Home Run for Macy’s in Martha Stewart Case

(CN) - Though it interfered with an exclusive Martha Stewart design deal, J.C. Penney does not owe Macy's punitive damages, a New York appeals court ruled.

Macy's had signed the contract in 2006 for exclusive rights to products designed by Martha Stewart Living Omnimedia in the categories of bedding, housewares, bathware and cookware.

J.C. Penny entered the mix when Stewart's company needed capital in 2011. To avoid violating the Macy's contract, J.C. Penney proposed that it set up miniature Martha Stewart retail stores located entirely within existing J.C. Penney stores.

Another provision of the deal required Stewart's company to provide J.C. Penney with the Macy's contract, as well as "the confidential information regarding Macy's royalty arrangement, product manufacturing and distribution information, and other material which JCP admitted at trial was highly confidential and essentially constituted trade secrets," according to a Feb. 26 appellate ruling on the case.

Macy's brought suits against Stewart's company and J.C. Penney in 2012, and a trial ended with a Manhattan judge finding that J.C. Penney tortiously interfered with the exclusivity provision of Macy's contract with Martha Stewart Living Omnimedia.

J.C. Penney appealed, as Stewart's company reached a confidential settlement with Macy's.

A three-judge panel with the Appellate Division's First Department affirmed, upholding the trial court's determination "that JCP's 'relentless' efforts to pursue MSLO and Ms. Stewart were 'over the top' and had 'exceeded the minimum level of ethical behavior in the marketplace,' and that by its conduct, it had wrongfully induced MSLO to breach its contract with Macy's."

In a further victory for Macy's, the appellate panel revived two claims of Macy's that the trial court had dismissed - tortious interference with contract and unfair competition.

"The evidence on this record clearly showed that JCP intended to, and did in fact, use its financial leverage over MSLO to obtain this information," Justice John Sweeny wrote for the five-member panel.

Sweeny also emphasized the claims that "JCP misappropriated Macy's expenditures and labors in obtaining, developing and selling approximately 900 of MSLO's designs in the exclusive product categories to which Macy's was exclusively entitled."

J.C. Penney told The New York Times it was pleased that the appeals court will not let Macy's seek punitive damages. Macy's spokesman Jim Sluzewski meanwhile called the ruling a "resounding victory."

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