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

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

April 16, 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 FOR SUMMARY JUDGMENT ON JELD-WEN COUNTERCLAIMS (ECF No. 885) . For the reasons set forth below, the motion was granted in part and denied in part, except to the extent that Steves & Sons, Inc. ("Steves") sought summary judgment on the basis that JELD-WEN, Inc.'s ("JELD-WEN") damages expert failed to apportion damages between specific misappropriated trade secrets, an issue on which the Court ordered further briefing because Steves raised it for the first time at oral argument. See ECF No. 1290. Those contentions will be addressed in a separate opinion.

         BACKGROUND

         A. Factual Background [1]

         1. Steves' Relationships with Pierce

         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. Steves currently purchases doorskins from JELD-WEN pursuant to a long-term supply agreement that the parties entered into in 2012 ("the Supply Agreement").

         In March 2015, Steves hired a former JELD-WEN employee, John Pierce ("Pierce"), as a consultant for two primary purposes. First, Steves wanted Pierce to provide it with certain information that would allow it to build its own doorskin manufacturing plant, as part of what Steves referred to as its "MDS project" ("the MDS Project"). Second, Steves believed that Pierce could help verify the accuracy of JELD-WEN's key input costs for doorskins that it manufactured. Those input costs were the basis for the prices that JELD-WEN charged Steves for doorskins under the Supply Agreement, and JELD-WEN was required to provide the costs to Steves on an annual basis.

         When he worked at JELD-WEN, Pierce and JELD-WEN had entered into multiple employment contracts indicating that Pierce would be exposed to certain information that JELD-WEN considered confidential or trade secrets, or both. Under those contracts, Pierce could not disclose the confidential information or trade secrets to any third parties except as required by law. The confidentiality provision in the most recent employment contract applied even after Pierce retired from JELD-WEN in 2012. When Steves later hired Pierce, he notified Steves that the confidentiality agreement with JELD-WEN prevented him from disclosing JELD-WEN's trade secrets or confidential information.

         Between March 2015 and June 2016, Pierce obtained information about JELD-WEN's doorskin manufacturing methods, processes, and costs through interactions with five JELD-WEN employees: Ed Reed ("Reed"), Dale Williams ("Williams"), Bruce Fedio ("Fedio"), Greg Takes ("Takes"), and Jay Borrell ("Borrell"). The substance of the information given to Pierce and whether it is confidential or a trade secret is disputed. Reed did not recall giving Pierce any specific or confidential information, but also acknowledged that it was possible he did so. SUF ¶ 28; JELD-WEN's Response to the SUF ("SUF Response") (ECF No. 1008) (Under Seal) ¶ 28. Similarly, Williams did not remember telling Pierce any non-public information, but he conceded that Pierce could have confirmed confidential information that Pierce knew from his previous work with JELD-WEN. SUF ¶ 30; SUF Response ¶ 30. Fedio could only specifically recall saying to Pierce that JELD-WEN had received good news on favorable resin pricing, and did not realize that he had given Pierce any allegedly confidential information until he was told by counsel during this litigation. SUF ¶¶ 32-33. Takes also did not believe he ever gave Pierce JELD-WEN's confidential information or trade secrets, but was unable to respond fully allegedly because of the attorney-client privilege.[2] Id. ¶ 35; SUF Response ¶ 35. None of the employees were fired for meeting with Pierce, but some received disciplinary communications that they could not elaborate on allegedly because of the attorney-client privilege.[3] £>ee SUF ¶¶ 29, 31, 34, 36; SUF Response ¶¶ 29, 31, 34, 36.

         In any event, Pierce conveyed to Steves some or all of the information that he acquired from those JELD-WEN employees. According to JELD-WEN, Steves specifically had requested that Pierce provide Steves with that information and, in fact, paid him to do so. In addition, Steves found that information helpful in furthering the MDS Project.[4]

         2. Steves' Relationship with Ambruz and Use of JELD-WEN's Information

         In or around July 2015, Steves then retained Global Strategic Partners LLC, a company managed by John Ambruz ("Ambruz"), as a consultant to assist with the MDS Project. Like Pierce, Ambruz was a former JELD-WEN employee who had entered into an employment agreement with JELD-WEN that prevented him from disclosing confidential information or trade secrets he viewed during his employment. That prohibition applied even after his employment was terminated in April 2014. Steves became aware of Ambruz's confidentiality obligations at some point, although it is unclear when exactly that occurred.

         In November 2015, Ambruz met with Pierce and Steves' principal officers, Edward Steves and Sam Steves II ("the Steves Brothers"), to discuss the possible construction of a doorskin manufacturing plant. Pierce subsequently prepared a detailed analysis for the Steves Brothers (and thereby Steves, too) concerning the effect of "die changes"[5] on doorskin manufacturing, which suggested ways to mitigate the cost of die changes in order to maximize doorskin production efficiency at a single doorskin manufacturing plant. Then, in or around March 2016, Ambruz incorporated parts of that analysis into a study assessing the feasibility of Steves building an independent doorskin manufacturing plant ("the Feasibility Study"). It is alleged that both the die change analysis and the Feasibility Study included information that was derived from information that Pierce obtained from JELD-WEN.

