Opinion
No. 5:99-CV-455-W
October 24, 2000
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
This Cause comes before the Court upon defendant's motion for summary judgment. [DE-19] The plaintiff filed a memorandum in opposition; the defendant filed a reply. The motion is ripe for adjudication.
I. FACTUAL BACKGROUND
Plaintiff filed this breach of contract action alleging violation of the exclusivity provision of a contract entered into by MedCap, Corp. ("MedCap") and Betsy Johnson Health Care Systems, Inc. ("BJHC"). The case is properly before the Court pursuant to its diversity jurisdiction. 28 U.S.C. § 1332(a).
The facts, as agreed upon by the parties, are as follows. The defendant, BJHC, is a hospital located in Dunn, North Carolina. (Compl. ¶ 3.) Plaintiff's predecessor in interest, U.S. Medical Management II ("USMM II"), is a company in the business of supplying medical diagnostic equipment, such as nuclear medicine units, to health care facilities. (Pl. Memo. at 3.) USMM II owned a single photon emission computerized tomography nuclear medicine unit ("SPECT"), the kind of machine sought by BJHC. (Def. Memo. at 3.) A nuclear medicine unit is a diagnostic camera that creates and measures images from radiation after the injection of a radioactive isotope in the patients body. Id. at 2. BJHC already had a nuclear medicine camera (manufactured by Siemens) in use at the hospital. Id. The Siemens unit could not perform SPECT procedures. Id.
Unable to make an outright or financed purchase of a Toshiba SPECT unit, defendant sought an arrangement whereby it would only hare to make a payment every time it used the SPECT unit. Sam Lilly, a Toshiba representative, and his boss, Terry Gill, contacted USMM II to see if they were interested in a zero-minimum, fee-per-scan financing arrangement with BJHC. (Def Memo. at 3; Pl. Memo at 5.) Having reached a satisfactory agreement with USMM II, Shannon Brown, CEO and President of BJHC signed the contract between USMM II and BJHC on July 21, 1993 in Dunn, North Carolina. (Def Memo. at 3; Pl. Memo. at 5.) Over a year after signing the contract, BJHC began using the Toshiba SPECT unit in early September, 1994. (Pl. Memo. at 5.)
The contract (the terms of which are not in dispute) stated that BJHC would use the SPECT unit for a term of five years, at the conclusion of which, BJHC had a lease conversion option whereby BJHC could convert the Agreement from a fee-per-use lease into a fair market value lease if the defendant had performed an average of at least forty (40) procedures for a period of thirty-six (36) months. (Def. Memo. at 4.) The Agreement also contained a provision which required BJHC to make exclusive use of the Toshiba SPECT unit. On November 1, 1994, Frederick Price, President of USMM II, sent a letter to Mr. Shannon Brown stating in part the following,
The exclusivity clause reads as follows:
This Agreement is considered by all parties to constitute an exclusive right of USMM II to provide Nuclear medicine services and facilities to Hospital. (Def. Exh. A ¶ 12.)
The contract also states in Schedule B, Exclusive Use of Gamma Camera/SPECT System This Agreement is considered to be an exclusive right to provide service to Betsy Johnson Memorial Hospital. Id.
. . . we learned that the Department is still performing nuclear procedures on the old camera and only SPEC procedures on the new Toshiba. I would like to draw your attention to the contract, Schedule B, which states, Exclusive Use of Gamma Camera/SPECT System —
This Agreement is considered to be an exclusive right to provide service to Betsy Johnson Memorial Hospital.
This contract was signed by you. Therefore, we are to be paid for all nuclear medicine procedures performed by the hospital." (Def. Memo. Exh. B.)
