Court: District Court, E.D. Virginia; October 5, 2018; Federal District Court
The jury determined that JELD-WEN's actions related to the 2014 merger led to a significant reduction in competition within the doorskin market, resulting in injuries to Steves that the antitrust laws aim to prevent. Consequently, the jury awarded Steves $58,632,454.00 in damages, which, when trebled as mandated by law, totals $175,897,362.00. Additionally, the jury found JELD-WEN breached specific sections of the Long Term Supply agreement, awarding Steves $12,151,873.00 for these breaches. However, this amount will be decreased by $2,188,271.00 due to the court granting JELD-WEN's motion for judgment as a matter of law against Steves.
As a primary equitable remedy, Steves seeks the court's order for JELD-WEN to divest the Towanda facility to restore competition in the doorskin market, alongside imposing behavioral remedies to ensure the divested entity can operate independently or effectively with a new owner. Steves proposes several specific conduct remedies to accompany the divestiture, including:
1. Transfer of all necessary tangible assets for the production of doorskins at Towanda.
2. Licensing of all intangible assets related to the development and sale of molded doorskins.
3. Assurance that the acquiring entity can retain current employees at Towanda.
4. A prohibition on JELD-WEN hiring Towanda employees for two years.
5. An eight-year long-term supply agreement to Steves at reasonable terms.
6. Allowing independent manufacturers to terminate their supply agreements with JELD-WEN without penalty.
7. Permitting JELD-WEN to purchase doorskins from the divested entity for two years during a transition period.
The jury also found that JELD-WEN's acquisition of CMI violated Section 7 of the Clayton Act and confirmed that this violation caused injuries to Steves as intended by antitrust laws. The court's next step involves determining how to restore competition and whether divestiture, with or without the proposed conduct remedies, is the appropriate solution. The court must consider the jury's binding factual findings and make additional factual determinations based on the trial record and Remedies Hearing.
COUNT ONE establishes that the jury found the plaintiff entitled to damages due to JELD-WEN's antitrust violations, totaling $58,180,454, which includes $8,630,567 for overcharging on doorskins (excluding Madison and Monroe), $1,303,035 for overcharging on Madison and Monroe doorskins, $441,458 for defective doorskins, and $1,776,813 for costs related to defective doors that used those doorskins. Additionally, $46,480,581 was awarded for future lost profits. These findings are binding on the Court.
The Court also made factual findings relevant to equitable remedies. Steves and JELD-WEN are both participants in the interior molded doorskin market, with Steves acting as an independent manufacturer reliant on purchasing doorskins, while JELD-WEN functions as a vertically integrated manufacturer. Prior to 2001, JELD-WEN and Masonite were the sole manufacturers of doorskins in the U.S., with Masonite's Towanda facility being central to Steves' equitable relief request. In 2000, Masonite was acquired by Premdor, which faced DOJ scrutiny over the acquisition's impact on doorskin supply. A settlement led to the divestiture of Towanda, establishing it as Craftmaster International, Inc. (CMI) to serve various customers, including JELD-WEN and independent manufacturers. CMI was incorporated on September 1, 2001, and received transitional support from International Paper and Masonite to facilitate its independence, including a three-year period for die manufacturing and a royalty-free license for necessary intellectual property.
CMI became a fully independent entity over two and a half years after its divestment from Masonite, as described by former CEO Bob Merrill. Initially, CMI's financial performance was robust, driven by cost control from separation agreements and increased demand for housing during the housing bubble. In 2006, CMI reported significant net sales and positive EBITDA. The competitive landscape among CMI, Masonite, and JELD-WEN also benefitted independent companies like Steves. CMI expanded its product line by aggressively developing two products, MiraTEC and Extira, initially started by Masonite, which saw substantial growth and were crucial for CMI's survival post-housing bubble collapse.
However, starting in 2003, CMI's customer base dwindled as eight of its eleven initial customers were acquired by firms that did not purchase doorskins from CMI, leading to reduced sales volume. In response, from 2005 to 2010, CMI forward integrated by acquiring two door manufacturers and constructing two manufacturing plants, allowing for increased internal sales of doorskins, which represented nearly 40% of total sales by 2011.
There is contention regarding Towanda's doorskin business performance from 2009 to 2014. Steves cites documents PTX 341 and PTX 342, indicating Towanda generated positive EBITDA from 2009 to 2013, with a small positive projection for 2014. While the origin of these documents is unclear, they are based on historical CMI records acquired during the merger and were used by JELD-WEN for strategic decisions. JELD-WEN argues that Towanda's profitability for 2011 and 2012 should be assessed against CMI's audited financials and their DOJ submissions, with Merrill's testimony suggesting discrepancies between the figures in PTX 341 and 342 and other documents he reviewed.
DTX 191 and DTX 60 are not credible regarding the profitability of Towanda's doorskin business, as they provide a broader view of CMI, which includes other businesses and locations. Merrill's testimony is also deemed unreliable due to the absence of supporting documents he claimed existed. The profitability of Towanda’s doorskin business is relevant for determining whether divestiture is an appropriate remedy, as the court must establish that a divested Towanda could operate competitively and profitably. Despite CMI’s financial difficulties in 2011 and 2012, the doorskin business showed slight profitability, and CMI was put up for sale due to its financial straits, with several serious buyers emerging, including JELD-WEN and Masonite. JELD-WEN ultimately acquired CMI, motivated by Towanda’s production capabilities, efficiency, and potential to manufacture trim products. To maintain the doorskin volume post-acquisition, JELD-WEN entered into long-term supply agreements with three of CMI's existing customers and re-engaged with Steves for a new supply agreement after terminating a previous one.
On May 1, 2012, Steves entered into a Supply Agreement with JELD-WEN for the purchase of doorskins under specific terms applicable to JELD-WEN's molded doorskin products. The agreement was set to last until December 31, 2019, with automatic seven-year renewals unless terminated by either party. Steves could terminate the agreement with a two-year notice, while JELD-WEN required a seven-year notice for termination. Pricing for doorskins was determined by a formula linked to JELD-WEN's input costs, and JELD-WEN was obliged to notify Steves of annual prices by November 30, failing which no price increases could be enforced. Steves was required to source at least 80% of its interior molded doorskin needs from JELD-WEN but could seek lower-priced options from other suppliers, provided JELD-WEN was given the chance to match those prices. Quality standards were mandated, with JELD-WEN responsible for reimbursement of defective doorskins after inspection. Other cost reimbursements were negotiable, not mandatory. Disputes were to be resolved through an extensive alternative dispute resolution process, including an internal executive conference and mediation, prior to any litigation. Following the signing, JELD-WEN announced the CMI Acquisition, which required regulatory approval. The decision to approach the DOJ for approval was made after securing long-term supply contracts, aimed at alleviating antitrust concerns. The DOJ opened a preliminary investigation but closed it on September 28, 2012, allowing the acquisition to complete on October 24, 2012, for approximately $1.4 billion. Steves communicated to the DOJ its non-opposition to the merger, citing protections from the Supply Agreement against potential anticompetitive actions.
JELD-WEN implemented several administrative changes after acquiring CMI, including closing CMI's Chicago headquarters and two of its four manufacturing plants. Key operational functions such as human resources and payroll were integrated into JELD-WEN's system, but the accounting systems for CMI’s Towanda plant and JELD-WEN's legacy plants remained separate. Customer interactions, particularly with Steves, continued unaffected post-acquisition, maintaining previous ordering and payment processes.
The Marion, North Carolina plant was closed due to high costs associated with environmental compliance and outdated equipment, rather than the acquisition itself. This closure facilitated the transfer of production to the more efficient Towanda plant, saving approximately $1 million in manufacturing costs and eliminating $500,000 in fixed costs. Marion was mothballed in mid-2013.
Prior to the merger, JELD-WEN had identified the Dubuque plant as 'impaired' due to its urban location limiting necessary environmental controls. Closure was delayed due to issues at a newly opened facility in Dodson, Louisiana. After acquiring CMI, JELD-WEN found Dubuque's production redundant and closed it, selling the plant around August 2016. Testimony regarding Dubuque's closure was discredited by the Court, which found that the decision predated the merger.
Post-acquisition, JELD-WEN invested approximately $3 million to modify manufacturing processes at Towanda, leading to annual savings of about $500,000. Changes included switching to a less expensive primer, reducing component usage, and improving production techniques, all contributing to decreased manufacturing costs.
