which the County agr eed to sell certain properties to Meagher. BSB filed a motion to dismiss pursuant to M. R. Civ. P. 12(b)(6) (Rule 12(b)(6)). The District Court converted the Rule 12(b)(6) motion into a motion for summary judgment and entered judgment in favor of the County. Meagher appe als. We reverse and remand. ISSUES ¶2 A restatement of the issues on appeal is: ¶3 Did the District Court erroneously fail to co mply with M. R. Civ. P. 56 (Rule 56) when it converted the County’s Motion to Di smiss to a motion fo r summary judgment? ¶4 Did the District Court err when it deni ed Meagher’s motion for a continuance? FACTUAL AND PROCED URAL BACKGROUND ¶5 In October 2003 Butte-Silver Bow City-County acquired several properties through tax forfeiture proceedings and posted them for sale at th e County Treasurer’s Office. In July 2004 Meaghe r identified five properties he wished to purc hase from the County. As required by the county treasurer, Meagher submitted five letters to the Chief Executive and Council of Commissioners, offeri ng in each to pay BSB’s established bid value for the respective parcels. Attached to each letter was a $50.00 check to cover the required administrative fee.

2¶6 In August 2004 the County met with Meagher and or ally agreed to sell him the two properties located on W. Broadway Street and S. Wyom ing Street, contingent upon Meagher completing specified restoration a nd remodeling work on the properties by November 1, 2004. It also agreed to pl ace a hold on selling two of the other properties Meagher wanted to purchase conditioned on hi s restoration work on the Broadway and Wyoming Street properties. The BSB Council memorialized the oral agreement as it pertained to the sale of the Broadway and Wyoming Street properties in a September 15, 2004, resolution. Meagher undertook th e required work, expended approximately $30,000.00 in labor and mate rial, and held an open ho use showing the remodeled properties on November 15, 2004. Several co mmissioners attended the open house. BSB subsequently conveyed these two properties to Meagher. ¶7 Despite repeated requests by Meagher be tween September 2004 and June 2005, the County ultimately denied his requests to purchase the other three properties and recommended that the administration fees he had paid for each of these properties be returned to him. ¶8 On July 25, 2005, Meagher filed suit ag ainst BSB claiming that he and BSB had entered into an oral contract under which th e County was obligated to sell him all five properties on which he had placed bids and paid administrative fees. He sought specific performance under this oral agreement. In August 2005 the Coun ty filed a Motion to Dismiss under Rule 12(b)(6) on the ground that the Complaint failed to state a claim for which relief could be granted. In its Brief in Support of Motion to Dismiss, the County

3argued that no oral or written agreement existed, and therefore specific performance was unavailable. ¶9 Meagher responded with a brief in oppo sition to the County’s Motion to Dismiss in which he specifically object ed to the County’s inclusion of “facts, exhibits and arguments” that extended beyond the contents of his Complain t. While objecting to the County’s additional “facts,” Me agher explained that he included additional facts in his brief in opposition so as “to more clearly answer the [County’s] Brief.” He noted that if the District Court considered the additional fa cts presented by the pa rties, the court would be converting the County’s Motion to Dismi ss into a motion for summary judgment. Meagher advised the court that if it intended to undertake such a co nversion the District Court had to provide the partie s with notice of its intent an d allow him the opportunity to produce pertinent and relevant facts to overc ome summary judgment. The County filed its reply brief in support of its Motion to Di smiss in which it indica ted that it “would not object to the [c]ourt converting its Motion to Dismiss to a Motion for Summary Judgment and allowing [Meagher] to su pplement the record.” ¶10 On September 27, the District Court scheduled a hearing on BSB’s Motion to Dismiss for November 1, 2005. On Octobe r 11, it rescheduled th e hearing for October 19, 2005. On October 13, it vacated the hearing until further notice, and on October 20, re-scheduled it for November 7, 2005. In each notice, the District Court referred to the hearing as a hearing on the C ounty’s Motion to Dismiss. On October 28, 2005, Meagher filed an affidavit in which he detailed his reco llection of the dealings with the County visà-vis the five properties. On Friday, Nove mber 4, Meagher’s counsel filed a Motion to