After receiving the letter from Mr. Price, BJHC increased its use of the SPECT unit. (Pl. Memo. at 5.) During the life of the contract, the parties conducted numerous discussions regarding BJHC's obligation to make exclusive use of the SPECT unit, and to do as many scans as possible on the Toshiba equipment. (Pl. Memo. at 7-8.) On May 14, 1999, Terry Gill sent a letter to Dennis Coffey, Chief Financial Officer of BJHC. The letter stated, among other things, the following:
Please be aware that additional claims against the hospital will be made for violation of the "exclusivity clause" (see attached contract reference). As you know, I have attempted to resolve this issue with you on multiple occasions over the life of the contract. However, your continued unwillingness to deal with this matter will leave us no choice but to pursue our position through legal channels, if necessary. Please contact me no later than June 1, 1999 to discuss your future options and the contract default resolution. (Pl. Memo. Exh. 6)
Plaintiff states, and defendant does not contest, that on May 28, 1999, Mr. Terry Gill and Mr. Dennis Coffey had a telephone conversation during which Mr. Coffey stated he was no longer interested in discussing the matter and that it was his understanding that the contract permitted BJHC to continue use of the Siemens unit for non-SPECT procedures. (Pl. Memo. at 9.) Thereafter, plaintiff filed a complaint in this Court on July 14, 1999.
II. LEGAL ANALYSIS A. Summary Judgment Standard
Summary judgment is appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The party seeking summary judgment bears the burden of initially coming forward and demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317 (1986). When making the summary judgment determination, the facts and all reasonable inferences must be viewed in the light most favorable to the non-movant. See Anderson, 477 U.S. at 255.
It is well-settled that "[s]ummary judgment is . . . appropriate when there is an issue of time limitation. When a statute of limitations or statute of repose is a legally sufficient defense to a claim, summary judgment should be granted to the defending party." National Property Investors VIII v. Shell Oil Co., 950 F. Supp. 710, 712 (E.D.N.C. 1996) (citing Weinberger v. Retail Credit Co., 498 F.2d 552 (4th Cir. 1974)). "In other words, if resolution of a statute of limitations defense presents a genuine issue of material fact, a jury should resolve it. If not, a statute of limitations may be applied as a matter of law." Childers Oil Co. v. Exxon Corp., 960 F.2d 1265 (4th Cir. 1992).
There is no issue for trial unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party. See Anderson, 477 U.S. at 250. The moving party can bear his burden either by presenting affirmative evidence, or by demonstrating that the non-movant's evidence is insufficient to establish his claim. See Celotex Corp., 477 U.S. at 331. A trial judge faced with a summary judgment motion "must ask himself not whether he thinks the evidence unmistakably favors one side or the other, but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented." Anderson, 477 U.S. at 252.
B. Application of Law to Facts 1. Statute of Limitations
In its motion for summary judgment, defendant argues that the statute of limitations bars plaintiffs action. Under Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) and Guaranty Trust Co. v. York, 326 U.S. 99 (1945), federal courts sitting in diversity apply the forum states statute of limitations. Coe v. Thermasol, Ltd., 785 F.2d 511, 514 n. 5 (4th Cir. 1986). The Supreme Court wrote in Sun Oil v. Wortman, that "[t]he historical record shows conclusively, we think, that the society which adopted the Constitution did not regard statutes of limitations as substantive provisions, akin to the rules governing the validity and effect of contracts, but rather as procedural restrictions fashioned by each jurisdiction for its own courts." Sun Oil Co. v. Wortman, 486 U.S. 717, 726 (1988). Consequently, the appropriate statute of limitations to plaintiff's action is found in North Carolina law.
Defendant argues that one of two statutes of limitation should apply to the contract in this case. The first statute, N.C. Gen. Stat. § 1-52(1), provides a three year statute of limitations for an action on a breach of contract. The second statute, N.C. Gen. Stat. § 25-9-2A-506, is part of the Uniform Commercial Code as adopted by North Carolina and allows a four year statute of limitations on actions for the lease of goods. Plaintiff contends that the only possible statute of limitations available for use is N.C. Gen. Stat. § 1-52(1) since the legislature enacted N.C. Gen. Stat. § 25-9-2A-506 approximately three months after the parties signed the contract in this case.
The parties do not dispute the terms of the contract, but instead dispute the nature or characterization of the Agreement. If a court determines a matter to be one of substantive law, "it looks to the substantive law of the law of the forum state, including its choice of law principles, to determine the applicable substantive law." Boyd Rosene and Assoc., Inc., v. Kansas Municipal Gas Agency, 174 F.3d 1115 (10th Cir. 1999). North Carolina law provides that, "[a] contract that is plain and unambiguous on its face will be interpreted by the court as a matter of law." See International Paper Co. v. Corporex Constructors, Inc., 96 N.C. App. 312, 317, 385 S.E.2d 553, 556 (1989) (citation omitted). The Court concludes that the nature of a contract is a question of interpretation and construction, involving a substantive inquiry; therefore, this Court must also look to the conflicts of law principles of North Carolina in deciding which state's substantive law should control.
