Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_17-cv-00974/USCOURTS-cand-3_17-cv-00974-6/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1346 Breach of Contract

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ORDER — No. 15-cv-00624-LB

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United States District Court 

Northern District of California 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

San Francisco Division 

QINGDAO TANG-BUY INTERNATIONAL 

IMPORT & EXPORT COMPANY, 

LIMITED, 

Plaintiff, 

v. 

PREFERRED SECURED AGENTS, INC., 

et al., 

Defendants. 

Case No. 15-cv-00624-LB 

ORDER DENYING MOTION TO STAY 

UNDER COLORADO RIVER AND 

GRANTING THE MOTION TO 

DISMISS THE CONTRACT CLAIM 

[Re: ECF No. 142] 

INTRODUCTION

Plaintiff Qingdao Tang-Buy International Import & Export Company (“Tang-Buy”) sued the 

defendants after one of the defendants — Preferred Secured Agents (“PSA”), a retail entity that 

operates as “Sprocket Kids” — allegedly did not pay for goods that the plaintiff manufactured for 

PSA.1 The alleged debt is $578,377.25. 2 PSA cross claimed against Galaxy Custom House 

Brokers, a customs broker (currently in default3), and Great Central Transport, an alleged agent of 

 

1

 Second Amended Complaint (“SAC”) — ECF No. 76. Record citations are to material in the Electronic 

Case File (“ECF”); pinpoint citations are to the ECF-generated page numbers at the top of documents. 

2

 SAC ¶ 15. 

3

 PSA has been in contact with Galaxy’s lawyer and assumes they will move to set aside the default. 

Response Re Service Update — ECF No. 178. 

Case 3:17-cv-00974-LB Document 187 Filed 11/03/16 Page 1 of 10
ORDER — No. 15-cv-00624-LB 2 

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Galaxy that transports shipping containers from the Los Angeles port to distribution warehouses; 

PSA charges breach of contract and conversion from their failure to transport and deliver goods in 

2014.4 The parties also are litigating a related case in Alameda Superior Court, and Great Central 

moves to stay the federal case under the Colorado River abstention doctrine. Alternatively, it 

moves to dismiss the contract claim for failure to state a claim under Federal Rule of Civil 

Procedure 12(b)(6).5 

The court held a hearing on November 3, 2016. The court denies the motion to stay under 

Colorado River and grants the motion to dismiss. 

STATEMENT 

The plaintiff generally claims breach of contract, and it also claims a fraudulent transfer to the 

defendant Retail Business Associates (“RBA”) after PSA gave RBA a secured interest to prevent 

the plaintiff from collecting on the debt that PSA owes it.6 The defendants are PSA, RBA, Hal 

Reiland, Mark Cardinale, and Glen Hartman.7 The individuals all are affiliated with PSA, and Mr. 

Hartman allegedly finances PSA’s operations and has the controlling interest in PSA and RBA.8

Mr. Reiland also is counsel of record for PSA and RBA. 

The court’s order denying the defendants’ motion to dismiss explains the contract between the 

plaintiff and PSA whereby the plaintiff agreed to provide PSA with children’s clothes to sell at 

retail, PSA’s subsequent arrearage, PSA’s acknowledgment of its debts, and PSA’s agreement to 

make weekly payments to Tang-Buy from a “lockbox” (a financial account) maintained with 

PSA’s lender TCA.9

 By November 2014, PSA owed Tang-Buy $578,377.25.10 

 

4 Answer and Counter/Cross Claims — ECF No. 121 at 32 ̶ 35.

5 Motion — ECF No. 142. 

6 See, e.g., SAC – ¶¶ 11–15, 20 ̶ 21. 

7

 SAC ¶¶ 4–8. 

8

 Id. 

9

 Order — ECF No. 73 at 2. 

