Medcap Corp. v. Betsy Johnson Health Care Systems, Inc. , 16 F. App'x 180 ( 2001 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MEDCAP CORPORATION, 
Plaintiff-Appellant,
v.
BETSY JOHNSON HEALTH CARE  No. 00-2508
SYSTEMS, INCORPORATED, formerly
known as Betsy Johnson Memorial
Hospital, Incorporated,
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
William A. Webb, Magistrate Judge.
(CA-99-455-5-W)
Argued: June 6, 2001
Decided: August 6, 2001
Before WILKINSON, Chief Judge, TRAXLER, Circuit Judge,
and Andre M. DAVIS, United States District Judge for the
District of Maryland, sitting by designation.
Reversed by unpublished per curiam opinion.
COUNSEL
ARGUED: Offer Korin, KATZ & KORIN, P.C., Indianapolis, Indi-
ana; J. Mitchell Armbruster, SMITH, ANDERSON, BLOUNT, DOR-
SETT, MITCHELL & JERNIGAN, L.L.P., Raleigh, North Carolina,
2 MEDCAP CORP. v. BETSY JOHNSON HEALTH CARE
for Appellant. L. Diane Tindall, WYRICK, ROBBINS, YATES &
PONTON, L.L.P., Raleigh, North Carolina, for Appellee. ON
BRIEF: Michael E. Weddington, SMITH, ANDERSON, BLOUNT,
DORSETT, MITCHELL & JERNIGAN, L.L.P., Raleigh, North Car-
olina, for Appellant. Benjamin N. Thompson, Kathleen A. Naggs,
WYRICK, ROBBINS, YATES & PONTON, L.L.P., Raleigh, North
Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
MedCap Corporation ("MedCap") appeals from a grant of sum-
mary judgment in favor of Betsy Johnson Health Care Systems, Inc.
("the Hospital") on MedCap’s claims for breach of contract. We
reverse.
I.
In the early 1990s, the Hospital began negotiations with U.S. Medi-
cal Management II ("USMM II"), MedCap’s predecessor in interest,
for the use of a single photon emission computerized tomography
("SPECT") nuclear medicine unit. A SPECT unit contains a diagnos-
tic camera that creates and measures images from radiation after the
injection of a radioactive isotope into the patient’s body. At the time
of negotiations, the Hospital was using its own nuclear medicine unit
capable of producing two-dimensional images, but desired a SPECT
unit, which "take[s] a cross-sectional picture" of the body. J.A. 56.
In July 1993, USMM II agreed to provide a SPECT unit for use at
the Hospital. The parties’ agreement stated that the Hospital would
use the unit for five years on a fee-per-use basis with the fees payable
at the beginning of each month. At the end of the five-year period, the
MEDCAP CORP. v. BETSY JOHNSON HEALTH CARE 3
Hospital had a lease conversion option whereby it could convert the
agreement from a fee-per-use lease into a fair market value lease if
the Hospital had performed at least forty procedures per month for a
period of thirty-six months. The agreement also provided that USMM
II had "an exclusive right to provide [SPECT] service[s] to [the Hos-
pital]," J.A. 20, and "an exclusive right . . . to provide Nuclear Medi-
cine services and facilities to [the] Hospital," J.A. 17.
On November 1, 1994, USMM II wrote the Hospital and accused
it of breaching the agreement insofar as the Hospital was still using
its own planar nuclear medicine unit for non-SPECT procedures. The
letter cited the agreement’s exclusivity clause and claimed entitlement
to payment "for all nuclear medicine procedures performed by the
hospital." J.A. 108. In response to a letter from USMM II, the Hospi-
tal began to use the SPECT unit more frequently, but continued to use
the planar unit for certain procedures. Disputes over the usage of the
SPECT unit continued throughout the life of the agreement.
On July 14, 1999, MedCap filed suit against the Hospital for alleg-
edly violating the agreement’s exclusivity clause. The action was filed
in the United States District Court for the Eastern District of North
Carolina and jurisdiction was based on diversity of citizenship. See 28
U.S.C.A. § 1332 (West 1993 & Supp. 2001). The district court
referred the case to a magistrate judge by consent of the parties for
all proceedings. See 28 U.S.C.A. § 636(c) (West 1992 & Supp. 2001).
Applying a four-year statute of limitations, the magistrate judge held
that the limitations period began to run on November 1, 1994, the date
of USMM II’s first remonstrance, and expired on November 1, 1998,
four years thereafter. Hence, the magistrate judge granted the Hospi-
tal’s motion for summary judgment on the ground that the suit was
barred. MedCap appeals.
II.
