Date St. Capital, LLC v. Clearcover Ins. Co.

540 P.3d 921

DATE STREET CAPITAL, LLC, an Arizona Limited Liability Company, Plaintiff/Appellant,

v.CLEARCOVER INSURANCE COMPANY, an Arizona Domestic Insurer, Defendant/Appellee.

No. 2 CA-CV 2023-0065

Court of Appeals of Arizona, Division 2.

Filed November 21, 2023

Law Offices of Adam B. Decker PLLC, Tempe, By Adam B. Decker, Counsel for Plaintiff/Appellant

Elardo, Bragg, Rossi & Palumbo P.C., Phoenix, By John A. Elardo, Counsel for Defendant/Appellee

Judge Eckerstrom authored the opinion of the Court, in which Presiding Judge Brearcliffe and Judge Kelly concurred.

OPINION

ECKERSTROM, Judge:

¶1 In this automobile insurance coverage dispute, Date Street Capital, LLC appeals from the superior court's dismissal of its complaint for failure to state a claim. For the following reasons, we vacate the dismissal and remand for further proceedings consistent with this opinion.

Factual and Procedural Background

¶2 We view the facts in the light most favorable to Date Street, the non-moving party. Mirchandani v. BMO Harris Bank , 235 Ariz. 68, ¶¶ 2, 7, 326 P.3d 335 (App. 2014). In so doing, we "accept the well pled facts alleged in the complaint as true." Id. ¶ 7.

¶3 In February 2019, Sonya Leeds bought a car, financed by Date Street, the secured lienholder. The car served as collateral for the loan. In the purchase agreement, Leeds agreed to obtain insurance on the car that would specifically identify Date Street as a loss payee. Leeds further agreed that she had arranged for such insurance and had instructed the insurance agent to include a loss-payable endorsement in favor of Date Street. Leeds obtained an insurance policy through Clearcover Insurance Company.

¶4 In October 2020, the car was damaged. Leeds filed an insurance claim, which Clearcover denied, claiming the policy was null and void from its inception and rescinding the policy. As grounds, Clearcover stated that Leeds had left herself off as a listed driver and taken the policy out in the name of her ex-husband, despite the fact that he was in prison at the time and not scheduled to be released until March 2021. Consequently, Clearcover denied all coverage, including Leeds's claim relating to the October 2020 loss.

¶5 In May 2022, Date Street filed this action, naming Clearcover as the defendant and seeking a judicial declaration of its rights and interests in the insurance policy and the claim relating to the loss of the car. After full briefing, the superior court granted Clearcover's motion to dismiss for failure to state a claim. See Ariz. R. Civ. P. 12(b)(6). The court concluded that Date Street has no legal interest in the matter as lienholder to a vehicle with a rescinded insurance policy. It further reasoned that Date Street has no interest in the claim because it is not in privity of contract with Clearcover, and thus Date Street lacks standing to directly bring suit against the insurance company. The court entered final judgment in January 2023.

¶6 Date Street timely appealed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).

Discussion

¶7 Date Street argues dismissal was erroneous because: (1) the superior court failed to determine the nature of the loss-payable clause in the insurance contract; (2) privity does exist between Date Street and Clearcover; (3) Date Street is entitled to declaratory relief; and (4) the court improperly considered materials outside the pleadings without converting the motion to dismiss to a motion for summary judgment, as required by Rule 12(d), Ariz. R. Civ. P. We review de novo an order dismissing a complaint for failure to state a claim. Abbott v. Banner Health Network , 239 Ariz. 409, ¶ 7, 372 P.3d 933 (2016). Because our factual review differs between appeals from Rule 12(b)(6) dismissals and those from grants of summary judgment, we turn first to the issue of whether the court properly considered evidence outside the pleadings before granting dismissal under Rule 12(b)(6). Compare Cullen v. Auto-Owners Ins. Co. , 218 Ariz. 417, ¶ 7, 189 P.3d 344 (2008) (on Rule 12(b)(6) motion, "Arizona courts look only to the pleading itself" and must "assume the truth of the well-pled factual allegations and indulge all reasonable inferences therefrom") with Workman v. Verde Wellness Ctr., Inc. , 240 Ariz. 597, ¶ 16, 382 P.3d 812 (App. 2016) (summary judgment appropriate when only one inference may be drawn from undisputed material facts).

I. Conversion to Motion for Summary Judgment

¶8 Date Street argues the superior court improperly relied on evidence extraneous to the complaint by considering Clearcover's recission letter, attached as an exhibit to its motion to dismiss, and the purchase agreement between Leeds and Date Street, attached to Date Street's response. With few exceptions, if on a motion to dismiss under Rule 12(b)(6), "matters outside the pleadings are presented to, and not excluded by, the court, the motion must be treated as one for summary judgment under Rule 56." Ariz. R. Civ. P. 12(d) ; see also Coleman v. City of Mesa , 230 Ariz. 352, ¶ 9, 284 P.3d 863 (2012). In such cases, "[a]ll parties must be given a reasonable opportunity to present all the material that is pertinent to the motion." Ariz. R. Civ. P. 12(d).

