BMBT, LLC v. Miller , 756 Utah Adv. Rep. 5 ( 2014 )

Memorandum Decision

DAVIS, Judge:

¶ 1 BMBT, LLC challenges the trial court’s ruling granting Defendants’ rule 12(b)(6) motion to dismiss for failure to state a claim. See Utah R. Civ. P. 12(b)(6). We affirm.

¶ 2 On December 1, 2003, Defendants Christopher L. Miller and Gae 0. Miller executed a promissory note (the Note) in favor of BMBT as consideration for a $60,000 loan. As security for the loan, the Millers granted BMBT a “security interest” in certain property located in Lehi, Utah (the Property). On the same day, the Millers signed a quitclaim deed (the Deed) in favor of BMBT, purporting to quitclaim their interest to certain property to be described in an attached document. The first page of the Note was attached to the Deed and included a deseription of the Property.¹ BMBT asserts that the Millers later sold the Property, first to Secure Mechanical, Inc. and then to Alii, LLC, companies belonging to the Millers’ business partners.

¶3 On August 31, 2009, BMBT filed a Complaint against the Millers, Secure Mechanical, and Alii, seeking to quiet title to the Property. As the case proceeded to trial, Secure Mechanical moved to bifurcate and conduct a separate trial on the issue of whether the Deed and the Note conveyed title to BMBT or merely granted BMBT a mortgage in the Property. At the hearing on the motion, the trial court expressed its opinion that the Deed and the Note created a mortgage rather than conveying title and suggested that a motion to dismiss and a motion to amend the complaint might be in order. Defendants immediately moved to dismiss, and BMBT moved for leave to amend.

¶ 4 The trial court dismissed the quiet title claim with prejudice and denied BMBT’s motion for leave to amend. BMBT appeals. “A trial court’s decision granting a rule 12(b)(6) motion to dismiss a complaint for lack of a remedy is a question of law that we review for correctness, giving no deference to the trial court’s ruling.” Oakwood Vill. LLC v. Albertsons, Inc., 2004 UT 101, ¶ 9, 104 P.3d 1226.

¶ 5 BMBT first argues that the trial court erred in considering the Deed and the Note without converting Defendants’ rule 12(b)(6) motion into a motion for summary judgment. “If, on a motion ... to dismiss for failure of the pleading to state a claim upon which 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 summary judgment-” Utah R. Civ. P. 12(b). When a rule 12(b)(6) motion is so converted, the trial court must give the parties a reasonable opportunity to present evidence in accordance with rule 56 of the Utah Rules of Civil Procedure in oi’der to determine whether the motion can be granted as a matter of law. See id. See generally id. R. 56.

¶ 6 Generally, it is reversible error for a trial court to consider and rely on matters outside the pleadings without converting the rule 12(b)(6) motion to a motion for summary judgment. Oakwood Vill., 2004 UT 101, ¶ 12, 104 P.3d 1226. However, our supreme court has held that it is not error for the trial court to consider documents that are “referred to in the complaint and [are] central to the plaintiffs claim,” regardless of whether such documents were actually included with the complaint. Id. ¶ 13 (citation and internal quotation marks omitted). “[I]f the rule were otherwise,” the supreme court explained, “a plaintiff with a deficient claim could survive a motion to dismiss simply by not attaching a dispositive document upon which the plaintiff relied.” Id. (citation and internal quotation marks omitted). Federal courts applying rule 12(d) of the Federal Rules of Civil Procedure, which is substantively identical to the above-quoted provision found in rule 12(b) of the Utah Rules of Civil Procedure, compare Fed.R.Civ.P. 12(d), with Utah R. Civ. P. 12(b), have also held that “[t]he district court may take judicial notice of public records and may thus consider them on a motion to dismiss.” Stahl v. United States Dep’t of Agric., 327 F.3d 697, 700 (8th Cir.2003); see also Grant v. Aurora Loan Servs., Inc., 736 F.Supp.2d 1257, 1263-64 (C.D.Cal.2010) (collecting federal cases that have taken judicial notice of trust deeds and other public records in ruling on motions to dismiss).

