Opinion
D072840
04-23-2018
WICKED DEALS, INC., Plaintiff and Appellant, v. GRADY PURTLE et al., Defendants and Respondents.
Holm Law Group and Brian Michael Holm for Plaintiff and Appellant. Stern & Goldberg and Alan N. Goldberg, Peter Tran for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2017-00010668-CU-BC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Timothy M. Casserly, Judge. Reversed. Holm Law Group and Brian Michael Holm for Plaintiff and Appellant. Stern & Goldberg and Alan N. Goldberg, Peter Tran for Defendants and Respondents.
Plaintiff and appellant Wicked Deals, Inc. appeals from a judgment of dismissal in favor of defendants and respondents Grady Purtle and his company Ark Mobility, Inc. (Ark Mobility) after the trial court sustained without leave to amend defendants' demurrer to plaintiff's first amended complaint that sought to allege, among other causes of action, intentional misrepresentation and negligent misrepresentation against defendants. In part, defendants argued under Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85 (Lovejoy), plaintiff could not rely on the doctrine of indirect fraud: the rule that a plaintiff may assert a claim for misrepresentation a defendant makes to third parties if the defendant intends or has reason to expect the plaintiff would repeat and act on the representations. The trial court ruled the doctrine did not apply to plaintiff's claims. On appeal, plaintiff contends that the doctrines of indirect reliance and indirect fraud are distinct, and based on the allegations of its first amended complaint the doctrine of indirect fraud applies to its claims because unlike the doctrine of indirect reliance, the doctrine of indirect fraud does not require an agency relationship. Plaintiff also contends the indirect fraud doctrine applies even when there are multiple intermediaries, and there is no requirement for contractual privity between it and defendants for the indirect fraud doctrine to apply. We agree, and therefore reverse.
FACTUAL AND PROCEDURAL BACKGROUND
In stating the background facts, we accept as true all material allegations of plaintiff's first amended complaint, but not the truth of contentions, deductions or conclusions of law. (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512; T.H. v. Novartis Pharmaceuticals Corporation (2017) 4 Cal.5th 145, 156-157.) However, we do not invoke the typical policy of liberally construing the pleadings against a demurrer to fraud claims. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)
Plaintiff is an electronics equipment wholesaler in the secondary electronics market industry. Purtle owns Ark Mobility, a company in the same industry. It is common in the industry for wholesalers like Purtle to find another wholesaler, who would then attempt to find a buyer for the product and obtain a finder's fee or markup on the product in the attempt to find a final end user buyer. As is normal in the industry, Purtle notified a company, R-7 Recyclers, that he had "new-in-box" modems for sale, and provided pictures depicting pallets of unopened modems in their original packaging. New-in-box products have a higher market value than used, repackaged or refurbished products of the same type. R-7 Recyclers then represented to Tele-Cable Communications (Tele-Cable) that R-7 Recyclers had new-in-box modems for sale, and forwarded the pictures to Tele-Cable. Tele-Cable in turn informed Matthew Ewanchuk about the modems. In June 2016, Ewanchuk told plaintiff he had 3,500 new-in-box modems for sale and sent plaintiff a picture depicting the modems. Plaintiff sent Ewanchuk and Ewanchuk's company a purchase order for 3,500 of the modems and wired him $101,500. Plaintiff then entered into an agreement to sell the modems to Andris Balodis and SSDeals, Inc. The shipment arrived at plaintiff's warehouse in Vista, California, but the modems were used, not new-in-box. Plaintiff attempted to return the modems to Ewanchuk, but he refused to accept them. Eventually, Balodis agreed to purchase the modems from plaintiff in their current condition, but Balodis had them shipped to a defunct company, then lodged a fraud claim with American Express claiming he never received the delivery. American Express cancelled the entire payment to plaintiff, and Balodis refused to return the modems.
