Adci Corp. v. Bao Nguyen

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
ADCI CORP., f/k/a ASIA DISCOUNT ) No. 80658-1-I
CENTER, INC., a Washington )
corporation, ) DIVISION ONE
)
Appellant, ) PUBLISHED OPINION
)
v. )
)
BAO NGUYEN and JANE DOE NGUYEN )
and their marital community; DEO BUI )
and JANE DOE BUI and their marital )
community; CYNTHIA HOANG and )
JOHN DOE HOANG and their marital )
community; JENNY LI and JOHN DOE LI )
and their marital community; CAFÉ PHO, )
INC., a Washington corporation, f/d/b/a )
Café Pho; CAFÉ PHO 1, LLC a )
Washington Limited Liability Company, )
d/b/a Café Pho; CAFÉ PHO II, Inc., a )
Washington corporation, d/b/a Café Pho; )
HOA HOANG and JANE DOE HOANG, )
and their marital community; ADAM )
NGUYEN and JANE DOE NGUYEN and )
their marital community, )
)
Respondents. )
)
HAZELRIGG, J. — ADCI Corporation appeals a trial court’s order dismissing
its complaint as time-barred under CR 12(b)(6). The parties dispute whether a
four-year statute of limitations on an action for the sale of goods applies, or a six-
year limitation on an action on an open account. Viewing the facts in the light most
favorable to ADCI, we conclude that ADCI sufficiently pleaded “[a]n action upon
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an account receivable.” Where, as here, multiple statutes of limitations may
govern, the court must apply the longer. As such the six-year statute of limitations
in RCW 4.16.040(2) applies. We reverse the order of dismissal and remand for
further proceedings.
FACTS
ADCI is a wholesale merchant that supplies produce and other food
products to restaurants, including Café Pho, a Vietnamese restaurant with two
locations in Seattle and Tukwila.
On June 26, 2019, ADCI sued Café Pho and its owners, Bao Nguyen, Deo
Bui, Cynthia Hoang and Jenny Li (defendants), for “breach of written agreement
and recovery of past due accounts receivable based on the invoices.” The
complaint alleged that the defendants regularly “ordered and received delivery” of
produce and food from ADCI to use in their restaurants. In response, ADCI
“extended credit to Defendants per their orders by supplying produce and food on
account to the restaurant.” The invoices that ADCI sent to Café Pho for the orders
provided for a 1.5 percent monthly finance charge on unpaid amounts. At the time
of the filing of the complaint, Café Pho owed ADCI $193,663.34 in unpaid invoices.
ADCI attached to its complaint two exhibits listing the date and amount of
all of the unpaid invoices. Exhibit A listed 413 unpaid invoices to the Seattle
restaurant, dated from July 1, 2013 to May 28, 2015. Exhibit B listed 81 allegedly
unpaid invoices to the Tukwila restaurant, dated from February 2, 2015 to May 29,
2015.
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On August 5, 2019, the defendants filed a CR 12(b)(6) motion to dismiss
the complaint as barred by the statute of limitations. The defendants claimed that
the transactions represented by the invoices were “contracts for sale” as defined
by RCW 62A.1-106, and that ADCI’s complaint stated only a claim for breach of
494 separate contracts. The defendants argued that because the breach of each
contract took place on the date of the invoice, ACDI’s complaint was time-barred
by the four-year statute of limitations set forth at RCW 62A.2-725.
In response, ADCI contended that the food was delivered “on credit” and
thus the transactions were “accounts receivable” and therefore subject to the six-
year statute of limitations under RCW 4.16.040(2). According to ADCI, “the
promise giving rise to [ADCI’s] accounts receivable was separate from the sale of
goods” because “with each delivery Defendants made an unconditional promise to
repay their credit balance with interest.” ADCI explained that its billing practice
was to provide an invoice with each delivery of food, and to provide a monthly
account statement “detailing the total amounts past due.”1
ADCI attached to its response two samples of invoices sent to Café Pho.
Each invoice is one page and provides the invoice number, product and quantity
ordered, and the signature of the person accepting delivery. The invoice also
provides as follows:
A 1 1/2% monthly finance charge (annual percentage rate of 18%,
compounded monthly, accrued from the date of invoice) will be
1
In the alternative, ADCI argued, each invoice constituted a “negotiable
instrument” governed by the six-year statute of limitations in Article 3 of the Uniform
Commercial Code (UCC), title 62A RCW. ADCI does not pursue this claim on appeal.
