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AVCO Corp. v. Precision Airmotive LLC

United States District Court, Third Circuit

September 19, 2013

AVCO CORPORATION, Plaintiff
v.
PRECISION AIRMOTIVE LLC, Defendant and Counterclaim Plaintiff
v.
AVSTAR FUEL SYSTEMS, INC., Counterclaim Defendant.

MEMORANDUM

Matthew W. Brann United States District Judge

September 19, 2013 For the reasons that follow, the Court denies counterclaim defendant AVStar Fuel Systems, Inc.'s (hereinafter, "AVStar") January 2, 2013 motion to dismiss counterclaims (ECF No. 63), but stays proceedings in this Court with respect to those counterclaims.

I. Background

Plaintiff AVCO Corp. (hereinafter, "AVCO") commenced this action by filing a complaint on July 6, 2012, asserting various claims against defendant Precision Airmotive LLC (hereinafter, "Precision") - defamation (count I), product disparagement (count II), tortious interference with contractual relations (count III) - and seeking declaratory relief and the cancellation of several trademarks. (Compl, ECF No. 1).

AVCO asserts that it (acting through its unincorporated Lycoming Engines division (hereinafter, "Lycoming")) is a manufacturer and seller of aircraft engines. (Compl. ¶ 8). Its engine designs are "type certificated, " meaning that they have been approved by the Federal Aviation Administration (hereinafter, "FAA"). A fuel injection system (also known as a "servo") is a component part of many of AVCO's designs, (Id ¶10), and AVCO designates servos appropriate for installation in its engines by codes of the form RSA-10ED1, with each component of the code (Le., "RSA, " "10, " "E, " "D, " "1") describing an aspect of the servo. (Id. ¶¶11-17). AVCO calls these codes "model designations." Each model designation corresponds to an AVCO part number associated with AVCO's engine design. (Id ¶18). As the type certificate holder for its engines, AVCO is entitled by law to delegate the manufacture of parts (including servos) for its engines to outside suppliers, and has selected two such suppliers for this purpsoe - defendant Precision and AVStar. (Id. ¶¶ 19-20).

AVCO alleges that Precision has engaged in a wrongful campaign "to obtain a monopoly" in the servo supply market by "attempting to prevent Lycoming from using any suppliers other than" Precision, and by registering and seeking to enforce the trademark of the model designations. (Id ¶¶ 25-26). In particular, Precision has been misrepresenting to AVCO customers that AVStar servos are counterfeit; that Precision is the only manufacturer of the RSA-model designated servos; that Precision's servos incorporate patented technology; that other manufacturers of the servos are infringing on Precision's trademarks; and that servos from other manufacturers carry a safety risk. (Id ¶¶ 27-40).

Precision answered on September 10, 2012 (ECF No. 16) (hereinafter, "Answer"), denying liability and asserting counterclaims against AVCO and newly joined counterclaim defendant AVStar: trademark infringement (count I), unfair competition under the Lanham Act (count II), unfair competition under Pennsylvania law (count III), breach of contract (count IV against AVCO only), tortious interference with contractual relations (count V against AVStar only), and tortious interference with prospective contractual relations (count VI).

Precision asserts that it and its predecessors-in-interest have for several decades been the "sole and exclusive source of fuel injection servos" bearing the model numbers beginning with RS and RSA. (Answer ¶¶ 8-13). In 2010, Precision registered nine such model numbers (all beginning "RSA") as trademarks. Precision claims that "[t]here has never been a time, prior to the recent infringement by [AVCO] and AVStar, when anyone in the industry used the RSA Marks to refer to fuel injection servos manufactured by a source other than Precision" or its predecessors. (Id ¶13).

Precision alleges that AVStar, after years in the overhaul and replacement parts business, recently entered into direct competition with Precision by manufacturing new servos. (Answer ¶¶ 14-15). In order to attract customers away from Precision, AVStar has been placing Precision's RSA marks on AVStar servos. (Id ¶16).The strategy has succeeded. AVCO informed Precision that it was cancelling numerous existing orders from Precision to purchase from AVStar instead. (Id ¶18).

But AVCO is not just an innocent purchaser, according to Precision. Rather, it "instructed, knew about, or otherwise was involved in AVStar's decision to use the RSA marks, " and has referred to AVStar servos by their RSA marks in the documentation associated with its engines. (Id ¶¶ 19-20). It has Dated this because it, along with AVStar "consciously desired and intended to use the RSA Marks for the purpose of associating AVStar's new fuel injection servos with the decades of goodwill associated with the RSA Marks, which goodwill belongs to Precision." ( Id. ¶ 21).

On September 24, 2012, AVCO moved to strike Precision's answer and counterclaims for failure to comply with the Federal Rules of Civil Procedure. (ECF No. 35). On May 10, 2013, this Court largely denied that motion, but did dismiss Precision's tortious interference with contractual relations counterclaim against AVStar (count V) for being improperly joined. (See ECF No. 69). That left four counterclaims against AVStar: trademark infringement (count I), unfair competition under the Lanham Act (count II), unfair competition under Pennsylvania law (count III), and tortious interference with prospective contractual relations (count VI).

On January 2, 2013, AVStar briefed a motion to dismiss the remaining counterclaims against it. (ECF No. 64). Precision submitted a brief in opposition on January 22, 2013 (ECF No. 65), and AVStar replied on February 7, 2013 (ECF No. 66). This motion is now ripe for disposition.

II. The Motion is Denied; Proceedings respecting Precision's Counterclaims are Stayed.

First, some more history. AVStar has, until recently, been in bankruptcy, having filed a voluntary petition under Chapter 11 of the Bankruptcy Code on May 10, 2010, in the Southern District of Florida. (See AVStar Ex., ECF No. 63-5). On September 22, 2010, Precision filed a proof of claim in the United States Bankruptcy Court for the Southern District of Florida (hereinafter, the "bankruptcy court") against AVStar for an amount not less than $3 million, asserting many of the theories now pursued in this Court - Le, trademark infringement, unfair competition, false description, dilution by blurring or tarnishment, trademark imitation, and common law injury to business reputation. (See id.. ECF No. 63-8). AVStar objected to the claim on November 24, 2010 (see id.. ECF No. 63-10), and the bankruptcy court - having received no response from Precision and adjudging AVStar's objection "fair and reasonable" - disallowed Precision's claim on February 2, 2011 (see id.. ECF No. 63-11). This apparently ended Precision's active participation in the bankruptcy proceeding.

A year-and-a-half later, on September 10, 2012, while AVStar's plan of reorganization (hereinafter, "the plan") was proceeding towards confirmation in the bankruptcy court, Precision asserted its counterclaims against AVStar in this case. Two months later, on November 14, 2012, the bankruptcy court confirmed AVStar's plan (id.. ECF No. ...


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