REXA, Inc. v. Mark Chester

In the

United States Court of Appeals

For the Seventh Circuit

____________________

Nos. 20-2953, 20-3213, & 21-2033

REXA, INC.,

Plaintiff-Appellant,

v.

MARK V. CHESTER and MEA INC.,

Defendants-Appellees.

____________________

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:17-cv-08716 — Charles P. Kocoras, Judge.

____________________

ARGUED FEBRUARY 15, 2022 — DECIDED JULY 28, 2022

____________________

Before WOOD, HAMILTON, and BRENNAN, Circuit Judges.

BRENNAN, Circuit Judge. Mark Chester, then an engineer

for a company called Koso America, Inc., participated in a

2002 project aimed at creating a new valve for an actuator—a

machine component that produces motion. If successful, the

project would have eliminated the need for Koso to pay roy-

alties to another firm. But the project failed to accomplish that

goal. Instead, it yielded an experimental prototype of another

2 Nos. 20-2953, 20-3213, & 21-2033

actuator, which Koso shelved due to the improbability of

commercial success. Chester left Koso the next year.

More than a decade after he worked on the 2002 project,

Chester and his employer, MEA Inc., built a commercially

successful actuator and filed a related patent application. Ul-

timately, the patent office allowed portions of their claims.

But REXA, Inc., a company affiliated with Koso, sued Chester

and MEA for misappropriation of trade secrets and breach of

an implied contractual obligation to assign patent rights.

REXA alleged that Chester and MEA’s actuator incorporated

and disclosed confidential designs contained within the pro-

totype that Koso had developed and then abandoned. Follow-

ing discovery, all parties moved for summary judgment. The

district court granted summary judgment to the defendants,

Chester and MEA, on all claims. REXA appealed.

We first consider whether the district court properly

granted summary judgment to the defendants. Then, we ana-

lyze whether the court abused its discretion in awarding

Chester and MEA approximately $2.357 million in attorneys’

fees, which they requested as a sanction for REXA’s litigation

conduct.

I

A

An actuator is a part of a machine that converts energy,

like electricity or water pressure, into linear or rotary move-

ment. Examples include an electric motor or an automatic

door closer. Hydraulic actuators, often used in the oil and gas

industry, regulate the flow of working fluids such as oil.

In 1993, Koso America purchased the assets of Rexa Cor-

poration, which made hydraulic actuators. Since the early

Nos. 20-2953, 20-3213, & 21-2033 3

1990s, the Rexa/Koso entities have manufactured the Xpac ac-

tuator, a leading self-contained electro-hydraulic actuator. In

2014, Koso underwent a corporate reorganization, which cre-

ated REXA, Inc. The purpose of the reorganization was to

“transfer the Actuator Business to a separate corporation op-

erated under a different name.” As relevant here, Koso trans-

ferred “all of the assets comprising the Actuator Business” to

REXA, including “[a]ll contracts … and intellectual property

reasonable or necessary to the conduct of the Actuator Busi-

ness.”

Chester’s employment with Koso. Koso hired Chester as a

Massachusetts-based project engineer in 1998, and he was

later promoted to a management role. He primarily worked

on existing Xpac actuators. Chester’s business card and W-2

forms stated that he worked for Koso, though he never en-

tered into a formal employment agreement.

In 2000, certain Koso employees, including Chester, re-

ceived a Bonus Letter stating that they would be entitled to a

bonus if the company was sold and their employment ended

as a result of the sale. That letter was gratuitous; employees

who received it were not required to give any consideration

for this benefit, and Koso’s board of directors had sole discre-

tion to determine whether and when to pay bonuses. Some

employees received a Severance Plan containing a document,

titled “Confidentiality, Nonsolicitation, Non-Competition

and Assignment Agreement.” But REXA has not shown that

Chester received the Confidentiality Agreement.

The 2002 project (RFD 02-122). Beginning in July 2002,

Chester participated in a project—detailed in Request for De-

sign (“RFD”) 02-122—that investigated potential alternate

valves for the Xpac actuator. The RFD stated: “The existing

4 Nos. 20-2953, 20-3213, & 21-2033

flow matching valve still has three years remaining on the pa-

tents and thus the royalty. A new design would eliminate the

payment and provide a new patent valve that is owned by

[Koso].” Chester’s supervisor approved the project, which an-

ticipated a design and manufacturing cost of $100 per unit.

Ken Enos, Koso’s Director of Engineering, reported to

Chester on project-related matters. For several weeks, Chester

and Enos sought to create a replacement flow matching valve,

as contemplated by the RFD, but they did not succeed. In time

though, Chester and Enos created a prototype of an actuator.

The prototype modified the existing Xpac actuator by replac-

ing the flow matching valve with two solenoid, or electrically

operated, valves. The fully assembled prototype also required

modifications to the Xpac actuator’s manifold, tubing, circuit

board, and coding.

At Enos’s request, a Koso engineer modified existing

computer code to add instructions for opening and closing the

solenoid valves. Koso employees neither presented nor

discussed that code with Chester, and he never saw it. Addi-

tionally, Enos created only one (unofficial) sketch of the pro-

totype, and it did not have a “confidential” label before this

litigation commenced. REXA has not identified evidence that

Chester ever saw it.

By mid-August 2002, Koso formally terminated the RFD

02-122 project, and the actuator prototype was disassembled.

No information concerning the project was used in any later

REXA commercial product or strategic plan. Chester was

never instructed that Koso viewed the shelved RFD 02-122

project as a trade secret. And REXA has not presented evi-

dence that any Koso employees were told that they had any

confidentiality obligations for that project.

Nos. 20-2953, 20-3213, & 21-2033 5

The Hawk actuator and the patent application. Chester re-

signed from Koso in July 2003. Over the next several years, he

worked on designing actuators for several of Koso’s compet-

itors. In 2012, Chester joined Illinois-based MEA Inc. as a

senior engineer. At that time, MEA was manufacturing and

selling self-contained electro-hydraulic actuators that used

solenoid valves to hold the position of the actuator in place

under load.

Chester began working on a new actuator prototype, later

known as the Hawk. Like many of MEA’s products, the Hawk

uses solenoid valves to hold the actuator in position under

load. Over several months in 2013, Chester and other MEA

employees developed a working prototype of the Hawk actu-

ator, including by writing the software that would run it.

Chester and MEA then filed a patent application, which was

based on the specific components and performance of the

Hawk, with the United States Patent and Trademark Office

(“PTO”) in October 2014.