"Traditionally, under the lex loci rule, the substantive features of a [contractual claim are] controlled by the law of the state where the contract was made or, in certain circumstances, by the law of the state of performance". Boudreau v. Baughman, 322 N.C. 331, 336, 368 S.E.2d 849, 854 (1988). Since the contract was signed in North Carolina, and all performance occurred in North Carolina, the Court must use the lex loci rule to determine the nature of the contract under North Carolina law. If the Court concludes that under North Carolina law, the contract is one for the lease of goods, then the UCC governs the transaction and following rules apply.
Under the Uniform Commercial Code, as adopted by North Carolina, the law provides that,
Except as provided hereafter in this section, when a transaction bears a reasonable relation to this State and also to another state or nation the parties may agree that the law either of this State or of such other state or nation shall govern their rights and duties. Failing such agreement this chapter applies to transactions bearing an appropriate relation to this State. N.C. Gen. Stat. § 25-1-105(1).
The UCC, which governs contracts relating to the sale and lease of goods, allows the parties to place a choice of law clause in their contract. The parties in this case agreed to use Indiana law to govern the construction and enforcement of their contract. (Pl. Memo. Exh. 3, ¶ 11. "This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Indiana.") Clearly the parties contracted for Indiana law to govern their agreement; a provision which could only be given force and effect if the entire contract would be governed by the UCC.
Plaintiff argues, using North Carolina law, that the Court should characterize the parties' agreement as an installment contract for lease of services. (Pl. Memo. at 13). "The Agreement is a contract for services paid in monthly installments — an installment contract.") Plaintiff never identifies the elements of an installment contract or what it believes makes this an installment contract. Instead, plaintiff points the Court to cases discussing the effect of the statute of limitations on an installment contract. The Court finds each of the cases distinguishable from the facts at hand, and concludes that the Agreement between the parties is a contract for lease of goods, governed by the UCC.
Plaintiff relies primarily on Vreede v. Koch, 94 N.C. App. 524, 380 S.E.2d 615 (1989). As plaintiff acknowledges, the Vreede case involves the default on repayment of a loan for $15,000. The promissory note required monthly payments of $165.81 until all principal and interest was paid. Vreede, 94 N.C. App. at 525. The contract clearly required the repayment of a sum certain, with installment payments to be made on a monthly basis, full repayment to be completed in a predetermined amount of time. Id. The Court of Appeals ruled in Vreede that while the general rule regarding the running of the statute of limitations for installment contracts states that the limitations period begins running from the time each individual installment becomes due, see U.S. Leasing v. Everett, 88 N.C. App. 418, 426, 363 S.E.2d 665, 669, rev, denied, 322 N.C. 329, 369 S.E.2d 364 (1988), an exception exists where future performance is possible and there is no evidence that the plaintiff treated the defendant's breach as a total repudiation of the contract. Id. at 528-29; see In Re Lake Townsend Aviation Inc., 87 N.C. App. 481, 361 S.E.2d 409 (1987), disc. rev, denied, 321 N.C. 473, 364 S.E.2d 922 (1988). In Townsend, the Court ruled that because future performance of the contract was possible, the statute of limitations began to run on the last date on which an installment payment became due. Id.
The U.S. Leasing v. Everett case dealt with the failure to make payments on a lease for office equipment. 88 N.C. App. 418, 363 S.E.2d 665 (1988). The lease provided for sixty monthly payments of $552.19; the defendant remitted only fifteen of those payments. Everett, 88 N.C. App. at 422. The Court noted that a breach of contract action is governed by a three-year statute of limitations, which begins to run whenever a plaintiffs right to maintain an action accrues. Id. at 425 (citations omitted). And a cause of action for breach of contract accrues at the time of the breach which gives rise to the right of action. Id. (citation omitted). Since the contract at issue was properly characterized as an installment contract, the Court recognized the general rule that the statute of limitations for each installment payment begins to run on the date of nonpayment; therefore the plaintiff could not recover for all of the non-payments, only those having occurred three years prior to the date of filing the action. Id. at 426.
