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Martha Stewart betrayed alliance, Macy CEO testifies

Macy’s Terry Lundgren testified in a breach-of-contract trial.

Macy’s Terry Lundgren testified in a breach-of-contract trial.

NEW YORK — Macy’s chief executive Terry Lundgren testified on Monday that he hung up on home diva Martha Stewart after she called to inform him on Dec. 6, 2011, that the company bearing her name had inked a deal with J.C. Penney to open shops within most of the chain’s stores.

He hasn’t spoken to her since, even though the two once were good friends.

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‘‘I was sick to my stomach,’’ Lundgren testified in New York Supreme Court. ‘‘I can’t remember hanging up on anyone in my life.’’

The testimony comes as Macy’s Inc. and J.C. Penney Co. duke it out over the partnership with Martha Stewart Living Omnimedia. The trial, which began Wednesday, focuses on whether Macy’s has the exclusive right to sell Martha Stewart branded cookware, bedding, and other products. Other key witnesses expected to take the stand this week include Penney’s chief executive Ron Johnson and Martha Stewart.

Lundgren testified that Macy’s had built the Martha Stewart brand to be the biggest in its home business. Under Lundgren’s leadership, Macy’s has focused on building exclusive brands that are not carried by rivals. In the home goods area, exclusivity is key: Sales last year were up 8 percent, double the rate for the entire company.

Lundgren said Macy’s has spent 40 percent of its overall marketing on the Martha Stewart brand and other labels in the home area, even though the home category represents 17 percent of sales. That’s because even though the home area is typically slow turning, it drives shoppers to the store.

‘‘I need the Martha Stewart business to be exclusive,’’ Lundgren said.

The testimony is a culmination of a legal battle between the three companies that started in 2011. Macy’s sued Martha Stewart Living, saying the company breached a longstanding contract when it penned the deal with Penney, which invested $38.5 million in a nearly 17 percent stake. In a separate lawsuit, Macy’s sued Penney claiming it had no regard for the Macy’s contract and that Johnson had set out to steal the business that it had worked hard to develop.

The two suits were consolidated for the bench trial before Supreme State Court Judge Jeffrey Oing. The trial is expected to last three weeks.

One key issue appears to be a loophole in the agreement with Macy’s. A provision allows Martha Stewart to sell goods in categories such as bedding in Martha Stewart Living’s own stores. According to Martha Stewart, because the Macy’s agreement doesn’t say the goods under dispute can be sold ‘‘only in ‘‘stand-alone’’ stores, the mini shops within J.C. Penney stores do not fall under the exclusive agreement.

Macy’s Inc., based in Cincinnati, disagrees. Lundgren argues that a typical definition of a store is that it has a parking lot or is part of a mall. Macy’s lawyers outlined in documents that it later found that Penney ‘‘knowingly and purposely demanded and received confidential information’’ from Martha Stewart Living about the contract of Macy’s and crafted a deal that was more lucrative than the Macy’s agreement.

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