Steves and Sons, Inc. v. Jeld-Wen, Inc., No. 3:2016cv00545 - Document 239 (E.D. Va. 2017)
Court Description: MEMORANDUM OPINION. See for complete details. It is so ORDERED. Signed by District Judge Robert E. Payne on 05/17/2017. (nbrow)
Download PDF
<![CDATA[
Steves and Sons, Inc. v. Jeld-Wen, Inc. Doc. 239 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Fs ,I Riclunond Division STEVES AND SONS, INC., RICHMOND. VA Plaintiff, v. Civil Action No. 3:16cv545 JELD-WEN, INC. I Defendant. MEMORANDUM OPINION This matter is before the Court on DEFENDANT JELD-WEN, INC.' S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. out below, permissive, the Court (ECF No. 101) . finds not compulsory, that For the reasons set the counterclaims and the DEFENDANT JELD-WEN, are INC.' S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. claims and the (ECF No. 101) will be granted. permissive counterclaims will be However, the severed as outlined below. BACKGROUND FACTS Steves and Sons, that purchases ("JELD-WEN") . 1 Inc. ("Steves") interior molded is deerskins a door manufacturer from JELD-WEN, Inc. Interior molded deerskins make up the front and The Background Facts are recited as alleged in the Complaint. The facts giving rise to JELD-WEN' s defenses and counterclaims 1 Dockets.Justia.com back of interior molded doors. An interior molded door is made by sandwiching a wood frame and a hollow or solid core between two deerskins . Interior molded doors expensive than solid wood doors. deerskins. JELD-WEN is a are significantly less Steves currently does not make manufacturer of interior molded deerskins and also uses deerskins to make its own doors JELD-WEN is vertically integrated) . (i.e. On May 1, 2012, the parties entered into a Long-Term Supply Agreement ("Supply Agreement") , whereby Steves agreed to purchase its deerskins from JELD-WEN for eight years. (Compl. 17). After the Supply Agreement was signed, JELD-WEN merged with another deerskin manufacturer, JELD-WEN as a Craftmaster. The merger left vertically integrated company manufacturing and using its own deerskins. At that time, Masonite was another vertically integrated company that also manufactured, its own doorskins. 2 and used On June 25, 2014, Masonite announced that it would no longer be selling interior molded deerskins; rather, it would only be manufacturing deerskins solely for its use. are presented as alleged in JELD-WEN's proffered Amended Answer and Counterclaims (ECF Nos. 102-1, 106). For the purpose of deciding the pending motion, the Court considers the allegations of fact. The presence of two vertically integrated companies that control a market share of an item, in this case deerskins, is known as a duopoly. 2 2 (Compl. , 23) . 3 As a result, JELD-WEN allegedly has a monopoly over the doorskin market. In September 2014, JELD-WEN gave Steves written notice of the termination of the Supply Agreement. WEN takes the December 2019. allowed. position that the (Compl. , agreement JELD- 82). will expire in Steves contends that is 21 months earlier than (Compl. , 82) . On June 29, 2016, Steves filed this action alleging that the merger between JELD-WEN and Craftmaster violated Section 7 of the Clayton Act, alleged that 15 JELD-WEN U.S. C. had (Count One) . 18 § breached the Steves also Supply Agreement by providing inadequate doorskins and canceling the contract early (Count Two) in the and that JELD-WEN had breached an express warranty Supply merchantability declaratory Count Five, Agreement and (Count Three) . sought implied In Count Four, judgment on several Steves the warranty Steves sought a Supply Agreement specific performance Agreement throughout its specified term. of of issues. the In Supply Finally, in Count Six, Steves asserted a claim for Trespass to Chattels because JELDWEN had defaced Steves' products during an inspection permitted Based on JELD-WEN's arguments at the hearing on its Motion to Amend, JELD-WEN contests Steves' allegation that Masonite no longer publicly sells interior molded doorskins. 3 3 by the Supply Agreement. JELD-WEN filed its Answer (ECF No. 30) but raised no counterclaims. Following an initial pretrial conference, on October 19, 2016, the case was set for jury trial to begin on June 12, 2017 (ECF No. 65). On November 10, 2016, an agreed upon schedule was set for the conduct of discovery, the filing of summary judgment motions, and the conduct of proceedings in preparation for the Final Pretrial Conference to be held on June 5, 70) . Discovery commenced and, inter alia, 2017 (ECF No. documents were produced. By ORDER entered on February 7, 2017 (ECF No. 90), all proceedings herein were stayed until March 8, 2017 to allow the parties to pursue settlement discussions under the auspices of Magistrate Judge until March 27, ( ECF No . 