Select Comfort Corp. v. Sleep Better Store, LLC

• Court: U.S. District Court — District of Minnesota
• Writing for the Court: JOAN N. ERICKSEN
• Citation: Select Comfort Corp. v. Sleep Better Store, LLC, 796 F.Supp.2d 981 (D. Minn. 2011)
• Decision Date: 17 June 2011
• Docket Number: Civil No. 11–621 (JNE/JSM).
• Parties: SELECT COMFORT CORPORATION, Plaintiff, v. The SLEEP BETTER STORE, LLC, Defendant.

796 F.Supp.2d 981

SELECT COMFORT CORPORATION, Plaintiff,

v.The SLEEP BETTER STORE, LLC, Defendant.

Civil No. 11–621 (JNE/JSM).

United States District Court, D. Minnesota.

June 17, 2011.

Adam C. Trampe, Andrew S. Hansen, Oppenheimer Wolff & Donnelly LLP, Minneapolis, MN, for Plaintiff.

David T. Schultz, Jolynn M. Markison, Maslon Edelman Borman & Brand, LLP, Minneapolis, MN, for Defendant.

ORDER

JOAN N. ERICKSEN, District Judge.

Plaintiff Select Comfort Corporation asserts violations of federal trademark and false advertising statutes, state false advertising statutes, and other state consumer protection statutes against Defendant The Sleep Better Store, LLC (Sleep Better). The parties are competitors in the design, manufacture, and sale of air beds. The case is before the Court on Sleep Better's motion to dismiss counts five through nine of the Complaint: false advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a) (2006); false advertising in violation of the Minnesota False Statement in Advertisement Act (MFSAA), Minn.Stat. § 325F.67 (2010); deceptive trade practices in violation of the Minnesota Uniform Deceptive Trade Practices Act (MUDTPA), Minn.Stat. § 325D.44 (2010); unlawful trade practices in violation of the Minnesota Unlawful Trade Practices Act (MUTPA), Minn.Stat. § 325D.09 (2010); and consumer fraud in violation of the Minnesota Consumer Fraud Act (MCFA), Minn.Stat. § 325F.69 (2010).¹ For the reasons set forth below, the Court grants in part and denies in part the motion.

When ruling on a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must accept the facts alleged in the complaint as true and grant all reasonable inferences in favor of the plaintiff.² Crooks v. Lynch, 557 F.3d 846, 848 (8th Cir.2009). Although a complaint is not required to contain detailed factual allegations, “[a] pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Id. (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

The particularity requirement of Rule 9(b) of the Federal Rules of Civil Procedure applies to claims of false advertising, deceptive trade practices, unlawful trade practices, and consumer fraud. See Tuttle v. Lorillard Tobacco Co., 118 F.Supp.2d 954, 963 (D.Minn.2000). Rule 9(b) states: “In alleging fraud ... a party must state with particularity the circumstances constituting fraud....” Sleep Better contends that counts five through nine should be dismissed because Select Comfort failed to plead fraud with particularity.

Under Rule 9(b), a plaintiff must plead “such matters as the time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.” In other words, the party must typically identify the “who, what, where, when, and how” of the alleged fraud. This requirement is designed to enable defendants to respond “specifically, at an early stage of the case, to potentially damaging allegations of immoral and criminal conduct.” The level of particularity required depends on, inter alia, the nature of the case and the relationship between the parties. “Conclusory allegations that a defendant's conduct was fraudulent and deceptive are not sufficient to satisfy the rule.” Rule 9(b) should be read “in harmony with the principles of notice pleading.”

BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir.2007) (citations omitted); see Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8th Cir.2009).

Sleep Better makes two primary arguments with respect to the dismissal of claims pursuant to Rule 9(b). First, Sleep Better argues that the allegations pleaded by Select Comfort “on information and belief” have not been pleaded with the required particularity. “Allegations pleaded on information and belief usually do not meet Rule 9(b)'s particularity requirement. When the facts constituting the fraud are peculiarly within the opposing party's knowledge, however, such allegations may be pleaded on information and belief.” Drobnak, 561 F.3d at 783–84 (citations omitted). Claims pleaded “on information and belief” are sufficient under Rule 9(b) if they are accompanied by a statement of the facts on which the belief is based. Id.

