Opinion
Civil Action No. 00-1125, Section: "R" (4).
March 12, 2001.
ORDER AND REASONS
Before the Court is a motion for summary judgment by defendant Gene W. Harris. For the following reasons, the Court grants defendant's motion.
I. Background
Defendant Gene W. Harris, as president of and on behalf of LDC Consultants, Inc., signed a telecommunications services resale agreement with Network Advanced Services, Inc. on January 6, 1993. (Plaintiff Broadwing Communications, Inc. is Network's successor in interest.) Under the terms of the agreement, Network billed LDC monthly for the agreed fees and the actual cost of transport. Harris also signed a personal guarantee on January 6, 1993, guaranteeing payment to Network of any obligation of LDC.
Over the next three and a half years, Network provided LDC telecommunications services and billed LDC monthly for those services. From the beginning of their business relationship, however, LDC believed Network overcharged it and disputed the monthly bills. (Pl.'s Mem. Opp'n Mot. Summ. J., Ex. 1 at 14, 23, 32-33, 63, 65.) As a result, Network consistently maintained a monthly balance on LDC's account. (Def.'s Mem. Supp. Mot. Summ. J., Ex. 3 at 1-2.) Despite these billing disputes and outstanding balances, Network continued to provide LDC telecommunications services.
On June 6, 1996, Network, LDC, and Quantum Communications, another telecommunications company, entered into a release and settlement agreement in which Network released LDC from $237,114.48 of debt, Quantum canceled notes totaling $237,114.48 owed by Network, and LDC paid Quantum the difference between $237,144.48 and the $180,000.00 that Quantum owed LDC. Included in the agreement was a recital stating: "LDC is indebted to [Network] (in an amount in excess of the outstanding principal and unpaid interest balance remaining on the Notes) pursuant to the terms of [the resale agreement]." (Pl.'s Mem. Opp'n Mot. Summ. J., Ex. 1 at Ex. D.) After signing the agreement, LDC believed that it did not owe Network any money after credits and adjustments for overcharges by Network were taken into account. (Id., Ex. 1 at 32-34.) A week later, on June 14, 1996, LDC paid Network its May 5, 1996 invoice, after deducting a finance charge and an asserted credit. (Id., Ex. 1 at Ex. K.) That $48,443.35 payment was the last payment LDC made to Network.
On July 5, 1996, Network terminated service to LDC, claiming LDC had defaulted because the account was thirty days past due. After sending LDC and Harris several demand letters, Network filed a petition on open account against LDC in Louisiana state court on September 23, 1996. Although LDC filed an answer on November 15, 1996, no further pleading were filed by either party, and the action was abandoned as of November 1999. See LA. CODE CIV. PROC. art. 561. Plaintiff then filed this suit on April 12, 2000 against Harris as guarantor.
Harris now moves for summary judgment. He argues that the arrangement between Network and LDC was an open account subject to a three year prescriptive period, which has expired. He further argues that the extinction of this principal obligation extinguished his obligations under the personal guarantee. Plaintiff opposes this motion, arguing the prescriptive period is ten years.
II. Discussion
A. Summary Judgment Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552 (1986). Accordingly, a court must be satisfied that no reasonable trier of fact could find for the nonmoving party. In other words, "if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the nonmoving party to carry its burden." Beck v. Texas State Bd. of Dental Exam'rs, 204 F.3d 629, 633 (5th Cir. 2000).
Initially, the moving party bears the burden of establishing that there are no genuine issues of material fact. If the dispositive issue is one for which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325, 106 S.Ct. at 2554. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. See Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. Summary judgment is mandated if the nonmovant fails to make a showing sufficient to. establish the existence of an element essential on which it bears the burden of proof at trial. See Id. at 322, 106 S.Ct. at 2552. The nonmovant may not rest upon the pleadings but must identify specific facts that establish a genuine issue exists for trial. See Id. at 325, 106 S.Ct. at 2553-54; Rushing v. Kansas City S. Ry. Co., 185 F.3d 496, 505 (5th Cir. 1999).
The Fifth Circuit has "arguably articulated an even more lenient standard for summary judgment in certain nonjury cases." Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 273 n. 15 (5th Cir. 1987). In Nunez v. Superior Oil Co., 572 F.2d 1119, 1123 (5th Cir. 1978), the Fifth Circuit explained:
There is no litmus test that infallibly distinguishes those issues that are `factual' from those that are `legal' or `mixed.' . . . as we approach the point where facts and the application of legal rule to them blend, appraising evidentiary facts in terms of their legal consequences and `applying' law to fact become inseparable processes.
Therefore, in a nonjury case, such as this case, the Court is encouraged to draw inferences, even when they appear to be factual, if a "trial on the merits would reveal no additional data." Id. at 1124.