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assessed on all past due invoices. The buyer hereby agrees to pay
such finance charges on all past due invoices.
In the event that Asia Discount Center, Inc. hires an attorney to
collect a past due amount, the buyer hereby agrees to pay all Asia
Discount Center, Inc. actual expenses, costs and reasonable
attorney fees for said collection. The venue of any legal action shall
be in King County, Washington.
The trial court disagreed with ADCI’s characterization of the transactions as
accounts receivable because ADCI did not allege the existence of an agreement
for financing that was separate and distinct from the sales contract.2 Instead, the
trial court stated, “The facts alleged by [ADCI] concern transactions in goods—
produce and food—as defined by RCW 62A.2-102 and RCW 62A.105 and sales
as defined in RCW 62A.2-106(1).” The trial court reasoned as follows:
Under Article 2 of the Uniform Commercial Code, as adopted in
Washington, payment, unless otherwise agreed, is due at the time
and place at which the buyer received the goods, i.e., upon delivery.
RCW 62A.2-310. [ADCI] alleges no facts sufficient to demonstrate a
separate agreement on time and place for payment of the invoices
at issue in this dispute. The last delivery was May 29, 2015. By this
time, [ADCI] had failed to pay for all the goods at issue. The 4-year
statute of limitations set forth in RCW 62A.2-725 governs. See
Lybecker v. United Pac[.] Ins. Co., 67 Wn.2d 11, 15 n. 3[, 406 P.2d
945] (1965). [ADCI’s] claims are time-barred because this lawsuit
was not initiated until June 24, 2019 (when a defendant was served)
2 The trial court considered both the exhibits attached to the complaint and to
ADCI’s response to the motion to dismiss, finding that they were incorporated by reference
into the complaint, and thus did not constitute “matters outside the pleadings” requiring
the trial court to treat the defendants’ motion as one for summary judgment under CR 56.
See, e.g., U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (a court may consider
documents not attached to a complaint, but which are incorporated by reference into the
complaint because “the plaintiff refers extensively to the document or the document forms
the basis of the plaintiff’s claim.”). Nonetheless, the trial court concluded that “[e]ven if the
invoices are matters outside the pleadings, the result is the same under a summary
judgment standard pursuant to CR 56” because “[b]oth parties had the opportunity to
submit the material they wanted considered and both parties agreed to consideration of
the invoices.” Because neither party addresses the summary judgment standard on
appeal, we consider only whether the trial court erred in dismissing the complaint pursuant
to CR 12(b)(6).
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or June 26, 2019 (when the lawsuit was filed). This was beyond four
years after the cause of action accrued.
....
[ADCI’s] factual allegations, including the undisputed invoices, do not
support application of the statute of limitations applicable to accounts
receivable. The facts do not support recovery under an accounts
receivable theory where there is no allegation of a separate, distinct
agreement between the buyer and the seller apart from the sales
agreements, i.e., apart from the invoices for the goods. [ADCI] relies
exclusively on the invoices and the content of the invoices, and fails
to raise facts consistent with the invoices that a separate, distinct
agreement for financing existed. The invoices do not contain a
separate, distinct agreement for financing. Because [ADCI] cannot
show a separate, distinct agreement consistent with its allegations,
including the invoices, this case is distinguishable from Alpacas of
America, LLC v. Groome, 179 Wn. App. 391[, 317 P.3d 1103] (2014).
In Alpacas, there was both a sales agreement and a promissory note.
The suit on the promissory note could go forward under the longer
statute of limitations applicable to negotiable instruments, even
though suit on the sales contract was time-barred. 179 Wn. App. at
399-400. Here there is only the invoices, which are part of the sales
transaction. There is no separate agreement for financing and no
promissory note or negotiable instrument.
The trial court concluded, “A plaintiff may be able to establish an accounts
receivable theory arising from the sale of the goods, but the facts alleged and the
invoices here fail to state a claim for relief.” Accordingly, the trial court dismissed
ADCI’s complaint with prejudice. The trial court awarded the defendants
$21,687.50 in attorney fees. ADCI appeals.
