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Judge rules JCPenney interfered with Macy’s contract

June 22, 2014
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The Martha Stewart product drama continues

A New York State Supreme Court judge ruled in favor of Macy’s who claimed J.C. Penney interfered with an exclusive merchandising contract Macy’s held with Martha Stewart Living Omnimedia Inc., when J.C. Penney cut a deal, in 2011, to create a collection of home goods. However, the judge, Jeffrey Oing, also stated Macy’s failed to prove that J.C Penney was liable for punitive damages since the actions were neither “malicious” nor “immoral.”

According to the Washington Post, Oing stated: “Macy’s should not be awarded punitive damages since such damages are only proper if Penney’s conduct in ‘perpetrating the tortious interference of contract was wanton, reckless, malicious, and evinced a high degree of immorality.’”

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Macy’s is however, entitled to attorney’s fees and other damages from JCP relating to the selling of a line of bath towels, pots, and other products that were designed by Martha Stewart, but sold under the JCP Everyday name, as this violated the exclusive contract Macy’s held with Martha Stewart. The exact amount of damages has yet to be determined as Judge Oing ordered those issues to be addressed by a judicial hearing officer, or a special referee.

Macy’s says they had to protect their rights

Oing noted in the 63-page decision that the preponderance of evidence demonstrates that JCP’s top executives were “less than admirable.” Perhaps he is referring to the move JCP made last fall to scale back its promotion of Martha Stewart merchandise. For some reason, most likely they felt the pressure looming from violating the exclusive contract; they opted to stop selling home and bath products and opt to sell party supplies, window treatments, and other items not covered by the exclusively held Macy’s contract.

The agreement was reached by JCP’s returning CEO, Mike Ullman as a means to fix the previous CEO, Ron Johnson’s mistakes. Johnson had signed a 10-year deal with Martha Stewart in December of 2011 as a way to reinvent the store, but was sued a mere month later by Macy’s. (Macy’s sued Marth Stewart Living Omnimedia as well).

Macy’s released the following statement: “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.” I think JCP should be saying the same thing. They invested nearly $40 million in preparations for distributing the Martha Stewart brand and instead of making money and reinventing their brand; they will be paying attorney fees and monetary damages to Macy’s. This is proof that a CEO can make or break your company.

JCP is considering options for an appeal, stating, “[they] respectfully disagree with and are disappointed with this outcome.”

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