4Continue Hearing explaining that Meagher had left for Thai land on business, and requesting a continuance of the hearing un til the second week of March at which time Meagher would have returned. The Distri ct Court did not receive Meagher’s Motion until Monday morning, November 7, just pr ior to the commencement of the hearing. After considering Meagher’s request and the County’s objection to a continuance, the court denied Meagher’s motion and held the scheduled hearing. ¶11 The court heard testimony with respect to facts, exhibits and evidence beyond what was included in Meagher’s Complaint. On December 28, 2005, it issued its Order Granting Motion for Summary Judgment to BS B. In it the court explained that [T]he parties’ subsequent pleadings proposed that the [c]ourt convert such Motion [to Dismiss] to a Motion for Summary Judgment. Meagher has also supplemented the reco rd through filing an Affi davit in support of his position. The [c]ourt reviewed the br iefs submitted, the oral arguments, and the pleadings in their entiret y and considered the same. The District Court ruled that no contract ex isted between the parties and therefore the County was not obligated to sell the re maining three properties to Meagher. Additionally, it determined th at the County had the authority to seek and accept a separate purchase proposal from another buyer under a “developer’s packet.” Lastly it held that no genuine issues of material fact existe d and the County was entitled to judgment as a matter of law. ¶12 Meagher appeals. We reverse and remand the matter to the District Court for further proceedings. STANDARD OF REVIEW

5¶13 We review de novo a district court’s ruling on a motion to dismiss pursuant to Rule 12(b)(6). A motion to dismiss under Rule 12(b)(6) has the effect of admitting all well-pleaded allegations in the complaint. In considering the motion, the complaint is construed in the light most favor able to the plaintiff, and all allegations of fact contained therein are taken as true. Plouffe v. State , 2003 MT 62, ¶ 8, 314 Mont. 413, ¶ 8, 66 P.3d 316, ¶ 8 (citations omitted). ¶14 We also review an order granting summa ry judgment de no vo, relying on the provisions of M. R. Civ. P. Rule 56. Hajenga v. Schwein , 2007 MT 80, ¶ 11, 336 Mont. 507, ¶ 11, 155 P.3d 1241, ¶ 11 (citation omitted). Summary judgm ent is an extreme remedy that should be granted only when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Hajenga , ¶ 11. DISCUSSION ¶15 The first issue before us is whether th e District Court erred in converting the County’s Motion to Dismiss in to a motion for summa ry judgment without giving notice to Meagher. A motion to dismiss under Rule 12( b)(6) allows the district court to examine only whether “a claim has been adequately stated in the complaint.” Gebhardt v. D.A. Davidson & Co. , 203 Mont. 384, 389, 661 P.2d 855, 857 (1983). As a result, the court is limited to an examination of th e contents of the complaint in making its determination of adequacy. Additionally, the effect of a Rule 12(b)(6) mo tion to dismiss is that all the well-pleaded allegations in the complaint are admitted as true; theref ore, it should not be dismissed “unless it appears beyond reasonable doubt that the plaintiff can prove no set

6of facts which would entitle him to relief.” Gebhardt , 203 Mont. at 389, 661 P.2d at 857- 58 (citation omitted). ¶16 Rule 12(b) allows the cour t to convert a motion to dismiss into a motion for summary judgment when matters outside the pl eadings are presented to the court. Rule 12(b) states in part: If, on a motion asserting the defense numb ered (6) to dismis s for failure of the pleading to state a claim upon whic h relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for su mmary judgment and disposed of as provided in Rule 56, and all parties shall be gi ven reasonable opportunity to present all material made per tinent to such mo tion by Rule 56

