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

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

February 9, 2018

JELD-WEN, INC., Defendant.



         This matter is before the Court on DEFENDANT JELD-WEN, INC.'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON COUNTS I AND IV OF PLAINTIFF STEVES AND SONS, INC.'S COMPLAINT (ECF No. 375). For the reasons set forth below, the motion was denied, except on the issue of future lost profits damages under Count One, as to which the Court ordered further briefing. See ECF No. 578. The Court has considered that briefing in the context of JELD-WEN, Inc.'s ("JELD-WEN") motion for judgment as a matter of law on the future lost profits damages claim at trial, after Steves and Sons, Inc. ("Steves") had put on its fact witnesses. Accordingly, only the ripeness of that claim, and not its validity, is addressed in this opinion.

         BACKGROUND A. Factual Background

         1. Pre-2012 Interior Molded Doorskin Market

         Steves and JELD-WEN are both participants in the interior molded doorskin market in the United States. That type of doorskin is used to make interior molded doors, which are built to resemble solid wood doors at a much lower cost. Interior molded doorskin manufacturers create and ship doorskins to assembly plants, where molded door manufacturers use the doorskins to build door slabs that are then sold to retailers or distributors. Steves is an independent door manufacturer that is currently unable to produce its own doorskins, and has never done so. As a result, it must purchase doorskins from doorskin manufacturers. JELD-WEN, however, is a vertically integrated door manufacturer, meaning that it both produces doorskins and uses those doorskins internally to manufacture and sell finished doors.

         Before 2012, Steves and other independent door manufacturers purchased interior molded doorskins from three main suppliers: JELD-WEN, CraftMaster Manufacturing, Inc. ("CMI"), [1] and Masonite.[2] Like JELD-WEN, CM I and Masonite were both vertically integrated manufacturers of interior molded doorskins and doors.

         2 . Execution of Supply Agreement

         On May 1, 2012, Steves and JELD-WEN entered into a long-term supply agreement ("the Supply Agreement"), pursuant to which Steves would purchase, inter alia, interior molded doorskins from JELD-WEN. ECF No. 379-2 (Under Seal) § 1; JELD-WEN's Statement of Undisputed Material Facts (ECF No. 379) (Under Seal) CDef. SUMF") ¶ 1. The Supply Agreement would be in effect through December 31, 2019, but would automatically renew for a successive seven-year term at that time unless either party terminated the contract. Supply Agreement § 2. The Agreement further provided that Steves could terminate it for any reason upon two-year written notice to JELD-WEN, and that JELD-WEN could likewise terminate it without cause upon seven-year written notice to Steves. Id. § 3(a)(2)(b); Def. SUMF ¶ 2; Steves' Statement of Additional Material Facts (ECF No. 452) (Under Seal) ("PI. SAMF") ¶ 4.

         Under the Supply Agreement, Steves had to purchase at least 80% of its interior molded doorskin requirements from JELD-WEN. PI. SAMF ¶ 2. Steves could, however, purchase any quantity of doorskins from another supplier that offered a price at least 3% lower than JELD-WEN's purchase price, after JELD-WEN had the chance to match that lower price. Id. ¶ 3; Supply Agreement § 4. The prices that JELD-WEN would charge Steves for doorskins were variable and were calculated using a formula based on JELD-WEN's key input costs. Supply Agreement § 6(c). In addition, the contract obligated JELD-WEN to provide Steves with doorskin products of satisfactory quality. Id. § 8. Finally, if any disputes arose under the Agreement, the parties were required to participate in an alternative dispute resolution process before initiating litigation. That process began with an internal conference between the parties' senior executives, and then mediation if the conference was unsuccessful. Id. § 10.

         3. JELD-WEN's Acquisition of CMI

         On June 15, 2012, JELD-WEN and CMI announced that JELD-WEN was acquiring CMI and merging CMI's operations and assets into JELD-WEN ("the CMI Acquisition"), pending due diligence and the signing of a definitive agreement. Def. SUMF ¶ 14. Although Steves knew before it executed the Supply Agreement that JELD-WEN was planning to purchase CMI, Steves and JELD-WEN did not condition the effectiveness of that contract on the occurrence or non-occurrence of the merger. Steves was aware at that time that the Acquisition would reduce the U.S.-based doorskin manufacturers to only JELD-WEN and Masonite. Id. ¶¶ 16-18.

