Holley Ordered to Disgorge $2 Million in Ill-Gotten Profits

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 Ultra Aluminum 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 Ultra Aluminum HP carburetors in 2011 without the previously agreed-upon main body features. So in 2012 Specialty filed a summary enforcement motion suit claiming that Holley was failing to comply with the Settlement Agreement.

Holley continued selling its Ultra Aluminum 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 thereafter changed the name of these main bodies to Ultra XP.

In 2017 Specialty filed its breach of contract lawsuit against Holley for violating the Settlement Agreement, arguing that it was entitled to disgorgement of the $2,028,264.19 in net profit reaped by Holley.

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 that “[T]he 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.”

Howard B. Iwrey of Dykema Gossett PLLC served as lead counsel for Specialty Auto Parts U.S.A., Inc.