Sleepy's LLC v. Select Comfort Wholesale Corp.
| Decision Date | 27 February 2015 |
| Docket Number | Docket No. 12–4437–cv. |
| Citation | 779 F.3d 191 |
| Parties | SLEEPY'S LLC, Plaintiff–Appellant, v. SELECT COMFORT WHOLESALE CORPORATION, Select Comfort Retail Corporation, Select Comfort Corporation, Defendant–Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
OPINION TEXT STARTS HERE
Affirmed in part, vacated in part, and remanded. Vincent J. Syracuse (L. Donald Prutzman, George F. du Pont, on the brief), Tannenbaum Helpern Syracuse & Hirschtritt LLP, New York, New York, for Plaintiff–Appellant.
Andrew S. Hansen (Heidi A.O. Fisher, Michelle R. Schjodt, on the brief), Oppenheimer Wolff & Donnelly LLP, Minneapolis, MN, for Defendant–Appellees.
Before: LEVAL, WESLEY, and HALL, Circuit Judges.LEVAL, Circuit Judge:
Plaintiff Sleepy's, LLC appeals from the judgment of the United States District Court for the Eastern District of New York (Platt, J.) in favor of Defendant Select Comfort 1 rendered upon a bench trial. This action arises out of a contractual agreement between Sleepy's and Select Comfort pursuant to which Sleepy's sold beds manufactured by Select Comfort. After the parties ended their business relationship, Sleepy's brought suit, asserting numerous claims, including claims for breach of contract, breach of the contract's implied covenant of good faith and fair dealing, unfair competition, and slander per se.
The case proceeded to a bench trial in the spring of 2012. In June 2012, toward the end of Sleepy's presentation of its case, Select Comfort moved for judgment on partial findings pursuant to Federal Rule of Civil Procedure 52(c).2 The district court granted judgment for Select Comfort on all claims. The court's dismissal of many of Sleepy's contract-based claims depended on its determination that the contract had expired on September 30, 2006, and, by its terms, could not be extended past that date except by written waiver. The court dismissed the claims of defamation primarily on the ground that Sleepy's had consented to the allegedly slanderous statements. On appeal, Sleepy's contends these rulings were based on errors of law. Sleepy's also challenges several of the district court's evidentiary rulings.
We affirm the judgment dismissing one of the contract claims. As for the other claims, we vacate the judgment and remand for further proceedings.
We review the district court's findings of fact for clear error and its conclusions of law de novo. MacDraw, Inc. v. CIT Grp. Equip. Fin., Inc., 157 F.3d 956, 960 (2d Cir.1998).
Sleepy's alleged that Select Comfort breached § 4(a) of the Dealer Agreement by failure to deliver “first quality merchandise” and § 4(c) by disparaging Sleepy's merchandise and business practices. We agree with the district court that Sleepy's failed to prove a breach of § 4(a), and we therefore affirm the dismissal of the claim based on that provision. As for the claim under § 4(c), however, the district court erred in construing the Dealer Agreement as barring extension of the contract term past the stated expiration date except by written waiver, and dismissing the claim on that basis.
Sleepy's contends its evidence showed that Select Comfort breached the requirement of § 4(a) of the Dealer Agreement that Select Comfort provide Sleepy's with “first quality merchandise.” The parties dispute the meaning of “first quality.” Relying on evidence from the contract negotiation, Sleepy's maintains that this term required Select Comfort to provide it with beds that were in no way inferior to the beds sold at Select Comfort stores. Select Comfort contends the generally accepted meaning of the term in product manufacturing is “new, unflawed products which are distinguished from defective or damaged goods.” Sleepy's LLC v. Select Comfort Wholesale Corp., No. 07–CV–4018, slip op. at 198 (E.D.N.Y. Sept. 26, 2012). The district court found the term ambiguous and, acting as fact-finder, adopted Select Comfort's construction. The court further found that Select Comfort did not breach its obligation to provide Sleepy's with new, unflawed products.
