Court Rules in Favor of Clothier in Dispute With Costco

LOS ANGELES -- A maker of high-end apparel can take Costco to trial on an allegation that the warehouse chain illegally obtained some of its products and sold them in their stores, an appellate court panel has ruled.

A three-justice panel of the 2nd District Court of Appeal ruled unanimously Wednesday that Los Angeles Superior Court Judge Mary Thornton House erred when she ruled in October 2007 that Citizens of Humanity LLC did not properly state a case against Costco for the sale of stolen property.

"The trial court concluded that Citizens had failed to state a cause of action for violation of (the Penal Code) because Citizens had not alleged that it had been the owner of the property when it was stolen," Justice H. Walter Croskey wrote in the 30-page opinion. "The trial court was incorrect."

Citizens sued Costco in November 2006. According to its court papers, Citizens only sells its high-end denim clothing to retailers they believe "will provide a high level of customer service and who convey a prestigious image consistent with plaintiff's image."

Citizens chose not to sell its products to Costco, which it considered a "bare bones warehouse store that does not convey the image of prestige fostered by plaintiff and does not provide the level of customer service that plaintiff requires for its retailers," according to the company's court papers.

Nevertheless, Costco obtained and sold Citizens products, according to their court papers. The company believed the items were stolen, or that they were obtained in a conspiracy with other buyers who said they intended to sell the clothing in their own stores, according to the firm's court papers.

The ruling that Citizens can take Costco to trial was the second setback in court for Costco on Wednesday. In another case, Los Angeles Superior Court Judge Maureen Duffy-Lewis ordered the company to pay attorney Leo J. Terrell more than $500,000 in attorneys' fees and costs for his representation of a Costco employee who complained he was treated different at the Inglewood warehouse because he is gay and HIV-positive.

Terrell's client, Juan I. Valera, was awarded $420,000 by a jury on Dec. 3.

Terrell plans to speak on Tuesday during the West Hollywood City Council meeting, at which time he said he will describe "the discriminatory and harassing employment practices of Costco against homosexual employees."

Terrell said that despite Valera's favorable verdict, Costco has not returned him to his former position of photo shop manager and that his client currently lacks any health benefits.

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