Penney-Martha Stewart Deal Violated Contract With Macy's: Court

(RTTNews) - A New York Court Judge ruled as improper and unethical, a 2011 merchandise deal between J.C. Penney (JCP) and Martha Stewart Living Omnimedia Inc (MSO) that violated an earlier deal with Macy's (M).

The issue erupted after Martha Stewart, in late 2011, agreed to make bedding and other products for Penney, which was then headed by Ron Johnson. But in a 2006 deal, Macy's had signed with Martha Stewart for the exclusive sale of the products in question.

Justice Jeffrey Oing of state Supreme Court in Manhattan said that Penney's efforts to secure a deal with Martha Stewart were unethical. The Judge however exempted Penney from punitive action over the matter.

Oing said that while Macy's is entitled to monetary damages and attorneys' fees, it failed to prove its eligibility for punitive damages. Any claims for lost profit will be referred to a special referee, Oing added.

Penney in December 2011 acquired a 17 percent stake in Martha Stewart Living for $38.5 million as part of Johnson's efforts to turnaround Penney, which envisaged new mini-stores housing brands including that of Martha Stewart's.

Macy's sued Martha Stewart Living, citing that the 2006 deal gave it exclusive right to sell Stewart-branded goods in categories including bedding, kitchen textiles, among others. Macy's also sued Penney in August 2012.

Meanwhile, sagging sales led to Johnson's exit and Penney once again roped in Myron Ullman as CEO, who undid many of the changes effected by Johnson.

Penney said in October it was rolling back the deal with Martha Stewart Living and prematurely end the partnership in 2017.

Macy's in January indicated settlement of its case with Martha Stewart, while Penney in a regulatory filing last month said it did not expect the final resolution of the issue to materially impact its operations and financial position.

J. C. Penney stock closed Monday at $8.64, up $0.03 or 0.35%, on a volume of 9 million shares on the NYSE. In after hours, the stock gained 0.58%.