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Steves and Sons, Inc. v. Jeld-Wen, Inc.

United States District Court, E.D. Virginia, Richmond Division

May 17, 2017

JELD-WEN, INC., Defendant.


          Robert E. Payne, Senior United States District Judge

         This matter is before the Court on DEFENDANT JELD-WEN, INC. ' S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. (ECF No. 101) . For the reasons set out below, the Court finds that the counterclaims are permissive, not compulsory, and the DEFENDANT JELD-WEN, INC.'S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. (ECF No. 101) will be granted. However, the claims and the permissive counterclaims will be severed as outlined below.


         Steves and Sons, Inc. ("Steves") is a door manufacturer that purchases interior molded doorskins from JELD-WEN, Inc. ("JELD-WEN").[1] Interior molded doorskins make up the front and back of interior molded doors. An interior molded door is made by sandwiching a wood frame and a hollow or solid core between two doorskins. Interior molded doors are significantly less expensive than solid wood doors. Steves currently does not make doorskins. JELD-WEN is a manufacturer of interior molded doorskins and also uses doorskins to make its own doors (i.e. JELD-WEN is vertically integrated). On May 1, 2012, the parties entered into a Long-Term Supply Agreement ("Supply Agreement"), whereby Steves agreed to purchase its doorskins from JELD-WEN for eight years. (Compl. ¶ 17).

         After the Supply Agreement was signed, JELD-WEN merged with another doorskin manufacturer, Craftmaster. The merger left JELD-WEN as a vertically integrated company manufacturing and using its own doorskins. At that time, Masonite was another vertically integrated company that also manufactured, and used its own doorskins.[2] On June 25, 2014, Masonite announced that it would no longer be selling interior molded doorskins; rather, it would only be manufacturing doorskins solely for its use. (Compl. ¶ 23) .[3] As a result, JELD-WEN allegedly has a monopoly over the doorskin market.

         In September 2014, JELD-WEN gave Steves written notice of the termination of the Supply Agreement. (Compl. ¶ 82) . JELD-WEN takes the position that the agreement will expire in December 2019. Steves contends that is 21 months earlier than allowed. (Compl. ¶ 82).

         On June 29, 2016, Steves filed this action alleging that the merger between JELD-WEN and Craftmaster violated Section 7 of the Clayton Act, 15 U.S.C. § 18 (Count One) . Steves also alleged that JELD-WEN had breached the Supply Agreement by providing inadequate doorskins and canceling the contract early (Count Two) and that JELD-WEN had breached an express warranty in the Supply Agreement and the implied warranty of merchantability (Count Three). In Count Four, Steves sought a declaratory judgment on several Supply Agreement issues. In Count Five, Steves sought specific performance of the Supply Agreement throughout its specified term. Finally, in Count Six, Steves asserted a claim for Trespass to Chattels because JELD-WEN had defaced Steves' products during an inspection permitted by the Supply Agreement. JELD-WEN filed its Answer (ECF No. 30) but raised no counterclaims.

         Following an initial pretrial conference, on October 19, 2016, the case was set for jury trial to begin on June 12, 2017 (ECF No. 65). On November 10, 2016, an agreed upon schedule was set for the conduct of discovery, the filing of summary judgment motions, and the conduct of proceedings in preparation for the Final Pretrial Conference to be held on June 5, 2017 (ECF No. 70). Discovery commenced and, inter alia, documents were produced.

         By ORDER entered on February 7, 2017 (ECF No. 90), all proceedings herein were stayed until March 8, 2017 to allow the parties to pursue settlement discussions under the auspices of Magistrate Judge Novak. That stay was subsequently extended until March 27, 2017 to allow a last effort to settle the case (ECF No. 95) . After settlement efforts failed, JELD-WEN filed its DEFENDANT JELD-WEN, INC.'S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. (ECF No. 101) based on documents that Steves had produced in discovery before settlement negotiations failed.

         The genesis of the proposed amendment lies in that Steves and Sons produced documents to JELD-WEN during the discovery period before it was stayed. JELD-WEN alleges that several of the emails produced by Steves show that Steves paid John Pierce ("Pierce"), a former employee at JELD-WEN, to sell to Steves JELD-WEN's trade secrets and other confidential information relating to JELD-WEN's doors and doorskins. JELD-WEN alleges that the emails also show that Pierce and Steves knew that their conduct was wrong because it violated Pierce's employment agreement with JELD-WEN and that the parties sought to conceal their wrongful conduct.

         JELD-WEN first became aware of these documents on January 4, 2017. On January 5, 2017, JELD-WEN contacted Steves' outside counsel and demanded that Steves cease and desist any use of the trade secrets and confidential information that Steves had received from Pierce. JELD-WEN was prepared to file this motion on February 3, 2017; however, the parties were in the midst of a settlement meditation and had agreed to a stay.