¶9 In determining whether a motion to dismiss must be converted into one for summary judgment under Rule 12(d), "the element that triggers the conversion ... is a challenge to the sufficiency of the pleader's claim supported by extra-pleading material." Brosie v. Stockton , 105 Ariz. 574, 576, 468 P.2d 933, 935 (1970) (quoting 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1366 (1st ed. 1969) ). Thus, the conversion rule is inapplicable when a court does not rely on the extra-pleading material in its ruling or when the material is an official public record. Strategic Dev. & Constr., Inc. v. 7th & Roosevelt Partners, LLC , 224 Ariz. 60, ¶¶ 8, 13, 226 P.3d 1046 (App. 2010). Nor is summary judgment conversion required when a motion to dismiss attaches "extraneous matters [that] neither add to nor subtract from the deficiency of the pleading." Id. ¶ 8 (quoting Brosie , 105 Ariz. at 576, 468 P.2d at 935 ). Likewise, materials that, "although not appended to the complaint, are central to the complaint" may be considered without conversion. Id. ¶ 14 (rationale underlying conversion rule is that "plaintiff must be given an opportunity to respond" when Rule 12(b)(6) motion includes material extraneous to complaint, but "purpose is not served" when motion cites document central to complaint because plaintiff obviously on notice of contents of such document); but see Workman , 240 Ariz. 597, ¶ 13, 382 P.3d 812 (noting Arizona Supreme Court has suggested disapproval of this exception).

¶10 Date Street's complaint referenced the purchase agreement, the document it eventually attached to its response in opposition to dismissal. That document therefore falls within the "central to the complaint" exception to the conversion rule, as Date Street undisputedly had notice of its contents. Strategic Dev. & Constr. , 224 Ariz. 60, ¶ 14, 226 P.3d 1046.

¶11 But Date Street's complaint did not reference the recission letter attached to Clearcover's motion to dismiss, nor did it assert or acknowledge any of the factual assertions contained in that letter. Rather than taking as true the complaint's allegation that Leeds had obtained an insurance policy protecting Date Street's secured interest through a loss-payable clause, the superior court instead gave credence to assertions contained in the letter, which was not included in the complaint but rather attached to Clearcover's motion to dismiss. The court then expressly relied on these assertions in granting Clearcover's motion to dismiss. For example, the court noted that because Leeds had fraudulently obtained the insurance policy, it was "properly rescinded." The court therefore concluded that the complaint failed to state a claim because Date Street has "no legal interest in the matter," as "a lienholder to a vehicle with a rescinded insurance policy."

¶12 In so concluding, the superior court improperly relied on factual assertions not contained in the complaint, which were "necessary to support its rationale for dismissal." Workman , 240 Ariz. 597, ¶ 10, 382 P.3d 812 (quoting Belen Loan Invs., LLC v. Bradley , 231 Ariz. 448, ¶ 7, 296 P.3d 984 (App. 2012) ). This is the sort of reliance on material, extrinsic documents that Rule 12(d) seeks to prevent. See Strategic Dev. & Constr. , 224 Ariz. 60, ¶ 8, 226 P.3d 1046. The court therefore erred in failing to convert the motion to dismiss into one for summary judgment. See Workman , 240 Ariz. 597, ¶¶ 11, 13, 382 P.3d 812 ; see also Ariz. R. Civ. P. 12(d).

¶13 Such error, however, is not necessarily reversible. Because appellate courts review a grant of summary judgment de novo, Ariz. Elec. Power Coop., Inc. v. DJL 2007 LLC , 246 Ariz. 534, ¶ 29, 443 P.3d 24 (App. 2019), in some cases it is appropriate for us to review the record and determine whether summary judgment would have been proper had the motion properly been converted from a motion to dismiss, see, e.g. , Blanchard v. Show Low Plan. & Zoning Comm'n , 196 Ariz. 114, ¶¶ 11, 44, 993 P.2d 1078 (App. 1999) (treating superior court's grant of motion to dismiss as one for summary judgment and reviewing record under summary judgment standards where parties stipulated to consideration of evidence extrinsic to complaint, ultimately affirming dismissal).

¶14 Such a determination on this record would be improper because Date Street received no opportunity to discover or present evidence to rebut the allegations raised by Clearcover's motion to dismiss and the recission letter. See Ariz. R. Civ. P. 12(d) ; see also Young v. Rose , 230 Ariz. 433, ¶¶ 25, 28-30, 286 P.3d 518 (App. 2012) (appellate court's resolution of superior court's ruling under summary judgment standards improper when determination of legal matters...