Chung v. Intellectsoft Group Corporation

Background

Hope Chung and Picture Mandarin LLC hired Intellectsoft to perform software-related work for the Picture Mandarin Project and the Friendship Diary project. The parties signed two Statements of Work requiring biweekly invoices and payment within 15 days. The agreements also provided for interest on past-due obligations. Between 2016 and 2017, Intellectsoft sent five invoices totaling $77,269.40 for one project and 11 invoices totaling $246,655.35 for the other. The opinion states that Plaintiffs paid these amounts in full.

The parties terminated the Statements of Work on May 2, 2017. Intellectsoft filed a counterclaim alleging that Chung had not made timely payments on eight invoices. The court had previously dismissed that counterclaim as barred by the statute of limitations but allowed amendment. Intellectsoft then added a May 5, 2017 invoice, which it alleged was due May 20, 2017 and included work performed through at least April 29, 2017. Plaintiffs moved to dismiss again, arguing that the invoice had been prepaid on March 24, 2017, so the counterclaim remained untimely.

Legal Standard

The court evaluated the motion under Rule 12(b)(6), which permits dismissal when a pleading does not state a legally sufficient claim. At this stage, the court accepts well-pleaded factual allegations as true and asks whether they plausibly support relief. The court also stated that, when deciding a motion to dismiss a counterclaim, it could not treat disputed factual allegations in Plaintiffs’ complaint as true for the purpose of dismissing Intellectsoft’s counterclaim.

Analysis

The court first considered California Code of Civil Procedure § 360, which can extend a limitations period when a party acknowledges a continuing obligation or makes a qualifying partial payment. The court concluded that the relevant date under the partial-payment exception is the date of the actual payment because the payment is the conduct that implies a promise to continue the obligation. The May 2017 invoice did not change that result because the opinion states that it was paid on March 24, 2017. The court also found that Intellectsoft had not alleged a qualifying signed writing within the relevant period acknowledging Plaintiffs’ obligation to pay interest on the earlier invoices. Because more than four years had passed after March 24, 2017, the court found that § 360 did not extend the limitations period.

The court next rejected Intellectsoft’s argument that the counterclaim accrued only when the Statements of Work terminated on May 2, 2017. It applied California’s continuous-accrual doctrine, under which each breach of a recurring obligation can start its own limitations period, rather than the delayed-commencement rule for a continuing duty breached when complete performance is due. The court found that the Statements of Work required separate invoices based on hours worked, required payment of each invoice within 15 days, and did not carry unpaid interest from earlier invoices onto later invoices. Those provisions established divisible, interval payment obligations. The court therefore concluded that the counterclaim was time-barred.

Disposition

Plaintiffs requested dismissal with prejudice. The court denied further leave to amend because Intellectsoft had already been allowed to amend, was unlikely to identify new facts curing the deficiency, and further amendment at that stage would cause delay and prejudice. The court granted Plaintiffs’ motion to dismiss Intellectsoft’s amended counterclaims with prejudice.