The Court determined that various processes implemented at JELD-WEN's Towanda facility were not a direct result of the merger with CMI, as they would have been adopted regardless. Following the merger, JELD-WEN invested approximately $5 million between July 2014 and July 2017 in capital improvements aimed at enhancing the facility and reducing defects in doorskins. Key investments included new equipment and upgrades, such as doorskin dies, coating equipment, and a hydraulic commander, along with repairs to the facility's infrastructure. These improvements were considered high-return projects, yielding savings close to their costs. Despite Morrison's testimony suggesting that JELD-WEN would not have pursued these changes without the merger, the Court found him to lack credibility and noted that JELD-WEN was aware of the potential for divestiture since mid-2015 yet continued its investments.
Additionally, JELD-WEN modified its doorskin designs and utilized a mix model to efficiently allocate production across its four plants based on demand and capacity. The mix model, which accounts for various logistical factors, would have been developed independently of the CMI acquisition. However, having production from Towanda contributes to unquantified savings by optimizing distribution and reducing transit times for customers. If Towanda were to close, it would likely lead to increased freight costs for customers reliant on its output.
A customer relying on Towanda for doorskins would struggle to source every SKU from other plants without significant adjustments to JELD-WEN’s allocation model, leading to production inefficiencies and increased doorskin prices. JELD-WEN did not quantify these cost increases, and modifications to their operations, including a $500,000 doorskin consolidation process, resulted in reduced SKU availability but eventually became cost-effective. JELD-WEN's MiraTEC and Extira businesses, which generated $2 million of Towanda’s $4 million EBITDA in 2017, have expanded its presence in the general building products market. Projected revenues for 2018 are $1 billion with an EBITDA of $200 million. In the case of divestiture, the new owner would retain revenues from MiraTEC and Extira sales to JELD-WEN's customers.
Regarding the Supply Agreement with Steves, JELD-WEN supplied doorskins in 2012 and 2013, with price adjustments tied to key input costs. Despite declining input costs after the merger, JELD-WEN raised prices to Steves in 2013, 2014, and 2015, resulting in a cumulative overcharge of 7.87%, as determined by Steves' damages expert. Additionally, other customers without supply agreements faced even higher price increases, corroborated by internal JELD-WEN documents.
JELD-WEN imposed higher prices on Steves for Madison and Monroe doorskins, claiming they fell outside the Supply Agreement, a stance rejected by the jury. JELD-WEN’s pricing was influenced by increased market power following the CMI Acquisition, which left them and Masonite as the sole doorskin suppliers in the U.S. Steves believed the Supply Agreement would shield it from anticompetitive practices. In July 2014, JELD-WEN's new CEO, Kirk Hachigian, forwarded a Masonite presentation indicating Masonite would not sell doorskins to competitors like Steves. Shortly after, Hachigian notified Steves of the Supply Agreement's termination, effective September 10, 2021, following Steves' refusal to accept a proposed capital charge on doorskin prices, which was not allowed under the agreement. Despite worries about doorskin supply, Steves chose not to terminate the agreement, believing no alternatives were viable.
In late 2014, JELD-WEN altered its handling of doorskin defects, moving from prompt reimbursements to significant limitations. Previously, Steves could submit vendor debit memos (VDMs) for defective doorskins, and JELD-WEN would either inspect the defects or provide credit. After mid-2014, JELD-WEN restricted reimbursements, and by 2014-15, it changed its policy to reimburse only for defective doorskins, not for the full cost of defective doors sold to Steves' customers. This policy shift followed management's directive to tighten reimbursement processes. At trial, JELD-WEN argued it wasn't contractually obligated to reimburse for the full cost of doors but had done so for customer relations. However, the reduced competition post-merger led JELD-WEN to no longer feel compelled to extend this benefit to Steves after 2015.
JELD-WEN is expected to continue its problematic pricing and contract practices, as evidenced by Shapiro's testimony indicating that the entry of new doorskin suppliers into the U.S. market is improbable. Currently, JELD-WEN is charging Steves inflated prices for doorskins, specifically Madison and Monroe varieties, and is ignoring the price adjustment provisions outlined in Section 6c of their Supply Agreement. Additionally, JELD-WEN has attempted to unilaterally increase labor costs in pricing without providing necessary backup information. The jury determined that Steves incurred damages due to JELD-WEN's violation of the contract, attributing these damages to antitrust violations stemming from a merger that substantially reduced competition.
After receiving termination notices from JELD-WEN, Steves, recognizing the critical need for a reliable doorskin supply, sought alternative suppliers. Although Steves can still purchase doorskins from JELD-WEN until September 2021, the evidence suggests that reliance on JELD-WEN post-termination is questionable, with JELD-WEN hinting at potentially harming independent suppliers. Attempts to secure a long-term supply contract with Masonite were unsuccessful, as Masonite's CEO stated they would only offer spot sales at prices approximately 37% higher than those under the Supply Agreement. Consequently, Steves has explored foreign suppliers, such as Teverpan, Kastamonu, and Yildiz, but these sources can only meet a small portion of Steves’ needs and have presented quality issues. To ensure a stable supply post-September 2021, Steves has considered establishing its own manufacturing plant (the MDS Project) and has hired two former JELD-WEN employees for assistance in this endeavor.
The excerpt details Steves' efforts and challenges regarding the potential establishment of a doorskin manufacturing plant. A feasibility study completed on March 30, 2016, highlighted significant hurdles, including cost, time, and the necessity of a manufacturing partner. By early 2017, Steves concluded that building its own plant was not feasible and has made no tangible progress toward this goal. However, the company has not fully abandoned the project and continues to seek a manufacturing partner, despite lacking communication with potential partners before the trial.
Steves cannot meet its doorskin needs through foreign manufacturers or by building a plant, which jeopardizes its business operations as the expiration of the Supply Agreement with JELD-WEN in 2021 approaches. The company's revenue heavily relies on its interior molded doors, which accounted for 70% of total sales in 2017, making a reliable doorskin supply crucial for survival. Failure to secure this supply would endanger the jobs of 1,100 employees and threaten the legacy of the Steves family, who have managed the business since 1866.
The document also touches on the ongoing discussions between JELD-WEN and Steves regarding quality and pricing issues stemming from the 2012 merger, indicating that Steves began noticing quality problems shortly after the merger but did not initially associate them with it. It also notes that concerns over doorskin pricing emerged in late 2012 and continued into 2013, but those discussions were initially focused on specific pricing mechanisms rather than the broader implications of the merger.
The issues with the key input costs provision relevant to Steves' pricing claims emerged after Hachigian became CEO of JELD-WEN in early 2014. By August 2014, email exchanges between Sam and Edward Steves indicated awareness of potential antitrust issues, particularly concerning the implications of JELD-WEN terminating the supply agreement and pricing discussions. Despite recognizing these antitrust concerns, Steves prioritized finding alternative doorskin supply sources and attempted to negotiate a commercial solution with JELD-WEN, which expressed a desire for resolution. When negotiations stalled by early 2015, Steves initiated formal dispute resolution procedures under the Supply Agreement on March 11, 2015, but this did not notify JELD-WEN of potential antitrust claims. Discussions during subsequent conferences addressed contractual concerns, including key input costs and doorskin quality, with antitrust issues also raised, although specifics were not recorded. After unsuccessful mediation in September 2015, Steves presented a draft complaint encompassing both contract and antitrust issues. The parties then entered into a standstill agreement to prevent immediate litigation while continuing to seek resolutions, which was subsequently renewed multiple times through early 2016.
Sam Steves indicated that the agreements allowed him to initiate legal action at any time, yet he chose not to pursue litigation, believing that a resolution with JELD-WEN could be achieved through negotiation, as outlined in the standstill agreements. In December 2015, Steves requested the Department of Justice (DOJ) to investigate JELD-WEN's potentially anticompetitive behavior, subsequently presenting information and documents to the DOJ in January 2016. JELD-WEN also presented to the DOJ in April 2016, but the DOJ closed its investigation on May 18, 2016, without taking action. Following this, when JELD-WEN declined to sign a new standstill agreement, Steves filed a lawsuit on June 29, 2016.
The viability of divesting Towanda as a competitive entity in the doorskin market is contested. Towanda occupies 19 acres of a 275-acre property, including a main production plant, a smaller die form plant, a wood yard, and a water treatment facility, all of which existed prior to JELD-WEN's acquisition. Towanda employs over 400 workers, with approximately 300 at the main plant, and has a design capacity for doorskin production that does not equate to actual output due to operational downtimes.
