On March 7, 2013, Judge Oing of the New York County Supreme Court ordered Martha Stewart, Macy’s, and J.C. Penney to mediate their ongoing dispute. If the parties cannot reach an agreement by April 8, 2013, Judge Oing will continue to hear the case.
Macy’s filed suit in February 2012 against both Martha Stewart Living Omnimedia (MSLO) and J.C. Penney, claiming that MSLO was violating a 2006 agreement allowing Macy’s to exclusively sell MSLO bedding, bath, and kitchen products.
In December 2011 J.C. Penney and MSLO had come to agreement on a 10-year partnership, which soon provoked Macy’s ire. J.C. Penney paid $38.5 million for a 16.6% stake in MSLO and a seat on the board of directors. In Macy’s view, the J.C. Penney – MSLO partnership no long made Macy’s the exclusive retailer of MSLO products, an exclusivity to which Macy’s felt entitled by their 2006 Agreement with MSLO.
In a now-legendary phone call which took place late in February 2013, Stewart had called Macy’s CEO Terry Lundgren to tell him about the J.C. Penney deal (the night before J.C. Penney announced it). Reportedly, Lundgren was so appalled he hung up on Stewart.
According to NBC, Lundgren said:
“I was completely shocked and blown away…literally sick to my stomach.”
Apparently, Stewart was attempting to exploit a contractual loophole: the contract between Macy’s and MSLO contained a “carve out provision” which allowed MSLO to sell Martha Stewart’s own products in her own “stores”. MSLO and J.C. Penney argued that the J.C. Penney/MSLO agreement did not violate the Macy’s/MSLO contract because the products would be sold in a “store within a store”. However, the “store within a store” would be located inside a J.C. Penney, one of Macy’s key competitors. It seems that Stewart and J.C. Penney believed that the prior Macy’s contract did not explicitly exclude “shop in shops”.
On July 13, 2012, Macy’s obtained an injunction preventing J.C. Penney from selling MSLO goods until the conclusion of the case. A hearing to determine whether J.C. Penney could sell the MSLO products was cancelled because J.C. Penney will hold off selling the products until at least April 8, 2013.
This will be the first mediation between the parties. Before the trial, MSLO was willing to go to mediation but J.C. Penney and Macy’s were not.
As reported by CNN on March 8, 2013, a spokeswoman for Martha Stewart Living Omnimedia viewed the mediation as a positive development, stating that:
“In advance of the judge’s order that the parties enter into mediation, Martha Stewart and [Macy's CEO] Terry Lundgren had a productive conversation regarding the ongoing contract dispute between MSLO and Macy’s.”
Mediation may turn out to be a prudent first step for the parties, especially if they can find grounds for an amicable compromise or settlement. However, if the parties do not reach an agreement, the case will return to Judge Oing’s courtroom for proceedings which are likely to be somewhat less amicable.