In January 2017, the PTO largely rejected the claims as-

serted in the patent application. According to the PTO, the use

of solenoid valves to hold an actuator piston in a specific po-

sition was already disclosed in prior art. MEA then amended

its application to require a motor that can “accelerate from

zero to maximum revolutions per minute (RPM) under full

load.”

In March 2018 (while this litigation was pending) the PTO

issued a notice of allowance in connection with the amended

patent application. That notice explained that the invention’s

improvement “comprises a hydraulic actuator system with a

motor driven pump, wherein the motor can accelerate from

zero to a maximum revolutions per minute under load for the

6 Nos. 20-2953, 20-3213, & 21-2033

purpose of preventing no momentary backwards movement

of the actuator.”

B

REXA sued Chester and MEA in the United States District

Court for the Northern District of Illinois, alleging misappro-

priation of trade secrets against both defendants (Count I) and

breach of an implied-in-fact contract against Chester (Count

IV). 1 During contentious discovery, the defendants accused

REXA of improper conduct by (1) combining the 2000 Bonus

Letter with a Confidentiality Agreement labeled as Appendix

B to that letter and questioning Chester about those docu-

ments at his deposition; and (2) using “REXA” in pleadings

and discovery responses as a purported shorthand for

“Koso.”

First, Chester and MEA alleged that REXA manipulated

the Bonus Letter (which Chester received) by producing it at-

tached to the Severance Plan and Appendix B Confidentiality

Agreement (which he did not receive). Appendix A to the Sev-

erance Plan, which listed Koso employees who were offered

the Plan, was not included. Chester was not among those em-

ployees listed on Appendix A. After examining the evidence,

the district court agreed with Chester and MEA that by “sep-

arating Appendix A from the Severance Plan and producing

it elsewhere among the discovery documents, REXA at-

tempted to conceal from Chester clear evidence that he had

1 REXA also brought claims of conversion (Count II) and unfair com-

petition (Count III) against Chester and MEA. The district court ruled that

those two claims depended on the trade secret allegations and were

preempted. REXA does not challenge that ruling on appeal.

Nos. 20-2953, 20-3213, & 21-2033 7

never received either the Severance Plan or the Assignment

Agreement.”

Second, Chester and MEA contended that REXA’s use of

“REXA” to refer to “Koso”—in pleadings and throughout dis-

covery—was intentionally misleading because it gave the im-

pression that Chester had an employment relationship with

REXA. But Chester maintained he was never employed by

REXA. The district court agreed. The court found that REXA

had “regularly, and falsely, described itself as Chester’s em-

ployer during his employment at Koso.”

Following discovery, the parties filed cross motions for

summary judgment. The district court ruled for the defend-

ants, dismissing each of REXA’s claims with prejudice. REXA

appealed those rulings, but matters concerning fees and costs

remained with the district court.

Chester and MEA sought $2,187,071.12 in attorneys’ fees

as a sanction against REXA for litigation misconduct. REXA

opposed the fee petition, arguing that it had not committed

misconduct and objecting to a wide array of billing entries in

the invoices submitted by Chester and MEA as excessive and

unnecessary. The district court granted Chester and MEA’s

request for attorneys’ fees, invoking its inherent authority to

sanction misconduct. REXA’s objections to certain time en-

tries were overruled. After the parties stipulated that $170,000

should be added to the previously requested award of attor-

neys’ fees to account for the subsidiary fee litigation, the dis-

trict court entered an amended judgment awarding Chester

and MEA $2,357,071.12 in fees. REXA renewed its earlier no-

tices of appeal.

8 Nos. 20-2953, 20-3213, & 21-2033

II

We first consider the district court’s grant of summary

judgment to the defendants on REXA’s claim for misappro-

priation of trade secrets in Count I. Our review is de novo.

Med. Protective Co. of Fort Wayne, Ind. v. Am. Int’l Specialty Lines

Ins. Co., 911 F.3d 438, 445 (7th Cir. 2018). Because summary

judgment was granted to Chester and MEA, we construe the

facts in the light most favorable to REXA and draw all reason-

able inferences in its favor. See id.; Gill v. Scholz, 962 F.3d 360,

363 (7th Cir. 2020) (citation omitted). “An inference is not rea-

sonable if it is directly contradicted by direct evidence pro-

vided at the summary judgment stage, nor is a ‘conceivable’

inference necessarily reasonable at summary judgment.”

MAO-MSO Recovery II, LLC v. State Farm Mut. Auto. Ins. Co.,

994 F.3d 869, 876 (7th Cir. 2021) (citation omitted). Summary

judgment is appropriate “if the movant shows that there is no

genuine dispute as to any material fact and the movant is en-

titled to judgment as a matter of law.” FED. R. CIV. P. 56(a). We

may affirm a district court’s grant of summary judgment on

any basis that is apparent from our review of the record, pro-

vided that the issue was raised and the losing parties had a

fair opportunity to contest it in the district court. Dibble v.

Quinn, 793 F.3d 803, 807 (7th Cir. 2015).

REXA brought its claim for misappropriation of trade se-

crets under the Illinois Trade Secrets Act (“ITSA”), 765 ILL.

COMP. STAT. 1065/1, et seq. To prevail on such a claim, the

plaintiff must demonstrate “that the information at issue was

a trade secret, that it was misappropriated and that it was

used in the defendant’s business.” Learning Curve Toys, Inc. v.

PlayWood Toys, Inc., 342 F.3d 714, 721 (7th Cir. 2003) (citations

omitted). The statute defines a trade secret as:

Nos. 20-2953, 20-3213, & 21-2033 9

information, including but not limited to, tech-

nical or non-technical data, a formula, pattern,

compilation, program, device, method, tech-

nique, drawing, [or] process … that: (1) is suffi-

ciently secret to derive economic value, actual or

potential, from not being generally known to

other persons who can obtain economic value

from its disclosure or use; and (2) is the subject

of efforts that are reasonable under the circum-

stances to maintain its secrecy or confidential-

ity.

765 ILL. COMP. STAT. 1065/2(d). There is also a specificity re-

quirement inherent in a claim for misappropriation of trade

secrets; a plaintiff must show “concrete secrets” rather than

“broad areas of technology.” Life Spine, Inc. v. Aegis Spine, Inc.,

8 F.4th 531, 540 (7th Cir. 2021) (quoting Composite Marine Pro-

pellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1266 (7th Cir.

1992)).

As relevant here, misappropriation under the ITSA in-

volves the “disclosure or use of a trade secret of a person with-

out express or implied consent” by another person who, at the

time, knew or had reason to know that knowledge of the trade

secret was either “acquired under circumstances giving rise

to a duty to maintain its secrecy or limit its use” or “derived

from or through a person who owed a duty to the person

seeking relief to maintain its secrecy or limit its use.” 765 ILL.

