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

• Decision Date: 18 February 2021
• Docket Number: No. 19-1397,19-1397
• Citation: 988 F.3d 690
• Parties: STEVES AND SONS, INC., Plaintiff – Appellee, and Samuel Steves; Edward Steves ; John G. Pierce, Counter Defendants – Appellees, v. JELD-WEN, INC., Defendant – Appellant, and United States of America, Amicus Supporting Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

988 F.3d 690

STEVES AND SONS, INC., Plaintiff – Appellee,

and

Samuel Steves; Edward Steves ; John G. Pierce, Counter Defendants – Appellees,

v.JELD-WEN, INC., Defendant – Appellant,andUnited States of America, Amicus Supporting Appellee.

No. 19-1397

United States Court of Appeals, Fourth Circuit.

Argued: May 29, 2020

Decided: February 18, 2021

ARGUED: Paul D. Clement, KIRKLAND & ELLIS, Washington, D.C., for Appellant.

Taylor Mayly Owings, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus United States of America. Benjamin Joseph Horwich, MUNGER, TOLLES & OLSON, LLP, San Francisco, California, for Appellees.

ON BRIEF: Erin E. Murphy, C. Harker Rhodes IV, Erin E. Cady, KIRKLAND & ELLIS LLP, Washington, D.C., for Appellant.

Lewis F. Powell III, John S. Martin, Maya M. Eckstein, R. Dennis Fairbanks, HUNTON ANDREWS KURTH LLP, Richmond, Virginia; Marvin G. Pipkin, PIPKIN LAW LLP, San Antonio, Texas; Kyle W. Mach, Emily C. Curran-Huberty, San Francisco, California, Glenn D. Pomerantz, Ted Dane, Kuruvilla J. Olasa, MUNGER, TOLLES & OLSON LLP, Los Angeles, California, for Appellees. Makan Delrahim, Assistant Attorney General, Andrew C. Finch, Principal Deputy Assistant Attorney General, Michael F. Murray, Deputy Assistant Attorney General, Kristen C. Limarzi, Kathleen Simpson Kiernan, Antitrust Department, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus United States of America.

Before DIAZ, FLOYD, and RUSHING, Circuit Judges.

Affirmed in part, vacated in part, and remanded by published opinion. Judge Diaz wrote the opinion, in which Judge Floyd and Judge Rushing joined. Judge Rushing wrote a concurring opinion.

DIAZ, Circuit Judge:

This case arises from JELD-WEN, Inc.’s acquisition of a competitor, CMI, in 2012. Four years later, one of JELD-WEN's customers, Steves and Sons, Inc., filed this suit challenging the merger. After a trial, a jury found that the merger violated the Clayton Antitrust Act and that Steves was entitled to treble damages. The district court then granted Steves's request to unwind the merger, and plans to hold an auction for the merged assets after this appeal.

The district court held another trial before a different jury on JELD-WEN's countersuit against Steves for trade secret misappropriation. The court allowed the three individuals at the center of JELD-WEN's allegations—Steves's two owners and one of its employees—to intervene in the case. After the jury ruled for Steves on most of JELD-WEN's claims, the court entered judgment for the intervenors, even though JELD-WEN had brought no claims against them.

JELD-WEN now appeals various aspects of the district court's rulings, the bulk of which we affirm. On the one hand, the court properly declined to grant JELD-WEN judgment as a matter of law on whether Steves demonstrated antitrust injury. The court also acted within its discretion by excluding certain evidence from the antitrust trial and by ordering JELD-WEN to unwind the merger, rejecting JELD-WEN's laches defense in the process. The court properly found that equitable relief under the Clayton Act, 15 U.S.C. § 26, was appropriate because the merger created a significant threat that Steves will go out of business in 2021. And JELD-WEN hasn't shown that the court's jury instructions in the trade-secrets trial were improper.

On the other hand, we vacate the jury's award of future lost profits to Steves in the antitrust trial (which was meant to be a backup remedy in case divestiture doesn't pan out) because that issue isn't ripe. The injury on which the future lost profits award was premised can't occur until September 2021, and the Clayton Act requires a plaintiff seeking damages—as opposed to equitable relief—to "show actual injury," Cargill, Inc. v. Monfort of Colo., Inc. , 479 U.S. 104, 111, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986) (contrasting 15 U.S.C. § 15 with 15 U.S.C. § 26 ). We also vacate the district court's entry of judgment for the intervenors in the trade-secrets case because JELD-WEN brought no claims against them.

I.

This case concerns the American "doorskin" market and events that took place between 2012 and 2016. But we must first explore the pre-2012 doorskin market.

A.

Most doors used in homes in the United States are "molded doors," which are made by placing a wood frame and a solid or hollow core between two "doorskins" that make up the front and back of the finished door. Doorskins are made from fibrous materials (such as wood chips or sawdust) that are combined with wax or resin and then molded by a metal die into paneled designs and textures.

