Broadband v. Satcom

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

BROADBAND DYNAMICS, LLC, Plaintiff/Appellant,

v.

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

No. 1 CA-CV 17-0102
FILED 3-1-2018

Appeal from the Superior Court in Maricopa County
No. CV2016-003476
The Honorable Dawn M. Bergin, Judge

REVERSED AND REMANDED

COUNSEL

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
 BROADBAND v. SATCOM, et al.
Opinion of the Court

OPINION

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

M c M U R D I E, 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 BACKGROUND 1

¶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:

1 We assume the truth of, and indulge all reasonable inferences from,
the well-pled factual allegations. Cullen v. Auto-Owners Ins. Co., 218 Ariz.
417, 419, ¶ 7 (2008).

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Opinion of the Court

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.

2 The test for whether a contract fixes an unenforceable penalty or
enforceable liquidated damages is whether the payment is for a fixed
amount or varies with the nature and extent of the breach. Dobson Bay Club
II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108, 112–13, ¶ 21 (2017);
Miller Cattle Co. v. Mattice, 38 Ariz. 180, 190 (1931); Pima Sav. and Loan Ass'n
v. Rampello, 168 Ariz. 297, 300 (App. 1991). We do not resolve in this appeal
whether the Termination Charge is an appropriate liquidated damages
provision, or an impermissible penalty. See infra ¶ 14.

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 BROADBAND v. SATCOM, et al.
Opinion of the Court

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 (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 (App. 2010) (quoting Mohave Disposal, Inc. v. City of Kingman, 186 Ariz.
343, 346 (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 (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 (App. 2008) (citing Atlee Credit Corp. v. Quetulio, 22 Ariz. App.
116, 117 (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 (App. 1984), approved as supplemented, 141 Ariz. 514 (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
(1975) (quoting Connor Live Stock Co. v. Fisher, 32 Ariz. 80, 85 (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 (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 (1974). The statute of limitations
runs on an open account from the date the last item is charged. Krumtum,
111 Ariz. at 451.

¶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

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Opinion of the Court

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. 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. 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 (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 (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 (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. 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 (App. 2014) (seller agreed to sell items to buyer on an

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Opinion of the Court

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 (2016); Sun World Corp. v. Pennysaver, Inc., 130 Ariz.
585, 586 (App. 1981) (discussing dismissal, on other grounds, of plaintiff’s
claims for collection “on an open account owed for certain printing
delivered under the terms of the contract” and for damages “for the
premature wrongful termination of the contract”); see also Wean Water, Inc.
v. Sta-Rite Indus., Inc., 141 Ariz. 315, 316 (App. 1984) (seller sold business to
buyer; buyer sued seller for breach of contract, misrepresentation, and
fraud, and seller counterclaimed for breach of contract and balances due on
a promissory note and an open account); Phoenix Newspapers, Inc. v.
Schmuhl, 114 Ariz. 113, 115 (App. 1976) (seller sued for breach of contract
and for payment of newspapers furnished on an open account). Our
conclusion is further bolstered by the difference in the elements a plaintiff
is required to prove on a claim to recover debt on an open account and a
claim for breach of contract. Compare Holt, 110 Ariz. at 278 (to recover on an
open account, the plaintiff must meet its burden to prove “the correctness
of the account and each item thereof”), with Graham v. Asbury, 112 Ariz. 184,
185 (1975) (“To bring an action for the breach of the contract, the plaintiff
has the burden of proving the existence of the contract, its breach and the
resulting damages.”).

¶11 SatCom also claims out-of-state caselaw suggests that a cause
of action arising out of an open account is governed by the limitations
period applicable to a suit on the open account. See Touro Infirmary v. Am.
Mar. Officer, 34 So. 3d 878, 883–86 (La. Ct. App. 2010); Dean Vivian Homes,
Inc. v. Sebera’s Plumbing & Appliances, Inc., 615 S.W.2d 921, 926 (Tex. Civ.
App. 1981). We find these cases unpersuasive. In Touro, the claim asserted
by the plaintiff was for the balance due on an open account, though the
exact amount was in dispute, and there was no written agreement between
the parties. 34 So. 3d at 886. Here, Broadband is seeking relief under the
liquidated damages clause as part of the written Service Agreement, and
has specifically conceded that it cannot collect any unpaid balance due on
the open account. In Dean Vivian, the claim asserted by the plaintiff was also
for balance due on an open account, but did include a claim for interest
based on a written agreement. 615 S.W.2d at 923–24. However, the
application of a statute of limitations under either an open account or a
written contract was not at issue, and therefore that case is also not
informative.

¶12 Finally, we disagree with the superior court’s finding that the
Termination Charge was “too intertwined” with the open account
agreement to allow for a breach of contract claim. The superior court

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explained that (1) the lack of a separately signed agreement, (2) the
Termination Charge being enforced as a penalty for failing to comply with
the terms of the agreement, and (3) the calculation of the Termination
Charge being based on prior usage all supported a finding that Broadband’s
claim should be barred by the three-year statute of limitations for actions
on open accounts.

¶13 The factors cited by the superior court are not determinative
of the statute of limitations issue. Instead, when determining whether a
plaintiff’s claim should be construed as one on an open account or one
based on a breach of a written contract, where a written agreement contains
mixed obligations, some of which cannot be characterized as an open
account, we look to the parties’ obligations under the agreement and
determine whether they are seeking a remedy for an unpaid balance due
on the open account, or for damages because of a breach of the written
contract. As previously noted, if “two constructions are possible, the longer
period of limitations is preferred.” Woodward, 141 Ariz. at 524. Accordingly,
Broadband’s claim against SatCom for breach of the written Service
Agreement should be allowed to proceed under § 12-548 because the
obligations and remedy sought are not based on those of an open account.

B. The Enforceability of the Liquidated Damages Provision is Not
Properly Raised on Appeal.

¶14 In the answering brief, SatCom urges us to affirm the
judgment dismissing the case because the Termination Charge constitutes
an unenforceable penalty. Although we may affirm if the dismissal was
correct for any reason, see Sw. Non-Profit Hous. Corp. v. Nowak, 234 Ariz. 387,
391, ¶ 10 (App. 2014), we decline to consider this issue because it was not
addressed by the superior court and the facts are not sufficiently developed
to permit a proper legal analysis. See Mirchandani v. BMO Harris Bank, N.A.,
235 Ariz. 68, 72, ¶ 15 (App. 2014); see also ARCAP 13(a)(7)(B) (argument on
appeal should contain “references to the record on appeal where the
particular issue was raised and ruled on”); cf. Watson v. Apache County, 218
Ariz. 512, 517, ¶ 23 (App. 2008) (declining to address argument that
summary judgment was proper because claim was precluded by economic
loss rule).

C. Attorney’s Fees and Costs on Appeal.

¶15 Both parties request their attorney’s fees on appeal pursuant
to the Service Agreement and A.R.S. § 12-341.01. Because SatCom is not the
successful party, we deny its request. Because Broadband is the successful

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party, we grant its request for reasonable attorney’s fees and costs upon
compliance with Arizona Rule of Civil Appellate Procedure 21.

CONCLUSION

¶16 Because the obligations and remedy Broadband sought are
not based on those of an open account, its claim against SatCom for breach
of the written Service Agreement should be allowed to proceed under
§ 12-548. We reverse and remand to the superior court for further
proceedings consistent with this opinion.

AMY M. WOOD • Clerk of the Court
FILED: AA

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