Specialty Auto Parts USA, Inc. v. Holley Performance Products, Inc.

Specialty Auto Parts USA, Inc. (Specialty) (plaintiff) and Holley Performance Products, Inc. (Holley) (defendant) both manufactured similar-looking carburetor parts called main bodies, which led to litigation over the rights to that design. The parties settled the litigation. In the settlement agreement, Specialty agreed to change its tooling and manufacturing process to create a different appearance for its main bodies. Holley agreed to use a shape with six flat surfaces and to mark the word “Holley” on at least one surface. Specialty invested time and resources to change its tooling and complied with its settlement-contract obligations. Initially, Holley also complied. However, Holley later began selling a line of main bodies that did not conform to the settlement terms. Specialty claimed that after Holley started selling these breaching main bodies, Specialty’s sales declined significantly. Specialty’s president believed the decline stemmed from customer confusion over who was manufacturing Holley’s new main bodies. Specialty sued Holley in state court for breach of the settlement agreement. The case was removed to federal district court, and Specialty moved for summary judgment. Specialty did not present evidence of how much it lost in sales due to Holley’s alleged breach, arguing that calculating this figure was impossible. Instead, Specialty sought disgorgement of the approximately $2 million in net profits that Holley had received from selling the breaching main bodies. The district court found that Holley had violated the settlement agreement’s terms at least recklessly, and possibly intentionally. The court then considered an appropriate remedy.