Tuesday, December 27, 2011

particularity, but not public interest, in false advertising claim

Select Comfort Corp. v. The Sleep Better Store, LLC, 796 F. Supp. 2d 981 (D. Minn. 2011)
The parties compete in the market for air beds. Select Comfort sued for trademark infringement and false advertising under Minnesota and federal law. 
The court began with the proposition that Rule 9(b) applies to all false advertising claims.  Claims “on information and belief” have generally not been pleaded with particularity unless facts constituting the fraud are peculiarly within the opposing party’s knowledge, and “information and belief” is ok if accompanied by a statement of the facts on which the belief is based.
Select Comfort alleged that Sleep Better, or an agent or affiliate of Sleep Better, anonymously maintained a website that purports to neutrally “review” mattresses but which, in fact, favors its own products in misleading comparisons to products made and sold by Select Comfort.  The complaint described how the website was misleading and biased, alleged that it was anonymously registered, and described how the reviews focused on comparisons favoring Sleep Better over Select Comfort.
Select Comfort also alleged that Sleep Better falsely claims that its products are made in the US.  Based on Select Comfort’s extensive corporate knowledge of the supply and manufacture of air beds, the complaint alleges that the air chambers aren’t made in the US.
Finally, Select Comfort alleged that Sleep Better phone representatives instructed potential customers to test beds at Select Comfort retail stores but then, after trying the beds and selecting one, to order the same bed online from Sleep Better for a lower price. This allegation is based on “frequent customer statements” to Select Comfort retail personnel.
The court found that these allegations made on “information and belief” were based on facts either uniquely within Sleep Better's knowledge or based on communications to which Select Comfort was not a party. The complaint included facts supporting the allegations and alerting Sleep Better to the nature of the alleged fraud and the basis of the claims. Thus, Rule 9(b) was satisfied.
Sleep Better also argued that Select Comfort failed to adequately plead that Sleep Better used false and unsubstantiated “health-related testimonials” on its website. Sleep Better wanted an exhaustive list of any allegedly fraudulent statements, but where a plaintiff alleges a systematic practice of the submission of fraudulent claims over an extended period of time, the plaintiff need not allege the specific details of every fraudulent claim. Rather, the plaintiff must plead some representative examples with particularity. This the complaint here did.
Sleep Better was more successful challenging Select Comfort’s ability to bring Minnesota law claims, since the state requires a showing that a private cause of action “benefits the public.”  Minnesota courts consider both the form of the alleged misrepresentation and the relief sought by the plaintiff.  When a plaintiff seeks only damages, courts generally find no public benefit even when plaintiffs are suing over mass produced and mass marketed products.
Select Comfort argued that it sought a public benefit because the allegedly false statements were made to the public and because it sought to enjoin deceptive advertising. The parties were direct competitors, and Select Comfort’s claims for relief were almost entirely for “damages caused by dilution of its trademark and lost profits.”  (Not clear from this discussion whether the court means dilution as a trademark lawyer would mean it; the court doesn’t spend a lot of time explaining the alleged trademark infringement to the extent it differs from the “try it in their store, then buy it from us online” conduct already described.)  As a direct competitor, Select Comfort might not litigate its claims and take positions with the public good in mind.  The complaint focused on harm to Select Comfort, not to the deceived public.  Select Comfort had other causes of action and didn’t need the protection of Minnesota’s private attorney general statute.

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