B. Open Account
The threshold issue in this motion is whether the telecommunications services resale agreement between Network and LDC is just a contract or whether it is an open account. For although an open account presupposes the existence of a contract, Louisiana law distinguishes and assigns different prescriptive periods for contracts and open accounts. See Montgomery Stire Partners, Inc. v. London Livery, Ltd., 769 So.2d 703, 706 (La.App. 4th Cir. 2000); Contractors Supply Eq-Orleans v. J. Caldarera Co., 734 So.2d 755, 759 (La.App. 5th Cir. 1999); Bieber-Guillory v. Aswell, 723 So.2d 1145, 1149 (La.App. 3d Cir. 1998). See also LA. CIV. CODE arts. 3494 (three year prescription for open account), 3499 (ten year prescription for contract). Louisiana Civil Code article 1906 defines "contract" as "an agreement by two or more parties whereby obligations are created, modified, or extinguished." It is an agreement "in which an offer is made by one of the parties and acceptance is made by the other party, thereby establishing a concurrence in understanding the terms." Tyler v. Haynes, 760 So.2d 559, 563 (La.App. 3d Cir. 2000).
In contrast, "open account" is a legal term of art that Louisiana Revised Statutes section 9:2781(C) defines to include "any account for which a part or all of the balance is past due, whether or not the account reflects one or more transactions and whether or not at the time of contracting the parties expected future transactions." See Bieber-Guillory, 723 So.2d at 1149; Dixie Mach. Welding Metal Works, Inc. v. Gulf States Marine Tech. Bureau, Inc., 692 So.2d 1167, 1169 (La.App. 5th Cir. 1997). In interpreting this definition, the Louisiana courts have compared an open account to a credit account. See Tyler, 760 So.2d at 562; Bieber-Guillory v. Aswell, 723 So.2d at 1149; Dixie Mach. Welding Metal Works, Inc., 692 So.2d at 1169. To determine whether a particular course of dealings is considered an open account, Louisiana courts have weighed four factors: "(1) Whether there were other business transactions between the parties; (2) whether a line of credit was extended by one party to the other; (3) whether there are running or current dealings; and (4) whether there are expectations of other dealings." Tyler, 760 So.2d at 563; Dixie Mach. Welding Metal Works, Inc., 692 So.2d at 1170; Sandoz v. Dolphin Servs., Inc., 555 So.2d 996, 997 (La.App. 1st Cir. 1989).
Asserting that the telecommunications services resale agreement is an open account, Harris first argues that plaintiff characterized the resale agreement as an open account in his state petition and that plaintiff is bound by that characterization. (See Def.'s Mem. Supp. Mot. Summ. J., Ex. 6.) Both parties, however, abandoned the state suit. See LA. CODE CIV. PROC. art. 561. Therefore, it is as if the state suit had never been instituted, and plaintiff is not bound by the open account characterization. See Scoggins v. Frederick, 744 So.2d 676, 681 (La.App. 1st Cir. 1999); Total Sulfide Servs., Inc. v. Secorp Indus., Inc., 685 So.2d 514, 515 (La.App. 3d Cir. 1996); Howard Trucking, Co. v. Stassi, 474 So.2d 955, 961 (La.App. 5th Cir. 1985), aff'd, 485 So.2d 915 (La. 1986).
Harris also argues that the demand letter plaintiff's counsel sent on August 21, 1996 refers to the resale agreement as an open account. (Def.'s Mem. Supp. Mot. Summ. J., Ex. 7.) While the characterization in the demand letter is persuasive evidence, it is not dispositive. Accordingly, the Court will consider the four factors to determine whether the resale agreement is a contract or an open account.
Plaintiff does not dispute that Network and LDC had an ongoing relationship spanning at least three and a half years. It also does not dispute that "LDC maintained an account with Network that consistently maintained a monthly balance," due to disagreements about the rates. (Id., Ex. 3 at 1-2.) Moreover, notwithstanding those disagreements and outstanding balances, Network continued to provide LDC telecommunications services until Network terminated service to LDC on July 5, 1996. The Court finds that these running balances as Network continued to provide services present a scenario akin to a credit account. Accordingly, the Court finds that the telecommunications services resale agreement between Network and LDC is an open account.
C. Prescription
Open accounts, such as the resale agreement at issue in this case, are subject to a liberative prescription of three years, which expired before plaintiff filed this suit. See LA. CIV. CODE art. 3494. Plaintiff, however, is not suing for LDC to fulfill its obligation under the resale agreement. Instead, plaintiff seeks compensation from Harris as LDC's guarantor, and it asserts that its claim against Harris is subject to a ten year prescriptive period.
