Matlin v. Spin Master Corp.

• Decision Date: 22 April 2019
• Docket Number: No. 18-2868,18-2868
• Citation: 921 F.3d 701
• Parties: Tai MATLIN and James Waring, Plaintiffs-Appellants, v. SPIN MASTER CORP., Spin Master Ltd., and Swimways Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

921 F.3d 701

Tai MATLIN and James Waring, Plaintiffs-Appellants,

v.SPIN MASTER CORP., Spin Master Ltd., and Swimways Corporation, Defendants-Appellees.

No. 18-2868

United States Court of Appeals, Seventh Circuit.

Argued February 6, 2019

Decided April 22, 2019

Alexander N. Loftus, Attorney, Stoltmann Law Offices, P.C., Chicago, IL, for Plaintiffs-Appellants.

Jonathan Graves, Attorney, Cooley LLP, Reston, VA, for Defendants-Appellees.

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 Waring’s appeal. See Cleveland v. Berkson , 878 F.2d 1034 (7th Cir. 1989).

II. ANALYSIS

On appeal, Matlin and Waring argue that the district court erred in holding that it had no personal jurisdiction over the defendants. Specifically, they maintain that the defendants established sufficient contacts in Illinois by selling the royalty-generating products online and shipping them into the state. Additionally, they believe that the district court misinterpreted our case law in the wake of Walden v. Fiore , 571 U.S. 277, 134 S.Ct. 1115, 188 L.Ed.2d 12 (2014). Plaintiffs also appeal the district court’s dismissal for improper venue. Because we agree that the district court had no personal jurisdiction over the defendants, we do not address the venue issue. See 28 U.S.C. § 1391(b)(3) (venue can be proper where the court has jurisdiction over the defendants).

We review dismissal for lack of personal jurisdiction de novo .

Tamburo v. Dworkin , 601 F.3d 693, 700 (7th Cir. 2010). Matlin and Waring bear the burden of establishing personal jurisdiction. Id . Where, as here, the defendants submit evidence opposing the district court’s exercise of personal jurisdiction, the plaintiffs must similarly submit affirmative evidence supporting the court’s exercise of jurisdiction. Purdue Research Found. v. Sanofi-Synthelabo, S.A. , 338 F.3d 773, 782 (7th Cir. 2003). When the district court bases its determination solely on written materials and not an evidentiary hearing, plaintiffs must only make a prima facie showing of personal jurisdiction over the defendants to survive their motion to dismiss. Id ."[W]e take as true all well-pleaded facts alleged in the complaint and resolve any factual disputes in the affidavits in favor of the plaintiff[s]." Tamburo , 601 F.3d at 700.

A. Due Process Requirements for Specific Personal Jurisdiction

Because Matlin and Waring bring claims based in state common law, "a federal court sitting in Illinois may exercise jurisdiction over [the defendants] in this case only if authorized both by Illinois law and by the United States Constitution." be2 LLC v. Ivanov , 642 F.3d 555, 558 (7th Cir. 2011). To that end, the Illinois Long Arm Statute provides that courts may exercise jurisdiction on any basis allowed by the due process provisions of the Illinois and federal constitutions. See 735 Ill. Comp. Stat. 5/2-209(c). The district court may exercise jurisdiction only if both constitutions’ due process requirements are met. Illinois v. Hemi Group LLC , 622 F.3d 754, 756 (7th Cir. 2010).

We previously observed that although the Illinois Constitution may theoretically provide greater due process protections for nonresident defendants, no Illinois case has provided a definitive explanation of the differences between federal and Illinois due process. See Hemi Group , 622 F.3d at 757 ; see also Russell v. SNFA , 2013 IL 113909, ¶ 32, 370 Ill.Dec. 12, 987 N.E.2d 778 ("[T]here have been no decisions from [the Illinois Supreme Court] or the appellate court identifying any substantive difference between Illinois due process and federal due process on the issue of a court's exercising personal jurisdiction over a nonresident defendant."); see also Jeffrey S. Sutton, 51 Imperfect Solutions: States and the Making of American Constitutional Law 8 (2018) (noting that, like many other fundamental rights, due process rights originated in state constitutions and that parties in federal courts usually neglect arguments based on state constitutional grounds). Because neither party here urges that the Illinois due process analysis differs, we only consider the requirements of federal due process.

"The Due Process Clause of the Fourteenth Amendment constrains a State’s authority to bind a nonresident defendant to a judgment of its courts." Walden , 571 U.S. at 283, 134 S.Ct. 1115. A nonresident defendant generally must "have certain minimum contacts" with the forum state "such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’ " Int'l Shoe Co. v. Washington , 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer , 311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940) ); Walden , 571 U.S. at 283, 134 S.Ct. 1115.

Although two types of personal jurisdiction (general and specific) exist, the parties agree that only specific personal jurisdiction applies here. For specific personal jurisdiction, "the defendant[s’] contacts with the forum state must directly relate to the challenged conduct or transaction." Tamburo , 601 F.3d at 702 ; see also Walden , 571 U.S. at 283–84, 134 S.Ct. 1115. "Specific personal jurisdiction is appropriate where (1) the defendant has purposefully directed his activities at the forum state or purposefully availed himself of the privilege of conducting business in that state, and (2) the alleged injury arises out of the defendant's forum-related activities." Tamburo , 601 F.3d at 702 (citing Burger King Corp. v. Rudzewicz , 471 U.S. 462, 472, 105 S.Ct....