Opinion
Civil Action No. 00-2148-CM
April 19, 2001
MEMORANDUM AND ORDER
Background
These cases arise from circumstances in which the defendant, Airport Systems International, Inc. (hereinafter Airport Systems), entered into an agreement with plaintiff, SOCOPHI S.P.R.L., a limited partnership organized under the laws of the Republic of Zaire (hereinafter SOCOPHI). Plaintiff, Christakis Phitidis, is the general manager or partner of SOCOPHI. Defendant agreed to supply certain navigational aids including a very high frequency omnirange radio transmitter (VOR) and distance measuring equipment (DME) to SOCOPHI for installation at Kinshasha Nujuli Airport in Zaire.
After SOCOPHI failed to make a payment on the contract, Airport Systems retained a prior payment as liquidated damages and plaintiffs eventually filed two suits against the defendant on April 7, 2000. One suit was filed in this court (No. 00-2148-CM), and one in the Johnson County, Kansas, District Court alleging identical facts and claims. Defendant removed the state action to this court (No. 00-2186) and filed identical motions to dismiss in each case (No. 00-2148, Doc. 7, and No. 00-2186, Doc. 4). On May 23, 2000, the cases were consolidated for all further proceedings. Because the complaints and the motions to dismiss are identical, the court's analysis is applicable to both motions and both cases even where discussed hereinafter in the singular. The motion to dismiss seeks to dismiss (1) the restitution claims (Counts III and IV) because they are either (a) not legal claims in Kansas, or are (b) redundant of the unjust enrichment claims (Counts I and II), (2) the claims by plaintiff Phitidis (Counts II and IV) because Phitidis is not the real party in interest, and (3) both complaints because they are barred by the applicable statute of limitations (Kan. Stat. Ann. § 60-512(a) (1994)). Because the court agrees that the claims are barred by the statute of limitations, both cases are dismissed, and the court does not address the issues of whether the restitution claims are valid or redundant or whether plaintiff Phitidis is a real party in interest.
Facts
Accepting well-pleaded facts as true and drawing all reasonable inferences in favor of plaintiffs, the complaint reveals that in 1993, Airport Systems and SOCOPHI entered into an agreement in which Airport Systems agreed to sell, and SOCOPHI agreed to buy, a CVOR and two DMEs. On February 23, 1994 Airport Systems and SOCOPHI entered into a supplemental written agreement regarding the sale. Pursuant to this agreement, SOCOPHI was to pay 60% of the purchase price on or before February 28, 1994, 20% on or before May 10, 1994, and the final 20% one month before delivery. Delivery of the equipment was to be made "200 days upon receipt 60% of payment." (Compl., at 5-6, ¶ 22).
All citations to the complaint refer to the complaint filed in Civil Action No. 00-2148.
The supplemental agreement included the following term:
• All payments made under the schedule [set out above] are non-refundable. Should SOCOPHI at any time fail to comply to the above payment schedule, [Airport Systems] reserves the right to reschedule shipments under this contract. Should SOCOPHI become more than 30 days late making any payment under the above payment schedule, [Airport Systems] shall request in writing that SOCOPHI cure the delinquency. Failure by SOCOPHI to cure such delinquency to [Airport Systems's] satisfaction shall be deemed sufficient grounds for termination of the contract and forfeiture by SOCOPHI of all payments previously made.
(Id. (quoting February, 1994 contract)). Plaintiffs assert that this term is "an unenforceable and invalid penalty clause." (Id. at 6, ¶ 23).
On March 11, 1994, by wire transfer, SOCOPHI made its first payment of $140,000.00 or 58% of the purchase price of the CVOR ($241,000.00). Airport Systems received no payment on May 10, 1994, and, on June 10, 1994, it sent a letter to SOCOPHI in which it "notifie[d] SOCOPHI that it is 30 days delinquent in making . . . payments in accordance with the schedule set forth in [the supplemental] AGREEMENT. Accordingly, you are hereby requested to cure the above described delinquency to the satisfaction of [Airport Systems] within 10 calendar days of this notice. . . . [F]ailure to do so shall be grounds for forfeiture by SOCOPHI of all payments previously made to [Airport Systems]." (Id. at 7, ¶ 27 (quoting the June 10, 1994 letter) (emphasis in original)).
