Increasingly, the antitrust agencies have been challenging unreported transactions post-closing under the Clayton Act, seeking an unwinding of the transactions or at least divestitures of some of the assets purchased. Until recently, however, the threat that a private plaintiff would obtain a court order requiring an unwinding or divestiture once the deal has closed has been more theoretical than real. The threat may now be more real than theoretical. In what is the first decision of its kind, a federal district court has ordered a defendant in a private action brought, in part, under Clayton Act Section 16 to divest assets approximately six years after they were purchased. In that case, the defendant, a door manufacturer and door component supplier, had acquired a competitor in 2012 in a transaction that was reviewed without a challenge by the Department of Justice (DOJ) Antitrust Division. Yet on October 5, the District Court for the Eastern District of Virginia ordered the defendant, in a case brought by a competitor/customer that had previously been awarded $175 million in damages, to sell key door component manufacturing assets that the defendant had acquired as part of the 2012 transaction. If allowed to stand, the decision could mean that, going forward, acquirers can be less confident about the finality of their acquisitions post-closure.
In February of this year, following a trial in Steves and Sons, Inc. v. JELD-WEN, Inc., a jury awarded plaintiff Steves and Sons, Inc. (Steves) over $12 million in past damages and over $46 million in damages in future lost profits (pre-trebling) for injuries arising from the 2012 acquisition of Craftmaster International (CMI) by JELD-WEN. Steves manufactures and sells interior molded doors, and it purchases interior molded doorskins as a necessary component to manufacture its doors. As of 2012, CMI and JELD-WEN were two of the three U.S. manufacturers from which Steves and other door manufacturers could purchase interior molded doorskins. All three of the doorskin manufacturers were vertically integrated, manufacturing and selling interior molded doors in addition to the doorskins.
In anticipation of its acquisition of CMI, JELD-WEN entered into long-term supply agreements in early 2012 with a number of interior molded doorskin customers, including Steves. The Steves agreement included provisions: (1) limiting the prices that JELD-WEN could charge based upon a contractually defined formula relating to key input costs, and (2) providing for lengthy termination notice periods (seven years for JELD-WEN to terminate). Shortly after, the DOJ closed an investigation of the transaction in September 2012, and the deal closed in October 2012.
Steves filed suit against JELD-WEN in 2016, alleging that within a few years of the close of the deal, JELD-WEN began to wield its increased market power arising from the merger to harm competition, including by breaching the parties’ 2012 contract. For example, Steves alleged that JELD-WEN increased the prices it charged Steves – in violation of the contractually defined formula – even though key input costs that determined price in the formula were actually declining. Steves also alleged that JELD-WEN began to add a “capital” charge on sales to Steves, despite not being allowed to do so by contract. Because JELD-WEN was its only viable supplier, Steves continued to do business with JELD-WEN. Finally, in July 2014, JELD-WEN gave notice to Steves of its intention to terminate the supply agreement in 2021.
Following a jury verdict in favor of Steves under Clayton Act Section 7 awarding past damages and future lost profits, Steves sought – in lieu of the award of future damages – equitable relief in the form of the divestiture of JELD-WEN’s Towanda plant, an interior molded doorskins manufacturing facility that JELD-WEN acquired when it purchased CMI. On October 5, Judge Payne issued an order partially granting the motion by Steves and ordering JELD-WEN to divest the Towanda plant.
Section 7 of the Clayton Act prohibits mergers that “may  substantially lessen competition, or  tend to create a monopoly.” While the DOJ and the Federal Trade Commission (FTC) are expressly given the power to enforce the Clayton Act on behalf of the federal government, the Act also enables private plaintiffs to seek damages under Section 4 and equitable relief, including divestitures if appropriate, under Section 16, for mergers violating Section 7. But private plaintiffs – in addition to proving the elements of a Section 7 claim and satisfying the test for the award of injunctive relief – must also establish standing to seek injunctive relief and withstand equitable defenses and other equitable considerations, barriers the government does not face in its enforcement of Section 7. Indeed, as the court made clear, “divestiture is not as easy a remedy [in a private action] as it is in a government action.”1 In fact, the court observed that the case was the first ever Section 16 claim to “have gone to verdict, and in which a private party  sought a divestiture.”2
To establish standing under Section 16, a plaintiff must demonstrate antitrust injury, which is “threatened loss or damage of the type the antitrust laws were designed to prevent.”3 Steves asserted that it would likely go out of business at the termination of its supply agreement with JELD-WEN in 2021, as it would have no other supplier of interior molded doorskins. The court held that the jury’s finding of damages for future lost profits operated as a finding of fact that Steves would face antitrust injury from the threatened loss of their business, and therefore, Steves had standing under Section 16 to pursue a divestiture.
