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

• Decision Date: 09 February 2018
• Docket Number: Civil Action No. 3:16–cv–545
• Citation: 292 F.Supp.3d 656
• Parties: STEVES AND SONS, INC., Plaintiff, v. JELD–WEN, INC., Defendant.
• Court: U.S. District Court — Eastern District of Virginia

292 F.Supp.3d 656

STEVES AND SONS, INC., Plaintiff,

v.JELD–WEN, INC., Defendant.

Civil Action No. 3:16–cv–545

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

Signed February 9, 2018

Lewis F. Powell, III Esquire, John S. Martin, Esquire, Alexandra L. Klein, Esquire, Hunton & Williams LLP, 951 East Byrd Street, Richmond, Virginia 23219, (804) 788–8200, Glenn D. Pomerantz, Esquire, Ted Dane, Esquire, Kyle W. Mach, Esquire, Munger, Tolles & Olson LLP, 350 S. Grand Avenue, 50^th Floor, Los Angeles, California 90071, (212) 683–9132, Richard A. Feinstein, Esquire, Nicholas A. Widnell, Esquire, Boies, Schiller & Flexner, LLP, 5301 Wisconsin Avenue, NW, Suite 800, Washington, D.C. 20015, (202) 237–2727, Attorneys for Plaintiff.

Michael W. Smith, Esquire, Craig T. Merritt, Esquire, R. Braxton Hill, IV, Esquire, Harrison M. Gates, Esquire, Christian & Barton, L.L.P., 909 E. Main Street, Suite 1200, Richmond, Virginia 23219, (804) 697–4100, Margaret M. Zwisler, Esquire, Allyson M. Maltas, Esquire, Latham & Watkins LLP, 555 Eleventh Street, N.W., Suite 1000, Washington, D.C. 20004, (202) 637–2200, Alfred C. Pfeiffer, Esquire, Latham & Watkins LLP, 505 Montgomery Street, Suite 2000, San Francisco, California 94111, (415) 391–0600, Attorneys for Defendant.

MEMORANDUM OPINION

Robert E. Payne, Senior United States District Judge

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, CMI 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) ("Def. 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) ("Pl. SAMF") ¶ 4.

Under the Supply Agreement, Steves had to purchase at least 80% of its interior molded doorskin requirements from JELD–WEN. Pl. 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, Pl. 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...