New York, NY, May 10--Pleading for leniency for an unrepentant client, Martha Stewart's lawyers plan to argue that a prison sentence could hurt her company and force it to lay off some of its 500 employees.
In asking a federal judge to go easy on Stewart when she is sentenced for lying to investigators next month, her lawyers will cite a 1995 appeals court decision that spared a corporate executive a jail sentence because he was deemed crucial to his company, a person familiar with the matter said.
Legal experts say it is a long shot because her company has continued operating since she stepped down as chairman after being indicted in June 2003. After she was convicted in March, Stewart said anew that she was innocent. She also resigned from her company's board and relinquished her title as "creative director," while retaining an informal leadership role.
When U.S. District Judge Miriam Goldman Cedarbaum sentences her on June 17, Ms. Stewart will face between ten and 16 months in prison for lying to federal investigators about her sale of ImClone Systems Inc. stock. Under federal sentencing guidelines, any downward departure from the recommended punishment requires "exceptional" circumstances, and Stewart's lawyers plan to argue that her absence from Martha Stewart Living Omnimedia, Inc. would fit the bill.
Her lawyers contend the company remains so dependent on Stewart that imprisoning her could cause its financial situation to deteriorate. The company, which markets magazines, television cooking shows and household goods, reported Friday that a steady decline in advertising led to wider-than-expected losses in the first quarter.
While the 1995 decision has won leniency for felons in the past, legal experts say Martha Stewart Living executives have hurt her chances by repeatedly saying the company can survive without its founder. On Friday, the company announced plans to "accelerate" a move to diminish the brand's reliance on Stewart's name.
A spokesman for the U.S. attorney's office in Manhattan, which prosecuted Stewart, declined to comment on the matter. Legal experts expect prosecutors to argue that any possible hardship on employees must be extraordinary and directly tied to the defendant's imprisonment to warrant leniency. The prosecutors also could argue that her diminished role hasn't driven the company out of business or forced massive layoffs yet.
Stewart also is up against a trend of increasingly harsh sentences for corporate wrongdoers. Thursday, a federal judge sentenced Lea Fastow, wife of Enron Corp.'s former chief financial officer, to the maximum sentence of one year in prison for filing a false tax return, twice as long as the sentence prosecutors originally sought. Last month, a judge rejected a plea deal the government made with Rite Aid Corp.'s former chief executive, Martin Grass, saying she couldn't "justify" a short sentence.
In the 1995 case, Daniel Milikowsky was convicted of violating antitrust laws while running two small steel-related businesses that he owned. Prosecutors wanted him sentenced to prison, but the judge allowed him to continue reporting for work while being otherwise confined to his home for six months. "I am convinced that the loss of his daily guidance would extraordinarily impact on persons who are employed by him," the judge ruled.
Prosecutors appealed but lost. Departing from the guidelines, the Second U.S. Circuit Court of Appeals ruled, "may be warranted where, as here, imprisonment would impose extraordinary hardship on employees. As we have noted in similar circumstances, the sentencing guidelines do not require a judge to leave compassion and common sense at the door to the courtroom."
Yet the same appeals court, which would oversee any appeal in the Stewart case, rejected a similar argument last month. In that case the trial judge reduced the sentence of a man who was convicted of smuggling money, noting in part his responsibility to his business and 12 employees. This time, the appeals court sided with prosecutors, stating that the defendant's role in the company wasn't crucial because a partner "handled most of the paperwork."
Stewart's legal troubles clearly have hurt her company. Some television stations canceled her show, TV and publishing revenue has declined and merchandising revenue is flat. Yet company executives have maintained that Martha Stewart Living's staff has successfully adopted Stewart's style and can work without her, developing non-Martha brands, including "Everyday Food" magazine and a television show called "Petkeeping with Marc Morrone."
"Our consumers remain stalwart. Our research shows that magazine subscribers, in particular, were unfazed by the verdict immediately afterward and remain so roughly six weeks later," said Sharon Patrick, the company's chief executive, on Friday.