COMP. STAT. 1065/2(b). A misappropriation may also occur

when a person produces “modified or even new products that

are substantially derived from the trade secret of another.”

Mangren Rsch. & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937, 944

(7th Cir. 1996) (citations omitted). When there is no genuine

10 Nos. 20-2953, 20-3213, & 21-2033

dispute about one or more elements of a claim for misappro-

priation, summary judgment is appropriate.

A

A focal point of the parties’ dispute is whether REXA ever

identified a trade secret with sufficient specificity to support

a claim under the ITSA. REXA asserts the “2002 Designs,” in-

cluding the actuator prototype, qualify as trade secrets and

were maintained as such. Chester and MEA respond that the

term “2002 Designs” is vague and fails to sufficiently describe

a concrete concept, as required for trade secret protection.

Several aspects of the 2002 actuator prototype, Chester and

MEA urge, were well known in the actuator industry, pre-

cluding trade secret protection for that prototype. REXA

counters that the trade secret “was not the solenoid valves but

their use in conjunction with other components to create a

new and previously unknown actuator.”

Case law requires a high level of specificity when a plain-

tiff makes a claim for misappropriation of a trade secret. Life

Spine, 8 F.4th at 540; Composite Marine, 962 F.2d at 1266. When

a plaintiff presents complex or detailed descriptions of meth-

ods and processes but fails to isolate the aspects that are un-

known to the trade, no trade secret has been identified. IDX

Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581, 583–84 (7th Cir.

2002). 2 Our court has emphasized that “a plaintiff must do

more than just identify a kind of technology and then invite

2 Although IDX involved a claim for misappropriation of a trade se-

cret under Wisconsin law, the statute at issue was materially identical to

the ITSA, and federal courts have properly cited IDX in applying Illinois

trade secret law. See, e.g., NEXT Payment Sols., Inc. v. CLEAResult Consult-

ing, Inc., 2020 WL 2836778, at *10–11 & n.5, 15 (N.D. Ill. May 31, 2020).

Nos. 20-2953, 20-3213, & 21-2033 11

the court to hunt through the details in search of items meet-

ing the statutory definition.” Id. at 584 (citing Composite Ma-

rine, 962 F.2d at 1266). The key task for a plaintiff is to present

a specific element, or combination of elements, that is un-

known to the trade and was allegedly misappropriated.

Applying that framework, we agree with Chester and

MEA that REXA has failed to identify a concrete trade secret,

as it must, to defeat summary judgment. IDX considered and

rejected an argument similar to the one REXA advances.

There, the plaintiff alleged that certain aspects of billing soft-

ware which the defendants had misappropriated qualified as

trade secrets. In support, the plaintiff, IDX, submitted “a 43-

page description of the methods and processes underlying

and the inter-relationships among various features making

up IDX’s software package.” Id. at 583. Our court noted that

IDX’s “tender of the complete documentation for the software

leaves mysterious exactly which pieces of information are the

trade secrets.” Id. at 584. Without information sufficient to

separate “the trade secrets from the other information that

goes into any software package,” the court could not deter-

mine “[w]hich aspects are known to the trade, and which are

not.” Id. Thus, in IDX this court affirmed the district court’s

grant of summary judgment to the defendants on the claims

for misappropriation of trade secrets. Id. at 584, 587.

Similarly, REXA broadly contends that the “2002 Designs”

were trade secrets that Chester and MEA misappropriated.

REXA tells us that Koso kept a sketch of the 2002 actuator pro-

totype (contained within the design file), the source code, and

testing results—though not the prototype itself. Without

greater specificity, REXA has not identified the trade secrets.

IDX, 285 F.3d at 584. For this reason, the defendants are

12 Nos. 20-2953, 20-3213, & 21-2033

entitled to summary judgment. Id. at 584, 587; see also TLS

Mgmt. & Mktg. Servs., LLC v. Rodríguez-Toledo, 966 F.3d 46, 54

(1st Cir. 2020) (citing IDX, 285 F.3d at 584).

REXA’s claim also fails for lack of an identifiable trade se-

cret because the company concedes that several aspects of the

shelved 2002 actuator prototype were and are widely known

in the hydraulic-actuator industry. Under the ITSA, infor-

mation is not sufficiently secret to qualify for protection when

it is “within the realm of general skills and knowledge” in the

relevant industry. Comput. Care v. Serv. Sys. Enters., Inc., 982

F.2d 1063, 1072 (7th Cir. 1992) (citation omitted). As REXA

acknowledges, the Xpac actuator is publicly available and

therefore not a trade secret, as anyone is permitted to copy it.

And REXA further admits that the use of solenoid valves to

hold an actuator in place was known in the industry before

2002. So, neither the Xpac actuator nor the use of solenoid

valves to hold an actuator in place under load qualifies as a

trade secret.

No other aspect of the 2002 actuator prototype has been

identified with sufficient specificity to defeat summary judg-

ment. It is not our responsibility to “hunt through the details

[of the 2002 actuator prototype] in search of items meeting the

statutory definition” of a trade secret. TLS Mgmt. & Mktg.

Servs., 966 F.3d at 54; IDX, 285 F.3d at 584. Even if it were,

REXA’s trade secret claim would still fall short.

REXA does not dispute that the actuator prototype was an

Xpac actuator with two solenoid valves and modifications to

the manifold, tubing, circuit board, and coding. At the same

time, REXA fails to identify evidence showing that the mani-

fold, tubing, or circuit board were part of any purported trade

secret. That leaves only the source code (in combination with

Nos. 20-2953, 20-3213, & 21-2033 13

the publicly available Xpac and the widely known use of so-

lenoid valves to hold an actuator in place under load). As the

defendants note, REXA does not argue the source code was

the key ingredient supporting the existence of a trade secret

within the prototype.

So, we conclude that no reasonable jury could find that

REXA has identified a trade secret under the ITSA. Neverthe-

less, we consider whether—if a trade secret had been identi-

fied with sufficient specificity—there would be a genuine

issue of material fact as to its alleged misappropriation.

B

REXA alleges that its trade secrets were misappropriated

twice: when Chester and MEA filed the patent application,

and when Chester incorporated the “2002 Designs” into the

Hawk actuator. The defendants counter that Chester could

not have misappropriated anything qualifying as a trade se-

cret because he never saw Enos’s sketch of the prototype, the

source code, or the test results. In reply, REXA argues that

Chester’s lack of access to these key documents is irrelevant

because he retained knowledge of the 2002 prototype in his

mind and later misappropriated that knowledge. Recall that

to prove misappropriation, REXA must show the “disclosure

or use of a trade secret” by Chester and MEA and that they

knew the trade secret had been either “acquired under cir-

cumstances giving rise to a duty to maintain its secrecy or

limit its use” or “derived from or through a person who owed

a duty to the person seeking relief to maintain its secrecy or

limit its use.” 765 ILL. COMP. STAT. 1065/2(b).