Towanda's production lines include Line 1, a high-volume/low-mix press focused on producing a large quantity of a limited variety of doorskins, and Dieform, a high-mix/low-volume press that allows for greater SKU variety but at a lower total production rate. Line 1 is designed for efficiency with fewer die changes, while Dieform accommodates a broader range of product designs, including niche offerings.
Despite efforts to maximize efficiency, Towanda's production capacity is limited by necessary downtime, resulting in an actual capacity of fewer doorskins per year. In 2017, Towanda produced a diminished number of doorskins, while its doorskin business remained strong, generating substantial EBITDA. Increased doorskin volume correlates with a robust housing market, evidenced by a rise in domestic housing starts from approximately in 2001 to around in 2017. Demand for doorskins has returned to levels seen in the early 2000s, contributing to positive EBITDA for CMI during that time, although it did not reach the peak levels of 2006.
Towanda's sales to JELD-WEN's manufacturing plants accounted for a significant portion of its production in 2017. The heightened demand has enabled Towanda to spread its fixed costs, lowering the cost per doorskin in 2017 compared to both its peak in 2006 and its nadir in 2011. This reduction is partly due to operational changes implemented by JELD-WEN. Additionally, doorskin prices have risen since 2011, allowing JELD-WEN to charge competitive prices, nearly matching those from 2006.
Towanda's design capacity requires the sale of a specific number of doorskins annually at set price points to remain profitable, and its actual capacity in 2017 exceeded this threshold. Evidence shows Towanda is a profitable competitor in the doorskin market and was also profitable from its establishment in 2001 until the housing market decline in 2006. JELD-WEN contends that if Towanda were to be divested, it would struggle to maintain profitability and compete. They argue that divestiture would be more complex than a prior successful divestiture from Masonite in 2001 due to differing designs and the necessity for JELD-WEN to replicate Towanda's offerings, a process they estimate would require at least two years.
Towanda's potential profitability as a standalone entity is evaluated in relation to JELD-WEN's operations. JELD-WEN argues that Towanda would incur increased fixed costs by establishing its own administrative and technology departments, currently covered by JELD-WEN. However, this does not definitively indicate that Towanda would be unprofitable or non-competitive post-divestiture. JELD-WEN also claims that Towanda cannot optimally utilize its capacity without access to JELD-WEN’s other plants or customers. Despite this, it is likely that Steves would purchase doorskins from an independent Towanda, and JELD-WEN might continue to buy from Towanda for at least two years post-divestiture, due to challenges in sourcing from foreign suppliers or establishing a new facility. Furthermore, independent companies are seen as potential customers for a divested Towanda, particularly given recent price increases imposed by JELD-WEN. Collectively, these sales could surpass the $17-18 million threshold necessary for profitability.
While Towanda would need to diversify its product offerings more than in previous years, evidence does not clearly specify which specific SKUs would be affected by divestiture or how this would impact production capacity and profitability. It can be generally concluded that divestiture would somewhat limit Towanda's ability to serve JELD-WEN's independent customers due to necessary die changes leading to increased downtime and potential cost increases. However, without precise data on these costs, the court concludes that while Towanda will need to adjust its product mix significantly, it remains capable of operating profitably and competitively under the necessary adjustments.
JELD-WEN contends that it cannot be determined whether a divested Towanda would be competitive due to the uncertainty surrounding potential buyers. Currently, only Steves has expressed interest in acquiring Towanda, but its executives lack expertise in operating a doorskin plant. If divestiture occurs, existing management and employees would likely be retained, enhancing the chances for successful competition, as demonstrated by previous divestitures involving CMI. Despite the lack of current buyers, past profitability of Towanda and interest during the 2011 sale of CMI suggest that interested parties may emerge after legal proceedings conclude.
Since the case was filed in June 2016, JELD-WEN has not formulated a detailed plan for operating without Towanda, relying instead on speculative opinions from its executives regarding the potential impacts of divestiture. These opinions, lacking in concrete analysis and influenced by bias, are deemed unreliable. Nonetheless, it is acknowledged that losing Towanda's capacity could temporarily hinder JELD-WEN's ability to meet its doorskin production needs. The document notes the importance of reviewing JELD-WEN's recent production figures for context.
In 2017, JELD-WEN produced approximately 30 million doorskins, with a significant portion supplied to Steves. Following a potential divestiture of Towanda, JELD-WEN would face a shortfall in doorskin production necessary for both internal use and external customers, excluding Steves. However, provisions would likely allow JELD-WEN to purchase its shortfall from the new owner of Towanda for at least two years, benefiting all parties involved.
JELD-WEN argued that the production capacity figures in the record do not accurately reflect the impact of losing Towanda, as it would require redistributing Towanda's SKUs to its legacy plants to meet demand, which could lead to operational inefficiencies due to increased downtime from die changes. Additionally, producing the Towanda SKUs at other plants would necessitate new dies, which would take time and resources—details on this have not been adequately analyzed by JELD-WEN. The potential operational disruptions could affect the variety and quantity of doorskins available, though the exact impact remains unclear.
JELD-WEN's Latvian plant has some excess capacity, but it has historically not reached its design capacity and primarily serves the European market with limited SKUs applicable to the U.S. market. Adjusting production in Latvia for Towanda's SKUs would require different dies, and the plant is nearing full capacity, raising concerns about operational feasibility and economic implications. Despite these challenges, JELD-WEN's contingency plans indicate reliance on its Latvian or other domestic plants in case of disruptions, although specifics on these operational adjustments have yet to be fully articulated.
Divesting Towanda would not leave JELD-WEN without alternatives for doorskin supplies, contradicting JELD-WEN's claims. Evidence indicates that sourcing from alternate suppliers or building a replacement plant is equally challenging for both JELD-WEN and Steves. Masonite is the only other domestic supplier, but JELD-WEN deems this option nonviable due to Masonite’s sales policies. While foreign suppliers like Teverpan are an option, concerns about quality and limited product variations make them inadequate for JELD-WEN's needs. JELD-WEN could establish its own manufacturing plant, leveraging its experience, but this would require significant time (at least two to two and a half years) and substantial financial resources, estimated in a broad range.
The Court acknowledges that divesting Towanda would have notable but not clearly defined impacts on JELD-WEN. Despite JELD-WEN's assertion of impending disaster from divestiture, the evidence does not support such a conclusion. Limitations on production capacity may affect JELD-WEN's long-term supply agreements, such as penalties related to a contract with Howdens that include a force majeure clause which could mitigate consequences from capacity reductions. Additionally, both internal and external customers may face increased prices and a less efficient purchasing process due to reduced supply capacity. JELD-WEN anticipates that losing external volume could significantly impact its revenue and EBITDA.
JELD-WEN argues that its internal door manufacturing plants would experience significant earnings losses without the Towanda facility, as they would lack necessary doorskins. This projected loss would negatively impact JELD-WEN's EBITDA. The Court expresses skepticism regarding the reliability of these figures, noting they were presented late and not subject to discovery scrutiny. Although the Court allowed the evidence to be considered for remedies, it emphasizes that it lacks confidence in its validity. JELD-WEN also claims that a divestiture auction would not reflect Towanda's full value, estimating its enterprise value at nine times its EBITDA, though this estimation lacks substantial economic backing and should be considered a rough approximation. The CFO's assertion regarding Towanda's enterprise value has not been thoroughly supported by evidence. Shapiro's testimony highlights that a forced sale typically carries inherent disadvantages for the seller. The Court finds it premature to dismiss the potential for a fair sale price for Towanda post-appeals, noting that its value—including its doorskin business and other associated businesses—will become clearer once divestiture is confirmed as a viable remedy. The legal analysis begins with the request for divestiture, referencing Section 16 of the Clayton Act, which allows for injunctive relief against potential antitrust violations, including asset divestiture. The standards for such relief are primarily drawn from government cases under Section 15 of the Clayton Act, which also addresses violations of the Act.
Effective antitrust relief, whether pursued by the government or a private party, must adequately address violations and restore competition. Remedies should aim to cure the adverse effects of illegal conduct and prevent its recurrence. The variety of mergers necessitates that remedies be tailored to specific competitive harms. Courts have broad discretion to customize remedies to fit individual cases, ensuring a balance between public interest and private needs.
