U.S. Markets close in 2 hrs 32 mins

Penney gets some reprieve in Martha Stewart case

Anne d'Innocenzio, AP Retail Writer

NEW YORK (AP) -- A New York appeals court judge is allowing J.C. Penney Co. to sell a new line of home goods designed by Martha Stewart while an appeal by Macy's is pending. But the judge barred Penney from using the home maven's name in promoting the collection.

The ruling, which came Thursday, rejects Macy's request for a temporary restraining order aiming to block Penney from selling the collection of bedding, cookware and other items labeled JCP Everyday.

On Monday, Macy's filed an appeal to overturn a decision made last week by New York State Supreme Court Judge Jeffrey Oing. That decision had allowed Penney to sell home products under the label JCP Everyday until a lawsuit that Macy's is waging against Penney and Martha Stewart Living Omnimedia Inc. is decided.

Macy's, based in Cincinnati, had argued that the JCP Everyday products violate its long-standing exclusive contract with Martha Stewart in a broad array of products that include bedding and cookware.

Thursday's decision made by Richard Andrias, an associate justice with the New York State Supreme Court's Appellate Division, offers Penney a short-term reprieve until an appellate panel of five judges makes the decision on that issue. The ruling could come next week.

A temporary order made last summer by Oing still bars Penney of Plano, Texas, from selling Martha Stewart-branded goods in the exclusive categories.

The JCP Everyday products, which started to appear on Penney's website this week, include eggshell blue cast iron Dutch ovens for $140, $80 stainless steel frying pans and $200 comforter sets. Penney plans to put the goods in store shelves by Mother's Day.

"While we are disappointed that the appeals court declined to issue a temporary restraining order, it is appropriate that the court made it clear that the JCP Everyday product cannot be associated with the Martha Stewart name in any way," said Macy's spokesman Jim Sluzewski in a statement. "We look forward to the full appeals court decision on our request for an expansion of the preliminary injunction that remains in place."

The development is the latest in a heated court battle that started late February over a partnership with Martha Stewart. Macy's, which has had a merchandising contract with the home maven since 2006, sued Martha Stewart and Penney after they signed a deal in December 2011 to develop mini Martha Stewart shops, planned for this spring.

J.C. Penney could face a $100 million hit if it had to liquidate the JCP Everyday inventory that it already purchased, according to Deborah Weinswig, an analyst at Citi Research. Any ruling on the JCP Everyday goods would still be preliminary and if Macy's prevails in the overall court case, Penney could face costly damages.

That would present a big financial blow for Penney, which is in a severe cash crunch after a botched turnaround plan spearheaded by its former CEO Ron Johnson early last year has resulted in disastrous results. Johnson was ousted on April 8 after only 17 months on the job and was replaced by his predecessor, Mike Ullman.

Penney is selling other goods like curtains and rugs branded with the home maven's label that are not covered in Macy's exclusive contract. But Penney had planned to have Martha Stewart shops anchor a new home area that's being rolled out over the next few weeks. The rollout of various home shops devoted to names like Jonathan Adler and Michael Graves was part of Johnson's vision to transform Penney into a mini mall of specialty shops.

After weeks of Macy's presenting evidence, Martha Stewart began presenting its side Thursday. Oing says he wants to wrap up the testimony by April 26.

In afternoon trading, Macy's shares declined 61 cents to $43. JC Penney shares added 46 cents, or 3.1 percent, to $15.23.