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

Filing 239

MEMORANDUM OPINION. See for complete details. It is so ORDERED. Signed by District Judge Robert E. Payne on 05/17/2017. (nbrow)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA

~ ~ ,I

Fs

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

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