Steves and Sons, Inc. v. Jeld-Wen, Inc.
Filing
353
MEMORANDUM OPINION. See for complete details. It is so ORDERED. Signed by District Judge Robert E. Payne on 09/13/2017. (nbrow)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
STEVES AND SONS,
IE
LJ
INC.,
l
~
L
rE
fn'
20l;-i~
___J
SEP I 3
CLERK, U.S. DISTRICT COURT
RICHMOND, VA
Plaintiff,
v.
Civil Action No. 3:16cv545
JELD-WEN I
INC.
I
Defendant.
MEMORANDUM OPINION
This
SONS,
AND
matter
INC.'S
SEVENTH
forth below,
is
MOTION
before
TO
the
Court
DISMISS
COUNTERCLAIMS
on
JELD-WEN
( ECF
No.
2 6 7) .
PLAINTIFF
INC.'S
For
STEVES
SECOND,
the
AND
SIXTH,
reasons
set
the motion will be granted.
BACKGROUND
On May
WEN,
22,
INC.' S
2017,
MOTION
after
FOR
COUNTERCLAIMS AGAINST STEVES
the
LEAVE
&
Court
TO
SONS,
granted DEFENDANT
AMEND
INC.
ANSWER
(ECF No.
JELD-
TO
101) ,
ADD
JELD-
WEN filed an Amended Answer and Counterclaims. 1 JELD-WEN asserts
the
following
Violation
SECOND
1
of
counterclaims:
the
Defend
COUNTERCLAIM
FOR
Trade
FIRST
Secrets
RELIEF,
COUNTERCLAIM
FOR
Act,
18
U.S.C.
Conspiracy
to
Violate
DEFENDANT JELD-WEN INC.' S AMENDED ANSWER TO
AND
SONS,
INC.'S
COMPLAINT
FOR
INJUNCTIVE
RELIEF,
DAMAGES,
AND
SPECIFIC
PERFORMANCE
COUNTERCLAIMS (ECF No. 252) (Under Seal).
RELIEF,
§
1836;
Defend
PLAINTIFF STEVES
AND
DECLARATORY
AND
JELD-WEN' S
Trade Secrets Act,
FOR RELIEF,
Texas
Civil
134A. 008;
with
Violation of
Law;
§
the
1832 (a) (5);
Texas
& Remedies
Practice
Texas
THIRD COUNTERCLAIM
Uniform Trade
Code
Annotated
FOURTH COUNTERCLAIM FOR RELIEF,
Contract Under
RELIEF,
18 U.S.C.
Common Law;
Secret Act,
134A.001-
§§
Tortious Interference
FIFTH
COUNTERCLAIM
FOR
Tortious Interference with Contract Under Texas Common
SIXTH
COUNTERCLAIM
FOR
RELIEF,
Breach
of
the
Implied
Covenant of Good Faith and Fair Dealing Under Delaware Law; and
SEVENTH COUNTERCLAIM FOR RELIEF, Breach of Contract.
On June 19,
2017,
Steves and Sons
Inc.
("Steves")
moved,
under Fed. R. Civ. P. 12(b) (6) to dismiss the SECOND, SIXTH, and
SEVENTH COUNTERCLAIMS. 2 The factual allegations pertaining to the
three counterclaims challenged in the motion to dismiss are as
follows and must be taken as true for purposes of this motion.
According to JELD-WEN,
Senior
Executive
JELD-WEN.
June 29,
Vice
President
Pierce worked
2012.
"John Pierce
for
of
JELD-WEN
('Pierce')
is a former
defendant/counter-claimant
from
June
4,
1979
until
In his role as Senior Executive Vice President,
Pierce oversaw JELD-WEN' s entire molded door skins operations."
JELD-WEN'S COUNTERCLAIMS ("CC")
On
January
1,
1988,
~
Pierce
4 (ECF No. 252).
and
JELD-WEN entered
into
a
Management Employment Contract which provided that Pierce would
PLAINTIFF STEVES AND SONS, INC.'S MOTION TO DISMISS JELD-WEN,
INC.'S SECOND, SIXTH, AND SEVENTH COUNTERCLAIMS (ECF No. 267).
2
2
be exposed to "matters of confidence relating to manufacturing
processes,
policies
regards
~
Id.
a
costs,
and
[as]
5.
procedures
information
and
financial
and
Management
employment
from JELD-WEN.
data,"
JELD-WEN
which
"JELD-WEN
Employment
at
Contract."
JELD-WEN,
At various
Steves employees
Pierce and JELD-WEN entered into
2006,
Steves
times
worked directly with Steves
during his
knowledge
regarding these purchases."
of
Pierce's
"During
door
skins
Pierce
and with other
~
Id.
"Pierce
8.
~ 9.
Steves contacted Pierce,
2015,
former
6.
employment,
CEO Edward Steves
"On or before February 26,
~
Id.
purchased
retired from JELD-WEN on June 29, 2012." Id.
with
pricing,
confidential and in many cases as trade secrets."
"On January 27,
second
Pierce's
customer
position
at
JELD-WEN,
and
entered into an agreement with Pierce pursuant to which Pierce
would by surreptitious means acquire JELD-WEN trade secrets and
other confidential
door
information relating to JELD-WEN' s
skin businesses
Steves
and
Disclosure
and deliver
Pierce
signed
Agreement
on
a
that
Mutual
March
15,
information
to
Confidentiality
2015."
Id.
~
door and
Steves.
and
Non-
"Steves
10.
agreed to pay Pierce at the rate of $8 00 per day,
plus travel
expenses,
communicate
with
to
travel
JELD-WEN
confidential
to JELD-WEN facilities
employees
for
the
and to
purpose
of
eliciting
information about JELD-WEN operations and passing
that information to Steves.
Pursuant to that agreement,
3
Pierce
traveled to several JELD-WEN door skin plants and obtained trade
secret
and
employees."
Steves
Id.
