Updated at: 08/01/2013 4:35 PM
By ANNE D'INNOCENZIO
(AP) NEW YORK - After a three-month break, attorneys for J.C. Penney Co. and Macy’s Inc. squared off in a New York court Thursday as they presented closing arguments in a contract dispute case centered on their partnership with home maven Martha Stewart.
Mark Epstein, one of the lead attorneys representing Penney, told New York State Supreme Court Judge Jeffrey Oing that if Macy’s wanted to prevent others from selling goods in its exclusive categories like pots and bath items, it should have written a better contract.
And Theodore Grossman, who represents Macy’s, said Penney was using any excuse to hide the reality that it intentionally interfered with Macy’s contract with Martha Stewart when it signed a merchandising deal in December 2011.
"It’s been a long trial. But what it comes down to is a poorly written contract," argued Epstein. "Time has come to put an end to this case."
Grossman argued that Penney, based in Plano, Texas, aggressively induced Martha Stewart Living Omnimedia to breach the contract and that the contract is clear that Macy’s has the right to all the designs created by the home maven in the exclusive categories, not just specific products.
"J.C. Penney knew exactly what it was doing when it entered into the contract," said Grossman. "Their intention was to harm Macy’s."
Oing promised he would make a ruling on whether Macy’s has exclusive rights to sell certain merchandise including bed, bath and kitchenware items "soon," but he said it wouldn’t be Friday. The decision would cap a closely watched trial that began in February but continued in fits and starts because of vacation schedules and other interruptions. At one point, Oing even ordered the parties into mediation in March, but that was unsuccessful.
The trial featured testimony from Macy’s CEO Terry Lundgren, former Penney CEO Ron Johnson, and Martha Stewart herself. Johnson appeared on the stand just a month before he was fired as Penney CEO, 17 months into his tenure.
Cincinnati-based Macy’s Inc. sued Penney and Martha Stewart Living Omnimedia Inc. for violating an exclusive deal between the home maven and Macy’s when Penney signed its own agreement with Stewart in 2011.
Macy’s is suing Penney for what it believes was intentional interference with Macy’s contract with Martha Stewart. It is seeking not only to block Penney from opening mini boutiques filled with Martha Stewart-branded goods in certain categories, but also to prevent it from selling designs created by Martha Stewart that do not carry her name. The company also seeks monetary damages.
One of the loopholes Martha Stewart and Penney have focused on is a provision in the contract that allows Martha Stewart to sell goods covered by the exclusive pact in Martha Stewart Living’s own stores. Penney and Martha Stewart have argued that since the Macy’s contract does not specify that the stores have to be stand-alone, the mini shops within Penney aren’t barred by the exclusivity agreement.
"That definition that Macy’s wrote just stinks," Epstein argued.
The stakes are high for all three players, but particularly for Penney, which has been counting on a revamped home area launched this spring to help it rebound from a disastrous year. The company amassed nearly a billion dollars in losses and its revenue dropped 25 percent for the fiscal year that ended Feb. 2 as a transformation plan spearheaded by Johnson built around a new pricing and merchandising strategy failed. Losses and sales drops continued into the first quarter, as the shadow of Johnson’s legacy remained.
Penney’s board brought back its CEO Mike Ullman who has reintroduced frequent sales events and basic merchandise that Johnson eliminated in a failed bid to attract trendier, wealthier customers. But while traffic is improving, analysts believe business is still slow. Even the home area, which was Johnson’s project and features a slew of trendy new names like Jonathan Adler and Michael Graves, has failed to resonate with shoppers, analysts say.
A new round of worries about Penney’s financial situation cropped up Wednesday after a report that CIT Group Inc., the largest lender in the clothing industry, has stopped providing financial support to small and large suppliers selling to Penney stores for now. Penney said that the report was untrue and that CIT backed shipments for less than 4 percent of its merchandise anyway.
In July 2012, Macy’s won a preliminary injunction against Martha Stewart Living that would prevent it from selling Martha Stewart-branded housewares and other exclusive products at Penney. A month later, the judge granted permission for Penney to open Martha Stewart shops as long as the items under exclusive contract with Macy’s are not sold.
Penney went ahead and ordered goods designed by Martha Stewart in the exclusive categories but sidestepped the preliminary ruling by labeling them JCP Everyday. Macy’s tried to get the judge to halt the sale of the JCP Everyday goods until he made his final ruling, but he declined and allowed Penney to sell the goods that were already made.
The JCP Everyday collection hit the stores in May. As part of the final ruling, Oing will decide whether Macy’s contract does cover exclusivity in designs even if the items don’t carry the Martha Stewart name.
Penney is carrying Martha Stewart-branded items in party supplies and window treatments, areas not covered by Macy’s contract.
(Copyright 2013 by The Associated Press. All Rights Reserved.)