Appeal from the Superior Court of the State of Alaska, First Judicial District, Juneau, Larry R. Weeks, Judge.
FABE, Justice, with whom COMPTON, Chief Justice, joins, Dissenting.
The superior court converted a motion for judgment on the pleadings to a motion for summary judgment and granted the motion without advance notice of the conversion. The question in this case is whether this was reversible error. We answer in the affirmative, because the opposing party was not given a reasonable opportunity to oppose the motion as a motion for summary judgment.
II. FACTS AND PROCEEDINGS
In order to impart an understanding of what occurred, it is necessary to describe the proceedings below in some detail. In this class action, certain shareholders of the Angoon village corporation, Kootznoowoo, Inc., challenge the corporation's practice of paying the travel costs of shareholders who are employed as longshoremen by a joint venturer of the corporation at a distant site. The complaint was initially filed in May 1995 and amended on June 30, 1995. The complaint contained five substantive causes of action: first, that the payments were discriminatory dividends in violation of AS 10.06.305(b) and AS 10.06.313; second, that the payments de facto created a class of preferred shares without the preferences being specified in the articles of incorporation in violation of AS 10.06.308; third, that the payments violated the common law equal treatment rule; fourth, that the payments amounted to waste and illegal gifting of corporate assets; and fifth, that the payments were "ultra vires."
Kootznoowoo answered the first amended complaint on July 12, 1995, and moved for judgment on the pleadings on August 2, 1995. It stated two grounds to support its motion for judgment on the pleadings: first, "the gravamen of Plaintiffs' complaint is in the nature of a derivative action where the alleged injured party is the Corporation"; and second, the plaintiffs were required to join the longshoremen as defendants under Civil Rule 19. This appeal concerns only Kootznoowoo's first theory for summary judgment, the gravamen argument. In its supporting memorandum, Kootznoowoo focused on the complaint's allegations that the challenged payments were corporate waste and ultra vires. It argued that plaintiffs' claims "do not constitute a class action"; instead they "are in the nature of a shareholders['] derivative action to recover alleged wrongs against the Corporation." It went on to contend that the prerequisites for bringing a derivative action had not been met.
Two days after moving for judgment on the pleadings, Kootznoowoo moved for partial summary judgment, seeking a declaration that the two-year statute of limitations contained in AS 09.10.070 governed the claims asserted in the amended complaint. On August 2, 1995, Kootznoowoo moved to change venue from Petersburg to Juneau. In support of this motion, Kootznoowoo filed lengthy affidavits of Gerald J. Engel and Robert E. Manning. The Engel affidavit, among other things, described in detail the circumstances surrounding the challenged payments. These affidavits were explicitly submitted only to support Kootznoowoo's motion for change of venue, but their subject matter went beyond venue issues.
In plaintiffs' response to Kootznoowoo's motion for judgment on the pleadings, filed August 21, 1995, they argued that the gravamen of the suit was the payment of discriminatory dividends, and they filed a lengthy memorandum of law arguing that the remedy for the payment of discriminatory dividends is a direct rather than a derivative action.
In its reply filed September 5, 1995, Kootznoowoo summarized plaintiffs' allegations and inserted a long footnote which quoted extensively from the Engel affidavit "to clarify the nature of the expenditures." Kootznoowoo then turned to plaintiffs' allegations that the payments were discriminatory dividends, and argued that plaintiffs' characterization was not controlling. Instead, the court could determine "by viewing the complaint taken as a whole" that the gravamen of the plaintiffs' complaint was that the corporation had been injured by the payments, and that the plaintiffs had alleged "no direct loss or injury apart from the diminution in the value of their stock due to the injury to the Corporation . . . ." Kootznoowoo's argument thus continued to focus on the pleadings. It did not integrate into its argument the factual averments of the Engel affidavit concerning the travel payments.
At the outset of the oral argument on the motion for judgment on the pleadings, held December 5, 1995, counsel for Kootznoowoo announced that the motion for judgment on the pleadings should be converted to a motion for summary judgment under Rule 56 because of the Engel and Manning affidavits. Kootznoowoo argued that the affidavits set forth undisputed facts. In response, the plaintiffs asserted that the evidence was controverted. They requested the opportunity to take the depositions of Engel and Manning, and to question them with regard to their affidavits. 1
After oral argument the court recessed briefly, then reconvened and announced its decision. The court stated, "I'm dealing with the motion as if it were a motion for summary judgment." The court then ruled that the challenged distributions were not dividends. "I don't think that there is anything in the record to suggest that there were dividends. I don't think that there's anything in the record to suggest that it was discriminatory."
After announcing its ruling, the court asked co-counsel for the plaintiffs if they had any questions. Counsel began what appeared to be an objection to the ruling on the basis that it concerned the merits rather than the issues raised by "defendant's narrow motions." Counsel's statement was terminated by the court, which repeated its request for questions, implying that it would not entertain objections. 2
A. The Superior Court Committed Reversible Error by Converting Kootznoowoo's Motion for Judgment on the Pleadings to a Motion for Summary Judgment without Giving the Plaintiffs Notice and an Opportunity to Oppose the Motion as a Motion for Summary Judgment.
