BEHIND THE NEWS: Internal Foot Locker e-mail adds spark to Finish Line suit No. 1 vs. No. 2 Discovery difficulties

March 21, 2005

New York-based Foot Locker Inc. is five times the size of hometown retailer Finish Line Inc. But an internal Foot Locker e-mail suggests that company's CEO has become nearly obsessed with knocking the Indianapolis company off stride.

The e-mail summarizes a three-day trip Foot Locker CEO Matt Serra and other top executives took to Florida last June to visit 36 of the company's stores in the Miami and Fort Lauderdale markets.

"Matt discussed the importance of hurting/putting Finish Line out of business with every manager and at least 20 times in the car," according to the internal e-mail, which Finish Line recently unearthed and filed as an exhibit in its year-old lawsuit accusing Foot Locker of tortuous interference and unfair competition.

"He wanted everyone in all stores working together ... toward that goal," the e-mail said, "whether it was through actively recruiting their best people to moving in the hot product wherever there is a Finish Line."

The e-mail is the most specific evidence Finish Line has submitted to date to back up its suit, which seeks to block Foot Locker's "deliberate and malicious attempt" to spur a management exodus from the Indianapolis company and to obtain its confidential sales information.

"Foot Locker has done so to deprive Finish Line of the services of essential members of the Finish Line management team and to cripple the sales efforts of Finish Line," according to the suit, filed in U.S. District Court in Indianapolis.

John Callagy, a New York attorney representing Foot Locker, declined to comment on the e-mail or other aspects of the litigation.

Dwight Lueck, a partner with Barnes & Thornburg representing Finish Line, declined to assess the importance of the email in Finish Line's case, which is scheduled for trial in December.

"It's going to be an interesting trial," Lueck observed.

That's for sure. Last fall, Foot Locker responded to Finish Line's lawsuit with guns blazing. The New York company, which denies wrongdoing, said in court filings that Finish Line "is engaged in the very same activity" it accuses Foot Locker of.

One of its filings includes part of a deposition from Lonell Morrison, a former Finish Line merchandise buyer who left the company in May 2001 to join Champs, a Foot Locker subsidiary.

Morrison said that during the year he worked for Finish Line, his supervisor was a former Champs employee who provided confidential Champs sales information to buyers "on a weekly basis."

Another filing includes an affidavit from a Foot Locker executive who says Finish Line "aggressively recruited Foot Locker's employees in order to hurt Foot Locker's sales efforts." In the course of a year, Finish Line, which has 12,000 employees, hired away 29 workers, the affidavit said.

Finish Line General Counsel Gary Cohen responded last fall: "Basically, we believe Foot Locker's allegations to be factually and legally baseless at this time." In a filing this month, Finish Line said "there have been no concerted efforts" to recruit employees from Foot Locker or other competitors.

The courtroom is the newest front in the ongoing war between the two biggest retailers of athletic shoes and apparel in shopping malls. The firms are used to battling with one another every day, for everything from the best mall locations to exclusive products from Nike Inc. and other suppliers.

Foot Locker is the Goliath, with more than $5 billion in annual sales. But the sales gap between the companies is shrinking, and lately Finish Line has been the stronger performer. Over the past decade, Finish Line shares have returned nearly 1,000 percent, compared with 50 percent for Foot Locker.

If that's not enough to whet your appetite for the trial, throw in a little trash-talking by Foot Locker CEO Serra.

During an August 2003 conference call with analysts, Serra suggested Finish Line was having to make steep markdowns to move merchandise. Finish Line "seems to promote very aggressively without saying [it] does," Serra said.

In a conference call last May, Serra added: "Our competitor in Indianapolis" was selling goods for up to 70 percent off. "So obviously they must have some inventory problems."

Not so, Finish Line said in a press release issued later that day "in response to misinformation ... disseminated by one of our competitors."

Given all the above, no one should be surprised that attorneys for the two companies are having a hard time getting what they want through discovery-the information exchange that precedes trial.

Each side says the other is trying to cast too wide a net. Finish Line is going on a "fishing expedition," Foot Locker says, in seeking all records documenting comments Serra made about Finish Line since January 2000.

In court papers, Finish Line fired back: "The reality is that Foot Locker does not want to produce damaging documents."
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