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Macy’s, MSLO, Penney’s Enter Mediation

The trial will continue on April 8 should the parties be unable to come to a settlement.

NEW YORK — Mediation is the buzzword.

This story first appeared in the March 8, 2013 issue of WWD.  Subscribe Today.

Following a four-hour recess Thursday in which New York Supreme Court Judge Jeffrey Oing pressed Macy’s Inc., Martha Stewart Living Omnimedia Inc. and J.C. Penney Co. Inc. to reach a settlement in the three-week contract dispute trial, the judge called for a period of mediation in the highly publicized case. The trial will continue on April 8 should the parties be unable to come to a settlement.

“It’s reached a critical point in this trial where I believe it’s time for the business people to take a step back and think about perhaps maybe they can take some common ground,” Oing said. “It is, in my mind, necessary.”

Oing had asked Macy’s chairman, president and chief executive officer Terry J. Lundgren to call MSLO chairman Martha Stewart during the four-hour break. The two spoke for the first time since their phone call on Dec. 6, 2011, when Stewart told Lundgren that she had inked a deal with rival Penney’s to sell Stewart-branded and unbranded home goods in its stores — and Lundgren infamously hung up on her. That deal, Macy’s contends, is in violation of its 2006 contract with MSLO to exclusively sell certain Martha Stewart-branded goods.

“I want to thank Mr. Lundgren for accommodating the court with a call. I appreciate that very much so in this very intense dispute that we’ve had here,” Oing said. “Also Ms. Stewart for taking the call, I think that was very good for her, too. Suffice it to say we’re still here.”

RELATED STORY: Charles Koppelman Talks Martha Stewart >>

A spokeswoman from MSLO said the conversation between Stewart and Lundgren was “productive,” adding that her company viewed “today’s actions as a positive step forward” and it “welcomed a prompt and fair resolution.”

While the three parties couldn’t come to a settlement Thursday, Penney’s lawyer said that, until April 8, his client would agree that it will “not place for sale or stock the shelves with any of the product provided by MSLO in the exclusive product categories [deemed by the Macy’s-MSLO contract]…branded or not.”

That issue had been hanging over the court all week, as Oing was preparing to listen to arguments Friday on whether to extend Macy’s preliminary injunction to include any products designed by MSLO for Penney’s. When the judge issued the injunction last summer, it effectively stopped Penney’s from selling Martha Stewart-branded goods in its stores this spring. Judge Oing had been mulling over whether it should include wares designed by Stewart but re-branded with the “JCP Everyday” and “double-house” logo. While Macy’s, Penney’s and MSLO are in mediation talks, the judge will have a month to think over that decision, but he will do so begrudgingly.

“I’ve been sitting on this case for almost three weeks. I’ve heard a great deal of testimony,” Oing said. “I think we are getting to a point where we’re getting very close to where I believe is a moment we all don’t want to get to. I’ve been thinking very hard about this case. I believe that we live in a free market society…the best decisions are made by the business people.”

RELATED STORY: Judge Talks Injunction at Macy’s Trial >>

Oing said while he doesn’t want to make a decision in the case, he “won’t have a hard time deciding this case” if he has to, but emphasized that it would be better “for the retail industry” if this was handled by the companies involved.

He further explained that the case is far from over. Macy’s is still putting on its side of the case, and although the court has seen sometimes emotional, eye-opening and entertaining testimony from Lundgren, Stewart and Ron Johnson, Penney’s ceo, he said, “There’s still a lot of testimony to hear and a lot of evidence to consider.”

Oing also cautioned Macy’s from thinking it’s “prevailing” on some of its points.

It “may well be that” Macy’s is “prevailing on some proverbial battles but ultimately that is no guarantee that you are winning the war in this case,” he told counsel for Macy’s.

With that, the judge instructed the attorneys to put in an application for mediation, adding “you folks have got to sit down and talk hard about it.”

What preceded this decision was revealing testimony from Charles Koppelman, a former MSLO chairman and ceo, who talked about his relationships with both Lundgren and Stewart. Even Koppelman thought the trial had gone on too long, when, unprompted, he blurted out that it was “never ending.”

Following his brief one-hour testimony, lawyers from all sides were called into the judge’s chambers and told to return at 3:30 p.m. When they did, there seemed to be a palpable sense of relief in the courtroom, as conversations veered from the all-consuming case. Waiting for Oing to emerge from his chambers and give the news of the mediation, lawyers from Penney’s chatted about living in Los Angeles and the coyote problem there. One Penney’s lawyer recounted that his small dog had been eaten by a coyote.

“There are three things to fear in life — earthquakes, skin cancer and coyotes,” the lawyer said.

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