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