Linglong Americas, Inc. v. Get it on Wheels, Inc.

Filing 33

MEMORANDUM and ORDER re 28 Plaintiff's Motion to Dismiss Defendant's Amended Counterclaim, signed by Senior Judge William B. Shubb on 1/4/2018: IT IS ORDERED that 28 Plaintiff's Motion to dismiss defendant's amended Counte rclaim for failure to state a claim upon which relief can be granted be, and the same hereby is, GRANTED. Defendant has twenty days from the date this Order is signed to file a Second Amended Counterclaim, if it can do so consistent with this Order. (Kirksey Smith, K)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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LINGLONG AMERICAS INC.,

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Plaintiff,

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Civ. No. 2:17-01378 WBS GGH

v.
GET IT ON WHEELS, INC. (d/b/a
TIRE & WHEEL OUTLET) and DOES
1-5, inclusive,

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MEMORANDUM AND ORDER RE: MOTION
TO DISMISS

Defendants.

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Plaintiff Linglong Americas Inc. (“Linglong”) brought

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this action against defendant Get it on Wheels, Inc. doing

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business as Tire & Wheels Outlet (“Tire Outlet”) for damages

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arising from unpaid invoices for tires that Linglong delivered to

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Tire Outlet.

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court is plaintiff’s Motion to dismiss defendant’s amended

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Counterclaim for failure to state a claim upon which relief can

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be granted pursuant to Rule 12(b)(6).

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28).)

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I.

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(Compl. ¶¶ 11, 28 (Docket No. 1).)

Before the

(Pl.’s Mot. (Docket No.

Factual and Procedural Background
Plaintiff is the American affiliate of a global tire
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manufacturer that sells tires to customers around the country.

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(Compl. ¶ 8 (Docket No. 1).)

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distributor with several California locations.

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Defendant is a tire and wheel
(Compl. ¶ 9.)

Plaintiff alleges that from April to July 2016, no

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fewer than 15 times, it sold and delivered tires to defendant,

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which defendant accepted without objection.

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each order, plaintiff sent an invoice to defendant identifying

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the product sold, quantity, price, and sales amount.

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Plaintiff claims the total amount due for the tires sold and

(Compl. ¶ 10.)

For

(Id.)

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delivered under the invoices is $857,861.92.

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invoices required payment within 60 days and included payment

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instructions.

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June 29, 2016, defendant made a late, partial payment on one

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invoice in the amount of $31,216.15, but defendant has not made

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any other payment.

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balance of $768,800.92.

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(Id. ¶ 27.)

(Id. ¶ 26.)

The

Plaintiff alleges that on or about

(Id. ¶ 29.)

Plaintiff claims an outstanding

(Id. ¶ 31.)

On October 24, 2016, plaintiff sent a letter to

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defendant notifying it of its default under the invoices and

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demanding payment of the outstanding overdue balance.

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32.)

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October 24 letter.

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a Complaint against defendant for: (1) breach of contract; (2)

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breach of the covenant of good faith and fair dealing; (3) goods

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sold and delivered; and (4) unjust enrichment.

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(Id. ¶

Defendant did not make any payment in response to the
(Id. ¶ 33.)

On July 5, 2017, plaintiff filed

On November 13, 2017, defendant filed an amended

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Counterclaim against plaintiff alleging a breach of the covenant

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of good faith and fair dealing.

(Def.’s Am. Countercl. ¶ 29

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(Docket No. 24-3).)1

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parties entered into the contractual relationship, plaintiff was

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not distributing tires to other wholesalers in defendant’s market

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area.

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of defendant’s expenditures of money and resources to introduce,

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promote, and expand sales of plaintiff’s tires in the region, but

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nonetheless, without advance discussion or warning, plaintiff

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began selling directly to defendant’s wholesale competitors

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within its market area.

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(Id. ¶ 9.)

Defendant contends that at the time the

Defendant further alleges plaintiff was aware

(Id. ¶ 11.)

Defendant alleges that there was an understanding

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between it and plaintiff that defendant was not to be undersold

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in the market, as long as defendant maintained certain purchasing

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levels.

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plaintiff’s Chinese parent corporation was selling to a

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competitor at a lower price.

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plaintiff’s Regional Sales Manager, told defendant that there was

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nothing he could do about the sales from plaintiff’s parent

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corporation to defendant’s competitors.

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of tires by plaintiff’s parent corporation at a lower price was

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allegedly in direct violation of what defendant had been assured

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by plaintiff’s representatives in texts, emails, and in person

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meetings which are not alleged to be part of the contract between

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(Id. ¶ 12.)

In April of 2016, defendant learned that

(Id. ¶¶ 13, 15.)

Jeff Perry,

(Id. ¶ 15.)

The selling

In its initial Counterclaim, defendant alleged
plaintiff, by not selling to others in defendant’s market area
when the contractual relationship began, violated the implied
covenant of good faith and fair dealing by selling to its
wholesale competitors without advance discussion or warning.
(Countercl. ¶¶ 9-14 (Docket No. 15).) In its amended
Counterclaim, defendant re-characterizes its Counterclaim stating
that the companies understood that defendant was not to be
undersold in its market area. (Def.’s Opp’n at 4.)
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the parties.