A Section 16 plaintiff must also show that the divestiture is “appropriate in light of equitable principles.”4Arguing that Steves did not meet the standard for granting an injunction, JELD-WEN reasoned that the jury’s award of future lost profits was an adequate remedy that showed Steves’ injury was not irreparable. The court held otherwise, citing evidence of the “incalculable” loss to Steves, such as the “independent value to continuing Steves as family operation [after 150 years in business]” and the family’s “deep connection with Steves’ business.”5 Further, the court noted that Steves’ loss of its business was a more serious harm than JELD-WEN’s potential loss of value on their investment in CMI,6 and it concluded that the public interest would be served by a divestiture, “restor[ing]competition [in the doorskin market] that the merger lessened.”7JELD-WEN also asserted equitable defenses, arguing that Steves unreasonably delayed its suit against JELD-WEN by filing nearly four years after the consummation of the merger, but the court disagreed, noting that Steves “took every reasonable step to try to secure a reliable supply of doorskins that was essential for its survival” instead of immediately initiating a lawsuit.8 For these reasons, the court concluded that the divestiture of the Towanda plant was an appropriate remedy, and this notable decision has several important ramifications for those considering a merger or those who have merged within the past four years.
First , the JELD-WEN decision could encourage similar challenges to other recently consummated mergers. Post-merger companies that may have benefited from a change in their market position after a merger or have engaged in conduct that invites a challenge have always faced risk of challenge under both Clayton Act Section 7 and Sherman Act Section 2, with the attendant risk of the award of damages. And the antitrust agencies have the authority to challenge an un-reviewed merger post-closing and seek an unwinding of the deal or divestitures: a power that both the FTC and the DOJ have been wielding with increasing frequency. However, while merged firms have faced a risk of a Section 16 divestiture order in a private case since the Supreme Court held in 1990 that such relief was available,9 no plaintiff has successfully cleared the various hurdles that stand between a proposed divestiture order and obtaining such relief. The court’s decision in the JELD-WEN case could make that theoretical threat far more real, encouraging other aggrieved private parties to sue under Section 7 and seek an order of divestiture (or, even, unwinding) under Section 16.
Second, merged firms that took steps to assuage the concerns of customers and/or others about the effects of the proposed transaction – by, for example, entering into long-term supply contracts – would be wise not to unduly provoke such third-parties post-closing into challenging the transaction under the Clayton Act. It is common practice for merging parties to contact suppliers and customers and make them comfortable with a planned merger to reduce the risk of a complaint to the antitrust enforcers, as JELD-WEN had done with Steves and others. But post-merger, the court found that JELD-WEN violated and sought to terminate their contract with Steves and as a result, Steves brought a lawsuit challenging JELD-WEN’s acquisition of CMI. Thus, even parties that have cleared merger review must be careful to not breach commitments they made to suppliers and customers when they were still seeking merger clearance.
Third, this decision should serve as a reminder that closing a transaction does not mean that a transaction is safe from a future challenge. The DOJ and FTC have recently made severable notable challenges to consummated transactions, and the success of this private suit signals yet another risk for consummated mergers: even mergers closed years earlier. If this case is allowed to stand, merged firms may wish to be that much more mindful about how they wield their power in the relevant market(s), if any, arising from the transaction, even if the transaction was the subject of antitrust agency review. Indeed, even assuming that the merged firm lacks market power, and the transaction did not substantially lessen competition, the cost alone of defending an antitrust case against a challenge to the transaction might be reason enough to take care post-merger not to provoke such a claim.