ARA Incorporated v. Glendale, City of
2:17-cv-02512
D. Ariz.Mar 21, 2018Background
- In May 2011 ARA and JG Staffing entered a factoring agreement under which ARA purchased JG’s accounts receivable and the contract stated Minnesota law governs and referenced the UCC (Minn. Stat. ch. 336).
- ARA later sued JG Staffing in 2015 and obtained a jury judgment for over $700,000 on the factoring-related claim.
- In August 2015 JG Staffing contracted to provide temporary staffing services to the City of Glendale.
- In July 2016 ARA notified Glendale of its asserted security interest in JG’s business assets and requested Glendale pay ARA directly; Glendale continued paying JG.
- ARA sued Glendale in July 2017 alleging violations based on the UCC/contract and Arizona statutes; Glendale moved to dismiss for failure to state a claim, arguing (1) the 2011 factoring agreement did not cover later-acquired accounts and (2) some claims are time-barred.
- The Court considered choice-of-law (Minnesota governs the agreement), whether the agreement covered after-acquired accounts, and whether the one-year statute of limitations for suits against Arizona public entities barred ARA’s claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Minnesota law governs contract interpretation | Factoring agreement designates Minnesota law and UCC (Minn. Stat. ch. 336) applies | Disagrees implicitly but contest concerns scope only | Court applies Minnesota law per contract terms |
| Whether the factoring agreement created a security interest in after-acquired accounts | The agreement’s grant of a security interest in "all accounts" and the defined Accounts Receivable covers later-acquired receivables | The 2011 agreement does not reach the 2015 Glendale-related accounts | Court: language is sufficient under Minnesota/UCC practice to cover after-acquired accounts; security interest attached to later accounts |
| Whether dismissal is appropriate under Rule 12(b)(6) for failure to state a claim | Complaint pleads factual basis tying Glendale payments to JG and asserting ARA’s security interest | Glendale contends complaint fails to state a plausible claim and raises statute-of-limitations bar | Court denies Rule 12(b)(6) dismissal; allegations are plausible and construed in ARA’s favor |
| Whether claims are time-barred by Arizona’s one-year statute for suits against public entities (A.R.S. § 12-821) | ARA points to its July 29, 2016 notice letter and argues accrual and tolling are contested factual issues | Glendale contends claims accrued earlier and are barred | Court: accrual/tolling not apparent on face of complaint; statute-of-limitations defense premature and not decided now |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (applying Twombly plausibility standard)
- In re Filtercorp, Inc., 163 F.3d 570 (9th Cir. 1998) (presumption that accounts receivable security interests include after-acquired accounts)
- Stoumbos v. Kilimnik, 988 F.2d 949 (9th Cir. 1993) (majority/modern trend requires no express after-acquired clause for accounts)
- James Talcott, Inc. v. Franklin Nat. Bank of Minneapolis, 292 Minn. 277 (Minn. 1972) (after-acquired clauses are convenient but not exclusive means to secure future obligations)
- TwoRivers v. Lewis, 174 F.3d 987 (9th Cir. 1999) (statute-of-limitations dismissal at Rule 12(b)(6) only when untolled running is apparent on complaint)