Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_14-cv-00243/USCOURTS-azd-2_14-cv-00243-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

ANDREW E. ZALKOW; and ZALKOW )

DISCOUNT SOURCING, an Arizona ) 2:14-cv-00243 JWS

limited liability company, )

)

Plaintiffs, )

)

vs. ) PRELIMINARY

) ORDER AND OPINION

TAYMOR INDUSTRIES U.S.A., INC., a )

California corporation; TAYMOR ) [Re: Motion at Docket 36]

INDUSTRIES LTD., a Canadian )

corporation, )

)

Defendants. )

)

I. PRELIMINARY NATURE OF THIS ORDER

This order does NOT decide the motion at docket 36. Rather, this order is

intended to assist counsel in preparing for oral argument. It sets forth the court’s

preliminary views. It does not authorize the filing of any additional motion papers. 

Case 2:14-cv-00243-JWS Document 57 Filed 05/05/15 Page 1 of 11
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Following oral argument, the court may adopt the order in whole or in part in its

disposition of the motion. 

II. MOTION PRESENTED

At docket 36, pursuant to Federal Rule of Civil Procedure 12(b)(6), defendant

Taymor Industries Ltd. (“Taymor Canada”) moves for dismissal of Counts One and

Three of the First Amended Complaint and for dismissal of the request for injunctive

and declaratory relief in Count Two of the First Amended Complaint. Defendant

Taymor Industries U.S.A., Inc. (“Taymor USA”) moves for dismissal of Count Three of

the First Amended Complaint. Plaintiffs Andrew E. Zalkow (“Zalkow”) and Zalkow

Discount Sourcing (“ZDS”) respond at docket 46. Defendants reply at docket 49. Oral

argument is scheduled for May 22, 2015.

III. BACKGROUND

Taymor USA is a California corporation that imports and sells hardware items,

including towel racks, toilet paper holders, faucets, and lock sets. It is wholly owned by

Taymor Canada. Zalkow was formerly employed as the president of Taymor USA,

where his compensation included an annual bonus that was based on a percentage of

the profits of both Taymor Canada and Taymor USA. In 2013 Taymor USA tendered

Zalkow an annual bonus of $489,608. Zalkow rejected the bonus as insufficient “due to

a variety of factors, including but not limited to, decisions made by Taymor Canada

related to the operations of Taymor [USA] that substantially reduced its 2012–2013

profits.”1

1Doc. 34 at p. 3.

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After Zalkow resigned from Taymor USA, he established ZDS, a company that

sells products that do not compete with Taymor USA, including tile, manufactured

stone, doors, and patio furniture. Zalkow tried to recruit three independent marketing

representatives who have business relationships with Taymor USA. All three were

initially interested in working with Zalkow, but were dissuaded from doing so when

Taymor Canada told them it would be a conflict of interest. Taymor Canada also is

alleged to have misrepresented the scope of the Zalkow’s non-compete and nonsolicitation provisions to at least one of the representatives. 

Plaintiffs brought the present action against defendants, originally alleging a

claim for breach of contract and a claim for intentional interference with prospective

contractual relations. Pursuant to defendants’ first motion to dismiss at docket 6, the

court dismissed the breach-of-contract claim as to Taymor Canada and the contract

interference claim as to Taymor USA. Plaintiffs then amended their complaint.2 Count

One of the First Amended Complaint alleges a breach of contract by both Taymor USA

and Taymor Canada. Count Two alleges that Taymor Canada intentionally interfered

with plaintiffs’ prospective contractual relations. Count Three alleges a breach of the

covenant of good faith and fair dealing by both defendant companies. Defendants

subsequently filed the motion to dismiss at issue, requesting that Count One be

dismissed as to Taymor Canada, that Count Two be dismissed to the extent it requests

injunctive and declaratory relief, and that Count Three be dismissed in its entirety. 

2Doc. 34.

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IV. STANDARD OF REVIEW

Rule 12(b)(6) tests the legal sufficiency of a plaintiff’s claims. In reviewing such

a motion, “[a]ll allegations of material fact in the complaint are taken as true and

construed in the light most favorable to the nonmoving party.”3 To be assumed true,

the allegations “may not simply recite the elements of a cause of action, but must

contain sufficient allegations of underlying facts to give fair notice and to enable the

opposing party to defend itself effectively.”4 Dismissal for failure to state a claim can be

based on either “the lack of a cognizable legal theory or the absence of sufficient facts

alleged under a cognizable legal theory.”5 “Conclusory allegations of law . . . are

insufficient to defeat a motion to dismiss.”6

 

To avoid dismissal, a plaintiff must plead facts sufficient to “‘state a claim to relief

that is plausible on its face.’”7 “A claim has facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.”8 “The plausibility standard is not akin to

a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant

3Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1997).

4Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 

5Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

6Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001).

7Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 570 (2007)).

8

Id.