The Court notes that U.S. Leasing v. Everett, 88 N.C. App. 418, 363 S.E.2d 665 (1988) was adjudicated prior to the enactment of N.C. Gen. Stat. § 25-2A (governing the lease of goods).
The three cases referenced above all deal with a definite amount of money owed (a sum certain), payable within a certain period of time, payable in monthly installments of equal amount, and in at least one case, for tangible items. The plaintiff failed to direct the Court to, and the Court was unable to find, any case which addressed an installment contract for the lease of services — the characterization of the parties' agreement proposed by the plaintiff. The contract in the case sub judice contemplated a zero minimum, fee-per-scan arrangement. While a goal existed of forty (40) scans per month, the defendant would not be penalized for zero scans in a month. Obviously then, no set minimum payment became due every month; a payment only accrued if the hospital used the SPECT machine.
"Part of USMM II's business is . . . making the equipment available . . . on a fee per scan arrangement with a zero number of scans requirement (no minimum), a more risky transaction than a fixed fee per month lease or a required minimum scans per month agreement." (Pl. Memo. at 4.)
Defendant argues that the parties' arrangement was for the lease of goods, and therefore covered by the UCC. The UCC as adopted by North Carolina allows the parties to make a choice of law in their contract. As discussed above, the parties in this case chose the law of Indiana to govern their contract. Under the UCC as adopted by the state of Indiana, an "instalment contract" is defined as follows:
An "instalment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract or its equivalent."
Clearly the parties did not agree to an installment contract of the kind defined in the Indiana UCC. The SPECT camera was delivered once, not in bits and pieces in monthly deliveries, and not on each occasion it was used. The camera was delivered sometime between July 23, 1993 and early September 1994. Therefore, the contract cannot fall within the installment contract definition of the Indiana UCC. The defendant argues that the contract was one for the lease of goods, governed by the UCC. Under the definitions provided in the Indiana UCC, goods and lease mean the following:
(h) "Goods" means all things that are movable at the time of identification to the lease contract, or are fixtures (IC 26-1-2.1-309), but the term does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like, including oil and gas, before extraction. The term also includes the unborn young of animals.
(j) "Lease" means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates otherwise, the term includes a sublease.
Ind. Code § 26-1-2.1-103(a)(h) and (j).
According to the definitions used above, the Agreement between plaintiff and defendant more closely resembles one for the lease of goods. The Toshiba SPECT Unit was "movable at the time of identification to the lease contract" and therefore can be defined as a "good" under the UCC. See e.g., Def Exh. A. ¶ 2 "USMM II shall, at its cost and expense, during the term of this Agreement, provide the Unit in operational form upon the premises of Hospital . . ." The contract also permitted the hospital the right to use the machine in return for a fee-per-scan. (Def. Memo. Exh. A. Schedule B, Pricing Schedule.) The consideration for use of the machine involved a variable monthly payment, dependent on the number of scans taken per month.
Having concluded that the contract is better characterized as a contract for lease of goods under the UCC, the Court must apply the North Carolina UCC statute of limitations for lease of goods. The North Carolina UCC contains the four year statute of limitations. N.C. Gen. Stat. § 25-2A-506 ("An action for default under a lease contract . . . must be commenced within four years after the cause of action accrued.") The plaintiff contends that it would be inappropriate to measure the limitations period by this statute since it was enacted after the contract came into existence. The statute of limitations which had an effective date of October 1, 1993, states expressly that "this section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action that have accrued before this Article becomes effective." N.C. Gen. Stat. § 25-2A-506(4) (emphasis supplied). The defendant, who argues for the earliest possible date of accrual of the cause of action, considers November 1, 1994 as the date on which the cause of action accrued. Therefore, the action did not accrue until after the effective date of the statute.
In sum, the Court finds that the contract was not intended to be, nor did it operate as an installment contract for the lease of services. Instead, the contract is one for the lease of goods, governed by the Indiana UCC, subject to a North Carolina four year statute of limitations which began to run on November 1, 1994, and expired on November 1, 1998. Alternatively, even if the Court were to construe the contract as one for the use of services (not an installment contract) it would be governed by the three year statute of limitations set out in N.C. Gen. Stat. § 1-52(1) which expired on November 1, 1997. Under both statutes of limitations, the action is barred.