During the period from October, 1993 through July, 1994, there was considerable turmoil in Zaire. More than one million Hutus fled genocide in Rwanda and settled in camps in eastern Zaire. Zaire experienced great economic and monetary upheaval. The President of Zaire dismissed and removed Etienne Tshisekedi, the leader of the main opposition party, from Mr. Tshisekedi's position as Prime Minister on January 14, 1994. On June 14, 1994, the Zairian National Conference appointed a new Prime Minister who assumed office on July 6, 1994. However, Mr. Tshisekedi refused to acknowledge his dismissal and removal, and Mr. Tshisekedi's party and supporters refused to participate in the new government being formed. Plaintiffs claim that the turmoil in Zaire constitutes a "force majeure" relieving SOCOPHI from its duties under the agreements with Airport Systems. About June 20, 1994, SOCOPHI received a letter from the managing director of the Republic of Zaire, Regis Des Vois Aeriennes, informing SOCOPHI that the Regis Des Vois Aeriennes had suspended settling of orders with its suppliers. Therefore, Regis Des Vois Aeriennes would not settle its orders with SOCOPHI, but the order from SOCOPHI remained effective.
About June 22, 1994, SOCOPHI sent a letter to Airport Systems in which SOCOPHI included a copy of the June 20 letter from the Regis Des Vois Aeriennes, explained that SOCOPHI was unable to make the May payment for reasons beyond its control, requested a payment extension, and informed Airport Systems that SOCOPHI was still awaiting a final delivery date for the CVOR. SOCOPHI sent another letter to Airport Systems on July 4, 1994, in which it stated:
Further to our telephone conversation we had, we would like to advise you that the recent problem of payments is expected to be resolved in two-three weeks and normal payments to resume again.
As you might probably be aware, the newly elected Prime Minister is to give the names of his government in the next couple of days, having thus form a new government in the country. Upon the formation of the new government[,] payments and other business are to commence normally.
(Id. at 9, ¶ 32 (quoting July 4, 1994 letter)). The complaint reveals no other transactions between plaintiffs and defendant for thirty-three months until April 7, 1997.
By letter dated April 7, 1997, SOCOPHI, through its attorney, inquired of Airport Systems whether the CVOR had been manufactured, and what Airport Systems's position was with regard to the payment already made. Airport Systems responded by letter dated April 14, 1997 that the equipment had been reallocated. With regard to the payment, Airport Systems stated:
Our letter of 10-June-1994 gave formal notice to SOCOPHI S.P.R.L. of its delinquency and requested the condition be cured within 10 calendar days. The letter further reminded SOCOPHI S.P.R.L. of the possible forfeiture of its payments to date.
No further payments were received by Airport Systems under the agreement. Accordingly, those payments already received were deemed to have been forfeited to Airport Systems in accordance with the terms of the Agreement. We consider the matter closed.
(Id. at 10, ¶ 37 (quoting letter, April 14, 1997)). On March 10, 1999, and again on February 22, 2000, SOCOPHI requested return of the $140,000.00 payment.
Plaintiffs filed the suit at issue on April 7, 2000, asserting claims of restitution and unjust enrichment and seeking return of the $140,000.00 payment made on March 11, 1994. This court has jurisdiction of this diversity action pursuant to 28 U.S.C. § 1332.
Although the parties do not address the issue, the court concludes that Kansas law applies to this dispute. The sales contract underlying this dispute is a transaction in goods within the scope of Article two of the Kansas Uniform Commercial Code and bears "an appropriate relation to this state," making the application of Kansas law neither arbitrary nor unfair. Kan. Stat. Ann. §§ 84-1-105, 84-2-102 (1996); Sys. Design Mgmt. Info. Inc. v. Kan. City Post Office Employees Credit Union, 14 Kan. App.2d 266, 269, 788 P.2d 878, 880-81 (1990).