9 5) . Novak. That stay was subsequently extended 2017 to allow a last effort to settle the case After settlement efforts failed, its DEFENDANT JELD-WEN, JELD-WEN filed INC.'S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. (ECF No. 101) based on documents that Steves had produced in discovery before settlement negotiations failed. The genesis of the proposed amendment lies in that Steves and Sons produced documents period before it was stayed. to JELD-WEN during the discovery JELD-WEN alleges that several of the emails produced by Steves show that Steves paid John Pierce 4 ("Pierce") , JELD-WEN's a former employee at JELD-WEN, trade secrets relating to JELD-WEN' s and other to sell confidential doors and doorskins. to Steves information JELD-WEN alleges that the emails also show that Pierce and Steves knew that their conduct was wrong because it violated Pierce's employment agreement with JELD-WEN and that the parties sought to conceal their wrongful conduct. JELD-WEN first became aware of these documents on January 4, 2017. On January 5, 2017, JELD-WEN contacted Steves' outside counsel and demanded that Steves cease and desist any use of the trade secrets and confidential received from Pierce. information that Steves had JELD-WEN was prepared to file this motion on February 3, 2017; however, the parties were in the midst of a settlement meditation and had agreed to a stay. On January 12, 2017, JELD-WEN issued a Rule 45 subpoena to Pierce, requesting that he produce documents and communications relating to his work with Steves. On January 23, Pierce provided a handful of documents related to his travel on behalf of Steves. On January 27, 2017, Steves supplemented production of relevant documents and produced a email from Sam Steves' assistant, showing that July 20, its 2016 John Ambruz, another former JELD-WEN employee, was serving as a consultant to Steves. The email included an attachment entitled "Proposal for Expansion of Molded Skin Production Capacity Submitted by John 5 Pierce, 1 May 2006," a document that JELD-WEN claims it had sent, in confidence, to the Antitrust Division at the Department of Justice ( "DOJ") in the summer of 2012, its acquisition of Craf tmaster. JELD-WEN employee, working with investigation. was copied JELD-WEN's Ambruz, on lawyers the in in contemplation of who, email in 2012, because responding to was a he was the DOJ JELD-WEN's counsel questioned Steves' counsel as Steves' to how the document was obtained by Steves. counsel provided that the Steves brothers did not recall receiving the document. On January 12, 2017, JELD-WEN issued a Rule 45 subpoena to Ambruz. JELD-WEN received additional discovery pursuant to that subpoena which, is poised to according to JELD-WEN, enter the doorskin "confirm [s] market despite allegations of insurmountable barriers to entry." 1) . The alleges work new is to stole." This production "new evidence that of contained [that] Pierce, and that Steves documents all of its (ECF No. 187which JELD-WEN explicitly ties John Ambruz' s the JELD-WEN trade secrets he Id. factual backdrop provides the basis for, and the context of, DEFENDANT JELD-WEN, INC.'S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. 101) . 6 (ECF No. DISCUSSION Fed. R. Civ. P. 13 governs the filing of counterclaims. delineates counterclaims as compulsory or permissive. Fed. It R. Civ. P. 13 provides that a claim is compulsory if it "(A) arises out of the transaction or occurrence that is the subject matter of the opposing party's claim; and (B) does not require adding another party over whom the court cannot acquire jurisdiction. 11 Fed. R. Civ. P. 13 provides that a permissive counterclaim is "any claim that is not compulsory. 11 in this case and Fed. R. The pretrial order entered Civ. P. 16 govern the time for filing counterclaims in this case. A. Motion to Amend Made With Good Cause A motion to amend at this stage of the litigation must be supported by a JELD-WEN has met that showing of good cause. standard because it was unaware of the information that gives rise to its proffered amendment until it reviewed the documents provided by information, motion. filed Steves during Upon discovery. arguments of the JELD-WEN immediately made preparations to file the Had the stay not been in place, the learning motion earlier. Although in opposition to JELD-WEN' s JELD-WEN would have Steves motion, makes several Steves does not assert that JELD-WEN has failed to meet the good cause standard. 7 B. Permissive or Compulsory Counterclaims In determining whether leave to amend is proper, the Court must determine permissive or whether JELD-WEN's compulsory. In proposed assessing counterclaims whether a claim compulsory, the Fourth Circuit asks the following questions: Are the issues counterclaim subsequent of largely suit counterclaim fact on rule; the the (3) and law raised by the same; {2) Would counterclaims, Will res substantially the the is (1) claim and the j udicata absent are bar a compulsory same evidence support or refute the claim as well as the counterclaim; and (4) Is there any counterclaims. logical relation between the claim and the See Sue & Sam Mfg. Co. v. B-L-S Const. Co., 538 F.2d 1048, 1051 (4th Cir. 1976) . 