Filing the patent application. We first consider if a genuine

fact dispute exists about whether, when Chester and MEA

14 Nos. 20-2953, 20-3213, & 21-2033

filed the patent application, they misappropriated a trade

secret. REXA primarily argues that Chester admitted at his

deposition that the 2002 actuator prototype met nearly all the

limitations of allowed claim 3 of the patent application.3

REXA further asserts that Chester testified he expected the

2002 prototype to meet the final limitation—having a motor

that could accelerate to maximum RPM under load—as well.

In other words, REXA contends, Chester believed the 2002

prototype had every feature described in the portion of the

amended patent application that the PTO ultimately allowed.

To REXA, it follows that “not only was there evidence suffi-

cient for a factfinder to conclude that [the patent application]

both disclosed and attempted to patent the 2002 Designs, but

in fact there could not plausibly be any other conclusion.”

Despite these assertions, Chester’s testimony—together

with reasonable inferences—does not support the conclusion

that the patent application disclosed the “2002 Designs.”

REXA’s key premise is incorrect, as it mischaracterizes Ches-

ter’s testimony. At his deposition, Chester was asked, “Could

the motor of the prototype accelerate to maximum RPM un-

der load?” He responded, “Unknown, as it was not tested.”

Although Chester also testified he would have expected the

prototype to meet that limitation, he was speculating. So,

based on Chester’s statement alone, we do not presume that

the prototype would have met the final limitation. See, e.g.,

3Under the Patent Act, an application for a patent must include “one

or more claims particularly pointing out and distinctly claiming the sub-

ject matter which the inventor or a joint inventor regards as the invention.”

35 U.S.C. § 112(b); Nautilus, Inc. v. Biosig Instruments, Inc., 572 U.S. 898,

901–02 (2014). A limitation delineates and narrows the scope of a claim.

See ABS Glob., Inc. v. Inguran, LLC, 914 F.3d 1054, 1075–76 (7th Cir. 2019).

Nos. 20-2953, 20-3213, & 21-2033 15

Consolino v. Towne, 872 F.3d 825, 830 (7th Cir. 2017) (“[S]pecu-

lation is not enough to create a genuine issue of fact for the

purposes of summary judgment.”). Had Chester’s testimony

been based on his personal knowledge, a disputed question

of fact would exist about whether the motor of the 2002 pro-

totype could have accelerated to maximum RPM under load.

Yet, even if the 2002 prototype had met every limitation of

the patent application’s allowed claim 3, REXA’s allegations

of misappropriation would still rest on a series of untenable

inferences. Critically, it is undisputed that eleven years

passed between when Chester first worked on the actuator

prototype for Koso, and when he started work at MEA on the

designs that would later underlie the patent application. As

we noted earlier, there is also no dispute that Chester did not

see Enos’s sketch of the 2002 prototype, the source code, or

the test results. Chester never saw or physically took any doc-

umentation with him. But REXA asks the court to infer that

he somehow retained and preserved for eleven years the

knowledge from his work on the shelved 2002 actuator proto-

type.

Although Chester would have recognized that this

knowledge was commercially valuable, according to REXA he

chose to do nothing with it for the entire period before 2013.

During this time Chester worked for multiple companies that

competed with REXA in the actuator industry. Then, in 2013,

Chester supposedly decided to misappropriate his encyclope-

dic knowledge of the 2002 actuator prototype.

Simply put, these inferences are barely “conceivable” and

certainly not “reasonable,” so they will not be drawn at sum-

mary judgment. MAO-MSO Recovery II, LLC, 994 F.3d at 876;

see also Riley v. City of Kokomo, 909 F.3d 182, 192 (7th Cir. 2018)

16 Nos. 20-2953, 20-3213, & 21-2033

(declining to draw an unreasonable inference at summary

judgment). REXA has not directed us to a case where a court

inferred that the misappropriation of trade secrets could plau-

sibly have occurred despite a lack of evidence concerning the

defendant’s seizure or possession of documents. We also have

not located such a case. Even more, the eleven-year gap ren-

ders the inferences that REXA asks us to draw exceptionally

unreasonable. 4

The Design of the Hawk Actuator. Next, we consider whether

Chester misappropriated a trade secret (assuming its exist-

ence) when he contributed to the Hawk’s design. The parties

agree that there are significant differences between the 2002

prototype, which REXA admits had no prospect of commer-

cial success, and the valuable Hawk actuator that Chester and

MEA developed and sold.

As discussed above, a central innovation of the Hawk is

the inclusion of a motor that can accelerate from zero to max-

imum RPM under load. Indeed, that feature was essential to

the PTO’s decision to allow claim 3 of the amended patent

4 REXA’s Massachusetts authorities, which relate primarily to defend-

ants’ violations of implied contractual obligations, involve no comparable

gap between a defendant’s employment with the plaintiff and the alleged

misappropriation. In Jet Spray Cooler, Inc. v. Crampton, the defendants im-

mediately began to use information they obtained while employed by the

plaintiffs, and they made significant sales to the plaintiffs’ largest custom-

ers within two years. 282 N.E.2d 921, 923–24 (Mass. 1972). Similarly, in

Whipps, Inc. v. Ross Valve Mfg. Co., the individual defendant used his for-

mer employer’s confidential information within six months of leaving that

employer. 2014 WL 1874754, at *2–3 (D. Mass. May 8, 2014). Neither of

these out-of-state cases addresses the sizable time gap here, nor does ei-

ther decision hold that a defendant misappropriates trade secrets simply

by retaining information in his mind.

Nos. 20-2953, 20-3213, & 21-2033 17

application. Yet it is unknown whether the 2002 prototype

could accelerate from zero to maximum RPM under load.

Moreover, the patent application’s allowable claims require

that the “motor coupled to the pump starts milliseconds prior

to opening the solenoid valve and said motor coupled to the

pump stops milliseconds after closing the solenoid valve.” By

contrast, REXA admits that in the 2002 prototype the motor

stopped before the solenoid valves closed. The 2002 prototype

was not tested for, or simply did not have, the features of the

patent application that made the Hawk both a non-obvious

improvement over prior art and commercially valuable.

Chester and MEA therefore could not have misappropriated

trade secrets contained within the 2002 prototype.