,
"Pierce
12.
confidential
JELD-WEN
from
information
confidential
other
that
he
information,
financial
acknowledged
and
confidential
information about primer costs,
JELD-WEN' s
sold
future plans
to
for a
primer facility in Towanda, and manufacturing process and plans
for
a
new
door
adhesive,
that
Pierce
learned
through
those
trips." Id. , 13. "The Steves brothers and Pierce discussed that
Steves was buying confidential JELD-WEN information from Pierce"
and
"[o] n March 12,
Steves
II
that
Pierce suggested to Edward and Sam
2015,
they
keep
Pierce's
upcoming
visit
to
Steves
headquarters in San Antonio, Texas confidential." Id. , 19.
Furthermore,
Executive
Vice
says
JELD-WEN,
"John
of
President
2012,
is
a
former
Development
Corporate
defendant/counter-claimant JELD-WEN.
from April 16,
Ambruz
for
Ambruz worked for JELD-WEN
until March 12,
2014."
Id.
,
24.
JELD-WEN
also had an employment contract with Ambruz, beginning April 18,
2012,
which
indicated
confidential matters.
that
Id.
employment with JELD-WEN,
declaration certifying
,
Ambruz
25.
he
be
exposed
to
"After the termination of his
on April
that
would
had
21,
2014,
Ambruz
signed a
returned and delivered
to
JELD-WEN all materials embodying any confidential information,"
and
"he
acknowledged
his
ongoing
4
duty
to
maintain
as
confidential any confidential information he acquired during his
employment." Id. , , 27-28.
"Following his
departure
from JELD-WEN,
Ambruz
started a
consulting firm called Global Strategic Partners ('GSP') ." Id. ,
29.
"Steves retained Ambruz, through GSP, as a consultant on or
around July 8,
help
it
2015.
evaluate
financing
and
Id. , 30.
Steves admits that it retained Ambruz to
the
feasibility,
developing
its
logistics
own
molded
and economics
door
skin
of
plant."
"On information and belief, Steves provided to Ambruz
confidential JELD-WEN information that JELD-WEN had provided to
Steves
parties'
pursuant
to
the
confidentiality
provisions
of
the
[Long Term] Supply Agreement." Id. , 31.
JELD-WEN alleges that, "[o]n information and belief, Steves
has planned to use, and will continue to use,
secrets
and confidential
JELD-WEN's trade
information to assess
whether
it
is
feasible for the company to develop a door skin manufacturing
operation in direct competition with JELD-WEN.
The information
stolen from JELD-WEN provides Steves a roadmap to develop a door
skin manufacturing operation." Id. , 39.
These
counterclaim
facts
and
form
also
the
are
predicate
integral
5
to
for
JELD-WEN's
JELD-WEN's
SECOND
SIXTH
and
SEVENTH
counterclaims. 3
purport
to
be
based
The
on
SIXTH
and
contract
SEVENTH
provisions
counterclaims
that
will
be
discussed fully in considering whether those two counterclaims
are subject to dismissal.
ANALYSIS AND APPLICATION OF LAW
A
motion
challenges
to
the
dismiss
legal
under
sufficiency
Fed.
of
R.
a
Civ.
P.
complaint.
Alternative Resources Corp., 458 F.3d 332, 338
12(b) (6)
Jordan
v.
(4th Cir. 2006).
When deciding a motion to dismiss under Rule 12 (b) (6), a court
must "draw all reasonable inferences in favor of the plaintiff."
Nemet
250,
Chevrolet,
253
(4th
pleader's
Ltd.
Cir.
v.
Consumeraffairs.com,
2009).
description
of
While
what
the
court
happened"
that can be reasonably drawn therefrom,"
and
the
Inc.,
"will
591
accept
"any
F.3d
the
conclusions
court
"need not
accept conclusory allegations encompassing the legal effects of
the
pleaded
facts."
Charles
Federal Practice and Procedure
Old Dominion Sec.
at *4
true
Co.,
L.L.C.,
(E.D. Va.
a
2014).
legal
conclusion
A.
Wright
& Arthur
R.
Miller,
1357 (3d ed. 1998); Chamblee v.
§
No.
3:13CV820,
2014 WL 1415095,
The court is not required to accept as
unsupported
by
factual
allegations.
Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).
The same facts are the predicate for JELD-WEN's FIRST, THIRD,
FOURTH, and FIFTH counterclaims, none of which are the subject
of Steve's motion to dismiss.
3
6
In the SECOND Counterclaim,
combined
and
conspired
18
violation of
with
§
U.S.C.
JELD-WEN alleges
Pierce
or
1832(a) (5).
that Steves
Ambruz,
~
CC
50.
or
both,
In
the
in
SIXTH
Counterclaim, JELD-WEN alleges that Steves breached the implied
covenant
inherent
"Steves
[had]
in the parties Long Term Supply Agreement.
agreed
to
purchase
80%
of
its
door
skin
requirements from JELD-WEN from January 1, 2012 through December
31,
2019."
Id.
~
"By
71.
unlawfully
stealing
JELD-WEN' s
confidential and secret information in order to develop its own
interior
molded
unreasonably
door
deprived
skin
manufacturing
JELD-WEN
of
its
capability,
expectation
Steves
under
the
contract that Steves would purchase 'the maximum volume [of door
skins]
possible'
from
JELD-WEN
contract." Id.
~
of
JELD-WEN
contract,
for
the
duration
of
the
73. As to the SEVENTH Counterclaim for breach
alleges
that
"Steves
breached
the
confidentiality provision of the [Long Term] Supply Agreement by
providing
JELD-WEN' s
commercially
sensitive
information
~
Ambruz without JELD-WEN's prior and express approval." Id.
A.
SECOND COUNTERCLAIM: Conspiracy to
Secrets Act, 18 u.s.c. § 1832(a) (5)
In the SECOND Counterclaim,
combined
and
conspired
violation of 18 U.S.C.
dismissal
because
with
§
JELD-WEN alleges
Pierce
1832(a)(5).
Section 1832
"does
7
Violate
or
Id.
not
Ambruz,
~
50.
