Casper Sleep, Inc. v. Nectar Brand LLC

CASPER SLEEP, INC., Plaintiff, v. NECTAR BRAND LLC, DREAMCLOUD BRAND LLC,and DREAMCLOUD HOLDINGS, LLC, Defendants.

18 Civ. 4459 (PGG)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 23, 2020

ORDER

PAUL G. GARDEPHE, U.S.D.J.:

In this action, Plaintiff and Defendants - who are direct competitors in the online mattress industry - bring claims and counterclaims alleging false advertising and deceptive practices under the Lanham Act and New York General Business Law, Sections 349-350. Defendants have moved to dismiss Plaintiffs' claims in the Second Amended Complaint to the extent they are premised on Defendants' Sleep Authority website, promotional pricing and financing program. (Def. Br. (Dkt. No. 74) at 6)¹ Plaintiff has moved to dismiss Defendants' counterclaims. (Pltf. Br. (Dkt. No. 79) at 10) For the reasons stated below, Defendants' motion to dismiss will be granted, and Plaintiff's motion to dismiss Defendants' counterclaims will be granted.

BACKGROUND

I. FACTS²

A. Plaintiff's Claims

Plaintiff Casper Sleep, Inc. is an e-commerce company that launched in early 2014. Casper sells mattresses and other sleep products directly to consumers online. (Second Am. Cmplt. ("SAC") (Dkt. No. 46) ¶¶ 2, 12, 16, 17) Defendant Resident Home LLC³ is the parent company of Defendant Nectar Brand LLC and Defendant DreamCloud Brand LLC. Nectar and DreamCloud began competing with Plaintiff in the online mattress industry in July 2016 and June 2017, respectively. (Id. ¶¶ 4, 5, 14, 20)

1. Affiliate Reviews

Plaintiff alleges that Defendants "offer one of the most lucrative affiliate relationship programs in the industry," and "promote . . . paid [affiliate] reviews without adequately disclosing that the reviewers are compensated." (Id. ¶¶ 32-34) Affiliate reviews are promoted through banner ads and the purchase of Google AdWords, which "compounds Defendants' deception by leading consumers to believe that these particular review websites are among the most reputable and frequently searched."⁴ (Id. ¶¶ 36-39)

2. SleepAuthority Website

Plaintiff alleges that Defendants operate the "SleepAuthority" website, which claims to be dedicated to helping people improve their sleep habits. According to Plaintiff,Defendants use this website to "publish brand-favorable content and steer online users to the Nectar and DreamCloud websites." (Id. ¶ 43) SleepAuthority promotes Defendants' products by posting on social media and elsewhere, without any disclosure that SleepAuthority is Defendants' alter-ego. (Id. ¶ 44) Although SleepAuthority discloses in the "about" section of its website that "Sleep Authority is owned and operated by DreamCloud, LLC, which operates Nectar, DreamCloud and Level," Plaintiff complains that this disclosure is made in "an obscure location entirely separate from the deceptive content, where consumers are unlikely to see it." (Id. ¶ 49) Plaintiff claims that it has been harmed by the SleepAuthority website because "consumers who might have purchased a Casper mattress were . . . influenced [by the website] into purchasing Defendants' mattresses." (Id. ¶ 52)

3. Defendants' Websites

Plaintiff further complains that Defendants' own websites contain numerous false or misleading statements, including: (1) misleading comparisons to Casper products, which rely on affiliate reviews that do not concern Casper products (id. ¶¶ 54-65); (2) manipulated customer reviews (id. ¶¶ 66-72); and (3) false statements touting Defendants' mattresses, including how comfortable they are and where they were designed and assembled.⁵ (Id. ¶¶ 73-82)

4. Financing Program

According to Plaintiff, Defendants offer their customers the option of paying for mattresses in six "interest free" monthly installments with "no hidden fees." (Id. ¶¶ 83-85) Both Defendants represent to consumers that "[a]ll fees are disclosed in the agreement you sign before you are charged." (Id. ¶ 85) According to Plaintiff, however, Defendants never provideconsumers with a purchase agreement that discloses all of Defendants' fees, nor are consumers ever asked to sign a purchase agreement. (Id. ¶ 86) Instead, a consumer accessing Defendants' websites can select a mattress, choose the six monthly payments option, provide credit card information, and place an order, all without ever seeing a description of Defendants' Financing Program or a purchase agreement. (Id.) According to Plaintiff, consumers can access the purchase agreement only by clicking on a "Financing" link at the bottom of Defendants' websites, scrolling to the bottom of the Financing Program webpage, and then clicking on another link. (Id. ¶ 88) Moreover, the purchase agreement on the Financing Program webpage does not disclose all of the fees associated with financing a Nectar or DreamCloud mattress, nor does it disclose that the annual percentage rate ("APR") can increase to as much as 312%. (Id. ¶¶ 89, 90) Defendants also charge a "lease origination fee," a "late payment" fee, and a "reinstatement fees." According to Plaintiff, these fees are either not disclosed or are "obfuscate[d]." (Id. ¶ 91) Plaintiff claims that Defendants' customers who use financing pay at least 40% to 60% more than the advertised cost of Defendants' mattresses over a six-month period. (Id. ¶ 87)