1. The superior court properly converted the motion for judgment on the pleadings to a motion for summary judgment when it considered matters outside of the pleadings.
Alaska Civil Rule 12(c) provides in part: If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
In Martin v. Mears, 602 P.2d 421 (Alaska 1979), we interpreted language in Civil Rule 12(b), which is similar to the language in Civil Rule 12(c), regarding what the trial court should do when matters outside the pleadings are presented. We stated:
The terms of Rule 12(b) make conversion mandatory whenever matters outside the pleadings "are presented to and not excluded by the court." In this regard, "[t]he court has complete discretion to determine whether or not to accept any material beyond the pleadings that is offered in conjunction with a Rule 12(b)(6) motion." If the trial court exercises its discretion to exclude such outside materials, conversion is not required, and the motion is then to be decided as a Rule 12(b)(6) motion.
We deem it of significance that Civil Rule 12(b)(6) requires the trial court affirmatively to exclude outside materials if it does not consider the conversion of a Rule 12(b)(6) motion to one for summary judgment to be desirable. Therefore, in the future all trial courts must expressly state whether they have in fact excluded or considered such materials in reaching their decisions. In the instant case the superior court was under a mandatory duty to treat Mears' 12(b)(6) motion "as one for summary judgment and [dispose of it] as provided in Rule 56" after giving the parties a "reasonable opportunity to present all material made pertinent to such a motion by Rule 56."
1. Counsel stated: Good afternoon, your honor. May it please the court, a few responses to defendant Kootznoowoo's position. The evidence is controverted. Defendant Kootznoowoo has stonewalled us on discovery, and we would like to take the depositions of Mr. Engel and Mr. Manning, and question them with regard to their affidavits. With regard to the business judgment rule, it's not properly before the court. It was introduced by defendant Kootznoowoo in a reply brief, and the universal practice, of course, is that new issues and new matters cannot be raised in a reply brief. Were we to argue against it, we would contravene the evidence of defendant Kootznoowoo. At least four of these directors that we know of have members of their immediate families who benefit from this program of discriminatory travel subsidies. These travel subsidies are paid with respect to shareholding. It's important to note that the recipients of these subsidies are not employees of Kootznoowoo. They're employees of another corporation. . . .
2. The full colloquy between the court and counsel on this point is as follows: The Court:Do you have questions about the ruling, Mr. Triem [co-counsel for plaintiffs]? Mr. Triem: Yes, your honor. I understand the ruling, but it occurs to me that the oppositions that were filed and the Affidavit of Representative Parties that I filed on behalf of the plaintiffs addressed only the three topics that were before it, and not the merits of the case itself. In other words, I did not interpret the defendant's narrow motions for . . . . Do you have questions about the ruling, Mr. Triem? Mr. Nichols [counsel for Kootznoowoo], questions about the ruling? Mr. Nichols: No, your honor. I don't find that it's any material issue of fact on those issues. Court will be in recess.
3. Plaintiffs have not shown that they are entitled to such relief, however.
4. In the trial court, the plaintiffs opposed Kootznoowoo's motion for oral argument of the following motions: Kootznoowoo's motion for judgment on the pleadings; its motion for partial summary judgment (statute of limitations); plaintiffs' motion for class certification; and their motion to strike Kootznoowoo's opposition to class certification. In their opposition, plaintiffs stated that the "admissions contained in these two affidavits [Engel and Manning] and in Kootznoowoo's documents (corporate memoranda, letters, newsletters, and directors' minutes) are all the court needs to decide the merits of this case." (Emphasis added.) The plaintiffs' use of the term "admissions" suggests that in the trial court as well, plaintiffs meant only that the affidavits and other materials showed that plaintiffs were entitled to the relief they sought on their motions (relating to class certification). From the standpoint of Kootznoowoo as a movant, the affidavits and other materials were not admissions. See Evidence Rule 801(d)(2) (admissions are statements of party opponent or party opponent's representative offered against party opponent). Thus the plaintiffs did not concede in this pleading the absence of genuine issues of material fact, especially since Kootznoowoo had not yet sought summary judgment.
5. Civil Rule 56(f) provides: Should it appear from the affidavits of a party opposing the motion that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just.
6. We note our agreement with two recent federal circuit cases on Rule 12(c) conversions having certain factual similarities: Whiting v. Maiolini, 921 F.2d 5 (1st Cir. 1990) (motion for judgment on pleadings initially accompanied by outside evidence; movants gave express notice of intended conversion in reply brief, four days before summary judgment granted; held: no reasonable opportunity to respond; court stressed that discovery was in early stages); and Krijn v. Pogue Simone Real Estate Co., 896 F.2d 687 (2d Cir. 1990) (motion for judgment on the pleadings accompanied by affidavits stressed jurisdictional issues, but contained merits claim; opposition including affidavit focused on jurisdictional issues, also discussed merits claim; held following summary judgment: no reasonable opportunity to respond; court relied on primary focus of the motion and opposition).