A motion for summary judgment should be granted only if there is
no genuine dispute as to an issue of material fact and the moving
party is entitled to judgment as a matter of law. See Anderson v. Lib-
erty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The court must con-
sider the evidence in the light most favorable to the non-moving party
4 MEDCAP CORP. v. BETSY JOHNSON HEALTH CARE
and draw all reasonable inferences from the facts in the non-movant’s
favor. See United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
The sole issue before the court is whether MedCap’s breach of con-
tract action is barred by the statute of limitations.1 The parties agree
that a federal court sitting in diversity must apply the forum state’s
conflict of laws rules. See Sokolowski v. Flanzer, 769 F.2d 975, 977
(4th Cir. 1985). In other words, the district court in North Carolina
was obliged to make the same choice of law as would a North Caro-
lina state court, see Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 496 (1941), including the choice of a statute of limitations, see
Guaranty Trust Co. v. York, 326 U.S. 99, 110 (1945). Since the North
Carolina courts would apply North Carolina’s own statute of limita-
tions to this action, see Wener v. Perrone & Cramer Realty, Inc., 528
S.E.2d 65, 67 (N.C. Ct. App. 2000) (statute of limitations is proce-
dural and consequently the law of the forum must be applied), North
Carolina law governs this issue.2
The parties also agree that the four-year statute of limitations of
N.C. Gen. Stat. § 25-2A-506 (1999), which deals with defaults under
lease contracts, applies to this case. What the parties disagree about
is when the cause of action accrued. The Hospital contends that the
limitations period began to run on November 1, 1994, the date
USMM II first informed it of the alleged breach. MedCap, on the
other hand, argues that the statute of limitations began to run the first
of each month when each installment payment became due.
1
In viewing the evidence in the light most favorable to MedCap, we
offer no opinion on whether there was indeed a breach of contract. The
sole issue we decide is whether MedCap’s action for breach is barred by
the statute of limitations.
2
The agreement contains a choice of law provision providing that the
law of Indiana governs its construction. However, this in no way influ-
ences the application of North Carolina’s statute of limitations. See John-
ston County v. R.N. Rouse & Co., 414 S.E.2d 30, 33 (N.C. 1992)
(observing that a contractual "choice of law provision[ ] names a particu-
lar state and provides that the substantive laws of that jurisdiction will
be used to determine the validity and construction of the contract")
(emphasis added); see also Cole v. Mileti, 133 F.3d 433, 437 (6th Cir.
1998) ("[C]ontractual choice-of-law clauses incorporate only substantive
law, not procedural provisions such as statutes of limitations.").
MEDCAP CORP. v. BETSY JOHNSON HEALTH CARE 5
To determine the date or dates of accrual, we turn first to the statute
itself. Under N.C. Gen. Stat. § 25-2A-506(2), "[a] cause of action for
default accrues when the act or omission on which the default . . . is
based is or should have been discovered by the aggrieved party."
Under North Carolina law, the primary cannon of statutory construc-
tion "is to ensure that the purpose of the legislature is accomplished."
Woodson v. Rowland, 407 S.E.2d 222, 227 (N.C. 1991). To further
this objective, a court must consider the language and spirit of the
statute, as well as its ultimate purpose. See Polaroid Corp. v. Offer-
man, 507 S.E.2d 284, 290 (N.C. 1998). "[T]he Court will evaluate the
statute as a whole and will not construe an individual section in a
manner that renders another provision of the same statute meaning-
less." Id.An underlying purpose of the North Carolina Commercial Code is
"to simplify, clarify, and modernize the law governing commercial
transactions." N.C. Gen. Stat. § 25-1-102(2)(a) (1999); see also Bern-
ick v. Jurden, 293 S.E.2d 405, 410 (N.C. 1982). Part and parcel of this
is the lowering of transaction costs by permitting reliance on objective
and fair standards of commercial dealing. Without question, commer-
cial transactions are to be made less complicated and expensive by
dispensing with arcane rules that no longer reflect the realities of
modern commercial life.
With these basics in mind, we begin by noting that the Hospital’s
interpretation of the statute ignores that cases may arise where multi-
ple installment payments are due and therefore multiple breaches are
possible. Here a breach might occur one month when the Hospital
would use its own nuclear medicine unit, and not occur again the next
month, or for several months, or even for several years. Because Med-
Cap would not know until payment was due whether the Hospital had
complied with the exclusivity provision or had breached it, MedCap’s
claim for that month could not accrue before then. In a situation like
this one, when the contract is for five years, to require MedCap to
bring a lawsuit within four years of the very first month’s breach or
forfeit all claims would be unreasonable and impractical—it would
defeat the legislature’s goals of simplifying commercial relations and
lowering transaction costs.
