Industry News: Mattress Firm suit details $10 million payment to Tempur Sealy


This article has been republished with the permission of Furniture Today.

Words: David Perry

HOUSTON — Mattress Firm agreed to pay Tempur Sealy International $10 million to ensure that it would continue to accept orders from the retailer through April 3, according to a lawsuit Mattress Firm has filed against Tempur Sealy.

The March 30 suit, followed about a week later with a suit from Tempur Sealy against Mattress Firm, provides details of the unraveling relationship between the two companies that ultimately led them to part ways after nearly two decades of cooperation.

The $10 million payment was part of an agreement that Mattress Firm and Tempur Sealy officials reached on Jan. 30 to keep the companies doing business together for a few more months following the news that Tempur Sealy was ending its relationship with Mattress Firm.Tempur Sealy announced on Jan. 30 that it had issued formal termination notices for all of the company’s brands to Mattress Firm as of Jan. 27. It said it anticipated then that it would cease doing business with Mattress Firm during the first quarter of 2017.

The Mattress Firm suit, which alleges that Tempur Sealy violated written agreements and interfered with Mattress Firm’s customer relationships, provides a look at what happened behind the scenes during that time, from the Mattress Firm point of view.

The Tempur Sealy lawsuit alleges that Mattress Firm has failed to honor an agreement the parties reached on Jan. 30 to continue their business relationship to early April. As part of that agreement, Mattress Firm agreed to the $10 million payment to Tempur Sealy, Mattress Firm said.

Analyst John Baugh of Stifel referenced that payment in a recent report on Tempur Sealy.

“It is officially out that Tempur Sealy received a $10 million payment from Mattress Firm in the first quarter to ‘amend’ the agreement and allow Mattress Firm to sell Tempur-Pedic and Sealy branded products through April 3,” Baugh wrote.

The Mattress Firm lawsuit said that $10 million payment would be made no later than Feb. 28 to ensure that Sealy and Tempur-Pedic would continue to accept orders from Mattress Firm through April 3, fulfill and deliver orders on a timely basis at the locations and dates specified in the orders, and provide return credits for products that were returned before Jan. 30.

In connection with the letter agreements, Sealy and Tempur-Pedic informed Mattress Firm that they had elected not to exercise their right to repurchase Tempur Sealy products from Mattress Firm at the conclusion of the transition period and that Mattress Firm was responsible for the sale or disposal of all remaining inventory, the Mattress Firm lawsuit said.

It says that Sealy and Tempur-Pedic have not honored that Jan. 30 agreement. Shortly after signing it, Sealy and Tempur-Pedic stopped accepting certain product orders, delayed fulfilling product orders and refused to complete the return process for product returns made before Jan. 30, the suit says.

In addition, the suit says, on or about March 3, Sealy and Tempur-Pedic stated for the first time that they would not ship any products, including any open back orders, after April 3. That meant that Mattress Firm had to prematurely stop selling Tempur-Pedic and Sealy products to ensure all products would be shipped before that date.

Also, the suit continues, Sealy and Tempur-Pedic have taken steps to put Mattress Firm at a competitive disadvantage during the transition period by seeking at every turn to censor Mattress Firm’s advertising efforts by repeatedly accusing Mattress Firm of violating brand standards applicable to its advertising of Tempur Sealy products.

“These accusations were based on a discriminatory interpretation of the brand standards that Sealy and Tempur-Pedic do not apply to Mattress Firm’s competitors and that go beyond the express language of the standards,” the suit says. “The thrust of their actions has placed Mattress Firm at a competitive disadvantage as the company tries to sell off its remaining Tempur Sealy inventory. And now, Sealy and Tempur-Pedic have informed Mattress Firm that the only intellectual property that may be used by Mattress Firm in the sale of remaining inventory is the product label stitched or otherwise affixed to the product itself.”

The suit says elsewhere that Tempur Sealy is taking “the absurd position” that the label affixed to the product is the only intellectual property contract right that Mattress Firm is allowed to use while it sells off its remaining inventory.

Tempur Sealy officials said they would not comment on issues raised in the Mattress Firm lawsuit because the issues are in litigation.

In its lawsuit, Tempur Sealy says that the Jan. 30 agreement the parties reached requires Mattress Firm to cease and desist from the use of Tempur Sealy trademarks by no later than April 3. But after that date Mattress Firm has failed, as promised, to take down all signs in its stores referring to Tempur-Pedic or Sealy, has failed to remove all references to Tempur-Pedic and Sealy from its website, and has failed to cease all advertising referring to Tempur-Pedic and Sealy, the Tempur Sealy suit says.