         Sam Steves subsequently compiled the memoranda and e-mails that Pierce had sent to Steves about an independent doorskin plant, and sent those documents in June 2016 to Ambruz and Gregory Wysock ("Wysock")-a former employee of another vertically integrated doorskin manufacturer, Masonite. Steves hired Wysock to help with the MDS Project in July 2016. Shortly thereafter, he conducted another die analysis that was based on his review of Pierce's die change analysis. Other evidence reveals that Wysock was also aware of the configurations, capacities, productivity, and related processes for JELD-WEN's doorskin manufacturing plants, which JELD-WEN asserts that Pierce had obtained from JELD-WEN employees.

         Since then, Steves has continued to work on the MDS Project and still is considering the feasibility of building its own doorskin manufacturing plant. For instance, Steves has informed customers who purchase its doors about the progress of the MDS Project at different stages. Steves has also had recent communications with manufacturing partners and equipment manufacturing partners about creating a doorskin manufacturing plant. Indeed, it was in the process of negotiating a deal with one partner, Proteak, when this litigation caused the deal to fall apart.

         B. Procedural Background

         Steves initiated this action against JELD-WEN on June 29, 2016, asserting antitrust and contract claims against JELD-WEN related to JELD-WEN's 2012 acquisition of CraftMaster Manufacturing, Inc. and JELD-WEN's subsequent breaches of the Supply Agreement. Complaint (ECF No. 5) (Under Seal). The parties then engaged in discovery.

         On March 27, 2017, JELD-WEN sought leave to amend its Answer and to add counterclaims against Steves based on JELD-WEN's recent discovery, from documents produced by Steves during discovery, that Steves may have used JELD-WEN's confidential information and trade secrets-obtained by Pierce and Ambruz-in furtherance of the MDS Project. ECF No. 101 at 1-2. JELD-WEN asserted the following proposed counterclaims: FIRST COUNTERCLAIM FOR RELIEF, Violation of the Defend Trade Secrets Act, 18 U.S.C. § 1836; SECOND COUNTERCLAIM FOR RELIEF, Conspiracy to Violate Defend Trade Secrets Act, 18 U.S.C. § 1832(a)(5); THIRD COUNTERCLAIM FOR RELIEF, Violation of the Texas Uniform Trade Secret Act, Texas Civil Practice & Remedies Code Annotated §§ 134A.001 - 134A.008; FOURTH COUNTERCLAIM FOR RELIEF, Tortious Interference with Contract Under Texas Common Law, relating to Pierce's employment contract with JELD-WEN; FIFTH COUNTERCLAIM FOR RELIEF, Tortious Interference with Contract Under Texas Common Law, relating to Ambruz's employment contract with JELD-WEN; SIXTH COUNTERCLAIM FOR RELIEF, Breach of the Implied Covenant of Good Faith and Fair Dealing Under Delaware Law; and SEVENTH COUNTERCLAIM FOR RELIEF, Breach of Contract. ECF No. 106 (Under Seal) ¶¶ 41-78. On May 17, 2017, the Court granted JELD-WEN's request, and JELD- WEN filed the counterclaims. Counterclaims (ECF No. 252) (Under Seal) .

         Two other aspects of the Counterclaims are relevant here. First, the Fourth and Fifth Counterclaims were based on Steves causing Pierce and Ambruz, respectively, to breach their employment contracts with JELD-WEN by "providing trade secrets and confidential information to Steves." Id. ¶¶ 62, 68 (emphasis added). Second, JELD-WEN requested multiple types of relief for the First, Second, and Third Counterclaims. It primarily requested damages for its actual loss as a result of the trade secrets misappropriation, as well as Steves' unjust enrichment that was not accounted for in JELD-WEN's actual loss. Alternatively, JELD-WEN sought damages reflecting a reasonable royalty for Steves' past use of the misappropriated trade secrets. In addition, JELD-WEN sought an order: (1) enjoining Steves from acquiring any further trade secrets or confidential information from JELD-WEN and from using such trade secrets; and (2) requiring Steves to search its records and destroy any of JELD-WEN's trade secrets or confidential information. Alternatively, JELD-WEN requested an injunction requiring Steves to pay a reasonable royalty for every future use of the trade secrets. Id. at 47-49.

         At the same time that it allowed JELD-WEN to add the Counterclaims, the Court also ordered that those claims be tried separately from the antitrust and contract claims. ECF Nos. 239-240. Trial for the antitrust and contract claims began on January 29, 2018, and the jury returned a verdict in Steves' favor on all counts on February 15, 2018. ECF No. 1022. That verdict is not relevant to the Court's decision on Steves' summary judgment motion.

         On June 19, 2017, Steves moved to dismiss the Second, Sixth, and Seventh Counterclaims for failure to state a claim. The Court granted the motion on September 13, 2017, dismissing those counterclaims with prejudice. ECF Nos. 353-354.