Plaintiff sued Ewanchuk and his company Tam Home Theatre Solutions, Inc., Purtle, Ark Mobility, Balodis, SSDeals, Inc. and Laimonis Magone. Thereafter, plaintiff filed a first amended complaint alleging against Purtle and Ark Mobility causes of action for breach of contract, intentional misrepresentation, negligent misrepresentation and unjust enrichment.
Defendants demurred on grounds the pleading failed to state facts sufficient to constitute a cause of action against defendants. With respect to the causes of action for intentional and negligent misrepresentation, they argued plaintiff had failed to allege defendants engaged in any fraudulent representation directly to plaintiff, had not alleged fraud with specificity, and could not rely on the doctrine of indirect misrepresentation, which under Lovejoy, supra, 92 Cal.App.4th 85, required that the fraudulent misrepresentation be communicated to an agent of the plaintiff and be acted upon by the agent to the plaintiff's disadvantage. They also argued plaintiff had not alleged defendants made the alleged misrepresentations to third parties with the intent or expectation that plaintiff would repeat and act upon the representations. Defendants further argued plaintiff could not allege facts to satisfy the elements of actual and justifiable reliance; that plaintiff did not allege facts showing defendants' representations to third parties induced plaintiff to enter into the purchase order.
In opposition, plaintiff argued that California law, following the Restatement Second of Torts, section 533 (section 533), allowed indirect misrepresentation causes of action as long as the plaintiff was a "member of the class of persons that the defendant sought to defraud." It argued it alleged defendants made false representations to others in the industry hoping to sell the modems at an inflated price, and that it was reasonably foreseeable to them that the assertions and pictures would be passed along to others in the industry, including plaintiff. It pointed out it had alleged it was common in the secondary electronics industry for wholesalers to notify other wholesalers of the products they had in the attempt to find a final end user buyer, and based on that allegation, it fell within the class of persons—purchasers of used modems—that the defendants were attempting to defraud. Plaintiff argued that defendants misconstrued Lovejoy, supra, 92 Cal.App.4th 85, which involved a plaintiff who was unaware of a defendant's false representation, unlike it, which was aware of the misrepresentation and detrimentally relied on it by overpaying for used modems. Finally, plaintiff argued it pleaded fraud with sufficient specificity in that it alleged indirect representations, it alleged it relied on them by paying a new-in-box price or that it had paid $101,500 for the used modems. According to plaintiff, because the defendants possessed full information of the details of the controversy (the date they sent the bogus picture as well as Purtle's authority to speak on behalf of his company), less specificity in pleading was permitted.
The trial court sustained the demurrer without leave to amend as to Purtle and Ark Mobility. As to plaintiff's fraud causes of action, it ruled it was "unconvinced that [the doctrine of indirect reliance] applies to the [complaint's] allegations." It ruled that plaintiff in any event had not alleged facts to support it had relied on any representation made by Purtle and his company; rather, plaintiff had simply alleged Purtle had notified others and plaintiff relied on statements made by Ewanchuk and Ewanchuk's company, not Purtle. It additionally pointed out Ewanchuk did not convey information obtained from Purtle or Ark Mobility, but the purported misrepresentation was made to R-7 Recyclers, who in turn notified others. It entered a judgment of dismissal in Purtle and Ark Mobility's favor. Plaintiff filed this appeal.
Plaintiff makes no arguments concerning the court's order sustaining the demurrer without leave to amend as to its breach of contract or unjust enrichment claims. It has abandoned any appellate challenge as to those claims. (In re Jerry M. (1997) 59 Cal.App.4th 289, 293, fn. 3.)
DISCUSSION
I. Standard of Review
"The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. ' " 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment . . . ." ' [Citations.] ' "The burden of proving such reasonable possibility is squarely on the plaintiff." ' [Citation.] Our examination of the complaint is de novo." (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010; see T.H. v. Novartis Pharmaceuticals Corporation, supra, 4 Cal.5th at p. 162.)