Defend
to
77.
Trade
that Steves
or
both,
in
Steves seeks
establish a
private
cause of action,
and private citizens simply do not have the
right to enforce criminal statutes." Opening Brief at 6.
4
JELD-WEN argues that whether the amendment of the Espionage
Act permits a private cause of action under 18 U.S.C.
an
issue
of
first
supports
its
18 U.S.C.
§
impression,
but
1836(b) (2),
an
the
According
interpretation.
that
to
individual
§
1832 is
statutory scheme
under
JELD-WEN,
can apply
for
a
civil
seizure order, which may be entered if the applicant is likely
to succeed in showing that the information is a trade secret,
and the order can be directed against a person who "conspired to
use
improper means
to misappropriate the trade secret of
application." And, according to JELD-WEN,
civil
seizure
showing
a
order
conspiracy
based
if
on
you
the
"[h]ow would you get a
likelihood
didn't
the
have
a
of
success
private
right
of
of
conspiracy.
It would make no sense otherwise." In other words,
the
counterclaim
SECOND
is
based on
the
theory
that
Section
1836(b) (2) permits the inference that Section 1832(a) (5) creates
a private right of action.
To
assess
that
argument,
it
is
appropriate
briefly
to
examine the statutory scheme of the ECONOMIC ESPIONAGE ACT OF
1996, Title 18, Chapter 90, 18 U.S.C.
§§
1831-39 ("Chapter 90").
STEVES AND SONS, INC.'S MEMORANDUM IN SUPPORT OF ITS MOTION TO
DISMISS
JELD-WEN,
INC.'S
SECOND,
SIXTH,
AND
SEVENTH
COUNTERCLAIMS (ECF No. 272) (Under Seal) ("Opening Brief").
4
8
Chapter 90 proscribes economic espionage and theft of trade
secrets
as
prosecute
federal
those
proceedings
to
crimes
crimes
and provides
and
help address
to
allow
those
certain mechanisms
certain
crimes.
limited
to
civil
Section 1832 (a),
a
part of Chapter 90, makes certain trade secret thefts punishable
as federal crimes. Section 1832 does not provide for a private
right
of
action
to
redress
the
trade
secret
thefts
that
it
proscribes.
Both parties agree
that Chapter 90 does provide a
civil
private right of action in Section 1836, which authorizes civil
proceedings in two circumstances. First, Section 1836(a) allows
the Attorney General
appropriate
to
injunctive
initiate
relief
"a civil action"
against
any
to
violation
"obtain
of
this
chapter [which includes Section 1832(a)] ." That is quite clearly
not a private right of action because only the Attorney General
is given the right.
Second,
effective
May
2016,
Congress
enacted
the
Defend
Trade Secrets Act ("DTSA"), which amended Chapter 90 by creating
a
private
right
of
necessary to prevent
trade
secret
18 U.S.C.
§
that
action
for
civil
seizure
of
"property
the propagation or dissemination of
is
1836(b)(2)(A).
the
Section
subject
of
1836 (b) (1)
the
the
action."
provides
that
" [a] n owner of a trade secret that is misappropriated may bring
a
civil
action under this
subsection if
9
the
trade
secret
is
related to a product or service used in, or intended for use in,
interstate
or
foreign
commerce."
"In
a
civil
action brought
under this subsection with respect to the misappropriation of a
trade
secret,"
caused
by
"damages
the
the
for
misappropriation
any
following
recognized
§
unjust
u.s.c.
appropriation." 18
And,
a
Court may award
§
the
of
the
enrichment
for
caused
loss
secret,"
trade
actual
and
by
the
mis-
1836(b) (3) (B)
2016
private
"damages
amendment,
right
of
district
action
courts
under
18
have
U.S. C.
1836(b) (1). For instance, in Molon Motor & Coil Corp. v. Nidec
Motor Corp., No. 16
May 11,
2017),
c
03545, 2017 WL 1954531, at *1
(N.D. Ill.
Molon sued Nidec Motor Corporation for,
among
other things, violation of the DTSA. The court held that: "[t]he
D [TSA]
allows
' [a] n
misappropriated
owner
. . [to]
of
bring
trade secret is related to a
a
a
trade
civil
secret
that
if
action
is
the
product or service used in,
or
intended for use in, interstate or foreign commerce.' 18 U.S.C.
§
1836 (b) (1) . "
See also Brand Energy
Infrastructure Servs.,
&
Inc. v. Irex Contracting Grp., No. CV 16-2499, 2017 WL 1105648,
at
*3
(E.D.
Pa.
Mar.
24,
2017)
("Brand's
federal
under the recently enacted D[TSA], 18 U.S.C.
Mission Measurement Corp.
v.
915,
2016)
920-22
(N.D.
Ill.
Blackbaud,
10
Inc.,
(finding
adequately pleaded claim under DTSA) .
§
that
claims
are
1832, et seq.");
216 F.
Supp.
plaintiff
3d
had
However, JELD-WEN has cited no decision holding that there
is
a
private
right
of
action under
JELD-WEN takes the view that,
of
property
necessary
Section 1832 (a).
Rather,
by authorizing the civil seizure
prevent
to
propagation
the
or
dissemination of trade secrets (the theft of which is prohibited
by Section 1832 (a) (5)),
and by allowing a
award damages for actual loss
misappropriation
implicitly
of
creates
those
a
court
to
(or unjust enrichment) 5 caused by
trade
private
district
secrets,
right
of
Section
action,
1836 (b)
under
Section
1832(a), for conspiracy to engage in the theft of trade secrets.
And,
for
support
of
that
1836(b) (2) (A) (IV) (bb) (BB),
seizure
could
applicant
for
be
the
based,
view,
which
inter
seizure
JELD-WEN
provides
alia,
order
person who stole the trade
on
likely
secret
points
that
a
to
the
finding
could
show
Section
order
of
that
the
that
the
"conspired to use improper
means to misappropriate the trade secrets of the applicant."