4 1. Sue & Sam Factors (1) and (3): The Issue of Fact and Law Raised by Steves' Claim and JELD-WEN's Counterclaims and the Presence of Substantially Overlapping Evidence One way to assess examine the elements Sue of & Sam factors Steves' (1) claim and and (3) is to JELD-WEN's counterclaims in perspective of the evidence pertinent to each. That process helps to assess whether there are common issues of "A court need not answer all these questions in the affirmative for the counterclaim to be compulsory." Painter v. Harvey, 863 F.2d 329, 331 (4th Cir. 1988). "Rather, the tests are less a litmus, more a guideline." Id. 4 8 fact and law and the extent to which, if at all, the evidence will overlap. (a) Steves' Count One: Antitrust Claim To prove its antitrust claim, Steves will have to show that the JELD-WEN/Craftsman merger had the lessening competition in a relevant market or tended to create a monopoly. effect of product substantially and geographic The evidence about that claim will involve proof of the product and geographic markets, proof of concentration in those markets caused by the merger, and the anticompetitive effect of from both sides, the merger. The evidence, therefore will focus on economic and business issues in the deerskin industry. There can be evidence as well on Steves' conduct that could affect the evidence requested is heard remedy by the of divestiture. Court, divestiture is an equitable remedy. not However, the jury, that because That issue is reached only if the jury returns a liability verdict in favor of Steves. (b) Steves' Counts Two Through Five: Contract, Breach of Warranty, Judgment and Specific Performance Breach of Declaratory Count Two is a claim for breach of the Supply Agreement for JELD-WEN's refusal to abide by the contracts JELD-WEN's supply of defective doorskins, terms, JELD-WEN's refusal to give Steves credit for defective products, and for JELD-WEN' s attempt to terminate the Supply Agreement early. 9 pricing Count Three is a claim for breach of supplying defective implied warranty of merchantability by doorskins. Counts Four and Five seek certain remedial measures related to Counts Two and Three. To establish the breach of proof of a contract, a breach, contract claim there will be and damages. The breach of warranty claim requires some of the same proof as the breach of contract claim as well as proof of warranty. (c) Steves' Count Six: Trespass to Chattels Count Six is a tort claim based on damage done to Steves' The proof there will be products by JELD-WEN representatives. that JELD-WEN' s employees damaged the product while performing an inspection allowed by the Supply Agreement. (d) JELD-WEN's Counterclaims (i) The First, Second and Third Counterclaims: JELD-WEN's Trade Secrets Counterclaims To recover under these counts, JELD-WEN will have to prove that JELD-WEN owned trade secrets that and misappropriated the trade secrets by improper means. Steves There must also be proof as to the resulting damage. A simple comparison of the elements of JELD-WEN' s secret counterclaims and the elements of Steves' that there are no common issues of fact or trade claims shows law. The same comparison shows that the JELD-WEN's trade secrets counterclaims 10 will not be supported by substantially the same evidence as that to be used in support of any of Steves' claims. (ii) The Fourth and Fifth Counterclaims: Tortious Interference JELD-WEN's Contract In these two counterclaims, JELD-WEN charges With that, in misappropriating its trade secrets, Steves wrongfully interfered with the employment contracts between JELD-WEN and its former employees, Pierce and Ambruz. Steves' interfered with the employment contracts between In particular, the charge is that confidentiality provisions of JELD-WEN and Pierce the and Ambruz. These claims require proof of the employment contracts, Steves' knowledge of the confidentiality provisions in them, Steves' conduct interfering therewith, and resulting damage. Again, a comparison of the elements of the Fourth and Fifth Counterclaims (tortious interference with employment contracts) with the elements of Steves' claims demonstrates the absence of common fact and legal issues between counterclaims and any of Steves' claims. the Fourth and Fifth Nor can it be said that there is a substantial overlap in evidence as respects the proof for those claims. (iii) The Sixth Counterclaim: JELD-WEN's Breach of Implied Covenant of Good Faith and Fair Dealing In its Sixth Counterclaim, JELD-WEN alleges that the theft of trade secrets through Pierce and Ambruz is a breach of the 11 covenant of good faith and fair dealing in the performance of the purchase provisions of the Supply Agreement. the theory is that, in acquiring In particular, (by way of the stolen trade secrets) the ability to make doorskins, Steves deprived JELD-WEN of its expectation that Steves would buy the majority of its doorskin requirements from JELD-WEN. Assuming for the moment that Count Six states a claim on which relief could be granted, is essentially consequences. proof of the proof to make out the claim the trade secrets theft and its There is certainly no common issue of fact or law nor any substantially overlapping proofs as between the Sixth Counterclaim and any of Steves' claims. {iv) Seventh Counterclaim: In the Seventh Counterclaim, breached the Supply Breach of Contract JELD-WEN charges that Steves Agreement by providing commercially sensitive information (not trade secrets) to Ambruz in violation of the confidentiality provisions set out in paragraph 3 (a) (1) of the Supply Agreement. Again, JELD-WEN has identified no common issue of fact and law between the Seventh Counterclaim and any of Steves' Nor claims. overlapping evidence been pointed out. has any substantially And, the Court is unable to find any. Therefore, factors (1) and (3) simply have not been shown to exist. 