10 Id. at 2; SAC ¶ 15. 

Case 3:17-cv-00974-LB Document 187 Filed 11/03/16 Page 2 of 10
ORDER — No. 15-cv-00624-LB 3 

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The order and the SAC describe the plaintiff’s claim that PSA gave a $1.3 million lien on its 

assets to RBA to secure PSA’s debt to Glenn Hartman (the principal of RBA) to thwart the 

plaintiff from collecting the $578,377.25.11 On May 11, 2014, the plaintiff informed PSA that it 

needed “immediate payment” of $80,000 for goods that it had shipped the previous year and 

without it, it would not release more goods.12 The next day, RBA filed a UCC-1 financing 

statement with the California Secretary of State, recording its security interest in, and placing a 

lien on, “all PSA assets.”13 Finally, in December 2014, PSA signed an allegedly illusory 

“Confession of Judgment” in RBA’s favor. That document states: “RBA has made demand upon 

PSA for payment . . . [under] the Promissory Note. . . . PSA . . . is unable to pay the principal and 

interest. PSA agrees to confess judgment in favor of RBA for the full amount of principal and 

interest and to allow foreclosure by RBA of all the assets of PSA.”14

PSA counterclaimed and cross claimed against persons and entities involved with the delivery 

and storage of the goods.15 The cross claims at issue here are against the customs broker Galaxy 

and Great Central Transport, which transports containers from the port of entry to the warehouse.16

The claims are: (1) breach of contract to deliver goods in 2014; (2) conversion of those goods; and 

(3) declaratory relief.17 

The breach-of-contract claim alleges (1) PSA’s agreement with Galaxy to clear the goods 

through Customs and thereafter transport them, (2) Galaxy’s arrangement with its agent/contractor 

Great Central Transport to transport the goods (as memorialized in written delivery orders), (3) 

Galaxy’s breach of the contract by failing to clear the goods through customs and thus failing to 

deliver them to PSA, (4) Galaxy’s and Great Central’s failure to pick up the containers, thus 

 

11 Order — ECF No. 73 at 2; SAC ¶¶ 20 ̶ 21. 

12 SAC ¶ 23. 

13 SAC ¶ 24. 

14 SAC ¶ 26. 

15 Answer and Counter/Cross Claims — ECF No. 121.

16 Id. at 31 ̶ 34. 

17 Id. at 32 ̶ 34, 43–44. 

Case 3:17-cv-00974-LB Document 187 Filed 11/03/16 Page 3 of 10
ORDER — No. 15-cv-00624-LB 4 

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incurring fees, and thereafter demanding payment for their expenses and holding the goods 

hostage, and (5) PSA’s resulting damage.18 

The conversion claim incorporates the earlier allegations and also alleges (1) PSA “contracted 

and employed Galaxy and its agent and/or contractor Great Central” to deliver the 2014 containers 

from the Los Angeles port to PSA’s distribution center, (2) they delivered several containers but 

failed to deliver two, and (3) thus they wrongly failed to deliver containers with goods valued at 

$2.8 million retail, which means that PSA can’t sell the goods and pay Tang-Buy and other 

manufacturers.19

PSA’s eleventh claim for declaratory relief asserts an entitlement to goods held by Great 

Central and Mizrahi and thus is predicated on the claims for breach of contract and conversion.20

Great Central’s counsel asked for judicial notice of documents in the Alameda case (generally 

discussed above and in the court’s order denying Tang-Buy’s anti-SLAPP motion):21 (1) the 

December 12, 2014, confession of judgment in the Alameda case; (2) a partial Alameda docket 

sheet, which reflects some of the case events; (3) the January 13, 2015, judgment entered against 

PSA and in favor of RBA; (4) the February 20, 2015, writ of possession for $1.406 million 

reflecting RBA’s attempt to levy upon PSA’s property, including property held by Great Central; 

(5) Great Central’s May 2015 third-party claim filed in the Alameda case for a warehouseman’s 

lien for storage fees owed to it for storage and transport of goods on behalf of PSA; (6) TangBuy’s June 2015 intervenor complaint in the Alameda case to set aside the judgment on the ground 

that PSA and RBA colluded to frustrate PSA’s creditors (including Tang-Buy), and the subsequent 

set aside on April 2, 2016, of the confession of judgment; and (7) RBA’s second amended cross 

complaint (as PSA’s successor) against Great Central and others, filed in June 2016; it is the 

operative cross complaint in the Alameda case.22 The docket sheet shows case events such as 

 

18 Id. at 32-33. 

19 Id. at 34. 

20 Id. at 43. 

21 Order — ECF No. 186 at 4 ̶ 5. 

22 Request for Judicial Notice and Exs. — ECF No. 142-1. 

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ORDER — No. 15-cv-00624-LB 5 

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demurrers, motions to strike, motions to quash, and motions to compel.23

PSA did not challenge the authenticity of the public records. The court takes judicial notice of 

them for the reasons stated in its order denying the defendants’ motion to dismiss.24

ANALYSIS 

Great Central moves to (1) stay the proceedings under the Colorado River abstention doctrine, 

on the ground that the Alameda action covers generally the same issues, and (2) dismiss the 

contract claim for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).25

1. Colorado River Abstention 

 Under the Colorado River doctrine, a federal court may abstain from exercising its jurisdiction 

in favor of parallel state proceedings where doing so would serve the interests of “[w]ise judicial 

administration, giving regard to the conservation of judicial resources and comprehensive 

disposition of litigation.” Colorado River Water Conservation Dist. v. United States, 424 U.S. 

