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Macy’s Claims ‘Hostage’ Situation With Martha Stewart

Department store said the home goods company's deal with J.C. Penney puts it in a tough spot.

While Macy’s Inc. is accusing Martha Stewart Living Omnimedia Inc. of taking it “hostage” with its deal to establish a beachhead in J.C. Penney Co. Inc., the legal battle between the two firms might help better establish the definition of a store — or at least put lawyers on their guard that it’s up for debate.

This story first appeared in the February 16, 2012 issue of WWD.  Subscribe Today.

Macy’s sued Martha Stewart last month for breach of contract after the home goods company inked a deal to sell branded products in Penney’s shops-in-shop. Martha Stewart’s lawyers have argued that the company has the right to sell its products in shops-in-shop at Penney’s, noting that a Martha Stewart store is “any retail store branded or operated by MSLO or an affiliate of MSLO or that otherwise prominently features Martha Stewart marks or Stewart property.”

In an amended complaint filed with New York state court Tuesday, Macy’s noted that the planned shops “would be operated by J.C. Penney employees, and that all sales would be made by J.C. Penney — i.e., that MSLO is not planning to open or operate independent and distinct retail stores.”

The question of what is a store injects a bit of retail philosophy into what is otherwise a fairly straightforward legal dispute over a contract.

“The fact that the definition of ‘store’ is at issue here could well change drafting going forward on these types of retail collaborations,” said Douglas Hand, attorney at Hand Baldachin & Amburgey, who works with designers, but is not involved in the case. “It may send enough shivers up the spines of legal practitioners to have drafting become more precise anyway, given that the issue’s been raised in such a public fashion.”

MSLO has also claimed that Macy’s breached its contract by failing to “maximize net sales” of Martha Stewart product.

The department store also shrugged that off in the amended complaint. “MSLO’s new assertion that Macy’s has breached the agreement is being made by MSLO in bad faith, is manufactured out of whole cloth, and is by all appearances nothing more than a tactic dreamed up by MSLO’s lawyers to improve MSLO’s litigation or settlement posture,” Macy’s said in the new complaint.

Macy’s, which last month renewed its contract with Martha Stewart and claims its agreement now extends to 2018, said the home goods company has put it in an “impossible situation” and that it doesn’t have enough time to replace the brand before it makes its appearance in Penney’s next February. Martha Stewart has argued that the contract should be deemed “invalid.”

“Replacing MSLO realistically would require at least 16 to 18 months of substantial work by Macy’s, tens of million of dollars, and the effort of hundreds of Macy’s employees,” Macy’s said in the amended complaint. “Simply put, until this court is in a position to issue a final judgment declaring that Macy’s exercise of the renewal option was effective, MSLO is holding Macy’s hostage.”

Macy’s is asking the court to “preserve the status quo” by preventing Martha Stewart from implementing its deal with Penney’s.

Macy’s also pointed out that Martha Stewart has been having “financial problems.”

“If Macy’s prevails on its breach-of-contract claims, MSLO is highly unlikely to have the financial ability to pay any resulting money judgment,” the chain said.

A spokeswoman for Martha Stewart declined to comment on the new court papers.