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Matlin v. Spin Master Corp.

United States District Court, N.D. Illinois, Eastern Division

July 20, 2018

TAI MATLIN and JAMES WARING, Plaintiffs,
v.
SPIN MASTER CORP., SPIN MASTER LTD., and SWIMWAYS CORPORATION, Defendants.

          MEMORANDUM OPINION AND ORDER.

          HON, VIRGINIA M. KENDALL UNITED STATES DISTRICT JUDGE.

         Plaintiffs Tai Matlin and James Waring sued Defendants Spin Master Corp., Spin Master Ltd., and Swimways Corporation alleging fraud and breach of contract against Swimways (Counts I and II), and unjust enrichment against all Defendants (Count III). See (Dkt. No. 19). In response, the Defendants filed a Motion to Dismiss for lack of personal jurisdiction and venue pursuant to Fed.R.Civ.P. 12(b)(2), (3). See (Dkt. No. 26). For the following reasons the Court grants the Defendants Motion. [26.]

         BACKGROUND

         At the center of this litigation are two Illinois residents - Matlin and Waring - who invented two patents, and who founded a company known as Gray Matter Holdings (now known as 180s LLC). See (Dkt. No. 19, ¶¶ 7-8, 15, 18, 22). The Spin Master defendants are Canadian companies with their principal places of business and incorporation in Toronto, Ontario, while Swimways is incorporated in and has its principal place of business in Virginia Beach, Virginia. Id. ¶¶ 9-11.

         In 1999, the Plaintiffs entered into a Withdrawal Agreement (“Agreement”) with Gray Matter Holdings that included forfeiture of their salaries and the sale of their partnership shares in the company. Id. ¶¶ 22-24. Another clause within the Agreement assigned some of their intellectual property and patent rights for “Key Products” to Gray Matter Holdings in exchange for the retention of rights to royalties from any revenue generated from the sale of the Key Products. Id. ¶ 25. After agreeing to the Withdrawal Agreement, the Plaintiffs routinely pursued Gray Matter Holdings in arbitration to enforce unpaid royalties they agreed to receive in exchange for leaving the company. Id. ¶¶ 29-30. In 2002, Gray Matter Holding filed an assignment of the Key Products intellectual property rights with the United States Patent and Trademark Office (“USPTO”) that allegedly contained Waring's forged signature and without either of the Plaintiffs' knowledge. Id. ¶ 40-42. Then in 2003 Gray Matter Holdings entered into an asset sale agreement with Swimways that included rights to the Key Products patents originally held by the Plaintiffs. Id. ¶ 33. Since the sale of the Key Products and the related patents, Swimways has not paid the Plaintiffs any royalties from sales involving the Key Products. Id. ¶ 63.

         Finally, in 2016 Spin Master acquired Swimways and the Key Product intellectual property rights originally owned by the Plaintiffs. Id. ¶¶ 64-66. The Plaintiffs subsequently filed suit against Swimways and Spin Master alleging three counts - fraud, breach of contract, and unjust enrichment. Id. The pending motion by Defendants seeks dismissal for lack of personal jurisdiction and venue. See (Dkt. No. 26).

         LEGAL STANDARD

         When reviewing a motion to dismiss, the Court must accept “all of the factual allegations contained in the complaint.” Erikson v. Pardus, 551 U.S. 89, 94 (7th Cir. 2007). While a complaint need not allege facts that establish personal jurisdiction, the plaintiff bears the burden of establishing the existence of personal jurisdiction where a defendant moves to dismiss a complaint pursuant to Fed.R.Civ.P. 12(b)(2). Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). In the absence of an evidentiary hearing, the plaintiff need only make out a prima facie case of personal jurisdiction. Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002). In ruling on a motion to dismiss for lack of personal jurisdiction a Court may consider written materials submitted by the parties and should resolve all factual disputes in the plaintiff's favor. Nelson v. Park Indus., Inc., 717 F.2d 1120, 1123 (7th Cir. 1983).

         Furthermore, the Due Process Clause of the Fourteenth Amendment limits when courts in a particular state may exercise personal jurisdiction over nonresident defendants. Asahi Metal Indus. Co. v. Superior Court of California, 480 U.S. 102, 108 (1987), World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980). In Illinois, personal jurisdiction extends “to the limits allowed by the United States Constitution, so the state and federal standards are congruent [in Illinois].” Philos Techs., Inc. v. Phils & D., Inc., 645 F.3d 851, 855 n.2 (7th Cir. 2011). Additionally, the Illinois long-arm statute permits the exercise of personal jurisdiction over defendants who commit a tortious act in Illinois. 735 ILCS 5 §§ 2-209(a)(2), (c).

         Finally, the Court may dismiss an action based on improper venue. 28 U.S.C. § 1391(b); Fed.R.Civ.P. 12(b)(3). Where venue is improper the court “shall dismiss, or if it be in the interest of justice, transfer such a case to any district [] in which it could have been brought. 28 U.S.C. §1406(a).

         DISCUSSION

         1. Personal Jurisdiction

         “Where no federal statute authorizes nationwide service of process, personal jurisdiction is governed by the law of the forum state.” Tamburo v. Dworkin, 601 F.3d 693, 700 (7th Cir. 2010) (citing Fed.R.Civ.P. 4(k)(1)(A)). As this matter arises out of common law claims for breach of contract, fraud, and unjust enrichment, there is no federal statute that authorizes “nationwide service of process” and so the Illinois long-arm statute applies. See 735 ILCS 5 § 2-209. As such, personal jurisdiction turns on whether the defendants have sufficient “minimum contacts” with Illinois such that the maintenance of the suit “does not offend traditional notions of fair play and substantial justice.” Tamburo, 601 F.3d at 700-01 (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)); Nat'l Gun Victims Action Council v. Schecter, 68 N.E.3d 448, 453 (Ill. Ct. App. 2016). Personal jurisdiction over a defendant is based upon the type of contact a party has with the forum state and can be either general or specific. See Nacionales de. Colubmia, S.A. v. Hall, 466 U.S. 408, 414 (1984). Here, the Court reviews for general and specific personal jurisdiction because it is unclear in their First Amended Complaint whether the Plaintiffs are alleging general or specific jurisdiction, stating only that “[t]his Court has personal jurisdiction over the Defendants because each Defendant has substantial contacts with this forum as a result of business conducted within the state of Illinois and within this District and the fraud alleged herein occurred in part in this district.” See (Dkt. No. 19, at ¶ 13).

         A. ...


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