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

Filing 42

MEMORANDUM and ORDER signed by Senior Judge William B. Shubb on 3/20/2018 DENYING 37 Plaintiff's Motion to Dismiss Defendant's Second Amended Counterclaim. (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.,
Plaintiff,

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Civ. No. 2:17-1378 WBS GGH

v.

MEMROANDUM AND ORDER RE:
MOTION TO DISMISS SECOND
AMENDED COUNTERCLAIM

GET IT ON WHEELS, INC. (d/b/a
TIRE & WHEEL OUTLET) and DOES 15, inclusive,
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 Second Amended

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Counterclaim for failure to state a claim upon which relief can

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be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).

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(Pl.’s Mot. (Docket No. 37).)

(Compl. ¶¶ 11, 28 (Docket No. 1).)

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Before the

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I.

Factual and Procedural Background

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On September 6, 2017, defendant filed a Counterclaim

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against plaintiff alleging a breach of the implied covenant of

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good faith and fair dealing.

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No. 15).)

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plaintiff violated the implied covenant of good faith and fair

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dealing by selling to defendant’s wholesale competitors without

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advance discussion or warning, after plaintiff had not sold to

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others in defendant’s market area when the contractual

(Def.’s Countercl. ¶ 12-14 (Docket

In its initial Counterclaim, defendant alleged

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relationship began.

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the Counterclaim (Docket No. 17) and the Motion was scheduled to

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be heard on November 13, 2017.

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filed a Motion to Amend the Counterclaim (Docket No. 24), which

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the court granted on November 14, 2017 (Docket No. 27.).

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(Id. ¶¶ 9-14.)

Plaintiff moved to dismiss

On November 12, 2017, defendant

In its Amended Counterclaim defendant re-characterized

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its Counterclaim, stating that the companies understood that

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defendant was not to be undersold in its market area.

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Am. Countercl. ¶¶ 12-14 (Docket No. 24-3).)

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plaintiff’s Motion to dismiss the Amended Counterclaim, the court

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noted that defendant left the court guessing as to whether it was

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alleging that plaintiff or plaintiff’s parent corporation, who is

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not a party in the action, undersold the tires.

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Mot. Dismiss at 6-7 (Docket No. 33).)

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Counterclaim was asserted against plaintiff’s parent corporation,

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the court dismissed the Amended Counterclaim.

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the extent the Amended Counterclaim was asserted against

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plaintiff, the court held that defendant had not sufficiently

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alleged that by selling to its competitors at a lower price,
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(Def.’s

In its Order grating

(Order Granting

To the extent the Amended

(Id. at 7.)

To

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plaintiff deprived defendant of an established contractual

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benefit.

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defendant’s Amended Counterclaim.

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(Id. at 8-9.)

Accordingly, the court dismissed
(Id.)

Defendant has now filed a Second Amended Counterclaim

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asserting for the first time a claim of breach of contract as

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well as a claim of breach of the implied covenant of good faith

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and fair dealing. (Second Am. Countercl. (“SAC”) at 4-5 (Docket

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No. 36).)

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that in February of 2016 the companies entered into an oral

In the Second Amended Counterclaim, defendant alleges

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contract.

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provide wholesale tires to defendant that defendant could then

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resell.

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long as minimum purchase requirements were met, plaintiff would

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not sell tires to defendant’s competitors in the northern

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California market.

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alleges plaintiff began selling directly to defendant’s wholesale

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competitors within its market area.

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inquired into the competing sales, plaintiff assured defendant

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that no such competing sales were being made.

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assurances, defendant learned plaintiff was selling to

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defendant’s competitors at a discounted price.

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After further inquiry, defendant was informed by plaintiff that

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the sales were being done “behind the back” of plaintiff by

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plaintiff’s parent corporation.

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that plaintiff falsely stated that the sales were made by

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plaintiff’s parent corporation, when in fact the competing sales

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were made by plaintiff.

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(Id. ¶ 8)

(Id. ¶ 9)

Under the agreement, plaintiff would

The parties also allegedly agreed that so

(Id.)

Despite the agreement, defendant

(Id. ¶ 12).

(Id. ¶ 14.)

When defendant

(Id.)

Despite the

(Id. ¶ 13.)