Divestiture is considered the most effective antitrust remedy, particularly for competitive mergers, and is sought by the Department of Justice in most cases. However, remedies are not limited to simply restoring the pre-acquisition market status; they can extend to addressing broader competitive issues linked to past illegal conduct. This may involve divesting unrelated assets if necessary for restoring competition or if their separation is essential due to the integration of legally and illegally acquired assets.
Structural remedies like divestiture can be combined with conduct remedies to maintain merger efficiencies while mitigating anticompetitive behaviors. The legal framework allows for flexible adjustments in remedies to ensure they serve both public and private interests effectively.
Conduct relief is a viable option when a structural remedy would undermine the efficiencies of a merger, yet the merger poses risks to competition. However, conduct remedies may lead to excessive government involvement in the market, necessitating precise tailoring to address specific competitive harms. Courts are generally cautious about imposing divestiture, viewing it as an extreme measure that can disrupt markets in which they lack expertise. Notably, spinoffs of existing businesses tend to be more successful than new creations, and merging firms may intentionally hinder the success of divestitures designed to foster competition. Additionally, buyers who are not established competitors may face significant disadvantages, potentially leading to failure.
In private lawsuits, the ability to order divestiture is not automatic even if it is warranted under government actions. Plaintiffs must demonstrate standing, and defendants can present equitable defenses. Conversely, in government cases, proving a legal violation may be enough to justify relief, with courts viewing divestiture as straightforward and uncomplicated to administer. The focus in such cases is on public interest rather than private concerns, leading to a more favorable stance towards divestiture as a remedy. However, differences between private and government actions suggest that divestiture may not be as readily attainable in private suits, and some scholars question its appropriateness under Section 16.
Private divestiture should be avoided when other forms of injunctive relief are effective, as courts generally agree that divestiture should be limited in private antitrust suits due to its significant repercussions and potential negative impacts on non-parties. It is considered appropriate only in specific cases where alternative preventive measures are inadequate. Policy considerations discourage divestiture or the dismantling of a nationwide business at the behest of an individual plaintiff. The appropriateness of divestiture in private actions under the Sherman Act is questioned, particularly for completed transactions. Legal scholars argue that recommendations from governmental entities regarding divestiture should carry more weight than requests from private litigants, emphasizing the far-reaching effects such actions can have on third parties, existing contracts, and the viability of businesses.
While the American Stores case has shifted some perspectives under the Clayton Act, the fundamental concerns from prior cases suggest that courts must carefully evaluate each case's facts to determine if divestiture is suitable. Divestiture should be pursued only when it effectively restores competition diminished by a merger, with consideration to mitigate collateral impacts. The selection of remedies must focus on the specific competitive harm caused and how the relief addresses this harm while minimizing adverse effects on the industry, public, and stakeholders. The framework for injunctive relief, including divestiture, is governed by established equitable principles, requiring plaintiffs to demonstrate irreparable injury based on a four-factor test before such relief is granted.
Remedies at law, particularly monetary damages, are deemed inadequate for certain injuries, necessitating the consideration of equitable remedies such as permanent injunctions. For a court to grant such relief, it must evaluate four factors: the inadequacy of legal remedies, the balance of hardships between parties, and the public interest, while retaining equitable discretion in its decision. Before applying these factors, the court must determine if Steves has standing under Section 16 to seek divestiture, which requires demonstrating a threatened loss or damage linked to an antitrust violation. Steves argues its standing is based on the potential loss of business when the Supply Agreement expires in September 2021, connected to prior antitrust injuries from JELD-WEN's actions following its acquisition of CMI. JELD-WEN contests this assertion, claiming Steves will not go out of business, suggesting Steves must provide additional evidence of threatened harm. Regardless, Steves’ Section 7 claim involves both legal and equitable relief, granting it the right to a jury trial on overlapping issues. A jury's verdict in such mixed cases imposes binding factual findings on the court regarding both legal and equitable claims. The principle of collateral estoppel ensures that the jury's findings influence subsequent equitable rulings.
The Court instructed the jury that Steves' claim for future lost profits stemmed from alleged harm due to JELD-WEN's antitrust violations, which jeopardized Steves' ability to operate a viable interior molded door manufacturing business post-termination of their contract on September 10, 2021. The jury was directed to consider various factors impacting Steves' future business success before awarding damages for future lost profits. JELD-WEN contended that Steves could continue operations by sourcing doorskins from other suppliers or by establishing its own manufacturing plant, but the jury rejected this evidence, concluding that Steves would likely go out of business without JELD-WEN's support.
The Court found that JELD-WEN's claims regarding its potential continued supply of doorskins to Steves were undermined by the verdict. It determined that JELD-WEN had engaged in conduct intended to undermine independent door manufacturers like Steves, including unjustified price increases and deceptive practices regarding cost calculations. This behavior indicated a strategy to eliminate competition in the market.
The Court concluded that Steves demonstrated it would face irreparable injury without equitable relief, specifically an injunction and divestiture, due to the inadequacy of monetary damages in this situation. The determination of irreparable harm overlaps with the assessment of whether an adequate legal remedy exists, establishing the basis for Steves' standing to seek injunctive relief under Section 16 against JELD-WEN's actions.
Most courts recognize that the permanent loss of a business is considered irreparable injury. This is evident in cases such as *Warren v. City of Athens* and *American Passage Media Corp. v. Cass Communications, Inc.*, where financial ruin without an injunction was deemed irreparable. The threat of being forced out of business, particularly for long-established family businesses, significantly contributes to claims of irreparable harm. Historical precedent, such as in *Semmes Motors, Inc. v. Ford Motor Co.*, emphasizes that the value of continuing a family business extends beyond monetary terms. The mere potential loss of a business, particularly one with a long history, differentiates it from cases of lost profits. Courts have also recognized that harm to goodwill, reputation, and viability of the business constitutes irreparable injury, as illustrated by cases like *Roso-Lino Beverage Distributors, Inc. v. Coca-Cola Bottling Co. of N.Y.* and *Wells American Corp. v. Ziff-Davis Publishing Co.*.
In contrast, a business's termination may not be deemed irreparable if it has been operating for a short time or if the harm can be fully compensated by monetary damages, as seen in *DFW Metro Line Services v. Southwest Bell Telephone Co.*. The plaintiff in the current case, Steves, has been in operation for over 150 years, contrasting sharply with the fleeting existence noted in *DFW Metro*. Furthermore, Steves holds intrinsic family value, which strengthens its claim of irreparable harm. JELD-WEN's argument that Steves is not at risk due to alternative supply options has been addressed in previous sections of the case.
The Court confirms, consistent with the jury's findings, that after 2021, alternatives for obtaining doorskins from JELD-WEN, Masonite, or foreign suppliers are inadequate in meeting Steves' required quantity and quality. JELD-WEN's assertion that Steves can source from foreign suppliers is deemed disingenuous since JELD-WEN itself does not do so. Additionally, the Court rules that establishing a new doorskin plant is not a viable solution for Steves' needs post-2021.
JELD-WEN contends that Steves' claimed injury is limited to the Steves family and does not merit permanent injunctive relief. However, cases cited by JELD-WEN (Moody and Law) are distinguishable as they involved injuries not suffered by the plaintiffs themselves. In contrast, Steves asserts that its irreparable injury stems from the loss of its business, which is relevant to the analysis of irreparable harm despite the business's familial ties.
JELD-WEN argues that previous case law concerning preliminary injunctions is irrelevant since Steves has received damages for future lost profits. However, testimony indicated that the damages awarded ($46,480,581) were a reasonable estimate of future harm, which, when trebled under the Clayton Act, totals approximately $139 million. JELD-WEN's position is that Steves' choice to quantify its future harm in monetary terms precludes its claim of inadequacy of those damages. The Court notes that while the presentation of future damages might influence the assessment of irreparable injury, it does not negate Steves' argument for equitable relief based on the nature of its losses.
The court denied the plaintiff's request for permanent injunctive relief, determining that the plaintiff's prior receipt of future damages undermined its claim of irreparable injury. The court referenced cases, including *International Wood Processors*, where plaintiffs received prospective damages and were deemed to have adequate legal remedies, thus showing no further future harm. Similarly, in *Taleff*, the court rejected a divestiture order because the claimed harm was monetary. However, the plaintiff is not barred from seeking additional injunctive relief even when quantifying future harm. During the Remedies Hearing, the plaintiff, Steves, presented evidence of its business's incalculable value, arguing that its existence was threatened by JELD-WEN's actions, which differed from the cited cases. The court noted that Steves’ claims regarding difficult-to-calculate damages lacked substantial evidence. It concluded that, contrary to JELD-WEN’s assertions, the loss of Steves’ business constituted an irreparable injury not adequately addressed by monetary damages. The court emphasized that allowing companies to merely pay damages for violations of the Clayton Act would undermine competition. Additionally, under the third eBay factor, the court must weigh the injuries to both parties when deciding on relief.
