Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-20-01039/USCOURTS-ca7-20-01039-0/pdf.json

Parties Involved:
Tai Matlin
Appellant
Spin Master Corp.
Appellee
Spin Master Ltd.
Appellee
Swimways Corporation
Appellee
James Waring
Appellant

Document Text:

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

Nos. 20-1039 & 20-1049 

TAI MATLIN and JAMES WARING, 

Plaintiffs-Appellants, 

v.

SPIN MASTER CORP., SPIN MASTER LTD.,

and SWIMWAYS CORPORATION, 

Defendants-Appellees, 

and 

APPEAL OF: STOLTMANN LAW OFFICES. 

____________________ 

Appeals from the United States District Court for the 

Northern District of Illinois, Eastern Division. 

No. 17-cv-7706 — Virginia M. Kendall, Judge. 

____________________ 

ARGUED SEPTEMBER 24, 2020 — DECIDED NOVEMBER 10, 2020 

____________________ 

Before EASTERBROOK, MANION, and KANNE, Circuit Judges. 

KANNE, Circuit Judge. Plaintiffs Tai Matlin and James Waring have spent seventeen years embroiled in disputes related 

to the intellectual property claims at issue in this case. In that 

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2 Nos. 20-1039 & 20-1049 

time, arbitrators have sorted out many aspects of this IP kerfuffle, including that a company called Gray Matter is on the 

hook alone for paying certain royalties to Matlin and Waring. 

So, in 2017, when Matlin and Waring filed the suit now on 

appeal seeking those royalties from companies other than 

Gray Matter, they knew—or should have known—that they 

had a loser on their hands. And the district court recognized 

as much by sanctioning Matlin and Waring and ordering 

them and their former counsel, Stoltmann Law Offices, to pay 

certain costs and fees expended by Defendants Swimways 

and Spin Master.1

Accordingly, we affirm the district court’s decision granting costs and fees to Swimways and Spin Master in the 

amount of $271,926.92. We also deny Appellees’ motion for 

sanctions under Federal Rule of Appellate Procedure 38. 

I. BACKGROUND

In 1997, Matlin and Waring co-founded Gray Matter Holdings, LLC.2 In 1999, they entered into a Withdrawal Agreement with Gray Matter. This Withdrawal Agreement entitled 

Matlin and Waring to royalties on the sales of certain “Key 

Products.” In 2003, Gray Matter sold some of its assets to Defendant Swimways Corp. 

Since this asset sale, Matlin and Waring have hauled Gray 

Matter into arbitration four times over their royalty rights. 

The third and fourth arbitrations are relevant to this appeal. 

1 For ease, this opinion refers to Spin Master Corp. and Spin Master 

Ltd. collectively as “Spin Master.” 

2 Gray Matter later changed its name to 180s LLC. The court will use 

the name Gray Matter to refer to this entity. 

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Nos. 20-1039 & 20-1049 3

The third arbitration determined that Gray Matter did not 

transfer its royalty obligations under the Withdrawal Agreement to Swimways. Gray Matter only transferred its intellectual property rights. As a result, Gray Matter, not Swimways, 

remained responsible for any royalty compensation owed to 

Matlin and Waring under the Withdrawal Agreement. 

The fourth arbitration dealt with a claim by Matlin and 

Waring that Swimways tendered fraudulent filings to the 

United States Patent and Trademark Office (“USPTO”) regarding the intellectual property rights in the Key Products. 

The arbitrator found no evidence supporting this claim. 

Moreover, even assuming the fraud allegations were true, the 

arbitrator determined that Matlin and Waring would not be 

entitled to relief because all intellectual property rights in the 

Key Products at issue had been transferred to Swimways; 

Matlin and Waring had no rights left in them to assert. 

In 2016, Defendant Spin Master acquired Swimways. The 

next year, Matlin and Waring filed this suit against Swimways 

and Spin Master. Matlin and Waring’s complaint alleged that 

they were entitled to royalties from Swimways and Spin Master for the Key Products and that Swimways tendered the alleged fraudulent filings discussed above to the USPTO. The 

district court dismissed the complaint for lack of personal jurisdiction. This court affirmed. Swimways and Spin Master 

then sought sanctions. 

