United States District Court, M.D. Florida, Tampa Division
Honorable James D. Whittemore, United States District Judge
REPORT AND RECOMMENDATION
B McCOUN III UNITED STATES MAGISTRATE JUDGE
CAUSE is before the Court on referral for a Report and
Recommendation on Defendants' Motion to Dismiss (Doc.
11). Plaintiff filed a response in opposition (Doc. 17), to
which Defendants were permitted a reply (Doc. 28).
Dragon Jade International, Ltd. (“Dragon Jade”)
initiated this action on October 13, 2017, filing a
five-count complaint against Defendants Ultroid, LLC, Ultroid
Marketing Development Corp., and Ultroid Technologies, Inc.
(collectively, “the Ultroid Defendants”). (Doc.
1). According to the Complaint, Dragon Jade and Ultroid
Technologies initially entered into an International
Distribution Agreement in June 2015 in connection with
Ultroid's Hemorrhoid Management System. Following the
breakdown of that distribution agreement, Dragon Jade began
arbitration proceedings. In addition, the U.S. Food and Drug
Administration issued a warning letter to Defendants
regarding its product.
in an effort to resolve arbitration and to assist Defendants
with remediation of the product, the parties entered into two
agreements in January 2017: the Exclusive Option and
Remediation Agreement (the “Option Agreement”)
and the Security Agreement (the “Security
Agreement”). Pursuant to the Security Agreement, Dragon
Jade also filed several UCC Financing Statements against
assets of the Defendants. The Option Agreement, the Security
Agreement, and the UCC Financing Statements are the subject
of this action.
Jade alleges that the Option Agreement (see Doc.
1-1) grants to it an exclusive option to purchase the Ultroid
Assets provided that Dragon Jade supplied remediation funding
and certain remediation tasks were performed. It asserts
that, as defined in the Option Agreement, the Option Period
expires thirty days after the completion of “Milestone
2” (as defined in the Option Agreement at Exhibit C).
Because Milestone 2 performance is not yet complete (e.g.,
the Design History File is not complete and the Design Master
Record has not been populated), it claims that the Option
Period is not yet triggered. Notwithstanding that the Option
Period has not yet run and that Dragon Jade has continued to
honor its contractual obligations, it alleges that on
September 22, 2017, the Ultroid Defendants sent a letter to
Dragon Jade indicating that they were terminating the
exclusive option effective immediately (see Doc.
1-4). Dragon Jade asserts that this letter is contrary to the
plain language of the Option Agreement and constitutes a
breach, and/or anticipatory breach, of the Agreement. In
addition, Dragon Jade alleges that the Ultroid Defendants
have made clear that they have no intention of honoring the
Option Agreement and, it believes, the Ultroid Defendants are
attempting to sell or otherwise encumber or hypothecate the
assets subject to the parties' agreements.
order to secure the remediation payments, outstanding debts
owed, and the liquidated damages provided for in the Option
Agreement, Dragon Jade and the Ultroid Defendants also
entered into a Security Agreement (see Doc. 1-2).
Through the Security Agreement, the Ultroid Defendants
pledged and granted a security interest, including a first
priority lien, in:
all right, title and interest in and to the following,
wherever located, whether now existing or hereafter from time
to time arising acquired: (i) all Ultroid Assets and any and
all claims, rights and interests in any of the Ultroid
Assets; (ii) all guaranties and security for any items set
forth in (i); (iii) all substitutions and replacements for,
additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any
insurance policies, proceeds of proceeds and claims against
third parties) of, any and all of the items set forth in (i)
and (ii); and (iv) all of Ultroid's books relating to any
and all of the items set forth in (i), (ii) or (iii)
(collectively, the “Collateral”).
(Doc. 1-2 at ¶ 1).
security interest cannot be extinguished until the Secured
Obligations have been paid and performed in full (which
Dragon Jade alleges has not occurred), and the delivery of
“a proper instrument” from Dragon Jade
acknowledging that the obligations were satisfied.
