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