Sleepy's LLC v. Select Comfort Wholesale Corporation et al
MEMORANDUM & ORDER granting 862 Motion for Attorney Fees; Defendant's motion for attorney's fees (Docket Entry 862) is GRANTED. The Court directs the parties to confer and submit a proposed briefing schedule for Defendant's separate application for reasonable attorney's fees within twenty (20) days of the date of this Memorandum & Order. So Ordered by Judge Joanna Seybert on 1/11/2016. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
MEMORANDUM & ORDER
SELECT COMFORT WHOLESALE
RETAIL CORPORATION, and
SELECT COMFORT CORPORATION,
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
900 Third Avenue
New York, NY 10022
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.
Fox Rothschild LLP
Campbell Mithun Tower
222 S. Ninth St.
Minneapolis, MN 55402
Joseph S. Androphy, Esq.
Michael Faillace & Associates, P.C.
60 East 42nd Street, Suite 2540
New York, NY 10165
SEYBERT, District Judge:
This action arises out of a sales agreement between
Plaintiff Sleepy’s LLC and Defendant Select Comfort1, which made
Plaintiff an authorized retailer of Defendant’s Sleep Number beds.
On October 22, 2015, the Court entered judgment in favor of
(Docket Entry 861.)
Defendant now moves for its
attorney’s fees incurred in defending Plaintiff’s claims under the
Lanham Act’s attorney’s fees provision, 15 U.S.C. § 1117(a).
(Docket Entry 862.)
For the reasons that follow, Defendant’s
motion for attorney’s fees is GRANTED.
The Court assumes familiarity with the background of the
case, which is chronicled in its earlier Orders.
Docket Entries 825, 859.) The salient details are discussed below.
Sleepy’s, a New York-based retailer, sells mattresses
and other bedding products.
The Court will refer to defendants Select Comfort Wholesale
Corporation, Select Comfort Retail Corporation, and Select
Comfort Corporation collectively as “Select Comfort.”
These facts are drawn from the witness testimony at trial
(“Tr.”) and the parties’ trial exhibits, which are labeled “PX”
for Plaintiff’s exhibits and “DX” for Defendant’s.
The following is the list of docket entry (“D.E.”) numbers for
the transcripts that are cited to throughout this Order: 3/21/12
pp. 1-124 D.E. 835; 3/22/12 pp. 126-250 D.E. 836; 3/23/12 pp. 251309 D.E. 837; 3/26/12 pp. 310-418 D.E. 838; 3/27/12 pp. 419-556
manufactures and sells the Sleep Number bed, which contains an
inflatable air chamber to adjust the firmness for the user.
In about 2000-2001, Select Comfort began partnering with
other mattress retailers to offer a version of the Sleep Number
bed in those retailers’ stores.
Select Comfort sold its “Core Line” of products in its own retail
stores, it offered the “Personal Preference Line”4 of products
In 2005, Sleepy’s approached Select Comfort to become
one of these retail partners.
Soon after, the
parties executed the “Select Comfort Corporation Dealer Agreement”
become an authorized dealer of the Personal Preference Line of
Select Comfort products.
(PX 133; Tr. 367:20-22).
products never took off.
At some point,
Personal Preference Line to potential customers.
839; 3/30/12 pp. 804-899 D.E. 860-2;
781; 4/24/12 pp. 2203-2352 D.E. 813;
815; 4/27/12 pp. 2591-2713 D.E. 816;
860-7; and 6/13/12 pp. 3269-3315 D.E.
4/11/12 pp. 1490-1610
4/26/12 pp. 2471-2590
4/30/12 pp. 2714-2844
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.)
To test its theory, Sleepy’s ordered its managers to
perform “secret shops” of Select Comfort retail stores.
“secret shop,” Sleepy’s employees would enter a Select Comfort
experience through a tape recorder or a written report.
e.g., PX 1.22; Tr. 861:19-862:1, 865:7-868:4.)
After conducting these secret shops, Sleepy’s began to
formulate a potential lawsuit against Select Comfort.
circumstances that led to this lawsuit: (1) founder and CEO, Harry
(“Bookbinder”) (Tr. 74:13-18, 77:18-78:14); and (3) Vice President
of Merchandising, Ira Fishman (“Fishman”) (Tr. 92:14-20).
November 6, 2006 conference call with Bookbinder and Fishman, which
was recorded, Acker discussed that “[t]his may be an enormous,
fabulous lawsuit for Sleepy’s to collect damages.”