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has acted unlawfully.”9

 “Where a complaint pleads facts that are ‘merely consistent

with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility

of entitlement to relief.’”10 “In sum, for a complaint to survive a motion to dismiss, the

non-conclusory ‘factual content,’ and reasonable inferences from that content, must be

plausibly suggestive of a claim entitling the plaintiff to relief.”11

V. DISCUSSION

A. Applicable Law

The parties agree that Canadian law should govern the court’s analysis of Count

One and Count Three given plaintiffs’ amended complaint, which makes clear that the

breach-of-contract claim against Taymor Canada is based on an alleged breach of a

December 2012 settlement/purchase and sale agreement between plaintiffs and

Taymor Canada, referred to by the parties as the “Mason Agreement.”12 The Mason

Agreement requires application of the law of British Columbia and the law of Canada as

to any dispute concerning the Mason Agreement or its construction.13

 However, the

9

Id. (citing Twombly, 550 U.S. at 556).

10

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

11Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009); see also Starr, 652 F.3d

at 1216.

12Doc. 36-1.

13

It remains unclear in the complaint whether the breach-of-contract claim against

Taymor USA is premised on an employment contract or on the Mason Agreement. Plaintiffs

concede, however, that Taymor USA is not a party to the Mason Agreement so presumably any

breach-of-contract allegation on the part of Taymor USA is based on a separate agreement not

explicitly mentioned in the complaint. It is not clear what law would need to be applied to that

unspecified agreement; regardless, the motion to dismiss does not challenge Count One as to

Taymor USA.

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parties agree that Arizona law, not Canadian law, should govern plaintiffs’ interferenceof-contract claim. 

B. Breach of Contract Against Taymor Canada 

Plaintiffs acknowledge that “breach of contract claims are pled similarly in both

Canada and Arizona.”14 In order to state a claim in contract, a plaintiff must establish

that there was an agreement and a breach by the defendant.15 At docket 15, the court

dismissed plaintiffs’ breach-of-contract claim as to Taymor Canada. The breach-ofcontract claim is based on a dispute about Zalkow’s annual bonus, and the court

concluded that the complaint did not allege that Taymor Canada had failed to perform a

contractual duty related to the bonus, even assuming that Taymor Canada was a party

to Zalkow’s employment agreement.16 The amended complaint has not fixed this

deficiency. 

As with the original complaint, the amended complaint makes clear that Taymor

USA was Zalkow’s employer. It asserts that Zalkow worked for Taymor USA, that

Taymor USA paid Zalkow annual bonuses, and that Taymor USA failed to pay him “his

fully earned bonus.”17 Plaintiffs’ new allegations linking Taymor Canada to the bonus—

that Taymor USA acted “pursuant to the direction of Taymor Canada” and that

“decisions made by Taymor Canada” caused the bonus to be lower than

14Doc. 46 at p. 5.

15Coast Dryland Services Ltd. v. Canada (Ministry of Fisheries & Oceans), 2007 FC 16

(Can. (“In terms of breach of contract, the essential elements of the cause of action are the

existence of a contract and its wrongful breach.”).

16Doc. 15 at p. 4.

17Doc. 34 at p. 3.

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expected18—do not change the fact that the complaint fails to allege that Taymor

Canada had any contractual obligation to pay Zalkow’s bonus. 

Plaintiffs argue that while Taymor Canada is not a party to any employment

agreement with Zalkow, Taymor Canada can still be liable for a breach of contract in

relation to the bonus under the Mason Agreement. The language in the Mason

Agreement that Zalkow relies upon states as follows: 

[Zalkow] agrees to resign as an officer and employee of Taymor [USA]

effective March 31, 3013 and until that date he will continue working full time

for Taymor [USA] in his present position at his present compensation and

benefit arrangements (including bonus) and will assist Taymor USA in any

transition matters that are required to be dealt with as a result of his

resignation.19

Such language does not impose a direct contractual obligation on Taymor Canada to

pay Zalkow. The complaint does not otherwise allege that Taymor Canada expressly

assumed any duty to do so as part of the Mason Agreement. Plaintiffs’ new allegations

that Taymor Canada directed and otherwise caused Taymor USA to underpay Zalkow

does not fix the deficiency. 

C. Intentional Interference with Prospective Contractual Relations 

Plaintiffs’ second cause of action alleges that Taymor Canada intentionally

interfered with their prospective contractual relations based on Taymor Canada’s

statements to three independent representatives that Zalkow was trying to recruit.20 In

addition to seeking damages for Taymor Canada’s conduct, plaintiffs are also seeking

18Doc. 34 at p. 3.

19Doc. 36-1 at p. 7.

20Doc. 34 at pp. 5-6.

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injunctive and declaratory relief. Taymor Canada moves to have the second cause of

action dismissed to the extent that it seeks such relief, arguing that injunctive and

declaratory relief is now moot given that the non-solicitation agreement expired as of

December 31, 2014. “[T]o the extent that Taymor Canada is alleged to have

misrepresented the scope of this agreement in the past, it is a type of tortious

interference that is not susceptible to being repeated in the future.”21 Plaintiffs concede

that the court should dismiss the claims for injunctive and declaratory relief given the

expiration of the non-solicitation agreement.22

 

D. Good Faith and Fair Dealing

The basis for plaintiffs’ bad faith claim is the Mason Agreement.23

 However,

Taymor USA is not a party to the Mason Agreement. Indeed, plaintiffs acknowledge in

their response brief that the Mason Agreement was between plaintiffs and Taymor

Canada.24 Taymor USA cannot be held liable for bad faith performance of a contract to

which it was not a party, and there is no allegation that plaintiffs’ bad faith claim stems

from the employment agreement between Zalkow and Taymor USA. 

