APPEAL from a judgment of the Superior Court of Los Angeles County, Mary Thornton House, Judge. Judgment is reversed and remanded with directions. (Los Angeles County Super. Ct. No. BC362268).
The opinion of the court was delivered by: Croskey, J.
CERTIFIED FOR PUBLICATION
A manufacturer of high-end apparel discovered that some of its current season products were being sold at a low-price warehouse store. The manufacturer asked the warehouse store to disclose its source for the products; the warehouse store refused. The manufacturer then sued the warehouse store for the sale of stolen property. The trial court ultimately denied the manufacturer discovery of the warehouse store's sources, and sustained the warehouse store's demurrer to the operative complaint. The manufacturer appeals. While we conclude the manufacturer is not entitled to the discovery it sought, and we further harbor substantial doubts as to the evidentiary support for the manufacturer's complaint, we conclude that the manufacturer has alleged a cause of action for the sale of stolen property, and therefore reverse.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff and appellant Citizens of Humanity, LLC, the successor in interest to D.A.D.S. Denim, Inc., ("Citizens") is a manufacturer of "high end denim apparel products." According to the operative complaint, Citizens "only sells its current season apparel to retailers that [it] believes will provide a high level of customer service and who convey a prestigious image consistent with [Citizens's] image," in order to "develop and maintain a reputation for high quality merchandise, fashion forward prestige, and outstanding customer service."
Defendant and respondent Costco Wholesale Corporation ("Costco") owns and operates retail warehouse-style stores, that sell "among other things, household products, including apparel." At some point, Citizens learned that Costco was selling Citizens apparel. Citizens "purchased [its] apparel at Costco stores to try to investigate how Costco acquired this merchandise. That investigation revealed that the 'cut numbers' on some of the [Citizens] jeans sold by Costco, which can be traced back to the specific retailer for whom the goods were originally manufactured, demonstrated that the apparel was produced by [Citizens] for at least three different customers. Only three customers of [Citizens] had purchased more than one of the styles that were available for sale at Costco and no one had purchased all of the styles. [Citizens] therefore concluded that it was very unlikely that Costco could have obtained [Citizens] merchandise from so many different sources and that the merchandise may have been stolen from [Citizens] before it reached the intended purchasers."
On August 30, 2006, counsel for Citizens wrote Costco "advising Costco that [Citizens] was concerned that Costco had obtained and was selling stolen merchandise and asking Costco to identify the sources of its [Citizens's] apparel." Costco responded that it would not reveal its sources. On September 7, 2006, Citizens's counsel wrote Costco again, asking Costco "to provide proof, if you have it, that the [Citizens] goods offered for sale by Costco were not stolen property." Counsel explained that Citizens had purchased its jeans at Costco on two occasions.*fn1 The first occasion involved jeans in three different style numbers, not more than one of which had been allocated to the same customer. The second occasion involved three additional cuts of jeans. The letter added, "of the numerous customers who were allocated any of the first three styles, only five were allocated any of the three styles purchased at Costco on the second occasion." Citizens found it "unbelievable that [Costco] would have acquired these jeans from so many different sources," and therefore brought suit against Costco.*fn2
On November 20, 2006, Citizens filed this action against Costco, alleging the sale of stolen property under Penal Code section 496.*fn3
Citizens alleged that its belief the jeans sold by Costco were stolen arose "in part because" Costco had refused to identify its source for the jeans when asked.
Costco filed a motion for judgment on the pleadings. Before the motion could be heard, Citizens filed a motion to compel discovery. Specifically, Citizens sought to compel Costco to identify the sources from which Costco had obtained Citizens jeans, and the terms of the transactions by which it had obtained them. Citizens argued that this information was necessary to support its claim that the jeans were stolen and that Costco had known the jeans were stolen. Costco opposed the discovery on the basis that its vendor information constituted a protectable trade secret. Costco produced evidence that its supplier list has economic value and that Costco makes substantial efforts to keep its suppliers' identities secret. Costco then argued that Citizens could not show that the discovery was necessary to the pursuit of its action, nor that there was no other way it could obtain the necessary information.
