Kimberly Quality Care v. Eastern Star Nursing Home

Baker, J.

Kimberly Quality Care appeals a summary judgment dismissing its action against Eastern Star Nursing Home for the collection of unpaid bills. It alleges that genuine issues of material fact exist as to: (1) whether U.C.C. Article 6 on Bulk Transfers applies to the sale of a nursing home; and (2) if Article 6 does apply, was the statute of limitations of that article tolled. Since we affirm the summary judgment on issue (1), we need not reach issue (2).

Factual and Procedural Background

Appellant Kimberly Quality Care, a division of Lifetime Corporation (Kimberly), provided temporary nursing services to the Fountains Convalescent Center (the Fountains), a nursing home in Yakima. The Fountains was owned and operated by International Care Centers of Washington, Inc. (ICC). When the Fountains' account became overdue, Kimberly brought suit against ICC.¹

Shortly thereafter, ICC entered into an agreement to sell the Fountains to respondent Eastern Star Nursing Home, a Washington nonprofit corporation (Eastern). The sale included all of ICC's rights, title and interest in all drugs, medicines, foods, linens or other supplies used in connection with the operation of the Fountains. The sales agreement provided that all liabilities, including accounts payable, would remain the responsibility of ICC. All services provided by Kimberly to the Fountains were provided prior to the closing date of the sale.

Kimberly then filed suit against Eastern for the debts incurred to it while the Fountains was owned by ICC. Eastern moved for a summary judgment of dismissal. In opposition to this motion, Kimberly filed the declarations of Darla Luckett, a certified nursing assistant at the Fountains, and Moe Chaudry, the administrator of the facility. Both declared that the Fountains purchased and maintained an inventory of personal and cosmetic items for sale to its patients. Based on these declarations, Kimberly argued that the Fountains was engaged in the buying and selling of goods within the meaning of U.C.C. Article 6 on Bulk Transfers (Article 6 or the Article). Since Eastern did not comply with the creditor protection provisions of Article 6, Kimberly contended, Eastern was not shielded from liability to ICC's creditors. The court granted Eastern's motion for summary judgment and dismissed the action, holding that Article 6 did not apply to this transaction. This appeal followed.

Analysis

We first note appellant's argument that the trial court impermissibly weighed the sufficiency of the evidence on summary judgment by finding insufficient evidence of retail sales. The court's minute entry states: "nursing homes, where retail sales activities are so few don't fall under bulk sales law under UCC." Although the minute entry is sparse, it does not indicate that the court found the declarations of Luckett and Chaudry to be insufficient evidence of retail sales, but rather that even crediting those declarations, the level of retail sales described therein was insufficient to create coverage under the bulk sales law. Thus, the court's ruling appears to be a ruling of law, not an impermissible weighing of the evidence.

The Washington version of U.C.C. Article 6 contains the following pertinent definitions:

(1) A "bulk transfer" is any transfer in bulk and not in the ordinary course of the transferor's business of a major part of the materials, supplies, merchandise or other inventory (RCW 62A.9-109) of an enterprise subject to this Article.

(3) The enterprises subject to this Article are all those of a vendor engaged in the business of buying and selling and dealing in goods, wares or merchandise, of any kind or description, or in the business of operating a restaurant, cafe, beer parlor, tavern, hotel, club or gasoline service station.

RCW 62A.6-102(1), (3). Eastern does not dispute that the sale of the Fountains included all of its materials, supplies and other inventory, and therefore it would be a "bulk transfer" within the meaning of subsection (1) if the Fountains is a covered enterprise under subsection (3).