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the covenant of good faith and fair dealing, defendant seeks

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compensatory damages and its costs and attorney’s fees. (Def.’s

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Am. Countercl. Prayer for Relief ¶¶ 1-2).)

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II.

(Id. ¶ 17.)

As a result of the alleged breach of

Discussion

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“A motion to dismiss a counterclaim brought pursuant to

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FRCP 12(b)(6) is evaluated under the same standard as motion to

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dismiss a plaintiff’s complaint.”

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Inc., Civ. No. 11-6263 WHA, 2012 WL 3877686, at *1 (N.D. Cal.

PageMelding, Inc. v. ESPN,

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Sept. 6, 2012).

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plead “only enough facts to state a claim to relief that is

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plausible on its face.”

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544, 570 (2007).

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for more than a sheer possibility that a defendant has acted

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unlawfully,” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and

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“[w]here a complaint pleads facts that are ‘merely consistent

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with’ a defendant’s liability, it ‘stops short of the line

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between possibility and plausibility of entitlement to relief.’”

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Id. (quoting Twombly, 550 U.S. at 557).

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plaintiff has stated a claim, the court must accept the

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allegations in the complaint as true and draw all reasonable

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inferences in favor of the plaintiff.

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U.S. 232, 236 (1974), overruled on other grounds by Davis v.

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Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322

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(1972).

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To survive a motion to dismiss, a plaintiff must

Bell Atl. Corp. v. Twombly, 550 U.S.

This “plausibility standard,” however, “asks

In deciding whether a

Scheuer v. Rhodes, 416

California recognizes that “[t]here is an implied

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covenant of good faith and fair dealing in every contract that

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neither party will do anything which will injure the right of the
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other to receive the benefits of the agreement.”

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Empire Surplus Lines Ins. Co., 23 Cal. 4th 390, 400, (2000)

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(quoting Comunale v. Traders & Gen. Ins. Co., 50 Cal. 2d 654, 658

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(1958)).

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faith and fair dealing, plaintiff must allege:

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Kransco v. Am.

To state a claim for breach of the covenant of good

(1) the plaintiff and the defendant entered into a contract;
(2) the plaintiff did all or substantially all of the things
that the contract required him to do or that he was excused
from having to do; (3) all conditions required for the
defendant’s performance had occurred; (4) the defendant
unfairly interfered with the plaintiff’s right to receive
the benefits of the contract; and (5) the defendant’s
conduct harmed the plaintiff.

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Woods v. Google, Inc., 889 F. Supp. 2d 1182, 1194 (N.D. Cal.

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2012).

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A breach of the implied covenant of good faith and fair

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dealing “involves something beyond breach of the contractual duty

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itself.”

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2014 WL 2796529, at *6 (N.D. Cal. June 19, 2014) (quoting Tilbury

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Constructors, Inc. v. State Comp. Ins. Fund, 137 Cal. App. 4th

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466, 474 (3d Dist. 2006)).

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establish “the conduct of the defendant . . . demonstrates a

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failure or refusal to discharge contractual responsibilities

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prompted . . . by a conscious and deliberate act, which unfairly

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frustrates the agreed common purposes and disappoints the

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reasonable expectations of the other party thereby depriving that

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party of the benefits of the agreements.”

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Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395

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(2d. Dist. 1999)).

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implied covenant is limited to assuring compliance with the

Croshal v. Aurora Bank, F.S.B., Civ. No. 13-5435 SBA,

Rather, the allegations must

Id. (quoting Careau &

Where a contractual relationship exists, “the

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express terms of the contract, and cannot be extended to create

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obligations not contemplated in the contract.”

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Ltd. v. Dep’t of Parks & Recreation, 11 Cal. App. 4th 1026, 1032,

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(4th Dist. 1992) (citing Gibson v. Gov’t Emps. Ins. Co., 162 Cal.

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App. 3d 441, 448 (5th Dist. 1984)).

Racine & Laramie,

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Here, the parties do not dispute that there was a

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contractual relationship to buy and sell tires, nor do they

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dispute that plaintiff delivered the tires ordered by defendant.

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Instead, the parties dispute whether defendant adequately pled

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that plaintiff unfairly interfered with defendant’s right to

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receive a benefit under the contract.

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contends it did all or substantially all of the obligations

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required of it up until plaintiff sold tires to its competitors,

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and as a result of plaintiff’s conduct, defendant suffered

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damages.

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A.

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Further, defendant

(Def.’s Am. Countercl. ¶¶ 14, 16.)
The Parties
As an initial matter, defendant appears to assert a

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counterclaim against plaintiff’s Chinese parent corporation, who

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is not a party in this action.2

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Under Rule 13, a party may state a counterclaim against an

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opposing party.

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‘opposing party’ is a party to the lawsuit-that is, a named party

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who asserted a claim against the counterclaimants.”

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LLC v. Michener, Civ. No. 06-7949 SBA, 2007 WL 1655614, at *4

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(See Def.’s Am. Countercl.)