(DX 95 at 4.)5
This may be very good because if we start
getting involved in a lawsuit especially in a
class action and it gets publicity it will not
be good for [Select Comfort].
help them at all in the industry, it won’t
mean a thing to the consumer, but it will for
people who want to do business with them. Get
For the purposes of this Order, the Court will use the page
numbers generated by the Electronic Case Filing System
( “ E C F ” ) when referring to the parties’ exhibits.
all of this information to [Sleepy’s general
counsel] and another law firm, one that
specializes in this. Find out who does this.
(DX 95 at 4).
Acker also instructed his employees to conduct a
“blitz”6 of secret shops at certain Select Comfort stores to gather
statements are particularly relevant because, in Bookbinder’s
words, “Harry [Acker] is the boss.”
(Tr. 385:15-22); (see also
Tr. 87:4-6 (“[T]he executive team . . . report[ed] up to Harry
Acker, who was the CEO and owner of the company.”)).
Separately, Acker instructed the Sleepy’s salesforce to
e-mail Bookbinder if they knew of customers who said that Select
Bookbinder received zero responses.
At a meeting in January 2007, Sleepy’s presented Select
Comfort with summaries of its secret shops and threatened to sue.
ignored the threat, insisted that the Dealer Agreement had been
terminated at that point, and proposed steps to wind-up the
parties’ business relationship.
terminated their relationship.
In April 2007, the
Bookbinder testified that the term “blitz” refers to “sending
out the troops to . . . complete [a] task in a big way.” (Tr.
On August 24, 20077, Sleepy’s commenced this case in
Nassau County Supreme Court.
Select Comfort later
removed the case to this Court based on diversity of citizenship.
(See Not. of Removal, Docket Entry 1, at 1-6.)
claims for (1) breach of contract (Am. Compl., Docket Entry 326,
slander per se (Am. Compl. ¶¶ 66-78); (4) breach of the
implied covenant of good faith and fair dealing (Am. Compl. ¶¶ 7985);
Sleepy’s and its products, thus depriving Sleepy’s of profits.
(See, e.g., Am. Compl. ¶¶ 22, 38.)
Select Comfort denies these
allegations and consistently asserts that Sleepy’s lawsuit was a
competitive ploy to force Select Comfort to renegotiate the Dealer
(See generally Ans. to Am. Compl., Docket Entry 329;
Sleepy’s initially filed its complaint in March 2007, but the
parties entered into a Stipulation of Discontinuance Without
Prejudice in an attempt to amicably resolve the matter in April
2007. (“Initial Compl.,” Def.’s Aff. Ex. T, Docket Entry 42-6);
(“Stipulation of Discontinuance Without Prejudice,” Def.’s Aff.
Ex. U, Docket Entry 42-7, at 2-8). Sleepy’s refiled its case on
August 24, 2007.
The August 24, 2007 Complaint can be found at Docket Entry 1, at
pages 10-56. The page numbers to cites at Docket Entry 1 are those
generated by the ECF System.
Def.’s Br., Docket Entry 863, at 3) (“After the Dealer Agreement
between Defendant and Plaintiff expired . . . Plaintiff devised
its scheme to conduct secret shops in an effort to pressure
Defendant into continuing a relationship with Plaintiff.”).
The case then proceeded to a bench trial before Judge
Thomas C. Platt from March through June 2012.
liability phase of that trial, Select Comfort moved for judgment
as a matter of law, which Judge Platt granted on all claims.
(Sept. 2012 Order, Docket Entry 825.)
Plaintiff then filed a
partial appeal to the Second Circuit.9
(Not. of Appeal, Docket
On February 27, 2015, the Second Circuit affirmed in
part and vacated in part Judge Platt’s Order and remanded a number
of Plaintiff’s claims to this Court for resolution.
v. Select Comfort Wholesale Corp., 779 F.3d 191, 193 (2d Cir.
Following remand, four claims remained: (1) breach of
contract, (2) breach of the implied covenant of good faith and
fair dealing, (3) slander per se, and (4) unfair competition. (Id.
On July 21 and 22, 2015, this Court received expert
testimony on damages to complete the trial record.
Entries 852, 853.)
Plaintiff did not appeal the Court’s dismissal of its Lanham
Act and fraudulent inducement claims.
On September 22, 2015, the Court dismissed Plaintiff’s
(Sept. 2015 Order, Docket Entry 859.)
as to the breach of contract claim, the Court held that Select
Comfort did not breach a particular provision of a partnership
agreement with Sleepy’s within the context of the entire agreement.
