No. 82-420 

IN THE SUPPSKE COURT OF THE STATE OF MONTANA 

1983 

MARTIN A. GEBIIAIIDT , 

Plaintiff and Appellant, 

D. A. DAVIDSON & CO., a Mont. for-profit 

corg. , 

Defendant and Respondent. 

Appeal from: District Court of the Fourth Judicial District, 

In and for the County of Missoula, The Honorable 

James B. Wheelis, Judge presiding. 

Counsel of Record: 

For Appellant: 

14. Richard Gebhardt , Ronan, Montana 

For Respondent r 

Garlington, Lohn & Robinson; Paul C. Meismer, 

Missoula, Montana 

- 

Submitted on Briefs: January 13, 1983 

Decided: April 13, 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 dissenting : 

I respectfully dissent. 

In D. A. Davidson's memo in support of motion to dismiss, 

filed June 28, 1982, with the clerk of District Court, counsel 

argued the legal effect of the affidavit and exhibits previously 

served on Gebhardts counsel. 

In D. A. Davidson's reply memo, filed July 29 , 1982, counsel 

again argued the legal effects of the affidavit and exhibits, 

and, on page one, specifically referred to Rule 56. 

On August 18, 1982, at the hearing on the motion to dismiss, 

Gebhardtls cotinsel made the following comment: "If I might, on 

the summary judgment or motion to dismiss Rule 12b, I think. . ." 

(Transcript p. 5, line 12), and later declined the court's offer 

to submit additional briefs. 

In my view, Gebhardtls counsel had sufficient opportunity to 

submit all materials he deemed appropriate in response to D. A. 

Davidson's affidavit and exhibits, and should have known that the 

court was proceeding under Rule 56. 

Under the facts of this case I would not require the District 

Court to affirmatively notify the parties that the conversion to 

Rule 56 had been effected, and 

District Court.