The Court addresses Steves' claim that JELD-WEN's asserted hardships should be dismissed due to a jury finding of JELD-WEN's violation of the Clayton Act. Steves argues that divestiture is warranted despite potential severe consequences for JELD-WEN, suggesting that the public interest should take precedence over private hardships, supported by three case precedents. However, the Court finds Steves' reliance on these cases inappropriate, noting that they pertain to government actions which do not consider private hardships, unlike Section 16 suits. The Court emphasizes that minimizing JELD-WEN's hardships would contradict established Supreme Court and Fourth Circuit precedents, which require a balance of hardships to be assessed in all cases, rather than merely rubber-stamping divestiture based on a jury verdict. Consequently, the Court must weigh JELD-WEN's hardships accordingly.
In balancing the hardships, the Court concludes that Steves would face irreparable harm without permanent injunctive relief, as failure to implement an equitable remedy may lead to the loss of its entire business upon the expiration of the Supply Agreement. This potential impact is significant in the hardship assessment.
A plaintiff must demonstrate a significant possibility of being driven out of business due to a defendant's anticompetitive actions to establish a balance of hardships favoring equitable relief. JELD-WEN, being a larger and more diversified entity than Steves, would face less severe hardships from divestiture compared to the significant impact Steves would endure from losing a supply of doorskins. JELD-WEN carries the burden of proving the hardships it would face if divestiture occurs. Testimony from JELD-WEN's CFO regarding speculative consequences will not be considered, although other witnesses have noted the hardships associated with splitting up the merged entities, particularly the costs linked to separating Towanda as an independent entity. The court recognizes the "obvious hardship" of unwinding combined assets and operations post-merger, which weighs heavily in the analysis. While divestiture conditions could mitigate some transition costs, JELD-WEN will still incur expenses, and the time elapsed since the merger increases risks of unforeseen costs. Additionally, divestiture would impact JELD-WEN's ability to meet customer demands for doorskin products, as its production is optimized across multiple plants, with the Towanda facility enabling production of certain SKUs not available in legacy plants. Although there may be some unquantified additional capacity in legacy plants, increasing SKU production could lead to downtime and reduced total production capacity.
JELD-WEN has not demonstrated the specific extent of capacity decrease due to the potential divestiture of Towanda, rendering the impact speculative. However, the court recognizes that a shortfall is likely, which constitutes a hardship for JELD-WEN. The company's options for obtaining doorskins from its Latvia facility and other foreign suppliers are limited, both in terms of quantity and quality. JELD-WEN's disaster plan includes these foreign sources as temporary solutions, but it cannot be concluded that they can fully replace the SKUs lost from Towanda's divestiture. Conversely, restarting the Marion plant, despite its lower overall capacity, would significantly help alleviate JELD-WEN's doorskin deficit. Restarting Marion involves substantial costs due to equipment replacement and compliance with environmental regulations, with an estimated activation time of two years.
Steves' divestiture proposal allows JELD-WEN to purchase doorskins from Towanda for two years post-divestiture, which would help mitigate immediate supply issues. This arrangement might eliminate the shortfall if some independent customers shift their contracts to the new owner of Towanda, although JELD-WEN would lose those profits. The new owner may also prefer a long-term supply contract with JELD-WEN, potentially stabilizing supply beyond the initial two-year period. The long-term effects of a sustained reduction in doorskin volume are uncertain, but JELD-WEN highlights potential penalties from long-term supply agreements. However, the force majeure clauses in those contracts suggest that failures due to the divestiture would not incur fines.
JELD-WEN asserts that its door manufacturing capacity will decrease due to limited doorskin availability, leading to reduced EBITDA and potential loss of external customers, particularly if prices are raised to offset lower production. The causal relationship between customer loss and the doorskin shortage versus increased competition is uncertain, complicating claims of hardship. JELD-WEN's argument regarding job losses in its legacy plants is speculative and contradicts its claim that these plants would operate near capacity post-divestiture. The assertion of employment loss at the Towanda facility is deemed illogical, given that a new owner would likely retain existing management and staff, similar to past acquisitions. JELD-WEN also highlights losses from investments made in Towanda between 2014 and 2017, though it has recouped these costs. The MiraTEC and Extira businesses, essential to JELD-WEN's future, are at greater risk from divestiture, as their manufacturing cannot be easily relocated. Concerns about the new owner's willingness to acquire these lines and the associated licensing for intellectual property are noted, but the existing management's knowledge of operations suggests continuity in production and sales. JELD-WEN failed to provide evidence that these products would not continue to be sold by current buyers.
JELD-WEN's claim that the lines are valuable products implies that a buyer for Towanda would recognize this value. However, JELD-WEN has not thoroughly evaluated the effects of divestiture, relying on broad and speculative assertions regarding its hardships. The record indicates that these hardships could be mitigated by allowing time for an orderly divestiture, ensuring a reliable supply of doorskin for at least two years, and facilitating a reasonable purchase price. In contrast, Steves has provided compelling evidence of significant harm, including the risk of permanently going out of business. Consequently, the balance of hardships favors Steves.
Regarding the public interest, the legal standard requires that a permanent injunction must not harm the public interest, which primarily considers the impact on non-parties. Courts typically avoid causing concrete harm to innocent third parties and require substantial evidence of public interest concerns. In this case, Congress has established the public interest through legislation, specifically Section 7 of the Clayton Act, emphasizing the importance of preserving competition. Thus, divestiture aligns with the public interest if it effectively restores competition.
However, divestiture is not always the optimal solution; it may not restore competition under certain circumstances, and alternative forms of injunctive relief may achieve similar results with fewer negative impacts. The Court must assess whether Towanda would be a viable independent competitor in the doorskin market and whether less intrusive measures could restore competition as effectively as divestiture.
Equitable relief in antitrust cases aims to minimize harm to the general public. Courts have not consistently addressed the criteria for ordering divestiture, but it is imperative for judges to evaluate the appropriateness of such relief on a case-by-case basis. This includes considering the feasibility of restructuring a firm and whether other remedies could restore effective competition. A thorough economic analysis of the assets or entity proposed for divestiture is essential, ensuring the entity can survive and compete effectively in the market.
JELD-WEN contends that Steves must demonstrate five key factors before the court considers divestiture:
1. The sufficiency of divestiture assets to replace lost competition.
2. The divestiture buyer's incentive to compete.
3. The buyer's business acumen, experience, and financial capability for future competition.
4. The potential competitive harm from the divestiture itself.
5. The structure of the asset sale to enable the buyer to become a viable competitor.
These factors align with the Department of Justice's approach to assessing divestiture remedies. While JELD-WEN argues that treating this analysis as a threshold requirement is critical, Steves claims that the assessment of Towanda’s viability as a competitor should be framed differently, focusing on public interest and acknowledging that market conditions may change. Steves references the Supreme Court’s ruling in Brown Shoe Co. v. United States, which supported the notion that a divestiture order can be final enough for appellate review even without detailed specifications of the divestiture process.
Divestiture is deemed appropriate by Steves, who argues that the Court can make this determination now and later appoint a special master to oversee the process after JELD-WEN's appeal, contingent on the affirmation of the divestiture remedy. The Fourth Circuit and potentially the Supreme Court would then have the opportunity to uphold both liability and remedy decisions prior to the execution of divestiture, which is necessary for attracting serious buyers for Towanda. Notably, neither JELD-WEN nor the DOJ has cited cases where divestiture was denied due to insufficient detail from the party requesting it. Legal resources indicate that specifics regarding divestiture are typically resolved during the compliance phase involving the court or a monitor. Generally, divestiture orders lack detailed compliance specifications, but courts usually impose ongoing supervision to ensure the offending assets are divested appropriately to restore competitive balance. The defendant must propose a compliance plan within a set timeframe, which requires government approval, and unresolved disputes must be litigated. Defendants often have considerable discretion in selecting assets to divest and negotiating sales, provided there are no anticompetitive repercussions. The procedural methods referenced in a recent FTC case were upheld, illustrating acceptable approaches to divestiture. While the Brown Shoe case does not establish strict rules regarding divestiture, it provides persuasive guidance, indicating that divestiture orders can be reviewed prior to finalizing the details, with the Supreme Court supporting this policy approach.