Id. at ¶ 2. Under the Security Agreement, in
the event of breach, Dragon Jade is entitled to appointment
of receiver and to foreclose upon the collateral. Dragon Jade
alleges that “Although Dragon Jade does not believe
that the Ultroid Entities have successfully terminated the
Option Agreement, to the extent that they did, then Dragon
Jade was entitled to return of the indebtedness owed, which
did occur. As a result, under those circumstances, Dragon
Jade would be entitled to foreclose under the terms of the
Security Agreement as well [as] its rights under the Option
Agreement.” (Doc. 1 at ¶ 36). In addition, in
connection with the execution of the Option and Security
agreements, Dragon Jade filed various UCC Financing
Statements to secure the assets of the Ultroid Defendants
(see Doc. 1-3). Again, it alleges that it believes
the Ultroid Defendants are attempting to sell the collateral
that is subject to the parties' agreements. It states
that all conditions precedent have been performed or have
been waived. (Doc. 1 at ¶ 41).
sets out five counts: Breach of the Option Agreement (Count
I); Anticipated Breach of the Option Agreement (Count II);
Breach of the Security Agreement (Count III); Anticipated
Breach of the Security Agreement (Count IV); and Foreclosure
of Security Interests under Florida UCC (Count V). It seeks
damages (compensatory and liquidated damages in the amount of
$2 million); alternatively, foreclosure of its security
interest; and declaratory and injunctive
Ultroid Defendants move to dismiss all five counts of the
Complaint pursuant to Fed.R.Civ.P. 12(b)(6). (See
Doc. 11). First, with regard to the Option Agreement,
Defendants urge that the Option Period “was triggered
upon delivery of the third payment under Phase 3, which as
due no later than March 13, 2017.” Id. at 3.
Because Dragon Jade did not exercise its option within this
period, Defendants claim the option, and thus the Option
Agreement, expired long before they sent their September 22,
2017, notice of termination. Because the Option Agreement has
expired, they argue as a matter of law and pursuant to the
plain language of the Option Agreement, there can be no
breach or anticipatory breach of the Option Agreement.
Alternatively, Defendants argue that to the extent the Option
Agreement has not expired, their September 22, 2017, letter
does not constitute a material or anticipatory breach of the
agreements. They assert that the letter does not address
their obligations under the Agreement or otherwise suggest
their intention to default on those obligations. Further,
they claim that any alleged breach or anticipatory breach by
virtue of an attempt to sell or transfer assets is based on
nothing more than vague, conclusory, and unsupported
with regard to any alleged breach of the Security Agreement,
the Ultroid Defendants argue that, while the expiration of
the Option Agreement triggered their obligation to repay
Dragon Jade, the Security Agreement is silent as to when such
payments are to be made. They argue that because time is not
of the essence under the Agreement, there is not a fixed time
for repayment, and, in any event, Dragon Jade has not even
demanded repayment, there can be no claim for breach.
Alternatively, again Defendants argue that to the extent the
Option Agreement has not expired, they do not yet have an
obligation to repay Dragon Jade and the Security Agreement is
not yet triggered.
regard to Count V, Defendants argue that foreclosure of the
security interest under the UCC filings is premature as there
has been no finding of default.
response to the motion to dismiss, Dragon Jade disputes that
the Option Period has expired, accusing Defendants of
conflating Phase 2 and Milestone 2, which are separate and
distinct in the Option Agreement. It claims it has
sufficiently pleaded its claims for breach of both
agreements, to wit: “Ultroid breached the Option
Agreement by attempting to terminate it without a legal
basis, advising Dragon Jade that it was attempting to sell
the assets secured in the Option Agreement, refusing to stop
attempting to sell those assets, and refusing to provide
assurances that the security interests were not being
violated.” (Doc. 17 at 9). It claims the September 22,
2017, provides an adequate basis from which to conclude there
has been a breach or an anticipatory breach (i.e.,
repudiation) of the Option Agreement and Security Agreement.
its claim for foreclosure of the UCC liens, Dragon Jade
argues that the Security Agreement specifically provide for
such a remedy in the event that the Ultroid Defendants fail
in their repayment obligations. Thus, it claims to the extent
Defendants legally terminated the Option Agreement and have
failed to repay their obligations, they are in default and it
has sufficiently pleaded a claim under Florida law.
reply that Plaintiff has not sufficiently refuted its
contentions that dismissal is appropriate. In short, they
argue Plaintiff is attempting to introduce argument or
evidence outside the four corners of the Complaint; that a
plain reading of the Option Agreement reveals such agreement
expired thirty days after the final payment associated with
“Phase 3” was made; thus, they argue there can be
no breach of the Option Agreement. With regard to the
Security Agreement, Defendants again argue Plaintiff fails to
state a claim for breach because it does not allege that it