         JELD-WEN then filed an action in Texas state court, alleging several trade secrets and related claims against the Steves Brothers and Pierce based on the same underlying facts as the Counterclaims. Shortly thereafter, JELD-WEN moved to voluntarily dismiss the Counterclaims, but the Court denied the motion, concluding that the trade secrets litigation had advanced to a stage where dismissal would prejudice the parties and that JELD-WEN's sole explanation for voluntary dismissal was lacking. ECF Nos. 579, 734.[6] The Court then granted motions by the Steves Brothers and Pierce to intervene as counter-defendants in this action. As a result, the Steves Brothers are now counter-defendants to the First, Third, Fourth, and Fifth Counterclaims, and Pierce is a counter-defendant to the First and Third Counterclaims. ECF Nos. 832-833. However, those parties' status as co-defendants to Steves is immaterial here.

         On April 19, 2017, the Court ordered JELD-WEN to list the misappropriated trade secrets to be presented at trial and to identify the witnesses who would prove that they were trade secrets. ECF No. 143. JELD-WEN responded by filing a statement of misappropriated trade secrets on April 26, 2017. ECF No. 185 (Under Seal). After Steves raised concerns about the vagueness of the descriptions and the Court noted that the trade secrets needed to be "specifically identified, " Aug. 9, 2017 Transcript (ECF No. 350) at 131:17, JELD-WEN served Steves with an updated statement, ECF No. 357-2 (Under Seal). Steves then moved to strike portions of the updated statement that were imprecise, and the Court granted that motion in part on October 6. ECF No. 424. In addition, the Court urged JELD-WEN to "err ... on the side of making [the statement] so crystal clear and so precise that there can be no room for contention that you are being vague and leaving the door open." Oct. 3, 2017 Transcript (ECF No. 420) (Under Seal) at 22:6-8. Following those instructions, JELD-WEN filed an amended statement of misappropriated trade secrets on October 9 ("the Amended Statement"). ECF No. 428 (Under Seal). The Amended Statement contained a number of rows of trade secrets, but some rows contained more than one paragraph of information.

         Steves relied on the Amended Statement to conduct its subsequent Rule 30(b)(6) depositions of JELD-WEN through JELD-WEN's two corporate designees, Reed and Brooks Mallard ("Mallard"). During those depositions, Steves' counsel asked the witnesses whether they understood certain rows to contain a single combination trade secret or multiple trade secrets. Testifying about different rows in the Amended Statement, Reed and Mallard both responded that JELD-WEN considers each individual item in the row to be confidential and a trade secret, and that the cumulative information in the whole row is also confidential and a trade secret. SUF ¶¶ 10-11; SUF Response ¶¶ 10-11. Reed also explained, though, that JELD-WEN does not keep a list of trade secrets, considers all its information confidential, and does not separate that information into items or groups. SUF ¶ 10; SUF Response ¶ 10.

         JELD-WEN then filed an updated statement of misappropriated trade secrets to be asserted at trial on November 2 ("the Trial Statement"). ECF No. 468 (Under Seal). Shortly thereafter, JELD-WEN moved for leave to add several trade secrets to the Trial Statement based on the declarations of two individuals, including JELD-WEN's industry expert and former employee James Morrison ("Morrison"), that they had discovered additional misappropriated trade secrets and confidential information while reviewing documents produced by Steves. The trade secrets described by Morrison related to sales data from internal JELD-WEN documents that he viewed during his employment-which were reflected in Ambruz's Feasibility Study for Steves-and formulas Morrison created while working for JELD-WEN. ECF No. 511-2 (Under Seal) . After the Court granted the motion, JELD-WEN filed its amended statement of misappropriated trade secrets for trial ("the Amended Trial Statement") on November 29. ECF No. 588 (Under Seal) .

         During Morrison's subsequent deposition, Steves' counsel questioned him about the trade secrets that were added in the Amended Trial Statement. As to the sales data information, Morrison could not identify specific data that he had seen in internal JELD-WEN documents as an employee, but stated that he had seen sales data in a number of databases to which he and Ambruz had access, and that the data in the Feasibility Study was "generally reflective" of JELD-WEN's data. SUF ¶ 18; SUF Response ¶¶ 17-19. He added that he did not need to research this recollection further because he was knew from his employment the number of shipments that customers were receiving. SUF Response ¶¶ 17-19.

         Morrison also testified about the information in the Amended Trial Statement, having been retained by JELD-WEN to express his expert opinion on whether that information was confidential, protected, and valuable to JELD-WEN. Id. ¶ 23; SUF ¶ 25. When asked whether certain information was a single trade secret, Morrison said that it was a trade secret "[s]eparately and in combination." SUF ¶ 22. Morrison evaded answering that line of questioning by responding that JELD-WEN had not retained him to give an opinion on whether particular information constituted a trade secret. SUF Response ¶¶ 21-22.[7]Morrison then numbered the rows in the Amended Trial ...


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