Plaintiff also complains that Defendants misrepresent to their financing customers that there is a 365-day risk-free trial. (Id. ¶ 93) Nectar tells its customers: "If you decide for any reason that Nectar is not your ideal mattress, we'll remove the mattress from your home and refund your payment 100%." (Id.) DreamCloud similarly states: "Our finance customers also enjoy the benefits of our 365 night trial." (Id.) In reality, under the terms of Defendants' financing program, penalty-free cancellation of a transaction is permitted only within three business days of signing a purchase agreement; consumers are otherwise required to remain in the financing arrangement for at least three months. (Id. ¶ 94)

5. Promotional Pricing Scheme

Plaintiff alleges that Defendants "falsely advertised discounts as limited offers when, in reality, those discounts are always available and the products are never sold at their purported 'regular' prices." (Id. ¶ 97) For example, the Nectar website regularly advertises the same "sale" "differently depending on the season (e.g., 'Tax Return Sale!' 'Fall Sale,' 'Halloween Sale,' and others)," when in fact the purported "sale" price is the prevailing price of the product and not a limited-time offer. (Id. ¶ 98) The DreamCloud website advertises "sales" in a similar fashion. (Id. ¶ 102) Plaintiff further alleges that Defendants "have never sold and do not intend to sell" their mattresses "at the purportedly 'former' price[s]" listed on their websites. (Id. ¶¶ 100-01, 103)

6. Injury

Plaintiff alleges that Defendants' deceptive and misleading advertisements have harmed Casper and the public. (Id. ¶ 108) Consumers who otherwise might have purchased Plaintiff's mattresses "have been deceived into purchasing Defendants' products through Defendants' false and misleading advertisements," resulting in Plaintiff suffering millions of dollars in lost sales and reputational harm. (Id. ¶ 109-11) The public was harmed by "the deception imposed on consumer purchasing decisions" and "consumers' inability to find honest and independent reviews in a potentially opaque marketplace." (Id. ¶ 112)

7. Causes of Action

The SAC pleads claims for false advertising in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and alleges deceptive acts and practices in violation of Sections 349-350 of the New York General Business Law ("NY GBL"). (Id. ¶¶ 113-140)

B. Defendants' Counterclaims

Defendants allege that Plaintiff has engaged in deceptive and unfair conduct to increase its sales at the expense of Defendants Nectar and DreamCloud online mattress business, including by "using [Plaintiff's] financial influence over mattress review sites to drive consumers to Casper, manipulating the number of its customer reviews, and manipulating the substance of those reviews." (Counterclaims (Dkt. No. 20) ¶ 1)

1. Website Manipulation

Defendants allege that on April 29, 2016, Plaintiff sued three mattress review sites - Sleepopolis, Mattress Nerd, and Sleep Sherpa - for unfair advertising. According to Plaintiff, Defendants brought the lawsuit in order "[t]o coerce review sites . . . to remove or change their less favorable reviews [of Defendants' mattresses]." (Id. ¶ 16) Mattress Nerd and Sleep Sherpa entered settlements with Defendants and removed their reviews of Plaintiff's mattresses. (Id.) Plaintiff then "provided a loan to a subsidiary of a third company in the mattress review space [ - JAKK Media - whose reviews were] favorable to Casper . . . to purchase the Sleepopolis site." (Id. ¶ 17) Two weeks later, Sleepopolis "radically changed its review of Casper, ranking it first in its list of recommended mattress[es]." (Id.) JAKK Media had also purchased two other review sites, MattressClarity and SlumberSage, which soon changed their reviews of Casper mattresses, making the reviews more favorable to Plaintiff's products. (Id. ¶ 18) According to Defendants, the review changes were the result of Plaintiff's "financial influence over these sites." (Id. ¶ 19)

2. Review Manipulation

Defendants also allege that Plaintiff manipulated "Google and Amazon reviews [of Plaintiff's products to] create[] the false and misleading impression that its mattresses havereceived both more reviews and stronger reviews than they actually have." (Id. ¶ 22) According to Defendants, "as of July 10, 2018, Google Shopping did not have a single review of Casper.com after December 20, 2017." While Google has 30,197 reviews of Casper.com products - with an average rating of 4.9 stars - many of the five star reviews have no comments, while many of the one, two, and three star reviews have comments. (Id. ¶ 20) "[T]he independent website ReviewMeta.com, which...