12 of the Sue & Sam guideline 2. Sue & Sam Factors (2) and (4) it will not assert res judicata Steves has promised that elsewhere. In any event, JELD-WEN has factor would apply here. And, between and Steves' inconceivable that with the claims a possible bar of not explained how that given the material difference JELD-WEN's claims, it is res judicata could be interposed exception of the Sixth and Seventh Counterclaims. Even that possibility has not been demonstrated by JELDWEN, and precludes Steves' promise not to resolving this point raise the in JELD-WEN' s bar effectively Finally, favor. the Court can discern no logical relation between any of JELDWEN's counterclaims and Steves' claims. Thus, JELD-WEN has not satisfied Sue & Sam Factors (2) and (4) . In sum, none of the factors that the Fourth Circuit looks to as predicates for compulsory counterclaims are present. 3. The Asserted Connection Between JELD-WEN's Counterclaims and Its Defenses to Steves' Claims JELD-WEN' s motion presents another way to assess whether the proffered counterclaims are compulsory. That is because the principal contention made by JELD-WEN in support of that counterclaims are in support of its its evidence compulsory is that counterclaims also support of some of its defenses to Steves' 13 is claims. its view some of evidence the in Therefore, says JELD-WEN, the overlap in the evidence necessitates decision that its counterclaims are compulsory. JELD-WEN asserts that the evidence in a In particular, support of its trade secrets counterclaims will also be offered in establishing its antitrust defenses of unclean hands and the absence of barriers to entry. Also, JELD-WEN takes the view that its contract-based counterclaims will be proved by some of the same evidence that will prove some of its defenses to Steves' claims. Steves contends that, as a matter of law, the trade secrets counterclaims provide no defense to the antitrust claim. Steves also argues that there is no real overlap between its claims and the evidence Steves' to which JELD-WEN points breach of contract claims. to as a response On both scores, to Steves is correct. 4. JELD-WEN's Defenses to Steves' Antitrust Claim JELD-WEN asserts misappropriation of Steves' hear antitrust about Steves' of Steves' that its claim. its trade secrets serve JELD-WEN argues misconduct JELD-WEN's counterclaims based on Steves' trade as to secrets the as that a defense the jury will misappropriation because that to by evidence establishes JELD-WEN's defense of unclean hands against Steves' antitrust claim. 14 {a) This Circuit Does Not Recognize the Defense of Unclean Hands as a Bar to Recovery in an Antitrust Case Relying on California v. American Stores Co., 495 U.S. 271, 296 {1990) 'unclean {"equitable hands,' defenses may protect such as laches, consummated belated attacks by private parties. or perhaps transactions from JELD-WEN contends 11 ) , that unclean hands can serve as a defense to an antitrust violation. Steves claims that the defense of unclean hands is not a recognized defense to an antitrust violation. 5 JELD-WEN' s argument is unpersuasive. First, the language on which JELD-WEN relies from Americans Stores Co. is dicta. American Stores Co., the Supreme Court considered In whether a private party could obtain divestiture in an action filed under § 16 of the Clayton Act challenging a merger. The Supreme Court approved the remedy of divestiture, but explained that the mere fact that the Clayton Act authorizes that kind of relief, not, of course, mean that such power should be "does exercised in every situation in which the Government would be entitled to such relief observation as II it might Id. at 294. relate to a In explaining case in which a that private litigant sought the equitable remedy of divestiture, the Supreme Court said: See PLAINTIFF'S MEMORANDUM IN OPPOSITION TO DEFENDANT JELD-WEN, INC.'S MOTION FOR LEAVE TO AMEND ANSWER (ECF No. 117). 5 15 Moreover, equitable defenses such as laches, or perhaps 'unclean hands,' may protect consummated transactions from belated attacks by private parties when it would not be too late for the Government to vindicate the public interest. It is this California v. American Stores Co., 495 U.S. at 296. statement on which JELD-WEN relies for the proposition that the equitable doctrine of unclean hands can provide a defense to an antitrust claim under the Clayton Act. next sentence, the Supreme Court However, observed in the very that questions, however, are not presented in this case." "[s]uch Id. Quite clearly then, the comment on which JELD-WEN relies is dicta. Moreover, the law in the Fourth Circuit hands is not a defense to an antitrust claim. is that unclean Specifically, in Burlington Indus. v. Milliken & Co., 690 F.2d 380, 388 (4th Cir. 1982) the Fourth Circuit held that, if a plaintiff's misconduct "other than direct participation in the antitrust conspiracy is asserted raising as the settled that Id. a defense, equitable defendants defense unclean hands can only be understood of unclean hands. is no bar to antitrust It is as well recovery." That is the law of this circuit and it is not displaced by the dicta from American Stores. 6 Burlington was decided two years before American Stores. That makes no difference, however, because a clear holding from the Court of Appeals is binding and, if dicta from the Supreme Court 6 16 JELD-WEN has provided no decisional law from this Circuit to the contrary. JELD-WEN American Stores Co., correctly asserts that the defense since the equitable defense of laches has been used to bar antitrust claims in other circuits. 