Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-00624/USCOURTS-cand-3_15-cv-00624-7/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 GRANTING IN PART AND 

DENYING IN PART MOTION TO 

DISMISS 

[Re: ECF No. 149] 

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 counterclaimed against Tang-Buy, its owner Mike 

Tian, and Michael Kule, Tang-Buy’s alleged agent, charging breach of contract surrounding 

delivery of goods in 2013 and 2014, tortious interference with contract, a breach of the covenant 

 

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. 

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ORDER — No. 15-cv-00624-LB 2 

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of good faith and fair dealing in connection with the 2014 delivery, and damages in the millions.3

Mr. Kule moves to dismiss the claims for failure to state a claim against him.4 

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

counterclaims one and two for breach of contract (except that it finds fair notice about Mr. Kule’s 

alleged breach only for delay and not for non-conforming goods), grants the motion to dismiss 

counterclaim three for tortious interference with contract, and denies the motion to dismiss 

counterclaim four for breach of the implied covenant of good faith and fair dealing. 

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.5 The defendants are PSA, RBA, Hal 

Reiland, Mark Cardinale, and Glen Hartman.6 The individuals all are affiliated with PSA, and Mr. 

Hartman allegedly finances PSA’s operations and has the controlling interest in PSA and RBA.7

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.8

 By November 2014, PSA owed Tang-Buy $578,377.25.9 

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

 

3

 Answer and Counter/Cross Claims — ECF No. 121 at 21 ̶ 26. 

4

 Motion — ECF No. 149. 

5 See, e.g., SAC ¶¶ 11–15, 20 ̶ 21. 

6

 SAC ¶¶ 4 ̶ 8. 

7 Id. 

8

 Order — ECF No. 73 at 2. 

9 Id. at 2; SAC ¶ 15. 

Case 3:15-cv-00624-LB Document 188 Filed 11/03/16 Page 2 of 10
ORDER — No. 15-cv-00624-LB 3 

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

plaintiff from collecting the $578,377.25.10 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.11 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.”12 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.”13

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

manufacture, delivery, and storage of the goods.14 PSA charged four counterclaims against TangBuy, its owner Mike Tian (in two of the four claims), and Mr. Kule, who does business as AFA 

Sourcing and allegedly is Tang-Buy’s agent.15 The counterclaims are: (1) breach of contract 

relating to a late delivery of non-conforming goods in 2013; (2) breach of contract relating to a 

failure to deliver goods in 2014; (3) tortious interference with contract by shipment delays; and (4) 

breach of the covenant of good faith and fair dealing by holding and delaying 2014 goods.16 

The first breach-of-contract counterclaim alleges the following: (1) PSA issued purchase 

orders in 2013 to Tang-Buy and Mr. Kule to manufacture clothes for the 2013 holiday season; (2) 

Tang-Buy and Mr. Kule accepted the purchase orders and manufactured the clothing, but delivered 

it too late for the 2013 holiday season; (3) the goods did not meet the specifications in the 

 

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

11 SAC ¶ 23. 

12 SAC ¶ 24. 

13 SAC ¶ 26. 

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

15 Id. at 21 ̶ 26. 

16 Id. 

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purchase orders, were defective, and were late; (4) Tang-Buy and Mr. Kule demanded payment 

and PSA refused; and (5) the breach resulted in lost revenue of $750,000.17 

The second breach-of-contract counterclaim alleges the following: (1) PSA issued purchase 

orders in 2014 to Mr. Kule, who gave them to Tang-Buy and other manufacturers, for the 

manufacture of clothes for the 2014 spring and summer season; (2) Mr. Kule accepted the orders 

and gave them to Tang-Buy, which accepted them too; (3) Mr. Kule and Tang-Buy breached the 

contract by failing to deliver the goods on time and failing to provide adequate documents, which 

meant that the goods did not clear customs and were not delivered; and (4) PSA suffered total 

damages of $8.7 million: lost revenue of $5.8 million, an inability to service its obligations to TCA 

and RBA in the sum of $2.4 million, and operational losses of $500,000.18

The third counterclaim for tortious interference with contract incorporates the previous 

allegations and alleges the following: (1) the 2014 purchase orders included goods manufactured 

by Tang-Buy, Valley, and WeiHai Dichaing to be delivered in time for the 2014 season; (2) TangBuy and Messieurs Tian and Kule — acting in their individual capacities — stopped the 201319

purchase orders to force PSA to pay for them and Mr. Kule’s commission, despite PSA’s issues 

with the goods; (3) as a result of the stopped and delayed shipments, PSA did not receive the 2014 

purchase-order goods on time; (4) Tang-Buy, Mr. Tian, and Mr. Kule knew about the 2014 

agreements and their validity and intentionally stopped the shipment of the 2014 goods, thereby 

interfering with the 2014 agreements; (5) this prevented all of the goods from being shipped and 

delivered to PSA; and (6) the delay caused delivery out of season, resulting in total damages of 