JELD-WEN'S
interpretation.
position
presents
a
question
of
statutory
"When interpreting a statute, we begin with the
statute's plain language". Sijapati v. Boente, 848 F.3d 210, 215
(4th
Cir.
2017) .
language as a
"We
whole,
are
obliged
to
look
18 U.S.C.
§
the
statutory
construing each section in harmony with
every other part or section, because 'Act[s]
5
at
1836(b) (3) (B).
11
of Congress .
should
not
be
provisions.'
read
Id.
11
as
a
series
of
unrelated
(quoting Gustafson v.
and
Alloyd Co.,
isolated
Inc.,
513
U.S. 561, 570 (1995)).
Nowhere in Section 1832(a) does the statutory text mention
a
private
right
prohibitory
1832 (a)
be
of
terms.
action
Nor
does
to
redress
the
remedial
violations
of
section
Section
of
its
permit the inference that a private civil action is to
implied
in
Section
1832(a).
See
18
U.S.C.
1832(a) (5)
§
conspires
("Whoever, with intent to convert a trade secret .
. shall,
with one or more other persons to commit any offense.
except as provided in subsection (b), be fined under this title
or imprisoned not more than 1 O years,
remedies
are
drastically
different
or both.
than
11 )
the
•
Those penal
civil
remedies
provided under Section 1836.
Where,
as here,
a criminal statute establishes what is a
crime and specifies the punishment for committing the crime,
is not enforceable
in a
specifically so provides.
447-48
have
it
private civil action unless Congress
See Doe v.
Broderick,
225 F. 3d 440,
(4th Cir. 2000). That is because private citizens do not
the
right
to
enforce
federal
criminal
statutes
absent
specific authority from Congress. Linda R.S. v. Richard D., 410
U.S. 614, 619
(1973); Lopez v. Robinson,
914 F.2d 486, 494
(4th
Cir. 1990); Zegato Travel Solutions, LLC v. Bailey, No. TDC-143808, 2014 WL 7365807, at *2 (D. Md. Dec. 22, 2014). Thus, it is
12
unsurprising
courts
that,
rather
before
uniformly
the
held
2016
that
amendment
Section
to
Chapter
1832(a)
does
90,
not
provide a private right of action for redress of the criminal
conduct
that
it
prohibits.
Second Bite Foods,
*4
(C.D.
Cal.
See,
Inc., No.
June 15,
e.g.,
Super
Chefs,
2015);
Auto-Opt Networks,
2014); Anderson v. Google Inc., No.
WL 2468364, at *2
v.
CV 15-00525, 2015 WL 12914330, at
Inc.
USA, Inc., No. 3:14-CV-1252, 2014 WL 2719219, at *10
June 16,
Inc.
(N.D. Cal. June 7,
v.
GTL
(N.D. Tex.
12-cv-06573,
2013
2013); Masoud v. Suliman,
816 F. Supp. 2d 77, 80 (D.D.C. 2011); Cooper Square Realty Inc.
v.
Jensen,
No.
04
Civ.
OlOll(CSH),
(S.D.N.Y. Jan. 10, 2005).
of the DTSA,
2005
WL
53284,
at
*2
Furthermore, even after the enactment
plaintiffs who asserted claims for trade secrets
misappropriation under
the
present conspiracy claims.
DTSA have
relied on state
law to
That rather strongly suggests that
the DTSA is not generally seen as creating a private right of
action pertaining to all of the conduct prohibited by Section
1832(a). See, e.g., Kuryakyn Holdings, LLC v. Ciro, LLC, 242 F.
Supp.
3d
789,
2017
WL
1026025,
at
*1,
5
(W.D.
Wis.
2017);
Neopart Transit, LLC v. Mgmt. Consulting, Inc., No. CV 16-3103,
2017
WL
714043
Distribution,
I
at
Inc. v.
*2
(E.D.
Pa.
Nutivita Labs.,
Feb.
23,
Inc., No.
2017);
SACV 16-01553-
CJC(DFMx), 2016 WL 9024809, at *2 (C.D. Cal. Dec. 1, 2016).
13
VBS
Nor can Section 1836 (b)
right
of
action
Section 1836
lies
for
permits
a
be read to imply that a private
redress
of
limited right
Section
1832.
Although
to bring private
civil
actions for limited purposes, the right is confined to a "civil
action
under
this
subsection."
18
u.s.c.
1836(b) (2).
§
That
subsection is Section 1836 (b) , which is entitled "Private civil
actions."
The
civil
action
permitted
is
the
"Civil
seizure"
identified in Section 1836(b) (2) which allows a court to issue:
an order providing for the seizure of
property
necessary
to
prevent
the
proposition or dissemination of the trade
secret that is subject of the action.
Id.
§
1836{b) (2) (A) (i). That is the only civil action permitted
by
Section
1836 {b) (2),
and
that
language
does
not
provide a private right under Section 1832(a) (5) . 6
to
JELD-WEN's
reasonably
view,
read
to
can
Section
a
private
subsection merely provides
a
way
trade secret
Nor, contrary
1836(b) (2) (A) (IV) (bb) (BB)
create
person who stole the
impliedly
for
right
of
seizure
action.
to
occur
"conspired to use
be
That
if
a
improper
means" to do so .
While that text makes it easier to secure a
seizure order,
does
it
under Section 1832 (a) .
not
create a
private
right
of
action
To read that section to have such an
Although Sections 1836(b) (2) (B), (C), and (D) go on at length
about the kind of seizure order that can be issued and the
"elements" of that order, nowhere does Section 1836 (b) (2)
mention any other type of civil proceeding other than seizure.
6
14
effect is to place too great burden on the phrase "conspired to
do so."
It
also
injunction
1836 (a),
is
actions
by
the
in
that,
significant
Attorney
authorizing
General
under
civil
Section
Congress allowed such actions involving "any violation
of this chapter," which of course includes Section 1832 (a) . On
the other hand,
Congress restricted private rights of action to
the seizure order process specified in "this subsection," i.e.,
Section 1836 (b} (2).