7 decisions do not, that, However, those indeed cannot, alter the law of this Circuit of unclean hands is not available in antitrust case except in circumstances not present here. an And, of course, to be in laches and to have unclean hands are quite different equitable principles that liability issues in an antitrust remedy. Indeed, in American Stores, that defense a of laches are case, could pertinent, but to not to the matter of the Supreme Court decided foreclose the relief of is to change that precedent, it is the Supreme Court or the Fourth Circuit that must make that change. See, e.g. Ginsberg v. InBev 'NV/AB, 623 F.3d 1229, 1235 {8th Cir. 2010) {rejecting plaintiffs' request for a divestiture of an already-consummated merger of two beer companies, declaring that "the hardship and competitive disadvantage resulting from forced divestiture would be both dramatic and certain"); Midwestern Mach. Co., Inc. v. Northwest Airlines, Inc., 392 F.3d 265, 277 {8th Cir. 2004) {denying plaintiffs' request for divestiture of 11 year old merger because doing so was barred by laches and would unduly prejudice defendant') ; Taleff v. Southwest Airlines Co., 828 F. Supp. 2d 1118, 1122-25 {N.D. Cal. 2011) {holding that the remedy of divestiture of two merged airlines was unavailable to plaintiffs because they filed their complaint on the day the merger closed); Garabet v. Autonomous Tech. Corp., 116 F. Supp. 2d 1159, 1172-23 {C.D. Cal. 2000) {doctrine of laches barred private plaintiffs' request for divestiture of merger between suppliers of equipment for laser eye surgeries because plaintiff filed suit two days after the merger's consummation and failed to take any steps to challenge the merger before consummation) . 7 17 divestiture in a private party suit. Thus, the most that could be said of the dicta in American Stores is that, in the remedy phase of an antitrust case, the doctrine of unclean hands quote "perhaps" the Supreme Court) might be available (to to foreclose the remedy of divestiture sought by a private party. Even if JELD-WEN could demonstrate that the dicta American Store Co. permitted a defense of unclean hands, in JELD- WEN must show that the unclean hands defense is related to the antitrust violation. defense of party's unethical That is because a defendant raising the unclean hands must conduct party seeks relief." and show the nexus transactions between a on which that In re Uwimana, 274 F.3d 806, 810 (4th Cir. 2001) abrogated by Bullock v. BankChampaign, 1754, 185 L. Ed. 2d 922 (2013). wrongfully "a close misappropriated N .A., 133 s. Ct. Therefore, assuming that Steves trade secrets through Ambruz and Pierce, JELD-WEN would have to show a "close nexus" between the misappropriation of trade secrets in 2015-2016 and the allegedly illegal merger consummated in 2012 and whose effects were felt into in 2014. 8 And, JELD-WEN has not made that showing yet. The parties dispute whether the merger as consummated in 2012 was a violation of the Clayton Act, or whether the effects of the merger, after withdrawal of Masonite from the market in 2014, serve as the basis for the claim. This will surely come up during the course of the litigation; however, the Court need not, and does not, resolve the dispute for purposes of deciding the Motion to Amend. 8 18 (b) Jeld Wen's Trade Secret Misappropriation Counterclaims are not Related to the Barriers to Entry Defense JELD-WEN explains defense to Steves' that "barriers antitrust claim. 9 to entry" is a central If sufficient entry into the applicable markets is likely to occur in a timely fashion, argues JELD-WEN, the its acquisition of Craftmaster cannot violate Clayton Act . secret theft And, says JELD-WEN, the evidence of trade is pertinent to prove the absence of barriers to entry in the relevant product market. Of course, it is correct that "[c] ourts have held that likely entry or expansion by other competitors can counteract anticompetitive be effects United States v. (D.D.C. 2011). expansion magnitude, must H & that would R Block, otherwise Inc., 833 F. Supp. 2d 36, "According to the Merger Guidelines, be "timely, character, and likely, scope to and deter or 73 entry or sufficient in its counteract the competitive effects of concern." Merger Guidelines at 73. expected." § Id. 9." Once the Plaintiff has shown a prima facie case, "the defendants carry the burden to show that ease of expansion is sufficient to fill the competitive void that will result if See JELD-WEN, INC.'S MEMORANDUM IN SUPPORT OF MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. {ECF No. 102) . 9 19 [defendants target." are] permitted Id. at 73. purchase their acquisition (internal citations omitted) . JELD-WEN argues that, defense, to in putting on its barriers to entry evidence that Steves misappropriated its trade secrets will inevitably come up. In particular, JELD-WEN argues that a feasibility report that Steves received from Ambruz that Steves "concluded could quickly and effectively enter the market successfully." Although Steves rejected that conclusion and did not ever rely on it, evidence about the doorskin JELD-WEN takes the view that the feasibility report shows that Ambruz credible witness who will testify that "[i] t is a is highly feasible to build and operate a new [doorskin] facility." JELD-WEN, has however, not explained feasibility study will come into evidence. how the Ambruz Steves says it will not introduce the