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)

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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., 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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