Citing Interinsurance Exchange v. Narula (1995) 33 Cal.App.4th 1140, 1143, defendants maintain that we must review the order sustaining the demurrer without leave to amend for an abuse of discretion. Interinsurance Exchange made plain by citing Hendy v. Losse (1991) 54 Cal.3d 723, 743, that it was addressing the review standard for the decision to deny leave to amend, not the question of whether the complaint states a cause of action. (See Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 970-971 ["it ordinarily constitutes an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment"].)
II. Fraud Pleading Requirements and the Restatement Doctrine of Indirect Fraud
"The elements of fraud, which give rise to the tort action for deceit, are (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce another's reliance on the misrepresentation, (4) justifiable reliance, and (5) resulting damage." (Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1255.) The elements of negligent misrepresentation are the same as those for fraud with the exception of the knowledge element, which requires a defendant's representation to be made without reasonable ground for believing it to be true. (West v. JPMorgan Chase Bank (2013) 214 Cal.App.4th 780, 792; Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 243.) A defendant who makes false statements " ' "honestly believing that they are true, but without reasonable ground for such belief, . . . may be liable for negligent misrepresentation . . . ." ' " (Apollo Capital, at p. 243.) "Reliance exists when the misrepresentation . . . was an immediate cause of the plaintiff's conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction." (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239, italics added; see also Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.)
" 'Fraud actions . . . are subject to strict requirements of particularity in pleading. . . . [F]airness to the defendant demands that he [or she] should receive the fullest possible details of the charge in order to prepare his [or her] defense. . . . Every element of the cause of action for fraud must be alleged in the proper manner (i.e., factually and specifically), and the policy of liberal construction of the pleadings . . . will not ordinarily be invoked to sustain a pleading defective in any material respect.' " (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, superseded by statute as stated in Californians For Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 228; Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184 [" 'general and conclusory' " allegations do not suffice to plead fraud]; Cadlo v. Owens-Illinois, Inc., supra, 125 Cal.App.4th at p. 519; Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1331.) A fraud cause of action must therefore plead facts that " ' "show how, when, where, to whom, and by what means the representations were tendered." ' " (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.) "The plaintiff must allege the specifics of his or her reliance on the misrepresentation to show a bona fine claim of actual reliance." (Cadlo, at p. 519.) That is, "[t]he plaintiff must allege actions, as distinguished from unspoken and unrecorded thoughts and decisions, that would indicate that the plaintiff actually relied on the misrepresentations." (Small v. Fritz Companies, Inc., at p. 185, italics added.) A complaint fails to plead a cause of action for fraud when it fails to identify any specific act taken in reliance on the alleged misrepresentation or nondisclosure. (Knox v. Dean (2012) 205 Cal.App.4th 417, 433 [nondisclosure].)
Though traditionally a defendant must intend his representation (or concealment) be relied upon by a particular person or persons, "it is also recognized that the defendant will not escape liability if he makes a misrepresentation to one person intending that it be repeated and acted upon by the plaintiff. [Citations.] Likewise, if defendant makes the representation to a particular class of persons, he is deemed to have deceived everyone in that class." (Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 605.) This principle is based on section 533, which California courts have adopted in appropriate cases. (See, e.g., Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1095-1096; The Mega Life and Health Ins. Co. v. Superior Court (2009) 172 Cal.App.4th 1522, 1530 [California follows section 533]; Bullock v. Philip Morris USA, Inc. (2008) 159 Cal.App.4th 655, 676; Barnhouse v. City of Pinole (1982) 133 Cal.App.3d 171, 191; Varwig v. Anderson Behel Porsche/Audi, Inc. (1977) 74 Cal.App.3d 578, 580.) Under section 533, " '[t]he maker of a fraudulent misrepresentation is subject to liability for pecuniary loss to another who acts in justifiable reliance upon it if the misrepresentation, although not made directly to the other, is made to a third person and the maker intends or has reason to expect that its terms will be repeated or its substance communicated to the other, and that it will influence his conduct in the transaction or type of transaction involved.' " (Geernaert, at pp. 605-606, quoting section 533; see also Shapiro v. Sutherland (1998) 64 Cal.App.4th 1534, 1548.) Further, "[c]omment d to section 533 makes it clear the rule of section 533 applies where the maker of the misrepresentation has information that gives him special reason to expect that the information will be communicated to others and will influence their conduct. Comment g goes on to explain that it is not necessary that the maker of the misrepresentation have the particular person in mind. It is enough that it is intended to be repeated to a particular class of persons." (Shapiro, at p. 1548.)