report (and, in fact, will object to its use) . JELD-WEN testify says on it will not feasibility, but be using that it Ambruz will impeach one or both of the Steves brothers. as use an expert to the report to How that can be In any event, JELD-WEN does not explain done is hard to fathom. how all of its trade secret misappropriation evidence could come in as part of its barrier to entry defense even if it can use the Ambruz Steves. feasibility report to cross-examine one of the Nor has JELD-WEN identified any decisions that allows impeachment evidence to qualify 20 as overlapping evidence in deciding whether a counterclaim is compulsory. Moreover, even if JELD-WEN is able to introduce some evidence that relates to the trade secret misappropriation claim, WEN need not, trade it is clear that JELD- indeed cannot, prove each of the elements for the secret misappropriation claim in order to properly make use of the barrier to entry defense. 10 5. JELD-WEN's Defense to Steves' Breach of Contract Claim JELD-WEN also argues that its contract counterclaims are tied to the defenses that it will present against Steves' claim that JELD-WEN breached the Supply Agreement. JELD-WEN asserts that the following counterclaims are related to Steves' of contract claim: Breach of Contract breach (Seventh Counterclaim); Breach of the Implied Covenant of Good Faith and Fair Dealing Under Delaware (Sixth Law Counterclaim) ; Interference with Contract Under Texas Fifth Counterclaims) . arise out breached, of may Tortious and Common Law (Fourth and JELD-WEN's contract counterclaims, the same relate to contract or Steves' support, in alleges part, a which JELD-WEN defense to Steves' breach of contract claim; however, the counterclaims are 10 The Court has not yet heard motions in limine. As this issue will likely come up, the holding here does not dispose of the issue respecting what evidence related to the theft of trade secrets can be admitted in the trial of the antitrust claim. 21 not compulsory and the defense of unclean hands is not available. (a) Steves' Breach of Contract In the Seventh Counterclaim, JELD-WEN alleges that Steves' breached the Supply Agreement because Steves provided to Ambruz and Pierce confidential JELD-WEN information that JELD-WEN had provided to paragraph 22, Steves pursuant to a confidentiality provision, in the Supply Agreement JELD-WEN argues that this breach demonstrates that Steves did not perform under the terms of the contract; therefore, according to Steves, the claim is a compulsory counterclaim to Steves' contract claim. Although against Steves the Seventh for Counterclaim breach of contract asserted and by Steves' JELD-WEN breach of contract claim against JELD-WEN (Steves' Count Two) are based on the same contract abide by Supply Agreement, breaches the there is alleged by Steves contracts defective doorskins, pricing JELD-WEN' s no of terms, refusal relation between JELD-WEN' s JELD-WEN's the refusal to supply of to give Steves credit for defective products, and JELD-WEN's attempt to terminate the Supply Agreement early and the breach alleged by JELD-WEN, of Steves' breach of the Supply Agreement by providing commercially sensitive information to former JELD-WEN employees. Nor, contrary to JELD-WEN's view, would the alleged breach by Steves (providing confidential documents to Pierce and Ambruz) 22 excuse the breaches Mitsubishi by JELD-WEN Power Sys. alleged Americas, in Steves' Inc. v. Count Babcock Two. & See Brown Infrastructure Grp. US, LLC, No. CIV.A. 4499-VCL, 2010 WL 275221 (Del. Ch. Jan. 22, 2010) ("Because the purchaser breached the contract before the seller's performance was due, it could not be argued that the seller's performance gave rise to a material breach of the contract resulting in a forfeiture of contractual rights.") The only logical relationship between the claim and counterclaim is that they arise from the same Supply Agreement; however, that alone is insufficient to a finding of a compulsory counterclaim. Thus, it cannot be said that the Seventh Counterclaim for breach of contract is compulsory. (b) Steves' Breach of the Faith and Fair Dealing JELD-WEN also argues secrets, that, Steves breached the Implied Covenant of by misappropriating its Good trade covenant of good faith and fair dealing implied in the Supply Agreement. JELD-WEN also believes that this claim, like the breach of contract claim, serves as a direct defense to Steves' breach of contract claim. "Under Delaware law, an implied covenant of good faith and fair dealing inheres in every contract. As such, a party to a contract has made an implied covenant to interpret and to act reasonably reasonable." upon contractual language that is Chamison v. HealthTrust--Hosp. Co., 23 on its face 735 A.2d 912, 920-21 (Del. Ch. 1999), aff'd sub nom. Healthtrust-Hosp. Co. v. Chamison, 748 A.2d 407 (Del. 2000). cannot contravene the parties' "The implied covenant express agreement and cannot be used to forge a new agreement beyond the scope of the written contract. Despite these restrictions, Delaware courts apply this legal theory only in narrow circumstances." the Delaware Supreme necessity of Court "has implying contract taken only "'rare [ly] ' Id. recognized terms," Further, while the occasional such action should be Dunlap v. and cautiously." State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005). JELD-WEN