Defendant alleges

(Id. ¶ 15.)

For the first time, defendant argues that the parties
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had an “exclusivity portion of the oral contract,” and that

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plaintiff’s sales to defendant’s market competitors breached

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their contract.

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competitors at a lower price, defendant alleges it was deprived

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of the benefit of which it was entitled under the contract, and

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thus, plaintiff’s conduct breached the covenant of good faith and

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fair dealing.

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II.

(Id. ¶¶ 19, 20).

By selling tires to its market

(Id. ¶ 25.)

Legal Standard

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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.

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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).

PageMelding, Inc. v. ESPN,

To survive a motion to dismiss, a plaintiff must

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

This “plausibility standard,” however, “asks

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In deciding whether a

Scheuer v. Rhodes, 416

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III. Discussion
A.

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Judicial Estoppel and Breach of Contract
Plaintiff contends that defendant’s inconsistent

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positions--repeatedly representing to the court that it was not

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attempting to have the court imply an exclusivity term into the

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contract and now bringing a breach of contract claim against

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plaintiff for breach of the exclusivity portion of the oral

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contract--justify the application of judicial estoppel to bar

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defendant’s breach of contract claim.

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(Pl.’s Mem. of P. & A. at

6 (Docket No. 37).)

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“Judicial estoppel is an equitable doctrine that

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precludes a party from gaining an advantage by asserting one

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position, and then later seeking an advantage by taking a clearly

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inconsistent position.”

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270 F.3d 778, 782 (9th Cir. 2001).

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judicial estoppel “not only to prevent a party from gaining an

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advantage by taking inconsistent positions, but also because of

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‘general consideration[s] of the orderly administration of

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justice and regard for the dignity of judicial proceedings,’ and

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to ‘protect against a litigant playing fast and loose with the

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courts.’”

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(9th Cir. 1990).)

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Hamilton v. State Farm Fire & Cas. Co.,
The Ninth Circuit invokes

Id. (quoting Russell v. Rolfs, 893 F.2d 1033, 1037

“On the other hand, the judicial estoppel doctrine is

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to be applied with caution.”

Mull v. Motion Picture Indus.

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Health Plan, Civ. No. 12-6693-VBF-MAN, 2014 WL 1514812, at *17

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(C.D. Cal. Feb. 4, 2014) (citation omitted).

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is an extraordinary remedy . . . [and] [i]t is not meant to be a

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technical defense for litigants seeking to derail potentially
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“Judicial estoppel

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meritorious claims.”

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Id. (citations omitted).

The decision to impose judicial estoppel is within the

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discretion of the district court, see Baughman v. Walt Disney

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World Co., 685 F.3d 1131, 1133 (9th Cir. 2012), and is “driven by

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the specific facts of a case.”

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Human Res., Rehab. Div., 141 F.3d 1361, 1368 (9th Cir. 1998)

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(citations omitted).

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court must determine that: “(1) the party to be estopped asserted

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an earlier position that is ‘clearly inconsistent’ with a

Johnson v. State, Oregon Dep’t of

In order to apply judicial estoppel, the

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position it later attempts to assert; (2) the court relied on the

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earlier position; and (3) allowing the party to change its

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position would be inequitable.”

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App’x 491, 494 (9th Cir. 2017).1

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Cox v. Cont’l Cas. Co., 703 F.

The court first considers whether defendant’s positions

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are “clearly inconsistent.”

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Counterclaim, defendant only brought a claim for breach of the

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In its initial and Amended

Defendant argues that plaintiff’s citation to Cox
should be disregarded as the case was not selected for
publication. (Def.’s Opp’n at 3.) However, pursuant to Ninth
Circuit’s Federal Rules of Appellate Procedure 36-3, while
“unpublished dispositions and orders of [the Ninth Circuit] are
not precedent . . . unpublished dispositions and orders of this
Court issued on or after January 1, 2007 may be cited to the
courts of this circuit.” Fed. R. App. P. 36-3. Accordingly,
plaintiff may cite the Cox decision. Moreover, the test is
similar to the test articulated in Hamilton. See Hamilton v.
State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001)
(quoting New Hampshire v. Maine, 532 U.S. 742 (2001)). In
Hamilton, the Ninth Circuit stated that there are several factors
the court considers when determining whether to apply judicial
estoppel: (1) whether a party’s later position must be “clearly
inconsistent” with its earlier position; (2) whether the party
has succeeded in persuading a court to accept that party’s
earlier position; and (3) whether the party seeking to assert an
inconsistent position would derive an unfair advantage or impose
an unfair detriment on the opposing party if not estopped. Id.
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implied covenant of good faith and fair dealing.