Where,
as here,
Congress
has made such a
clear demarcation, it is not for the courts to change that line
by implying what Congress did not see fit to provide. And,
Court declines JELD-WEN' s
the
invitation to amend Section 1836 by
judicial gloss.
B.
SIXTH COUNTERCLAIM: Breach of the Implied Covenant of Good
Faith and Fair Dealing Under Delaware Law
Steves and JELD-WEN entered a Long Term Supply Agreement by
which JELD-WEN was to supply, and Steves was to buy, deerskins.
In its SIXTH counterclaim, JELD-WEN alleges that Steves breached
the
implied covenant
of
good
faith
and
fair
dealing
that
implied in the Long Term Supply Agreement. It is settled that:
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 upon contractual language
that is on its face reasonable. This implied
covenant is a judicial convention designed
15
is
to protect the spirit of an agreement when,
without violating an express term of the
agreement,
one side uses oppressive or
underhanded tactics to deny the other side
the fruits of the parties' bargain. It
requires the Court to extrapolate the spirit
of the agreement from its express terms and
based on that "spirit," determine the terms
that the parties would have bargained for to
govern the dispute had they foreseen the
circumstances
under which their dispute
arose.
The
Court
then
implies
the
extrapolated term into the express agreement
as an implied covenant and treats its breach
as a breach of the contract. The implied
covenant
cannot
contravene
the parties'
express agreement and cannot be used to
forge a new agreement beyond the scope of
the written contract.
Chamison v.
(Del.
Ch.
HealthTrust,
Inc.--Hosp.
Co.,
735 A.2d 912,
1999), aff'd sub nom. Healthtrust,
Chamison,
748
constituting
A.2d
a
free
407
(Del.
floating
2000).
duty
Inc.-Hosp.
"Moreover,
imposed
on
920-21
Co. v.
rather
a
than
contracting
party, the implied covenant can only be used conservatively 'to
ensure the parties'
Kuroda v.
"reasonable expectations"
SPJS Holdings,
L.L.C.,
are fulfilled.'"
971 A.2d 872,
888
(Del.
Ch.
2009). It is settled that: "'[i]n order to plead successfully a
breach of an implied covenant of good faith and fair dealing,
the
plaintiff
obligation,
resulting
Mortgage
must
allege
a
specific
implied
contract
a breach of that obligation by the defendant,
damage
Corp.,
to
497
the
F.
plaintiff.
Supp.
2d
16
111
572,
Anderson
581-82
(D.
v.
and
Wachovia
Del.
2007)
(quoting
Fitzgerald
v.
Cantor,
No.
C.A.
16297-NC,
1998
WL
842316, at *1 (Del. Ch. Nov. 10, 1998)).
To assure that the implied covenant does not become a free
floating
specific
duty,
it
contract
is
necessary
obligation,
to
tether
the
also
and,
covenant
"allege
to
how
a
the
violation of that obligation denied the plaintiff the fruits of
the contract." Kuroda, 971 A. 2d at 888. Only if this linkage is
pleaded will a complaint satisfy the first element of a claim
for
breach
of
the
implied
covenant
of
good
faith
and
fair
dealing.
In its SIXTH counterclaim,
JELD-WEN seeks to satisfy the
first element by alleging that:
Steves [had] agreed to purchase 80% of its
door skin requirements from JELD-WEN from
January
1,
2012
through
December
31,
2019 . . . . By
unlawfully
stealing
JELDWEN's confidential and secret information in
order to develop its own interior molded
door skin manufacturing capability, Steves
unreasonably
deprived
JELD-WEN
of
its
expectation under the contract that Steves
would purchase 'the maximum volume [of door
skins]
possible'
from JELD-WEN for the
duration of the contract.
CC
~~
71-73
(second alteration in original) .
In other words,
JELD-WEN' s effort to plead the first element is the contention
that Steves,
trade secrets)
by attempting to acquire
(by way of
the
stolen
the ability to make doorskins, deprived JELD-WEN
of its contractual expectation (under Section 4 of the Long Term
17
Supply Agreement)
that Steves would buy the majority
its deerskin requirements from JELD-WEN.
it this way:
of
The counterclaim puts
the "intent and spirit" of the Long Term Supply
Agreement
was
possible"
from JELD-WEN.
Agreement
(80%)
for
(ECF
No.
Steves
to
purchase
Id.
5-1)
~
~
4. 7
73;
At
the
"maximum
volume
see also Long Term Supply
oral
argument,
JELD-WEN's
counsel said that "maximum volume possible" meant 100%. August
9, 2017 Transcript (ECF No. 350)
("Aug. 9 Transcript") at 35:3-
5. However, the contract contains no such provision.
To
successfully
plead
a
legally
sufficient
breach
of
implied covenant claim, JELD-WEN must identify specific contract
obligations that provide,
found,
that,
had
the
or from which it could plausibly be
parties
considered
it,
they would have
agreed that Steves could not explore the option of developing an
alternative source of supply:
(1)
for the 20% of its deerskin
needs that, under the Long Term Supply Agreement, Steves was not
required
to
buy
from
JELD-WEN;
or
(2)
for
the
supply
of
deerskins after the expiration or termination of the Long Term
Supply Agreement, or both. JELD-WEN makes no such allegation. In
fact,
the Long Term Supply Agreement demonstrates that no such
allegation could have been made.
The agreement was attached to the Complaint, there is no
dispute as to its authenticity, and it is referred to and quoted
in this counterclaim and the briefs. Anand v. Ocwen Loan
Servicing LLC, 754 F.3d 195, 198 (4th Cir. 2014).
7
18
To
begin,
the
agreement
explicitly
provides
that
Steves
"has the right to purchase from other sources." Long Term Supply
Agreement
~
4. And,
the agreement clearly provides that Steves
could buy 20% of its requirements from sources other than JELDWEN.
See
id.
