Martin v. Sec. State Bank

2021 WY 106

WILLIAM K. MARTIN and CONSOLIDATED REALTY GROUP, INC., a Utah corporation, Appellants (Plaintiffs), v. SECURITY STATE BANK, a Wyoming corporation; WAYMAN LAND & LIVESTOCK, LLC; RICHARD KEHOE WAYMAN and PAULETTE WAYMAN, Appellees (Defendants).

No. S-21-0049

Supreme Court of Wyoming

September 30, 2021

Appeal from the District Court of Big Horn County The Honorable Bill Simpson, Judge

Representing Appellants: Richard R. Thomas, Smith LC, Mesa Arizona. Argument by Mr. Thomas.

Representing Appellee, Security State Bank: James R. Belcher Crowley Fleck PLLP, Casper, Wyoming. Argument by Mr. Belcher.

Representing Appellees, Wayman Land & Livestock, LLC, Richard Wayman, and Paulette Wayman: No appearance.

Before FOX, C.J., and DAVIS, KAUTZ, BOOMGAARDEN, and GRAY, JJ.

FOX CHIEF JUSTICE

[¶1] William K. Martin loaned his friends, Richard and Paulette Wayman, $100, 000 to make a down payment on a ranch. The Waymans defaulted on their mortgage and the lender, Security State Bank (SSB), sold the property at a foreclosure sale. The Waymans never repaid Mr. Martin. In an effort to recover the $100, 000 down payment, Mr. Martin sued SSB asserting a first priority equitable lien on the ranch property. The district court granted summary judgment in favor of SSB. Mr. Martin appealed, arguing there are genuine issues of material fact regarding the existence and priority of an equitable lien, and that the district court improperly converted a Rule 12 motion to dismiss into a Rule 56 motion for summary judgment. We affirm.

ISSUES

[¶2] Mr. Martin raises several issues, but the first two are dispositive. We rephrase them as follows:

I. Did the district court erroneously convert SSB's motion to dismiss into a motion for summary judgment?

II. Did the district court err when it determined that, even if Mr. Martin had an equitable lien, there is no genuine issue of material fact regarding SSB's superior priority mortgage on the ranch property?

FACTS

[¶3] We view the record in the light most favorable to Mr. Martin. James v. James, 2021 WY 96, ¶ 23, 493 P.3d 1258, ___ (Wyo. 2021) (quoting Candelaria v. Karandikar, 2020 WY 140, ¶ 11, 475 P.3d 548, 551 (Wyo. 2020)). In late 2014, William K. Martin loaned his friends, Richard and Paulette Wayman, $100, 000 to use as an earnest money down payment on a ranch in Big Horn County, Wyoming. In return, the Waymans orally promised Mr. Martin a lien on the ranch. The email Mr. Wayman sent memorializing the loan agreement, however, does not mention a lien.^[1] In early 2015, the Waymans obtained a mortgage from SSB for the rest of the purchase price, around $2.5 million, and SSB perfected its lien by recording the mortgage in the real estate records. Mr. Wayman told SSB he borrowed the down payment from Mr. Martin but did not indicate that he had promised Mr. Martin a lien against the ranch to secure the loan. The loan was redocumented in 2017. The loan documents signed by the Waymans state they will do whatever necessary to protect SSB's security interest against other claims. The corporate president/chief credit officer also submitted an affidavit which stated SSB required its loans to be first priority.

[¶4] On May 29, 2018, Mr. Martin recorded a lien statement with the county clerk for the first time. The Waymans defaulted on the mortgage, and SSB gave notice of its intent to foreclose on the ranch in July 2018. In August 2018, Mr. Martin sued the Waymans personally for breach of contract, alleging they had not repaid the $100, 000 loan as required, and he received a default judgment. In 2019, SSB held a mortgage foreclosure sale at which it purchased the ranch. In July 2020, Mr. Martin filed the current action seeking a declaratory judgment finding: 1) he has an equitable lien, equitable mortgage, or equitable purchase money mortgage on the property; 2) that SSB's foreclosure notice violated the controlling statute; and 3) asking the court for an injunction preventing SSB from disposing of any portion of the ranch. He also sought judicial foreclosure of his equitable lien on the property and a judgment of $100, 000 plus interest. SSB filed a combined motion to dismiss and motion for summary judgment. The district court converted the entire motion to a motion for summary judgment and granted summary judgment in favor of SSB. Mr. Martin appealed.

DISCUSSION

[¶5] Whether the district court properly converted SSB's combined motion to dismiss and motion for summary judgment into a motion for summary judgment is a threshold question that determines our standard of review for the substantive issue presented in this appeal. Inman v. Boykin 2014 WY 94, ¶ 11, 330 P.3d 275, 279 (Wyo. 2014).

