Steves & Sons, Inc. v. JELD-WEN, Inc.

STEVES AND SONS, INC., Plaintiff, v. JELD-WEN, INC., Defendant.

Civil Action No. 3:20-cv-98

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Richmond Division

May 8, 2020

PUBLIC VERSION

MEMORANDUM OPINION

This matter is before the Court on JELD-WEN, INC.'S MOTION FOR RULE 65(c) BOND REGARDING APRIL 10, 2020 PRELIMINARY INJUNCTION (ECF No. 132) (the "Bond Motion"). Having reviewed the Bond Motion, the parties' statements of position, response and supplemental memoranda, and accompanying exhibits (ECF Nos. 130, 133, 156, 157, 171, 172), the DECLARATION OF DANIEL CASTILLO (the "Castillo Declaration") and accompanying exhibits (ECF No. 134), and having considered the arguments of counsel for Steves and Sons, Inc. ("Steves") and JELD-WEN, Inc. ("JELD-WEN"), the Court issued an ORDER (ECF No. 174) on April 20, 2020, which required Steves to post bond of $1 million (USD). This MEMORANDUM OPINION explains that decision.

BACKGROUND

The history of this action is set out in the MEMORANDUM OPINION issued on April 10, 2020 (ECF No. 121; ECF No. 122). On February 14, 2020, Steves filed its COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF, DAMAGES, AND SPECIFIC PERFORMANCE (ECF No. 1; ECF No. 6) (the "Complaint") against JELD-WEN.¹ The Complaint in each of its counts implicates, in whole or in part, or arises out of, a long-term requirements contract in which JELD-WEN, a manufacturer of molded interior doorskins and molded interior doors, agreed to supply Steves, a manufacturer of molded interior doors, with eighty percent (80%) of Steves' requirements for doorskins (the "Supply Agreement"). There are four counts in the Complaint.

Count One alleges a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. More specifically, Steves alleges in Count One that JELD-WEN is using the illegal market power it gained from its illegal acquisition of CraftMaster Inc. ("CMI") by refusing to supply Steves with doorskins "except on anticompetitive terms and conditions." (ECF No. 6 ¶ 85.) In Count Two, Steves alleges that JELD-WEN has intentionally and improperly interfered with Steves' existing contracts and business relationships by using an artificially-created need for allocation of sales to its doorskin customers (whichlimits the number of doors Steves and JELD-WEN's other doorskin customers can make) to take business that Steves had with existing door customers and that it reasonably expected to have with potential door customers. (Id. ¶¶ 88-97.) In Count Three, Steves alleges that JELD-WEN has breached, and is continuing to breach, the Supply Agreement by: (1) failing and refusing to deliver doorskins Steves ordered before JELD-WEN issued the notice of allocation; (2) issuing an "unjustified notice of allocation"; and (3) failing to "properly implement and administer the allocation period even if JELD-WEN had been authorized to initiate the allocation period." (Id. ¶ 100.) Count Four seeks a declaratory judgment regarding the propriety of JELD-WEN's notice of allocation and the method of allocation, the so-called "mix methodology." (Id. ¶ 107.)

Steves filed simultaneously with the Complaint a MOTION FOR A TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION (ECF No. 2) (the "Preliminary Injunction Motion"). The Preliminary Injunction Motion was the subject of the MEMORANDUM OPINION (ECF No. 121; ECF No. 122) (the "Preliminary Injunction Memorandum Opinion") issued April 10, 2020. The Preliminary Injunction Memorandum Opinion and the ORDER OF PRELIMINARY INJUNCTION (ECF No. 123) (the "Preliminary Injunction Order") are incorporated by reference. In the Preliminary Injunction Order, the Court found that Steves had clearly and convincingly established that:

(1) There is a substantial likelihood, amounting to a near certainty, that Steves will succeed on the merits ofCOUNT THREE of the [Complaint], the breach of contract claim against JELD-WEN on the grounds that:

(a) JELD-WEN breached the Doorskin Product Agreement (the "Supply Agreement") by refusing to deliver fully the doorskins Steves ordered during the fourth quarter of 2019; and

(b) JELD-WEN breached the Supply Agreement by giving notice of allocation in violation of Section 20 of the Supply Agreement; and

(c) Even if allocation had been in conformance with Section 20 of the Supply Agreement (which it was not), by adopting an allocation method that is neither fair nor reasonable, JELD-WEN breached the Supply Agreement; and

(2) Absent a temporary injunction, Steves will suffer irreparable injury as a result of the breaches described in paragraphs 1(a)-(c); and

(3) As a result of a temporary injunction, JELD-WEN will suffer some, but not adequately-proven, economic hardship, which is, however, significantly of its own creation and which is a consequence of the terms to which it bound itself in the Supply Agreement; and

(4) The balance of hardships tips decidedly in favor of Steves; and

(5) The public interest will be served by a preliminary injunction.

