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Turn and Bank Holdings, LLC v. AVCO Corp.

United States District Court, M.D. North Carolina

August 21, 2019




         Turn and Bank Holdings, LLC and Precision Airmotive, LLC have sued Avco Corporation and AVStar Fuel Systems, Inc. for trademark infringement arising out of sales of fuel injection servos, an airplane engine part. The defendants move to dismiss for lack of personal jurisdiction, contending they do not have minimum contacts with North Carolina. The defendants have purposefully availed themselves of jurisdiction here because Avco has made purposeful and deliberate contacts with North Carolina to sell these servos in its engines, AVStar has purposefully sold its servos through Avco's distribution channels here, and this alleged infringement is the latest step in a longstanding effort by the defendants to replace the plaintiffs and their predecessors in the servo market. Since the exercise of jurisdiction is also constitutionally reasonable, the motion to dismiss will be denied.

         I. Procedural History

         The parties to this lawsuit and related entities have a long litigation history over intellectual property rights, including in this district. See, e.g., Avco Corp. v. Turn & Bank Holdings, LLC, No. 4:12-CV-01313, 2018 WL 1706359 (M.D. Pa. Apr. 9, 2018); Memorandum & Order, Avco Corp. v. Marvel-Schebler Aircraft Carburetors, LLC, No. 4:10-cv-02026-JEJ, Doc. 35 (M.D. Pa. Feb. 7, 2011) (transferring carburetor-related trademark litigation to the Middle District of North Carolina). This case began in May 2019, when Precision[1] filed its complaint asserting that Avco and AVStar are infringing on its registered trademark rights in violation of federal statutory and North Carolina common law trademark protections, have committed unfair competition in violation of the Lanham Act, and have violated North Carolina's prohibition on unfair and deceptive trade practices. See Doc. 1 at ¶¶ 46-77. Precision also alleges that Avco and AVStar conspired to reverse-engineer Precision's products and to intentionally infringe on its trademarks to benefit from the goodwill associated with Precision's marks and to replace the Precision servos in the servo market. Id. at 7-12. The defendants move to dismiss for lack of personal jurisdiction. Doc. 14 at ¶ 1.[2]

         II. Personal Jurisdiction

         The Supreme Court recognizes two types of personal jurisdiction: general (or “all-purpose”) jurisdiction and specific (or “case-linked”) jurisdiction. Bristol-Myers Squibb Co. v. Super. Ct. of Cal., 137 S.Ct. 1773, 1779-80 (2017). The parties agree that neither defendant is subject to general jurisdiction in North Carolina.[3] Accordingly, the Court will only consider whether the defendants are subject to specific jurisdiction.

         Out-of-state defendants are subject to specific personal jurisdiction in a federal court only if both the forum state's long-arm statute and due process are satisfied. See Universal Leather, LLC v. Koro AR, S.A., 773 F.3d 553, 558 (4th Cir. 2014). In North Carolina, these considerations are co-extensive. Christian Sci. Bd. of Dirs. of First Church of Christ, Scientist v. Nolan, 259 F.3d 209, 215 (4th Cir. 2001).

         To satisfy due process requirements, a defendant must have sufficient “minimum contacts” with the forum state such that “the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Int'l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945).[4] This requires that a defendant have “purposefully directed his activities at the residents of the forum” and that the cause of action “arise[s] out of or relate[s] to” those activities. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-73 (1985). “[T[he Supreme Court has rejected the exercise of jurisdiction where a defendant has merely placed a product into the stream of commerce foreseeing that it might ultimately reach the forum state, ” but sufficient contacts exist where a defendant has “targeted the forum with its goods.” ESAB Grp., Inc. v. Zurich Ins. PLC, 685 F.3d 376, 392 (4th Cir. 2012).

         The Fourth Circuit has “synthesized the due process requirements for asserting specific personal jurisdiction in a three part test” in which courts consider “(1) the extent to which the defendant purposefully availed itself of the privilege of conducting activities in the State; (2) whether the plaintiffs' claims arise out of those activities directed at the State; and (3) whether the exercise of personal jurisdiction would be constitutionally reasonable.” Consulting Eng'rs Corp. v. Geometric Ltd., 561 F.3d 273, 278 (4th Cir. 2009). “Where, as here, the district court addresses the question of personal jurisdiction on the basis of motion papers, supporting legal memoranda, and the allegations in the complaint, the plaintiff bears the burden [of] making a prima facie showing of a sufficient jurisdictional basis to survive the jurisdictional challenge.” Id. at 276.[5]

         A. Background and Jurisdictional Facts

         To decide whether Precision made the requisite prima facie showing, the Court “must construe all relevant pleading allegations in the light most favorable to the plaintiff, assume credibility, and draw the most favorable inferences for the existence of jurisdiction.” Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 62 (4th Cir. 1993) (original emphasis omitted). The defendants have not denied many of Precision's allegations and have not refuted much of Precision's evidence, nor have they submitted evidence to address several of the factors relevant to jurisdiction. The Court has therefore taken these unrefuted allegations and declarations as true for the purposes of this motion and has drawn reasonable inferences in favor of Precision from these facts and as to facts on which the defendants have chosen to remain silent. See id.; accord Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 396 (4th Cir. 2003).

         The Court finds the following facts for the purpose of this motion only.

