Theodore Grossman ()
Jones Day partner Theodore Grossman didn’t just help Macy’s Inc. win its high-profile bench trial against rival J.C. Penney Co. Inc. over the Martha Stewart brand. He publicly shamed J.C. Penney’s entire leadership for trying to lure Stewart away.
Don’t take our word for it. Just read the decision New York Supreme Court Justice Jeffrey Oing in Manhattan issued on Monday. The judge hasn’t yet decided damages, but he made abundantly clear that J.C. Penney is liable for interfering with a merchandising deal between Macy’s and Stewart’s namesake company, Martha Stewart Living Omnimedia Inc. (MSLO settled on terms favorable to Macy’s after the trial, so it’s not affected by this week’s ruling.)
“J.C. Penney, its board of directors and its top executives were publicly ridiculed and humiliated as a consequence of this trial,” Oing wrote. The “childish behavior displayed by these individuals is unbecoming of top executives of a major corporation, and is nothing to be proud of, particularly given the stakes.”
Macy’s lead lawyer, of course, wholeheartedly agrees. “What J.C. Penney did was pretty awful,” Grossman said in an interview. “We won vindication.”
In 2007 Macy’s inked a deal to sell a line of home goods designed by MSLO. The companies agreed that after five years, Macy’s would have the option of renewing the contract if it wanted.
At the time, it was easy to second-guess Macy’s decision to associate itself with Stewart. She’d been convicted of insider trading and had done prison time. And her brand wasn’t seen as high-end enough for Macy’s, since she had also sold her wares at K-Mart.
The partnership ended up being a big coup for Macy’s, however. Sales of the Martha Stewart Collection increased annually, and it became the retailer’s biggest brand. It looked certain that Macy’s would elect to renew the merchandising deal.
Unbeknownst to Macy’s, J.C. Penney’s then-CEO Ron Johnson met with Stewart in 2011 in hopes of persuading her to sell her products at J.C. Penney as well. J.C. Penney would later argue that such an arrangement was permitted by MSLO’s contract with Macy’s. But the CEO’s emails from the period, which were later produced during discovery, suggested that he perceived the Macy’s partnership as a major obstacle. “Macy’s deal is key,” Johnson wrote to a J.C. Penney board member. “We need to find a way to break the renewal right in Spring 2013.”
Stewart jumped at the chance to partner up with J.C. Penney, perhaps because her media company was hemorrhaging money at the time. But instead of letting its partnership with Stewart lapse, Macy’s renewed it and sued MSLO for breach of contract on a theory that it tried to undermine the renewal right. Macy’s also sued J.C. Penney for tortious interference with contract.
Oing consolidated the suits and held a bench trial last year. Stewart took the witness stand, as did Johnson. Grossman examined all the big witnesses, with assistance from Jones Day partners Robert Faxon, Michael Platt and Louis Chaiten. Mark Epstein of Munger Tolles & Olson was lead counsel for J.C. Penney.
When Johnson was on the stand, Grossman grilled him about his emails from 2011. “Looking back over this time, would you do it over the same way. … Would you follow the same principles?” Grossman asked. Johnson responded, “Yeah, I believe I would.” Reuters reported that Johnson wrung his hands as he responded to Grossman’s questions.
Grossman told us that Johnson’s testimony helped seal J.C. Penney’s fate. “He was a very arrogant witness. And we played on that arrogance,” Grossman said. “I think our opposing counsel really misunderstood how he could be perceived at trial. I think they made a mistake in not having him be more apologetic.”
Macy’s will never get an apology. But barring an appellate reversal, it’ll get money. In his ruling, Oing signaled that he won’t award punitive damages, partly because J.C. Penney has already suffered greatly from the episode. But the judge indicated that he’ll award Macy’s lost profits and attorney fees.
Grossman was cagey about how much his client will seek during the damages phase, but he’s clearly looking forward to it. “I’m not going to tip my hand,” he said. “But it’ll be significant.”