Sleepy's LLC v. Select Comfort Wholesale Corp., 07-CV-4018(JS)(ARL)

CourtUnited States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
Writing for the CourtSEYBERT, District Judge
PartiesSLEEPY'S LLC, Plaintiff, v. SELECT COMFORT WHOLESALE CORPORATION, SELECT COMFORT RETAIL CORPORATION, and SELECT COMFORT CORPORATION, Defendants.
Decision Date16 March 2020
Docket Number07-CV-4018(JS)(ARL)

SLEEPY'S LLC, Plaintiff,
v.
SELECT COMFORT WHOLESALE CORPORATION, SELECT COMFORT RETAIL CORPORATION,
and SELECT COMFORT CORPORATION, Defendants.

07-CV-4018(JS)(ARL)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

March 16, 2020


MEMORANDUM & ORDER

APPEARANCES
For Plaintiff:

Andrew W. Singer, Esq.
David J. Kanfer, Esq.
Lewis Donald Prutzman, Esq.
Paul D. Sarkozi, Esq.
Vincent J. Syracuse, Esq.
George Foulke Du Pont, Esq.
Stephanie Marie Ramirez, Esq.
Tannenbaum Halpern Syracuse & Hirschtritt LLP
900 Third Avenue
New York, New York 10022

For Defendants:

Heidi A.O. Fisher, Esq.
Andrew S. Hansen, Esq., pro hac vice
Fox Rothschild LLP
Campbell Mithun Tower, Suite 2000
222 South Ninth Street
Minneapolis, Minnesota 55402

Joseph S. Miller, Esq., pro hac vice
Michael J. Bleck, Esq.
Michael K. Gravink, Esq., pro hac vice
Michelle R. Schjodt, Esq.
Oppenheimer Wolff & Donnelly LLP
45 South Seventh Street, Suite 3300
Minneapolis, Minnesota 55402

Joshua S. Androphy, Esq.
Michael Faillace & Associates, P.C.
60 East 42nd Street, Suite 2540
New York, New York 10165

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SEYBERT, District Judge:

This matter comes before the Court on remand from the Second Circuit Court of Appeals following its decision in Sleepy's LLC v. Select Comfort Wholesale Corp. ("Sleepy's 2018"), 909 F.3d 519, 521 (2d Cir. 2018) that affirmed in part, vacated in part, and remanded portions of this Court's decisions arising out of Sleepy's LLC v. Select Comfort Wholesale Corp. ("Sleepy's 2015"), 133 F. Supp. 3d 483 (E.D.N.Y. 2015), Sleepy's LLC v. Select Comfort Wholesale Corp. ("Sleepy's Jan. 2016"), No. 07-CV-4018, 2016 WL 126377 (E.D.N.Y. Jan. 11, 2016), and Sleepy's LLC v. Select Comfort Wholesale Corp. ("Sleepy's Sept. 2016"), 222 F. Supp. 3d 169 (E.D.N.Y. 2016). Plaintiff Sleepy's LLC ("Sleepy's") commenced this action in state court on August 24, 2007 against defendants Select Comfort Wholesale Corporation, Select Comfort Retail Corporation, and Select Comfort Corporation (collectively "Select Comfort" or "Defendants") seeking, inter alia, damages resulting from Select Comfort's alleged breach of a 2005 sales agreement. On September 25, 2007 Defendants removed the action to this Court.

Currently before the Court are the parties' omnibus briefs addressing (1) whether the Court properly dismissed Sleepy's claims of slander per se on the basis that Sleepy's consented to the alleged defamatory statements and (2) whether this case is an "exceptional" case under Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 134 S. Ct. 1749, 188 L.

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Ed. 2d 816 (2014), and if so, the appropriate amount of attorney's fees to be awarded. (Def. Br., D.E. 898; Pl. Opp., D.E. 899; Def. Reply, D.E. 900.)

The Court finds (1) that Sleepy's claims for slander per se were properly dismissed because it consented to the alleged defamatory statements raised in the Amended Complaint and (2) this case is not exceptional under Octane Fitness and Select Comfort is not entitled to attorney's fees under the Lanham Act.

BACKGROUND1

The Court assumes familiarity with the facts chronicled in earlier orders. See, e.g., Sleepy's LLC v. v. Select Comfort Wholesale Corp. ("Sleepy's 2012"), No. 07-CV-4018, 2012 WL 13106064, at *1-2 (E.D.N.Y. Sept. 26, 2012) (Platt, J.); Sleepy's 2015, 133 F. Supp. 3d at 487-95. The details pertinent to this Memorandum and Order are further discussed below.

Sleepy's, a New York-based retailer, sells mattresses and other bedding products. (Tr. 74:19-79:8.) Select Comfort manufactures and sells the Sleep Number bed. (Tr. 2250:10-2252:9, 2780:10-2782:15.) Select Comfort sold its "Core Line" of products in its own retail stores and offered the "Personal Preference Line" of products through its retail partners. (Tr. 107:8-16; 2551:17-

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2553:3; 2624:9-16.) In 2005, Sleepy's approached Select Comfort to become a retail partner. (Tr. 326:14-18; 388:3-16.) On June 17, 2005, the parties executed the "Select Comfort Corporation Dealer Agreement" (the "Dealer Agreement") that provided Sleepy's would become an authorized dealer and would sell the Personal Preference Line of Select Comfort products. (PX 133.) The Dealer Agreement set September 30, 20062 as the agreement's expiration date. (PX 133, ¶ 9(a).)