Legal Standard Applied to a Motion to Dismiss
The court will dismiss a cause of action for failure to state a claim only when it appears beyond a doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle him or her to relief, Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Maher v. Durango Metals, Inc., 144 F.3d 1302, 1304 (10th Cir. 1998), or when an issue of law is dispositive. Neitzke v. Williams, 490 U.S. 319, 326 (1989). The court accepts as true all well-pleaded facts, as distinguished from conclusory allegations, Maher, 144 F.3d at 1304, and all reasonable inferences from those facts are viewed in favor of the plaintiff. Witt v. Roadway Express, 136 F.3d 1424, 1428 (10th Cir. 1998). The issue in resolving a motion such as this is not whether plaintiffs will ultimately prevail, but whether they are entitled to offer evidence to support their claims. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds, Davis v. Scherer, 468 U.S. 183 (1984).Whether Plaintiffs' Claims are Barred by the Statute of Limitations
Defendant argues that plaintiffs' cause of action accrued when SOCOPHI received the June 10, 1994 letter in which Airport Systems expressed its intention to cancel the sales contract and retain the payment at issue. In defendant's view, this action is barred by the three-year limitations period provided in Kan. Stat. Ann. § 60-512 (1994): "The following actions shall be brought within three (3) years: (1) all actions upon contracts, obligations or liabilities expressed or implied, but not in writing. . . ."
Which Statute Applies?
The parties agree that claims of unjust enrichment are implied obligations to which the three-year limitations period of § 60-512 applies. Hartman v. Stumbo, 195 Kan. 634, 635, 408 P.2d 693, 696 (1965) (implied contract); 475342 Alberta Ltd. v. Starfire, Civ. A. No. 95-2083-GTV, 1996 WL 370221 at *9 (D.Kan. June 19, 1996) (quasi-contract). Although the parties do not directly address the issue, the court finds that the three-year limitations period of § 60-512 also applies to a cause of action for restitution.
The parties do not address the four-year Article two limitations period provided in Kan. Stat. Ann. § 84-2-725 (1996), but the court concludes that limitations period is inapplicable. Although the transaction underlying plaintiffs' claims is a contract for the sale of goods, this cause of action lies in tort for unjust enrichment and restitution and does not directly seek recovery for breach of contract. In any case, under the court's analysis the claims at issue would be barred as untimely by § 84-2-725 also.
Under Kansas law, "[t]he substance of a cause of action for restitution or unjust enrichment resides in a ` promise implied in law that one will restore to the person entitled thereto that which in equity and good conscience belongs to him.'" Unified Sch. Dist. No. 500 v. United States Gypsum Co., 788 F. Supp. 1173, 1175 (D.Kan. 1992) (quoting Short v. Wise, 239 Kan. 171, 177, 718 P.2d 604, 608 (1986)) (emphasis added). The three-year limitations period applies to all unwritten, implied contracts, obligations or liabilities. Kan. Stat. Ann. § 60-512 (1994). A " promise implied in law" is an unwritten, implied contract, obligation or liability. Therefore, the three-year limitations period applies equally to restitution claims as to unjust enrichment claims.
Therefore, the court must decide when the causes of action for restitution or unjust enrichment arose. The suit at issue was filed on April 7, 2000. If the cause of action arose after April 7, 1997, the suit was timely filed and is not barred. If, however, the cause of action arose before April 7, 1997, plaintiffs filed suit more than three years after the cause of action arose, and this action is barred as untimely by the statute of limitations. Because the court finds that the cause of action arose before April 7, 1997, the court holds that the suit is barred by the statute of limitations.
The Parties' Arguments
Plaintiffs argue that their cause of action for unjust enrichment or restitution arose no earlier than April 14, 1997, when Airport Systems informed SOCOPHI of Airport Systems's intent to retain the $140,000.00. Plaintiffs' argument rests upon their belief that the circumstances in Zaire, coupled with SOCOPHI's request for an extension of time to make the overdue payment and SOCOPHI's telephone conversations with Airport Systems, justified SOCOPHI's understanding that the extension had been granted. Therefore, plaintiffs assert that SOCOPHI had no way of knowing that Airport Systems had unjustly retained the monies until Airport Systems informed SOCOPHI on April 14, 1997 that it intended to retain the monies.
Defendants argue that the cause of action arose under Kansas law either (1) when SOCOPHI made the Mar. 11, 1994 payment, (2) when SOCOPHI defaulted in payment on May 10, 1994, (3) when Airport Systems gave SOCOPHI notice of default and requested cure on June 10, 1994, or (4) when SOCOPHI failed to cure on June 20, 1994, but in no case later than (5) when any reasonable person would have known that Airport Systems intended to retain the payment. Airport Systems claims that any of those dates is long before April 7, 1997, that plaintiffs' cause of action, consequently, arose more than three years before they filed suit, and therefore, the suit must be dismissed as barred by the statute of limitations.
