Martha Stewart Living Omnimedia Loses Bid to Dismiss Macy’s Claims

Michael Teague |

New York State Supreme Court judge Jeffrey Oing turned away Martha Stewarts attempt to dismiss the suit currently being brought against her company by Macy’s (M) department stores.

In 2006, Martha Stewart Living Omnimedia (MSO) and the department store Macy’s signed an agreement that gave Macy’s the exclusive right to sell household products bearing the Martha Stewart brand. The contract extends to 2018.

Macy’s is claiming that MSO was in violation of that agreement when it signed a deal last year with struggling department store rival J.C. Penney (JCP) to open Martha Stewart boutiques in its retail locations. Macy’s subsequently filed suit against both companies.

Stewart and JCP’s defense against the accusation is that a loophole in the contract allowed Martha Stewart Living to sell its own products outside of a Macy’s, provided that this was done in a stand-alone store.

The court decision comes ahead of Friday’s ruling which will decide whether or not to temporarily block J.C. Penney from being able to sell the products designed by Martha Stewart Living that were slated for sale under Penney’s “JCP Everyday” label. The decision is a crucial one for J.C. Penney, especially considering analyst estimates that $100 million worth of inventory is already waiting to be loaded onto shelves.

For Penney, the Martha Stewart deal was part of now former “turnaround” CEO Ron Johnson’s plan to fundamentally change the company’s aesthetic and sales-architecture, as well as maximize profits from renting more of its floor space to various popular brands.

Johnson’s plans cost J.C. Penney dearly, as sales fell by 25 percent in 2012, and the company’s stock tanked. He was forced to resign this week, and has been replaced by his predecessor Mike Ullman.

J.C. Penney was ended the day with a gain of 5.46 percent, closing at $14.86, while Macy’s dropped a slight 0.11 percent to $44.31, and Martha Stewart Living Omnimedia was up 1.65 percent to close at $2.46.

Judge Oing entreated all parties to resolve the matter out of court, saying that it was a business deal into which the courts should never have been dragged.

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