800, 818 (1976); see Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 15 (1983). 

“Exact parallelism” between the state and federal actions is not required; it is enough if the two 

actions are “substantially similar.” Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989). 

Nonetheless, “the Colorado River doctrine is a narrow exception to ‘the virtually unflagging 

obligation of the federal courts to exercise the jurisdiction given them.’” Holder v. Holder, 305 

F.3d 854, 867 (9th Cir. 2002) (quoting Colorado River, 424 U.S. at 817). Accordingly, a stay of 

proceedings pursuant to the Colorado River doctrine is appropriate only where “exceptional 

circumstances” are present. Id.26

 

23 Id. Ex. B — ECF No. 142-1 at 21 ̶ 25. 

24 Order — ECF No. 73 at 4 ̶ 5 (courts readily take judicial notice of documents on file in federal or 

state courts; the court took notice of the documents to show the procedure and did not notice facts in 

them). 

25 Motion — ECF No. 142. 

26 “[D]istrict courts must stay, rather than dismiss, an action when they determine that they should 

defer to the state court proceedings under Colorado River.” Coopers & Lybrand v. Sun-Diamond 

Growers of CA, 912 F.2d 1135, 1138 (9th Cir. 1990). This “ensures that the federal forum will remain 

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Colorado River and Ninth Circuit opinions have identified eight non-exhaustive factors to be 

considered on a motion to stay or dismiss under Colorado River: (1) whether the state court first 

assumed jurisdiction over property; (2) inconvenience of the federal forum; (3) the desirability of 

avoiding piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent 

forums; (5) whether federal law or state law provides the rule of decision on the merits; (6) 

whether the state court proceedings are inadequate to protect the federal litigant’s rights; (7) 

whether exercising jurisdiction would promote forum shopping; and (8) whether the state court 

proceedings will resolve all issues before the federal court. See id. at 870; R.R. St. & Co. Inc. v. 

Transp. Ins. Co., 656 F.3d 966, 978-79 (9th Cir. 2011). These factors should be weighed in a 

“pragmatic, flexible manner with a view to the realities of the case at hand” and “with the balance 

heavily weighted in favor of the exercise of jurisdiction.” Moses, 460 U.S. at 16, 21. Factors that 

are irrelevant to the particular inquiry are disregarded. See Nakash, 882 F.2d at 1415 n.6. 

 The circumstances here are not exceptional and do not warrant abstaining under Colorado 

River. The balance already is “heavily weighted in favor of the exercise of jurisdiction,” Moses, 

460 U.S. at 16, and the relevant factors support retaining jurisdiction over the action. 

First, the court sees no particular issues with the state court’s initial jurisdiction over the 

confession of judgment, which morphed later into the larger state action. PSA confessed judgment 

in December 2014, the judgment issued in January 2015, and Tang-Buy filed its federal lawsuit in 

February 2015 charging the defendants with breach of contract and fraud. The claims in this case 

thus came first. Thereafter, Great Central filed its third-party claim in state court in May 2015 

regarding its storage fees (an ancillary issue to the overall litigation). In June 2015, Tang-Buy filed 

its intervenor complaint in state court, and the state court set aside the judgment in April 2016, 

which is relevant context for the federal litigation but not dispositive of it. Meanwhile, PSA cross 

claimed against Great Central in the federal case on May 13, 2016.27 Thus, by May 2016, the 

 

open if for some unexpected reason the state forum does turn out to be inadequate,” “conserve court 

resources,” and avoid the risk of “mak[ing] premature and speculative legal findings about the 

preclusive effect of various possible state judgments in choosing between a stay and a dismissal.” 

Attwood v. Mendocino Coast Dist. Hosp., 886 F.2d 241, 243, 245 (9th Cir. 1989) (quotation omitted). 