The district court granted the motion and sanctioned Matlin and Waring for “[o]pting to undertake this groundless 

lawsuit [that] was objectively unreasonable.” To support this 

conclusion, the court noted that Matlin and Waring’s claims 

were clearly barred by (1) “principles of res judicata”—i.e., the 

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4 Nos. 20-1039 & 20-1049 

holdings of the third and fourth arbitrations—and (2) “the 

plain language of the governing contracts in dispute.” 

Regarding preclusion, the court found that the arbitrations 

were “binding and final” because the Withdrawal Agreement 

stated that “any dispute or controversy arising under or in 

connection with this Agreement ... shall ... be submitted to 

binding arbitration.” And the third and fourth arbitrations 

precluded Matlin and Waring’s claims because the complaint 

was “premised on the same foundational issues[, royalties 

and fraud,] previously decided in arbitration.” The court thus 

ordered that Matlin and Waring, along with their former 

counsel, Stoltmann Law Offices (“SLO”), were jointly and 

severally liable for the costs and fees that Swimways and Spin 

Master expended preparing their motion to dismiss and motion for sanctions. 

SLO then filed a motion to reconsider the sanctions order. 

SLO first argued that the court’s order imposing sanctions on 

the basis of “principles of res judicata” was an improper advisory opinion because it reached the merits of the case after the 

case had already been dismissed without prejudice for lack of 

personal jurisdiction. The court disagreed with this “novel legal theory with no support in this circuit—or elsewhere.” 

And, the court stated that “the Seventh Circuit has upheld a 

district court’s ‘impos[ition] [of] Rule 11 sanctions on bases 

different from those on which the case was dismissed.’” 

SLO next took issue with the sanction amount. After considering SLO’s argument, the court did set aside a sizeable 

portion of the $408,471.51 that Swimways and Spin Master initially sought but still awarded them $271,926.92 on the basis 

of their detailed accounting, and payment, of those costs and 

fees. The accounting showed that attorneys and staff for 

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Nos. 20-1039 & 20-1049 5

Swimways and Spin Master spent 273.1 hours, charging an 

average rate of about $1,000 per hour, preparing the motion 

to dismiss and motion for sanctions, which consisted of five 

total filings. Matlin, Waring, and SLO (“Appellants”) now appeal the district court’s sanctions order and reassert the arguments from their motion to reconsider. 

II. ANALYSIS

We review de novo whether the court’s sanction award was 

an unconstitutional advisory opinion. Lopez Ramos v. Barr, 942 

F.3d 376, 380 (7th Cir. 2019). We review the court’s imposition 

of sanctions for abuse of discretion. Cooter & Gell v. Hartmarx 

Corp., 496 U.S. 384, 405 (1990). 

A. The Sanctions Order Was Not an Advisory Opinion. 

Article III’s “case or controversy” requirement prohibits 

federal courts from issuing advisory opinions that do not affect the rights of the parties before the court. Preiser v. Newkirk,

422 U.S. 395, 401 (1975). This proscription has never concerned us where a district court imposes Rule 11 sanctions on 

grounds different from those on which a case was dismissed. 

See, e.g., Pollution Control Indus. of Am., Inc. v. Van Gundy, 21 

F.3d 152, 156 (7th Cir. 1994) (affirming the propriety of sanctions for filing a case in which subject-matter jurisdiction did 

not exist even though the case had been dismissed for lack of 

personal jurisdiction); Ghosh v. Lindley, Nos. 92-1237 & 92-

1899, 1993 WL 311958, at *2 (7th Cir. Aug. 17, 1993) (affirming 

a sanctions order for pursuing frivolous litigation even after 

the district court found it lacked subject-matter jurisdiction). 

And this is for good reason—a sanctions order always affects 

the parties’ rights concerning the sanctions themselves. Indeed, the sanctions order in this case affected the rights of 

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6 Nos. 20-1039 & 20-1049 

Swimways and Spin Master to costs and fees and thus was not 

an advisory opinion. 