The Hawk actuator also does not use the manifold, tubing,

or computer source code that were part of the 2002 prototype.

Notably, the source code that Koso engineers wrote for the

2002 prototype was crucial to its operation but absent from

the Hawk. In the district court, REXA agreed with the propo-

sition that the code was “integral to the [prototype]—without

the code the [prototype] would not function.” Again, though,

no such code was present in the Hawk. REXA asks us to infer

that Chester retained knowledge of the 2002 source code—

which he never saw—for eleven years and then deployed that

exact code when building the Hawk. That inference is mani-

festly unreasonable, so we decline to draw it for purposes of

summary judgment.

Without evidence that either Chester or MEA used the

source code, REXA must identify “the essential secret ingre-

dient” that was misappropriated. Mangren, 87 F.3d at 944. But

it has not done so. Given the significant differences between

the 2002 actuator prototype and the Hawk actuator—as well

18 Nos. 20-2953, 20-3213, & 21-2033

as the passage of many years between the development of

each device—we agree with the district court. As a matter of

law, Chester and MEA developed the Hawk and filed the pa-

tent application without disclosing or using any trade secret

belonging to Koso.

Chester’s deposition testimony also supports our conclu-

sion. Asked when he first conceived of the invention de-

scribed in the patent application, he responded that the Hawk

was “based on a lifetime of work in hydraulics” and was an

“incremental process” dating back to 1976. REXA does not

point to anything that contradicts Chester’s assertions about

the way in which the idea for the Hawk came together. It oc-

curred gradually and through the application of accumulated

knowledge—not in one fell swoop that transplanted a shelved

prototype on which Chester had briefly worked eleven years

earlier. There is thus no genuine dispute of material fact as to

misappropriation of a trade secret under the ITSA. Summary

judgment was properly granted to Chester and MEA on that

claim.

III

REXA also challenges the district court’s grant of sum-

mary judgment to Chester on Count IV, REXA’s claim for

breach of an implied-in-fact contractual obligation to assign

any patent rights in connection with the patent application. In

evaluating such a claim, federal courts “apply state-law prin-

ciples of contract formation to determine whether an implied

contract existed.” Farmers Edge Inc. v. Farmobile, LLC, 970 F.3d

1027, 1031 (8th Cir. 2020) (citing Teets v. Chromalloy Gas Turbine

Corp., 83 F.3d 403, 407 (Fed. Cir. 1996)). The parties agree that

REXA’s claim for breach of an implied-in-fact contract arises

Nos. 20-2953, 20-3213, & 21-2033 19

under the common law of Massachusetts, where Koso em-

ployed Chester.

Massachusetts law provides that if an employer “contem-

plates the discovery of an invention” and contracts with an

employee to build it such that the employee “must have rea-

sonably understood that such inventions as resulted from his

performance of the contract should belong to the employer,”

the employee has “an implied obligation to assign any pa-

tents … for said inventions to his employer.” Nat’l Dev. Co. v.

Gray, 55 N.E.2d 783, 787 (Mass. 1944) (citations omitted). Sub-

sequent cases have extended that proposition. When an em-

ployee—even if hired in a general capacity—is specifically

“directed during the course of his employment to develop or

perfect new or existing machinery or processes, his employer

becomes the owner of resulting inventions and may compel

the assignment of patents taken in the employee’s name.”

Steranko v. Inforex, Inc., 362 N.E.2d 222, 233–34 (Mass. App. Ct.

1977); see also Silica Tech, L.L.C. v. J-Fiber, GmbH, 2009 WL

2579432, at *13 (D. Mass. Aug. 19, 2009) (same).

A

First, we consider whether REXA may recover against

Chester for breach of an implied-in-fact contract, notwith-

standing that REXA never employed him. The district court

said “no.” The court understood Massachusetts common law

to dictate that an employee’s implied-in-fact contractual obli-

gation to assign patent rights may not be transferred to a

successor corporation. So, according to the court, “any obliga-

tions owed by Chester to Koso were not and could not be

transferred to REXA.” REXA challenges that conclusion.

20 Nos. 20-2953, 20-3213, & 21-2033

We cannot endorse the district court’s analysis about the

transferability of any implied-in-fact contractual obligation

under Massachusetts law. It appears the district court relied

exclusively on a case from the Massachusetts Superior Court,

Securitas Sec. Servs. USA, Inc. v. Jenkins, 2003 WL 21781385

(Mass. Super. Ct. July 18, 2003). There, a successor corporation

acquired the defendant’s former employer and attempted to

enforce a non-competition provision of the employment

agreement between the defendant and his former employer.

See id. at *1–3. The state trial court concluded that because the

defendant did not consent to the assignment of his employ-

ment agreement to the successor corporation, that assignment

was not valid or enforceable. See id. at *5–6.

The district court’s reliance on Securitas was misplaced.

REXA is correct that the question of whether an employer’s

rights under a written employment agreement may be as-

signed without the employee’s consent is materially distinct

from whether an implied-in-fact contractual obligation re-

garding intellectual-property rights may be so assigned. The

concerns that weigh against permitting a successor corpora-

tion to enforce a contract for employment, a personal service,

do not necessarily apply to an implied contractual right to as-

sign intellectual property. Chester and MEA do not suffi-

ciently account for the differences between employment and

intellectual-property rights. Notably, in other cases involving

similar allegations, courts and parties have assumed that suc-

cessors-in-interest may enforce the type of implied-in-fact

contractual right at issue here. 5

5

See Farmers Edge, 970 F.3d at 1029–30 (analyzing, on the merits, a

breach-of-contract claim predicated on an implied intellectual-property

provision, although the plaintiff corporation was a successor-in-interest

Nos. 20-2953, 20-3213, & 21-2033 21

Yet, we decline to hold that as a matter of Massachusetts

law, an implied-in-fact obligation to assign patent rights may

be transferred to a successor-in-interest. After all, state courts

are the “ultimate expositors” of their own laws. Smart Oil, LLC

v. DW Mazel, LLC, 970 F.3d 856, 863 (7th Cir. 2020) (citation

omitted). “[A] federal court sitting in diversity must proceed

with caution in making pronouncements about state law,” es-

pecially given that such pronouncements “inherently involve

a significant intrusion on the prerogative of the state courts to

control that development.” Lexington Ins. Co. v. Rugg & Knopp,

Inc., 165 F.3d 1087, 1092 (7th Cir. 1999) (citations omitted).

Here, there is no need to resolve the Massachusetts state-law

issue concerning the transferability of implied-in-fact obliga-

tions to assign patents. Instead, we adjudicate REXA’s im-

plied-in-fact contractual claim by applying a requirement

common to all such claims.