         On January 12, 2017, JELD-WEN issued a Rule 45 subpoena to Pierce, requesting that he produce documents and communications relating to his work with Steves. On January 23, Pierce provided a handful of documents related to his travel on behalf of Steves. On January 27, 2017, Steves supplemented its production of relevant documents and produced a July 20, 2016 email from Sam Steves' assistant, showing that John Ambruz, another former JELD-WEN employee, was serving as a consultant to Steves. The email included an attachment entitled "Proposal for Expansion of Molded Skin Production Capacity Submitted by John Pierce, 1 May 2006, " a document that JELD-WEN claims it had sent, in confidence, to the Antitrust Division at the Department of Justice ("DOJ") in the summer of 2012, in contemplation of its acquisition of Craftmaster. Ambruz, who, in 2012, was a JELD-WEN employee, was copied on the email because he was working with JELD-WEN's lawyers in responding to the DOJ investigation. JELD-WEN's counsel questioned Steves' counsel as to how the document was obtained by Steves. Steves' counsel provided that the Steves brothers did not recall receiving the document.

         On January 12, 2017, JELD-WEN issued a Rule 45 subpoena to Ambruz. JELD-WEN received additional discovery pursuant to that subpoena which, according to JELD-WEN, "confirm[s] that Steves is poised to enter the doorskin market despite all of its allegations of insurmountable barriers to entry." (ECF No. 187-1) . The new production contained documents which JELD-WEN alleges is "new evidence [that] explicitly ties John Ambruz's work to that of Pierce, and the JELD-WEN trade secrets he stole." Id.

         This factual backdrop provides the basis for, and the context Of, DEFENDANT JELD-WEN, INC.'S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. (ECF No. 101) .


         Fed. R. Civ. P. 13 governs the filing of counterclaims. It delineates counterclaims as compulsory or permissive. Fed.R.Civ.P. 13 provides that a claim is compulsory if it "(A) arises out of the transaction or occurrence that is the subject matter of the opposing party's claim; and (B) does not require adding another party over whom the court cannot acquire jurisdiction." Fed.R.Civ.P. 13 provides that a permissive counterclaim is "any claim that is not compulsory." The pretrial order entered in this case and Fed.R.Civ.P. 16 govern the time for filing counterclaims in this case.

         A. Motion to Amend Made With Good Cause

         A motion to amend at this stage of the litigation must be supported by a showing of good cause. JELD-WEN has met that standard because it was unaware of the information that gives rise to its proffered amendment until it reviewed the documents provided by Steves during discovery. Upon learning of the information, JELD-WEN immediately made preparations to file the motion. Had the stay not been in place, JELD-WEN would have filed the motion earlier. Although Steves makes several arguments in opposition to JELD-WEN's motion, Steves does not assert that JELD-WEN has failed to meet the good cause standard.

         B. Permissive or Compulsory Counterclaims

         In determining whether leave to amend is proper, the Court must determine whether JELD-WEN's proposed counterclaims are permissive or compulsory. In assessing whether a claim is compulsory, the Fourth Circuit asks the following questions: (1)

         Are the issues of fact and law raised by the claim and the counterclaim largely the same; (2) Would res judicata bar a subsequent suit on the counterclaims, absent the compulsory counterclaim rule; (3) Will substantially the same evidence support or refute the claim as well as the counterclaim; and (4)

         Is there any logical relation between the claim and the counterclaims. See Sue & Sam Mfg. Co. v. B-L-S Const. Co., 538 F.2d 1048, 1051 (4th Cir. 1976).[4]

         1. Sue & Sam Factors (1) and (3): The Issue of Fact and Law Raised by Steves' Claim and JELD-WEN's Counterclaims and the Presence of Substantially Overlapping Evidence

         One way to assess Sue & Sam factors (1) and (3) is to examine the elements of Steves' claim and JELD-WEN's counterclaims in perspective of the evidence pertinent to each. That process helps to assess whether there are common issues of fact and law and the extent to which, if at all, the evidence will overlap.

         (a) Steves' Count One: Antitrust Claim

         To prove its antitrust claim, Steves will have to show that the JELD-WEN/Craftsman merger had the effect of substantially lessening competition in a relevant product and geographic market or tended to create a monopoly. The evidence about that claim will involve proof of the product and geographic markets, proof of concentration in those markets caused by the merger, and the anticompetitive effect of the merger. The evidence, from both sides, therefore will focus on economic and business issues in the doorskin industry.

         There can be evidence as well on Steves' conduct that could affect the requested remedy of divestiture. However, that evidence is heard by the Court, not the jury, because divestiture is an equitable remedy. That issue is reached only if the jury returns a liability verdict in favor of Steves.

         (b) Steves7 Counts Two Through Five: Breach of Contract, Breach of Warranty/ Declaratory Judgment and Specific Performance

         Count Two is a claim for breach of the Supply Agreement for JELD-WEN's refusal to abide by the contracts pricing terms, JELD-WEN's supply of defective doorskins, JELD-WEN's refusal to give Steves credit for defective products, and for JELD-WEN's attempt to terminate the Supply Agreement early. Count Three is a claim for breach of implied warranty of merchantability by supplying defective doorskins. Counts Four and Five seek certain remedial measures related to Counts Two and Three.

         To establish the breach of contract claim there will be proof of a contract, a breach, and damages. The breach of warranty claim requires some of the same proof as the breach of contract claim as well as proof of warranty.

         (c) Steves' Count Six: Trespass to Chattels

         Count Six is a tort claim based on damage done to Steves' products by JELD-WEN representatives. The proof there will be that JELD-WEN's employees damaged the product while ...

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