Steves' argues that, breached the stealing its trade secrets, implied covenant in the Supply Agreement between the parties. the contract, by According to JELD-WEN, in paragraph 22 of the parties specifically discussed the subject of confidentiality respecting certain commercially sensitive trade secrets) (not documents given by JELD-WEN in connection with the Supply Agreement and agreed on an express provision to cover that matter. Thus, says JELD-WEN, they would have agreed that stealing each other's trade secrets would be forbidden as well. That is a big stretch of Delaware law, one that is highly doubtful as Steves argues. However, at this stage of the litigation, it is not necessary to decide whether the breach of the implied covenant allegedly committed by plausible claim that can be read into the contract. 24 Steves is a Rather, the Court only considers whether the contract counterclaim relates to Steves' original breach of contract claim. only a peripheral connection and, At best, there is a distant one at that. The implied covenant of good faith and fair dealing counterclaim, if valid, is unrelated in time alleged by Steves. prove the Further, counterclaim as to the the breach of issues compared to of contract fact claim required to the original breach of contract claim may both derive from the Supply Agreement, but apart For from that similarity, the claims greatly differ. those reasons, the counterclaim is not compulsory. (c) The Defense of Unclean Hands is Not Applicable to Steves' Contract Claim Finally, JELD-WEN asserts that the defense of unclean hands (by way of trade defense to Steves' secret misappropriation) also breach of contract claim. serves as a The defense of unclean hands is an equitable one and Steves' claim for Specific Performance of part of the Supply agreement seeks an equitable remedy, therefore unclean hands may be a proper defense to that particular remedy. Growth Capital LLC, 2007) See Virginia 2007 WL 2071726, & Power Co. at *2 (E.D. Va. v. Broe July 17, ("If a full remedy at law is available, then one based on equitable principles is barred."). to Elec. any close nexus alleged trade But, JELD-WEN has not pointed (substantially or secret misappropriation 25 temporally) and the between the breaches of contract for which Specific Performance Nor can the Court any Uwimana, 274 F.3d Bullock v. 922 perceive 806, 810-11 ("A court can sought by Steves. connection. See In re (4th Cir. 2001) abrogated by 133 S. BankChampaign, N.A., (2013) such is Ct. 1754, 185 L. Ed. 2d deny relief under the doctrine of unclean hands only when there is a close nexus between a party's unethical conduct and the transactions on which that party seeks relief.") . For the foregoing reasons, JELD-WEN's counterclaims are not compulsory. c. JELD-WEN's Permissive Counterclaims However, the same analysis also teaches that counterclaims asserted by JELD-WEN are permissive. R. Ci v. P. 13 (b) , "a pleading may state as a claim that is not compulsory." meet that test. And, all of the Under Fed. counterclaim any Each of JELD-WEN's counterclaims under Fed. R. Civ. P. 13 (e), the Court "may permit a party to file a supplemental pleading asserting a counterclaim that matured or was serving an earlier pleading." meet the test of Rule counterclaims only as case by Steves. 13 (e) a acquired by the party after All of JELD-WEN's counterclaims because result of JELD-WEN documents learned of the provided in this Accordingly, DEFENDANT JELD-WEN, INC.'S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & 26 SONS, INC. (ECF No. 101) will be granted to permit JELD-WEN to file all of its counterclaims as permissive. D. Severance However, efficiency the interests necessitates of that justice the and, trial indeed, of the judicial permissive counterclaims be severed from the trial of Steves' claims. R. Fed. Civ. P 42 provides that a court may separate a trial "[f] or convenience, to avoid prejudice, or to expedite and economize" trial "of one or more separate issues, claims, crossclaims, counterclaims II [or] "The decision whether to sever or to consolidate whole actions or sub-units for trial is necessarily committed to trial court discretion." Arnold v. E. Air Lines, Inc., 681 F.2d 186, 192 (4th Cir. 1982), on reh'g, 712 F.2d 899 (4th Cir. 1983). The challenge in discretionary authority. this case is how to exercise that In making the decision to sever the trial into three parts, the Court considers each of the factors described above, convenience, prejudice, expedition and judicial economy. See Arnold v. (4th Cir. 1982) Inc., 681 F.2d 186, 194 (finding that the district court made its ruling against severance proper factors, E. Air Lines, "on the basis of a sound assessment of the hence well within the bounds of the discretion committed to it.") . For the reasons that follow, the avoidance of prejudice and the ability to expedite proceedings and the 27 interest of economy call for the claims and counterclaims to be served into three components. As respects the prejudice factor, and possible confusion [are] "[t]he risks of prejudice obvious ones which in the exercise of a sound judicial discretion the district court to weigh. 1976)." See Molever v. Levenson, Arnol, 681 F.2d at 193. 