(Sept. 2015 Order at 21-22.)
Second, the Court found that the
general obligation to act in good faith “does not beget a separate
cause of action.”
(Sept. 2015 Order at 26.)
Third, the Court
dismissed twelve causes of action for slander per se because there
was no evidence that the allegedly defamatory statements were
overheard by any third parties.
(Sept. 2015 Order at 30-31.)
finally, as to the unfair competition claim, the Court found that
belonging to Sleepy’s.
(Sept. 2015 Order at 38-39.)
entered on October 22, 2015.
(Docket Entry 861.)
Notably, Select Comfort moved to strike and preclude all
evidence of the secret shops because of Sleepy’s spoliation of
evidence. (See Docket Entry 770 at 1.) The Court noted that
“Sleepy’s could not produce (a) the instructions for the secret
shops, (b) any original notes from employees that performed the
secret shops, (c) any original recordings of the secret shops,
or (d) any original reports of the secret shops.” (Sept. 2015
Order at 13, n.12.) Select Comfort argued, and the Court
agreed, that “Sleepy’s engaged in egregious, grossly negligent
spoliation of evidence in the face of contemplated litigation
justifying the imposition of sanctions.” (Sept. 2015 Order at
13, n.12 (citing West v. Goodyear Tire & Rubber Co., 167 F.3d
776, 779 (2d Cir. 1999)).) Ultimately, the Court chose not to
impose any sanctions because “Plaintiff’s claims all fail[ed]
even when considering the evidence of which Select Comfort
urge[d] exclusion.” (Sept. 2015 Order at 13, n.12.)
As the prevailing party, Select Comfort now moves for
(Docket Entry 862.)
attorney’s fees under the Lanham Act.11
(1) Sleepy’s pursued its claims in bad faith--particularly, to
gain leverage in order “to renegotiate the Dealer Agreement on
2) Sleepy’s failed to introduce any admissible evidence to support
its claims (Def.’s Br. at 10-13); and (3) Sleepy’s “engaged in
egregious, grossly negligent spoliation of evidence in the face of
contemplated litigation” (Def.’s Br. at 13-14) (citing Sept. 2015
Order at 13, n.12)).
Sleepy’s argues in opposition that it had
substantial evidence to support its claims and that the lawsuit
was not a competitive ploy.
(Pl.’s Br., Docket Entry 865, at 16,
Select Comfort also moves for an award of attorney’s fees
under Federal Rules of Civil Procedure 11 and 54(d)(2) and Local
Rule 54.1(c)(7). First, Rule 11 is inapplicable here because
Select Comfort never invoked Rule 11’s “safe harbor” provision,
which gives the opposing party twenty-one days to correct or
withdraw certain factual or legal contentions at issue. See FED.
R. CIV. P. 11(c)(2). Second, both Rule 54(d)(2) and Local Rule
54.1(c)(7) only discuss the procedural requirements to file a
motion for attorney’s fees. In other words, these provisions do
not provide a statutory basis for attorney’s fees.
For ease of reference, the Court will use the page numbers
generated by the ECF System when referring to Plaintiff’s Brief.
Under Section 35(a) of the Lanham Act, the Court “may
award reasonable attorney’s fees to the prevailing party” in
15 U.S.C. § 1117(a).
The Second Circuit has
clarified that “exceptional cases” are those involving “fraud, bad
faith, or willful infringement.”
Prot. One Alarm Monitoring, Inc.
v. Exec. Prot. One Sec. Serv., LLC, 553 F. Supp. 2d 201, 207
(E.D.N.Y. 2008) (citing Gordon and Breach Sci. Publishers S.A. v.
Am. Inst. of Physics, 166 F.3d 438, 439 (2d Cir. 1999) and Bambu
Sales, Inc. v. Ozak Trading Inc., 58 F.3d 849, 854 (2d Cir. 1995)).
The Court may find an “exceptional case,” for example, where:
(1) “plaintiff brought suit in bad faith without an investigation
of the merits of his claim;” (2) “plaintiff’s claims had no real
substance;” or (3) “plaintiff filed suit as a competitive ploy.”
New Sensor Corp. v. CE Distribution LLC, 367 F. Supp. 2d 283, 287
(E.D.N.Y. 2005) (internal quotation marks and citation omitted).