Sleepy's sales figures for the Personal Preference Line were disappointing (Tr. 144:25-145:10) and the program never grew to the level the parties anticipated (Tr. 183:16-19). By the second quarter of 2006, Sleepy's upper management team convened to determine the cause of the disappointing figures. (Tr. 184:13-188:6.) Three Sleepy's executives were involved: Harry Acker ("Acker"), Sleepy's founder, owner, and CEO, Michael Bookbinder ("Bookbinder"), Sleepy's Executive Vice President of Sales, and Ira Fishman ("Fishman"), Sleepy's Vice President of Merchandising.

Sleepy's had heard from potential customers and through "secret shops"3 conducted by Sleepy's management team at Select

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Comfort stores that Select Comfort salespeople had been "talk[ing] negatively about the products that Sleepy's carried, specifically" the Personal Preference Line. (Tr. 191:24-192:6.) By early September 2006, specifically Labor Day weekend, Sleepy's started to seriously consider whether the results of its sales were caused by Select Comfort employees disparaging the Personal Preference Line sold at Sleepy's. (Tr. 191:13-192:6; 192:17-193:2.) At that time, Sleepy's ordered its managers to conduct "serious" secret shops, as opposed to "random shops," of Select Comfort retail stores to "corroborate" their "concern[s]" of disparagement. (Tr. 191:13-193:15; 213:12-214:2 (Bookbinder testifying that Sleepy's management "organized a seri[es] of secret shops" to evaluate the hypothesis that disparagement was a reason for Sleepy's poor sales).) Sleepy's ordered these secret shops "so [Select Comfort] would know what was going on in their training area and stop the disparagement." (Tr. 215:3-7.)

On November 4, 2006,4 Anthony Colon ("Colon"), then a Sleepy's Regional Manager, conducted a secret shop of a Select

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Comfort store in Manhattan at the direction of Bookbinder, who did not give him any "direct details" except that he needed a secret shop of a Select Comfort store "as soon" as possible. (Tr. 863:22-864:5; 874:21-875:8.) On November 5, 2006, Deborah Zaffron ("Zaffron"), then a Sleepy's District Manager, conducted a secret shop of a Select Comfort retail store in Bay Shore, New York. (Tr. 667:13; 668:16-19; 692:8-14.) Zaffron testified that she never conducted a secret shop without instructions to do so (Tr. 1013:20-22) and was told to conduct this specific shop (Tr. 692:11-18). After the shop, Zaffron spoke with Bookbinder and Fishman to let them know the "negative information" she obtained. (Tr. 702:22-6.)

On November 6, 2006, Bookbinder, Acker, and Fishman participated in a conference call and discussed Sleepy's relationship with Select Comfort. (DX 95.) They discussed Colon's secret shop and recognized that the results positioned them for a potential slander lawsuit against Select Comfort. (DX 95 at 4-6.) Acker opined that "[t]his may be an enormous, fabulous lawsuit for Sleepy's to collect damages." (DX 95 at 4.) He went on:

This may be very good because if we start getting involved in a lawsuit especially in a class action and it gets publicity it will not be good for them. This cannot help them at all in the industry, it won't mean a thing to the consumer, but it will for people who want

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to do business with them. Get all of this information to Adam5 and another law firm, one that specializes in this. Find out who does this.

(DX 95 at 4.) Later, Acker demanded more secret shops to obtain the same potential evidence that Colon uncovered:

[Acker]: I want three more shops by area managers looking for the same thing that [ ] Colon was looking for. They are telling the consumer that they are going to have problems with the products that they sell us. So they are telling consumers that a Select Comfort product that we carry is not only inferior, but also problematic. Think about that fellas.

[Fishman]: Harry it gets better or worse depending on how you want to look at it.

[Acker]: Stop the preambles just keep going. This is a good chance that we can sue this man personally for defamation and slander. Make a note that we can sue him.

[Fishman]: Select Comfort said, that we caulk down the wood foundation, both salespeople said that buying from Select Comfort is like buying the original; it would be like buying a Coach bag from Coach. But, buying from somewhere else it would be like buying a copy.

[Acker]: Great Slander, I love it.

(DX 95 at 6.)

Sleepy's did not initiate a suit against Select Comfort at that time. However, shortly after the November 6, 2006 call,

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Bookbinder sent an email6 to Sleepy's Regional Vice Presidents, Regional Managers, and Area Managers ordering a "blitz" of secret shops to obtain "more [ ] reports from [ ] around November 6, 7, 8 [2006.]" (Tr. 244:6-12; 520:23-523:4; DX 295.) Bookbinder requested that Sleepy's employees submit their "blitz" shop reports by November 8, 2006. (Tr. 244:6-12; DX 295.) Bookbinder instructed that Sleepy's was looking for disparaging remarks from Select Comfort. (DX 295.) Two of the instructions read: "we want to know specifically what Select Comfort Says about Sleepy's," and "do they denigrate Sleepy's or the products we sell?" (DX 295.) Bookbinder testified that these instructions were provided "as a result of Harry Acker saying 'I want more shops'" on the November 6, 2006 call.7 (Tr. 532:2-10.)

Between November 6, 2006 and December 5, 2006, Fishman interviewed former Select Comfort salespeople to determine whether Select Comfort's corporate management team instructed its sales force to "say negative things about either Sleepy's or the Personal

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Preference bed." (DX 145; Tr. 512:8-12.) In a December 5, 2006 email chain, Fishman wrote to Bookbinder that there were "no disparaging comments from [Select Comfort]...

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