Martha Stewart: Kmart Sues as Judge Blocks 'Fraud' Testimony

16 February 2004

Bad news and good for America's style queen.

Adding to Martha Stewart's current woes, supermarket chain Kmart -- currently sheltering under Chapter 11 bankruptcy protection -- has filed a complaint against Martha Stewart Living Omnimedia (the media maven's home furnishings business) alleging it "double-counted" merchandise, increasing the royalties it is owed for sales of its merchandise in Kmart stores.

The cash-strapped supermarket giant inked a seven-year agreement in June 2001 to sell Martha Stewart Everyday brand home decorating, garden products and housewares in its stores.

The complaint, filed with the US Bankruptcy Court in Chicago, acknowledges that Kmart fell short of several minimum royalty payments for the year, but accused MSLO of "double-counting" royalty payments and demanding too much money.

MSLO riposted Friday it would contest Kmart's filing, counter-alleging that the supermarketeer was trying to reduce its royalty payments.

• Meantime back at the US District Court in New York (second only to Radio City Music Hall these days as an entertainment center), Stewart won a key battle against government prosecutors when Judge Miriam Goldman Cedarbaum refused to allow expert testimony on the charge of securities fraud against the celebrity defendant.

This count, the most serious Stewart faces, indicts her for bolstering the stock price of her trading company Martha Stewart Living Omnimedia in 2002 when she insisted her sale of ImClone stock was proper and that she was collaborating with the investigating authorities.

Judge Cedarbaum granted a motion by Stewart's attorneys to block expert testimony on the "materiality" of Stewart's statements in 2002 about the ImClone investigation. The ruling bars any deposition on "whether a reasonable investor would have considered the statements important in making an investment decision," the judge elucidated.

Conviction on securities fraud carries a maximum ten-year prison term. The other four charges against Stewart each carries a five-year term.

Data sourced from: USA Today; additional content by WARC staff