¶ 7 In this case, BMBT sought to quiet title to the disputed Property but failed to attach the Deed, which formed the basis of its quiet title claim. Despite BMBT’s failure to explicitly reference the Deed in its complaint, we agree with Defendants that the Deed was fairly considered in conjunction with the rule 12(b)(6) motion because reference to the Deed was implicit in BMBT’s claim of title and the Deed was central to that claim. Furthermore, even assuming that the Note could not fairly be treated as having been referenced by the complaint and being central to BMBT’s claim,² we agree with Defendants that the trial court could take judicial notice of the Note as a public record and properly consider it in ruling on the motion to dismiss.³ Accordingly, we conclude that the trial court did not err in declining to convert Defendants’ motion to dismiss to a motion for summary judgment.

¶ 8 BMBT next asserts that the trial court erred in granting Defendants’ motion to dismiss. The Utah Quiet Title Act precludes the holder of a mortgage from maintaining a quiet title action on the basis of the mortgage: “A mortgage of real property may not be considered a conveyance which would enable the owner of the mortgage to recover possession of the real property without a foreclosure and sale.” Utah Code Ann. § 78B-6-1310 (LexisNexis 2012). However, BMBT maintains that the Deed and the Note are ambiguous as to whether the parties intended to grant BMBT a present possesso-ry interest in the Property or only a mortgage.

¶ 9 Utah subscribes to the lien theory of mortgages, which holds “that a mortgage ... does not vest title in the mortgagee, but merely creates a lien in his favor.” Bybee v. Stuart, 112 Utah 462, 189 P.2d 118, 122-23 (1948). Thus, “[i]t is possible for a party to transfer a ... deed without intending to convey the property.” Winegar v. Froerer Corp., 813 P.2d 104, 110 (Utah 1991). Accordingly, “parol evidence is admissible in equity to show that a deed, although absolute on its face, was intended as a mortgage.” Id. Generally, this is an issue for the fact-finder, who should examine a number of factors in determining the parties’ intent. Hansen v. Kohler, 550 P.2d 186, 189 (Utah 1976).

¶ 10 However, “where ... there is a written agreement between the parties, contemporaneous with the deed, which shows the deed to have been given for security purposes, the court will look to the real transaction, and treat it as a mortgage.” Bybee, 189 P.2d at 122. Where the deed, read in conjunction with the contemporaneous document is unambiguous, resort to parol evidence is unnecessary. See Glauser Storage, LLC v. Smedley, 2001 UT App 141, ¶¶ 21-23, 27 P.3d 565 (excluding parol evidence tending to indicate that a transaction was intended as a mortgage where a contemporaneous agreement unambiguously indicated that the parties intended to convey a present possessory interest rather than a mortgage). The Note was signed on the same day as the Deed, and the first page of the Note was attached to the Deed to provide the description of the Property. The Note unambiguously identified the Property as security for the loan from BMBT to the Millers and even indicated the parties’ intent for the Millers “to actively engage in selling the [PJroperty during the time of [the] contract” to satisfy the Note. Cf. Bybee, 189 P.2d at 122 (holding that the terms of a contemporaneous contract giving the grantor the right to sell the land unambiguously indicated the parties’ intent for ownership to remain with the grantor). We agree with the trial court that, read together, the Deed and the Note unambiguously give BMBT a mortgage in the Property. Because a quiet title claim cannot be based on a mortgage, Utah Code Ann. § 78B-6-1310, the trial court correctly dismissed BMBT’s quiet title claim.

¶ 11 We conclude that the trial court was not required to convert Defendants’ motion to dismiss to a motion for summary judgment and that the trial court correctly granted Defendants’ motion to dismiss. Accordingly, we affirm.

1 . Both the Deed and the Note were recorded in Utah County on November 1, 2006.

2 . Although the first page of the Note was attached to the Deed to provide the description of the Property referenced in the Note, the Note in its entirety was not incorporated by reference as part of the Deed. Though it was a contemporaneous document, it remained separate from the Deed and, standing alone, was not central to BMBT’s claim of title.

3 . The trial court's consideration of the Deed could also be justified by this exception.