Where a plaintiff can prove such a communication was repeated to him or her, and the plaintiff was misled when the substance of the communication was repeated, the plaintiff will establish actual reliance. (Bullock v. Philip Morris USA, Inc., supra, 159 Cal.App.4th at p. 676, citing cases including Mirkin v. Wasserman, supra, 5 Cal.4th at pp. 1095-1098.)
Thus, in Geernaert, the Court of Appeal relied on section 533 to reverse a trial court's order sustaining a demurrer without leave to amend in a case where the plaintiffs sued two former owners of their house for fraudulent misrepresentation and concealment in connection with the property's structural and foundation problems. (Geernaert, supra, 31 Cal.App.4th at p. 603.) The plaintiffs, who had purchased the home in 1984 from Cynthia Payne, a nonparty, alleged that one defendant, Mitchell, made false representations to prospective purchasers, including the other defendant, Mildo, when he sold the house to Mildo in 1982; that he made those representations "with the intent of inducing [Mildo] to purchase it; that Mitchell intended or had reason to expect that the misrepresentations and half-truths would be repeated to subsequent purchasers of the residence who would rely on them; and that they were in fact passed on from Mildo . . . to Payne and from Payne to plaintiffs in order to induce them to buy the house." (Id. at p. 604.) Plaintiffs alternatively alleged that Mitchell had disclosed the foundation problems to Mildo, who then concealed them and made misrepresentations to Payne with the intent to induce her to buy the house and with reason to expect they would be passed on by Payne to subsequent purchasers, and that plaintiffs did rely on the repetition of those statements to their detriment. (Ibid.)
The Geernaert court looked to Varwig v. Anderson-Behel Porsche/Audi, Inc., supra, 74 Cal.App.3d 578 and the result reached in Barnhouse v. City of Pinole, supra, 133 Cal.App.3d 171 as examples of courts extending liability under section 533 and repudiating cases decided before the American Law Institute published section 533. (Geernaert v. Mitchell, supra, 31 Cal.App.4th at pp. 605-607.) In Varwig, the plaintiff had alleged he purchased a used 1973 Chevrolet from a wholesaler, who had acquired it from a defendant car dealer who had misrepresented the state of title. (Varwig, at p. 580.) The car dealer successfully moved for summary judgment on grounds it did not have contact with the plaintiff and was not a party to the agreement between the wholesaler and plaintiff. (Ibid.) Reversing the summary judgment in the car dealer's favor, Varwig explained that based on the dealer's receipt of a resale sales tax certificate from the wholesaler, the dealer was on notice that the wholesaler intended to resell the car. (Id. at p. 581.) Relying on section 533, the court held the dealer "had 'an advantage to gain . . . by furnishing the misrepresentation for repetition' to the class of persons interested in purchasing a secondhand 1973 Chevrolet. Such advantage 'is of great significance in determining' whether [the dealer] had 'reason to expect that' [the wholesaler] would repeat the misrepresentation." (Ibid.) The court concluded that the dealer's representation to the wholesaler "was in law an indirect misrepresentation to plaintiff, who purchased the car in reliance upon [the wholesaler's] repetition of the representation." (Ibid.)