(ECF No. 123 at 1-3.) Thereupon, the Court ordered that JELD-WEN shall:

(A) Terminate allocation, as to Steves, effective retroactively to January 1, 2020;(B) Terminate, as to Steves, the ordering, confirmation, and delivery process (the so-called mix methodology) unilaterally instituted as part of allocation;

(C) Revert to the parties' previous ordering, confirmation, and delivery process pending the results of trial on the merits and any order that is entered thereafter; and

(D) Deliver to Steves all doorskins Steves ordered from November 25, 2019 until the date of this Order of Preliminary Injunction ("Undelivered Prior-Placed Orders"), in accord with the requirements of the Supply Agreement, provided, however, that Steves' estimates and orders shall satisfy 6 Del. C. § 2-306, and in the following manner:

(i) Beginning the first week after the Preliminary Injunction takes effect, in addition to Steves' regularly-placed weekly orders, deliver to Steves 262,400 doorskins per week from the Undelivered Prior-Placed Orders in the order in which Steves placed them, until all Undelivered Prior-Placed Orders have been filled.

(Id. at 3-4.) In the Preliminary Injunction Order, the Court also ordered the parties to submit briefing addressed to the security requirements of Fed. R. Civ. P. 65(c), which is the subject of this MEMORANDUM OPINION.

JELD-WEN'S BOND MOTION

On April 13, 2020, three days after the Court issued the preliminary injunction, JELD-WEN filed its Bond Motion. (ECF No. 132.) Therein, JELD-WEN requested that the Court order Steves to post a bond of [Redacted] as security for the preliminaryinjunction. (ECF No. 133 at 1.) JELD-WEN contends that there is a "real risk" that the preliminary injunction was issued improperly "given that a preliminary injunction is granted on an incomplete and quickly compiled record."² (Id.) JELD-WEN argues that the amount of the bond depends on the potential harm to the enjoined party and that "district courts should err on the high side" when setting the amount of the bond. (Id. at 2 (quoting Mead Johnson & Co. v. Abbott Labs., 201 F.3d 883, 888 (7th Cir. 2000)) (internal quotation marks omitted).)

The trial of this case is currently set for June 1, 2020. However, the trial likely will be deferred until the middle or the end of June 2020.³ The Bond Motion assumes that the preliminary injunction will be in effect for sixteen weeks.

JELD-WEN contends that "demand from trade customers (including Steves' orders and backorders) will consume all of current inventory and a substantial portion of JELD-WEN's production capacity, such that JELD-WEN will be unable to meet all of its needs for [Redacted] doorskins for its own business." (Id. at 5 (emphasis added).)Because of this shortage of doorskins, JELD-WEN argues that, "during the 16-week injunction period, JELD-WEN will be unable to meet its own forecasted door needs for doors requiring those doorskins" and "will be unable to supply itself with approximately [Redacted] doorskins that are needed for door production and sales, which would result in lost sales of approximately [Redacted] doors." (Id. at 5-6 (emphasis added).) JELD-WEN also asserts that it will "lose [Redacted] ," such as [Redacted] . (Id. at 6.) JELD-WEN estimates that "complying with the injunction the Court has ordered will cause JELD-WEN to lose nearly . . . [Redacted] ." (Id.)

As the support for its request for a [Redacted] bond, JELD-WEN submitted the declaration of Daniel Castillo ("Castillo"), the President for North America Doors at JELD-WEN. (ECF No. 134 ¶ 2.) The purpose of the Castillo Declaration is to set out JELD-WEN's anticipated monetary harm from the Preliminary Injunction Order.⁴ (Id. ¶¶ 3, 5, 21-27). Castillo's declaration is the sole basis for JELD-WEN's request that Steves be required to post a [Redacted] bond pending appeal.

The record shows that JELD-WEN can operate its doorskin facility in a regular or "standard" mode and a "stretch" mode. The estimatedloss of [Redacted] is based on Castillo's assertion that JELD-WEN is currently "running at maximum capacity for its production of doorskins" and that "JELD-WEN cannot produce any more doorskins than it is currently producing." (Id. ¶ 6.) In other words, according to Castillo, although "JELD-WEN's fiber plants are operating in 'standard' mode," transitioning to "stretch" mode would not increase JELD-WEN's production capacity because "JELD-WEN does not have any scheduled downtime in the second quarter, so it is unable to defer any such downtime" as it would do in stretch mode. (Id. ¶ 7.)

Castillo thus estimated that JELD-WEN could produce approximately [Redacted] doorskins during the next sixteen weeks. (Id. ¶ 8.) This estimate included the use of new Rockport (a style of doorskin) dies JELD-WEN implemented in its Dodson plant. (Id.) According to Castillo, "even when adding in current inventory to JELD-WEN's production capacity, JELD-WEN still does not have the capacity to meet total demand from Steves,...