Kansas Law Applicable to Transactions in Goods
Although plaintiffs do not claim breach of contract, the 1993 sales contract, as amended in February 1994, established the parties' relationship and governs the parties' duties to each other under the law. Article two of the Kansas Uniform Commercial Code regulates duties of buyers and sellers pursuant to a contract for the sale of goods. Therefore, a review of pertinent sections of article two of the Kansas Uniform Commercial Code will assist the court to determine when the cause of action arose.
When a buyer fails to make a payment due under a sales contract, the seller may cancel the contract. Kan. Stat. Ann. § 84-2-703 (1996); Spikes v. Bauer, 6 Kan. App.2d 45, 46, 626 P.2d 816, 817 (1981) (citing Desbien v. Penokee Farmers Union Coop. Ass'n, 220 Kan. 358, 369, 552 P.2d 917, 926-27 (1976)); see also Wallingford v. Bushton Grain Supply Co., 100 Kan. 207, 216, 164 P. 275, 279 (1917) (same rule under pre-code law).
Article two defines cancellation of a contract differently than it does termination. Kan. Stat. Ann. § 84-2-106 (1996). A party may terminate a contract without a breach by the other party by exercising a term of the contract allowing such termination. Id. subsection (3). Cancellation occurs when one party puts an end to the contract because of a breach of the contract by the other party. Id. subsection (4). When a party terminates a contract it must provide reasonable notification to the other party. Id. § 84-2-309(3); LM Enter., Inc. v. BEI Sensors Sys. Co., 45 F. Supp.2d 879, 885 (D.Kan. 1999). Cancellation, on the other hand, does not require notification. LM Enter., 45 F. Supp.2d at 885; compare § 84-2-309(3) with § 84-2-703(f); accord 4A Ronald A. Anderson, Uniform Commercial Code § 2-703:98 (3d ed. 1997).
Therefore, as stated by Mr. Anderson, "It may be deduced that cancellation is a unilateral manifestation of an intent to end the existence of a contract because of a breach by the other contracting party." Anderson, supra, § 2-703:94 (emphasis added). "At some point in time, the seller will be required to reveal the cancellation, and in the absence of circumstances giving rise to a waiver or estoppel the timing of this manifestation is immaterial." Id. § 2-703:98 (emphasis added). Cancellation must occur reasonably promptly after the other parties' breach. Cities Svc. Helex, Inc. v. United States, 543 F.2d 1306 (Ct.Cl. 1976). "What is a reasonable time for the taking of any action depends on the nature, purpose, and circumstances of such action." Kan. Stat. Ann. § 84-1-204(2) (1996). Reasonable time, if the facts are disputed, is a question for the trier of fact, but where the facts are not in dispute, reasonable time is a question of law for the court. La Villa Fair v. Lewis Carpet Mills, Inc., 219 Kan. 395, 401, 548 P.2d 825, 831 (1976).
Finally, the Kansas Uniform Commercial Code allows the parties to provide for liquidated damages in the contract. Kan. Stat. Ann. § 84-2-718(1) (1996).
Discussion
Pursuant to the supplemental agreement, SOCOPHI made its first payment on Mar. 11, 1994, eleven days late and approximately $3,000.00 short of the amount required for a 60% payment. Assuming those deficiencies constitute a material breach of the contract, Airport Systems did not manifest any intent to cancel the contract and thereby waived its right to cancel for that breach. SOCOPHI never tendered the payment due on May 10, 1994. On June 10, 1994, thirty-one days after the payment was due, as required by the supplemental agreement, Airport Systems requested in writing that SOCOPHI cure the delinquency to Airport Systems's satisfaction within ten days. SOCOPHI failed to cure the delinquency within ten days and thereby breached the contract.
Under Kansas law, Airport Systems was entitled to cancel the contract based upon SOCOPHI's breach. Plaintiffs assert, however, that Airport Systems could not cancel the contract because it did not notify SOCOPHI that it had terminated the contract, cancelled the contract, or intended to cancel the contract after SOCOPHI's breach.