In Barnhouse v. City of Pinole, a tract house developer failed to disclose subsidence issues and inadequate repairs to an initial purchaser, who later sold the property to one of the plaintiffs. (Barnhouse v. City of Pinole, supra, 133 Cal.App.3d at p. 189.) Reversing a nonsuit in the developer's favor in part based on section 533, the appellate court held it was not fatal that the plaintiff had purchased the home from the original purchaser and not the developer: the plaintiff's claim for fraudulent concealment did not require privity of contract (id. at p. 191), and on that record, "the jury could have inferred that [the developer] failed to make the initial disclosures with the intention that subsequent purchasers would also act in ignorance . . . ." (Id. at p. 192.) The Barnhouse court explained: "The developer has every reason to expect that if there are subpurchasers, a nondisclosure about subsurface soil conditions will be passed on to them." (Id. at p. 193.)
Though the Geernaert court declined to adopt parts of Barnhouse's reasoning, it agreed with its result, and emphasized that for liability under section 533, " '[t]he maker of the misrepresentation must have information that would lead a reasonable [person] to conclude that there is an especial likelihood that it will reach those persons and will influence their conduct.' " (Geernaert, supra, 31 Cal.App.4th at p. 607, italics omitted.) It distinguished the circumstances of commercial sellers from private real estate transactions: "In Barnhouse and Varwig the defendants were commercial sellers whose knowledge that the recipient of their deception would pass it on to subpurchasers was fairly apparent. In private real estate transactions 'reason to expect' becomes more difficult to establish. As the ALI comment points out, '[t]here must be something in the situation known to the maker [of the misrepresentation] that would lead a reasonable [person] to govern his [or her] conduct on the assumption that this [transmission to a third party] will occur.' [Citation.] This would cover cases in which the perpetrator of the fraud actually intends third party transmissions [citations] as well as those in which it may be inferred from the circumstances that the defendant knew the injured party would rely thereon." (Id. at pp. 607-608.)
Under the private sale scenario presented in Geernaert, the court explained that the question of whether a seller had reason to expect transmission to the plaintiff depended on "(1) the extent of the seller's knowledge of resale to a particular person or class of persons and (2) the likelihood that the particular misrepresentation . . . would be passed on to them. A seller's liability under this standard becomes more problematic and difficult to establish with each intervening resale and with each passing year between the occurrence of the original fraud and the lawsuit. Consistent with the rule requiring specificity in pleading [citation], a complaint must state ultimate facts showing that the defendant intended or had reason to expect reliance by the plaintiff or the class of persons of which he is a member." (Geernaert, supra, 31 Cal.App.4th at p. 608, italics added.) In Geernaert, the plaintiffs had stated facts sufficient to support the fraud cause of action by allegations that each defendant either intended or expected that their misrepresentations would be repeated and/or transmitted to plaintiffs. (Ibid.) "Although Mitchell was two sales removed from plaintiffs, it is alleged that he used his construction expertise to take extraordinary measures to conceal the true condition of the property and therefore knew there was a strong likelihood that the deception would be passed on to a subsequent buyer." (Ibid.)
III. Analysis
Plaintiff contends that under section 533, its first amended complaint alleges facts sufficient to state a cause of action for intentional and negligent misrepresentation. Specifically, plaintiff maintains its pleading includes the necessary ultimate facts: that when defendants represented to R-7 recyclers—an electronics broker—that the modems it had for sale were new-in-box, defendants intended or had reason to expect plaintiff, an electronics equipment wholesaler, or a class of wholesalers of which plaintiff was a member, would rely on its representations.