B

As a general rule, “an individual owns the patent rights to

the subject matter of which he is an inventor, even though he

conceived it or reduced it to practice in the course of his em-

ployment.” Banks, 228 F.3d at 1359. But there are exceptions.

In the archetypal case involving an inventor’s breach of an im-

plied-in-fact contractual obligation, an employer may be enti-

tled to ownership rights associated with “the inventions of

employees hired to direct or to engage in inventive research.”

Steranko, 362 N.E.2d at 233 (citations omitted). Also, when an

employee is specifically “directed during the course of his

rather than the company for which the individual defendants had

worked); Banks v. Unisys Corp., 228 F.3d 1357, 1358–59 (Fed. Cir. 2000)

(same).

22 Nos. 20-2953, 20-3213, & 21-2033

employment to develop or perfect new or existing machinery

or processes, his employer becomes the owner of resulting in-

ventions and may compel the assignment of patents taken in

the employee’s name.” Id. at 233–34. By adhering to this rule,

Massachusetts follows the law of many other states. See, e.g.,

Teets, 83 F.3d at 408 (“Even if hired for a general purpose, an

employee with the specific task of developing a device or pro-

cess may cede ownership of the invention from that task to

the employer.”) (applying Florida law); Goodyear Tire & Rub-

ber Co. v. Miller, 22 F.2d 353, 356 (9th Cir. 1927) (applying fed-

eral common law).

The pertinent question is whether the employer “specifi-

cally directed” the employee to create the invention at issue.

Farmers Edge, 970 F.3d at 1032; Teets, 83 F.3d at 408. “The pri-

mary factor courts consider in determining whether an em-

ployed to invent agreement exists is the specificity of the task

assigned to the employee.” Farmers Edge, 970 F.3d at 1032

(quoting Skycam LLC v. Bennett, 900 F. Supp. 2d 1264, 1276

(N.D. Okla. 2012)). In Skycam, the court correctly reasoned

that if the employee was not employed or specifically directed

“to invent the entirety” of the system described in a claim of

the patent application for which assignment is sought, the em-

ployer “is not entitled to ownership of the invention described

therein.” 900 F. Supp. 2d at 1277.

To determine whether the specific goal of the RFD 02-122

project was to invent the 2002 actuator prototype—whatever

its similarities to the Hawk actuator described in allowed

claim 3 of the patent application—we look first to the docu-

ment originating the project and delineating its scope. The

RFD states that “[t]he existing flow matching valve still has

three years remaining on the patents and thus the royalty. A

Nos. 20-2953, 20-3213, & 21-2033 23

new design would eliminate the payment and provide a new

patent valve that is owned by [Koso].” Koso anticipated that

the new valve would be designed and manufactured at a cost

of approximately $100 per unit. Nothing in the RFD contem-

plates either the invention of a new actuator or the use of so-

lenoid valves in an actuator. REXA did not direct Chester to

invent anything remotely resembling the 2002 actuator proto-

type, much less the Hawk—an actuator that uses solenoid

valves to hold itself in position under load, and which re-

quires a motor that can accelerate from zero to maximum

RPM under full load. So, REXA is not entitled to ownership

of the invention described in the allowed claims of the patent

application. See Farmers Edge, 970 F.3d at 1032; Skycam, 900 F.

Supp. 2d at 1277.

The RFD’s focus on the design of a replacement flow

matching valve is also consistent with the deposition testi-

mony of Chester, who was familiar with the project’s scope.

Chester testified: “We were simply looking to modify the ex-

isting Xpac to avoid the royalties … there was never any in-

tention to come up with any kind of new product. We were

simply looking to modify the existing one to get around the

royalties.” REXA does not identify contrary testimony. And

whether solenoid valves were technically considered part of

Koso’s “Actuator Business,” as REXA contends, is not relevant

to the critical question of whether the 2002 actuator prototype

was something that Koso “specifically directed” Chester to in-

vent. Farmers Edge, 970 F.3d at 1032; Teets, 83 F.3d at 408.

REXA’s primary response to the argument that Chester

was tasked with designing a replacement valve, rather than

an actuator, is that it was waived or forfeited when not pre-

sented to the district court at summary judgment. But MEA

24 Nos. 20-2953, 20-3213, & 21-2033

wrote: “The RFD 02-122 page describes a request to generate

new valves, not a new actuator, to be designed and manufac-

tured at a cost of $100 per valve in an initial quantity of 2,000

per year.” For his part, Chester incorporated MEA’s argu-

ments at summary judgment. Chester also cited to the district

court his own testimony about the scope of the RFD 02-122

project. The project sought, he said, only to avoid the royalties

associated with the flow matching valve that Koso was using

in its existing Xpac actuators. Thus, we conclude the argu-

ment was not waived or forfeited. Regardless, we may affirm

the grant of summary judgment to Chester and MEA on any

properly preserved basis we find in the record. Dibble, 793

F.3d at 807.

The evidence establishes that Chester was not specifically

directed to develop an actuator, much less the entirety of the

system described in allowed claim 3 of the patent application.

Rather, any direction Koso provided Chester on the RFD 02-

122 project was to develop a replacement flow matching

valve. Those efforts were not successful, and they are unre-

lated to any portion of the patent application. So, Chester did

not owe Koso an implied contractual obligation to assign the

intellectual-property rights related to the patent application.

Because no reasonable jury could find otherwise, we affirm

the district court’s grant of summary judgment to Chester on

the implied-in-fact contractual claim under Massachusetts

law.

C

Next, we address REXA’s allegation that Chester breached

an implied contractual duty to maintain the secrecy of confi-

dential information. This is not an independent cause of ac-

tion or claim for relief. By the terms of REXA’s operative

Nos. 20-2953, 20-3213, & 21-2033 25

pleading, this allegation must be part of Count IV, its claim

for breach of an implied contract on patent rights. In other

words, REXA suggests that if Chester misappropriated a

trade secret, he also breached an implied obligation to main-

tain the underlying information as confidential. REXA does

not argue that it pleaded an implied obligation to maintain

confidential information on any other basis.

The defendants contend that the ITSA preempts recovery

for the breach of an implied contractual duty to maintain the

secrecy of confidential information. According to the statute,

it is “intended to displace conflicting tort, restitutionary, un-

fair competition, and other laws of this State providing civil

remedies for misappropriation of a trade secret.” 765 ILL.

COMP. STAT. 1065/8(a). Through the ITSA, Illinois “abolished

all common law theories of misuse of such information.” Com-

posite Marine, 962 F.2d at 1265. “Unless defendants misappro-

priated a (statutory) trade secret, they did no legal wrong.” Id.

