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Federated Brandishing Lawsuit at Zale Over Hiring Dinicola as its Chairman, CEO

NEW YORK -- Angered over the loss of another top executive, Federated Department Stores is threatening to sue Zale Corp. for hiring Robert J. DiNicola as its chairman and chief executive, sources said Wednesday.<BR><BR>DiNicola resigned last month as...

NEW YORK — Angered over the loss of another top executive, Federated Department Stores is threatening to sue Zale Corp. for hiring Robert J. DiNicola as its chairman and chief executive, sources said Wednesday.

DiNicola resigned last month as chairman and ceo of Federated’s Bon Marche division in Seattle and is scheduled to join Zale on Monday.

Federated is also reportedly threatening to sue Robert E. Kerson, a leading executive search consultant with the firm Levy & Kerson Associates, who placed DiNicola at Zale.

“For the moment, I can’t comment,” Kerson said Wednesday.

Neither Federated officials nor DiNicola could be reached for comment.

Including DiNicola, Federated has lost three division heads to other retailers in the last year. Carl Tooker, former ceo of the Rich’s division in Atlanta, joined Specialty Retailers in Houston. Roger Farah, former ceo of Federated Merchandising, is set to join R.H. Macy & Co. in July, as president and chief operating officer. All these executives reportedly left Federated to take higher-paying retail positions with major equity opportunities. In addition, sources said, some Federated senior executives have been concerned about the company’s recent moves toward greater centralization of merchandising and other operations and a loss of independence at the division level.

Another key Federated executive, Chaim Edelstein, former ceo of Abraham & Straus/Jordan Marsh, left in February. He has not announced his plans. Last year, Federated sued Macy’s for recruiting Farah, claiming that a non-compete clause in Farah’s contract prevented him from joining Macy’s until July 1996. A settlement was reached whereby Farah can join Macy’s on July 1, but Macy’s must pick up Farah’s estimated $1 million salary through June 30.

The DiNicola dispute appears to be raising different issues.

A source said Federated is alleging “a tortious interference by Zale with DiNicola’s relationship with Federated.” DiNicola had a contract with Federated that would have expired in July 1995.

Reportedly, Federated is arguing that DiNicola, by breaking his contract, cut Federated’s chances for profit opportunities at The Bon due to the disruption in the chain of command. Federated might also be looking for damages related to relocating DiNicola from Atlanta to Seattle, where the Bon is based. Before the move, he was a senior vice president at Rich’s, a division of Federated in Atlanta. Zale, observers point out, could argue back that The Bon, one of the strongest Federated divisions, has been bolstered by the 1992 liquidation of Frederick & Nelson, a competitor, and the improving Northwest economy. The company could also argue that DiNicola was amenable to offers and had limited advancement opportunities at Federated, sources said.

Zale, a retailer that operates jewelry stores and leased shops, is not considered a direct competitor to Federated.

Whether Federated sues or seeks a settlement, it seems determined to send a strong message that if other retailers recruit from Federated’s ranks, it could be costly.