We agree plaintiff's pleading adequately and particularly states claims for fraud within the meaning of section 533. Plaintiff specifically alleges defendants are commercial electronics wholesalers in an industry where it is "common" for wholesalers to find other wholesalers, who would then attempt to find a buyer for the product and obtain a finder's fee or markup, in an attempt to find a final end user buyer. He specifically alleges that "Purtle intended for R-7 Recyclers and others in the secondary electronics market, including Plaintiff, to rely on these representations in order to induce someone to purchase the used modems he possessed at an above market price" and "Purtle had reason to expect that his false representations would be repeated by R-7 Recyclers to third parties, including Plaintiff, in an attempt to find a final buyer for the modems." Like the defendants in Barnhouse and Varwig, on these allegations defendants would have reason to expect that other wholesalers or intermediaries in the same secondary electronics industry (such as R-7 Recyclers, Tele-Cable, and Ewanchuk) would repeat the misrepresentations concerning the modems to others in an attempt to find a buyer such as plaintiff, so as to resell the modems for commercial gain. Plaintiff alleged that based on the oral and photographic representations that the modems were new-in-box, it sent a purchase order for the modems to Ewanchuk, paying Ewanchuk and his company $101,500. Plaintiff received the modems, but they were not new-in-box as they were represented to be. This was not a sale between private parties as in Geernaert where the principle of a defendant's "reason to expect" the plaintiff's reliance is more difficult to establish. (Geernaert v. Mitchell, supra, 31 Cal.App.4th at p. 608.) Because the complaint alleged that efforts to find an ultimate purchaser through intermediaries was common in the industry, it is reasonable to conclude defendants intended their representations to be communicated to others to influence them to either buy the property or find another ultimate end user buyer. Such circumstances would allow a trier of fact to infer that defendants knew plaintiff, or secondary electronics wholesalers like plaintiff, would rely on the repeated misrepresentation and photographs to purchase the modems. In sum, this is a situation governed by section 533 where "the misrepresentation, although not made directly to the other, is made to a third person and the maker intends or has reason to expect that its terms will be repeated or its substance communicated to the other, and that it will influence his conduct in the transaction or type of transaction involved."
Plaintiff argues that the case relied upon by defendants, Lovejoy, supra, 92 Cal.App.4th 85, is inapplicable. We agree that Lovejoy does not support or justify the court's order sustaining defendants' demurrer. In that case, the plaintiff sued for fraud, alleging that AT&T, his long distance carrier, had engaged in "slamming," that is, it surreptitiously and illegally gained control over his service (his 800 number) from Pacific Bell, then concealed the fact that it had done so. (Id. at pp. 89, 90.) In his complaint the plaintiff alleged he "had no knowledge of the switch—at all times, he continued to believe that Pac Bell was his 800 carrier." (Id. at p. 90.) When the plaintiff had a billing dispute with AT&T over his long distance bill, AT&T terminated his long distance service and also, unbeknownst to him, his 800 number. (Ibid.) By the time he found out that his 800 number had been disconnected, he had lost his business. (Id. at pp. 90, 91.) On appeal from a judgment on the pleadings in AT&T's favor, the Court of Appeal acknowledged the existence of the indirect fraud principle of section 533 raised in Varwig and other cases. (Id. at p. 94.) But it pointed out the doctrine required that the defendant intend or have reason to expect his misrepresentation would be repeated and acted upon by the plaintiff, and there, the plaintiff did not allege that AT&T either intended or expected its false statement regarding the switch in 800 service to reach his ears. (Ibid.) Rather, "[j]ust the opposite was true: to be successful, AT[&]T's plan required that the switch be concealed from plaintiff so that he would not act on it, a plan which the complaint alleges AT[&]T implemented by hiding the 800 charges in its phone bill." (Id. at pp. 94-95.) Lovejoy also explained that the plaintiff could not invoke a different principle that it labelled "indirect reliance," in which a "fraudulent misrepresentation is actionable if it was communicated to an agent of the plaintiff and was acted upon by the agent to plaintiff's damage," because of the tenuous connection between Pacific Bell's reliance on the false statement and the plaintiff's loss of business. (Id. at p. 95.)
Lovejoy gave the following example of this principle: "A classic example of indirect reliance would be a drug manufacturer's misrepresentation to physicians about the safety of its drug. A patient injured by the drug is permitted to sue the manufacturer for fraud without proof that his doctor repeated the falsehood to him, under the theory that the doctor was acting as plaintiff's agent." (Lovejoy, supra, 92 Cal.App.4th at p. 95, citing in part Grinnell v. Charles Pfizer & Co. (1969) 274 Cal.App.2d 424, 441.) As the California Supreme Court pointed out in Mirkin v. Wasserman, supra, 5 Cal.4th at pages 1097-1098, these few cases invoke agency principles, which are not necessary for application of section 533.
