### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ Nos. 20-1039 & 20-1049

T AI M ATLIN and J AMES W ARING , Plaintiffs-Appellants ,

v.

S PIN M ASTER C ORP ., S PIN M ASTER L TD ., and S WIMWAYS C ORPORATION , Defendants-Appellees , and

A PPEAL O F : S TOLTMANN L AW O FFICES

.

____________________ Appeals from the United States District Court for the Northern District of Il linois, Eastern Division. No. 17-cv-7706 — Virginia M. Kendall, Judge

.

____________________
A RGUED S EPTEMBER 24, 2020

— D ECIDED N OVEMBER 10, 2020

____________________

Before E ASTERBROOK, M ANION , and K ANNE , Circuit Judges

. K ANNE , Circuit Judge . Plainti ff s Tai Matlin and James Waring have spent seventeen years embroiled in disputes related to the intellectual property claims at issue in this case. In that2 Nos. 20-1039 & 20-1049

time, arbitrators have sorted ou t many aspects of this IP kerfu ffl e, including that a company called Gray Ma tt er is on the hook alone for paying certain royalties to Matlin and Waring. So, in 2017, when Matlin and Waring fi led the suit now on appeal seeking those royaltie s from companies other than Gray Ma tt er, 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 O ffi ces, to pay certain costs and fees expended by Defendants Swimways and Spin Master. 1 Accordingly, we a ffi rm the district cour t’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. B ACKGROUND In 1997, Matlin and Waring co-founded Gray Ma tt er Holdings, LLC. 2 In 1999, they entered into a Withdrawal Agreement with Gray Ma tt er. This Withdrawal Agreement entitled Matlin and Waring to royalties on the sales of certain “Key Products.” In 2003, Gray Ma tt er sold some of its assets to Defendant Swimways Corp. Since this asset sale, Matlin and Waring have hauled Gray Ma tt er 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.Nos. 20-1039 & 20-1049 3

The third arbitration determined that Gray Ma tt er did nottransfer its royalty obligations under the Withdrawal Agreement to Swimways. Gray Ma tt er only transferred its intellectual property rights. As a result, Gray Ma tt er, not Swimways, remained responsible for any royalty compensation owed to Matlin and Waring under the Withdrawal Agreement.
The fourth arbitration dealt wi th a claim by Matlin and Waring that Swimways tendered fraudulent fi lings to the United States Patent and Trademark O ffi ce (“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 Matl in 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 fi led this suit against Swimways and Spin Master. Matlin and W aring’s complaint alleged thatthey were entitled to royalties from Swimways and Spin Master for the Key Products and that Swimways tendered the alleged fraudulent fi lings discussed above to the USPTO. Thedistrict court dismissed the complaint for lack of personal jurisdiction. This court a ffi rmed. 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. , the4 Nos. 20-1039 & 20-1049

holdings of the third and fo urth arbitrations—and (2) “the plain language of the governing contracts in dispute.” Regarding preclusion, the cour t found that the arbitrations were “binding and fi nal” because the Withdrawal Agreement stated that “any dispute or controversy arising under or in connection with this Agreement ... shall ... be submi tt ed 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 O ffi ces (“SLO”), were jointly and severally liable for the costs and fees that Swimways and Spin Master expended preparing thei r motion to dismiss and motion for sanctions.
SLO then fi led a motion to reconsider the sanctions order. SLO fi rst 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 inthis 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 di ff erent from those on which the case was dismissed.’”
SLO next took issue with th e sanction amount. After considering SLO’s argument, the court did set aside a sizeableportion of the $408,471.51 that Swimways and Spin Master initially sought but still award ed them $271,926.92 on the basis of their detailed accounting, an d payment, of those costs and fees. The accounting showed that a tt orneys and sta ff forNos. 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 sa nctions, which consisted of fi ve total fi lings. Matlin, Waring, and SLO (“Appellants”) now appeal the district court’s sanctions order and reassert the arguments from their motion to reconsider.
II. A NALYSIS
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 advi sory 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 cour t imposes Rule 11 sanctions on grounds di ff erent 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) (a ffi rming the propriety of sanctions for fi ling a case in which subject-ma tt er 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) (a ffi rming a sanctions order for pursuing frivolous litigation even after the district court found it lacked subject-ma tt er jurisdiction). And this is for good reason—a sanctions order always a ff ectsthe parties’ rights concerning the sanctions themselves. Indeed, the sanctions order in this case a ff ected the rights of6 Nos. 20-1039 & 20-1049

