Sleepy's LLC v. Select Comfort Wholesale Corp.
909 F.3d 519
| 2d Cir. | 2018Background
- Sleepy's (retailer) entered a 2005 Dealer Agreement to sell Select Comfort's "Personal Preference" Sleep Number line; Select Comfort sold a different "Core" line exclusively.
- Sleepy's sales of the Personal Preference line underperformed; Sleepy's suspected Select Comfort sales staff disparaged Sleepy's products and stores.
- Sleepy's conducted multiple "secret shopper" investigations; secret shoppers reported Select Comfort salespeople made disparaging statements about Sleepy's mattresses, storage, warranties, and quality.
- Sleepy's sued alleging breach of contract (non‑disparagement), breach of implied covenant, unfair competition, slander per se, fraudulent inducement, and Lanham Act violations. After bench trials and an earlier appeal, the district court dismissed all remaining claims and awarded Select Comfort attorney's fees under the Lanham Act.
- The Second Circuit affirmed dismissal of contract, unfair competition, and implied‑covenant claims; vacated dismissal of slander per se claims based on publication; and vacated the Lanham Act fee award for reconsideration under Octane Fitness and for failure to justify apportionment of fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether statements made to Sleepy’s agents/secret shoppers satisfy New York publication element for slander | Sleepy's: statements to its representatives (agents) constitute publication to a third party under NY law | Select Comfort: statements made only to Sleepy's reps are not "published" to a third party | Court: Vacated dismissal — communications to plaintiff's agents can satisfy publication; remanded to decide whether plaintiff consented to elicitation of statements |
| Whether Sleepy's elicited statements barred by consent (elicitation in bad faith) | Sleepy's: secret shops were good‑faith investigation to gather evidence of disparagement | Select Comfort: Sleepy's provoked statements to manufacture a lawsuit and thus consented | Court: Affirmed dismissal as to the Zaffron incident (consent) but remanded for findings on other instances |
| Whether Octane Fitness standard applies to Lanham Act fee awards ("exceptional case") | Sleepy's: prior Second Circuit standard requiring fraud/bad faith governs; Octane shouldn't apply | Select Comfort: Octane should apply; case was exceptional justifying fees | Court: Octane Fitness applies to Lanham Act; vacated fee award and remanded for reanalysis under Octane |
| Whether district court properly apportioned attorney's fees to Lanham Act claim | Sleepy's: fee award improperly high; insufficient apportionment/explanation | Select Comfort: claims intertwined; substantial overlap justified awarded percentage | Court: Vacated fee award because district court failed to provide adequate, specific justification for the 75% apportionment; remanded to calculate and explain apportionment |
Key Cases Cited
- Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (Sup. Ct.) (defines "exceptional" for fee awards by totality-of-the-circumstances test)
- Teichner v. Bellan, 7 A.D.2d 247 (N.Y. App. Div.) (communications to a plaintiff's agent constitute publication)
- Twin Peaks Prods., Inc. v. Publications Intl., Ltd., 996 F.2d 1366 (2d Cir.) (Lanham Act fees recoverable on evidence of fraud or bad faith under prior Second Circuit precedent)
- Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (Sup. Ct.) (trial judges must provide reasonably specific explanations for fee determinations)