In other words, the Court must decide whether the plaintiff engaged
in “misconduct . . . during the course of the litigation” to
justify an award of attorney’s fees.
See Patsy’s Brand, Inc. v.
I.O.B. Realty, Inc., 317 F.3d 209, 221 (2d Cir. 2003). Ultimately,
the decision to award attorney’s fees “‘fall[s] well within the
district court’s discretion, and absent evidence of its abuse,’
will not be disturbed on review.”
Conopco, Inc. v. Campbell Soup
Co., 95 F.3d 187, 194 (2d Cir. 1996) (quoting Getty Petroleum Corp.
v. Bartco Petroleum Corp., 858 F.2d 103, 114 (2d Cir. 1988), cert.
denied 490 U.S. 1006, 109 S. Ct. 1642, 104 L. Ed. 2d 158 (1989))
(alteration in original).
Courts in this Circuit have awarded attorney’s fees in
Lanham Act cases “where there is some evidence that the plaintiff
filed the action for an improper purpose.”
Multivideo Labs, Inc.
v. Intel Corp., No. 99-CV-3908, 2000 WL 502866, at *2 (S.D.N.Y.
Apr. 27, 2000) (collecting cases); compare Mennen Co. v. Gillette
Co., 565 F. Supp. 648, 657 (S.D.N.Y. 1983) (awarding attorney’s
fees where there was a “substantial overtone in [the] case to
warrant an inference that [the] suit was initiated as a competitive
ploy” because the plaintiff’s claims had “no real substance”),
aff’d, 742 F.2d 1437 (2d Cir. 1984) with Gamla Enters. N. Am.,
Inc. v. Lunor-Brillen Design U. Vertriebs GmbH, No. 98-CV-0992,
2000 WL 193120, at *5 (S.D.N.Y. Feb. 17, 2000) (declining to award
defendant’s trademark was found to be “confusingly similar to [the
plaintiff’s] existing registered mark” and the plaintiff “moved
for voluntary dismissal after taking a single deposition”).
Here, Select Comfort has established that there are
“substantial overtone[s]” to suggest that the case was filed as a
Mennen, 565 F. Supp. at 657.
As this Court
ammunition for a future lawsuit against Select Comfort . . . In
light of this aim, Sleepy’s inquiry cannot be considered an ‘honest
inquiry or investigation.’”
(Sept. 2015 Order at 34 (quoting
Restatement (Second) of Torts § 584 (1977)). In fact, Acker stated
that he wanted to file “an enormous, fabulous lawsuit,” noting
that it would be “very good” for Sleepy’s because if the suit “gets
publicity it [would] not be good for [Select Comfort].”
(DX 95 at
Moreover, the cases Sleepy’s cites in opposition have no
bearing on the facts here.
(See Pl.’s Br. at 17-18.)
Products, Inc. v. Sylvester & Associates, Ltd., for example, the
defendant asserted that the plaintiff’s lawsuit was a competitive
ploy because the plaintiff’s president allegedly threatened one of
the defendant’s representatives, yelling “I’m coming after you.
I’m coming after you. . . . I’m coming after you in New York.”
No. 98-CV-6721, 2006 WL 7077215, at *14 (E.D.N.Y. Nov. 13, 2006)
(internal quotation marks and citation omitted).
But unlike the
short timeframe in this case, eight years passed before the Santana
plaintiff filed a lawsuit, and the representative downplayed the
incident in a deposition: “I don’t think there was hard feelings.
I think it was just a matter of different ways of doing business.”
Id. (internal quotation marks and citation omitted).
found that the representative’s deposition testimony contradicted
the allegation that the incident “generated significant animosity
that would trigger a retaliatory lawsuit.”
Bookbinder, and Fishman participated in a conference call in
November 2006, (DX 95), and less than five months later, Sleepy’s
filed suit against Select Comfort.
(See Initial Compl.)
Gameologist Group, LLC v. Scientific Games International, Inc.
compel a contrary conclusion.
No. 09-CV-6261, 2012 WL 1446922, at
*2-3 (S.D.N.Y. Apr. 26, 2012).
There, the defendants sought
attorney’s fees because the plaintiff’s claims were purportedly
baseless, not because the plaintiff, like Sleepy’s, may have filed
suit to exploit a business advantage.
Id. at *2.
In this case,
however, Acker instructed his employees to conduct a “blitz” of
secret shops to gather information on Select Comfort to support a
Accordingly, Select Comfort has raised an inference that Sleepy’s
“filed suit as a competitive ploy.”