$8.7 million: lost revenue of $5.8 million, an inability to service its obligations to TCA and RBA 

in the sum of $2.4 million, and operational losses of $500,000.20

The fourth counterclaim for breach of the implied covenant of good faith and fair dealing 

 

17 Id. at 22. 

18 Id. at 23. 

19 2013 is the date alleged in this paragraph; all other allegations in the claim involve 2014. Id. at 24 ̶

25. 

20 Id. 

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ORDER — No. 15-cv-00624-LB 5 

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alleges that Tang-Buy, Mr. Tian, and Mr. Kule breached the implied covenant of food faith and fair 

dealing by holding and delaying the shipment of the 2014 goods.21 PSA was allegedly damaged as 

follows: (1) $966,336.21 resulting from its inability to meet its obligations to Tang-Buy and other 

manufacturers; (2) lost revenue of $5.8 million; (3) $2.4 million from its inability to service its 

obligations to TCA and RBA; and (3) operational losses of $500,000. 

Mr. Kule moves to dismiss all claims for failure to state a claim under Rule 12(b)(6).22

GOVERNING LAW 

 The background rule 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,’” 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 

 

21 Id. at 25. 

22 Motion — ECF No. 149. 

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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 1109 (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. N. Cal. 

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

ANALYSIS 

1. Breach of Contract 

 The first issue is whether PSA sufficiently alleged breach of contract in counterclaims one and 

two. The court concludes that it has. 

 “A cause of action for breach of contract requires pleading of a contract, plaintiff’s 

performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting 

therefrom.” McKell v. Wash. Mut., Inc., 142 Cal. App. 4th 1457, 1489 (2006). “A written contract 

may be pleaded either by its terms — set out verbatim in the complaint or a copy of the contract 

attached to the complaint and incorporated therein by reference — or by its legal effect.” Haskins 

v. Symantec Corp., No. 13-cv-01834-JST, 2013 WL 6234610, *10 (N.D. Cal. Dec. 2, 2013). “[T]o 

plead a contract by its legal effect, plaintiff must allege the substance of its relevant terms.” Id.

(citation omitted). A plaintiff need not plead the contract terms with unusual specificity. 

Allegations that meet the notice-pleading standards of Rule 8 will suffice. See, e.g., James River 

Ins. Co. v. DCMI, Inc., No. C 11–06345 WHA, 2012 WL 2873763, *3 (N.D. Cal. July 12, 2012). 

Put differently, “it is unnecessary for a plaintiff to allege the terms of the alleged contract with 

precision,” but “the Court must be able generally to discern at least what material obligation of the 

contract the defendant allegedly breached.” Langan v. United Servs. Auto. Ass’n, 69 F. Supp. 3d 

965, 979 (N.D. Cal. 2014); see Sierra View Local Health Care Dist. v. Influence Health, Inc., No. 

1:15-cv-00689-DAD-SAB, 2016 WL 2346799, *5 (E.D. Cal. May 4, 2016) (holding that fairly 

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rudimentary contract allegations satisfied Rule 8); Kentwool Co. v. Netsuite, Inc., No. 14–cv–

05264–JST, 2015 WL 693552 at *7-8 (N.D. Cal. Feb. 18, 2015). 

PSA has done enough to meet this standard. This case is about fairly defined shipments: (1) 

goods for the 2013 holiday season; and (2) goods for the 2014 spring/summer season. The 

complaint alleges sufficiently that the purchase orders memorialized the goods and their 

specifications. This is different from Haskins, for example, where the plaintiff tried to “cobble 

together the terms of an implied contract” from the defendant’s advertising campaign, website, and 

the name of the challenged product. 2013 WL 6234610 at *10. The Haskins defendant submitted 

the license agreement that accompanied the product, but the plaintiff did not point to any terms 

that the defendant supposedly breached. Id. It was not clear to the court that a contract could be 

built from this. See id. By contrast, the complaint here alleges specific purchase orders for specific 

goods with defined specifications by specific dates, and it alleges breach by late delivery and 

defective products. 

North County Communications (cited by Mr. Thule) is distinguishable for similar reasons. See 

N. Cnty. Commc’ns Corp. v. Verizon Global Networks, Inc., 685 F. Supp. 2d 1112, 1122 (S.D. Cal. 

2010). Verizon — citing confidentiality provisions — did not plead the nature of the contract, 

pertinent dates, or any other terms that would put North County on notice of the basis for the 

claim. Id. 