B. Sanctions Were Proper. 

Under Federal Rule of Civil Procedure 11, courts may 

sanction parties who file frivolous pleadings. For example, 

“[b]ringing a claim that is barred by res judicata is sanctionable.” Singh v. Curry, Nos. 88-2981 & 89-1619, 1995 WL 632464, 

at *3 (7th Cir. Oct. 25, 1995) (citing Cannon v. Loyola Univ. of 

Chi., 784 F.2d 777, 782 (7th Cir. 1986)). The district court in this 

case sanctioned Appellants because Matlin and Waring’s 

claims were clearly (1) precluded by “principles of res judicata” and (2) groundless based on “the plain language of the 

governing contracts.” We will address both bases in turn. 

First, Illinois law controls the preclusion issue in this case. 

Taylor v. Sturgell, 553 U.S. 880, 891 n.4 (2008) (citing Semtek 

Intʹl Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001)). 

And both federal district courts and the Illinois Appellate 

Court have held that Illinois affords preclusive effect to binding arbitration awards, even if unconfirmed, unless preclusion impinges on a party’s federal rights. See, e.g., Plastic Recovery Techs., Co. v. Samson, No. 11 C 2641, 2011 WL 3205349, 

at *3 (N.D. Ill. July 28, 2011) (citing Stulberg v. Intermedics Orthopedics, Inc., 997 F. Supp. 1060, 1066–67 (N.D. Ill. 1998); Monmouth Pub. Sch., Dist. No. 38 v. Pullen, 489 N.E.2d 1100, 1105 

(Ill. App. Ct. 1985)).3 In short, “[i]f [an] arbitration award is 

binding on the parties, any inquiry into the matters originally 

3 Appellants argue that, because some jurisdictions hold otherwise, it 

is not clear whether unconfirmed arbitration awards can be preclusive in 

Illinois. But they do not cite any authority showing that Illinois law is unsettled on this point. 

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Nos. 20-1039 & 20-1049 7

controverted is forever closed.” Monmouth, 489 N.E.2d at 

1106. 

Here, Matlin and Waring’s suit did not seek to vindicate 

federal rights. And there is little question that the third and 

fourth arbitrations were binding—the Withdrawal Agreement specified that “any dispute or controversy arising under 

or in connection with this Agreement ... shall ... be submitted 

to binding arbitration.” So the only issue is whether the third 

and fourth arbitrations disposed of the underlying suit’s 

claims. Upon considering those claims and the rulings of the 

arbitrators, it quickly becomes apparent that they did. 

The third arbitration resolved Matlin and Waring’s allegation that Swimways and Spin Master owed them royalties 

from the Withdrawal Agreement by finding that “[w]hile certain assets of [Gray Matter] were transferred in conjunction in 

the Asset Sale, the Withdrawal Agreement was not one of 

them.” In fact, we have previously stated that the third arbitration “determined that Gray Matter did not assign the Withdrawal Agreement to Swimways upon sale of the products 

and that [Matlin and Waring] were owed no further royalties.” Matlin v. Spin Master Corp., 921 F.3d 701, 703–04 (7th Cir. 

2019). 

The fourth arbitration similarly resolved Matlin and Waring’s fraud claims by finding that they retained no ownership 

interest in the intellectual property associated with those allegations. 

Second, Appellants make little argument regarding the 

“plain language of the governing contracts.” But this second 

basis for sanctions is compelling. Once again, Appellants’ first 

claim hinged on the presumption that Swimways assumed 

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8 Nos. 20-1039 & 20-1049 

royalty obligations under the Withdrawal Agreement in its 

2003 asset purchase. The purchase agreement unambiguously 

provided, however, that Swimways only assumed liabilities 

from Gray Matter under specific “Assumed Contracts,” and 

the Withdrawal Agreement was not one of those contracts. 

In sum, because preclusion and the language of the contracts rendered Matlin and Warring’s suit frivolous, the district court did not abuse its discretion in finding that “[o]pting 

to undertake this groundless lawsuit was objectively unreasonable and necessitate[d] sanctions.” 

