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Matlin v. Spin Master Corp.

United States Court of Appeals, Seventh Circuit

April 22, 2019

Tai Matlin and James Waring, Plaintiffs-Appellants,
v.
Spin Master Corp., Spin Master Ltd., and Swimways Corporation, Defendants-Appellees.

          Argued February 6, 2019

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 17 C 07706 - Virginia M. Kendall, Judge.

          Before Kanne, Sykes, and Hamilton, Circuit Judges.

          Kanne, Circuit Judge.

         Tai Matlin and James Waring appeal the district court's dismissal of their suit against Spin Master Corporation, Spin Master Ltd., and Swimways Corporation for lack of personal jurisdiction and improper venue. Because the defendants have insufficient contacts with Illinois to establish specific personal jurisdiction, we affirm.

         I. Background

         Along with other business partners, two Illinois residents, Tai Matlin and James Waring, co-founded a company called Gray Matter Holdings, LLC, in 1997.[1] Matlin and Waring developed certain products for Gray Matter, including an inflatable beach mat known as the "Snap-2-It" and a radio-controlled hang glider called the "Aggressor."

         In 1999, after learning that the company faced failure, Matlin and Waring entered into a Withdrawal Agreement with Gray Matter wherein they sold their partnership shares of the company and forfeited their salaries. The Withdrawal Agreement also included a provision that assigned Matlin and Waring's intellectual property and patent rights to Gray Matter, but entitled them to royalties on the sale of the products. In the years following the Withdrawal Agreement, Matlin and Waring frequently brought Gray Matter to arbitration to enforce their royalty rights.

         In 2002, Gray Matter filed an assignment of the products' intellectual property rights with the United States Patent and Trademark Office. Matlin and Waring allege that Gray Matter filed the assignment without their knowledge and that the company forged Waring's signature on the paperwork. The following year, Gray Matter sold assets to Swimways, including the patent rights to Matlin and Waring's products. A 2014 binding arbitration between Gray Matter and the plaintiffs determined that Gray Matter did not assign the Withdrawal Agreement to Swimways upon sale of the products and that the plaintiffs were owed no further royalties. Accordingly, Swimways never paid royalties to Matlin or Waring. Then in 2016, Spin Master acquired Swimways and the intellectual property rights at issue here.

         In 2017, Matlin and Waring filed this suit against Swimways, Spin Master Corp., and Spin Master Ltd. in the Northern District of Illinois. They argued they were still entitled to royalties for the products and brought claims of fraud and breach of contract against Swimways, and unjust enrichment against all defendants. Swimways is a Virginia corporation with its principal place of business in Virginia Beach. The Spin Master defendants are Canadian companies with their principal places of business in Toronto. None of the defendants are registered to conduct business in, have employees in, or have registered agents for service of process in Illinois.

         The defendants moved to dismiss Matlin and Waring's complaint under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction and Rule 12(b)(3) for improper venue. The defendants submitted declarations from their respective corporate officers in support of their motion, outlining how the companies lacked sufficient contact with Illinois to establish personal jurisdiction. In response to defendants' motion to dismiss, plaintiffs' counsel submitted an online purchase receipt from Swimways' website and a declaration stating that he purchased and received a single patented product in Illinois. Matlin and Waring believed that, along with the complaint's allegations, this purchase of a royalty-generating product sufficiently established personal jurisdiction over the defendants.

         The district court rejected Matlin and Waring's argument and granted the defendants' Motion to Dismiss. The court determined that because Matlin and Waring asserted only common law claims against the defendants, Illinois law governed whether it had personal jurisdiction over the defendants. The court then turned to the Illinois Long Arm Statute and the state's case law to determine whether asserting personal jurisdiction over the defendants would violate their right to due process. Accordingly, it held that the defendants had insufficient contacts with Illinois to establish either general or specific personal jurisdiction in that state. The defendants subsequently filed a Motion for Sanctions against plaintiffs under Federal Rule of Civil Procedure 11.

         Matlin and Waring appealed the court's dismissal. We note that defendants' Motion for Sanctions against Matlin and Waring, pending before the district court, has no impact on our jurisdiction over Matlin and ...


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