Judge rules J.C. Penney 'interfered' in Macy’s/Martha Stewart deal; damages pending

New York -- In a long-awaited ruling  handed down Monday by the New York State Supreme Court, J.C. Penney has been found to have "tortiously" interfered with Macy’s 2006 contract with Martha Stewart Living Omnimedia when Penney entered into its own contract with Martha Stewart in 2011.

However, according to Justice Jeffrey K. Oing, Macy’s failed to prove that it is entitled to punitive damages. The 63-page ruling has ordered that both parties move the matter of Macy’s damages and attorney’s fees to a judicial hearing officer or special referee.

Macy’s filed suit against Penney in mid-2012, accusing the retailer of infringing on Macy’s pre-existing exclusive contract with Stewart to sell her branded goods in-store and online. Penney, under the leadership of then-CEO Ron Johnson, acquired a 17% stake in Martha Stewart Living in late 2011 and was leveraging Stewart’s star power to help revive flagging sales at the department store chain.

In January 2012, Macy’s sued Martha Stewart Living for breach of contract, and then filed suit against J.C. Penney in August.

“The uncontested facts underscore how ’over the top’ Mr. Johnson’s and his team’s conduct and relentless efforts were in JCP’s pursuit of MSLO and Ms. Stewart — conduct and efforts that the JCP board endorsed,” Oing wrote in his ruling. “The preponderance of the evidence compels me to find that JCP’s ‘inducement exceeded the minimum level of ethical behavior in the marketplace,’ and as such, was improper.”

J.C. Penney had already made moves to roll back its agreement with Martha Stewart Living and, in October, announced an amended deal that stopped the production of any products that were exclusive to Macy’s.  The agreement also shortened the partnership duration, ending it in 2017 instead of 2021.

Responding to today’s ruling, Macy’s issued the following statement: “We are delighted, but certainly not surprised, that the court has found tortious interference by JCP. It is a great shame that Macy’s had to expend time, money, and the diversion of its resources in order to protect its rights. We look forward to the damages phase of the case.”

J.C. Penney said it is considering it is options for appeal.


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