Filet Menu, Inc. v. Cheng

• Decision Date: 04 May 1999
• Docket Number: No. B118633,B118633
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 3268, 1999 Daily Journal D.A.R. 4216 FILET MENU, INC., Plaintiff and Appellant, v. Warren CHENG, Defendant and Respondent.

Page 384

84 Cal.Rptr.2d 384

71 Cal.App.4th 1276, 99 Cal. Daily Op. Serv. 3268,

1999 Daily Journal D.A.R. 4216

FILET MENU, INC., Plaintiff and Appellant, v. Warren CHENG, Defendant and Respondent.

No. B118633.

Court of Appeal, Second District, Division 4, California.

May 4, 1999.

Douglas R. Holmes, Santa Fe Springs, for Plaintiff and Appellant.

John R. Sommer, Los Angeles, for Defendant and Respondent.

CURRY, J.

Respondent Warren Cheng demurred to the first amended complaint for breach of contract of appellant Filet Menu, Inc. (hereafter "Filet Menu"), contending that its claims were time-barred. The trial court sustained the demurrer, reasoning that the tolling provisions of Code of Civil Procedure section 351, as applied to the facts alleged concerning Cheng, violated the commerce clause of the federal Constitution. We reverse.

FACTS

Filet Menu's first amended complaint alleges the following facts: Filet Menu is a California corporation whose principal place of business is in California. Cheng is a resident of California, and Steve Chen resides in Bellevue, Washington. Cheng and Chen owned a business named "Cucina California."

On January 4, 1991, Cheng and Chen entered into an agreement entitled "Credit Application and Agreement" with Filet Menu. ¹ On the agreement, Chen stated that his home address was in Bellevue, Washington. The agreement provided: "If customer cancels or breaches all or any part of his pending contracts with Filet Menu, customer agrees to promptly pay a cancellation charge equaling 75% of the total remaining contract balance, which customer agrees is fair and reasonable, although Filet Menu's lost profits from these contracts, which are difficult to ascertain, may be considerably greater than 75%."

Pursuant to this agreement, Cheng, acting on behalf of Cucina California, placed orders with Filet Menu for pizza boxes, handle bags, placemats, assorted napkins, menus, and other items in June and July 1991. Shipments of these items were delivered to Cheng's and Chen's location in Vancouver, Canada. On November 30, 1991, Cheng and Chen refused to pay for the goods shipped and to accept further deliveries.

RELEVANT PROCEDURAL HISTORY

Filet Menu initiated this action against Cheng and Chen on April 8, 1997. On July 24, 1997, Filet Menu filed a first amended complaint (hereafter "complaint"), asserting claims for breach of contract, alter ego liability, account stated, and quantum meruit. The complaint alleged that Cheng and Chen owed Filet Menu $18,570 for the items shipped, as well as $1,007,433 for Filet Menu's loss of profits.

The trial court sustained Cheng's demurrer to the complaint without leave to amend on October 7, 1997, and Filet Menu's action against Cheng was dismissed on October 29, 1997.

DISCUSSION

Filet Menu contends that the trial court erred in sustaining the demurrer without leave to amend. We agree.

A. Standard of Review

"Because a demurrer both tests the legal sufficiency of the complaint and involves the trial court's discretion, an appellate court employs two separate standards of review on appeal. [Citation.] ... Appellate courts first review the complaint de novo to determine whether or not the ... complaint alleges facts sufficient to state a cause of action under any legal theory, [citation], or in other "Second, if a trial court sustains a demurrer without leave to amend, appellate courts determine whether or not the plaintiff could amend the complaint to state a cause of action. [Citation.]" (Cantu v. Resolution Trust Corp., supra, 4 Cal.App.4th at p. 879, fn. 9, 6 Cal.Rptr.2d 151.)

words, to determine whether or not the trial court erroneously sustained the demurrer as a matter of law. [Citation.]" (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879, 6 Cal.Rptr.2d 151, fn. omitted.)

Here, Filet Menu stands on the complaint as alleged, and proposes no amendments. Accordingly, the only question before us is whether the complaint, as alleged, states legally sufficient claims.

B. Section 351

The key issue presented concerns the constitutional soundness of Code of Civil Procedure section 351.

Generally, actions founded upon a written contract are subject to a four-year statute of limitations (Code Civ. Proc., § 337, subd. (1)), and actions in quasi-contract are subject to a two-year statute of limitations (Code Civ. Proc., § 339, subd. (1); 3 Witkin, Cal. Procedure (4th ed. 1996) Actions, § 480, p. 605). However, Code of Civil Procedure section 351 provides that "[i]f, when the cause of action accrues against a person, he is out of the State, the action may be commenced within the term herein limited, after his return to the State, and if, after the cause of action accrues, he departs from the State, the time of his absence is not part of the time limited for the commencement of the action."

