133 F. Supp. 3d 483
E.D.N.Y2015Background
- Sleepy’s (retailer) and Select Comfort (maker of Sleep Number beds) entered a 2005 Retail Partner Agreement for Select Comfort’s Personal Preference Line to be sold at Sleepy’s stores; agreement included warranty/service language and a one-way non-disparagement clause in Sleepy’s obligations.
- Sales under the program were disappointing; Sleepy’s conducted "secret shop" visits to Select Comfort retail stores to collect statements by Select Comfort sales staff about differences between the lines.
- Sleepy’s executives directed collectors to solicit disparaging remarks and discussed pursuing litigation based on the findings; Sleepy’s compiled reports but failed to preserve original notes/recordings.
- Select Comfort employees allegedly made statements criticizing the Personal Preference Line (e.g., wood foundation, storage/freshness, warranty/service) in multiple secret shops; one incident (Zaffron) included a phone call to a Select Comfort store in presence of a customer.
- Parties executed a Wind-Up Agreement in April 2007 ending the relationship; Sleepy’s sued for breach of contract, breach of implied covenant, slander per se, and unfair competition; after remand from the Second Circuit the district court held for Select Comfort.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract (Paragraph 4(c) Brand Image clause) | Paragraph 4(c) is a mutual non-disparagement obligation; Select Comfort’s disparagement breached the contract | Clause must be read in context and is tied to warranty/service obligations, not a broad mutual non-disparagement duty | Court: clause ambiguous but context, adjacent warranty text, and separate one-way clause (¶3(j)) limit 4(c) to warranty-related brand-image obligations; no breach found |
| Breach of implied covenant of good faith and fair dealing | Select Comfort’s disparagement violated covenant and should prevent enforcement of the Agreement terms | Implied covenant cannot create obligations beyond the contract, and parties contemplated competition; no evidence of bad faith by Select Comfort | Court: covenant cannot be used to rewrite bargained-for terms; no bad faith shown; claim fails |
| Slander per se (multiple secret-shop instances & Zaffron incident) | Secret shops and Zaffron call show repeated slander per se causing general damages and business harm | Most statements targeted products (not Sleepy’s) and were not published to third parties; where publication occurred Sleepy’s solicited the statements (consent); evidence of publication insufficient | Court: individual slander claims fail for lack of publication (statements were to Sleepy’s agents) except Zaffron call, but Sleepy’s consented to that publication; pattern/ practice theory fails; slander claims dismissed |
| Unfair competition under NY law | Select Comfort’s disparagement was an unfair competitive practice that misappropriated Sleepy’s business advantage | Statements criticized product quality but did not misappropriate Sleepy’s skill/expenditure; no bad-faith misappropriation | Court: unfair competition claim fails — conduct was product disparagement, not misappropriation of Sleepy’s commercial advantage |
Key Cases Cited
- Sleepy’s LLC v. Select Comfort Wholesale Corp., 779 F.3d 191 (2d Cir. 2015) (Second Circuit remand and discussion of consent to publication in defamation context)
- Liberman v. Gelstein, 80 N.Y.2d 429 (N.Y. 1992) (defines slander per se categories under New York law)
- Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48 (2d Cir. 2002) (statements made only to plaintiff’s agents do not support slander/disparagement claims)
- James Baird Co. v. Gimbel Bros., 64 F.2d 344 (2d Cir. 1933) (courts should avoid strained contract interpretations to rewrite bargains)