ANALYSIS
We review a CR 12(b)(6) dismissal de novo. Trujillo v. Nw Tr. Servs., Inc.,
183 Wn.2d 820, 830, 355 P.3d 1100 (2015). Dismissal is appropriate only if the
trial court concludes that the plaintiff can prove no set of facts consistent with the
complaint to justify recovery. Atchison v. Great W. Malting Co., 161 Wn.2d 372,
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376, 166 P.3d 662 (2007). A plaintiff’s factual allegations are presumed true for
purposes of a CR 12(b)(6) motion. Lawson v. State, 107 Wn.2d 444, 448, 730
P.2d 1308 (1986). “A complaint survives a CR 12(b)(6) motion if any state of facts
could exist under which the court could sustain the claim for relief. . . . Thus, a
court may consider hypothetical facts not part of the formal record in deciding
whether to dismiss a complaint pursuant to CR 12(b)(6).” Haberman v. Wash.
Pub. Power Supply Sys., 109 Wn.2d 107, 120, 744 P.2d 1032 (1987). “Such
motions should be granted ‘sparingly and with care,’ and only in the unusual case
in which the plaintiff’s allegations show on the face of the complaint an insuperable
bar to relief.” San Juan County v. No New Gas Tax, 160 Wn.2d 141, 164, 157
P.3d 831 (2007).
Article 2 of the UCC, codified in Washington in 1965 at chapter 62A RCW,
governs “transactions in goods.” See RCW 62A.2-102 (“Unless the context
otherwise requires, this Article applies to transactions in goods.”). RCW 62A.2-
725(1) establishes that a cause of “[a]ction for breach of any contract for sale must
be commenced within four years after the cause of action has accrued.” 3 A cause
of action accrues “when the breach occurs, regardless of the aggrieved party’s
lack of knowledge of the breach.” RCW §62A.2-725(2).
RCW 4.16.040(2), in contrast, provides that “an action upon an account
receivable” must be brought within six years. The statute defines an account
receivable as “any obligation for payment incurred in the ordinary course of the
3
The statute defines “contract for sale” as “both a present sale of goods and a
contract to sell goods at a future time.” RCW 62A.2-106
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claimant’s business or profession, whether arising from one or more transactions
and whether or not earned by performance.” RCW 4.16.040(2).
“A statute of limitation, in effect, deprives a plaintiff of the opportunity to
invoke the power of the courts in support of an otherwise valid claim.” Stenberg v.
Pac. Power & Light Co., 104 Wn.2d 710, 714, 709 P.2d 793 (1985). Accordingly,
when there is uncertainty as to which statute of limitation governs, a court shall
apply the longer statute. Id. at 715.
ADCI argues that the trial court erred in applying the four-year statute of
limitations for contracts for sale, instead of the six-year statute of limitations
governing accounts receivable. It claims that, in doing so, the trial court ignored
the Washington Supreme Court’s controlling opinion in Tingey v. Haisch, 159
Wn.2d 652, 664, 152 P.3d 1020 (2007).
The defendants contend, as they did before the trial court, that the invoices
represent individual contracts for the sale of goods. They argue that sales
contracts are governed exclusively by Article 2 of the UCC, citing the comment to
UCC section 2-725, which states “This Article takes sales contracts out of the
general laws limiting the time for commencing contractual actions and selects a
four year period as the most appropriate to modern business practice.”
Tingey addressed the issue of whether RCW 4.16.040(2) applies to an
action to collect a balance owed by a client to an attorney for legal services
performed on an hourly fee basis without a written fee agreement. 159 Wn.2d at
656. In Tingey, the attorney regularly invoiced the client for legal services on an
hourly fee basis. At some point the client stopped paying the invoices, though the
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No. 80658-1-I/8
attorney continued to represent the client for another six months. More than three
years later, the attorney filed a collection action. The client moved to dismiss the
action as time-barred by RCW 4.16.080(3), which provides for a three-year statute
of limitations for oral contracts. The attorney moved for summary judgment,
arguing that the six-year statute of limitations in RCW 4.16.040(2) applied because
he was suing on an account receivable incurred in the ordinary course of business.
The trial court granted summary judgment in favor of the attorney, who ultimately
prevailed at trial.
