29
Nov/18

2d Circuit: Sleepy’s v Sleep Number – Can You Be Defamed To Your Secret Agent?


Plaintiff Sleepy’s sold a line of mattresses manufactured by a competitor, Defendant Select Comfort. Sleepy’s line performed poorly in comparison to a ‘slightly different’ line sold by Select Comfort in its own stores (which line had ‘exactly the same’ technology and basic components as Sleepy’s line).  Select Comfort thought that Sleepy’s didn’t adequately advertise their line, while Sleepy’s suspected that Select Comfort was disparaging the line sold by Sleepy’s.

Sleepy’s sent ‘secret shoppers’ to Select Comfort stores, who asked sales staff about the differences between the two lines.  When the CEO of Sleepy’s was informed that the secret shoppers reported that Select Comfort’s sales staff was allegedly disparaging Sleepy’s, the CEO said:

This may be an enormous, fabulous lawsuit for Sleepy’s to collect damages . . . .This may be very good because if we start getting involved in a lawsuit especially in a class action and its gets publicity it will not be good for them.  This cannot 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 [Select Comfort].

SLANDER:

Question: If the allegedly slanderous remark is made to an agent of the plaintiff, was the slander published, or was it consented to by the plaintiff?

Second Circuit: a statement made to an agent of plaintiff can be deemed to have been published, but:

When a plaintiff sues for defamation based on a statement of the defendant elicited by the plaintiff with some reason to expect that the defendantʹs statement might be defamatory, the more the evidence supports the proposition that the plaintiff elicited the statement with a high degree of certainty that it would be defamatory, for the purpose of enabling a lawsuit, the stronger the defendantʹs case for deeming the statement consented to, thus barring the claim.

Here, it was established that Sleepy’s was both virtually certain that its inquiry would elicit allegedly slanderous statements and was substantially motivated by the desire to bolster a contemplated lawsuit.  Thus statements made after the CEO’s statement (above), were deemed to have been consented to (statements made prior to that statement were remanded to the district court for further review).

LANHAM ACT FEES:

Question: What is the standard for expectionality under the Lanham Act, with regard to fee awards?

The Lanham Act allows a prevailing party to be awarded fees in exceptional cases.  The Second Circuit now decides that it will apply the Octane Fitness test when determining exceptionality  under the Lanham Act, namely that an ‘exceptional’ case is one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.  The question is to be considered by evaluating the totality of the circumstances, considering a wide variety of facts, including “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.”

In the event of a multi-claim suit under different statutes (as is the case here), the prevailing party will only be entitled to work expended in prosecuting or defending the Lanham Act claims.

While the issue of exceptionality will be determined upon remand, the Court noted:

It is not altogether clear to us that the case at bar was ʺfrivolous[]ʺ or improperly
ʺmotivat[ed].ʺ Octane Fitness, 572 U.S. at 554 n.6. Sleepyʹs claims survived summary
judgment and were only dismissed after a bench trial on a motion for judgment on
partial findings under Federal Rule of Civil Procedure 52(c). On appeal, we revived the
unfair competition, breach of contract, and slander per se claims. And although Ackerʹs
comments strike us as objectionable and inappropriate, it is not self‐evident that they
alone could convert an otherwise‐reasonable response to possible defamation
(investigation and litigation) into a bad‐faith competitive ploy. But the district court
must decide this in the first instance—in conjunction with other relevant factors, such as
Sleepyʹs spoliation—a decision to which we will owe deference in the event of a further
appeal.

Comments are closed.