Plaintiff's argument, however, ignores article 3060 of the Louisiana Civil Code. The personal guarantee executed by Harris is an accessory contract to the resale agreement, which is the principal obligation. See id. arts. 1913, 3035. And under article 3060, the prescription of the principal obligation extinguishes Harris' obligations under the personal guarantee. See id. art. 3060. See also Starns v. Emmons, 538 So.2d 275, 279 (La. 1989) ("[I]f prescription bars an action against [defendant] as the principal obligor, then prescription also bars an action against [defendant's] sureties."). Therefore, plaintiff's claims against Harris are subject to the three year prescription, which has expired. In so finding, the Court rejects plaintiff's efforts to cabin this suit into a contract claim.
Although it appears that plaintiff's claims are prescribed, plaintiff may press its claims if it shows that the prescriptive period was interrupted. See LA. CIV. CODE arts. 3464, 3504. See also Lima v. Schmidt, 595 So.2d 624, 631 (La. 1992).
"Prescription is interrupted when one acknowledges the right of the person against whom he had commenced to prescribe." LA. CIV. CODE art. 3464. Plaintiff correctly argues that acknowledgment would not only interrupt prescription, but it would also transform the indebtedness from an open account into a personal debt subject to a ten year prescriptive period. See, e.g., Jones v. Butler, 346 So.2d 790, 792-93 (La.App. 1st Cir. 1977); Ragas v. Mistich, 223 So.2d 674, 675-76 (La.App. 4th Cir. 1969).
To establish an acknowledgment plaintiff proffers the June 6, 1996 Release and Settlement Agreement that Harris executed as President of LDC and the June 14, 1996 payment of $48,443.35 by LDC to Network. The purported acknowledgment in the release and settlement agreement is the second recital which states: "Whereas LDC is indebted to [Network] (in an amount in excess of the outstanding principal and unpaid interest balance remaining on the Notes) pursuant to the terms of the [resale agreement]." (Pl.'s Mem Opp'n Mot. Summ. J., Ex. 1 at Ex. D. (emphasis in original)) Although an acknowledgment is subject to no particular formality and only requires that the right or obligation be recognized, "the mere recognition of a disputed claim . . . do[es] not evidence an acknowledgment." Lima, 595 So.2d at 632-34. See also First Nat'l Bank of Commerce v. Band, 727 So.2d 1171, 1172 (La.App. 4th Cir. 1998). In his deposition, Harris asserted that Network's billing "was constantly wrong and never right" and that when LDC signed the settlement agreement it did not owe Network any money after "credits and adjustments" for overcharges by Network were taken into account. (Pl.'s Mem. Opp'n Mot. Summ. J., Ex. 1 at 14, 23, 33-34, 62-63, 65.) (See also Def.'s Mem. Supp. Mot. Summ. J., Ex. 3 at 2.) The text of the second recital is consistent with that understanding. Moreover, Harris testified that LDC had informed Network of the basis of its position that adjustments were justified. (Pl.'s Mem. Opp'n Mot. Summ. J., Ex. 1 at 33-34.) He further testified that Network never responded to LDC until Network filed a state petition on open account on September 23, 1996. (Id., Ex. 1 at 34.) The filing of the state court lawsuit on the heels of the release and settlement agreement undermines plaintiff's contention that LDC had just unconditionally acknowledged that it owed Network the disputed account balance. The Court also notes with interest that plaintiff does not contest Harris? deposition testimony and that it presents no evidence controverting Harris' version of events. Accordingly, the Court finds that the second recital in the release and settlement agreement merely recognized a disputed claim and did not interrupt the prescriptive period.
Second, the June 14, 1996 check was a payment on the May 5, 1996 monthly invoice, after LDC deducted finance charges and an asserted credit. (See id., Ex. 1 at Exs. G, K. See also id., Ex. 1 at 60.) The payment, accordingly, was for specific charges, not the general outstanding balance. This distinction is important because payments imputed to specific charges do not interrupt the prescriptive period. See, e.g., Dear v. Mabile, 637 So.2d 745, 748 (La.App. 1st Cir. 1994) ("A payment on an open account which is imputed to a specific charge included therein does not interrupt the prescriptive period as to the balance of the account."); Freeman, Gyer, Hemelt Assocs. v. Estate of McKnight, 578 So.2d 996, 998 (La.App. 4th Cir. 1991) (same); Farlee Drug Ctr. v. Belle Meade Pharmacy, Inc., 464 So.2d 802 (La.App. 5th Cir. 1985) (same). Therefore, the Court finds that the prescriptive period was not interrupted and grants defendant's motion for summary judgment.
III. Conclusion
For the foregoing reasons, the Court grants defendant Gene W. Harris' motion for summary judgment.