Division Three of this court concluded that the attorney’s unpaid legal fees
were not an account receivable, because the term “account receivable” in RCW
4.16.040(2) refers to an “open account” that is “‘[a]n account that is left open for
ongoing debit and credit entries by two parties and that has a fluctuating balance
until either party finds it convenient to settle and close.’” Tingey v. Haisch, 129
Wn. App. 109, 117, 117 P.3d 1189 (2005), reversed by, 159 Wn.2d 652 (quoting,
BLACK’S LAW DICTIONARY 20 (8th ed. 2004)).
In this case, Mr. Tingey’s claim for attorney fees is not an account
receivable subject to the six-year statute of limitations stated in RCW
4.16.040(2). When Mr. Haisch retained Mr. Tingey, the transaction
was not like a revolving charge account, to which charges were
added and payments subtracted. Also, Mr. Haisch did not retain Mr.
Tingey for multiple transactions. Rather, he retained an attorney for
the sole purpose of representing him in one transaction, the Grant
County lawsuit. The transaction did not involve a fluctuating balance
of debit and credit entries between two parties involving multiple
transactions. Rather, the attorney fees involved an increasing
balance of debit entries on one transaction.
Id.8
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The Washington Supreme Court reversed. It held that, because the term
“account receivable” is never defined in the Revised Code of Washington, it must
be given its plain meaning as used in the accounting industry, which is “an amount
due a business on account from a customer who has bought merchandise or
received services.” Tingey, 159 Wn.2d at 659. The court identified four elements
that would render a transaction an account receivable for the purposes of the six-
year statute of limitations:
Our definition identifies the parties to the contract (a customer and a
business) and the character of the transaction (a purchase by the
customer). It requires the business to have completed performance
(customer has bought or received the merchandise or services). It
specifies the monetary nature of the remaining obligation (an amount
due). Only oral contracts exhibiting all of these characteristics garner
the account receivable six-year limitation.
Id. at 659-60. The court concluded that “[t]he term account receivable
encompasses the balance which Tingey seeks to collect, an amount owed to him
for legal services performed in the ordinary course of his business.” Tingey, 159
Wn.2d at 663 (internal quotations omitted). Five months after the opinion for
Tingey was issued, the legislature amended RCW 4.16.040(2) to clarify the
definition of account receivable as “any obligation for payment incurred in the
ordinary course of the claimant’s business or profession, whether arising from one
or more transactions and whether or not earned by performance.” Laws 2007, ch.
124, § 1.
The defendants contend that Tingey cannot control because it involved the
provision of services, not the sale of goods. They assert that any reference to
goods or merchandise is merely dicta. But dicta is “language not necessary to the
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decision in a particular case.” In re Marriage of Roth, 72 Wn. App. 566, 570, 865
P.2d 43 (1994). The sole issue in Tingey was what definition to give to “account
receivable” for the purposes of the six-year statute of limitations in RCW
4.16.040(2). The court determined that “[w]hen a technical term is used in its
technical field, the term should be given its technical meaning by using a ‘technical
rather than a general purpose dictionary.’” Tingey, 159 Wn. 2d at 658 (quoting
City of Spokane ex rel. Wastewater Mgmt. Dep’t v. Dep’t of Revenue, 145 Wn.2d
445, 454, 38 P.3d 1010 (2002)). The opinion repeats the technical definition,
containing the word “merchandise,” no less than eight times. Under the
circumstances, the court’s references to “merchandise” cannot be dismissed as
dicta.
The defendants additionally contend that, when the legislature enacted
RCW 4.16.040(2) in 1989 to create a six-year statute of limitations for accounts
receivable, it did so by amending RCW 4.16.080(3), creating an exception to the
three-year statute of limitations for oral contracts. Because the legislature did not
similarly amend Article 2 to exempt accounts receivable, the defendants argue,
“Washington, like the rest of the country, continued to have a consistent four-year
statute of limitations for causes of action arising from transactions in the sale of
goods.” But we do not believe, as the defendants appear to argue, that the six-
year statute of limitations for accounts receivable can never apply when the
account receivable arises from the sale of goods.