Consider this situation: The Hospital in its five-year contract vio-
lates the exclusivity requirement during the first month, but complies
6 MEDCAP CORP. v. BETSY JOHNSON HEALTH CARE
each month thereafter for four years. Then four years after this one
breach, the Hospital chooses to breach the contract each and every
month for the remainder of the contract term. The position of the Hos-
pital would be that the statute of limitations began running at the first
month’s breach and thereby precluded any action by MedCap for the
violations occurring during the last year of the contract. Such a posi-
tion is obviously not reasonable as this situation underscores the prac-
tical requirement that a cause of action not accrue for a particular
payment, under the facts of this case, until that payment is due. See
N.C. Gen. Stat. § 25-2A-506(2) (cause of action does not accrue until
the default is discovered or should have been discovered).
This commonsense accrual rule is also clearly stated in North Caro-
lina’s pre-Article 2A case law. See N.C. Gen. Stat. § 25-1-103 (1999)
(principles of the common law supplement the Code unless displaced
by a particular provision). Under North Carolina common law,
[t]he general rule in the case of an obligation payable by
installments is that the statute of limitations runs against
each installment individually from the time it becomes due,
unless the creditor exercises a contractual option to acceler-
ate the debt, in which case the statute begins to run from the
date the acceleration clause is invoked.
United States Leasing Corp. v. Everett, Creech, Hancock, & Herzig,
363 S.E.2d 665, 669 (N.C. Ct. App. 1988). Because the parties’ con-
tract contains no acceleration clause, the general rule of Everett is
right on point. In the present case, there were sixty installment pay-
ments due and therefore sixty possible causes of action for breach of
contract if each month the Hospital failed to use the SPECT unit as
set forth in the contract. Hence, MedCap may pursue claims accruing
within four years of the filing of this action.3
3
Not content with pursuing claims accruing within four years of filing
suit, MedCap also argues that under Anton A. Vreede, M.D., P.C. v.
Koch, 380 S.E.2d 615 (N.C. Ct. App. 1989), the statute of limitations did
not begin to run until the date that the last installment payment was due.
The contract in Vreede, however, contained a provision stating that any
unpaid balance was due on the final day of the contract. Id. at 616. The
present agreement had no such provision and therefore Vreede is inappli-
cable.
MEDCAP CORP. v. BETSY JOHNSON HEALTH CARE 7
In arguing that the general rule of Everett is inapplicable, the Hos-
pital relies heavily on Liptrap v. City of High Point, 496 S.E.2d 817(N.C. Ct. App. 1998). In Liptrap, employees of the City of High Point
brought suit against the City after the city council, via a June 1992
resolution, froze annual longevity payments that were supposed to
increase in five-year increments. See id. at 818. The employees’ suit
was filed in November 1996, but the trial court dismissed the action
as barred by a two-year statute of limitations. The North Carolina
court of appeals affirmed the ruling that the statute of limitations
began to run on the date the city counsel froze the payments, and
rejected the argument that post-1992 refusals to grant requested pay
increases amounted to multiple breaches of contract. See id. at 819.
Contrary to the Hospital’s contention, Liptrap does not call into doubt
the result we have reached. The present case is not controlled by Lip-
trap insofar as the Hospital never announced a definitive, total repudi-
ation of the contract—there was nothing akin to the city council’s
formal resolution stating that no longevity payments would be made.
The Hospital continued to use the SPECT unit and make monthly
installment payments, albeit the amounts were lower than MedCap
contends they should have been. Accordingly, Liptrap is inapplicable.
The Hospital also argues that MedCap’s reliance on the rule of
Everett is misplaced because the agreement is not an installment con-
tract. Pointing to the choice of law clause in the agreement stating that
Indiana law governs its construction, the Hospital contends that the
rule of Everett can apply only if the contract is "one which requires
or authorizes the delivery of goods in separate lots to be separately
accepted." Ind. Code Ann. § 26-1-2-612(1) (Michie 1992) (defining
"installment contract"). Because there was but one delivery of goods
in this case, the Hospital argues that there was no installment contract.
We believe that the label the Hospital attempts to attach to the agree-
ment is immaterial. North Carolina law governs the running of the
statute of limitations and Everett attaches no significance to the deliv-
ery of goods in separate lots. In fact, Everett concerned a lease of
office equipment which was apparently delivered in one shipment.
See 363 S.E.2d at 667. Despite the lack of multiple deliveries, the
Everett court did not hesitate to apply the general rule even though
the controversy surrounded only the installment payments.
8 MEDCAP CORP. v. BETSY JOHNSON HEALTH CARE
III.
For the foregoing reasons, we reverse the magistrate judge’s entry
of summary judgment and remand for further proceedings consistent
with this opinion.
REVERSED