Although plaintiff contends that the letter sent on November 1, 1994, did not constitute a notice of default, the Court finds that it did. The letter addressed the violation of the exclusivity provision. In the letter sent on May 14, 1999, Mr. Gill stated that the plaintiff would be pursuing its legal remedies for violation of the exclusivity provision which he termed as a "contract default". (Pl. Exh. 6). The Court cannot reconcile the argument of the plaintiff: that which is termed a "contract default" in 1999, and worthy of resolving through legal channels, was not a contract default on the first notice of its happening in 1994. Therefore, the Court finds that the allegation of violation of the exclusivity provision on November 1, 1994 was the default event which began the running of the statute of limitations.
2. Equitable bars to statute of limitations defense
Plaintiff next argues that if the statute of limitations applies, the doctrine of equitable estoppel operates as a bar to the defendant raising it. (Pl. Memo. at 27.) "Where there is but one inference that can be drawn from the undisputed facts of a case, the doctrine of equitable estoppel is to be applied by the court. Hawkins v. M J Fin. Corp., 238 N.C. 174, 185, 77 S.E.2d 669, 677 (1953). However . . . where the evidence raises a permissible inference that the elements of equitable estoppel are present, but where other inferences may be drawn from contrary evidence, estoppel is question of fact for the jury, upon proper instruction." Creech v. Melnik, 347 N.C. 520, 495 S.E.2d 907 (1998) citing Meacham v. Montgomery County Bd. of Educ., 47 N.C. App. 271, 278, 267 S.E.2d 349, 353 (1980), rev, denied, 307 N.C. 577, 299 S.E.2d 651 (1983).
"North Carolina courts have recognized and applied the principle that a defendant may properly rely upon a statute of limitations as a defensive shield against `stale' claims, but may be equitably estopped from using a statute of limitations as a sword, so as to unjustly benefit from his own conduct which induced a plaintiff to delay filing suit." Friedland v. Gales, 131 N.C. App. 802, 509 S.E.2d 793 (1998) (citations omitted). A defendant may be equitably estopped from asserting the statute of limitations defense if the following test is met. The North Carolina Supreme Court elaborated upon the elements of equitable estoppel in the case of In Re Covington's Will, 252 N.C. 546, 114 S.E.2d 257 (1960) . . . "The essential elements of estoppel are: (1) conduct on the part of the party sought to be estopped which amounts to a false representation or concealment of material facts; (2) the intention that such conduct will be acted on by the other party; and (3) knowledge, actual or constructive, of the real facts. The party asserting the defense must have (1) a lack of knowledge and the means of knowledge as to the real facts in question; and (2) relied upon the conduct of the party sought to be estopped to his prejudice." Friedland, 131 N.C. App. at 807 (citations omitted).
The undisputed facts in this case indicate that both the plaintiff and defendant knew of the defendant's purported violation of the exclusivity clause within weeks of the delivery of the SPECT machine to the Betsy Johnson hospital. The facts in the record cannot be construed to find that BJHC made a false representation or concealed material facts from the plaintiff that defendant was still using both nuclear machines. Therefore, the very first element of the estoppel definition cannot be satisfied. Since all three prongs of the test must be met, the Court ends its inquiry here, satisfied that, as a matter of law, equitable estoppel is not available for the plaintiff to bar defendant's defense of the statute of limitations.
III. CONCLUSION
Having considered the motion and the pertinent parts of the record and being otherwise fully advised in the premises, it is
ORDERED AND ADJUDGED that summary judgment is GRANTED in favor of the defendant. All pending motions are DENIED as MOOT. The Clerk of Court shall CLOSE the case.
DONE AND ORDERED in Chambers at Raleigh, North Carolina this 24th day of October, 2000.
Judgment in a Civil Case
Decision by Court. This action came to trial or hearing before the Court. The issues have been tried or heard and a decision has been rendered.
IT IS ORDERED AND ADJUDGED that Defendant's Motion for Summary Judgment is GRANTED and this action is hereby DISMISSED.