Sleepy's LLC v. Select Comfort Wholesale Corp.

• Decision Date: 22 September 2015
• Docket Number: No. 07–CV–4018 (JS)(ARL).,07–CV–4018 (JS)(ARL).
• Citation: 133 F.Supp.3d 483
• Parties: SLEEPY'S LLC, Plaintiff, v. SELECT COMFORT WHOLESALE CORPORATION, Select Comfort Retail Corporation, and Select Comfort Corporation, Defendants.
• Court: U.S. District Court — Eastern District of New York

133 F.Supp.3d 483

SLEEPY'S LLC, Plaintiff,

v.SELECT COMFORT WHOLESALE CORPORATION, Select Comfort Retail Corporation, and Select Comfort Corporation, Defendants.

No. 07–CV–4018 (JS)(ARL).

United States District Court, E.D. New York.

Signed Sept. 22, 2015.

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., Stefanie Marie Ramirez, Esq., Tannenbaum Halpern Syracuse & Hirschtritt LLP, New York, NY, for Plaintiff.

Heidi A.O. Fisher, Esq., Joseph S. Miller, Esq., Michael J. Bleck, Esq., Michael K. Gravink, Esq., Andrew S. Hansen, Esq., Michelle R. Schjodt, Esq., Oppenheimer Wolff & Donnelly LLP, Minneapolis, MN, Joseph S. Androphy, Esq., Michael Faillace & Associates, P.C., New York, NY, for Defendants.

MEMORANDUM, DECISION, & ORDER AFTER BENCH TRIAL

SEYBERT, District Judge:

Plaintiff Sleepy's LLC ("Plaintiff" or "Sleepy's") commenced this action against defendants Select Comfort Wholesale Corporation, Select Comfort Retail Corporation, and Select Comfort Corporation (collectively "Defendant" or "Select Comfort") seeking, inter alia, damages resulting from Select Comfort's alleged breach of a 2005 sales agreement. A bench trial was held before Judge Thomas C. Platt between March and June of 2012. Following the first phase of that trial, Judge Platt granted Select Comfort's motion for judgment as a matter of law. (Sept. 26, 2012 Memorandum and Order, Docket Entry 825.) On February 27, 2015, the Second Circuit vacated Judge Platt's order as to a number of Plaintiff's causes of action and remanded those causes for resolution. Sleepy's LLC v. Select Comfort Wholesale Corp., 779 F.3d 191, 193 (2d Cir.2015). On July 21 and 22, 2015, this Court heard testimony to complete the trial record.

(See Docket Entries 852–53.) The Court, pursuant to Federal Rule of Civil Procedure 52(a), now issues its findings of fact and conclusions of law.¹ After considering the evidence offered at trial, the arguments of counsel, and the controlling law on the issues presented, the Court finds in favor of Defendant.

FINDINGS OF FACT

Based on the evidence presented, the Court makes the following findings of fact pursuant to Federal Rule of Civil Procedure 52(a).² These findings of fact are drawn from witness testimony at trial ("Tr."), the parties' trial exhibits (labeled "PX" for Plaintiff's exhibits and "DX" for Defendant's), and undisputed facts submitted by the parties in the Amended Joint Pre–Trial Order ("PTO").

I. The Parties & Products

Sleepy's is a New York based company that owns a chain of retail stores that sell mattresses and other sleep products. (Tr. 74:19–79:8.³ ) Between 2005 and 2007, Sleepy's owned between 300 and 400 retail stores, which were located mostly throughout the northeastern United States.⁴ (Tr. 74:23–77:1.) Sleepy's carries products made by a broad range of suppliers, and consistently advertises that they "have them all." (PX 152; DX 17.⁵ )

Three Sleepy's executives were heavily involved in the circumstances that led to this lawsuit: Harry Acker ("Acker"), Michael Bookbinder ("Bookbinder") and Ira Fishman ("Fishman"). Acker is Sleepy's founder, owner, and CEO. (Tr. 87:4–6, 385:15–22.) Bookbinder was, during the relevant time, Sleepy's Executive Vice President of Sales. (Tr. 74:13–18.) Bookbinder oversaw both the sales force and the advertising and marketing department, and he was responsible for dealing with Sleepy's suppliers. (Tr. 77:18–78:7.) Fishman was Sleepy's Vice President of Merchandising, and he was responsible for working with vendors to put together product lineups. (Tr. 92:14–20.)

Select Comfort is the manufacturer and retail seller of the Sleep Number bed. (Tr. 2250:22–2252:9, 2780:10–24.) In lieu of metal coils, the Sleep Number bed contains a series of air chambers that can be inflated or deflated to adjust the firmness. (Tr. 2780:25–2782:15.) The air chambers sit atop a solid, rigid foundation, and they are covered by various layers of foam and padding, similar to a traditional mattress. (Tr. 2626:10–2627:5.)

