Angus Medical Co. v. Digital Equipment Corp.

• Decision Date: 31 March 1992
• Docket Number: CA-CV,No. 1,1
• Citation: 173 Ariz. 159,840 P.2d 1024
• Parties: , 17 UCC Rep.Serv.2d 724 ANGUS MEDICAL COMPANY, an Arizona Corporation, d/b/a Summit Software, Plaintiff-Appellant v. DIGITAL EQUIPMENT CORPORATION, a Massachusetts corporation, Defendant-Appellee. 90-059.
• Court: Arizona Court of Appeals

Page 1024

840 P.2d 1024

173 Ariz. 159, 17 UCC Rep.Serv.2d 724

ANGUS MEDICAL COMPANY, an Arizona Corporation, d/b/a Summit Software, Plaintiff-Appellant v. DIGITAL EQUIPMENT CORPORATION, a Massachusetts corporation, Defendant-Appellee.

No. 1 CA-CV 90-059.

Court of Appeals of Arizona,

Division 1, Department B.

March 31, 1992.

Reconsideration Denied June 15, 1992.

Review and Cross-Petition for

Review Denied Dec. 1, 1992.

[173 Ariz. 160] Rake, Copple, Downey & Black, P.C. by Lynn M. Roseberry, Phoenix, for plaintiff-appellant.

Fennemore Craig by Roger T. Hargrove, Phoenix, for defendant-appellee.

OPINION

LANKFORD, Judge.

The plaintiff, Angus Medical Company ("Angus"), filed its complaint on January 27, 1987, against defendant Digital Equipment Corporation ("Digital") alleging claims for breach of contract, breach of warranties, negligence, fraud, and an accounting. The complaint arose from a series of agreements signed in early 1983 between Angus and Digital in which Digital undertook to convert Angus's software programs to operate on Digital personal computers.

Digital filed a motion to dismiss the entire complaint. The superior court subsequently dismissed Angus's claim for consumer fraud. Digital filed a motion for summary judgment against the remaining claims. The superior court granted the motion based on the statute of limitations, entered judgment, and awarded attorneys' fees to Digital. After the court entered an order denying Angus's motion for reconsideration and for a new trial, Angus appealed to this court from the order and from the judgment.

Two issues are involved in this appeal:

(1) When did Angus's cause of action against Digital accrue?

(2) Is the contract term shortening the otherwise applicable statutes of limitation to eighteen months a bar to Angus's complaint?

I.

On March 29, 1983, Dr. Richard P. Jacoby, president of Angus, signed a "Work Statement for Advisory Consulting" (Work Statement) submitted by Digital. This document contained an estimate of time necessary to "convert existing 'Alphamicro' software to run on a Digital PC-350." The document included the following language on the signature page: "I have reviewed the attached work statement prepared for Summit Software and agree to its contents. I also have read and agree to Digital's Software Services Terms and Conditions."

On May 5, 1983, Mr. Rick Kelly, software manager for Angus, signed another document, a quotation of costs ("Quotation") estimated at $24,000. On this document appeared the following words: "Purchaser should not execute this contract offer unless the applicable set of terms and conditions are attached to the Quotation or unless a discount agreement is filled in above." No discount agreement had been filled in. The quotation document also stated:

Purchaser hereby agrees that it has read the applicable terms and conditions, understands them, and agrees to be bound by same.

1. Software Professional Services Terms and Conditions

Several weeks later, Digital wrote a letter to Mr. Kelly that for the first time presented to Angus the Terms and Conditions form. The form, unlike either the Work Statement or the Quotation, did not contain a signature line or a space in which the parties could initial or otherwise indicate their assent to the particular provisions. The Digital letter stated in part:

[T]he following change has been made to facilitate processing:

Only Digital Professional Software Services Terms and Conditions apply (copy attached).

We will continue to process your order with the above agreed change unless the undersigned is immediately advised to the contrary, but in any event within 10 days of the date of this notice.

Upon reading the attached Terms and Conditions form, Mr. Kelly became concerned about a term that purported to give Angus a license to software first made by Digital. Angus already held a copyright on the software being used in the conversion project. In his affidavit, Mr. Kelly stated he called Mr. Sambrone, a Digital salesperson, and was told that the "Terms and Conditions [form] was a boilerplate mailing that [came] out automatically and did not apply" to Angus.

Paragraph 13 of the Terms and Conditions form contained language critical to the summary judgment entered by the superior court. It disclaimed all warranties, limited the property damage caused by Digital's fault or negligence to $100,000, and stated that "[a]ny action against Digital must be brought within eighteen (18) months after the cause of action accrues."

