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Divestiture OK’d in Private Antitrust Case in Novel Ruling (1)

Feb. 18, 2021, 5:56 PM; Updated: Feb. 18, 2021, 10:09 PM

A federal appeals court for first time Thursday ordered divestitures in an antitrust lawsuit brought by a private plaintiff, when the U.S. Court of Appeals for the Fourth Circuit rejected a bid by doormaker Jeld-Wen Inc. to salvage a key part of its merger with a rival.

The decision, which mostly upheld a ruling by a federal judge in Virginia, is the first by a circuit court to require unwinding a business deal in response to a private challenge, as opposed to a case brought by government regulators like the Federal Trade Commission, the Justice Department, or a state attorney general.

“A merger has resulted in a duopoly” involving “vertically integrated” competitors that have “used their market power to threaten the independents’ survival,” Judge Albert Diaz wrote for the Fourth Circuit. “As it stands, this case is a poster child for divestiture.”

Doorskin Maker Merger Litigation

The lawsuit by Steves and Sons Inc.—a small, family-run doormaker—took aim at Jeld-Wen’s 2012 acquisition of CMI, one of just two other manufacturers of the paneled “skins” used as door exteriors.

It accused Jeld-Wen of exploiting its market power after the deal to flagrantly breach its supply contracts with Steves, which it eventually threatened to cut off entirely from access to doorskins.

The case spawned consolidated antitrust class actions against Jeld-Wen and the country’s other top doormaker, Masonite Corp., which they recently settled for nearly $81 million after a judge voiced skepticism about their initial $75 million deal.

Jeld-Wen and its private equity backers at Onex Corp. are also facing a related shareholder lawsuit.

The suit by Steves culminated in a jury verdict in its favor. As a result Judge Robert E. Payne, who presided, ordered the sale of a doorskin plant in Towanda, Pa., that Jeld-Wen acquired in the CMI deal.

The judge also awarded $36.4 million to Steves—offset by $1.2 million it owed on counterclaims of trade secret theft—and hit Jeld-Wen with an additional $139 million in damages for future lost profits that would kick in if the divestiture was overturned on appeal.

Divestiture Logic ‘Applies With Equal Force’

Affirming, the Fourth Circuit dismissed Jeld-Wen’s broad-ranging challenge to Payne’s decision. It rejected the argument that divestiture through a two-step process—involving an auction deferred until all appeals have concluded—is inappropriate in private civil lawsuits.

“If a court can properly assess the public interest in a government suit without having found a buyer, it can also do so in a private suit,” Diaz wrote.

The logic of a seminal U.S. Supreme Court ruling that established the two-step process, Brown Shoe Co. v. United States, “applies with equal force here,” the court said.

It also denied that Steves had just restyled contract claims as antitrust allegations in a bid for treble damages.

“Jeld-Wen sought to leverage its enhanced market power to hurt its customers, including Steves,” Diaz wrote. “That intent is relevant.”

‘An Antitrust Injury is Often Foreseesable’

Nor did Steves wait too long before seeking to unwind the deal, he said. It wasn’t until years after the merger—when Steves learned it might lose access to doorskins—that it had a valid divestiture claim, the court held.

It did hand Jeld-Wen one victory, overturning the $139 million conditional damages award. Those damages are based on speculative future losses that Steves hasn’t actually suffered yet, the court said.

Judges Henry F. Floyd and Allison Jones Rushing joined the ruling. Rushing wrote separately to stress the court’s conclusion that divestiture was an appropriate potential remedy in private antitrust suits.

Although “courts have been reluctant to order divestiture at the behest of a private plaintiff,” an “antitrust injury is often foreseeable from the anti-competitive combination itself,” she said.

Steves was represented by Munger, Tolles & Olson LLP, Hunton Andrews Kurth LLP, and Pipkin Law LLP. Jeld-Wen was represented by Kirkland & Ellis LLP.

The case is Steves & Sons Inc. v. Jeld-Wen Inc., 4th Cir., No. 19-1397, 2/18/21.

(Updated with additional reporting throughout.)

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Peggy Aulino at maulino@bloomberglaw.com

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