Antitrust law very rarely is applied to look backward in time to unwind a consummated deal. No court has ever granted a private plaintiff’s request to unwind a merger after its closing. And with good reason: the federal premerger notification process has become a cornerstone of modern U.S. merger enforcement precisely because it generates post-closing certainty by subjecting transactions to pre-closing review by the Federal Trade Commission or the Department of Justice.
Antitrust law’s powerful remedies can be used to reshape individual firms, markets, and industries when a violation is found. A legal battle in the Fourth Circuit Court of Appeals – one that escaped much attention – will have significant implications for how often private companies and antitrust enforcement agencies can invoke these powers. Indeed, antitrust enforcement agencies – now revisiting deals in the tech space from Facebook’s acquisition of Instagram to Amazon’s purchase of Whole Foods and Google’s acquisition of the mapping app, Waze – will be watching the Fourth Circuit decision closely.
The underlying dispute is a simple contract claim. Jeld-Wen, Inc. makes doors and interior molded door skins – the decorative coverings of interior doors that are glued to a frame to make a completed door. Back in 2012, Jeld-Wen entered into a long-term agreement to supply door skins to Steves and Sons, with whom it also competes in the finished door market. Years later, Jeld-Wen raised its prices. Steves objected to the price increase, arguing its prices are covered by the 2012 supply agreement. Jeld-Wen disagrees. As far as contract disputes go, this one is garden variety.
Here is where things take a turn. A few months after entering into its contract with Steves and Sons, Jeld-Wen acquired CMI, another door and door skin maker, after the Department of Justice reviewed the proposed merger and took no action. When its contract dispute with Jeld-Wen arose years later, Steves got creative. Rather than merely suing for breach of contract, it sued Jeld-Wen under the antitrust laws. Plaintiffs alleging a breach of contract constitutes an antitrust violation generally find themselves on the losing end of antitrust battles. But Steves and Sons advanced the unprecedented theory that the merger with CMI back in 2012 somehow caused the breach of contract years later. This is the antitrust version of chaos theory.
The plaintiff seeks to assign antitrust liability for an event today on the theory that the merger – the proverbial “flap of the butterfly’s wing” occurring nearly a decade ago – somehow caused a cascade of interceding events that ultimately led to the breach and warrants unwinding the transaction. The district court, remarkably, was persuaded that the 2012 acquisition lessened competition in a way that “empowered” Jeld-Wen’s alleged breach of contract years later and held that the acquisition — reviewed and green-lighted twice by the relevant government agency — violated the antitrust laws.
Judge Robert Payne’s opinion is flawed. That happens in antitrust litigation. Antitrust is a complex subject, and reasonable minds can differ around the margins of the case law. This is different. The stakes are higher because the legal error threatens to create a precedent for extending draconian antitrust remedies – including the restructuring of business firms – for virtually any conduct after any acquisition regardless of whether the expert agencies took issue with the transaction.
First, the antitrust laws are designed to protect the competitive process, not to redress simple contract injury to competitors; they neither prohibit hurt feelings nor compensate for poor business decisions. To hold otherwise, as the district court did, would subject all arms-length business transactions to antitrust scrutiny, treble damages, and fear of redesigning businesses in perpetuity. Under such a regime, every contract dispute in the life of a business relationship could subject its fate to the whims of any federal judge in the land.
Second, a breach of contract is almost always best suited for adjudication under contract law, not antitrust. Had Steves simply filed a contract lawsuit for a breach, it would have received money damages to fully compensate its past and future losses due to the contract breach. This is exactly why contract law exists. Antitrust law, to the contrary, finds itself to be a blunt tool ill-suited to solving this type of commercial dispute.
If the Fourth Circuit upholds the district court’s decision, the antitrust agencies will be rendered essentially irrelevant to the merger review process, and the economy will lose the regulatory stability it needs to function efficiently.
The district court’s decision opens the door to allowing federal courts to redesign the structure of any industry, any time, and casts a significant shadow over all business decisions. The Fourth Circuit has an important opportunity to bring the rule of law back to the antitrust discussion, to reject the invitation to rely upon antitrust to solve mundane commercial disputes, and to reinforce some modest and principled limits on its powerful remedies.