         Turn and Bank is a North Carolina limited liability company that holds several trademarks used on fuel injection servos, which control the delivery of a combustible fuel-air mixture to aircraft engines. Doc. 1 at ¶¶ 2, 13, 17. The Bendix Corporation developed these servos in the 1960s and affixed marks to identify its servos consisting of the prefix “RSA” followed by a series of numbers and letters, e.g., “RSA-5AD1, ” “RSA-10AD1, ” and “RSA-10ED1.” Id. at ¶¶ 14-16.[6]

         In 2012, Turn and Bank bought the servo product line and licensed its intellectual property rights to Precision, a North Carolina limited liability company, for servo production. Id. at ¶¶ 3, 17; Doc. 32-2 at ¶ 6. All servo producers, from Bendix up to Precision, have continuously manufactured and sold servos with these RSA marks. Doc. 1 at ¶ 18. As a result, buyers for decades have used these marks to identify this line of servos. Id. at ¶ 20; Avco Corp., 2018 WL 1706359, at *8 (holding at summary judgment that the RSA marks have acquired secondary meaning). At present, Precision and Turn and Bank's operations are in Gibsonville and Burlington, North Carolina. Doc. 1 at ¶¶ 2- 3; Doc. 32-2 at ¶¶ 7-8.

         Avco is a Delaware corporation that for decades purchased servos from Precision's predecessors. Doc. 1 at ¶ 24. Around 2002, Avco began pressuring Precision's predecessor to reduce its servo prices. Id. When that company refused, Avco contracted with AVStar, a Florida corporation, to reverse-engineer the Precision line of servos and to then sell the servos to Avco as part of an overall plan by Avco for AVStar to replace Precision servos in the servo market. Id. at ¶¶ 24-26, 28; see also Avco Corp., 2018 WL 1706359, at *2 (summarizing the “series of agreements” between AVStar and the Lycoming Engines division of Avco to use RSA servos). AVStar successfully reverse-engineered the servos, which the Federal Aviation Administration then approved. Doc. 1 at ¶ 30. In or around August 2012, Avco began selling AVStar servos with the same RSA marks used by Precision; AVStar affixed the RSA marks to its servos under its agreement with Avco, which indemnified AVStar for doing so. Doc. 1 at ¶¶ 28-30; see also Avco Corp., 2018 WL 1706359, at *2 (finding at summary judgment that the defendants' agreements included “an obligation on the part of AVStar to use the same RSA-based model numbers used by Precision”). AVStar receives 98% of its servo revenue from Avco, it's “primary customer.” Doc. 29-3 at ¶ 19; Doc. 15 at 15. Avco's “sister” company, Cessna, also sells aircraft in North Carolina with AVStar's servos and Avco's engines. Doc. 32-2 at ¶ 13.

         In April 2018, the United States District Court for the Middle District of Pennsylvania held on summary judgment that AVStar's use of the RSA marks violated Precision's trademark and that Avco induced this infringement. See Avco Corp., 2018 WL 1706359, at *11. Within months of this decision, Avco and AVStar began selling servos and engines with servos bearing new marks that replaced the “RSA” prefix with “LFC” but that retained the same model numbers, including “LFC-5AD1, ” “LFC-10AD1, ” and “LFC-10ED1.” See Doc. 1 at ¶ 33; Doc. 7-7 at 10-11; Doc. 15 at 8-9; Doc. 29-3 at ¶ 17. Precision's claims for trademark infringement in this case are based upon these new LFC marks, which Precision contends are confusingly similar to its valid RSA marks. Doc. 1 at ¶ 34.[7]

         The record does not contain direct evidence that AVStar affixes the LFC marks to servos under an agreement with or at the direction of Avco. See Doc. 7-7 at 10-11; Doc. 7-8. However, this is a reasonable inference given that Precision's allegations to this effect remain undisputed, see, e.g., Doc. 1 at ¶ 53; AVStar adopted the original RSA marks at Avco's direction and with Avco's indemnification, as noted above; and switching marks would have a “significant detrimental impact on AVStar's ability to provide products” to Avco. Doc. 29-3 at ¶ 19. AVStar also sells servos to others without the LFC or RSA mark, see Doc. 1 at ¶ 41, which further indicates that AVStar uses the LFC marks on the servos it sells to Avco at Avco's direction. Taking all inferences in favor of Precision, the Court will so find.

         Avco has two distributors in North Carolina and has sold engines with AVStar servos in North Carolina for years through these distributors. Doc. 32-2 at ¶ 12. These servos also enter North Carolina via sales of airplanes containing Avco engines. Id. at ¶ 13. Until recently, these servos contained the infringing RSA mark. Id. at ¶ 12; see generally Avco Corp., 2018 WL 1706359, at *2. Avco advertises these two distributors on its website, which allows customers to search for distributors by geographic region to “find an authorized . . . distributor near you.” See Doc. 32-2 at ¶ 14 & p. 7. It is reasonable to infer that Avco maintains ongoing relationships with North Carolina distributors and has an online search feature to solicit sales through these distributors from in and around North Carolina.

         AVStar says it “has no record” of directly shipping any LFC products to North Carolina. Doc. 34-2 at ¶ 17. However, Avco has shipped at least one engine equipped with an AVStar LFC servo into North Carolina, see Doc. 15-4 at ¶ 19, which an end-user bought from Avco's distributor in Burlington, North Carolina. See Doc. 34-1 at ¶ 4.[8] There is no evidence that Avco intends to retreat from the North Carolina market, where it has regularly sold engines with AVStar's servos for years, see Doc. 32-2 at ¶ 12, and where its sister company Cessna regularly sells airplanes with Avco servos in the engines. Id. at ¶ 13. AVStar has also for years sold the RSA servos directly to consumers in North Carolina, see Id. at ¶ 12, and similarly has presented no evidence its channels for selling servos have changed since it switched to the new LFC mark. See Doc. 34-2. As ...

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