A full divestiture order necessitates extensive negotiation and planning, which occurs in a dynamic marketplace where buyers and banks must be identified to facilitate the sale. The uncertainty surrounding the affirmation of the divestiture decision complicates the enforcement of antitrust laws and could lead to market changes that render the divestiture plan impractical. Delaying the review process could negatively impact both public interest and the parties involved. JELD-WEN argues that the Supreme Court's reasoning in Brown Shoe is not applicable since it was a government case, but the court maintains that this distinction does not undermine the logic supporting divestiture. Concerns about piecemeal appeals do not justify ignoring the established principles from Brown Shoe. The court can determine whether divestiture serves the public interest without knowing the buyer's identity, and if no buyer emerges for Towanda, divestiture will not proceed. Should a buyer lacking competitive capability be identified, the court could refuse the sale. Additionally, if the divestiture order results in an unsatisfactory sale, JELD-WEN may have grounds for appeal, although no precedents exist for such cases returning to court after a divestiture decree. The DOJ submitted a Statement of Interest indicating a preference for divestiture to restore competition but expressed concerns regarding the lack of identified buyers, particularly noting potential issues if Steves were to acquire Towanda, as it would lead to an increased concentration of vertically integrated suppliers.
The Department of Justice (DOJ) erred in its analysis of CMI's market structure, as CMI was already vertically integrated prior to the merger. The DOJ's concern regarding the lack of an identified buyer is considered premature, following the precedent set by the Supreme Court in *Brown Shoe*. The divestiture process for private parties cannot mirror governmental processes until the validity of the remedy is confirmed on appeal, which is relevant here due to the anticipated appeal. Once the legal disputes are resolved, the Court expects the Special Master to operate similarly to the DOJ.
The viability of Towanda post-divestiture is supported by evidence indicating it would enhance competition in the doorskin market, which the merger had reduced. From its inception in 2002 until the 2007 housing crisis, CMI, including Towanda, was profitable. The profitability analysis, based on EBITDA, shows Towanda's doorskin business had positive EBITDA from 2009 to 2013, with projections for continued profitability in 2014, despite overall losses for CMI during that period.
Post-merger, demand for doorskins has risen significantly, and Towanda has become a low-cost supplier with improved operations. A new owner could expect substantial contracts with major clients like Steves and JELD-WEN, potentially drawing customers away from JELD-WEN by offering lower prices. Historical data from 2011, when Towanda was last on the market, indicates there were five serious buyers, suggesting that the market perceives it as a viable investment opportunity. The current buyer would be acquiring a more successful entity than those buyers encountered in 2011.
Margins at the Towanda facility indicate strong profitability, with a historical margin of approximately 35% for doorskins as noted by Professor Shapiro in 2012. Since then, costs have decreased due to improvements at Towanda, enhancing profitability. The evidence suggests that key input costs have also declined, leading to increased margins. Three main factors support the notion that divesting Towanda would be competitive and profitable: Towanda's past profitability prior to the housing downturn, its positive albeit small EBITDA during the crisis, and the indication of substantial profit potential based on margin figures.
The jury found that the merger significantly reduced competition in the doorskin industry, with the supplier count dropping from three to two. Subsequently, one supplier effectively exited the market, impacting the Independents' reliable supply. JELD-WEN, as the remaining supplier, raised prices and neglected contractual pricing obligations, employing tactics that jeopardized some Independent customers. The quality of JELD-WEN's products also deteriorated as competition waned. Divestiture is anticipated to restore competitive dynamics by reinstating three doorskin suppliers, although it remains uncertain whether Masonite will increase its market participation.
The assessment of alternative remedies to restore competition emphasizes the vigorous competition among Masonite, JELD-WEN, and CMI in 2012, evidenced by significant price competition and favorable supply terms negotiated by the Independents. Divesting Towanda would reintroduce three domestic suppliers into the doorskin market.
The record indicates that the only viable solution to restore competition, which was significantly reduced by the merger, is divestiture. Neither party has proposed an alternative remedy, and while the Court could mandate JELD-WEN to supply Steves' needs long-term, this would not address the broader competitive harm affecting other independent manufacturers. Even if JELD-WEN were required to revert to pre-2014 pricing for a limited time, this would not create a sustainable competitive environment, as only one domestic supplier would remain available to the Independents.
Regarding the appointment of a special master for divestiture, JELD-WEN argues that such an action exceeds the framework set by La Buy v. Howes Leather Co., asserting that special masters should assist judges without taking over judicial functions. However, the current Federal Rule of Civil Procedure 53 allows for special masters to be appointed for pretrial and posttrial matters that cannot be effectively managed by the court, particularly in complex cases requiring detailed enforcement. This rule reflects a shift towards using special masters for overseeing compliance with intricate decrees, especially when parties show resistance. The complexities involved in ensuring compliance with divestiture necessitate the expertise of a special master, which the current court system cannot provide efficiently due to its limitations and the specialized nature of the building products industry.
Rule 53(a)(1)(C) may not grant explicit appointment authority, but the Fourth Circuit recognizes the court's inherent authority to appoint special masters for post-verdict relief, as seen in Trull v. Dayco Prods. LLC. Thus, the Court has sufficient grounds to appoint a special master if divestiture is deemed appropriate. The parties involved will have the chance to comment on and object to the appointment order, as the Court will not adopt Steves' proposed order, and the Special Master will require Court approval for significant actions.
Steves proposes several ancillary conduct remedies to ensure effective divestiture and restore competition. These remedies include:
1. Divestiture of the Towanda facility and its associated equipment, which is appropriate.
2. Transfer or licensing of all intangible assets related to the development, manufacturing, and sale of doorskins, which is also permissible.
3. Provision for the new owner to retain current Towanda employees, aiding the divested entity's success.
4. A prohibition on rehiring those employees by JELD-WEN for two years, supporting the new owner's viability.
5. An eight-year supply contract for doorskins with prices based on the current agreement, which is necessary but overly restrictive as it limits the new owner's negotiation flexibility.
6. Allowing JELD-WEN's independent customers to terminate their supply agreements without penalty to mitigate high prices resulting from reduced competition, promoting competition restoration.
7. A limitation on JELD-WEN's ability to purchase doorskins from the new owner for two years, which would not support the new owner's success since JELD-WEN is a natural customer.
Overall, some proposed remedies are deemed appropriate while others are too restrictive or unnecessary for ensuring the new owner's success.
JELD-WEN is prohibited from limiting the availability of doorskins to Independents by purchasing all output from Towanda. It is deemed appropriate for JELD-WEN to buy from Towanda's new owner, with the stipulation that after two years from divestiture, the new owner must prioritize the Independents' needs before supplying additional doorskins to JELD-WEN. JELD-WEN's defense of unclean hands is dismissed as a valid argument against the Section 16 request for injunctive relief. The only remaining equitable defense for JELD-WEN is laches, which can impede divestiture and ancillary remedies. Laches is defined as a failure to assert a right that, combined with the passage of time and other factors, prejudices the opposing party. The application of laches varies by case; significant delay without prejudice to the defendant does not automatically invoke estoppel. In a cited Supreme Court case, laches was deemed inapplicable despite a lengthy delay in filing, due to the unique circumstances surrounding the relationship and intentions between the parties involved.
Reasonable diligence in legal matters is influenced by the relationship between the parties involved; less diligence may be expected from someone in a friendly or intimate relationship compared to a stranger. The Supreme Court's ruling in the Northern Pacific Railway case highlights that delays must be evaluated in context, particularly when a party has taken steps to improve their position, as mere passage of time does not automatically invoke the doctrine of estoppel by laches. For laches to apply, the defendant must prove both a lack of diligence on the plaintiff's part and resulting prejudice to the defendant. The Fourth Circuit reinforces this standard, emphasizing that laches requires an assessment of the facts surrounding the delay and its effects. The burden of proving laches lies with the defendant, and the analysis is highly fact-dependent. Additionally, Steves' argument that JELD-WEN must overcome a presumption against laches due to timely initiation of litigation under the Clayton Act is contested, as cited cases predominantly concern trademark infringement, which may not be applicable to antitrust claims.
