MANHATTAN (CN) - Reviving an 8-year-old spat between mattress sellers Sleepy's and Select Comfort, the 2nd Circuit slammed the lower court for its "erroneous interpretation of the contract."
At the root of the case is a 2005 deal for Hicksville, N.Y.-based Sleepy's to become an official authorized dealer of Select Comfort Wholesale Corp.'s Sleep Number Beds.
Select Comfort's Sleep Number Beds are custom mattresses that are filled with inflatable air chambers that can be adjusted to vary the firmness of the mattress. Under the agreement between the parties, Sleepy's would sell Select Comfort's "Personal Preference" line of beds directly at its stores, while Select Comfort would sell its "Core" line of Sleep Number Beds in its own retail stores.
Sleepy's claims that Select Comfort's mattress were initially received poorly in its stores and that it received reports "that Select Comfort salespeople were disparaging Sleepy's and its Personal Preference line."
A dozen undercover shoppers at Select Comfort's retail stores allegedly proved the latter.
Sleepy's said Select Comfort salespeople claimed that "the wooden foundation sold at Sleepy's was inferior to the plastic polymer foundation of the Core line sold at Select Comfort stores," and "that beds sold at Sleepy's were stored in warehouses where they attracted allergens and dust mites, while beds sold through Select Comfort's stores were made to order."
Sleepy's says Select Comfort's salespeople also told its secret shoppers that Sleepy's "offered inferior sales terms and deceitfully refused to honor its warranties."
After the sales agreement expired on Sept. 30, 2006, Sleepy's sued Select Comfort in 2007 for breach of contract, fraudulent inducement, slander, unfair competition and trademark violations under the Lanham Act.
By 2012, U.S. District Judge Thomas Platt in Central Islip, N.Y., dismissed all counts of Sleepy's case, stating there was no defamation because Sleepy's shoppers, having been first to mention Sleepy's and its sale of Select Comfort beds, "consented" to the salespeople's alleged disparagements.
As to the claim that Select Comfort violated a nondisparagement clause in the contract, the court found that Sleepy's failed to show disparagement prior to the dealer agreement's expiration date.
A three-judge panel with the 2nd Circuit revived the contract-based claims on Feb. 27, and it vacated dismissal of the slander per se claim.
While the agreement between the parties was already expired when Select Comfort's salespeople allegedly made the disparaging remarks in question, the federal appeals court emphasized the difference between the words expired and terminated under New York Law.
"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 ... while the Agreement was still in force," Judge Pierre Leval wrote for the court.
As to the consent issue underlying the slander claim, Leval remanded for the trial court "to make findings ... as to whether Sleepy's inquiries were motivated by a good faith attempt to learn whether the Select Comfort sales force was carrying on a consistent pattern of slander, or were merely a ruse to decoy Select Comfort into a lawsuit, along with the closely related question what was the degree of Sleepy's confidence or certainty at the time of each inquiry that such a pattern of slander existed."
Sleepy's breach-of-contract unfair-competition claims were rebooted as well, since the evidence may demonstrate "that Select Comfort's sales force had adopted a pattern and practice" of slandering Sleepy's products.
Sleepy's did, however, fail "to show that the Personal Preference beds it received were of inferior quality to Select Comfort's Core line," the court found.
Neither Sleepy's nor Select Comfort returned a request for comment on the ruling.
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.