No Washington case has addressed the question of whether a service enterprise that buys and sells goods incidental to its delivery of services is covered by Article 6. Respondent cites several cases from other jurisdictions holding that such enterprises are not covered. H.P.S. Inc. v. Willis, 483 So. 2d 767 (Fla. Dist. Ct. App.) (print shop), review denied, 492 So. 2d 1332 (Fla. 1986); Allsbrook v. Azalea Radiator Serv., Inc., 316 S.E.2d 743 (Va. 1984) (radiator repair); All Nite Garage, Inc. v. A.A.A. Towing, Inc., 85 Nev. 193, 452 P.2d 902 (1969) (towing service); Film Mktg. Servs., Inc. v. Homer Photo Labs, Inc., 87 Montgomery Cy. L. 190, 5 U.C.C. Rep. Serv. 201 (Pa. C.P. 1966) (photo processing), aff'd, 425 Pa. 409, 229 A.2d 573 (1967). However, the state statutes at issue in each of these cases follow the official U.C.C. definition of a covered enterprise as one whose "principal business" is the sale of merchandise from stock. Washington has not adopted the official U.C.C. definition of a covered enterprise, but instead has retained its pre-U.C.C. definition, which does not contain the "principal business" restriction.² Therefore, the decisions of jurisdictions adopting the official U.C.C. text are of limited relevance, while Washington case law under the pre-U.C.C. bulk sales act remains authoritative on the question of what is a covered enterprise. See Washington State Bar Ass'n, Commercial Law Deskbook § 12.4(2), at 12-11 (1982).

Although no pre-U.C.C. Washington case addressed the exact question presented here, one case held that the bulk sales act applied only to mercantile businesses and thus did not apply to a manufacturing business. Mill & Logging Supply Co. v. West Tenino Lumber Co., 44 Wn.2d 102, 109, 265 P.2d 807 (1954) (lumber mill). Another case, decided prior to the 1939 addition of "restaurants" and other establishments to the definition, held that restaurants were not covered. Garner v. Thompson, 161 Wash. 317, 321, 296 P. 1043 (1931). These decisions evince an understanding of the definition of a covered enterprise as restricted to mercantile businesses, except for those service businesses specifically listed in the second part of the definition. The legislative history of the bulk sales act also supports this understanding. See Mill & Logging Supply Co., 44 Wn.2d at 108-09; Comment, The Bulk Sales Law in Washington, 35 Wash. L. Rev. 453, 458 (1960); Commercial Law Deskbook, supra. Since a nursing home is not a mercantile business,³ it is not covered by Article 6.

The original purpose of the bulk sales act was to protect creditors of those enterprises to which unsecured credit is commonly extended on the faith of inventory. See RCW 62A.6-102(3), Washington Comments; Washington State Bar Ass'n, Commercial Law Deskbook § 12.2(1), at 12-8 (1982). Nothing in the present record indicates that the nursing home in question — the principal business of which is the delivery of nursing care to residents — is an enterprise to which unsecured credit is commonly extended on the faith of its inventory. Therefore, we find that the nursing home is not covered by Article 6 even though it does engage to some extent in the buying and selling of goods incidental to the delivery of its services. The Superior Court's order granting summary judgment of dismissal is affirmed.

Webster, A.C.J., and Forrest, J., concur.

1 The record does not reveal the outcome of this lawsuit.

2 Although the main volume of ROW Title 62A (1966) indicates that Washington adopted the official U.C.C. definition of a covered enterprise in RCW 62A.6-102(3), that definition never came into effect. When the Legislature adopted the U.C.C. in 1965, it delayed the effective date until June 30, 1967, to give Washington citizens an opportunity to review and resolve problems in the U.C.C. Laws' of 1965, 1st Ex. Sess., ch. 157, § 6 and Governor's explanation of partial veto, at 2593. In 1967, the Legislature amended Article 6 and essentially returned the definition of a covered enterprise to the pre-U.C.C. language, effective June 30, 1967. It appears that Washington is unique in not adopting the "principal business" language of the U.C.C. See state statutory variations in 7 R. Anderson, Uniform Commercial Code § 6-102 (3d ed. 1985 & Supp. 1990); Uniform Commercial Code § 6-102, 2A U.L.A. 288 (1977) (Supp. 1991).

3 Webster's Third New International Dictionary 1412, 1413 (1986) defines "mercantile" in pertinent part as "of or relating to merchants or trading", and defines "merchant” in pertinent part as "a buyer and seller of commodities for profit" and "the operator of a retail business".