C. The Sanctions Award Was Reasonable. 

Federal Rule of Civil Procedure 11 authorizes district 

courts to award “reasonable” attorney fees to a prevailing 

party as a sanction against the losing party. Dubisky v. Owens, 

849 F.2d 1034, 1037 (7th Cir. 1988). 

In arriving at its decision regarding sanctions, the district 

court noted that Swimways and Spin Master submitted a detailed accounting of their work pertaining to their successful 

motions to dismiss and for sanctions. 

The district court limited the award of monetary sanctions 

to the fees and costs relating only to the preparation and filing 

of Swimways and Spin Master’s motion to dismiss and motion for sanctions. The sanctions award did not include costs 

associated with the initial review of Matlin and Warring’s 

complaint and appeal. As a result, the court reduced the sanctions award sought of $408,471.51 to an amount actually 

awarded of $271,926.92. 

Based on the findings set forth by the district court in its 

order of December 10, 2019, we believe the sanctions amount 

of $271,926.92 to be reasonable. 

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Nos. 20-1039 & 20-1049 9

As to the reasonableness of the attorney fees charged by 

counsel for Swimways and Spin Master, the district court 

pointed out the following: 

Jonathan Graves, lead counsel for Defendants in this matter, 

has 28 years of litigation experience, primarily in the intellectual property sector. (Dkt. 74-1, ¶ 5). Mr. Graves’ effective 

hourly billable rate ranged from $973 to $1,092 during this 

matter. (Id. at ¶ 7). Though Mr. Graves’ rate, and that of his 

co-counsel, are above the median rate of comparable intellectual property attorneys (Dkt. 74-2), it is nonetheless reasonable. The best evidence of this is that Defendants have in 

fact paid these rates (Dkt. 74-1, ¶ 21). Cintas Corp. v. Perry, 

517 F.3d 459, 469–70 (7th Cir. 2008) (“The court concluded, 

in the same vein and consistent with circuit precedent, that 

the best evidence of whether attorney’s fees are reasonable 

is whether a party has paid them.”). 

Turning now to the reasonableness of the time expended 

on the preparation and filing of Swimways and Spin Master’s 

motion to dismiss and motion for sanctions, the district court 

observed: 

Plaintiffs take issue with the amount of time that Defendants expended in defending the lawsuit. This argument is 

specious. Plaintiffs filed a federal lawsuit containing serious 

charges and seeking significant damages. That Defendants 

responded forcefully should be of little surprise. See Brandt 

v. Schal Assocs., Inc., 960 F.2d 640, 648 (7th Cir. 1992) (“We 

have little sympathy for the litigant who fires a big gun, and 

when the adversary returns fire, complains because he was 

only firing blanks.”). Plaintiffs and SLO have failed to carry 

their burden to overcome the presumption of reasonability 

here. Robinson, 489 F.3d at 872. 

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10 Nos. 20-1039 & 20-1049 

The district court further explained: 

Defendants, and their counsel, were faced with persistent 

litigants who were undeterred by prior defeats. As such, Defendants attempt to put the final metaphorical nail in the 

coffin by disposing of this federal lawsuit and seeking sanctions was entirely reasonable. 

As the district court stated, “the best evidence of whether 

attorney’s fees are reasonable is whether a party has paid 

them.” Cintas Corp. v. Perry, 517 F.3d 459, 469–70 (7th Cir. 

2008). And in this case, Swimways and Spin Master in fact 

paid their attorneys $271.926.92 to prepare the motions to dismiss and for sanctions. We thus hold that the district court’s 

findings were reasonable, especially under our deferential 

abuse of discretion standard of review. Pickett v. Sheridan 

Health Care Ctr., 664 F.3d 632, 639 (7th Cir. 2011) (explaining 

that a district court’s fee award receives wide latitude under 

a “highly deferential abuse of discretion standard” (quoting 

Estate of Borst v. OʹBrien, 979 F.2d 511, 514 (7th Cir. 1992))). 

III. CONCLUSION

We AFFIRM the decision of the district court to impose 

sanctions in the amount of $271,926.92. 

We DENY Appellees’ motion for sanctions under Federal 

Rule of Appellate Procedure 38.4

4 Sanctions against Appellants under Federal Rule of Appellate Procedure 38 are not appropriate because Appellants made a reasonable—

although unsuccessful—argument regarding the excessiveness of the 

sanctions imposed against them. 

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