Section 4B of the Clayton Act establishes a four-year statute of limitations for damages claims by private plaintiffs and government entities, as codified in 15 U.S.C. 15b. In contrast, Section 16 lacks a specified statute of limitations. Courts have interpreted the limitations period in Section 4B as a guideline for assessing laches defenses in Section 16 claims due to the different remedies these sections provide for the same antitrust violations. Significant cases supporting this approach include Oliver v. SD-3C LLC, Midwestern Mach. Co. v. Nw. Airlines, and Duty Free Ams. Inc. v. Estee Lauder Cos. Inc., among others.
The concept of a "double standard" for laches is introduced, where the timing of laches is computed based on whether the plaintiff is seeking relief against an imminent violation or addressing an actual violation. If relief is sought due to a threat of future violations, laches begins when the plaintiff first encounters that threat. Conversely, if the action is based on actual violations, the period starts when those violations occurred. This flexible approach to laches is consistent with its application in copyright infringement cases and aligns with established Fourth Circuit law, which suggests that while courts of equity are not strictly bound by statutes of limitations, they typically use them as analogies for similar legal actions.
Under typical circumstances, a suit in equity is not subject to dismissal for laches before the expiration of the analogous statute of limitations but may be stayed afterward if extraordinary circumstances warrant it. The court retains the discretion to assess these extraordinary cases based on equitable principles. Employing Section 4B's limitations period as a guideline, rather than a strict rule, better aligns with the Fourth Circuit's laches approach, particularly regarding when the laches period may begin under Section 16.
In analyzing the reasonableness of Steves' delay, it is determined that such a delay only becomes inexcusable after the plaintiff discovers or could have reasonably discovered the facts that give rise to the cause of action. The court must ascertain when Steves became aware of potential harm from a Section 7 violation, which would trigger the laches period. JELD-WEN contends that Steves should have recognized the risk of a Section 7 violation by April 2012, when the CMI Acquisition was announced, or at the latest by October 24, 2012, upon the merger's completion.
However, the principles surrounding the accrual of Section 4 damages claims indicate that the limitations period commences when the act first causes injury. Since Section 7 deems the acquisition itself illegal, antitrust harm is typically acknowledged upon the merger's consummation, suggesting that Section 4 claims often accrue at that point. Nonetheless, a Section 7 violation may arise at any time after the acquisition, depending on specific case circumstances, and may not occur if there was no realistic threat of restraining commerce or creating a monopoly at the acquisition's completion.
Areeda and Hovenkamp illustrate a scenario where a merger executed in 1980 does not lead to an immediate price increase due to the firm's lack of power but results in a monopoly price increase a decade later. In such instances, the statute of limitations for legal action begins when the price increase occurs. In the current case, the antitrust action was filed on June 29, 2016, slightly over four years after JELD-WEN announced its acquisition of CMI, but just before the fourth anniversary of the merger's completion. This timing aligns with the four-year statute of limitations outlined in Section 4B for damages claims, indicating the filing was timely. However, the reasonable delay analysis must exclude the period from April 2012 to August 2014 from the delay calculation.
JELD-WEN was aware of significant antitrust issues regarding the CMI acquisition at the time of the merger. The company calculated market concentration impacts utilizing the Herfindahl-Hirschman index and engaged highly-qualified antitrust counsel from O'Melveny & Myers. To mitigate antitrust concerns with the DOJ and its customers, JELD-WEN strategically entered long-term supply agreements with independent door manufacturers, including Steves, Lynden, and Haley, before approaching the DOJ. Internal communications from JELD-WEN indicated that contacting the DOJ prior to securing these agreements would be a tactical error, as having these contracts would favorably influence the DOJ's perception of the merger. When JELD-WEN finally approached the DOJ, it emphasized these long-term agreements as a way to alleviate customer concerns regarding supply continuity.
The Court determined that prior to and at the time of the 2012 merger, Steves had no reason to anticipate anticompetitive effects from the merger, as JELD-WEN intentionally fostered this belief. Steves maintained a positive relationship with JELD-WEN, led by CEO Phillip Orsino, and had recently entered into a long-term Supply Agreement which was perceived as favorable and stable. Although Steves learned about the CMI Acquisition in April 2012 and recognized that the merger would reduce the number of doorskin suppliers, it believed that the Supply Agreement would limit JELD-WEN's pricing power, thus mitigating concerns about antitrust injuries. The Court noted that any potential claims would have been unviable in 2012, as there was no evidence of antitrust harm at that time. Issues related to doorskin quality and pricing that arose later were viewed by Steves as contractual disputes rather than anticompetitive actions. Despite JELD-WEN's increased market power post-merger, the company did not exploit this power until May 2014, when new CEO Hachigian indicated the need to renegotiate the Supply Agreement and threatened termination to prompt negotiations. Steves reasonably interpreted this as a standard negotiation tactic. In July 2014, Hachigian's communication with Steves included a presentation indicating that Masonite would not supply doorskins to Steves, further illustrating JELD-WEN's market leverage.
Hachigian communicated to Steves that JELD-WEN required engagement from them, indicating that Masonite would not be a future supplier. This action, alongside a termination notice and Hachigian's previous conduct in May 2014, suggested that JELD-WEN was leveraging its increased market power post-merger. By mid-August 2014, Sam and Edward Steves recognized this risk. On August 12, Sam Steves raised concerns regarding Masonite's claims that it and JELD-WEN were the only vertically integrated doorskin manufacturers, questioning whether they should continue exploring antitrust issues if JELD-WEN terminated their Supply Agreement. Subsequently, on August 26, he advised Edward Steves to draft a strong response to Hachigian, emphasizing their displeasure over threats of contract termination linked to price increases and highlighting potential antitrust implications. While their precise intentions in these communications remain unclear, they indicate Steves was aware of potential antitrust injuries by August 12, 2014, and certainly by September 10, 2014, when JELD-WEN sent a termination letter. The critical issue then becomes whether the period between August 12, 2014, and June 29, 2016, when the lawsuit was filed, constitutes an unreasonable delay under the doctrine of laches. This assessment factors in Steves' reliance on a stable doorskin supply, the limited number of manufacturers, JELD-WEN's recent demands for price increases, the lack of legal precedent for private antitrust suits at that time, and the significant disparity in resources between the two companies.
The reasonableness of Steves' decision to pursue antitrust litigation in August 2014, concerning a supply issue projected for seven years later, is questioned. The record indicates that such litigation was not a reasonable course of action. Instead, when faced with contract termination, Steves opted to seek alternative reliable supply sources. In October 2014, discussions with Masonite's CEO revealed that Masonite would only sell doorskins on a spot basis at unprofitable prices. Consequently, Steves engaged with JELD-WEN in January 2015 to negotiate and secure a stable supply. During this meeting, JELD-WEN's representatives threatened adverse treatment unless Steves agreed to higher prices, and subsequently, JELD-WEN imposed greater price increases, which were outside the bounds of their Supply Agreement. JELD-WEN also failed to provide necessary contractual information to validate these price hikes. Following these developments, Steves approached Masonite again but was met with the same unprofitable spot supply offer. Consequently, Steves explored options to source doorskins from foreign manufacturers or to establish its own production facility but concluded that neither was viable by the expiration of the Supply Agreement. The record supports that, rather than pursuing an antitrust lawsuit against a financially stronger supplier, it was reasonable for Steves to diligently seek alternative supply options. Thus, the court finds that Steves acted with reasonable diligence in evaluating these alternatives.
By early 2015, Steves recognized significant risks to its future due to the impending expiration of its Supply Agreement with JELD-WEN in 2021, compounded by the lack of reasonable alternatives from Masonite or foreign suppliers. Steves was uncertain about its ability to establish a doorskin plant independently or with partners. The Supply Agreement included an alternative dispute resolution (ADR) provision requiring an internal executive conference as the first step, followed by mediation if necessary. Steves invoked these ADR provisions on March 11, 2015, requesting an internal conference for March 23, but the meetings did not occur until May 2015. During one meeting, attorney Marvin Pipkin expressed concerns about potential antitrust issues related to JELD-WEN's actions. By May 2015, JELD-WEN was aware of possible antitrust claims arising from its conduct due to decreased competition from a merger. After unsuccessful internal conferences, Steves requested mediation on July 2, 2015, which took place in September 2015, but did not resolve the disputes. Steves then presented a draft Complaint to JELD-WEN, outlining both contract and antitrust claims. The parties entered a series of standstill agreements from September 2015 to April 2016, aimed at resolving their disputes without litigation. In December 2015, Steves reported antitrust concerns to the DOJ, leading to a civil investigative demand, which was closed by May 18, 2016. Following a rejection of a further standstill extension in June 2016, Steves filed a lawsuit on June 29, 2016. The Court found that JELD-WEN failed to prove that the delay in proceedings was unreasonable, noting that Steves took all reasonable steps to secure a reliable supply of doorskins essential for its survival, especially given the disparity in size and litigation resources between the parties.
