Wednesday, February 11, 2009

Citizen of Humanity v. Costco (Cal. Ct. App. - Feb. 11, 2009)

Here's an example of an appellate court that has a great deal of common sense and, for this reason, the ability to peer through facially reasonable b***s**t to see what's really going on. And yet, simultaneously, both able and willing to follow the law and let a cognizable claim go forward even when it's a stalking horse for something different. Confident -- and hopefully accurately so -- that the trial court will do the right thing.

The case involves high-end Citizens of Humanity jeans. (If you want to see what they look like -- plus a whole lot of belly buttons -- here you go.) They're jeans that sell retail for $200 or so, so you can imagine how the manufacturer felt when it discovered that they were being sold in Costco. For a whole lot less.

So they did what any good company in America would do; they promptly sued. Alleging in part a fraud claim (which Justice Croskey rightly rejects) that Costco must have gotten the jeans, as I'm sure they did, from one or more third party retailers who purchased the products from plaintiff and then resold them to Costco. A third-party route that was necessary, no doubt, because no way would plaintiff sell its fancy pants to Costco directly. Plaintiff contends this was fraud because it was allegedly in violation of an implicit agreement that the retailer would only sell the jeans in their own stores. Nope. Not true. Plaintiff's just trying to get around the (beneficial) rule that manufacturers can't control downstream sales. Sorry. No dice.

Plaintiff also alleges that Costco must have gotten the jeans "off the back of a truck" -- i.e., that Costco is selling stolen property. Does plaintiff in fact believe this allegation? No. Not at all. At least in my view, no objective person would view the evidence and come to such a conclusion. But then why make the allegation if you can't prove it at trial (or on summary judgment)? Because, my good friends, that way you can get discovery from Costco about who the actual suppliers are. And then promptly retaliate against them (e.g., by cutting them off from future sales).

Justice Croskey sees all this, and does a wonderful job explaining what is likely going on here. In a way that's far more tactful than I've put it, but I think we see eye-to-eye on this one. The trial court probably saw it the same way too, and granted Costco's demurrer on that basis. But Justice Croskey, to his credit, reverses on this point. Holding that the plaintiff has, in fact, properly alleged a cause of action. At the pleading stage, anyway. What happens later is another story. But, for now, the lawsuit should continue.

I think that's right. But I also think that the trial court (1) should make sure to limit any discovery so that any untoward objectives of the plaintiff are not realized; i.e., by permitting inspection of the discovery only by a neutral special master, or by entering an order that any retaliation by plaintiff would constitute contempt of court; and (2) seriously consider sanctions if faced with a proper 128.7 motion, if in fact it turns out that (as I strongly suspect) no way was Costco actually buying huge volumes of stolen property. I think that either or both of these approaches would do justice while simultaneously following the law.

Of course, maybe I'm wrong. Maybe the plaintiff is correct that Costco is a huge front for stolen property. Sort of like a brick-and-mortars version of ebay. And that Costco's attorneys are aware of this fact but are simply hiding their client's actual conduct behind a smoke screen of alleged privilege.

Maybe. But I strongly doubt it.