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SNA, INC. v. ARRAY

June 9, 1999

SNA, INC. AND SILVA ENTERPRISES LIMITED, PLAINTIFFS,
v.
PAUL ARRAY AND HORIZON UNLIMITED, DEFENDANTS. RICHARD F. SILVA AND SNA, INC., PLAINTIFFS, V. DOUGLAS KARLSEN, A/K/A DOUGLAS JAWORSKI T/A TURBINE DESIGN, INC., DEFENDANT.



The opinion of the court was delivered by: Katz, Senior District Judge.

      FINDINGS OF FACT AND CONCLUSIONS OF LAW

The plaintiffs in these two consolidated cases are Richard Silva and two companies he operates, SNA, Inc. and Silva Enterprises, Ltd (SEL). Through these companies, Silva manufactures do-it-yourself kits for an amphibious aircraft called the Seawind. The customer is responsible for building the plane — FAA regulations require the customer to do 51% of the work, so that the aircraft qualifies as experimental and is thus exempt from certain other FAA safety regulations for standard aircraft. The customer must also purchase and add several necessary parts of the plane that are not sold in the kit, notably an engine. The cost of the Seawind kit is between $40,000 and $50,000. To build a plane to completion costs, at a minimum, approximately $70,000. A finished plane sells for $200,000 to $375,000.

The defendants are Douglas Karlsen and a company he operates called Turbine Design, Inc., and Paul Array and a company he operates called Horizon Unlimited. Karlsen and Turbine Design sell turbine engines which they install in Seawinds, and they have assembled Seawinds for kit purchasers. Array and Horizon Unlimited own a Seawind and publish a newsletter called "The Seawind Builders Newsletter." Each of the defendants operates a website, both of which currently or in the past have discussed plaintiffs.

In these lawsuits, plaintiffs contends that the defendants have breached contracts with SNA, have defamed Silva and his company and disparaged their goods, have infringed on their trademark and trade dress rights, have engaged in unfair competition, have interfered with the company's contractual relations and prospective business relations, and have engaged in a civil conspiracy. Defendants Karlsen and Turbine Design have counterclaimed, alleging antitrust violations and seeking to invalidate Silva's patent and trademark.

The court previously ruled on plaintiffs' motion for a preliminary injunction, and those findings and conclusions are incorporated in this opinion. Following a consolidated bench trial of these two cases, the court makes the following findings of fact and conclusions of law.*fn1

Breach of Contract

Plaintiffs claim that defendants breached contracts with SNA by making molds of Seawind parts. Defendants admit to making molds but argue that it was not violative of their contracts to do so.

On January 27, 1995 and February 1, 1995, Karlsen signed two contracts. These were contracts that Karlsen entered into as the builder of two Seawinds, one belonging to John Hare and one belonging to Bernie Little (referred to as the Elliot plane). Each contract consisted of a copy of the page of SNA's standard purchase agreement that contains the provision prohibiting the copying of parts:

  Any duplication or copying of parts, whether or not
  made from molds, or the making of molds from parts is
  in violation of this Agreement, and the Purchaser is
  liable for damages. The Purchaser expressly agrees
  not to copy or duplicate any parts or to permit
  others to copy or duplicate parts. The Purchaser
  agrees to purchase all parts for the basic kit as
  enumerated in the Agreement, from S.N.A., Inc., and
  only S.N.A., Inc. The Purchaser acknowledges that he
  is allowed to make parts or accessories for the
  aircraft not available from S.N.A., Inc., solely for
  his own use and not for others, whether for sale or
  otherwise.

Ex. P-10 (both contracts).*fn3

Karlsen contends that by signing those two contracts, he agreed only to refrain from making molds of the two particular planes in conjunction with which the contracts were presented to him. The court is satisfied that the parol evidence submitted on this point, in the form of Silva's and Skip Stundis's testimony, proves that SNA's intention was to prohibit copying parts from any Seawind kit and that Karlsen understood and acquiesced in that intention.

All the defendants admit that molds have been made from Jimmy Hatfield's Seawind, which was at Turbine Design's shop because Turbine Design was building it for Hatfield. In the spring of 1997, Turbine Design hired Brent Whitehouse and his company Piranha Boats, Inc. (a fiberglass shop near Turbine Design's location) to make a mold of the body of the plane, and Piranha Boats did so.*fn4 Christopher Robertson, a former employee of Turbine Design and friend of Whitehouse, testified that in April or May, he saw a Turbine Design employee making molds of a canopy, a hull and tail, and of small detailed parts of the Seawind. That employee (Eugene Koetze) told Robertson that Turbine Design was going to make parts (plural) from the molds. The molds made at Piranha Boats, Inc. are now being held pursuant to a Florida state court temporary restraining order.