In 2000, Select Comfort began partnering with other mattress retailers to offer a version of the Sleep Number products in those retail stores. (Tr. 2616:9–13.) While Select Comfort sold its "Core Line" of products in its own retail stores, it offered the "Personal Preference Line" of products via its retail partners. (Tr. 2551:17–2553:3, 2624:9–16.) The Personal Preference Line was designed to complement the Core Line by offering models that fall between the Core Line models. (Tr. 105:8–106:11.) The technology and basic components of the Personal Preference Line products were exactly the same as those of the Core Line, and they were both covered by the same warranty. (Tr. 2272:22–2273:24; 2281:4–11.) Nonetheless, there were a number of differences. For example, while the Personal Preference Line products utilized a one-piece, wooden foundation, the Core Line products utilized a multi-piece, polymer foundation. (Tr. 2273:17–22; 2275:14–2276:6.) This difference was apparently motivated by shipping concerns; Select Comfort shipped its products via United Parcel Service, which limited its package sizes so that a single-piece foundation could not be shipped. (Tr. 2276:7–18.) Select Comfort's retail partners, on the other hand, could utilize a single-piece foundation because they used their own delivery services. (Tr. 2275:1–2277:25.)

II. The Retail Partner Agreement

On January 17, 2005, Sleepy's approached Select Comfort about becoming one of Select Comfort's retail partners. (Tr. 91:11–92:12.) After some initial diligence on the part of both Sleepy's and Select Comfort, the parties agreed that Sleepy's would become a Select Comfort retail partner.

In the Spring of 2005, the parties negotiated a contract entitled "Select Comfort Corporation Dealer Agreement" (the "Retail Partner Agreement" or the "Agreement"). (PX 133.) The Retail Partner Agreement, in essence, provided that Sleepy's would become an authorized dealer of the Personal Preference Line of Select Comfort products. (PX 133; Tr. 367:20–22.) The Agreement has two relevant provisions. Paragraph 4(c) reads as follows:

[Select Comfort will: ...] Provide warranty service in accordance with Select Comfort's published warranty for all products and components sold to [Sleepy's] by Select Comfort; 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.

(PX 133 ¶ 4(c).) Paragraph 3(j) reads as follows:

[Sleepy's will: ...] Not disparage Select Comfort or any products distributed through Select Comfort's retail stores or any of Select Comfort's other retail partners and not interfere with any of Select Comfort retail store's relationships with customers or potential customers.

(PX 133 ¶ ¶ 3(j).)

The Retail Partner Agreement became effective on June 17, 2005, and was scheduled to expire on September 30, 2006. (PX 133 at 1 & ¶ 9(a).) Although the Agreement stated that its term could not be extended except by written agreement of the parties-which never occurred-the parties continued to operate under the terms of the Agreement beyond September 30, 2006.⁶ (Tr. 296:20297:5.)

III. The Disappointing Results of the Retail Partner Agreement

Almost immediately after the effective date of the Retail Partner Agreement, Sleepy's sales figures for the Personal Preference Line were disappointing. (Tr. 144:25–145:10.) The program never grew to the level that Select Comfort and Sleepy's had anticipated. (Tr. 183:16–19.) By the second quarter of 2006, the poor results lead to a series of meetings among members of Sleepy's upper management to determine the cause of the disappointing figures. (Tr. 185:13–188:11.)

By September 2006, Sleepy's began considering whether the disappointing results of their relationship with Select Comfort were caused by Select Comfort's disparaging the Personal Preference Line available at Sleepy's.⁷ (Tr. 191:13–192:6.) To test that hypothesis, Sleepy's ordered its managers to perform "secret shops" of Select Comfort retail stores. In these instances, the Sleepy's employees were instructed to enter a Select Comfort retail store, pose as a potential customer, and record the experience. In many instances, the secret shopper would tape–record the interaction, while in other cases she would prepare a written report of the experience.

On either September 4 or November 4, 2006,⁸ Anthony Colon ("Colon"), then a Sleepy's Regional Manager (Tr. 860:8–9), visited a Select Comfort store in upper Manhattan (Tr. 863:9–18). Colon alleges that he met with Select Comfort sales representative Don Ehrman ("Ehrman"), and requested that Ehrman explain to him the differences between a certain mattress from the Personal Preference Line and a mattress from Select Comfort's Core Line. (PX 1.22; Tr. 865:17–866:2.) Colon stated that in response, Ehrman expressed five reasons why Select Comfort's Core Line was better than the Personal Preference Line: (1) Select Comfort's mattresses would be made to order, while those at Sleepy's were made and warehoused prior to purchase (Tr. 866:4–9; PX 1.22); (2) the Personal Preference Line mattress included a wired remote control, while Select Comfort's could be wireless (Tr. 866:10–14; PX 1.22); (3) any problems with the mattress would be easier to resolve at Select Comfort than at Sleepy's (Tr. 866:24– 867:8); (4) the mattress could be returned or exchanged at Select Comfort, but not at Sleepy's (Tr. 867:9–11; PX 1.22); and (5) the Personal Preference Line had a wood foundation, which meant that the mattress would not be as comfortable for as long as a Core Line product (Tr. 867:25–868:4; PX 1.22).⁹

IV. Building a Case

On a November 6, 2006 conference call, Bookbinder, Acker, and Fishman discussed how the results of Colon's secret shop well-positioned them for a potential slander lawsuit against Select Comfort. (DX 95.) Acker...