Penney Loses Suit, Gets A Tongue Lashing

JC Penney not only lost the case brought against it by Macy’s for cutting a merchandising deal with Martha Stewart Living Omnimedia, it also got a finger-wagging lecture about engaging in “adolescent hijinks in the worst form” yesterday from the New York State Supreme Court judge who heard the case. 

Penney executives “displayed ‘sophomoric,’ even ‘childish behavior’ that is ‘unbecoming of top executives at a major corporation,’” Justice Jeffrey Oing wrote in a 63-page decision, the New York Post’s James Covert reports. “The judge noted that [former CEO Ron] Johnson, fired in April 2013, was ‘a casualty of his own hubris.’”

You can see why the headline on a Law360 profile last month referred to Oing as “the No-Nonsense New Yorker” who has worked his way up in the bare-knuckled New York political and court system. “Oing says the core of his pragmatic sense of justice was forged not in the granite walls of the courthouse but out on the streets among his fellow New Yorkers,” wrote Gavin Broady.

His in-your-face demeanor was on full display yesterday as he scolded Penney in general and Johnson in particular, who had planned to open Stewart “stores within the store” as it has done with brands such Joe Fresh and Sephora — “a partnership that has remained a success for Penney,” as USA Today’s Hadley Martin reported last month in a piece reviewing its surprisingly strong first-quarter results. 

Oing singled out an email Johnson sent Penney director William Ackman about putting Macy’s CEO Terry Lundgren “in a corner” and cited messages between “Johnson and other officers and directors of the company joking about the Macy’s reaction to their own Stewart deal,” as Bloomberg’s Chris Dolmetsch reports.

But it all came back to bite them big time, and Johnson was canned in favor of former CEO Myron E. Ullman III in April 2013. “Activist Investor” Ackman subsequently sold his 18% stake in the company at a hefty loss — nearly $500 million — as CNNMoney’s Hibah Yousuf reported last August.

“JCP, its board of directors and its top executives were publicly ridiculed and humiliated as a consequence of this trial. Their grand strategy was a colossal and abject retail failure,” according to Oing. “I find that these significant facts are a sufficient deterrent to JCP and other companies from acting in a similar way in the future.”

But the protracted proceedings aren’t over yet. Oing ruled that the issue of any damages and/or attorney fees accumulated over the two years of the dispute be addressed by a judicial hearing officer or a special referee, reports the AP’s Anne D'Innocenzio, finding that “Macy's failed to prove that Penney was liable for punitive damages since [its] actions weren't ‘malicious’ or ‘immoral.’”

Oing did suggest “Penney might be liable for profit from the sale of 900 designs that Martha Stewart Living prepared, some of which Penney had sold under the ‘JCP Everyday’ label while the case was pending,” reports Reuters’ Karen Freifeld.

“At the root of the dispute was a December 2011 agreement between Penney and Martha Stewart Living Omnimedia to sell an array of her home products, like rugs and bath towels, in Penney’s stores,” the New York Times’ Hilary Stout reminds us. “Macy’s sued both companies, contending that the pact violated a five-year-old deal it already had to sell many of the same housewares exclusively.”

Macy’s and Stewart settled earlier this year. Terms were not disclosed but their partnership is in reconciliatory mode.

In response to the ruling, Cincinnati-based Macy’s predictably gloated while Penney pouted.

“We are delighted, but certainly not surprised, that the court has found tortious interference by JCP,” said the Plano, Texas-based retailer, reports the Dallas Morning News’ Maria Halkias. “It is a great shame that Macy’s had to expend time, money, and the diversion of its resources in order to protect its rights. We look forward to the damages phase of the case.”

Penney, meanwhile, is considering its options for an appeal, it said in a statement.

“While we appreciate the court’s efforts in this multi-year litigation, we respectfully disagree with and are disappointed by this outcome,” it said. “The company does not believe that money damages are warranted and will defend against any damages awarded….”

Alas, one option it does not have is that grand tradition of New York street games, the “do-over.”

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