New Sensor, 367 F. Supp. 2d
at 287 (internal quotation marks and citation omitted).
Sleepy’s lacked evidence to support its claims.
(See Def.’s Br.
As a preliminary matter, to establish a claim for false
advertising under the Lanham Act, Sleepy’s was required to show
speech, (2) made to influence customers to buy Select Comfort’s
products, and (3) were “‘disseminated sufficiently to the relevant
See Boule v. Hutton, 328 F.3d 84, 90-91 (2d
Cir. 2003) (quoting Fashion Boutique of Short Hills, Inc. v. Fendi
USA, Inc., 314 F.3d 48, 56 (2d Cir. 2002)); see Lanham Act,
15 U.S.C. § 1125(a) (2012).
The Court noted that Sleepy’s failed
to produce any customers to testify that Select Comfort made
(Tr. 3304:20-24) (“[T]here is no proof of
any such denigration . . . that [the Court] may rely on.”); (Tr.
3310:23-3311:3) (“We’ve been here for four months now and you
Additionally, when Acker instructed the Sleepy’s sales force to email Bookbinder if they knew of any Select Comfort employees making
disparaging remarks about Sleepy’s or its products, Bookbinder
received zero responses.13
(See DX 36; Tr. 498:7-501:6.)
although the Court stated on one occasion that both sides had a
“great deal of proof,” (Tr. 1492:25-1493:1), it also expressed
“real misgivings about the admissibility of a great deal of the
evidence . . . allowed in and considered during the course of the
In response, Sleepy’s argues that if its Lanham Act claim
was meritless, “the Court would have dismissed it at the summary
This Court surmised that “the poor sales figures were quite
likely the result of Sleepy’s failure to advertise the Personal
Preference Line as promised . . . or of Sleepy’s salespeople
denigrating the Personal Preference Line.” (Sept. 2015 Order at
8, n.7 (citations omitted)).
judgment stage and there would have never been a trial . . . .”
(Pl.’s Br. at 5.)
The Court disagrees.
On a summary judgment
motion, the role of the Court is not “‘to weigh the evidence and
determine the truth of the matter but to determine whether there
is a genuine issue for trial.’”
Cioffi v. Averill Park Cent. Sch.
Dist. Bd. of Educ., 444 F.3d 158, 162 (2d Cir. 2006) (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct.
2505, 2511, 91 L. Ed. 2d 202 (1986)).
More to the point, the
Southern District explained that “the fact that plaintiff managed
to bring these [Lanham Act] claims to trial is of little relevance
as a general principle.
Attorneys’ fees have been awarded to a
defendant under § 1117(a) after a trial has been completed.” IMAF,
S.p.A. v. J.C. Penney Co., 810 F. Supp. 96, 99 (S.D.N.Y. 1992)
especially warranted in light of Sleepy’s “egregious, grossly
negligent spoliation of evidence . . . .”
(Sept. 2015 Order at
13, n.12 (citing West, 167 F.3d at 779).)
Sleepy’s argues that
the Court merely “criticized Sleepy’s failure to retain materials
. . . and found sanctions were not warranted.”
(emphasis in original).
(Pl.’s Br. at 23)
As this Court made clear:
Throughout the testimony of Sleepy’s secret
shoppers, a pattern emerged: beyond oral
testimony, Sleepy’s offered almost no primary
evidence from those [secret] shops. It became
apparent that Sleepy’s could not produce
(a) the instructions for the secret shops,
(b) any original notes from employees that
performed the secret shops, (c) any original
recordings of the secret shops, or (d) any
Instead, Sleepy’s offered compilations of the
secret shop reports that were not prepared by
a testifying witness and--at least on some
occasions--had been altered. Sleepy’s made no
attempt to preserve any of this original
evidence; a formal litigation hold was
apparently never instituted, and none of the
testifying secret shoppers were told to retain
their original reports or recordings.
Indeed, the Court only declined to impose sanctions
because “Plaintiff’s claims all fail[ed] even when considering the
evidence of which Select Comfort urge[d] exclusion.”
Order at 13, n.12.)
Thus, in the Court’s discretion, Defendant’s
motion for attorney’s fees is GRANTED.
Defendant’s motion for attorney’s fees (Docket Entry
862) is GRANTED.
The Court directs the parties to confer and
application for reasonable attorney’s fees within twenty (20) days
of the date of this Memorandum & Order.
11 , 2016
Central Islip, New York
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
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