These
provisions
foreclose
a
finding
that
the
implied covenant of good faith and fair dealing requires Steves
to purchase all of its requirements, or even the "maximum volume
possible," from JELD-WEN.
Second,
obligation
the
to
contract
sell
allows
doorskins
to
JELD-WEN
Steves.
exercised that right on September 10,
to
In
2014.
terminate
fact,
Clearly,
its
JELD-WEN
if Steves
was to stay in business, it would have to have another source of
doorskins and would be entitled to explore its options to that
end.
And,
one of those options was to build its own plant to
supply its own needs.
The contract certainly does not provide
otherwise.
To imply, under the guise of the covenant of good faith and
fair dealing, an obligation that forecloses Steves from pursuing
those options would write into the Long Term Supply Agreement
terms that clearly are not there, and which the express terms of
the Agreement do not at all indicate that the parties would have
agreed to had they negotiated the issue.
demonstrates
alternate
that
sources
Indeed,
the contract
the parties agreed that Steves could pursue
of
supply
(above
19
20%,
if
JELD-WEN' s
price
exceeded specified levels
and JELD-WEN declined
alternate purchase price),
even
if
it would mean a
supply just those needs. See id. And,
Supply
Agreement
prohibits
Steves
to match
plant
the
to
nothing in the Long Term
from
arranging
alternate
sources of supply that would be available if JELD-WEN exercised
its right of termination.
In sum,
the contract provision to which JELD-WEN's implied
good faith and fair dealing claim is tethered simply provides no
basis for animating the implied covenant of good faith and fair
dealing, for it cannot be said that the purpose of Section 4 of
the Long Term Supply Agreement is frustrated by the development
of an alternate source of supply.
Unless that can be said,
it
makes no difference how that alternate source was pursued.
Moreover,
Section
4
does
not
address
"how"
Steves
can
develop an alternate source of supply, and to imply such a term
would be to add a free floating duty that has no attachment to
the
contract.
precepts that,
That,
of
course,
would violate
under Delaware law,
the
fundamental
restrict the application of
the implied covenant of good faith and fair dealing. 8
The "how" theory (how Steves can develop an alternative supply
source) is not pleaded in the SIXTH counterclaim. It first
appeared in JELD-WEN's response brief as an argument of counsel.
Thus,
it really has no place in assessing whether the
counterclaim can pass muster under Rule 12(b) (6). At oral
argument, JELD-WEN took the view that it would amend to add its
"how" theory. However, there has been no motion for leave to
8
20
JELD-WEN argues
A. 3d 358
(2017),
that,
in Dieckman v.
Regency GP LP,
155
the Supreme Court of Delaware supplanted all
its previous decisions respecting the implied covenant of good
faith and fair dealing and that,
thusly read,
Dieckman compels
the denial of Steves' motion to dismiss the SIXTH counterclaim. 9
A reading of Dieckman discloses that it does no such thing.
First,
say
that
in Dieckman,
it
was
the Supreme Court of Delaware did not
jettisoning previously
well-settled
Delaware
law, and surely the court would have said so if the Delaware law
on
this
topic
importantly,
those
was,
the
as
JELD-WEN
Supreme
well-established
Court
of
principles
contends,
Delaware
(that
"outdated."
actually
JELD-WEN
More
recited
says
are
outdated) and decided the case by applying them to the Delaware
Revised Uniform Partnership Act. See Dieckman, 155 A.3d at 36668.
Second, Dieckman is not persuasive, much less controlling,
here
because
the
implied
covenant
claimed
in
that
case
was
amend. And, in any event, the theory would be futile for the
reasons set forth above, so any such amendment would fail for
futility. See Fernan v. Davis, 371 U.S. 178, 182 (1962); Anand,
754 F.3d at 200 (proposed amendment fails for futility if it is
"'clearly insufficient . . . on its face"' (quoting Johnson v.
Oroweat Foods Co., 785 F.2d 503, 510 (4th Cir. 1986))).
JELD-WEN called "outdated" the precedents cited previously in
the opinion and relied on by Steves. JELD-WEN, INC.'S MEMORANDUM
IN OPPOSITION TO STEVES AND SONS, INC.'S MOTION TO DISMISS JELDWEN, INC.' S SECOND, SIXTH, AND SEVENTH COUNTERCLAIMS (ECF No.
282) (Under Seal) ("Response Brief") at 10.
9
21
specifically
tethered
to
two
contract
provisions
(the
safe
harbor provision and the shareholder approval provision) . And,
because of that tether,
the implied covenant claim was found to
have been well-pleaded. See id. For the reasons set forth above,
JELD-WEN's pleaded tether (Section 4) simply cannot serve as the
predicate for the implied covenant claim that is presented in
the SIXTH counterclaim or for
the
related
"how"
theory newly
raised in JELD-WEN's response brief.
Finally, the SIXTH counterclaim, whether based on Section 4
or the related "how"
theory,
third
breach
elements
of
a
fails
of
a
to satisfy the second and
legally
sufficient
implied
covenant claim, for it does not plead (much less plausibly so) a
deprivation of JELD-WEN's reasonable expectation under Section 4
(i.e. ,
a
breach of
damage
to
(internal
the
plaintiff."
quotations
deprivation
of
resulting damage
theory)
Steves'
could
implied obligation)
Anderson,
omitted).
reasonable
And,
in
expectation
tethered to Section 4
be
plausibly
F.
497
pleaded
or
Supp.
fact,
under
2d
at
neither
Section
(or the
because
"resulting
related
there
582
a
nor
4
"how"
is
no
allegation that Steves has ever purchased less than the quantity
of deerskins that it agreed to purchase under Section 4.
For the
counterclaim
foregoing
is
reasons,
tethered
to
to
Section
theory), it fails as a matter of law.