The motions were heard simultaneously. The trial court granted the motion for judgment on the pleadings with leave to amend.*fn4
As to the motion to compel, the trial court concluded that Costco had established that the identity of its suppliers was a protected trade secret, and that Citizens had failed to establish entitlement to that information.*fn5
The court nonetheless granted the motion to compel in part, allowing Citizens to discover the non-privileged information regarding the terms of the transactions by which Costco had obtained the jeans.
On April 19, 2007, after the limited discovery was taken, Citizens filed the operative complaint in this action, its first amended complaint. The complaint alleged three causes of action: (1) sale of stolen property; (2) unfair competition; and (3) fraud and conspiracy to commit fraud. Citizens named two categories of Doe defendants:
(1) the "Customer Does," who were Citizens's own customers who had purchased jeans from it; and (2) the "Source Does," who were Costco's sources, who provided the jeans to Costco, having purchased them from the "Customer Does," or other individuals in the chain of distribution.
Citizens again alleged its belief that the jeans sold by Costco had been stolen, although Citizens had "not yet been able to ascertain precisely when, from whom, and how" the apparel had been stolen. Citizens inferred a theft largely because of the information it had, and had not, obtained from Costco. Specifically, Citizens relied on Costco's refusal to identify both the Source Does and the Customer Does in its supply chain. Citizens also contended that Costco's documentation was unnecessarily redacted and appeared inaccurate.*fn6
The allegations that the jeans had been stolen supported Citizens's cause of action for the sale of stolen property, and its cause of action for unfair competition, based on "unlawful" practices.
In the alternative, Citizens alleged that the jeans had not been stolen. Instead, Citizens alleged that Costco had conspired with Source Does and Customer Does (either directly or indirectly) to obtain the merchandise by fraud. Specifically, Citizens alleged that the Customer Does obtained the jeans from Citizens "on the false pretense that the apparel was being purchased by the Customer Does for sale at retail stores owned or operated by the Customer Does. All participants in this conspiracy, including Costco, the Source Does, and the Customer Does, knew that [Citizens] would not have sold [Citizens] apparel to the Customer Does if the Customer Does had told [Citizens] that they intended to re-sell the apparel so that it would ultimately be sold at Costco." Citizens alleged that, pursuant to the conspiracy, "the Customer Does represented or implied to [Citizens] that they were purchasing current season [Citizens] apparel for sale in their own retail stores and failed to disclose to [Citizens] that they planned to re-sell the merchandise to the Source Does, either directly or indirectly through intermediaries, for eventual sale to Costco." Citizens alleged that this representation was false, in that the Customer Does had been "purchasing the garments specifically with the intention to resell them to the Source Does, either directly or indirectly through intermediaries, and ultimately to Costco." The allegations of this conspiracy to commit fraud supported Citizens's cause of action for fraud, and its cause of action for unfair competition, based on "unfair" practices.
Costco demurred to the complaint. As to the cause of action based on the sale of stolen property, Costco argued that Citizens could not pursue its cause of action because: (1) it could not allege that Citizens had owned the property when it was stolen; and (2) any injury to its goodwill suffered by Citizens was not the result of the purported theft. As to the cause of action for fraud, Costco argued that Citizens had failed to plead fraud with particularity, and had failed to allege recoverable damages.
As to the cause of action for unfair competition, Costco argued that Citizens had failed to state a claim for unlawful or unfair competition, and further argued that Citizens lacked standing because it had not suffered any actual damages.
After briefing and a hearing, the demurrer was sustained with leave to amend. The trial court concluded that the cause of action for sale of stolen property could not proceed as Citizens had failed to allege that it was the owner of the apparel when it was stolen. The trial court concluded the cause of action for unfair competition was based only on "vague allegations of conspiracy," and that the cause of action for fraud did not allege fraud with sufficient specificity. The court granted leave to amend "because there are sufficient facts to indicate that a cause of action based upon unfair trade practices may exist, however, plaintiff should not rely upon unsubstantiated conclusions based upon the purported failure of Costco to provide responses to discovery to form the basis of the ...