Select Comfort alleges three acts of fraud based on “information and belief.” First, Select Comfort alleges that Sleep Better, or an agent or affiliate of Sleep Better, anonymously maintains a website that purports to neutrally “review” mattresses but which, in fact, favors its own products in misleading comparisons to products made and sold by Select Comfort. (Compl. ¶¶ 66–74) The Complaint describes how the website is misleading and biased, alleges that it is anonymously registered, and describes how the “reviews” focus on comparisons between Sleep Better and Select Comfort products but favor the purchase of Sleep Better beds. Second, Select Comfort alleges that Sleep Better falsely claims that its products are made in the United States. (Compl. ¶¶ 75–77) The Complaint states that, based on Select Comfort's extensive corporate knowledge of the supply and manufacture of adjustable firmness air beds, the air chambers are not made in the United States. Third, Select Comfort alleges that Sleep Better phone representatives instruct potential customers to test beds at Select Comfort retail stores but then, after trying the beds and selecting one, to order the same bed online from Sleep Better for a lower price. (Compl. ¶ 42) This assertion is based on “frequent customer statements” to Select Comfort retail personnel. The allegations made on “information and belief” are based on facts either uniquely within Sleep Better's knowledge or based on communications to which Select Comfort was not a party. The Complaint includes facts that support the allegations and alert Sleep Better to the nature of the alleged fraud and the basis of Select Comfort's claims. The Court finds that the Complaint adequately pleads the three allegations stated on “information and belief.” See Drobnak, 561 F.3d at 783–84; see also Abels v. Farmers Commodities Corp., 259 F.3d 910, 920 (8th Cir.2001) (noting that where “plaintiff is not a party to a communication, particularity in pleading may become impracticable”).

Sleep Better also argues that Select Comfort failed to adequately support its allegation that Sleep Better uses false and unsubstantiated “health-related testimonials” on its website. (Compl. ¶¶ 82–86) According to Sleep Better, it cannot determine from the Complaint “what it is exactly that Plaintiff alleges is misleading” and the Complaint must include an exhaustive list of any allegedly fraudulent statements to comport with Rule 9(b). In the context of health insurance fraud, the Eighth Circuit has held that where a plaintiff alleges a systematic practice of the submission of fraudulent claims over an extended period of time, the plaintiff need not allege the specific details of every fraudulent claim. United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 557 (8th Cir.2006). Instead, the plaintiff must allege some representative examples of the fraudulent conduct with particularity. Id. In this case, the Complaint identifies an on-going practice of fraud and provides representative examples, quoting from Sleep Better's website. The examples provide a clear sense of the “health-related” testimonials that Select Comfort challenges as deceptive. It is also clear from the Complaint where the allegedly fraudulent statements are made—the Sleep Better website. The examples, combined with an explanation of how the statements are allegedly deceptive and where they are made, provide Sleep Better with sufficient notice to respond specifically to the allegation. See id.; Abels, 259 F.3d at 920 (“The special nature of fraud does not necessitate anything other than notice of the claim; it simply necessitates a higher degree of notice, enabling the defendant to respond specifically, at an early stage of the case, to potentially damaging allegations of immoral and criminal conduct.”). Assuming all facts in the Complaint to be true and drawing all reasonable inferences from those facts in Select Comfort's favor, the Court finds that the Complaint contains sufficient allegations to meet Rule 9(b)'s pleading requirements.³

In addition to its arguments under Rule 9(b), Sleep Better challenges Select Comfort's ability to bring claims under the MUTPA, the MFSAA, and the MCFA (counts seven, eight, and nine, respectively).⁴ Select Comfort proceeds on these claims pursuant to Minnesota's private attorney general statute, Minn.Stat. § 8.31, subd. 3a (2010).⁵ The private attorney general statute allows a private litigant to seek damages and attorneys' fees by alleging a violation of certain laws entrusted to the Minnesota Attorney General, including the MCFA, the MFSAA, and the MUTPA. See Minn.Stat. § 8.31, subd. 3a; In re Levaquin Prods. Liab. Litig., 752 F.Supp.2d 1071, 1076 (D.Minn.2010). To bring such a claim, Select Comfort must demonstrate that its “cause of action benefits the public.” Ly v. Nystrom, 615 N.W.2d 302, 314 (Minn.2000) (finding no public benefit where the defendant made numerous fraudulent representations about his restaurant business directly to the plaintiff during a one-on-one transaction). To determine...