Steves and JELD-WEN sell molded doors. JELD-WEN also makes doorskins, some of which it uses in its own doors, and some of which it sells to other door manufacturers (the "Independents"), including Steves. Since the Independents don't make their own doorskins, they must buy them from doorskin suppliers. As of 2015, there were six Independents in this country, of which Steves was the largest.

From 2001 through 2012, there were three doorskin manufacturers in the United States: JELD-WEN, Masonite, and CMI. In 2012, Masonite had 46% market share, JELD-WEN had 38%, and CMI had 16%. All three were vertically integrated, meaning that each made their own molded doors and also sold doorskins to the Independents.

To make doors, Steves must either buy its doorskins on the "spot market" (i.e., the market for one-off purchases) or enter a long-term supply contract with a manufacturer. From 2003–2010, Steves and JELD-WEN had a long-term agreement that covered 90% of Steves's doorskin purchases. This deal fell apart in 2010, after JELD-WEN raised its prices in response to regulatory changes. For the next two years or so, Steves bought doorskins on the spot market from Masonite and CMI, who offered Steves low prices to try to woo it into entering a long-term supply agreement.

Instead, Steves signed another long-term agreement with JELD-WEN in May 2012 (the "Supply Agreement"). In this deal, Steves committed to purchasing at least 80% of its doorskins from JELD-WEN, with one exception: if another supplier offered a price at least 3% below JELD-WEN's, and JELD-WEN refused to match, Steves could purchase any quantity of doorskins from that supplier. Important here, prices under the Supply Agreement varied annually based on JELD-WEN's costs. The agreement also contained quality assurances, which required JELD-WEN to reimburse Steves for damages resulting from defective doorskins, and provided for alternative dispute resolution procedures before either party could sue the other.

The Supply Agreement expired in December 2019, but would automatically renew for successive seven-year terms unless either party terminated it. Steves could terminate it for any reason upon two years’ notice, and JELD-WEN could do so upon seven years’ notice. Steves could also end it immediately if JELD-WEN gave notice of termination. JELD-WEN's then-CEO told Steves that the company viewed this as a "life time [sic] deal." J.A. 1594.

Immediately after Steves entered into the Supply Agreement, Masonite stopped selling Steves any doorskins and cancelled existing orders.

B.

Meanwhile, JELD-WEN set its sights on acquiring CMI. CMI produced doorskins and "trim board" products at a plant in Towanda, Pennsylvania. CMI's business was profitable until 2007, and trial evidence showed that the Independents benefited from the competition between the three American doorskin manufacturers. But CMI began struggling once the housing bubble burst. After pouring their own money into the company in 2011 to keep it afloat, CMI's owners decided to sell the business.

Many bidders showed interest, including JELD-WEN, Masonite, and Steves. Among these, CMI identified four or five "serious prospective buyers" (which didn't include Steves), J.A. 3447; narrowed its consideration to JELD-WEN and Masonite; and chose JELD-WEN in early 2012. Steves learned of the merger in April 2012, just before it signed the Supply Agreement.

The CMI merger reduced the number of American doorskin manufacturers from three to two. Recognizing that this could present antitrust issues, JELD-WEN didn't notify the Department of Justice's Antitrust Division of the merger until July 2012, after it entered into long-term supply contracts with Steves and two other large Independents. JELD-WEN hoped that these contracts, by appearing to protect the Independents from price increases or refusals to sell, would allay concerns about the merger's potential anticompetitive effects.

When it learned of the merger, the Justice Department quickly opened an investigation and reached out to Steves, who responded that it didn't oppose the merger. The Department closed its investigation in September 2012, and JELD-WEN and CMI consummated the merger in October 2012. JELD-WEN spent significant time and resources integrating the Towanda plant's doorskin and trim-board manufacturing processes over the next few years.

C.

Steves had issues with JELD-WEN almost immediately after signing the Supply Agreement. Starting in mid-2012, Steves noticed quality issues with JELD-WEN's doorskins. Internal JELD-WEN documents from this time suggest that other Independents were complaining about its doorskins, too.

JELD-WEN nonetheless increased the prices that it charged Steves in 2013, 2014, and 2015. Trial evidence showed that JELD-WEN's costs declined in each of those years, which meant that it should have reduced Steves's prices (per the Supply Agreement), not raised them. According to Steves's expert, JELD-WEN charged Steves almost eight percent more than what the Supply Agreement allowed in these years. Other JELD-WEN customers without a supply agreement endured even greater price increases. Additionally, JELD-WEN released two new doorskin styles (the "Madison" and "Monroe" styles) in late 2012 and charged Steves more for them than the contract allowed, asserting that they were outside the scope of the agreement. Steves protested these maneuvers, but...