On March 27, 2024, the United States District Court in the Western District of Kentucky (Bowling Green) issued a judgment stating that Holley Performance Products, Inc. shall disgorge to Specialty Auto Parts U.S.A., Inc. the $2,028,264.19 in net profit it derived from its sales of Aluminum Ultra HP carburetors.
This judgment followed various legal disputes between Holley and Specialty (a.k.a. Proform) that started 24 years ago when Holley filed suit against Specialty, alleging that Specialty had misappropriated the “trade dress” of Holley’s carburetor main bodies. In 2001, that suit was resolved by a Settlement Agreement stating, among other things, that, going forward, Holley would “manufacture all of its HP line of main bodies with six identification surfaces cast into the main body” and “cast or stamp the word ‘Holley’ on one of the six flat surfaces on all HP main bodies manufactured for it.”
After honoring the agreement for more than a decade, Holley started selling Aluminum Ultra HP carburetors in 2011 without the previously agreed-upon main body features. In 2012, Specialty filed a summary enforcement motion suit claiming that Holley was failing to comply with the settlement agreement.
Holley continued selling its Aluminum Ultra HP carburetors until 2014 when the court entered an order enjoining Holley from manufacturing, distributing, or selling its HP line of main bodies in violation of the settlement agreement. Holley then changed the name of these main bodies to Ultra XP.
In 2017, Specialty filed its breach of contract lawsuit against Holley for violating the agreement, arguing that it was entitled to disgorgement of Holley’s $2,028,264.19 in net profit.
Specialty prevailed in this lawsuit, and the court entered summary judgment in favor of Specialty and against Holley. In explaining its judgment, the court pointed out that disgorgement of profits may be imposed for the intentional or reckless violation of a settlement agreement, and when a profitable breach of contract is a source of unjust enrichment at the other party’s expense.
In that regard, the court determined that “Holley freely chose to brand the Aluminum Ultra HP carburetor as an ‘HP’ carburetor, as opposed to including it in some other line or coming up with a new name for it,” and that “Holley thus at least recklessly violated the settlement agreement, which would support a disgorgement award.”
The court went on to say, “The unjust enrichment of a conscious wrongdoer…is the net profit attributable to the underlying wrong,” and that “approximately $2 million in profits…were ill-gotten.”