Public policy encourages parties to resolve business disputes without litigation, as highlighted by case law. Antitrust litigation is characterized by potential length and high costs, particularly in this case where Steves' antitrust claim would be unprecedented, making cost predictions difficult. Steves reasonably opted for the required alternative dispute resolution (ADR) process to address contract-related issues leading to its alleged antitrust injury, rather than immediately pursuing litigation. Following unsuccessful ADR efforts, both parties agreed to standstill agreements aiming for resolution. JELD-WEN has not shown that Steves' delay from August 2014 to June 2016 was unreasonable, undermining JELD-WEN's laches defense, which requires proof of unreasonable delay.
While it is typically preferred to base decisions on a single rationale, this case warrants consideration of JELD-WEN's prejudice claim due to its unique circumstances and the likelihood of appeal. Even if there was an unreasonable delay, laches cannot bar a claim unless that delay has caused harm to the defendant. Prejudice includes disadvantages in asserting rights or detrimental reliance on the plaintiff's actions. JELD-WEN has not demonstrated any disadvantage in defending its rights but argues economic harm due to Steves' conduct. Ultimately, the burden lies with JELD-WEN to prove such prejudice as part of its laches defense.
JELD-WEN asserts that it undertook various integration measures for Towanda following its merger, including closing CMI's Chicago headquarters, consolidating administrative functions, mothballing the Marion plant in 2013, and selling the Dubuque plant in 2016. However, the Court dismisses this claim, primarily based on the testimony of Morrison, whom it finds unreliable. Morrison's credibility is undermined by his history of dishonesty regarding his educational qualifications and his behavior during testimony, leading the Court to conclude that he was more of an advocate for JELD-WEN than an objective witness.
The Court further establishes that the mothballing of the Marion plant was due to high costs associated with environmental regulations and outdated equipment rather than reliance on the absence of an antitrust suit. Additionally, the decision to close the Dubuque plant was made in 2011, prior to the merger. Despite Morrison's testimony, the evidence indicates JELD-WEN made significant investments in Towanda, even after being informed of Steves' antitrust concerns in May 2015 and receiving an antitrust complaint in September 2015. This continued investment contradicts JELD-WEN's argument that it would not have proceeded with such actions had it known of a potential antitrust claim.
The Court notes that JELD-WEN was aware of the possibility of an antitrust action within four years post-merger and, despite this knowledge, chose to invest in and integrate Towanda into its operations. Ultimately, JELD-WEN's actions were based on a strategy to secure long-term contracts with independent customers, including Steves, rather than any reliance on Steves' inaction regarding an antitrust suit.
JELD-WEN has not demonstrated sufficient proof of detrimental reliance, and even if it had, it failed to establish the necessary prejudice to invoke the laches defense. JELD-WEN has recouped its capital investments in the Towanda facility and has profited significantly from its operations there, which negates claims of prejudice. While operational changes required for divestiture may incur expenses and difficulties, they do not constitute the type of prejudice that would trigger laches. JELD-WEN's arguments are primarily based on prior cases, *Garabet* and *Taleff*, which involved plaintiffs who were aware of merger-related competitive threats before the mergers occurred. In contrast, JELD-WEN's situation differs significantly as it did not have reason to anticipate a lessening of competition prior to the merger. The court argues that accepting JELD-WEN's position would prevent equitable relief in cases where competition diminishes post-merger, which contradicts antitrust principles. Consequently, Steves and Sons, Inc.'s motion for equitable relief is partially granted, requiring JELD-WEN to divest the Towanda facility and implement necessary conduct remedies for the divested entity's success, while denying unnecessary conduct remedies. The divestiture will follow the Supreme Court's guidance from *Brown Shoe* to ensure a fair process that attracts qualified buyers and restores competition.
A Special Master will be appointed to ensure the success of a specified process. EBITDA serves as an approximate indicator of profitability for investors. JELD-WEN utilizes dies to create doorskin designs, rotating them to meet production needs, though this rotation can lead to increased downtime and reduced efficiency. JELD-WEN determines which plants will fulfill doorskin orders, meaning orders from Towanda may be supplied by other plants, like Dodson. The mix model aims to balance production across the group, potentially leading to customer-identified plants not producing the requested SKUs if they lack sufficient volume.
In the jury's damage award, it was concluded that Section 6c accounted for both price increases and decreases, supported by testimony from negotiators and contract administration evidence. JELD-WEN did not communicate input costs or price changes to Steves in 2016 or 2017, maintaining 2015 prices. A March 2015 letter from Hachigian indicated JELD-WEN's intention to assert that the Supply Agreement could terminate at the end of its seven-year term in December 2019, a stance that was later abandoned during trial. This proposed acceleration of the termination date indicated JELD-WEN's confidence following the competition reduction from a merger, which allowed them to impose new pricing demands on Steves. JELD-WEN also extracted new contracts from other manufacturers, compelling them to accept a capital charge due to diminished competition.
In opposing divestiture, JELD-WEN claimed to have encountered quality issues with foreign manufacturers, asserting that these suppliers could not address the supply shortfall if Towanda were divested. Edward Steves acknowledged in his deposition that the CMI Acquisition led to a decline in doorskin quality, although he later distanced the quality issues from the Acquisition. The Court determined that Steves' comments were temporal rather than causal. Notably, no prior private party case seeking divestiture under the Clayton Act had reached a verdict, leaving Steves without precedents to gauge the potential success of such actions. Towanda's profitability benefits from its unique production of MiraTEC and Extira, which share manufacturing resources with doorskins.
Line 2 and the production equipment essential for MiraTEC and Extira cannot be divested without jeopardizing doorskin production. Any acquisition of Towanda's doorskin business must include MiraTEC and Extira. JELD-WEN plans to continue purchasing from Towanda until it can establish a new plant or find a foreign supply, despite counsel's claims to the contrary, which are dismissed due to contradictory witness statements. The contract includes a force majeure clause applicable to delivery failures.
Enterprise value reflects the market's valuation of an entity, incorporating market capitalization and net debt. The Supreme Court's ruling in E.I. DuPont de Nemours Co. v. Kolon Indus. Inc. indicates that discretion in applying certain tests extends beyond the Patent Act. There is a disagreement over whether the court can utilize the trade secrets trial record to address the divestiture issue, but even if so, it does not demonstrate that Steves can prevent business cessation by building a doorskin plant by September 2021. Evidence merely suggests that Steves is exploring the feasibility of such a plant and has not made significant progress.
JELD-WEN's assertion that Steves should be accountable for delays in establishing a plant lacks merit, as it did not impact the jury’s award for future lost profits. The concept of irreparable injury may be undermined by intentional actions causing harm, but JELD-WEN has not convincingly shown that Steves intentionally halted efforts to improve its litigation position. Furthermore, Steves would not have made significant advancements in establishing a plant, even with dedicated efforts. It is indicated that Steves lacks the financial capacity to construct its own doorskin plant, rendering JELD-WEN's arguments largely theoretical. Additional antitrust damages that survived legal challenges will also be trebled.
Steves is not required to elect between legal and equitable remedies before the verdict; such an election typically occurs post-verdict, at the discretion of the trial court. The "election of remedies" aims to prevent double recovery, with Steves affirming it will not seek both remedies. Certain alleged harms, such as loss of profits from anticompetitive practices, are not valid as they arise from lawful competition. JELD-WEN's concerns about harm are minimal and will not impact the hardship assessment. The feasibility of establishing a new doorskin plant is questionable, despite JELD-WEN's experience, as previous losses stemmed from CMI's door manufacturing sector. The upcoming owner, potentially Steves, will inherit profitable product lines and must ensure JELD-WEN retains the benefits of the jury verdict and relief from the trade secrets trial. Although the Fourth Circuit has not explicitly ruled on this, it has indicated approval of such arrangements. Steves can assert a Section 16 claim without needing to demonstrate actual antitrust injury, based on the record's circumstances. The continuing violations doctrine may extend the laches period for new anticompetitive acts; however, the court determined that the anticompetitive consequences of the CMI acquisition are not independent violations, meaning price increases or quality declines post-August 2014 do not alter the laches period's start date.