Swimways and Spin Master to co sts 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 fi le 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 Int ʹ l 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 a ff ords preclusive e ff ect to binding arbitration awards, even if uncon fi rmed, 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 ma tt ers originally

3 Appellants argue that, because some jurisdictions hold otherwise, it is not clear whether unconfirmed arbitration awards can be preclusive inIllinois. But they do not cite any authority showing that Illinois law is unsettled on this point.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 li tt le question that the third andfourth arbitrations were binding—the Withdrawal Agreement speci fi ed that “any dispute or controversy arising under or in connection with this Agreement ... shall ... be submi tt ed to binding arbitration.” So the on ly 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 become s 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 fi nding that “[w]hile certain assets of [Gray Ma tt er] were transferred in conjunction in the Asset Sale, the Withdrawal Agreement was not one ofthem.” In fact, we have previously stated that the third arbitration “determined that Gray Ma tt er 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 fi nding that they retained no ownership interest in the intellectual proper ty associated with those allegations. Second, Appellants make li tt le argument regarding the “plain language of the governing contracts.” But this second basis for sanctions is compellin g. Once again, Appellants’ fi rst claim hinged on the presumpt ion that Swimways assumed8 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 Ma tt er under speci fi c “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 fi nding that “[o]ptingto 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” a tt orney 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 reg arding sanctions, the district court noted that Swimways and Spin Master submi tt ed 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 fi lingof Swimways and Spin Master’s motion to dismiss and motion for sanctions. The sancti ons award did not include costs associated with the initial review of Matlin and Warring’s complaint and appeal. As a resu lt, the court reduced the sanctions award sought of $408,471.51 to an amount actually awarded of $271,926.92.
Based on the fi ndings 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.Nos. 20-1039 & 20-1049 9

As to the reasonableness of the a tt orney fees charged by counsel for Swimways and Spin Master, the district court pointed out the following: Jonathan Graves, lead counsel for Defendants in this ma tt er,has 28 years of litigation experience, primarily in the intellectual property sector. (Dkt. 74-1, ¶ 5). Mr. Graves’ e ff ective hourly billable rate ranged from $973 to $1,092 during this

ma tt er. (Id. at ¶ 7). Though Mr. Graves’ rate, and that of hisco-counsel, are above the median rate of comparable intellectual property a tt orneys (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 a tt orney’s fees are reasonable is whether a party has paid them.”). Turning now to the reasonableness of the time expended on the preparation and fi ling of Swimways and Spin Master’s motion to dismiss and motion fo r sanctions, the district court observed:

Plainti ff s take issue with the amount of time that Defendants expended in defending the lawsuit. This argument is specious. Plainti ff s fi led a federal lawsuit containing serious charges and seeking signi fi cant damages. That Defendants responded forcefully should be of li tt le surprise. See Brandt v. Schal Assocs., Inc. , 960 F.2d 640, 648 (7th Cir. 1992) (“We have li tt le sympathy for the litigant who fi res a big gun, and when the adversary returns fi re, complains because he was only fi ring blanks.”). Plainti ff s and SLO have failed to carry their burden to overcome the presumption of reasonability here. Robinson , 489 F.3d at 872.10 Nos. 20-1039 & 20-1049

The district court further explained: Defendants, and their counsel, were faced with persistentlitigants who were undeterred by prior defeats. As such, Defendants a tt empt to put the fi nal metaphorical nail in the

co ffi n by disposing of this federal lawsuit and seeking sanctions was entirely reasonable. As the district court stated, “the best evidence of whether

a tt orney’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 a tt orneys $271.926.92 to prepare the motions to dismiss and for sanctions. We thus hold that the district court’s fi ndings were reasonable, especially under our deferential abuse of discretion standard of review. Picke ttv. 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. O ʹ Brien , 979 F.2d 511, 514 (7th Cir. 1992))).
III. C ONCLUSION 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.