Broadband Dynamics, LLC v. Satcom Mktg., Inc.

• Decision Date: 01 March 2018
• Docket Number: No. 1 CA-CV 17-0102,1 CA-CV 17-0102
• Parties: BROADBAND DYNAMICS, LLC, Plaintiff/Appellant, v. SATCOM MARKETING, INC., et al., Defendants/Appellees.
• Court: Arizona Court of Appeals

418 P.3d 1055

BROADBAND DYNAMICS, LLC, Plaintiff/Appellant,

v.SATCOM MARKETING, INC., et al., Defendants/Appellees.

No. 1 CA-CV 17-0102

Court of Appeals of Arizona, Division 1.

FILED March 1, 2018

Wilenchik & Bartness, P.C., Phoenix, By Dennis I. Wilenchik (argued), Co–Counsel for Plaintiff/Appellant

Provident Law, PLLC, Scottsdale, By Christopher J. Charles, Edwin G. Anderson, Co–Counsel for Plaintiff/Appellant

Berke Law Firm, PLLC, Phoenix, By Lori V. Berke (argued), Jody C. Corbett, Counsel for Defendants/Appellees

Judge Paul J. McMurdie delivered the opinion of the Court, in which Presiding Judge Lawrence F. Winthrop and Judge Jennifer B. Campbell joined.

OPINION

McMURDIE, Judge:

¶ 1 Broadband Dynamics, LLC ("Broadband") appeals the superior court's order dismissing its complaint against SatCom Marketing, Inc. and SatCom Marketing, LLC ("SatCom"). We reverse and remand to the superior court, holding that when a written contract provides for obligations that would give rise to both a claim for debt on an open account and a claim for breach of contract, the six-year statute of limitations under Arizona Revised Statutes ("A.R.S.") section 12–548 applies to the claims that are based on damages arising from the breach of contract. Broadband's breach of contract claim was based on obligations provided for in the written contract between the parties, which were separate from the open account obligations, and therefore the superior court erred by barring Broadband's claim under the three-year statute of limitations under A.R.S. § 12–543.

FACTS AND PROCEDURAL BACKGROUND¹

¶ 2 In September 2008, Broadband and SatCom entered a Service Agreement in which Broadband would provide SatCom with dedicated voice and telecommunications services. The term of the Service Agreement was 12 months, with an effective date of October 22, 2008. The agreement provided an automatic 12–month renewal that could be canceled with 90 days' notice prior to the anniversary date. The Service Agreement provided, in relevant part: (1) the parties intended to establish an open account; (2) Broadband would invoice monthly based on usage; and (3) SatCom would pay the amount due by the 21st of the following month. The Service Agreement also provided for liquidated damages as follows:

Termination Charge. If Customer terminates the Agreement without cause, or if Broadband terminates the agreement for cause, Customer will pay their total dollar commitment to Broadband as defined as the term of this agreement or any months remaining in term inclusive of any renewal periods multiplied by the total of the revenue and usage commitments . Customer hereby acknowledges that any termination charges payable under this section are a realistic estimate of the damages Broadband will suffer for the termination.

(Emphasis added).²

¶ 3 In January 2016, Broadband sued SatCom for breach of contract and requested the principal sum, calculated per the Termination Charge, of $100,044.93 ($14,334.43 (revenue commitment) plus $85,710.50 (usage commitment) ), plus interest from April 20, 2011. SatCom moved to dismiss, arguing that Broadband's claim was barred by the three-year limitations period governing open accounts. See A.R.S. § 12–543(2). In response, Broadband argued the six-year limitations period applied because the claim was premised on SatCom's termination of the Service Agreement, not the balance due on an open account. See A.R.S. § 12–548(A)(1). Following supplemental briefing, the superior court agreed with SatCom and dismissed the complaint as time barred, concluding:

[T]he Termination Charge is part of an open account agreement between the same parties and constitutes a penalty for failing to comply with the terms of the open account. In addition, the calculation of the Termination Charge is based upon prior usage or service. In short, the Termination Charge is too intertwined with the services required by the Agreement to treat it as a separate contract.

Following entry of a final judgment, see Ariz. R. Civ. P. 54(c), Broadband timely appealed. We have jurisdiction pursuant to A.R.S. § 12–2101(A)(1).

DISCUSSION

¶ 4 We review the superior court's dismissal of a complaint de novo . Coleman v. City of Mesa , 230 Ariz. 352, 355, ¶ 7, 284 P.3d 863, 866 (2012). We will affirm if the plaintiff is not entitled to relief "under any facts susceptible of proof in the statement of the claim." ELM Ret. Ctr., LP v. Callaway , 226 Ariz. 287, 289, ¶ 5, 246 P.3d 938, 940 (App. 2010) (quoting Mohave Disposal, Inc. v. City of Kingman , 186 Ariz. 343, 346, 922 P.2d 308, 311 (1996) ).