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Amended Counterclaim, defendant also brings a breach of contract

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claim.

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In its Second

In its opposition to plaintiff’s Motion to dismiss

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defendant’s initial Counterclaim, and in its subsequent

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opposition to defendant’s Motion to Amend the Counterclaim for

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breach of the implied covenant of good faith and fair dealing,

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defendant expressly stated that it was not asking the court to

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imply an exclusivity term in the oral contract; rather, defendant

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asserted that plaintiff did not deal with defendant fairly in

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their distribution agreement.

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2 (Docket No. 22); (Def.’s Opp’n (“First Am. Opp’n”) at 2 (Docket

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No. 29.).)

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ask the court to imply an exclusivity term into the oral

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distributor agreement.

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3; see Walnut Creek Pipe Distribs., Inc. v. Gates Rubber Co.

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Sales Div., 228 Cal. App. 2d 810, 816 (1st Dist. 1964) (“One of

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the most commonly rejected covenants, regardless of hardship, is

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the implication that a distributorship agreement is exclusive

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where not so specified.”) (citations omitted).

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(Def.’s Opp’n (“Initial Opp’n”) at

Additionally, defendant recognized that it could not

(Initial Opp’n at 4; First Am. Opp’n at

In contrast to its earlier arguments, defendant now

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contends that plaintiff breached the exclusivity portion of the

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oral contract by selling to defendant’s market competitors.

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¶¶ 19-20.)

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based on an exclusive distributorship contract is not “clearly

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inconsistent” with its earlier assertions that it was not asking

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the court to imply an exclusivity term within the contract

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because defendant never represented to the court that the

(SAC

Defendant’s assertion that its Counterclaims are

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contract did not contain an exclusivity term.

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did not previously allege breach of contract, it simply

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recognized that it could not ask the court to imply an

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exclusivity term in a contract.

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arguments are not inconsistent with one another; defendant is

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simply presenting a new argument for the first time.

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Rather, defendant

In other words, defendant’s

Moreover, defendant is “able to justify its change of

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position by pointing to new facts it has discovered which show or

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at least suggest” that there was an exclusivity term in the

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contract.

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counsel states that it was not aware that there was both a breach

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of contract claim and the previously asserted breach of the

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implied covenant of good faith and fair dealing until meeting

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with defendant’s representative in conjunction with preparing the

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Initial Disclosures.

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Defense counsel explains that because of language difficulties in

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communicating with his client’s representative, prior to his

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recent meeting he did not have reason to understand that the oral

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contract contained an exclusivity term.

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positions are not “clearly inconsistent,” and defendant’s counsel

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is able to explain why it is just now bringing a breach of

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contract claim.

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See Mull, 2014 WL 12639071, at *15.

Here, defendant’s

(Second Am. Opp’n at 2 (Docket No. 40).)

Therefore, defendant’s

The court next considers whether it has relied on

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defendant’s earlier position.

In other words, “[c]ourts

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regularly inquire whether the party has succeeded in persuading a

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court to accept that party’s earlier position, so that judicial

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acceptance of an inconsistent position in a later proceeding

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would create the perception that either the first or the second
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court was misled.”

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(2001) (citation omitted).

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proceeding, a party’s later inconsistent position introduces no

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risk of inconsistent court determinations.”

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(citation and internal quotations omitted).

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New Hampshire v. Maine, 532 U.S. 742, 750
“Absent success in a prior

Id. at 750–51

Judicial estoppel “generally prevents a party from

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prevailing in one phase of a case on an argument and then relying

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on a contradictory argument to prevail in another phase.”

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v. United States, 547 U.S. 489, 504 (2006).

Zedner

While the court in

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its January 4, 2018 Order, relied upon defendant’s assertion that

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it was not asking the court to imply an exclusivity term in the

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contract, defendant was ultimately unsuccessful and the court

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dismissed the Counterclaim.