         On July 17, 2012, the DOJ's Antitrust Division notified JELD-WEN that it had opened a preliminary investigation into the proposed CMI Acquisition. Steves indicated to the DOJ that it did not oppose the merger. The Antitrust Division closed its investigation on September 28, 2012 without having taken any action to prevent the CMI Acquisition. Id. ¶¶ 19-21. The Acquisition was then completed on October 24, 2012. Id. ¶ 15.

         Following the merger, JELD-WEN closed the head office of CMI in Chicago, as well as two of CMI's four door manufacturing plants, and transitioned CMI's sales staff into JELD-WEN's organizational structure. JELD-WEN also shut down its own doorskin manufacturing plants in Iowa and North Carolina. In addition to those broader changes, JELD-WEN consolidated the JELD-WEN and CMI doorskin dies into one portfolio, retired more than one hundred obsolete dies, and reduced the number of doorskin designs from 31 to 19. Id. ¶¶ 33-41.

         JELD-WEN also acquired CMI's Towanda plant. JELD-WEN subsequently constructed a $1.6 million paint plant inside that building, and JELD-WEN's MiraTec and Extira products are now manufactured at the Towanda plant. Id. ¶¶ 42-43. The effect of this consolidation of operations at the Towanda plant is disputed. JELD-WEN contends that it cannot physically separate the manufacturing lines for the MiraTec and Extira products from the doorskin manufacturing lines that are also at the Towanda plant, id. ¶ 44, but Steves points to evidence that JELD-WEN has not conducted an extensive analysis of the effects of a divestiture order with respect to the plant, PI. SAMF ¶¶ 37, 39.

         4. Post-Merger Interactions Between Steves and JELD-WEN

         After the merger, JELD-WEN's key input costs declined, and have continued to do so in most years since then. The parties disagree about whether these declining costs are the result of JELD-WEN having acquired the low-cost Towanda plant, or whether the input costs for JELD-WEN's "legacy" plants would have declined notwithstanding the CMI Acquisition. Id. ¶ 5. Despite these declining costs, however, Steves claims that JELD-WEN has increased the prices it charges Steves to purchase doorskins under the Supply Agreement. Id. ¶ 7. Steves also highlights documents indicating that JELD-WEN might have imposed price increases for certain doorskins that JELD-WEN believed were outside the scope of the Supply Agreement.

         Some JELD-WEN employees also acknowledged quality problems with the company's doorskins after the CMI Acquisition, and Steves complained to JELD-WEN about the declining quality of the doorskins. Id. ¶¶ 10-11. Moreover, Steves cites evidence that JELD-WEN made it more difficult after the merger for external customers, such as Steves, to return defective products. It is unclear, however, whether these problems were caused by the CMI Acquisition. Indeed, JELD-WEN began internal testing of thinner doorskins in early 2012, and informed Steves before the Acquisition was consummated that it had reduced the target thickness of its doorskins. Def. SUMF ¶¶ 10-11.

         The acrimony between Steves and JELD-WEN peaked in July 2014 when, according to Steves, JELD-WEN demanded that Steves agree to a new pricing structure for the Supply Agreement, including a "capital charge"-an 11% increase in the price of doorskins. JELD-WEN asserts that it never made this demand, noting that Steves has never paid any capital charge under the Agreement. Id. ¶ 8. In any event, shortly thereafter, on September 10, 2014, JELD-WEN provided Steves with notice of termination of the Supply Agreement. Consequently, the Agreement will terminate on September 10, 2021. Id. ¶¶ 3-4.

         The parties present conflicting evidence about JELD-WEN's interest in continuing to sell doorskins to Steves after that date. Steves claims that JELD-WEN has refused to provide Steves with any proposal for terms of a new long-term supply agreement, but JELD-WEN insists that it has told Steves it is interested in negotiating future doorskin sales after 2021. Notwithstanding this dispute, the parties agree that JELD-WEN has supplied doorskins to Steves since giving notice of termination. Id. ¶ 5.