We need not decide whether the district court properly interpreted the term “first quality.” Even if Sleepy's is correct that this clause required Select Comfort to deliver to Sleepy's merchandise that was in no way inferior to what Select Comfort sold in its own stores, Sleepy's failed to establish a breach. The district court found that Sleepy's failed to show that the Personal Preference beds it received were of inferior quality to Select Comfort's Core line. We find no flaw in that ruling. Accordingly, we affirm the district court's grant of judgment for Select Comfort on this claim.
In its second breach of contract claim, Sleepy's alleges that Select Comfort breached the non-disparagement clause of § 4(c) of the Dealer Agreement. Section 4(c) provides, in relevant part:
Each party represents that it shall not impair, infringe upon or adversely affect the character, reputation and good will (collectively, the “Brand Image”) of the other party[.]
JA 1712. The district court ruled that Sleepy's failed to prove a breach of § 4(c) because it presented no competent evidence of disparagement by Select Comfort that took place while the Agreement was in effect.
The district court's ruling was predicated on its interpretation of two subsections of the Dealer Agreement. Section 9(a) states that “the term of this Agreement ... will expire September 30, 2006.” JA 1715. Section 9(e) provides that, “after termination” of the Agreement, the terms of the Agreement cannot be extended or continued except “by an express written waiver of termination signed by the terminating party.” 4 Id. Taken together, the district court understood these provisions to mean that the Agreement would come to an end on September 30, 2006, and could not be extended beyond that date except by written waiver, which the court concluded was not shown. The court accordingly concluded that the Dealer Agreement was no longer in force after September 30, 2006, and that disparagements by Select Comfort subsequent to that date could not be breaches of the contract.
The court thus treated “expiration” and “termination” as interchangeable terms referring to the end of the contract term, regardless of how it occurred. Sleepy's argues that the court failed to recognize the contract's carefully drawn distinction between “expiration,” which refers to the arrival of the date contractually specified as the end of the contract's term, and “termination,” meaning the act of a party, relying on a contractual justification, to bring the contract term to a premature end.
We agree with Sleepy's that the court's construction of the contract was erroneous. The Dealer Agreement does indeed use those terms to refer to different ways of ending the contract term. “Expiration” is used to refer to the end of a pre-determined “Initial Term” on a contractually agreed date. This was provided in Section 9(a), which states, “ Subject to earlier termination ..., the term of this Agreement shall commence as of the Effective Date and will expire September 30, 2006 (the “ Initial Term”).” JA 1715 (emphases added).5
In contrast, “termination” is used to describe an affirmative act by a party, relying on a contractually agreed justification, to end the Agreement prior to its expiration.
Section 9(e) (), in which the district court found a prohibition of extension of the contract term absent an “express written waiver,” applies only “after termination of this Agreement,” which had not occurred when the agreement came to its expiration date. In addition, the type of written waiver specified in § 9(e) is a “written waiver of termination.” Furthermore, § 9(e) requires that the express written waiver of termination be “signed by the terminating party,” a provision that makes no sense if applied to extension of the contract term after expiration, because expiration happens automatically on the arrival of the expiration date, and not at the instigation of any “terminating party.” 6
In sum, § 9(e) did not prevent the Dealer Agreement from being extended by the parties' conduct after the Agreement's Initial Term expired on September 30, 2006. The district court's conclusion that Sleepy's could not prevail on its claim of breach of contract by disparagement because Sleepy's failed to show disparagement prior to the Dealer Agreement's expiration date was based on an invalid interpretation of the agreement. The court did not confront Sleepy's contention that the Dealer Agreement was in fact extended by conduct of the parties and that Select Comfort disparaged Sleepy's in breach of § 4(c) while the Agreement was still in force.7 We therefore vacate the judgment dismissing Sleepy's claims of disparagement in breach of contract. The court will need to rule on those issues on remand.
Sleepy's also challenges the district court's grant of judgment for Select Comfort on Sleepy's claims for unfair competition and breach of the implied covenant of good faith and fair dealing.8 Both claims are based, broadly speaking, on Sleepy's allegations that regardless of whether Select Comfort's disparagements violated § 4(c), this and other hostile conduct violated Select Comfort's...
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