In an unprecedented move, the Fourth Circuit in Steves and Sons Inc. v. JELD-WEN Inc. recently affirmed an order requiring a company to unwind the acquisition of competitor business in connection with an antitrust action brought by a private-party plaintiff. The U.S. Supreme Court previously held that private-party plaintiffs could obtain such divestiture orders, but until now, successful efforts to obtain this sort of relief had been limited to antitrust challenges brought by government antitrust regulators, such as the Federal Trade Commission, the Justice Department, or a state attorney general.
Divestiture in antitrust cases with private plaintiffs had been rare because these parties often run up against equitable defenses (such as laches or the availability of alternative damages), or because courts determine that divestiture would impose too great a burden on the defendant. The plaintiff in Steves, both a competitor and customer of the defendant JELD-WEN in the molded door business, was confronted with several of these defenses but successfully overcame them. The plaintiff first showed that the effects of the merger “may be to substantially lessen competition,” in violation of Section 7 of the Clayton Act. The plaintiff also showed that that the specific harm it had suffered “reflects the anticompetitive effect” of the merger, that monetary damages could not fully compensate for this harm, and that other equitable factors supported the equitable remedy of divestiture. In particular, the Fourth Circuit explained how the merger “resulted in a duopoly” where suppliers and manufacturers were vertically integrated and that the defendant “used their market power to threaten the. . . survival” of smaller manufacturers such as the plaintiff.
Steves highlights the risk that absent compliance with antitrust law, a company could be forced to take on the burdensome task of unwinding a merger or acquisition. This risk is not only present in antitrust actions initiated by government agencies, but also in cases brought by private parties, such as customers that may be impacted by the transaction.