Illinois courts “have read the preemptive language in the

ITSA to cover claims that are essentially claims of trade secret

misappropriation.” Spitz v. Proven Winners N. Am., LLC, 759

F.3d 724, 733 (7th Cir. 2014) (citation omitted). That is, con-

sistent with the law of other jurisdictions, the ITSA forecloses

claims “when they rest on the conduct that is said to misap-

propriate trade secrets.” Hecny Transp., Inc. v. Chu, 430 F.3d

402, 404–05 (7th Cir. 2005) (citations omitted). In Spitz this

court held that the plaintiff’s “quasi-contract” theories of un-

just enrichment and quantum meruit were preempted by the

ITSA because they were essentially claims of trade secret mis-

appropriation. 759 F.3d at 733.

Likewise, REXA asserts that Chester breached an “im-

plied-in-fact obligation to maintain the confidentiality of the

26 Nos. 20-2953, 20-3213, & 21-2033

2002 Designs” when he incorporated them into his own in-

ventions. This assertion is “essentially [a claim] of trade secret

misappropriation.” Id. Chester and MEA raised the preemp-

tion issue in their brief. Yet, REXA fails to explain how its im-

plied-confidentiality allegations, which are part and parcel of

the claim for breach of an implied contract pleaded in Count

IV, differ materially from those underlying a trade secret

claim. Those allegations are thus precluded by the ITSA,

which establishes the standard for proving allegations of mis-

appropriation.

IV

REXA also challenges the district court’s award of attor-

neys’ fees to Chester and MEA. This presents two questions

for us. First, we consider whether the district court abused its

discretion in finding that REXA committed litigation miscon-

duct, for which the court imposed attorneys’ fees as a

sanction. Second, we analyze whether the court abused its

discretion by awarding approximately $2.357 million in fees.

A

Start with the district court’s decision to sanction REXA

for litigation misconduct. “We review a district court’s impo-

sition of sanctions under its inherent authority for an abuse of

discretion.” Tucker v. Williams, 682 F.3d 654, 661 (7th Cir. 2012)

(citing Chambers v. NASCO, Inc., 501 U.S. 32, 55 (1991)). Under

that standard, “the district court’s decision is to be overturned

only if no reasonable person would agree with the trial court’s

ruling.” Aldridge v. Forest River, Inc., 635 F.3d 870, 875 (7th Cir.

2011); accord Lange v. City of Oconto, 28 F.4th 825, 842 (7th Cir.

2022). A court may abuse its discretion if it bases its decision

“on an erroneous view of the law or a clearly erroneous

Nos. 20-2953, 20-3213, & 21-2033 27

evaluation of evidence.” Harrington v. Duszak, 971 F.3d 739,

741 (7th Cir. 2020) (citation omitted).

Before imposing sanctions for litigation misconduct, the

district court must make a finding of “bad faith, designed to

obstruct the judicial process, or a violation of a court order.”

Fuery v. City of Chicago, 900 F.3d 450, 463–64 (7th Cir. 2018)

(quoting Tucker, 682 F.3d at 662). “Mere clumsy lawyering is

not enough.” Id. at 464. When findings of bad faith are

properly made, district courts have inherent authority to

award attorneys’ fees as a sanction. Chambers, 501 U.S. at

45-47.

REXA contends the district court’s finding of litigation

misconduct was unsupported and thus an abuse of discretion.

Before concluding that REXA had committed misconduct, the

district court found the following facts:

• Appendix A, the list of Koso employees who

were offered the Severance Plan, was pro-

duced in a deceptive manner. The list was

detached from the Severance Plan to which

it was originally attached, and it was pro-

duced nearly 100 pages away from the Bo-

nus Letter.

• Appendix B, the Confidentiality Agreement,

was produced as an attachment to the Bonus

Letter. Chester never received the Confiden-

tiality Agreement.

• Geoffrey Hynes, REXA’s president, testified

that he may have “connected” the Severance

Plan and its Appendix B Confidentiality

Agreement to the Bonus Letter.

28 Nos. 20-2953, 20-3213, & 21-2033

REXA forthrightly acknowledges that “all of these facts are

true.” Nevertheless, REXA argues, the district court abused

its discretion in declining to accept REXA’s assertion that all

documents were produced as they were kept in the ordinary

course of business.

We disagree. In the district court’s view, it was exceed-

ingly unlikely that the unusual, suspicious alignment of

REXA’s files had occurred in the absence of any manipulation

by REXA or its attorneys. Importantly, the district court is

closer to the litigation and more familiar with the details of

the dispute at issue than we are. See, e.g., Fuery, 900 F.3d at 452

(“[W]e leave much of the trial refereeing to those on the

field—the district courts.”); Methode Elecs., Inc. v. Adam Techs.,

Inc., 371 F.3d 923, 925 (7th Cir. 2004) (“We review the grant of

sanctions with deference because of the familiarity of the trial

court with the relevant proceedings.”). On appeal, REXA has

not given us any reason—aside from bare assertions—to over-

turn the district court’s findings. We cannot say that “no rea-

sonable person would agree with the trial court’s ruling.”

Aldridge, 635 F.3d at 875. Thus, the district court did not abuse

its discretion when it found that REXA had committed litiga-

tion misconduct.

Like the district court, we are disturbed by the conduct of

REXA’s counsel in the use of exhibits at Chester’s deposition.

It is undisputed that REXA created a combined exhibit, which

contained both the Bonus Letter and the Appendix B Confi-

dentiality Agreement. The Bonus Letter and Appendix B were

given consecutive Bates numbers in the combined document.

Even if we were to accept REXA’s dubious assertion that the

files were kept this way in the ordinary course of business, its

creation of the combined exhibit was dishonest.

Nos. 20-2953, 20-3213, & 21-2033 29

REXA acknowledges that it used the combined exhibit to

question Chester at his deposition. REXA tried to get Chester

to admit that he had received the Appendix B Confidentiality

Agreement. These facts are highly suggestive of litigation

misconduct. On appeal, REXA is unrepentant, asserting “[i]t

would have been remiss if REXA’s attorneys had failed to ask

Chester to confirm or deny” the assertion made by REXA’s

former president that he had presented Chester with the Ap-

pendix B Confidentiality Agreement. But such sharp tactics—

manipulating documents in an attempt to mislead a witness—

are improper, and they support a trial court’s decision to sanc-

tion the responsible party. 6 Once REXA’s tactics were discov-

ered, the district court was well within its discretion to decide

that litigation misconduct had been committed and to exer-

cise its inherent authority by imposing a penalty.