. (Emphasis added.) Thus, the court has the discretion to include or exclude matters presented to it that are outside of the pleadings when considering a mo tion to dismiss. If it chooses to include matters outside of th e pleadings, however, it must treat the motion as a motion for summary judgment under Rule 56 and provide notice to the parties of its intention to do

so. Gebhardt , 203 Mont. at 390, 661 P.2d at 858. See also Hoveland v. Petaja , 252 Mont. 268, 271, 828 P. 2d 392, 393-94 (1992); State ex rel. Dept. of H. & E. S. v. City of Livingston , 169 Mont 431, 436, 548 P.2d 1 55, 157 (1976); Graveley v. MacLeod , 175 Mont. 338, 344, 573 P.2d 11 66, 1169 (1978). The purpos e of notice is to allow the parties a reasonable opportunity to present all material per tinent to the motion and avoid surprise. Plouffe, ¶ 15. This includes an opport unity to produce additional facts by affidavit or otherwise which would establish a genuine issue of material fact to preclude summary judgment under Rule 56. Plouffe , ¶ 15 (citing Hoveland , 252 Mont. at 271, 828 P.2d at 394).

7¶17 As observed above, summary judgment is an extreme remedy. Hajenga, ¶ 11. What makes it extreme is that an order of summary judgment is a ruling on the merits which terminates a complainant’s district cour t proceedings with prejudice. On the other hand, dismissal of a complain t for failure to state a cl aim upon which relief may be granted is not a “terminal” rulin g on the merits; thus, a complain ant is free to recast his or her complaint and file it anew , as long as this can be done within the period of limitations. ¶18 Meagher argues that the District Court e rred by converting the County’s Motion to Dismiss to a motion for summary judgment without noti ce to the parties. He asserts that he did not acquiesce to the conversion and that the mere presentation of facts beyond the Complaint by both parties did no t relieve the court of its ob ligation to provide notice of its intent to convert the pr oceeding. BSB counters that the District Court correctly dismissed Meagher’s Complaint because Meaghe r failed to establish the existence of a valid enforceable contract. It further main tains that because dismissal was correct the court’s decision to resolve the matter thr ough summary judgment rather than simple dismissal was harmless error. BSB also ar gues that the parties acquiesced to the conversion of the motion. ¶19 We find no merit in the County’s argu ment that Meagher acquiesced to the conversion of the motion to dismiss to on e for summary judgment. In fact, Meagher expressly asked the District Court for the stat utory notice in the even t the court chose to convert the motion. While Meagher may have filed an affidavit, he did so not knowing whether the affidavit would be considered or that he was in fact facing summary

8judgment proceedings. We cannot know whether he would have expa nded his affidavit or requested a full hearing on the summary j udgment matter, as he had the right to do under Rule 56, had he been pr ovided notice of the conversi on. Meagher had a right to notice of the conversion as he requested and as our cases require. See Plouffe , ¶ 15, and the cases cited at ¶ 16 of this Opinion. Mo reover, given that the court referred in each notice of hearing to a motion to dismiss a nd not to a summary judgment hearing, we cannot conclude Meagher knew he was fa cing summary judgment proceedings and acquiesced to the conversion. ¶20 As noted above, the distinction between dismissal and summary judgment is more than academic. The former a llows for the possibility of re -filing a complaint so as to withstand dismissal, while the latter is a final adjudication on the merits. Therefore, we cannot agree that the co nversion was, as argued by BSB, harmless error. Therefore, we reverse the court’s order of summary judg ment and remand for further proceedings. ¶21 Finally, in light of the fore going, we need not address Meagher’s claim that the District Court erred in denying hi s motion to continue the hearing. CONCLUSION ¶22 For the foregoing reasons, we reverse the District Court’s Order granting summary judgment and remand this matter for further proceedings consis tent with this Opinion.

/S/ PATRICIA COTTER

9We Concur: /S/ BRIAN MORRIS /S/ W. WILLIAM LEAPHART /S/ JIM RICE /S/ JOHN WARNER

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