J.C. Penney appealed a New York state court ruling that found it had interfered with a contract between Macy’s and Martha Stewart Living Omnimedia. (NYLJ/Rick Kopstein)
J.C. Penney isn’t the only party planning to appeal a June 16 ruling by a Manhattan state judge that found the Texas-based retailer unlawfully interfered with an exclusive agreement between Macy’s and Martha Stewart Living Omnimedia to sell the licenser’s branded merchandise in its stores.
As expected, Penney’s filed a notice of appeal on Monday, claiming that Justice Jeffrey Oing’s (See Profile) ruling “erred by concluding there was tortious interference with the MSLO agreement.”
Macy’s, responding that it was “confident that appellate courts will affirm Justice Oing’s finding,” confirmed Wednesday that it plans to file its own notice of appeal challenging that portion of Oing’s ruling dismissing its claim for punitive damages.
“Macy’s believes that the trial record and the court’s factual findings clearly justify punitive damages, and that the court erred in not awarding them,” a spokesman for the company said.
Oing’s 63-page decision in Macy’s v. J.C. Penney, 652861/2012, while settling one piece of this retail licensing-fueled dispute, left a significant aspect still to be decided: the issue of damages and attorney fees.
The Commercial Division judge held that Penney’s, under the leadership of then-CEO Ron Johnson, deliberately interfered with a partnership between Macy’s and MSLO by inducing MSLO to enter into its own agreement with Penney’s under the pretense of avoiding conflict through a purported “store within a store” loophole.
Penney’s had induced MSLO to enter into a separate contract, the judge held, to gain a competitive advantage in the retail market, despite its awareness of the existing Macy’s agreement.
Liability established, the judge referred the issue of any lost profits and attorney fees to a special referee for a future hearing that could entail reams of further discovery and back-and-forth between the parties.
The issue of damages is significant since it’s unclear how much Macy’s may be entitled to recover. As Oing noted in his ruling, a 2012 injunction barring Penney’s from continuing to sell Martha Stewart wares from the exclusive products category prevents Macy’s to a large degree from recovering lost profit damages. What’s unknown, however, is whether 900 product designs MSLO created separately for Penney’s denied Macy’s the chance to consider those designs for future production and sale.
“The determination of that issue will impact Macy’s claim for lost profits,” the judge wrote in his decision.
Furthermore, Oing held that Macy’s ability to recover attorney fees hinges on whether Penney’s actions were the proximate cause of separate litigation pursued by Macy’s against MSLO, in a case that settled early this year. “Thus, to the extent Macy’s is entitled to recover any attorney’s fees,” the judge wrote, “it is only entitled to recover the reasonable value of such fees incurred against MSLO.”
In dismissing Macy’s claim for punitive damages, Oing said that while the conduct by Penney’s executives had been “less than admirable” and “adolescent hijinks in the worst form,” it did not rise to the sort of “wanton, reckless, malicious” behavior that warrants punitive damages.
Niall O’Murchadha, an associate who handles complex commercial litigation for Schlam Stone & Dolan who is not involved in this litigation, said in a post for the firm’s blog shortly after the ruling was issued that “despite J.C. Penney’s obvious wrongdoing, and its total defeat on the merits, Macy’s may be left with no remedy at all.”
In an interview Wednesday, O’Murchadha told CLI that while “punitive damages are quite difficult to get on appeal, if I was representing Macy’s, I would have filed that appeal as a matter of course.”
“If J.C. Penney is going to file anyway on the issues it lost, Macy’s has nothing to lose by appealing the issue on which it didn’t prevail,” he said.
“Judge Oing made a lot of findings of fact about the background and the timeline of events and the motivations of the parties, which will be very relevant to the attorney fees claim, but for the 900 designs, more discovery and fact-finding may be needed,” the attorney added. “Whatever happens, any decision by a special referee may be reviewed by Judge Oing and he’ll have the last word at the trial level.”
Regarding the latest developments, Theodore Grossman, a partner at Jones Day who is representing Macy’s, declined comment. Martin Edel, partner at Miller & Wrubel, and counsel for Penney’s, also declined comment.