22
the extent
4
(or
the
that
the SIXTH
related
"how"
In its response brief,
JELD-WEN argues for the first time
that its breach of the implied covenant of good faith and fair
dealing claim is tethered to Section 21 of the Long Term Supply
Agreement. Section 21 provides:
The
Parties agree
that
compliance with
certain provisions of this Agreement may
require good faith verification of certain
facts, figures or other relevant matters by
either or both of the Parties. This will
include provisions in sections 4, 6, 8, 11
and 20 of this Agreement. The Parties agree
that any such requested verification shall
be by affidavit,
subject to independent
verification
by
the
other
Party.
If,
however,
after
such
efforts
further
verification is requested by a Party (the
"Requesting Party"), the other Party (the
"Complying Party") agrees to make available
to the Requesting Party at the expense of
the Requesting Party, all such information,
business
records,
data,
and
back-up
documentation necessary for the Requesting
Party to determine the Complying Party's
compliance
to
secure
the
requested
verification.
Long Term Supply Agreement
~
21.
JELD-WEN' s
Steves hired a former JELD-WEN employee,
so-called
input
component
of
costs
JELD-WEN'S
that
are
prices
used
for
under the Long Term Supply Agreement,
argument
Pierce,
in
that
to obtain the
verifying
doorskins
is
sold
the
to
cost
Steves
thereby frustrating JELD-
WEN' s expectations under Section 21. As JELD-WEN' s counsel put
it at oral argument:
23
Steves' theft of the input costs which is
this John Pierce adventure, constitutes a
breach of the implied covenant and that
relates to [S]ection 21.
* * *
So, Steves hired John Pierce to get around
the verification provision of [S] ection 21.
And
that
frustrated
J[ELD]-[WEN] 's
reasonable expectation that if there was a
problem with the key input cost, this is how
it would be resolved.
Aug. 9 Transcript at 41:23-25, 42:21-25.
The
pleaded
first
in
the
problem
SIXTH
with
this
counterclaim.
theory
it
is
not
Counterclaims
The
is
that
do
not
mention Section 21 of the Long Term Supply Agreement anywhere.
JELD-WEN, at oral argument,
certain paragraphs
tried to relate this new theory to
in the Counterclaims,
but those paragraphs
simply do not connect Section 21 and the
implied covenant of
good faith and fair dealing.
The
reason given by JELD-WEN at
oral
argument
for
that
pleading deficiency is that the new theory is based on newly
discovered information. But as Steves showed, the so-called new
information is not new at all.
Indeed,
it has been known for
many months.
In any event, JELD-WEN has not moved for leave to amend to
add Section 21 as a contractual tether to its implied covenant
claim. And, the mere assertion of a new theory in briefs or oral
24
argument does not serve as a motion for leave to amend. 10 See New
Wellington Fin.
Corp.
v.
Flagship Resort Dev.
Corp.,
416 F.3d
290, 295 n.8 {4th Cir. 2005).
More importantly, any amendment to add this new contractual
tether would be futile because JELD-WEN cannot satisfy the third
element of an implied covenant claim:
brief
and
{where the theory was first
the
oral
argument
confirmed
the damage component. The
raised)
that
asserted no damages
the
alleged
breach
of
Section 21 caused no cognizable damage.
At oral argument,
JELD-WEN' s
counsel represented that its
damages under the Section 21 theory are
the
form
of
"investment
of
management
"litigation costs"
time
in attempting
in
to
contest the evidence that Steves is putting forward on t [his]
issue." Aug.
9 Transcript at 43: 4-9,
authority that
45: 6-8.
investment of management time
JELD-WEN cites no
is a
recoverable
damage in a case such as this. And, the Court could find no such
authority.
In any event, JELD-WEN has not alleged, or even argued, how
the fact that it has invested management time in the litigation
has
And,
frustrated
the
Court
its
legitimate
cannot
expectations
envision a
10
plausible
under
Section
21.
assertion of
the
Of course, the importance of such a motion is that it affords
the opposing party an opportunity to oppose amendment. And, at
this stage of this case, that is an important right.
25
that
critical
underpinning in the SIXTH counterclaim's allegations,
there is
frustration
of
those
expectations.
Without
no claim for a breach of the implied covenant of good faith and
fair dealing tethered to Section 21.
Finally,
Steves is entitled to JELD-WEN' s
cost input data
under the last sentence of Section 21. Thus, the putative claim
under the new theory amounts,
at best,
to the contention that
JELD-WEN's expectations as to the process provided in the first
three sentences of Section 21 were frustrated when Steves got
the information from Pierce instead of from JELD-WEN under the
last sentence of Section 21.
not
pointed
to
any
Even if that is so,
damages
it
incurred,
JELD-WEN has
apart
from
its
litigation costs which are not cognizable damages.
C.
SEVENTH COUNTERCLAIM: Breach of Contract
Under
Delaware
law,
a
successfully
contract claim requires allegations of:
pleaded
{1)
breach
of
the existence of
the contract;
(2)
the breach of an obligation imposed by that
contract;
(3)
the
and
resultant damage
VLIW Tech., LLC v. Hewlett-Packard Co.,
2003).
And,
Counterclaim,
in
federal
must
court,
satisfy
to
the plaintiff.
840 A.2d 606,
the pleading,
the
requirements
Iqbal. See Iqbal, 556 U.S. at 677-79.
26
here
of
612
See
{Del.
the SEVENTH
Twombly
and
The contractual provision that was allegedly breached was
Section 22
of
the
Long Term Supply Agreement,
which provides
that:
The Parties recognize that information has
passed or will pass between them that is not
in
the
public
domain
and
that
such
information may be designated by either
Party . . . as commercially sensitive. Upon
receipt of such designation, the receiving
Party will not communicate such commercially
sensitive information to anyone without the
prior
and
express
approval
of
the
designating Party.
The SEVENTH counterclaim alleges that "Steves breached the
confidentiality provision of the [Long Term] Supply Agreement by
providing
JELD-WEN' s
commercially
sensitive
information
Ambruz without JELD-WEN's prior and express approval."