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previously prevail, the court determines that judicial estoppel

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is not appropriate here.

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Thus, given the defendant did not

Lastly, the court considers whether allowing defendant

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to change its position would be inequitable.

The court notes

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that this is defendant’s third attempt to state a Counterclaim.

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However, the court dismissed defendant’s Amended Counterclaim

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with leave to amend, to the extent it could do so consistent with

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the court order.

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especially in light of counsel’s representations, that the change

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in position is an “unsubstantiated and apparently unjustified

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change in position.”

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also Milton H. Greene Archives, Inc. v. Marilyn Monroe LLC, 692

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F.3d 983, 995 (9th Cir. 2012) (stating “chicanery or knowing

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misrepresentation by the party to be estopped is a factor to be

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considered in the judicial estoppel analysis.”)

Moreover, the court cannot unequivocally say,

See Mull, 2014 WL 12639071, at *16; see

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In addition,

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plaintiff will have the opportunity later in this litigation to

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present evidence and dispute the terms of the oral contract.

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For all the above mentioned reasons, the court will not

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apply judicial estoppel at this stage of the proceedings.

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defendant may assert a Counterclaim for breach of contract.

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B.

Thus,

Breach of the Implied Covenant of Good Faith and
Fair Dealing

Defendant bases its claim for breach of the implied

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covenant of good faith and fair dealing on the theory that

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plaintiff was somehow not permitted to sell to defendant’s

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competitors at lower prices than those offered to defendant.

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Plaintiff argues that defendant is precluded from bringing this

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claim pursuant to Lee v. Gen. Nutrition Cos., Inc., Civ. No. 00-

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13550 LGB (AJWX), 2001 WL 34032651 (C.D. Cal. Nov. 26, 2001).

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(Pl.’s P. & A. at 9.)

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In Lee, plaintiffs claimed that defendant breached the

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implied covenant of good faith and fair dealing by placing

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competing stores in close proximity to plaintiff’s GNC store and

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selling GNC-brand products at lower wholesale prices to competing

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stores, on the internet, and to Rite Aid Stores.

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However, the conduct alleged was authorized by the contracts

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formed between the parties, and defendants pointed to a provision

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included in the agreement that “bars Defendants from operating or

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granting another the right to operate a GNC-store within the

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protected territory but reserves to Defendants all rights outside

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the protected territory.”

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under California law, a plaintiff could not “use a claim for

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breach of the implied covenant of good faith and fair dealing to

Id.

Id. at *8.

The Lee court recognized that

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modify or override the contractual terms or to prohibit a

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defendant from doing what they were contractually permitted to

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do.”

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plaintiff’s claim for breach of the implied covenant of good

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faith and fair dealing because defendant’s conduct was authorized

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by the agreement between the parties.

Id. at *9.

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Accordingly, the court in Lee dismissed

Thus, Lee does not prohibit defendant from asserting a

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Counterclaim for breach of the implied covenant of good faith and

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fair dealing under the circumstances alleged here.

In this case,

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defendant is alleging that plaintiff deprived defendant of the

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benefit to which it was entitled under the contract--exclusive

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sales in the northern California market.

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Lee, defendant is not attempting “to modify or override the

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contractual terms or to prohibit a defendant from doing what they

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were contractually permitted to do.”

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fact seeking to enforce the contractual terms.

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inapplicable.2

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Unlike the plaintiff in

Rather, defendant is in
Thus, Lee is

Plaintiff also argues that there are no new factual

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allegations in the Second Amended Counterclaim that support

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defendant’s assertion that there was an oral agreement of

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exclusivity.

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that an oral exclusivity agreement, which substantially changes

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the allegations of the Counterclaim.

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However, defendant now asserts, for the first time,

For the foregoing reasons, Lee does not prohibit
defendant’s claim for breach of the implied covenant of good
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Even if Lee did stand for the proposition that
plaintiff alleges, it is an unpublished Central District of
California case and as such is not binding on this court.
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faith and fair dealing as a matter of law.

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IT IS THEREFORE ORDERED that plaintiff’s Motion to

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dismiss defendant’s Second Amended Counterclaim (Docket No. 37)

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be, and the same hereby is, DENIED.

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Dated:

March 20, 2018

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