Fed. R. Civ. P. 13.

“The plain meaning of

GIA-GMI,

Defendant leaves the court guessing as to what
allegations it is alleging against each named or unnamed party in
the action. At one point, defendant claims plaintiff’s parent
corporation was selling the tires and in another paragraph
defendant claims plaintiff was selling the tires. (Def.’s Am.
Countercl. ¶¶ 17, 21.)
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(N.D. Cal. June 7, 2007).

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counterclaim against a party not in the action.

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Inc. v. Phix Doctor, Inc., Civ. No. 13-1395 GPC BLM, 2015 WL

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3872343, at *1 n.1 (S.D. Cal. June 23, 2015) (“[A] counterclaim

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cannot be brought against a non-party.”)

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no indication that defendant is attempting to join plaintiff’s

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parent company in the action.

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there any indication that defendant is attempting to hold

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plaintiff liable for the actions of its parent corporation—by

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Thus, a party may not assert a

piercing the corporate veil.

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See Wahoo Int'l,

Additionally, there is

(See Def.’s Opp’n at 3.)

Nor is

(See id.)

To the extent the Counterclaim is asserted against

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plaintiff’s Chinese parent corporation, the Counterclaim is

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dismissed.

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extend to plaintiff.

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B.

The court will now consider the allegations as they

The Counterclaim Against Plaintiff
To assert a counterclaim for a breach of the implied

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covenant of good faith and fair dealing, defendant must establish

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that the breach of the implied covenant arises from the

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expectations of the contractual agreement.

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Laramie, Ltd., 11 Cal. App. 4th at 1032 (“The implied covenant of

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good faith and fair dealing rests upon the existence of some

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specific contractual obligation.”) (citation omitted); Guz v.

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Bechtel Nat. Inc., 24 Cal. 4th 317, 349 (2000) (“The covenant of

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good faith and fair dealing, implied by law in every contract,

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exists merely to prevent one contracting party from unfairly

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frustrating the other party’s right to receive the benefits of

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the agreement actually made.”) (citation omitted).

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defendant’s counterclaim does not allege that the contract
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See e.g., Racine &

Here,

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between the companies prohibited plaintiff from selling goods to

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its wholesale competitors at a lower price.

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asserts there was an “understanding” between the companies that

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defendant was not to be undersold in the market as long as it

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maintained certain purchasing levels.

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12).

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Defendant simply

(Def.’s Am. Countercl. ¶

Further, defendant has not pled any terms of the

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agreement beyond describing the contractual relationship between

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the parties as one in which plaintiff sold tires to defendant,

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who then resold the tires to area retailers.

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The Mail on Sunday, Civ. No. 05-7798 ABCP JWX, 2006 WL 4046180,

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at *7 (C.D. Cal. Aug. 15, 2006) (dismissing plaintiff’s claim for

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breach of covenant of good faith and fair dealing because

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plaintiff did not include the language of the contract itself or

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plead specific terms of the agreement, because without such

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terms, the court could not discern which terms gave rise to the

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implied duties plaintiff claimed defendant breached); Citizens of

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Humanity, LLC v. LAB sarl, Civ No. 12-10627 MMM JEMX, 2013 WL

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12129393, at *11 (C.D. Cal. Apr. 22, 2013) (granting motion to

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dismiss implied covenant of good faith and fair dealing

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counterclaim, on the basis that the party “[did] not identify the

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specific contractual provision(s) from which the allegedly

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breached covenant arose.”)

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alleged that plaintiff’s action--selling tires to its competitors

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at a lower price--deprived it of any benefit to which it was

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entitled under the contract to buy and sell tires.

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(Id. ¶ 8); Love v.

Thus, defendant has not sufficiently

Therefore, without any factual allegation regarding the
expectations between the parties that the distribution agreement
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did not permit any sales to other market competitors at a lower

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price, the court will not imply this term existed within the

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agreement.

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1165 (E.D. Cal. 2009) (O’Neill, J.) (“The ‘implied covenant of

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good faith and fair dealing is limited to assuring compliance

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with the express terms of the contract, and cannot be extended to

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create obligations not contemplated by the contract.’”) (quoting

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Pasadena Live, LLC v. City of Pasadena, 114 Cal. App. 4th 1089,

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1093–1094 (2d Dist. 2004).

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See Spencer v. DHI Mortg. Co., 642 F. Supp. 2d 1153,

Even assuming that plaintiff, and not its parent

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company, sold tires to defendant’s competitors at a lower price,

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defendant has not sufficiently alleged that by selling to its

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competitors at a lower price, plaintiff deprived defendant of an

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established contractual benefit.

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sufficiently allege that plaintiff violated the implied covenant

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of good faith and fair dealing.

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Therefore, defendant does not

IT IS THEREFORE ORDERED that plaintiff’s Motion to

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dismiss defendant’s amended Counterclaim for failure to state a

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claim upon which relief can be granted be, and the same hereby

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is, GRANTED.

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Defendant has twenty days from the date this Order is

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signed to file a Second Amended Counterclaim, if it can do so

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consistent with this Order.

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Dated:

January 4, 2018

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