Cancellation
The court finds that Airport Systems cancelled the contract effective June 20, 1994 when SOCOPHI failed to cure the delinquent payment. Airport Systems manifested its intent to end the contract because of SOCOPHI's breach. In its June 10, 1994 letter, as required by the supplemental agreement, Airport Systems requested SOCOPHI to cure its delinquent payment and stated: "In accordance with paragraph 3 of the AGREEMENT, failure to do so shall be grounds for forfeiture by SOCOPHI of all payments previously made." Plaintiffs argue that this language states only what could happen and does not express the intent that it shall happen. Defendant claims that the language is clearly a manifestation that, if the cure is not made, the contract is cancelled and Airport Systems intends to keep the previous payment. The court agrees with defendant.
Further, plaintiffs' own actions reflect an understanding that the June 10 letter manifests an intent to cancel. Plaintiffs wrote a letter on June 22, requesting an extension. On July 4, plaintiffs wrote stating that the problem should be resolved in two to three weeks and payments and other business should commence normally. If plaintiffs had not understood Airport Systems's intent to cancel and did not seek a waiver of that cancellation, there would be no need to request a payment extension or to reassure Airport Systems that payments would return to normal within two to three weeks.
The court finds that the June 10 letter manifested Airport Systems's intent to cancel the contract if SOCOPHI failed to cure its delinquent payment within ten days. The fact that Airport Systems's intent was established before SOCOPHI's failure to cure is immaterial to the right to cancel without notice. Timing is material to notice of termination but not to intent to cancel. Therefore, the court finds that the contract was cancelled effective June 20, 1994 and, pursuant to the supplemental agreement, Airport Systems retained the $140,000.00 payment as liquidated damages. Airport Systems's failure to return the $140,000.00 gave rise to a cause of action for unjust enrichment or restitution, if at all, on June 20, 1994. The court does not reach the issue whether the amount of liquidated damages is reasonable in the circumstances.
Termination
Because the supplemental agreement states that failure to cure the delinquency "shall be deemed sufficient grounds for termination of the contract and forfeiture by SOCOPHI of all payments previously made," the contract may be viewed to confer a termination right instead of the statutory right to cancel. SOCOPHI could be viewed as arguing that Airport Systems's actions constitute a termination based upon this provision of the supplemental agreement and that Airport Systems, therefore, had a duty to notify SOCOPHI of the termination. Even if that language were viewed as creating a contractual right for Airport Systems to terminate the contract, the language is insufficient to abrogate Airport Systems's statutory right to cancel after a breach. Had the parties intended to abrogate the right to cancel or to create a right of notice of cancellation, it would be necessary to express an intent in the contract to change the statutory scheme. The language used does not express that intent. The court believes that the language of the supplemental agreement confuses or ignores the distinction between "termination" and "cancellation" of a contract. Furthermore, the language focuses on the effect of a failure to cure rather than on creating rights. The language chosen establishes that a failure to cure shall end the contract and SOCOPHI shall forfeit all previous payments. The court finds that the language does not abrogate Airport Systems's right to cancel or create a right to notice of cancellation after SOCOPHI's breach.
Tolling the Limitations Period
Plaintiffs assert that they had conversations with Airport Systems regarding payment extension after June 10 and that Airport Systems failed to notify them of its intent to cancel. Plaintiffs may be attempting to argue equitable tolling of the statute of limitations. A limitations period is tolled under Kansas law by fraud or concealment of the cause of action by the defendant. McCaffree Fin. Corp. v. Nunnink, 18 Kan. App.2d 40, 55, 847 P.2d 1321, 1331 (1993). In their complaint, plaintiffs mention conversations with Airport Systems prior to the letters SOCOPHI sent on June 22 and July 4. (Compl. at 8-9, ¶¶ 30, 32). Nowhere, however, do the plaintiffs reveal the content or the substance of the alleged conversations. Perhaps plaintiffs seek to have the court infer that Airport Systems agreed to payment extension in the referenced conversations, but plaintiffs neither allege nor argue that extension agreements were reached or that Airport Systems refused to honor such agreements. Absent allegations of some act or acts by Airport Systems which might constitute fraud or concealment of the cause of action at issue, or which might constitute a waiver of the statute, the court cannot find that the statute of limitations was tolled. Therefore, these suits must be dismissed as barred by the applicable statute of limitations.
IT IS THEREFORE ORDERED that defendant's motions to dismiss (No. 00-2148, Doc. 7, and No. 00-2186, Doc. 4) are granted, and these cases are dismissed in their entirety.