Notably,
identifies
the
Steves
77.
there is nothing in the SEVENTH counterclaim that
allegedly
"commercially
sensitive
that Steves supposedly provided to Ambruz.
brief,
CC~
to
acknowledged
just
And,
that-" [i] t
is
information"
in its opening
unclear
factual allegations are intended to support JELD-WEN' s
Counterclaim. " 11 Opening Brief
at
14.
For
that
reason,
which
Seventh
Steves
rightly argued the SEVENTH counterclaim failed to satisfy the
On April 27, 2017, JELD-WEN's counsel argued that the SEVENTH
counterclaim alleges
that
"Steves
gave
our contract
and
schedules to Mr. Ambruz and Mr.
Pierce." April 17,
2017
Transcript (ECF No. 208) at 83: 7-8. However, counsel admitted
that counterclaim "doesn't describe that specifically." Id. at
8-9. And, indeed, it does not.
11
27
pleading principles set by Twombly and Iqbal. Thus, the SEVENTH
counterclaim
fails
for
the
reason
that
it
is
conclusory and
alleges no factually plausible claim for breach of contract. See
Iqbal, 556 U.S. at 678-79.
In its opening brief, Steves nonetheless sought to discern
from the allegation of the counterclaim, as a whole, what JELDWEN intended. That effort reasonably led Steves to paragraph 31
of the Counterclaims,
in which JELD-WEN alleged that:
"Steves
provided to Ambruz confidential JELD-WEN information that JELDWEN
had
provided
to
Steves
pursuant
to
the
confidentiality
provisions [Section 22] of the" Long Term Supply Agreement. CC
31.
In
the
next
two paragraphs,
alleged in paragraph 31.
Indeed,
JELD-WEN amplified what
~
was
those paragraphs specifically
identify the information that allegedly was provided by Steves
to Ambruz. Specifically, it is alleged that:
32.
During Ambruz's tenure at JELD-WEN, the
Antitrust Division of the Department of
Justice conducted an investigation into
JELD-WEN's
potential
acquisition
of
CraftMaster, Inc. Ambruz, who was a
JELD-WEN employee in 2012, ws copied on
a JELD-WEN confidential communication
to the Antitrust Division enclosing a
report entitled 'Proposal for Expansion
of
Molded Skin Production Capacity
Submitted by John Pierce, 1 May 2006'
because he was assisting O'Melveny &
Myers, JELD-WEN' s lawyers at the time,
in
responding
to
the
Antitrust
Division's investigation. That report
included JELD-WEN trade secrets and
confidential
information
about
its
28
manufacturing capacity
for door skins.
33.
However,
and
processes
On July 20,
2016,
Sam Steves II's
assistant, Leticia Villareal, sent a
copy of the report to Ambruz. The copy
of the report sent by Villareal, on
behalf of Sam Steves II, to Ambruz
included marginal handwritten questions
regarding information in the report.
Steves had no proper or legal means by
which to obtain a copy of the JELD-WEN
report and on information and belief,
the report was delivered to Steves by
Ambruz.
as
Steves
accurately
points
out,
there
is
no
allegation that the 2006 Report, the information allegedly given
by Steves to Ambruz, was ever passed to Steves by JELD-WEN. At
oral argument, counsel for JELD-WEN addressed that point, saying
that:
Ambruz had a copy of the [ 2 Oo6] report
his basement at home. He brought it
[Steves
in]
San
Antonio.
He
Villareal . .
scan it, and e-mail
back to him, and he left a copy with
Steves .
Aug.
9
Transcript
at
53:18-22.
In other words,
in
to
had
it
Sam
according
to
JELD-WEN, Steves got the 2006 Report from Ambruz. Id. at 53:1154:8. Quite clearly, that scenario alleges no breach of Section
22.
In its
response
brief,
JELD-WEN argued
that
the
SEVENTH
counterclaim is not tethered to paragraphs 31-33, involving the
2006 report.
Instead,
says JELD-WEN,
29
what was passed by Steves
to
Ambruz
was
JELD-WEN
Response Brief at 17;
argument,
JELD-WEN's
"prices"
Aug.
and
"capacity
utilization."
9 Transcript at 54: 10-13.
counsel
acknowledged
that,
At oral
although
the
SEVENTH counterclaim depends on paragraph 31, the pleading "does
[not] say that," and offered to "amend [it] to say that." Aug. 9
Transcript at 57:13-15.
That
offer
must
be
viewed
in
perspective
of
JELD-WEN's
acknowledgement that the SEVENTH counterclaim,
as
amended,
Ambruz with the
is "that what Steves did is provide[]
it would be
information that John Pierce stole." Id. at 51: 20-22. And,
information
allegedly
stolen
by
Pierce
was
the
the
"pricing
schedules and products specific schedules." Id. at 51:11-12. In
other
words,
the
allegedly
confidential
documents
that
were
passed by Steves to Ambruz were not passed by JELD-WEN to Steves
and thus did not
fall
within the scope of the clear text of
Section 22 of the Long Term Supply Agreement. Accordingly,
the
proposed amendment would be futile. See Anand, 754 F.3d at 200.
Of course,
if what JELD-WEN says
is correct,
and it can
prove that Pierce gave Steves trade secrets and that Steves gave
them to Ambruz, JELD-WEN can present that evidence in the trial
of the trade secrets case. What JELD-WEN cannot do is assert a
trade secrets claim in the garb of a breach of contract claim.
The
SEVENTH
counterclaim
is
legally
30
insufficient
and
the
insufficiency
cannot
be
cured
by
amendment.
It
will
be
dismissed.
CONCLUSION
For
INC.' S
the
MOTION
foregoing
TO
reasons,
DISMISS
SEVENTH COUNTERCLAIMS
JELD-WEN
(ECF No.
267)
PLAINTIFF
INC.' S
STEVES
SECOND,
will be granted,
AND
SIXTH,
SONS,
AND
and JELD-
WEN's SECOND, SIXTH and SEVENTH counterclaims will be dismissed
with prejudice.
It is so ORDERED.
/s/
Robert E. Payne
Senior United States District Judge
Richmond, Virginia
Date: September ~' 2017
31
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