         5. Steves' Efforts to Obtain Alternative Doorskin Supply

         After JELD-WEN notified Steves that it would terminate the Supply Agreement, Steves began to explore ways to produce or acquire interior molded doorskins without relying on JELD-WEN. Id. ¶ 32. One other supplier that Steves considered was Masonite. However, in July 2014, Masonite announced that it would no longer sell doorskins to third parties. Whether Masonite is, or ever was, amenable to selling doorskins to Steves at reasonable prices is highly disputed. Steves points to documents indicating that, after the merger, Masonite has not entered into long-term supply agreements with any third-party customers; will not negotiate the price of its doorskins; limits external sales of doorskins to customers or products with which Masonite does not compete; cannot sell Steves enough doorskins to meet Steves' needs; and has only offered Steves doorskins at prices much higher than prices Masonite offered in 2012, or prices JELD-WEN charged under the Supply Agreement in 2015. PI. SAMF ¶¶ 16-22. JELD-WEN, however, claims that some evidence indicates that Masonite would sell doorskins to Steves at standard prices; that Masonite has sold doorskins to external customers from 2010 to 2016; and that Steves has not determined whether the 2015 prices that Masonite quoted to Steves would be unprofitable for Steves. Def. SUMF ¶¶ 27-31.

         Steves has also pursued relationships with foreign doorskin suppliers like Teverpan, Kastamonu, and Yildiz, although it is unclear whether those suppliers can provide Steves with the quantity and range of doorskins that Steves requires. Negotiations with those suppliers are at various stages. Pi. SAMF ¶¶ 24-27. Some evidence indicates that Steves could obtain doorskins from Teverpan at prices more than 3% lower than those JELD-WEN charges under the Supply Agreement, but other evidence suggests that the quality of doorskins from foreign suppliers is inadequate to satisfy Steves.

         Finally, Steves has considered becoming vertically integrated by building its own doorskin manufacturing plant. The parties disagree about how long this process might take. JELD-WEN highlights evidence indicating that the timeline is closer to two years, and Steves has presented evidence showing that three to four years is a more realistic estimate. In any event, Steves has not yet identified a partner to help it build any manufacturing facility. Id. ¶ 29.

         6. Initiation of Alternative Dispute Resolution Process

         In January 2015, consistent with the Supply Agreement, Steves requested an affidavit from JELD-WEN supporting its announced price increases. Id. ¶ 33. Then, in March 2015, Steves demanded an internal conference to resolve its dispute with JELD-WEN over doorskin pricing and quality issues. When no resolution was reached, the parties participated in mediation, and then entered into a standstill agreement regarding Steves' claims under the Supply Agreement and "the antitrust laws." Even after mediation, the parties continued settlement discussions, and agreed to four extensions of the standstill agreement between September 2015 and April 2016. IcL ¶¶ 34-36.[3] However, that agreement did not at any point explicitly prevent Steves from filing an antitrust claim. Def. SUMF ¶ 26.

         B. Procedural Background

         Following the failure of the parties' required dispute resolution process, Steves initiated this action on June 29, 2016, asserting antitrust and contract claims against JELD-WEN related to the CMI Acquisition and JELD-WEN's alleged breach of the Supply Agreement. Complaint (ECF No. 5) (Under Seal). The Complaint contained the following claims: COUNT ONE, a claim under the Clayton Act, Section 7, 15 U.S.C. § 18; COUNT TWO, Breach of Contract; COUNT THREE, Breach of Warranty; COUNT FOUR, Declaratory Judgment, concerning certain rights under the Supply Agreement and the putative termination of that contract; COUNT FIVE, Specific Performance, regarding the Supply Agreement; and COUNT SIX, Trespass to Chattels.[4] Id. ¶¶ 175-206. Count One sought two forms of relief. It primarily requested injunctive relief pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26, to force JELD-WEN to divest assets sufficient to: (1) create a doorskin manufacturer with the same market significance that CMI had before the Acquisition; or (2) restore the interior molded doorskin market to its competitive state before the CMI Acquisition. Alternatively, Steves sought treble damages pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15, for injuries suffered by Steves as a result of the anticompetitive effects of the CMI Acquisition, including JELD-WEN's refusal to sell doorskins to Steves at prices consistent with the Supply Agreement and JELD-WEN's termination of the contract. Id. ¶¶ 177-78.

         On August 5, 2016, JELD-WEN moved to dismiss Count One for failure to state a claim. ECF No. 20. The Court denied that motion on October 21, 2016, concluding that the Complaint plausibly alleged that the CMI Acquisition violated Section 7 by causing higher doorskin prices, lower doorskin quality, reduced doorskin output, and increased coordination between JELD-WEN and Masonite, and that these anticompetitive effects impacted both Steves and the broader doorskin market. ECF No. 64. At a pretrial conference on October 19, 2016, the matter was set for trial to begin on June 12, 2017, and a detailed ...

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