A. Broadband's Claims Were Not Barred by the Three–Year Statute of Limitations in A.R.S. § 12–543.

¶ 5 Broadband argues the superior court erred by applying the three-year statute of limitations to its breach of contract claim. We review de novo the application of a statute of limitations, Watkins v. Arpaio , 239 Ariz. 168, 170, ¶ 7, 367 P.3d 72, 74 (App. 2016), considering the nature of the cause of action and not the form, Redhair v. Kinerk, Beal, Schmidt, Dyer & Sethi, P.C. , 218 Ariz. 293, 298, ¶ 21, 183 P.3d 544, 549 (App. 2008) (citing Atlee Credit Corp. v. Quetulio , 22 Ariz. App. 116, 117, 524 P.2d 511 (1974) ). "The defense of the statute of limitations is not favored by the courts, and where two constructions are possible, the longer period of limitations is preferred." Woodward v. Chirco Const. Co., Inc. , 141 Ariz. 520, 524, 687 P.2d 1275, 1279 (App. 1984), approved as supplemented , 141 Ariz. 514, 687 P.2d 1269 (1984).

¶ 6 The Service Agreement characterizes the parties' agreement as "an open account." An open account is one "where there are running or concurrent dealings between the parties, which are kept unclosed with the expectation of further transactions." Krumtum v. Burton , 111 Ariz. 448, 450, 532 P.2d 510, 512 (1975) (quoting Connor Live Stock Co. v. Fisher , 32 Ariz. 80, 85, 255 P. 996 (1927) ). A cause of action to recover on an open account arises from "a contract between the parties for work done or material furnished." Underhill v. Smith , 23 Ariz. 266, 269, 203 P. 335 (1922). To recover on an open account, the plaintiff must meet its burden to prove "the correctness of the account and each item thereof." Holt v. W. Farm Servs., Inc. , 110 Ariz. 276, 278, 517 P.2d 1272, 1274 (1974). The statute of limitations runs on an open account from the date the last item is charged. Krumtum , 111 Ariz. at 451, 532 P.2d at 513.

¶ 7 Broadband concedes that the Service Agreement created an open account between the parties, and that accordingly, the three-year statute of limitations bars a claim for any unpaid balance on the open account.

However, Broadband contends the Service Agreement is also an enforceable contract, setting forth the duties and liabilities of the parties apart from SatCom's promise to make timely payments, to which the six-year statute of limitations in A.R.S. § 12–548(A)(1) applies. See Connor Live Stock Co. , 32 Ariz. at 85, 255 P. 996. We agree.

¶ 8 "An express contract, which defines the duties and liabilities of the parties, whether it be oral or written, is not, as a rule, an open account." Connor Live Stock , 32 Ariz. at 85, 255 P. 996. The Service Agreement sets forth other obligations that were separate and distinct from SatCom's duty to pay for services provided on the open account. Cf. Flori Corp. v. Fitzgerald , 167 Ariz. 601, 602, 810 P.2d 599, 600 (App. 1990) (action on a guaranty was governed by the six-year limitations period regardless of whether a claim on the underlying open-account debt was barred by the three-year statute of limitations). These included provisions which provided for exclusivity, a 12–month renewable term, monthly access charges and guaranteed minimum usage, and liquidated damages in the event of early termination. These terms are typical of a written contract and do not fall within the definition of an open account. See, e.g. , Underhill , 23 Ariz. at 269, 203 P. 335 (defining an open account as "a contract between the parties for work done or material furnished").

¶ 9 The logic behind an open account's shorter statute of limitations does not support applying it to the contract claim in the instant case. Open accounts are held to the same statute of limitations as an oral debt. A.R.S. § 12–543. The shorter statute of limitations for oral debt "recognizes the inherent difficulties of proving an oral contract," which are frustrated by "evidence that becomes less reliable through passage of time." Kersten v. Cont'l Bank , 129 Ariz. 44, 47, 628 P.2d 592, 595 (App. 1981). Debt evidenced by a written contract, however, is memorialized in writing and therefore afforded a longer statute of limitations. A.R.S. § 12–548(A)(1) ; see Kersten , 129 Ariz. at 47, 628 P.2d at 595. While the Service Agreement between the parties in this case may have characterized itself as establishing an open account, the agreement was memorialized in writing between two sophisticated and represented parties; its terms therefore did not require proof based on the unreliable evidence used to prove an oral agreement.

¶ 10 SatCom counters by arguing Broadband's claim, even for the amount owed under the Termination Charge, is based on a contract that created an open account, and no Arizona authority supports a holding that multiple claims can be asserted by a plaintiff arising from an open account. While no Arizona case is directly on point, our caselaw does acknowledge multiple claims, including a breach of contract claim, being brought in addition to claims for amounts owed on an open account, when both arose from the same agreement. See Am. Power Prods., Inc. v. CSK Auto, Inc. , 235 Ariz. 509, 511, ¶ 2, 334 P.3d 199, 201 (App. 2014) (seller agreed to sell items to buyer on an open account; seller sued buyer for breach of contract and negligent misrepresentation, seeking over $5 million in damages), rev'd on other grounds , 239 Ariz. 151, 367 P.3d 55 (2016) ; Sun World...