27 ECF No. 98. PSA amended its Answer and Counter/Cross Claims in July 2016. See ECF No. 121. 

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federal case — more or less in its current form — was in place. (PSA filed the operative cross 

complaint in the state case in June 2016.) 

This analysis also goes to the third and fourth factors. Tang-Buy’s claims against the 

defendants in the federal litigation initiated the litigation of the main dispute (including the claims 

for fraud for the allegedly collusive confession of judgment in state court). When one considers 

the claims and counterclaims between Tang-Buy and the defendants, the federal litigation not only 

touches on collateral claims such as PSA’s cross claims against Great Central, it potentially 

disposes of them, at least in part. The court thinks staying the litigation in part might contribute to 

piecemeal litigation. Also, at this point, the court is very familiar with the litigation. 

Second, the parallel action is in Alameda County Superior Court, near this court. It is as 

convenient a forum as this one is. 

Third, the court sees no issue regarding the application of state law. The court has applied it in 

the lawsuit to date, and it does so regularly in the exercise of its diversity jurisdiction. 

Fourth, the state lawsuit does not resolve all claims in the federal lawsuit, especially TangBuy’s claims. Again, the central dispute between Tang-Buy and the defendants in large measure 

drives the litigation, and overall, the court thinks that keeping the case enhances wise judicial 

administration. 

 Given the heavy weight in favor of the court’s exercise of jurisdiction and this pragmatic 

weighing of the realities of this case, the court declines to stay the case under Colorado River. The 

court does not discount Great Central’s efforts and burdens in state court but thinks it can manage 

the burdens by active case management and staging the federal litigation. 

2. Rule 12(b)(6) Motion to Dismiss 

 The background rule here is Rule 8(a)(2), which states that a complaint must include “a short 

and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. 

P. 8(a)(2). Rule 8(a)(2)’s “pleading standard . . . does not require ‘detailed factual allegations,’” 

 

There were earlier iterations of the cross claims against other parties. See ECF No. 10.

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even after Iqbal and Twombly, and “‘[s]pecific facts are not necessary’ for pleadings to satisfy 

Rule 8(a)(2).” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“detailed”); Moss v. U.S. Secret Serv., 

572 F.3d 962, 968 (9th Cir. 2009) (“specific”) (quoting Erickson v. Pardus, 551 U.S. 89 (2007)). 

“The level of factual specificity needed to satisfy this pleading requirement will vary depending on 

the context.” In re Century Aluminum Co. Secs. Litig., 729 F.3d 1104, 1107 (9th Cir. 2013). 

 “On a motion to dismiss under Rule 12(b)(6), a court must assess whether the complaint 

‘contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on 

its face.’” Chavez v. United States, 683 F.3d 1102, 1108-09 (9th Cir. 2012) (quoting Iqbal, 556 

U.S. at 678, and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Mere conclusory 

statements in a complaint and ‘formulaic recitation[s] of the elements of a cause of action’ are not 

sufficient.” Chavez, 683 F.3d at 1108 (quoting Twombly, 550 U.S. at 555). Indeed, “a court 

discounts conclusory statements, which are not entitled to the presumption of truth, before 

determining whether a claim is plausible.” Chavez, 683 F.3d at 1108 (citing Iqbal, 556 U.S. at 

678). “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.” Chavez, 

683 F.3d at 1108-09 (citing Iqbal, 556 U.S. at 678). “Determining whether a complaint states a 

plausible claim for relief will . . . be a context-specific task that requires the reviewing court to 

draw on its judicial experience and common sense.” Chavez, 683 F.3d at 1108-09 (quoting Iqbal, 

556 U.S. at 679). 

If a court dismisses a complaint, it should give leave to amend unless the “the pleading could 

not possibly be cured by the allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. Northern 

California Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). 

 The issue here is whether PSA stated a claim against Great Central for breach of contract. The 

court concludes that it did not. 

To state a claim for breach of contract, a plaintiff must show the following: (1) a contract 

existed; (2) the plaintiff performed his duties or was excused from performing his duties under the 

contract; (3) the defendant breached the contract; and (4) the plaintiff suffered damages as a result 

of that breach. See First Commercial Mortgage Co. v. Reece, 89 Cal. App. 4th 731, 745 (2001). 

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United States Magistrate Judge 

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