Rolls-Royce Corp. v. Heros, Inc.

Decision Date25 March 2008
Docket NumberCivil Action No. 3:07-CV-0739-D.
PartiesROLLS-ROYCE CORPORATION, Plaintiff-counterdefendant, v. HEROS, INC., et al., Defendants-counterplaintiffs.
CourtU.S. District Court — Northern District of Texas

Robert F. Ruckman, Stuart B. Brown, Jr., Jackson Walker, Dallas, TX, Alastair

J. Warr, Jason A. Houdek, Jason A. Penninger, Libby Y. Mote, Matthew C. Branic, Max W. Hittle, Jr., Rebecca Biller Elmore, Krieg Devault LLP, Indianapolis, IN, for Plaintiff-counterdefendant.

Edward A. McConwell, McConwell Law Offices, Mission, KS, Christopher A. Robison, Jerry C. Alexander, Passman & Jones, Dallas, TX, for Defendants-counterplaintiffs.

MEMORANDUM OPINION AND ORDER

SIDNEY A. FITZWATER, Chief Judge.

Defendants move to dismiss some of plaintiff Rolls-Royce Corporation's ("Rolls-Royce's") claims under Fed. R.Civ.P. 12(b) (2) for lack of personal jurisdiction and under Rule 12(b)(6) for failure to adequately plead alter ego claims. Rolls-Royce moves pursuant to Rule 12(f) to strike certain paragraphs of defendants' responsive pleading, contending they contain factual allegations that are time-barred. Rolls-Royce also moves for leave to amend its complaint to join two additional partiesJerry S. Hiatt ("Hiatt") and Action Aircraft ("Action")—as additional defendants under Rule 20(a). The court concludes that it has personal jurisdiction over all defendants as to all but one claim. The court therefore grants in part and denies in part defendants' Rule 12(b)(2) motion to dismiss. Because Rolls-Royce has failed to adequately plead alter ego claims, the court grants defendants' Rule 12(b)(6) motion to dismiss, but it allows Rolls-Royce to replead this claim when it files its first amended complaint. The court denies Rolls-Royce's motion to strike portions of defendants' responsive pleading, and it grants Rolls-Royce's motion for leave to amend.

I
A

In 1995 Rolls-Royce acquired Allison Engine Company, the original manufacturer of the Model 250 engine ("Model 250"), an industry leading engine for light aircraft, helicopters, and unmanned air vehicles.1 Rolls-Royce continues to manufacture several versions of the Model 250 for both civilian and military use. In addition to selling the Model 250, Rolls-Royce sells individual component parts. The Federal Aviation Administration ("FAA") classifies Rolls-Royce as the original equipment manufacturer ("OEM") of the Model 250.

Through parts manufacturer approval ("PMA"), the FAA gives companies other than OEMs the right to sell imitation parts to compete with OEMs. Defendant Hye-Tech Manufacturing, LLC ("Hye-Tech") has PMA to produce 131 different Model 250 parts. Hye-Tech therefore competes with Rolls-Royce in the secondary market for Model 250 replacements parts.2

The FAA also grants companies the right to repair original engine parts to a serviceable condition. To obtain the right to perform such repair services, the FAA must approve the company's step-by-step technical process for the repair. Defendant H.E.R.O.S., Inc. ("Heros") has FAA approval to perform at least 34 repair schemes for the Model 250. Heros is therefore also a competitor of Rolls-Royce in the secondary market for Model 250 replacement parts.3

Defendant Heros Kajberouni ("Kajberouni") is the President and a substantial shareholder of Heros, and he is a member and the Chief Executive Officer of Hye-Tech.4

B

Rolls-Royce sues Heros, Hye-Tech, and Kajberouni, asserting ten grounds for relief, and alleging that each is the alter ego of the other. Rolls-Royce alleges that defendants engaged in reverse palming off, in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A), by selling genuine Rolls-Royce Model 250 parts while representing to the public that the parts were their own.

Rolls-Royce also sues defendants for misappropriation of trade secrets. It alleges that defendants acquired Rolls-Royce's proprietary design data for the Model 250, knowing that these trade secrets were obtained unlawfully. Rolls-Royce also avers that defendants used this design data to obtain various FAA approvals. Because Rolls-Royce's corporate headquarters is in the state of Indiana, where Rolls-Royce asserts that its injury occurred, Rolls-Royce brings this claim under Indiana law, Ind.Code § 24-2-3-1 et seq. (2006).

Rolls-Royce also alleges that it is entitled to replevin under Indiana law, Ind. Code. § 32-35-2-1 (2002), because defendants have wrongfully taken and unlawfully detained its proprietary design data for the Model 250. Similarly, Rolls-Royce brings a claim for conversion or theft under Indiana law, Ind.Code § 35-43-4-2 (2004).