Moreover, plaintiffs have not sufficiently pled a good faith claim under Canadian

law. The Supreme Court of Canada recently discussed whether Canadian common law

imposes a general duty of good faith on contracting parties in all contracts. It noted that

21Doc. 36 at p. 6.

22Doc. 46 at p. 12.

23Doc. 34 at p.39 (“In breach of the implied covenant of good faith and fair dealing,

Taymor Canada and Taymor [USA], at the direction of Taymor Canada, have taken actions to

deprive Zalkow of the benefits of the [Mason Agreement] . . .”). 

24Doc. 46 p. 5.

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“Anglo-Canadian law has resisted acknowledging any generalized and independent

doctrine of good faith performance of contracts.”25 The court recognized that good faith

has been required under existing Canadian case law, but generally only with regard to

particular types of contracts, contractual provisions, or contractual relationships. It

noted that the source of such good faith obligations has been unclear; that is, it is not

clear whether the good faith obligation is being imposed in such cases as a matter of

law, a matter of implication, or a matter of interpretation.26 The court went on to

recognize that there is an “overarching organizing principle” of good faith present in the

existing case law applicable to certain situations and noted that development of this

general principal should stem from existing law, but it declined to apply a broad good

faith duty in all contractual situations.27 Instead, it adopted a narrower “duty of honesty

in contractual performance” for all contracts, meaning that the “parties must not lie or

otherwise knowingly mislead each other about matters directly linked to the

performance of the contract.”28

 That is, the parties must be honest with each other in

relation to the performance of their contractual obligations.29

Plaintiffs’ complaint does not set forth sufficient facts to support a good faith

claim under this newly articulated duty to act honestly in the performance of contractual

obligations. There are no allegations that Taymor Canada or Taymor USA actively lied

25Bhasin v. Hrynew, 2014 SCC 71, Para. 32 (Can.).

26

Id. at Para. 48.

27

Id. at Para. 69.

28

Id. at Para. 73.

29

Id. at Para. 93.

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about matters directly linked to their obligations under the contract. Indeed, as noted

above, the Mason Agreement was primarily a purchase and sale agreement. There is

no allegation that Zalkow did not receive the required payments or that Taymor Canada

otherwise failed to honestly perform any of its obligations under the agreement. The

specific allegations set forth in paragraphs 40 - 46 of the amended complaint do not

allege active dishonesty as to matters directly linked to the Mason Agreement. 

Plaintiffs argue that other Canadian cases have recognized a more expansive

duty of good faith, but the court in Bhasin specifically declined to adopt a broad duty of

good faith for every contract.30 The court recognized that in some particular

circumstances good faith might require more than just honesty on the part of a

contracting party—such as in cases where one party has discretionary power, when the

parties must engage in some level of cooperation under the contract, when one party

uses its contractual power to evade its obligations under the contract, or in employment,

insurance, or tendering contexts—but it emphasized that existing case law delineates

when and how to give good faith effect in such particular circumstances.31 For

example, the court specifically discussed the case Dynamic Transport Ltd. v. O.K.

Detailing Ltd.32

 and stated that, because the contract there involved a condition

precedent to a sale of property, good faith required something more than just honesty; it

required that the responsible party take reasonable steps to achieve the condition

30

Id. at Para. 89.

31

Id. at Paras. 47-56, 93.

32

[1978] 2 S.C.R. 1072 (Can.).

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precedent.33

 However, the circumstances present in Dynamic Transport are not alleged

in plaintiffs’ complaint. Indeed, plaintiffs do not allege the Mason Agreement involved

any of the particular circumstances discussed in Bhasin that would justify the

application of a more expansive duty of good faith. 

E. Amendment

Throughout their response plaintiffs ask for leave to amend the complaint further

to fix any deficiencies. However, they have not attached a proposed amendment for

the court’s consideration.34 Thus, the court cannot determine whether granting leave to

amend would be futile. Moreover, the time for filing motions to amend has passed. 

VI. TENTATIVE CONCLUSION

Based on the preceding discussion, defendants’ motion at docket 36 should

likely be GRANTED as follows: Count One of plaintiffs’ complaint should be dismissed

as to Taymor Canada. Count Two of plaintiffs’ complaint should be dismissed to the

extent it seeks injunctive and declaratory relief. Count Three should be dismissed in its

entirety. 

DATED this 5th day of May 2015.

/s/ JOHN W. SEDWICK

SENIOR UNITED STATES DISTRICT JUDGE

33Bhasin, 2014 SCC 71, Para. 89.

34L.R. Civ. 15.1(a). 

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