A telecommunications company entered into a service agreement to provide voice and telecommunications services to a marketing company. The contract explicitly established an open account that would be invoiced monthly, and also contained a liquidated damages clause should the marketing company terminate the contract before it expired. The marketing company terminated the contract without cause. Arizona law establishes a three-year statute of limitations on claims for debt arising from an open account and a six-year statute of limitations on claims based on breach of a written contract. The telecommunications company brought suit to enforce the liquidated damages clause after the three-year statute of limitations expired, but before the six-year statute of limitations expired. The marketing company moved to dismiss based on the three-year statute of limitations. Reasoning that the liquidated damages clause was part of a contract creating an open account, the superior court dismissed the case as barred by the three-year statute of limitations on open accounts. The telecommunications company appealed.
The Court of Appeals reversed, holding that the six-year statute of limitations for written contracts applies to claims arising out of the liquidated damages clause. Although the Court agreed that a claim for unpaid debt owed on the open account would be subject to a three-year statute of limitations, it reasoned that a claim for liquidated damages was a separate claim that arose from the written contract, and not from the open account.
Judge McMurdie delivered the unanimous opinion, in which Judges Winthrop and Campbell joined.
Posted by: Randy McDonald