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Martha Stewart's Company Sued for Breach of Contract

Martha Stewart's Company Sued for Breach of Contract

According to a Reuter’s article, Macy’s, Inc. is suing J. C. Penney and Martha Stewart Living Omnimedia (“MSLO”) for tortious interference of contract and breach of contract, respectively. Macy’s and MSLO have a contract, which, among other things, gives Macy’s an exclusive right to sell certain Martha Stewart products including bedding, home decor and cookware. Macy’s goal with this lawsuit is to stop J. C. Penney from selling items which Macy believes falls under the category of an exclusive item.

In this case no party disputes Macy’s claim of exclusive rights. The case will most likely be based on one of the restrictions to Macy’s right to exclusivity and whether J. C. Penney’s actions were fair. Under the contract, MSLO is allowed to sell any of its products, including those exclusive to Macy’s, in its own stores. J. C. Penney is included in this suit because in addition to agreeing to sell Martha Stewart Products, it also bought shares of MSLO giving J. C. Penney a seventeen percent share of ownership in MSLO.

Macy’s is accusing J. C. Penney of tortiously interfering with its contract with MSLO and claims that without the interference, MSLO would not have breached its contract with Macy’s. A tortious interference with a contract case has three elements which the plaintiff must prove as true. First Macy’s must show the existence of its valid contract with a third party, which in this case is MSLO. Second, Macy’s must show that the defendant, J. C. Penney, had knowledge of that contract. Finally Macy’s must show that J. C. Penney intentionally and improperly procured a breach, and caused damages.

Even if Macy’s has evidence for all three elements of tortious interference of a contract, J. C. Penney may be protected under the economic interest defense. The basis of this defense is that it acted to protect its own legal or financial stake in the breaching party's business. The defense has been applied in other cases where defendants were significant stockholders in the breaching party's business. Whether or not holding seventeen percent is enough for J. C. Penney to be considered a significant stockholder will determine if J. C. Penney may use the economic interest defense. Without this defense, it is questionable whether J. C. Penney could succeed in this case, assuming Macy's proves tortious interference.

This case may also discuss the timing of J. C. Penney’s purchase of shares. Because shares were purchased while Macy’s held exclusivity rights, while circumstantial, the timing suggests that the main purpose of purchasing shares was to invoke the exceptions to Macy’s exclusivity terms. If the judge were to find J. C. Penney’s purchase suspicious are inappropriate, it may help Macy’s show tortious interference and remove J. C. Penney’s best defense.

As this example indicates, litigation of these contractual disputes can be quite complicated; having an experienced attorney on your side can make all the difference. If you have any sort of contract issue in our area, be sure to reach out to our Long Island business lawyerfor guidance.

See Related Blog Posts:
Tortious Interference with Business Contracts
Piercing the Corporate Veil in Breach of Contract

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