Spin Master Prevails in Sanctions Dispute at 7th Circuit

Reston – December 22, 2020 – Cooley secured a major victory for Spin Master and its former subsidiary Swimways in a litigation filed by two individuals seeking royalties they baselessly claimed they were owed. The US Court of Appeals for the Seventh Circuit affirmed an award to Spin Master and Swimways of nearly $272,000 in sanctions against the plaintiffs and their former counsel for filing and pursuing the frivolous lawsuit. Partner Jon Graves led the Cooley litigation team.

In 2017, Tai Matlin and James Waring sued Spin Master and Swimways in the US District Court for the Northern District of Illinois, bringing claims for breach of contract, unjust enrichment and fraud. Cooley had extensive experience representing Matlin and Waring’s prior employer – from whom Swimways had acquired certain assets – in several prior arbitrations between Matlin and Waring and their former employer over the meaning of certain agreements and what compensation, if any, was owed to Matlin and Waring. As such, Spin Master and Swimways engaged Cooley for the litigation.

Cooley first filed a motion to dismiss for lack of personal jurisdiction, which the district court granted. The Seventh Circuit affirmed that dismissal in an earlier appeal. Cooley also moved for sanctions under Rule 11 of the Federal Rules of Civil Procedure, arguing that all claims asserted against Spin Master and Swimways were frivolous because they were barred by binding rulings against Matlin and Waring in the prior arbitrations and by the plain meaning of the relevant contract. The district court granted the Rule 11 motion and ordered Matlin and Waring and their counsel to pay certain costs and attorneys’ fees associated with the defense against the frivolous suit. Matlin and Waring appealed – again.

In November, the Seventh Circuit upheld the sanctions order and award, emphasizing that Matlin and Waring have been embroiled in disputes over the intellectual property and contractual claims at issue for 17 years. “In that time, arbitrators have sorted out many aspects of this IP kerfuffle, including that a company called Gray Matter [Matlin and Waring’s former employer] is on the hook alone for paying certain royalties to Matlin and Waring,” the Seventh Circuit said. “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 … to pay certain costs and fees expended by defendants Swimways and Spin Master.”

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