Here, the complaint alleges: "Any applicable statute of limitations has been tolled as against defendants including and specifically defendant CHENG because said defendants have been out of the state for a sufficient amount of time to prevent the running of any applicable statute of limitations to and [sic ] including the four-year statute of limitation for breach of a written contract. Defendant CHENG has been a resident of the state of California from 1991 to the present despite various absences. Therefore, Code of Civil Procedure Section 351 will toll the applicable four-year statute of limitation."

In sustaining Cheng's demurrer, the trial court concluded, on the facts as alleged, that (1) the tolling provisions of Code of Civil Procedure section 351 are constitutionally infirm under the commerce clause of the federal Constitution (art. I, § 8, cl.3), and that (2) Filet Menu's claims against Cheng were therefore time-barred. Because Filet Menu does not dispute that its claims are untimely absent tolling, our inquiry is whether section 351 violates the commerce clause on the facts alleged in the complaint. (See Bendix Autolite Corp. v. Midwesco Enterprises (1988) 486 U.S. 888, 893, 108 S.Ct. 2218, 100 L.Ed.2d 896; Mounts v. Uyeda (1991) 227 Cal.App.3d 111, 122, 277 Cal.Rptr. 730.)

"The term 'commerce' as used in the commerce clause ... means 'intercourse between nations, and parts of nations, in all its branches, and is regulated by prescribing rules for carrying on that intercourse.' [Citation.]" (United States v. Hanigan (9th Cir.1982) 681 F.2d 1127, 1130, quoting Gibbons v. Ogden (1824) 22 U.S. (9 Wheat.) 1, 190, 6 L.Ed. 23 [movement of undocumented Mexican laborers across national border into Arizona is commerce within meaning of the commerce clause].) Here, the complaint alleges that the underlying agreement was signed by Filet Menu and Cheng, both California residents, and Chen, a Washington state resident, and that pursuant to this agreement, goods were shipped to Vancouver, Canada. Accordingly, the complaint sufficiently alleges that the underlying transaction fell within the scope of the commerce clause.

The leading case on the soundness of tolling statutes under the commerce clause is Bendix Autolite Corp. v. Midwesco Enterprises, supra, 486 U.S. 888, 108 S.Ct. 2218, 100 L.Ed.2d 896. In Bendix, Bendix Autolite Corporation, a corporation residing in Ohio, entered into an agreement with Midwesco Enterprises, Inc., a corporation residing in Illinois. (Id. at pp. 889-890, 108 S.Ct. 2218.) When Bendix sued Midwesco for breach of contract and Midwesco asserted a statute of limitations defense, Bendix contended that the statutory period had been In assessing whether this tolling statute violated the commerce clause, the court in Bendix stated that, as a general rule, "[w]here the burden of a state regulation falls on interstate commerce, restricting its flow in a manner not applicable to local business and trade, there may be either a discrimination that renders the regulation invalid without more, or cause to weigh and assess the State's putative interests against the interstate restraints to determine if the burden imposed is an unreasonable one. [Citation.]" (486 U.S. at p. 891, 108 S.Ct. 2218.) Applying the latter balancing test, the Bendix court held that Ohio's tolling statute was constitutionally infirm under the circumstances of the case, noting that "[a]lthough statute of limitations defenses are not a fundamental right, [citation], it is obvious that they are an integral part of the legal system and are relied upon to project the liabilities of persons and corporations active in the commercial sphere." (Id. at p. 893, 108 S.Ct. 2218.) The Bendix court reasoned that the statute burdened interstate commerce by barring foreign corporations from asserting a statute of limitations defense unless they maintained a presence in Ohio, but served no weighty state interest because Ohio's long-arm statute permitted service on foreign corporations like Midwesco throughout the period of limitations. (Id. at pp. 893-895, 108 S.Ct. 2218.)

tolled. Like section 351, the pertinent Ohio tolling statute provided that the statutory period did not run while a defendant was outside of the state. ²

In Abramson v. Brownstein (9th Cir.1990) 897 F.2d 389, the Ninth Circuit decided a similar question concerning section 351. In Abramson, the plaintiffs, two California residents, entered into an agreement for the sale of gold coins and bullion with the defendant, a resident of Massachusetts. (Id. at p. 390.) The plaintiffs subsequently sued the defendant, alleging breach of contract and fraud. (Ibid.) When the defendant asserted a statute of limitations defense, the plaintiffs argued that the statutory periods were tolled under section 351. (Id. at p. 391.) Following Bendix, the Ninth Circuit held that section 351 impermissibly burdened interstate commerce in the case of nonresident defendants engaged in commerce within California, reasoning that although such defendants were subject to service under California's long-arm statute, section 351 denied...