Hogan Lovells Publications | Quarterly Corporate and M&A Decisions Update | May 2021
2021 Q1 Decisions Update
Steves and Sons, Inc. v. JELD-WEN, Inc. No. 19-1397 (4th Cir. Feb. 18, 2021)
Summary
Both Plaintiff Steves and Defendant JELD-WEN make molded doors by attaching two molded “doorskins” to either side of a wood frame. JELD-WEN manufactures doorskins to use in its own doors and to sell to independent doormakers like Steves. Before 2012, there were three doorskin manufacturers in the United States, JELD-WEN, Masonite, and CMI, each of which made their own doors and sold doorskins to independent doormakers. In October of 2012, JELD-WEN acquired CMI, reducing that number to two. The Department of Justice investigated this acquisition but closed its investigation without taking action.
From 2010 to 2012, Steves bought doorskins from CMI and Masonite. In May of 2012, Steves signed a long-term supply contract with JELD-WEN. Shortly after signing the agreement, Steves began noticing quality issues in the doorskins. JELD-WEN also increased the prices it charged Steves every year despite its costs decreasing.
In 2014, Masonite announced that it would stop selling doorskins to all independent doormakers. Shortly after that, JELD-WEN gave Steves notice of termination of the supply contract, which would be effective in seven years. This left Steves facing the prospect of having no ability to purchase doorskins starting in September 2021, and, consequently, going out of business. So, in 2015, Steves began the dispute resolution process established by the supply contract and asked the Department of Justice to reexamine the CMI acquisition. Steves did not get any relief from the contractual dispute resolution process and the Department of Justice closed its investigation without acting, so Steves filed suit in June 2016 for breach of contract and under Section 7 of the Clayton Act.
After a trial, the jury found that JELD-WEN had breached the supply contract by overcharging for doorskins, that JELD-WEN’s merger with CMI had the effect of substantially lessening competition, that Steves had suffered an antitrust injury, and that Steves had proved past and future damages resulting from the antitrust injury. The district court then held a bench trial on Steves’ claims for equitable relief, including divestiture. Rejecting JELD-WEN’s laches defense, the district court granted the request for divestiture. Using the two-step process established in Brown Shoe Co. v. United States, 370 U.S. 294 (1962), the district court held that JELD-WEN could first appeal the divestiture order, and then, if it was affirmed, a special master would run an auction of the divested assets. JELD-WEN appealed.
On appeal, the Fourth Circuit rejected JELD-WEN’s argument that Steves failed to prove an antitrust injury by considering whether Steves would have suffered an identical loss if JELD-WEN had breached the contract without having merged with CMI. It found that the merger weakened the competitive pressures on JELD-WEN to provide good customer service and high-quality products, enabled it to raise prices without fear of being undercut by another supplier, and foreclosed Steves’ ability to mitigate its damages by buying from other doorskin manufacturers.
The Fourth Circuit also rejected JELD-WEN’s attacks on the divestiture order for two main reasons. First, it found that the district court properly rejected JELD-WEN’s laches defense because, despite filing suit nearly four years after the merger, Steves did not unreasonably delay filing suit. Steves did not discover its injury until 2014, when JELD-WEN terminated the supply contract and Masonite announced that it would no longer sell to independents, and then diligently exhausted its alternative remedies through 2016, when it filed suit.
Second, the Fourth Circuit affirmed the district court’s grant of equitable relief. The potential of Steves, a family-owned business for over 150 years, going out of business was a significant threat of irreparable harm that could not be repaired with money damages. The balance of the hardships tipped in favor of divestiture because Steves’ potential collapse was a greater hardship than the significant cost to JELD-WEN of divesting the doorskin plant it acquired in the CMI merger. And divestiture served the public interest because it was likely to result in a third doorskin supplier entering the market, which would end the duopoly of JELD-WEN and Masonite and increase competition.
Back To Listing