Digital began delivery of the new software in December, 1983. Angus, who in turn provided the software to medical offices for use in billing and other matters, almost immediately began receiving complaints from its customers that the software was not operating correctly. Angus stopped payment on a check to Digital in the amount of $30,000. Angus's customers continued to complain to Angus, and Angus relayed the complaints to Digital. In March, 1984, Angus wrote to Digital that it was sustaining lost sales in the range of $100,000 per month as a result of the software problems. Again in October, 1984, Angus wrote to Digital about continuing problems and its unhappiness with the software conversion.

On December 10, 1984, after apparently fruitless negotiations with Angus, Digital notified Angus by letter that Digital believed it had met its contractual obligations to Angus. In light of Angus's failure to provide payment in full for the rendered services, Digital declined "any further business involvement" with Angus.

Early in 1984, Angus had contacted two computer consulting firms in an attempt to repair or fix the conversion project. Both firms apparently concluded that the software needed to be rewritten to work properly. Dr. Jacoby, Angus's president, disregarded the advice because he felt that the consultants had a financial incentive for urging a complete rewrite. In January, 1985, Angus acquired a new general partner, Vortec. After the latter spent approximately nine months working on the software, Vortec concluded that Digital had indeed failed to convert the software to correctly function on the Digital computers. Angus filed its complaint against Digital on January 27, 1987.

II.

Summary judgment is appropriate if, from the pleadings, depositions, answers to interrogatories, requests for admissions, and affidavits, the superior court can find no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Ariz.R.Civ.P. 56(c). On appeal from the entry of summary judgment, this court must view the facts in the light most favorable to the party opposing the judgment and give that party the benefit of all favorable inferences that may reasonably be drawn from those facts. Schroeder v. Hudgins, 142 Ariz. 395, 396-7, 690 P.2d 114, 115-6 (App.1984). This court has also held that:

Any evidence or reasonable inference contrary to the material facts--i.e. the facts which the moving party needs to show his entitlement to judgment--will preclude summary judgment. Mere speculation or insubstantial doubt as to the facts will not suffice, but where the evidence or inferences would permit a jury to resolve a material issue in favor of either party, summary judgment is improper.

United Bank of Arizona v. Allyn, 167 Ariz. 191, 195, 805 P.2d 1012, 1016 (App.1990) (citations omitted). Our determination of whether the entry of summary judgment was proper is essentially de novo. Id.

III.

We first consider whether a genuine issue of material fact exists as to the date the cause of action accrued. A tort action accrues when the plaintiff knows or in the exercise of reasonable diligence should know of the defendant's negligent conduct. See Sato v. Van Denburgh, 123 Ariz. 225, 227, 599 P.2d 181, 183 (1979). The applicable statute of limitations, absent an enforceable agreement between the parties, is two years. Ariz.Rev.Stat.Ann. (hereafter cited as A.R.S.) § 12-542. A cause of action on a written contract accrues at the time of breach. Beaudry Motor Co. v. New Pueblo Constructors, 128 Ariz. 481, 626 P.2d 1113 (App.1981). Absent an enforceable agreement to the contrary, the applicable statute of limitations is six years. A.R.S. § 12-546.

Angus asserted both tort and contract claims in its complaint against Digital. However, it did not file suit until January, 1987. It argues that the delayed filing is not fatal because it neither knew nor had reason to know until late in 1985 (when Vortec diagnosed the software malfunctions as Digital's fault) that Digital was responsible. Thus in its view, the cause of action for its tort and contract claims did not accrue until late 1985, and the complaint was filed within both the two-year statute of limitations for tort and the six-year period for suit on a written contract.

Digital argued below that the eighteen-month limitation term in the Terms and Conditions form bars Angus's claims in both tort and contract. The superior court apparently agreed. It found that Angus's cause of action accrued after Digital severed its relations with Angus in December, 1984 because "Angus could not reasonably have believed that [Digital] would take further actions to remedy the software problem."

The evidence confirms the superior court's determination that Angus knew or should have known that it had a cause of action against Digital long before the end of 1985. Angus had stopped payment on its check to Digital in December, 1983, on the ground that Digital had not done what it had promised to do under the contract. Angus had repeatedly complained to Digital about the software problems and had tried to persuade Digital to correct them. Angus also threatened legal action against Digital in 1984. In addition, early in 1984 Angus had hired two computer consultants, both of whom concluded Digital's work needed a complete re-write in order for the software to function properly. ¹

These actions and statements leave...