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

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

February 6, 2018

STEVES AND SONS, INC., Plaintiff,
v.
JELD-WEN, INC., Defendant.

          MEMORANDUM OPINION

          Robert E. Payne Senior United States District Judge.

         This matter is before the Court on PLAINTIFF STEVES AND SONS, INC.'S MOTION IN LIMINE TO EXCLUDE EVIDENCE OR ARGUMENT THAT CMI WOULD HAVE EXITED THE DOORSKIN MARKET HAD IT NOT BEEN ACQUIRED BY JELD-WEN (ECF No. 499) . For the reasons set forth below, the motion will be granted.

         BACKGROUND

         Steves & Sons, Inc. ("Steves") alleged that JELD-WEN, Inc. ("JELD-WEN") violated Section 7 of the Clayton Act when it acquired CraftMaster Manufacturing, Inc. ("CMI") in 2012. Compl. (ECF No. 5) (Under Seal) ¶¶ 175-78. To prevail on that claim, Steves must show that "the effect of such acquisition may be substantially to lessen competition." 15 U.S.C. § 18.

         JELD-WEN asserts that it will argue that the CMI acquisition could not have substantially lessened competition because CMI's "weakened competitive condition'' at the time of the acquisition made it "unlikely to be able to compete as effectively as a seller of doorskins, whether or not it remained in business." Def. Opp. (ECF No. 654) (Under Seal) at 2.

In particular, JELD-WEN will show through fact witnesses, including Bob Merrill [ ("Merrill")], the CEO of CMI at the time of the Acquisition, as well as JELD-WEN's experts, that CMI was in severe financial distress when its owners decided to sell the assets. CMI's financial distress was a direct result of the catastrophic housing market crash in 2007. CMI had lost money every year since 2008 and that had been kept afloat by a $36 million loan from the two families who owned it. In 2010, CMI suffered a net loss of $8.9 million. In 2011, it lost $11.9 million. As of March 30, 2012, CMI owed an additional $16.7 million under third party loan agreements that were set to expire in October of that year, with no commitments from any of its lenders to refinance those borrowings. As a result, CMI's own independent auditors reported that these debts, combined with the fact that "business has been negatively impacted by the prolonged downturn in the U.S. homebuilding industry . . . raise substantial doubt about [CMI]'s ability to continue as a going concern."

Id. at 2-3 (alteration in original) (internal citations omitted). Steves moves to exclude at trial: (1) any evidence or argument that CMI "would have exited the market" had it not been acquired by JELD-WEN; and (2) any evidence or argument that CMI "would not have continued to be an effective competitor" absent any merger. PI. Mem. (ECF No. 502) (Under Seal) at 2, 10.

         JELD-WEN also says that:

JELD-WEN . . . will show the jury that there is no likelihood of anticompetitive effects, because CMI would not likely have remained an effective competitor absent the Acquisition. JELD-WEN is entitled to present evidence to the jury that would permit the jury to find that CMI would not have remained an effective seller of doorskins in competition with JELD-WEN absent the Acquisition, even if CMI somehow found a way to survive as an independent entity.

Id. at 5. Similarly, it argues that:

JELD-WEN's economist, [Edward] Snyder [("Snyder")], put the question squarely at issue, critiquing Professor [Carl] Shapiro [("Shapiro")] for failing to give this important evidence proper economic consideration. E. Snyder Rep. at ¶¶ 117-121 . . . (explaining how the substantial evidence of CMI's weakness rebuts Professor Shapiro's analysis of anticompetitive effects) .... In short, Professor Shapiro was fully aware of the evidence and the competitive implications of CMI's weakened financial state and inability to compete that was developed during fact discovery in this case; he simply chose not to address it other than to say it did not satisfy the failing firm defense. . . .
It was the choice of Steves and its expert, not JELD-WEN, to have Dr. Shapiro ignore the merits of CMI's inability to effectively compete. He (and Steves) must live with his failure to address the issue.

Def. Response to PI. Suppl. Brief (ECF No. 887) at 5-6.

         As the arguments progressed on the issue, JELD-WEN took the view that Snyder's evidence is really only to show that Shapiro's analysis is flawed because he did not factor in CMI's financial difficulties when he assumed that, absent the merger, the market would continue in the way it was in 2012. So, as things ...


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