Penney CEO grilled in Martha-Macy's case

J.C. Penney Co. Inc. chief Ron Johnson knew that doing a deal with Martha Stewart would create a conflict with rival Macy's Inc., which already had a relationship with her.

Johnson was testifying Friday in New York State Supreme Court in proceedings brought by Macy's against his company and Martha Stewart Living Omnimedia Inc. over their proposed deal.

The chief executive wrung his hands as a lawyer for Macy's grilled him over an email he wrote to a board member saying Martha Stewart would have to "break" her agreement with Macy's if he was going to "pull off" a deal with her.

Macy's sued Martha Stewart Living and Penney after they announced plans in December 2011 to launch Martha Stewart boutiques in about 700 J.C. Penney department stores. The boutiques are part of Johnson's strategy to reinvent the 102- year-old retailer, which released dismal holiday shopping season results on Thursday.

Macy's claims that by signing a deal with Penney, Martha Stewart Living breached its contract to sell products in certain categories such as cookware, bedding and bath items, exclusively at Macy's.

A nonjury trial is under way before Justice Jeffrey Oing in Manhattan.

Johnson testified he got the idea for putting Martha Stewart in J.C. Penney stores when he read in the spring of 2011 that her company had hired the Blackstone Group to evaluate opportunities.

Theodore Grossman, representing Macy's, asked Johnson about an Aug. 14, 2011, email he sent to a J.C. Penney board member. "Martha could be the foundation of a reinvented home," Johnson wrote in the email. "Macy's deal is key. We need to find a way to break the renewal right."

Johnson said that "break" did not exactly mean breaking the contract.

"I knew there would have to be an amendment . . . for us to do what we wanted," Johnson told the court. "The word 'break' meant there would have to be a change . . . for us to carry the products" in certain categories.

Martha Stewart is expected to take the stand on Tuesday.