By Jonathan Stempel
NEW YORK (Reuters) - A federal appeals court on Tuesday revived for a second time a 11-year-old defamation lawsuit by bedding retailer Mattress Firm Inc against adjustable bed maker Sleep Number Corp (O:SNBR).
The 2nd U.S. Circuit Court of Appeals said a lower court judge misinterpreted New York law in dismissing claims first brought in March 2007 by Sleepy's, now part of Mattress Firm, against Select Comfort, renamed Sleep Number last November.
Andrew Hansen, a lawyer for Sleep Number, declined to comment. Lawyers for Mattress Firm did not immediately respond to requests for comment.
Mattress Firm, part of South Africa's Steinhoff International Holdings NV (J:SNHJ), emerged from Chapter 11 bankruptcy protection last week.
The case concerned whether Select Comfort violated a 2005 contract that let Sleepy's sell Select Comfort's wood framed "Personal Preference" beds, while Select Comfort sold its plastic-and-polymer framed "Core" beds in its own stores.
Sleepy's sued after "secret" shoppers it hired to visit Select Comfort stores reported that salespeople disparaged the quality and comfort of Personal Preference beds, whose sales were poor, and said Sleepy's offered inferior warranties.
U.S. District Judge Joanna Seybert in Central Islip, New York dismissed the case in Sept. 2015, saying the alleged disparagements were not "published to a third party" under New York law because only Sleepy's secret shoppers heard them.
But in a 3-0 decision by the New York-based appeals court, Circuit Judge Robert Sack said the publication requirement might have been met if the shoppers qualified as Sleepy's "agents."
He ordered Seybert to revisit that issue, and whether Sleepy's consented to the alleged slanders.
The appeals court also threw out a $2.63 million legal fee award for Sleepy's, saying Seybert didn't justify it and should reconsider the amount.
Sleep Number is based in Minneapolis. Sleepy's was based in Hicksville, New York, and Mattress Firm is based in Houston.
Sleepy's lawsuit had been dismissed by a different judge in Sept. 2012, and revived by the appeals court in March 2015.
The case is Sleepy's LLC v. Select Comfort Wholesale Corp et al, 2nd U.S. Circuit Court of Appeals, Nos. 15-3560, 16-3595.