## Facts

- Specialty Auto Parts USA, Inc. and Holley Performance Products, Inc. compete in the aftermarket carburetor industry.
- A prior trade-dress dispute ended in a 2001 settlement contract governing Holley’s “HP line of main bodies.”
- The settlement required Holley to manufacture all HP main bodies with six flat identification surfaces cast into the body and to cast or stamp “Holley” on one of those surfaces.
- Specialty altered its tooling and manufacturing practices to comply with the settlement’s design constraints.
- In later years, Holley marketed and sold “Ultra Aluminum HP” carburetors whose main bodies did not meet the six-surface and marking requirements, while still branding them as “HP.”
- Specialty claimed its sales declined after the nonconforming products entered the market and argued consumer confusion contributed to the decline.
- Specialty did not quantify its own lost profits, asserting they could not be measured with precision; it sought disgorgement of Holley’s net profits from the breaching products.
- After transfer to the Western District of Kentucky, both sides moved for summary judgment on Specialty’s single breach-of-contract claim and the proper remedy.

## Issues

1. Whether Holley breached the settlement contract by selling nonconforming “Ultra Aluminum HP” carburetors as part of its “HP line of main bodies.”
2. Whether Kentucky contract law permits disgorgement of the breaching party’s net profits where the nonbreaching party does not prove a precise amount of lost profits and the breach is at least reckless.

## Decision

- Specialty’s motion for summary judgment was granted; Holley’s motion was denied.
- The court held Holley breached the settlement by branding and selling nonconforming main bodies within its “HP” line despite the six-surface and “Holley” marking requirements.
- The court held disgorgement of profits was an available remedy under Kentucky contract law on these facts, given the identifiable profits from the breach and the difficulty of proving Specialty’s loss with precision.
- The court found Holley’s conduct was at least reckless, supporting profit-based relief.
- Holley was ordered to disgorge $2,028,264.19 in net profits from sales of the breaching carburetors, plus post-judgment interest.

## Legal Principles

- Contract terms governing “all” products within a defined product line are breached when a party introduces and markets a nonconforming product within that covered line.
- Under Kentucky contract law, equitable monetary relief may include disgorgement of net profits derived from a breach when expectation damages are uncertain or hard to measure and the breaching party’s gain is ascertainable.
- A knowing or reckless breach that generates measurable profits supports profit-stripping relief to prevent the breaching party from retaining benefits obtained through the breach.
- For disgorgement, the court may focus on the breaching party’s wrongful gain (net profit) rather than requiring the nonbreaching party to prove precise lost profits.

## Conclusion

The court enforced the settlement’s design and branding requirements for Holley’s HP carburetor main bodies, found Holley breached by selling nonconforming “Ultra Aluminum HP” products as part of the HP line, and awarded Specialty disgorgement of Holley’s net profits as an available Kentucky contract remedy for at least reckless breach where Specialty’s losses were not readily quantifiable.


Specialty Auto Parts USA, Inc. v. Holley Performance Prods., Inc., 726 F. Supp. 3d 735 (W.D. Ky. 2024)