During the same time period that defendants arranged to have the molds made, Turbine Design displayed a flier in Paul Array's plane at an air show that offered to make customers a six-place Seawind. See Ex. P-14. Also during the same time frame, Karlsen sent a letter to a prospective customer that said, "It is our ultimate intention to modify and stretch the molds as necessary to make a 6 place plane." See Ex. P-13.

Defendants claim that the only reason they made the molds was to make carbon fiber epoxy parts for Array's own Seawind to replace the original SNA-provided fiberglass parts and lighten the plane. Defendants claim that Array's finished Seawind is considerably heavier than the weight SNA advertised at the time Array bought his kit. Plaintiffs argue that defendants made the molds made with the intent to use those molds to create a counterfeit Seawind aircraft called the Harpoon that Turbine Design, with Paul Array's help, would then manufacture and market as a competitor to the Seawind.

The court agrees with plaintiffs that it is not credible that defendants were making the molds for the sole purpose of building lighter parts for Array's plane. Most persuasive is that as soon as the stolen canopy arrived (the full story of which will be discussed below), Karlsen took it to Piranha Boats and directed them to make a mold of it, even though defendants have never contended that Array wanted a carbon fiber canopy. Also, Karlsen's own words in his letter to a customer make the plan explicit: "It is our ultimate intention to modify and stretch the molds as necessary to make a 6 place plane." P-13. The court is convinced that defendants were in fact planning to do more than make just one replacement part for Array, given that they were, at the same time, advertising the Harpoon.

Moreover, even if the sole purpose was to create a single set of parts from a lighter material for Array's plane, making the molds violated the contracts, which plainly say, "the making of molds from parts is in violation of this Agreement." There is no requirement that the entire plane must be copied or that the copied parts must be used to create a competitor product in order to constitute a breach.

The fact that the contract allows the purchaser "to make parts or accessories for the aircraft not available from SNA, Inc." does not provide a defense for defendants' actions. They argue that because the parts they were going to make from the molds were to be made out of a different material than the original parts, that makes them different parts not available from SNA and thus a part defendants are contractually permitted to make. This argument is unavailing, for the simple reason that a hull is available from SNA. The reasonable reading of the provision is the most straightforward — builders may make parts SNA does not provide (such as the engine, or interior accessories), not parts SNA provides but in a different material. To read the contract in the way that defendants propose would be unreasonable, because it would contradict the explicit prohibitions against making molds and copying parts.

Thus, by defendants' own admissions, they have breached the contracts. Plaintiffs are entitled to have the molds returned to them, and the court will order defendants to do so. Plaintiffs have not demonstrated any damages caused by the breach of contract, so there is no basis for a monetary damage award.

Civil Conspiracy

To prove a civil conspiracy under Pennsylvania law, a plaintiff must show the following elements:

  (1) a combination of two or more persons acting with
  a common purpose to do an unlawful act or to do a
  lawful act by unlawful means or for an unlawful
  purpose; (2) an overt act done in pursuance of the
  common purpose; and (3) actual legal damage. Proof of
  malice or an intent to injure is essential to the
  proof of a conspiracy.

Strickland v. University of Scranton, 700 A.2d 979, 987-88 (Pa.Super.Ct. 1997); see also Skipworth v. Lead Indus. Ass'n, Inc., 547 Pa. 224, 690 A.2d 169, 174 (Pa. 1997). In Pennsylvania, "punitive damages are awarded for `outrageous conduct, that is, for acts done with a bad motive or with a reckless indifference to the interest of others.'" Shared Communications Services of 1800-80 JFK Blvd., Inc. v. Bell Atlantic Properties, Inc., 692 A.2d 570, 576 (Pa.Super.Ct. 1997), quoting Martin v. Johns-Manville Corp., 494 A.2d 1088, 1097-98 (Pa. 1985).

Karlsen and his company conspired with Glen Reece to acquire by theft a canopy from KNG/Ken Wheeler. The evidence shows that the canopy and cowlings that Turbine Design purchased from Glen Reece were stolen from KNG/Ken Wheeler, based on Reece's testimony about the events and Silva's inventory that revealed a missing canopy. The evidence further shows that Karlsen knew that the parts were stolen. His insistence that the canopy came from Glen Reece and that Karlsen had no idea where Reece got it is simply not credible, especially in light of Reece's forthright testimony about the transaction. Given his clear pride in the operation, the court is convinced that his testimony is credible that he was equally forthright in telling Karlsen how he was going to get the canopy. Turbine Design is no more allowed to steal parts through a middleman than it is allowed to steal directly.*fn5

There is no evidence to show that Array knew about this agreement to steal parts, although he was a party to the underlying plan to make molds from parts (also, there is no ...


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