I. Mr. Martin Had Notice the District Court Was Going to Consider the Motion under the Summary Judgment Standard

[¶6] SSB filed a combined motion to dismiss and motion for summary judgment to which it attached nearly 100 pages of exhibits-including but not limited to affidavits. Mr. Martin responded to the motion and attached nearly forty pages of his own exhibits. In its decision, the district court noted that both parties attached numerous documents to their pleadings, and it considered those documents in reaching its decision, therefore the court "review[ed] the case under the rules regarding motions for summary judgment."

[¶7] If a party presents matters outside the pleadings in a Rule 12(b)(6) or (c) motion to dismiss, and the court considers them, "the motion must be treated as one for summary judgment under Rule 56." W.R.C.P. 12(d). If the court considers affidavits, the conversion is automatic. Inman, 2014 WY 94, ¶ 15, 330 P.3d at 280. If the court considers materials other than affidavits, it "may still treat the motion as one for summary judgment, but the record must demonstrate that the parties had notice of the conversion and that the nonmovant had an opportunity to respond." Id. (quoting Ridgerunner, LLC v. Meisinger, 2013 WY 31, ¶ 7, 297 P.3d 110, 113 (Wyo. 2013)).

The conversion of a Rule 12(b)(6) motion into a summary judgment need not be by written order, but the record must adequately demonstrate that all counsel were aware of the intentions of the district judge to treat the motion as converted, together with a reasonable opportunity afforded to the non-moving party to present, by way of affidavit or otherwise, anything necessary to rebut the contention of the moving party.

Torrey v. Twiford, 713 P.2d 1160, 1163 (Wyo. 1986) (cleaned up) (quoting Kimbley v. City of Green River, 642 P.2d 443, 445 (Wyo. 1982)). This approach follows the many federal court cases that have excused "the absence of formal notice . . . when it is harmless or when the parties were otherwise apprised of the conversion or the likelihood of conversion by less formal or direct means and, in fact, had a sufficient opportunity to present the materials relevant to a summary judgment motion." 5C Fed. Prac. & Proc. Civ. § 1366 (3d ed.), Westlaw (database updated April 2021); Arnold v. Air Midwest, Inc., 100 F.3d 857, 859 n.2 (10th Cir. 1996) ("Notice to the parties is required to prevent unfair surprise when a judge converts a 12(b)(6) motion into a Rule 56 motion. . . . Because Mr. Arnold submitted material beyond the pleadings in opposition to defendant's motion, he is scarcely in a position to claim unfair surprise or inequity.").^[2]

[¶8] While the district court did not give formal notice of its intent to convert the motion, Mr. Martin had plenty of notice that the court would decide it under the summary judgment standard. SSB attached numerous documents to its initial motion. In his response to SSB's motion, Mr. Martin set forth the summary judgment standard as one of the legal standards, asserted, "[f]or the reasons that follow, SSB is not entitled to summary judgment," analyzed SSB's arguments under both the 12(b)(6) and summary judgment standards, and attached documents of his own. Further, at the hearing on SSB's motion, counsel for SSB stated: "[A]t the time that [SSB] filed its original motions, it did file a Motion to Dismiss. . . . But, . . . because [SSB] has applied . . . factual information, it's going to ask that the Court consider its arguments . . . on a Motion for Summary Judgment." Mr. Martin did not object to SSB's request or argue he did not have sufficient notice to respond to SSB's attachments. Rather, he implicitly agreed to the summary judgment standard when he started his argument by asking the court to strike the arguments SSB made in its reply brief because "[i]t is improper to raise summary judgment arguments like that for the first time on a Reply Brief" and by making factual arguments to the court.

[¶9] On appeal, Mr. Martin argues that he did not have notice the district court would consider the equitable lien and priority issues under the summary judgment standard. However, in addition to his general assertion that SSB was not entitled to summary judgment on any of its arguments, he specifically responded to the equitable lien and priority issues by discussing disputed facts and referencing multiple documents attached to his response as support. Further, at the hearing on SSB's motion, Mr. Martin argued that there was a factual question regarding the establishment of an equitable lien and then discussed the facts at issue in support of his position. Mr. Martin had notice that the court would decide the motion under the summary judgment standard, had the opportunity to present documentation to counter SSB's motion, and did present documentation in support of his position. The district court did not erroneously convert the motion.

[¶10] SSB requests this Court certify Mr. Martin had no reasonable cause for appeal on this issue and award its reasonable attorney fees pursuant to Wyoming...