Rolls-Royce next asserts claims for two distinct violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c) and 1962(d), for conspiring to participate in a pattern of racketeering activity and for actual participation. Essentially, Rolls-Royce alleges that defendants and a few other companies and individuals wrongfully obtained Rolls-Royce's Model 250 design data, in violation of various confidentiality agreements, and exploited the data for their own benefit by using it to obtain PMA from the FAA and the right to service Model 250 parts, and by transferring it to others in interstate commerce. The predicate act for both alleged violations of § 1962 is transferring stolen goods in interstate commerce, in violation of 18 U.S.C. § 2314. See 18 U.S.C. § 1961(1) (listing § 18 U.S.C. § 2314 as "racketeering activity"). Rolls-Royce avers that defendants' enterprise unlawfully expanded the PMA market and diluted the value of Rolls-Royce's design data. Rolls-Royce brings a similar claim under Indiana law, Ind.Code § 34-24-3-1 (1999).

The complaint also avers that defendants' misappropriation of Rolls-Royce's design data constitutes the tort of interference with a business relationship, because defendants' conduct has hampered Rolls-Royce's relationship with companies that purchase its Model 250 parts.

Rolls-Royce also asserts a claim for quantum meruit for the profits that defendants have derived from misappropriating Rolls-Royce's design data.

Finally, Rolls-Royce seeks a judgment declaring that defendants' FAA approvals are void because they have been acquired using design data misappropriated from Rolls-Royce. Based on these claims, Rolls-Royce seeks money damages, return of its proprietary design data, and an injunction prohibiting defendants from further use of the data.

C

In addition to moving to dismiss under Rule 12(b)(2) for lack of personal jurisdiction, and to dismiss under Rule 12(b)(6) Rolls-Royce's alter ego claims, defendants assert eight counterclaims. Their first two counterclaims allege that Rolls-Royce violated the same two provisions of RICO on which Rolls-Royce relies, 18 U.S.C. § 1962(c) and (d). Defendants base these claims, however, on the predicate act of mail fraud, 18 U.S.C. § 1341. They maintain that Rolls-Royce has secured its dominant position in the market for Model 250 replacement parts through its racketeering conduct. Defendants also aver that Rolls-Royce formed an enterprise through direct control over Rolls-Royce-owned service centers and by contractual control over a network of distributors. According to defendants, through this enterprise, Rolls-Royce has falsely asserted proprietary rights to public domain data in a scheme to dominate the Model 250 aftermarket. Defendants allege that Rolls-Royce has distributed in interstate commerce numerous documents related to the Model 250 with legends and captions that falsely state that the documents contain Rolls-Royce proprietary data.

Defendants also assert various antitrust claims. They allege that Rolls-Royce has violated § 1 of the Sherman Act through unlawful tying arrangements with its network of distributors, so that owners of aircraft utilizing Model 250 engines are induced to purchase Rolls-Royce replacement parts. Defendants also bring a claim under § 2 of the Sherman Act, alleging that Rolls-Royce has abused its monopoly power in an attempt to drive defendants out of the Model 250 replacement part market. Defendants assert several acts of monopolization, including referring to defendants' parts as "bogus," "unauthorized," "unsafe," or "obsolete," claiming nonexistent proprietary rights, predatory pricing, and unlawful tying agreements. Defendants assert these same claims under the Texas antitrust statute, Tex. Bus. & Com. Code. § 15.05(a), (c) & (d) (Vernon 2002).

Defendants also bring a claim under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). They allege that Rolls-Royce has placed captions on its maintenance and service publications concerning the Model 250 that constitute false or misleading representations of fact.

Further, defendants allege that Rolls-Royce's wrongful conduct has tortiously interfered with defendants' business relationships with customers. Finally, defendants seek a declaratory judgment that Rolls-Royce has no proprietary interest in several design data documents.

D

Rolls-Royce moves to strike portions of defendants' counterclaims under Rule 12(f), contending they rely on events that are time-barred. And it moves for leave to amend its complaint to join Hiatt and Action, who Rolls-Royce alleges also misappropriated its proprietary data for the Model 250.

II

The court first addresses defendants' Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction.

A

In their motion to dismiss, defendants maintained that the court lacked personal jurisdiction over all defendants. Rolls-Royce responded that personal jurisdiction was premised on RICO's nationwide service of process provision, 18 U.S.C. § 1965, and that the court also had specific personal jurisdiction over all defendants under the Texas long arm statute, Tex. Civ. Prac. & Rem.Code § 17.042 (Vernon 1997). In reply, defendants argued that Rolls-Royce's RICO claims were barred...

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