539 F.2d [is] 996 (4th Cir. As discussed above, there is no real congruence between the elements of Steves' JELD-WEN's counterclaims. obliged claims and The elements are materially different and consequently the evidence to prove them will be different. The same Therefore, is true for even though, JELD-WEN' s defenses as JELD-WEN argues, to Steves' many of claims. the same witnesses will testify in respect of the claims, counterclaims, and defenses, the different times. testimony will address different Thus, topics and the fact that the same witnesses will testify is of no real moment. Moreover, the differences in the elements as between the claims and the counterclaims and the def ens es and the evidence related to them are so disparate that a jury is certain to be so confused that the trial will be unfair to both sides. One only has to think of the trial management problems and the difficulty in presenting understandable instructions to see how confusing a single trial of all claims and counterclaims will be. that difficulty is proven, even 28 now, by the Indeed, pleadings and arguments made in support of the motion. It was difficult for the Court to keep straight the issues and the evidence presented about them. Fifty years of private practice and twenty-five years on the bench have presented nothing like the difficulty of trying the claims and counterclaims in this case together. Moreover, Steves argues that the trial of its antitrust claims would be prejudiced by trying the trade secret claims at the same time. Indeed, behind JELD-WEN' s Steves argues that is the real motive insistence that the cases be tried together. Wholly apart from JELD-WEN's motivation, the prejudice to a fair trial on the antitrust claim exists if the arise from the proffered to be That prejudice does tried with the trade secrets counterclaim. not claim were proofs of Steves' conduct (consequences with which Steves will rightly have to live) . comes from how the jury will be confused by having to It sort through the complex proofs of two complex claims - antitrust and And, trade secrets . that is particularly true where, as here, the anti trust economic issues are complex in one way and the trade secret issues are complex in other ways . sheer volume trade of trade secrets) (ECF No. secrets 185) Moreover, asserted by JELD-WEN presents the certainly (some that the 54 the complex antitrust evidence will be forgotten or distorted by the end of a trial involving the antitrust secret counterclaims. 29 claims and the trade The complex, claims. contract claims and counterclaims are also quite albeit not as much as the antitrust and trade secret Steves' counterclaims contract arise out of claims and entirely JELD-WEN's different contract parts of the Supply Agreement and trying all those contract issues along with the antitrust and trade secret issues is a formula for a trial debacle of major propositions. 11 The simple fact is that this case presents three different cases: an antitrust contract/breach of forecast each, facts case; a trade warranty case. and the known Each of legal is complex in its own right. secrets case; these, principles and under a the applicable to The way to assure that the parties will receive a fair trial on each case is to sever the trials so that there will be three trials. As respects the factors of expediency and economics, purely logistical factors-time, expense, likely militate in favor of one trial. [and] "the travel burdens" Arnold, 681 F.2d at 193. It appears that JELD-WEN' s defenses will involve some evidence that might play a some of Steves' role in two or all three cases. evidence likely will be present Likewise, in both the antitrust trial and the contract/breach of warranty trial. it will be somewhat different in each case, But, as will JELD-WEN' s The breach of warranty claims further complicate the problem by introducing yet another construct of legal theory. 11 30 evidence. In a counterclaims, which it will e.g., (4th Cir. claim and JELD-WEN' s be exceedingly difficult, if not However, that task will be made markedly easier by into three "pragmatic assessment, see, involving Steves' the task of limiting evidence to the issues to pertains impossible. severance trial cases. one Thus, may v. Bingham, make a courts, 216 F.2d 245, 247 that under the specific circumstances of this case", severance is necessary. Of course, Court frequently made by federal Tallant Transfer Co. 1954), the Id. the severance into three trials, of necessity, will lead to some inefficiency, but that is a small price to pay for establishing a structure in which a jury can give each side a fair trial on very different cases, each of which is of great significance to both sides. Moreover, severance will effectuate efficiencies in trial presentation and case management that will offset any inefficiency created by having three trials. How to schedule discovery henceforth and how to manage the separate consulted. trials But, are matters common about sense, fairness fairness to the jury call for severance. 31 which to counsel the will parties, be and CONCLUSION For the foregoing reasons, DEFENDANT JELD-WEN, INC.'S MOTION FOR LEAVE TO AMEND ANSWER TO ADD COUNTERCLAIMS AGAINST STEVES & SONS, INC. {ECF No. 101) is granted so that JELD-WEN can file its permissive counterclaims. There will be separate trials as outlined above. It is so ORDERED. /s/ fl[. f Robert E. Payne Senior United States District Judge Richmond, Virginia Date: May 2017 32
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