Finally, citing Gray v. Suttell & Assocs., 123 F. Supp. 3d 1283 (2015), the
defendants argue that, to constitute an account receivable, the buyer and seller
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must have an agreement for financing that is separate and distinct from the sales
contract. But Gray, which involved an action to collect the unpaid balance on a
store-issued credit card, appears to support ADCI’s position. In ruling on a motion
for summary judgment that the six-year statute of limitations for accounts
receivable applied, the Gray court relied on Tingey’s definition of an account
receivable as “‘an amount due a business on account from a customer who has
bought merchandise or received services.’” Gray, 123 F. Supp. 3d at 1298
(quoting Tingley, 159 Wn.2d at 659). It held that “[a]n oral contract between a
customer and a business for the purchase of merchandise or services and for
which performance has been completed meets this definition.” Id. Additionally, it
concluded that it was “possible that the relationship at issue here could be viewed
as an account receivable,” but that the court did not have sufficient undisputed
evidence before it to decide the issue on summary judgment grounds. Id.ADCI alleges that its long-term customers in the restaurant industry,
including Café Pho, occasionally experienced financial difficulties that kept them
from paying their invoices on time. Consequently, ADCI states, it had a policy of
“extending credit” to these customers, and that customers sometimes took as long
as five years “to pay off their account receivable balances.” According to ADCI, it
sent the defendants monthly statements, and expected that the defendants would
make payments towards these statements rather than the individual invoices. The
defendants responded by “often sending in a check with their own accounting
printout of the list of invoices for the month and the monthly total amount owed, but
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these payments were normally very late.” Frequently, ADCI stated, the defendants
would send a single check to cover multiple months of statements.4
We conclude that these facts, if true, would constitute a claim for recovery
of an account receivable, as defined in Tingey. There is no dispute that the
defendants purchased produce and other food products, and ADCI delivered them.
The defendants typically maintained an outstanding balance, portions of which it
paid off with varying frequency. After a lengthy period of time passed with no
payment, ADCI sued to recover the outstanding balance due.
The apparently contradictory positions of the parties can be resolved fairly
easily. A specific statute exists to address the sale of goods and a specific statute
exists to capture open accounts. The defendants’ assertion is correct that the
legislative enactment was intended to capture oral agreements for open accounts
in the longer six-year statute of limitations and that this action by the legislature did
not eliminate the four-year UCC statute of limitations. ADCI brought suit for
amounts due on an open account, not a single transaction or merely a number of
discrete transactions. Again, under Stenberg, when there is uncertainty as to
which statute of limitation governs, a court shall apply the longer of the options.
104 Wn.2d at 715. Based on the broad definition of account receivable in Tingey
4
ADCI alleges these facts for the first time in declarations from ADCI’s owner and
manager attached to its opening brief. The declarations appear to have been filed in an
unrelated lawsuit against a different restaurant, Pho To Chau, that raises similar
allegations as the instant case. The defendants move to strike the declarations and other
documents attached to ADCI’s opening brief, contending they were not part of the record
on appeal and ADCI did not move to supplement the record pursuant to RAP 9.11.
However, to survive a CR 12(b)(6) motion to dismiss, ADCI need only present a
hypothetical set of facts upon which it could pursue relief. Because we consider the
declarations for the limited purpose of envisioning such hypothetical facts, we deny the
motion to strike.
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and RCW 4.16.040(2), ADCI would be entitled to the six-year statute of limitations
in RCW 4.16.040(2), and thus the trial court erred in dismissing the complaint
under CR 12(b)(6). We vacate the trial court’s order of dismissal, including its
award of attorney fees, and remand for further proceedings.5
ADCI seeks attorney fees and costs incurred on appeal, pursuant to RAP
18.1 and the attorney fee provision in each invoice. The defendants also seek
attorney fees, citing RCW 4.84.330, which awards attorney fees to the prevailing
party in a contract action. Because the defendants are not the prevailing party on
appeal, they are not entitled to fees. Also, an award of fees to ADCI is premature
because it has not yet prevailed at this stage of the litigation. See Parmelee v.
O’Neel, 168 Wn.2d 515, 522, 229 P.3d 723 (2010) (a plaintiff “prevails” when
“actual relief on the merits of [their] claim materially alters the legal relationship
between the parties by modifying the defendant’s behavior in a way that directly
benefits the plaintiff.”). If ADCI ultimately prevails on its claims on remand and the
trial court concludes fees are appropriate, the trial court may include in its award
attorney fees and costs for this appeal.
Reversed and remanded.
WE CONCUR:
5
Given our disposition of this case, we do not address ADCI’s arguments
regarding due process or whether subsequent events served to restart the limitations
period.
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