Antitrust Update Blog

Fourth Circuit Door War Leaves Groundbreaking Divestiture Order Intact

The Supreme Court is the only avenue left for JELD-WEN Inc. after the Fourth Circuit denied the door manufacturer’s motion for rehearing en banc of a panel’s decision in Steves & Sons, Inc. v. JELD-WEN, Inc., 988 F.3d 690 (4th Cir. 2021), to affirm an order directing JELD-WEN to sell a plant it acquired in 2012.  That leaves intact a District Court’s divestiture order—a remedy typically obtained only by government entities—in a suit brought by a “private attorney general” pursuant to § 7 of the Clayton Act. 

Steves & Sons, Inc., a door manufacturer, purchased “doorskins” (layers of “fibrous materials … combined with wax or resin” that are fastened to the front and back of most American doors) from JELD-WEN pursuant to a long-term supply contract signed in 2012.  Op. at 4.  JELD-WEN, one of three U.S. suppliers of doorskins at the time, also sold doors and was thus a competitor of Steves.  The same year that Steves entered into the supply agreement, JELD-WEN acquired one of the other two doorskin manufacturers, Craftmaster International (“CMI”). 

Steves alleged that shortly after the parties signed the supply contract, it began to receive lower quality doorskins, while JELD-WEN began increasing prices in violation of the parties’ agreement.  The parties’ relationship deteriorated further in 2014, and JELD-WEN terminated the supply contract, leaving Steves without a supplier of doorskins at the end of the agreement’s life in 2021.  The only other remaining domestic seller of doorskins, Masonite Corporation, refused to enter into a supply agreement with Steves, and would only sell doorskins to Steves at economically unsustainable prices. 

After attempts to resolve the issues through the supply agreement’s dispute resolution procedures failed, Steves brought suit, alleging antitrust and contract claims.  After trial, the jury found for Steves on both its antitrust and contract claims, awarding millions in damages.  The Court ordered JELD-WEN to divest the plant it had acquired as part of the purchase of CMI.  JELD-WEN appealed, and the Fourth Circuit substantially upheld the District Court’s judgment, including the divestiture order.

Interesting issues abound in this opinion.  For example, what is the effect of the fact that the Justice Department twice reviewed the merger between JELD-WEN and CMI without taking action?  None, according to the District Court, which excluded this evidence pursuant to Federal Rule of Evidence 403—a ruling the Circuit affirmed.

However, the most notable aspect of the decision is the equitable relief awarded Steves: namely, the order directing JELD-WEN to divest the doorskin plant it acquired in the CMI purchase.  Though the Supreme Court decided more than thirty years ago that parties bringing private antitrust suits could seek divestiture as a remedy in California v. American Stores Co., 495 U.S. 271 (1990), courts had not ordered divestiture in cases brought by purely private plaintiffs.  See Op. at 12 (“[P]rivate suits seeking divestiture are rare and, to our knowledge, no court had ever ordered divestiture in a private suit before this case.”).[1]

For example, in Antoine L. Garabet, M.D., Inc. v. Autonomous Technologies. Corp., the court held that the equitable doctrine of laches foreclosed the divestiture remedy in a suit filed the day a merger closed, where the plaintiffs had notice several months earlier of the impending acquisition.  116 F. Supp. 2d 1159 (C.D. Cal. 2000).  Under such circumstances, “the Court ha[d] no difficulty concluding that the Plaintiffs failed to exercise proper diligence in the pursuit of their claim(s)”; therefore, laches barred their suit for divestiture.  Id. at 1173.

Similarly, in Ginsburg v. InBev NV/SA, the Eighth Circuit denied a request for divestiture of an acquired company, finding that “the remedial equities balance overwhelmingly in favor of denying this remedy.”  623 F.3d 1229, 1236 (8th Cir. 2010).  In that case, the plaintiffs filed suit before the challenged merger closed, but months after it was announced.  Nonetheless, given the speculative nature of injury alleged, the structure of the market for beer, and the hardship associated with unwinding a $52 billion-dollar acquisition consummated, at the time of the appellate decision, almost two years earlier, the plaintiffs’ delay contributed significantly to the court’s denial of their requested remedy.

In JELD-WEN, Steves brought suit four years after the challenged merger, but the District Court nevertheless found that Steves had not unreasonably delayed in bringing suit, because Steves did not know about the threat to its survival until JELD-WEN terminated the supply agreement in 2014, two years after the merger.  Therefore, unlike the plaintiffs in Garabet, the court found that Steves diligently asserted its equitable claim and laches did not bar relief.  Moreover, the court found that the balance of hardships tilted in Steves’ favor.  The Fourth Circuit relied on the unusual harm to Steves in reaching this conclusion.  The District Court had found that JELD-WEN’s termination of the agreement could push Steves, a 150-year-old family business, into bankruptcy, in part because it could not obtain doorskins from another source, while JELD-WEN was a large, diversified company that could easily, if not painlessly, survive divestiture of the acquired plant.  The Fourth Circuit held that the District Court did not abuse its discretion in reaching that decision. 

Moreover, the Fourth Circuit found that the District Court was not required to order a less burdensome remedy—for example, “ordering JELD-WEN to supply Steves’[] requirements at fair prices going forward”—in lieu of divestment.  Op. at 46.  Such a remedy, the District Court found, “would only protect Steves temporarily.”  Id.  Moreover, the Fourth Circuit noted that such a remedy would provide only private relief, and not serve the public purposes of the Clayton Act: a conduct remedy would “help[] only Steves [and] wouldn’t promote competition in the doorskin market, conflicting with the principle that antitrust law protects competition, not competitors.”  Id. at 46-47.

“Courts of equity may, and frequently do, go much farther both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.”  Virginian R. Co. v. Railway Employees, 300 U.S. 515, 552 (1937).  In this notable case, the high stakes of Steves’ private interests and the malfunctioning of the market for doorskins led the District Court to order, and the Fourth Circuit to affirm, a remedy typically awarded only to the Government as the champion of the public interest.  See United States v. E. I. du Pont de Nemours & Co., 366 U.S. 316, 326 (1961) (describing divestiture as “an equitable remedy designed to protect the public interest”). We will watch for developments in the JELD-WEN litigation and in this interesting area of antitrust remedies.

[1] Courts had previously ordered divestiture in cases in which private plaintiff actions have been consolidated with government actions.  See Saint Alphonsus Med. Ctr. - Nampa, Inc. v. Saint Luke's Health Sys., 778 F.3d 775, 781 (9th Cir. 2015).