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Matlin v. Spin Master Corp.

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

June 10, 2019



          Virginia M. Kendall, United States District Judge

         Plaintiffs Tai Matlin and James Waring have engaged in a protracted dispute, spanning nearly two decades and four arbitrations, regarding their rights to certain intellectual property and accompanying royalties. Apparently displeased with the outcomes of the arbitration process, Plaintiffs filed this lawsuit against Spin Master Corp., Spin Master Ltd., and Swimways Corporation alleging fraud, breach of contract, and unjust enrichment. At the core of Plaintiffs' First Amended Complaint is their persistent belief that they retained some ownership interest in the intellectual property of certain “Key Products” and that Defendants assumed obligations to provide royalty payments to Plaintiffs as a result of obtaining the rights to the Key Products intellectual property. Plaintiffs' Complaint was ultimately dismissed by this Court for lack of personal jurisdiction (Dkt. 40) and the decision was affirmed by Court of Appeals. (Dkt. 70). Defendants now seek sanctions against Plaintiffs. (Dkt. 48). Defendants' Motion for Sanctions is granted as Plaintiffs' claims are barred by principles of res judicata and the plain language of the governing contracts in dispute.


         For purposes of Defendants' Motion for Sanctions, the Court assumes familiarity with the factual background from the parties' briefing on the Motion to Dismiss and as discussed in the Court's Opinion granting the Motion to Dismiss. See (Dkt. 40). Unlike the factually deferential standard owed to plaintiffs when deciding a motion under Rule 12(b)(6), the Court need not accept all well-plead facts as true when reviewing a motion for sanctions. Tobey v. Chibucos, 890 F.3d 634, 652 (7th Cir. 2018).


         Federal Rule of Civil Procedure 11(b) demands that by presenting papers to the court, the party certifies that the filing is formed after a reasonable inquiry and:

(1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation;
(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;
(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery…

Fed. R. Civ. P. 11(b). A frivolous argument is one that is baseless or made without reasonable and competent inquiry and therefore subject to the consequences of Rule 11. See Berwick Grain Co., Inc. v. Ill. Dep't of Agric., 217 F.3d 502, 504 (7th Cir. 2000). Rule 11 “plainly authorizes a district court to sanction a lawyer who without reasonable inquiry tenders a submission that includes legal contentions not warranted…” Id. at 504. While the Court does have the discretion to issue sanctions, such authority should be used sparingly in recognition of the impact sanctions can have beyond the merits of the case. Hartmarx Corp. v. Abboud, 326 F.3d 862, 867 (7th Cir. 2003). The Court reviews the allegedly sanctionable conduct under a standard of objective reasonableness and considers whether the offending party should have known his position was groundless. Cuna Mut. Ins. Soc. v. Office and Prof'l Emp. Int'l Union, Local 39, 443 F.3d 556, 560 (7th Cir. 2006).


         I. Timeliness of Defendants' Motion for Sanctions

         As a threshold matter, the Court must first address Plaintiffs' contention that Defendants' Motion should be dismissed as untimely “where Defendants needlessly waited months to raise these issues…” (Dkt. 66, pg. 6). However, Plaintiffs' argument is misdirected, as demonstrated by their resort to non-precedential and out-of-circuit authority. (Id. at pgs. 6-7). The fact that Defendants waited until after this Court's ruling on the Motion to Dismiss does not prevent Defendants from properly seeking sanctions. “Postjudgment motions for sanctions are permissible so long as the moving party substantially complies with Rule 11's safe-harbor requirement…” Matrix IV, Inc. v. Am. Nat'l Bank & Trust Co., 649 F.3d 539, 553 (7th Cir. 2011). Indeed, the 21-day time-frame mentioned in Rule 11 “is a floor, not a ceiling.” Id. at 552 (holding that a motion for sanctions filed 23 days after the suit was dismissed, and two years after Rule 11 notice was originally sent, did not violate timeliness concerns).

         Defendants alerted Plaintiffs to their purported sanctionable conduct on March 21, 2018, one month after Plaintiffs filed their First Amended Complaint, by sending a memorandum in support of their yet to be filed motion for sanctions. (Dkt. 48-10). Plaintiffs did not heed Defendants' warning and their claims were dismissed without prejudice four months later. (Dkt. 40). Just 26 days after judgment was entered, and 147 days after serving Plaintiffs with a copy of their motion, Defendants filed the instant Motion. (Dkt. 48). Defendants undoubtedly complied with the safe harbor provision of Rule 11 and the timeliness requirements of postjudgment sanction motions. Matrix IV, 649 F.3d at 553 (“[W]e have recognized that the ‘outer parameters' for filing motions for sanctions after final judgment is 90 days.”) Plaintiffs suggest that this perceived delay by Defendants demonstrates bad faith and gamesmanship. To the contrary, the fact that Plaintiffs ...

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