For purposes of Rules 8(a) and 12(b)(6), the complaint gives Mr. Thule reasonable notice of 

the nature of the contract claims against him, the breach (delay or non-delivery), and the resulting 

damages. Moreover, this case — whether in Tang-Buy’s claims or PSA’s counterclaims — 

involves the parties’ disputes about specific goods slated for delivery in the 2013 holiday season 

and the 2015 spring/summer season.23 Tang-Buy’s claims and PSA’s counterclaims at least in part 

are different stories surrounding the same transactions. 

Mr. Kule contends that the complaint does not allege adequately what the specifications were 

 

23 E.g., SAC — ECF No. 76 at 3 ̶ 5; Answer and Counter/Cross Claims – ECF No. 121 at 21-22. 

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or how he breached them.24 “Facts alleging a breach, like all essential elements of a breach of 

contract cause of action, must be pleaded with specificity.” Levy v. State Farm Mut. Auto. Ins. 

Co., 150 Cal. App. 4th 1, 5 (2007). The specifications are captured adequately by the identification 

of the purchase orders for specific goods tethered to specific time periods. That said, the court 

reads the counterclaims — at least as charged against Mr. Kule — as being about delay. The lack 

of conformance to specifications is more rightly charged to the manufacturer Tang-Buy, and the 

context of Tang-Buy’s and PSA’s claims against each other illuminates what the issues are, at the 

pleadings stage, as to each other. But by contrast, Mr. Kule is the broker, and the complaint gives 

fair notice to him only about delay. 

Mr. Kule also argues that PSA did not plead its performance or excuse for nonperformance. 

Counterclaim one alleges goods that did not meet specifications and were late (for the 2013 

holiday season), and thus PSA had to discount them to sell them.25 Tang-Buy and Mr. Kule 

demanded payment, but because the goods were not conforming and were late, PSA refused to 

pay.26 This adequately pleads excuse for nonperformance. The same result attends to counterclaim 

two, which charges that the goods did not arrive at all, and as a result, PSA did not pay.27

2. Tortious Interference With Contract 

The third counterclaim charges tortious interference with contract based on alleged 

shenanigans by Tang-Buy and Messieurs Tian and Kule to interfere with 2013 orders to force PSA 

to pay Tang-Buy and to pay Mr. Kule’s commission.28 

 Under California law, a claim for tortious interference with contract requires: “(1) a valid 

contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) 

defendant’s intentional acts designed to induce a breach or disruption of the contractual 

 

24 Motion — ECF No. 149 at 5 ̶ 6. 

25 Answer and Counter/Cross Claims — ECF No. 121 at 22.

26 Id. 

27 Id. at 23. 

28 Id. at 24 ̶ 25. 

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relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting 

damage.” Piping Rock Partners, Inc. v. David Lerner Assocs., Inc., 946 F. Supp. 2d 957, 979 

(N.D. Cal. 2013) (quoting Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal. 4th 26, 55 

(1998)). 

 Mr. Kule characterizes the claim as a breach-of-contract claim but also asserts that it fails to 

allege what Mr. Kule did to breach the 2013 purchase orders to game the payment of his 

commission. This second point is most relevant to the tortious-interference claim, and the court 

agrees with it. While the context of the 2013 and 2014 orders is more reasonably apparent to the 

manufacturer Tang-Buy and the customer PSA, it is not obviously so for the broker Mr. Kule. The 

allegations say nothing about what Mr. Kule allegedly did to force the payment of his commission, 

and they say nothing to support a stand-alone claim against Mr. Kule for tortious interference with 

contract. The court dismisses the claim. 

3. Breach of Implied Covenant of Good Faith and Fair Dealing 

The fourth counterclaim alleges that Tang-Buy and Messieurs Tian and Kule breached the 

implied covenant of good faith and fair dealing by delaying the shipment of the 2014 goods.29 

The covenant of good faith and fair dealing is implied in every contract and prevents one party 

from “unfairly frustrating the other party’s right to receive the benefits” of the contract. See Guz 

v. Bechtel Nat’l Inc., 24 Cal. 4th 317, 349 (Cal. 2000). To allege a claim for breach of the 

covenant of good faith and fair dealing, a plaintiff must allege the following elements: (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. See Judicial Council of California Civil Jury Instructions § 325 

(2011); see also Oculus Innovative Sciences, Inc. v. Nofil Corp., No. C 06-01686 SI, 2007 WL 

 

29 Id. at 25. 

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