Lovejoy is thus factually distinct. Unlike that case, plaintiff here was the recipient of defendants' misrepresentations—that the modems were new-in-box and photographs assertedly showing them as such—via the intermediaries, and plaintiff acted upon them by purchasing the modems.
We reject defendants' assertion that plaintiff's allegation concerning the common practice in the secondary electronics industry is "vague and overbroad" and thus insufficient to satisfy the heightened fraud pleading standard. To the contrary, plaintiff's allegation is an ultimate fact of a particular industry custom, which is entirely proper for pleading purposes. (Committee on Children's Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at pp. 211-212 [complaint should set forth the ultimate facts constituting the cause of action and need not set forth the evidence by which the plaintiff proposes to prove those facts]; Prue v. Brady Co./San Diego, Inc. (2015) 242 Cal.App.4th 1367, 1376; see, e.g., Blickman Turkus, LP v. M.F. Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 867, fn. 1 [complaint improper where it did not allege "the ultimate fact of a particular custom and usage among real estate agents in the relevant community . . . ."].) " 'What is important is that the complaint as a whole contains sufficient facts to apprise the defendant of the basis upon which the plaintiff is seeking relief.' " (Doheny Park Terrace Homeowners Association, Inc. v. Truck Ins. Exchange (2005) 132 Cal.App.4th 1076, 1098-1099.) Plaintiff has done so here.
Defendants argue that plaintiff failed to allege viable claims under Cadlo v. Owens-Illinois, Inc., supra, 125 Cal.App.4th 513. In Cadlo, the court determined for fraud pleading purposes that the plaintiff had satisfactorily alleged that a prior manufacturer of an asbestos-containing product (Owens-Illinois) knowingly misrepresented its product was safe and concealed its hazardous nature. (Id. at pp. 519-520.) However, it rejected the plaintiff's reliance on section 533, observing the plaintiffs "have not alleged that Owens-Illinois made a misrepresentation about Kaylo's safety to a third party, who then communicated the misrepresentation to Anthony Cadlo, let alone alleged that Cadlo relied on that indirect communication." (Id. at p. 520.) Thus, the plaintiff in that case could not allege reliance. (Ibid.; accord, Mirkin v. Wasserman, supra, 5 Cal.4th at p. 1095 [stating that the section 533 principle is valid, it did not help the plaintiffs in that case "who cannot plead that the alleged misrepresentations ever came to their attention"].) Those facts distinguish Cadlo from this one, where plaintiff has alleged it purchased modems from Ewanchuk based on Ewanchuk's telling him that he had new-in-box modems, the same representation made by defendants to the intermediaries.
Defendants claim the complaint alleges that these intermediaries merely "notified" the others, which is not a sufficient allegation. But plaintiff additionally specifically alleges that, "Around June 2016, Ewanchuk told Plaintiff that he and his company had 3,500 Motorola modems that were [new-in-box]. Ewanchuck then emailed plaintiff a picture of the modems depicting [new-in-box] modems, a true and correct copy of which is attached hereto as Exhibit A."
Finally, defendants contend plaintiff cannot allege actual or justifiable reliance: that plaintiff did not allege it relied on any representations made by defendants, but only those made by Ewanchuk and Ewanchuk's company. But the point of the indirect fraud doctrine is to permit plaintiff to impose liability on defendants with whom it did not directly speak, for misrepresentations that defendants had reason to expect would be repeated to persons in an industry of which plaintiff was a member. Plaintiff has pleaded such a case here.
DISPOSITION
The judgment is reversed. Plaintiff Wicked Deals, Inc. is awarded its costs on appeal.
O'ROURKE, J. WE CONCUR: NARES, Acting P. J. GUERRERO, J.