Martha Stewart Gets One Claim Tossed in Macy’s Lawsuit

Martha Stewart Living Omnimedia Inc. persuaded a judge to reject a “secondary” claim in a breach-of-contract lawsuit by Macy’s Inc. over the exclusive right to sell Martha Stewart-branded products in its stores.

Martha Stewart Living didn’t violate the confidentiality requirement of its Macy’s contract by disclosing it to rival J.C. Penney Co., New York State Supreme Court Justice Jeffrey Oing ruled today. The judge is hearing motions by the three retailers after the conclusion of Macy’s case. If any part of the lawsuit survives, Martha Stewart Living and J.C. Penney may be forced to present a defense. Afterwards, the judge will deliver a verdict in the non-jury trial.

Tomorrow, Oing is to hear Martha Stewart Living’s arguments that he dismiss Macy’s more central contract claim. J.C. Penney, which is also being sued by Macy’s for carrying some Martha Stewart products, will seek dismissal of Macy’s claims, and Macy’s will seek to extend Oing’s preliminary injunction.

Macy’s seeks to include a bar on the retailers’ sale of unbranded products, in certain exclusive categories, designed by Martha Stewart Living.

The three sides returned to court this week to resume a trial of Macy’s lawsuits following a month-long break, during which mediation efforts ordered by Oing were unsuccessful. The trial, which began Feb. 20, has featured testimony from Martha Stewart, Macy’s Chairman Terry Lundgren and former J.C. Penney Chief Executive Ron Johnson, who was ousted the same day the trial resumed.

Contract Term

In ruling on the contract term, the judge said Martha Stewart Living’s disclosure of details of its contract with Macy’s was “proper” as it was obligated to provide J.C. Penney with the information because of its $38.5 million investment in the company.

“The Macy’s contract had to be turned over under those circumstances,” Oing said, adding that Martha Stewart Living took steps to limit disclosure of sensitive details.

The judge’s ruling is “clearly in error,” Theodore Grossman, an attorney with Jones Day representing Macy’s, said after today’s hearing.

Macy’s plans to appeal as soon as tomorrow and expects “clear, prompt and certain reversal,” he said.

“This as the judge indicated was a secondary matter but is nonetheless important to us,” Grossman said.

Acquired Stake

J.C. Penney in December 2011 acquired a 17 percent stake in Martha Stewart Living for $38.5 million.

Macy’s, which has sold Martha Stewart-branded home goods since 2007, sued her company in January 2012, saying it had the exclusive right to sell items in certain categories including bedding and cookware. Macy’s sued J.C. Penney about three months later.

Lawyers for Macy’s have argued that J.C. Penney is trying to “reap the rewards” of its work with the Martha Stewart brand, which the chain said it rebuilt after Stewart’s release from prison in 2005, when her products were sold at Kmart.

Martha Stewart Living has defended its agreement with J.C. Penney, accusing Macy’s of breach of contract and saying the retailer stocked and priced Martha Stewart products in a manner that favors private-label brands.

Martha Stewart Living also said Macy’s couldn’t have exercised a five-year renewal option in January 2012 because of the breach.

Plano, Texas-based J.C. Penney rose 16 cents to $14.09 in New York Stock Exchange trading. Cincinnati, Ohio-based Macy’s rose 69 cents to $44.36. New York-based Martha Stewart Living rose 10 cents to $2.42.

The cases are Macy’s Inc. v. Martha Stewart Living Omnimedia Inc., 650197/2012; Macy’s Inc. v. J.C. Penney Corp., 652861/2012, New York State Supreme Court (Manhattan).

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