In its reply brief, REXA also argues that the district court

was precluded from finding that REXA had committed litiga-

tion misconduct without first holding an evidentiary hearing.

But REXA waived this argument by failing to mention it in

the company’s opening brief on appeal. See White v. United

States, 8 F.4th 547, 552–53 (7th Cir. 2021) (citations omitted).

6 See Ramirez v. T&H Lemont, Inc., 845 F.3d 772, 776, 778–79 (7th Cir.

2016) (litigation misconduct during discovery, including a litigant’s “at-

tempts to deceive his opponent,” supports the severe sanction of dismissal

with prejudice under the district court’s inherent authority—even when

the misconduct is shown only by a preponderance of the evidence); cf.

Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1184, 1186 (2017) (the

concealment of records requested by an opposing litigant during discov-

ery supports sanctions under the trial court’s inherent authority); Martin

v. Redden, 34 F.4th 564, 566–68 (7th Cir. 2022) (per curiam) (a litigant’s sub-

mission of a falsified document to the court supports the severe sanction

of dismissing his case with prejudice).

30 Nos. 20-2953, 20-3213, & 21-2033

The argument also lacks merit. A district court’s decision not

to hold a hearing is reviewed for abuse of discretion, Elustra

v. Mineo, 595 F.3d 699, 710 (7th Cir. 2010), and a court “has

discretion to deny an evidentiary hearing if the [a]ppellants

cannot show that an evidentiary hearing would have an artic-

ulable bearing on the material issues in dispute.” Sullivan v.

Running Waters Irrigation, Inc., 739 F.3d 354, 359 (7th Cir. 2014).

Moreover, a court does not abuse its discretion by not con-

ducting “an evidentiary hearing that would only address ar-

guments and materials already presented to the court in the

parties’ briefings.” Royce v. Michael R. Needle P.C., 950 F.3d

481, 487 (7th Cir. 2020) (citations omitted) (making this obser-

vation in the context of a challenge to the appropriate amount

of fees).

REXA did not request an evidentiary hearing in the dis-

trict court, and it has not explained how a hearing would have

affected the court’s assessment of the dispute. The parties’

contentions on REXA’s discovery misconduct were presented

in their summary judgment briefs. REXA thus cannot use the

lack of an evidentiary hearing to overturn the finding of liti-

gation misconduct on appeal.

Though the district court had a sound basis to find litiga-

tion misconduct, we agree with REXA that its use of “REXA”

to refer to Koso, in pleadings and other litigation filings, is in-

sufficient to support that finding. As discussed in Section

III.A, we decline to hold that the differences between these

two corporate entities are dispositive of REXA’s claim against

Chester for breach of an implied-in-fact contractual obliga-

tion. Unlike the district court, we are not convinced that

REXA’s use of more precise nomenclature would have obvi-

ated the need for this lawsuit to proceed through discovery.

Nos. 20-2953, 20-3213, & 21-2033 31

REXA’s manipulation of documents and attempts to mislead

Chester at his deposition, rather than the use of “REXA” as

purported shorthand for “Koso,” is sufficient to support the

district court’s finding of litigation misconduct and sanctions.

B

Last, we consider whether the district court abused its dis-

cretion in awarding the full amount of the attorneys’ fees that

Chester and MEA requested, which totaled approximately

$2.357 million. Attorneys’ fees that are imposed as a sanction

pursuant to a trial court’s inherent authority “may go no fur-

ther than to redress the wronged party for losses sustained,”

and the court “may not impose an additional amount as pun-

ishment for the sanctioned party’s misbehavior.” Goodyear

Tire & Rubber Co. v. Haeger, 137 S. Ct. at 1186 (internal quota-

tion marks and citations omitted). We review the court’s

award of fees for reasonableness. See Hunt v. Moore Bros., Inc.,

861 F.3d 655, 661 (7th Cir. 2017); Rexam Beverage Can Co. v. Bol-

ger, 620 F.3d 718, 738 (7th Cir. 2010).

In examining fee awards, we apply a “highly deferential

abuse of discretion standard.” Pickett v. Sheridan Health Care

Ctr., 664 F.3d 632, 639 (7th Cir. 2011) (quoting Est. of Borst v.

O’Brien, 979 F.2d 511, 514 (7th Cir. 1992)). A district court is

accorded significant deference in matters concerning attor-

neys’ fees because (1) the trial court possesses a superior un-

derstanding of the factual matters at issue; (2) that superior

understanding outweighs the need for uniformity in fee

awards; and (3) it is important to avoid, wherever possible,

expending the resources associated with conducting a “sec-

ond major litigation” concerning fees. Id. (citing Spellan v. Bd.

of Educ. for Dist. 111, 59 F.3d 642, 645 (7th Cir. 1995)).

32 Nos. 20-2953, 20-3213, & 21-2033

At the same time, our court has acknowledged that limits

exist on a district court’s discretion in calculating and award-

ing attorneys’ fees. Under our case law, a court’s latitude in

this area is “not unlimited” and the court “still bears the re-

sponsibility of justifying its conclusions.” Sottoriva v. Claps,

617 F.3d 971, 975 (7th Cir. 2010). The court’s explanation for

the amount of fees it awards “may be concise … but it must

still be an explanation—that is, a rendering of reasons in sup-

port of a judgment—rather than a mere conclusory state-

ment.” Id. at 976 (citation omitted).

“When substantial fees are at stake, the district court must

calculate the award with greater precision.” Schlacher v. L.

Offs. of Phillip J. Rotche & Assocs., P.C., 574 F.3d 852, 857 (7th

Cir. 2009) (citing Vukadinovich v. McCarthy, 59 F.3d 58, 60 (7th

Cir. 1995)). Requiring a greater degree of formality in cases

where the stakes are higher “is a general principle of the law”

that applies to attorneys’ fees. Vukadinovich, 59 F.3d at 60. In a

sizable case such as this, the stakes involved in calculating

and awarding attorneys’ fees are higher than usual, and so is

the corresponding burden on the trial court to wade through

the details of the fee application. In re Cont’l Ill. Sec. Litig., 962

F.2d 566, 570 (7th Cir. 1992).

REXA made numerous objections to the fees claimed by

Chester and MEA. The district court summarily overruled

each of these objections and entered judgment for the defend-

ants in the full amount of attorneys’ fees and costs they had

requested—$2,357,071.12. We consider the district court’s ex-

planation, given the substantial sum of fees at issue.

In its opposition to Chester and MEA’s fee petition, REXA

objected to what it categorized as the following groups of bill-

ing entries:

Nos. 20-2953, 20-3213, & 21-2033 33

• Time spent performing duplicative tasks;

• Time spent preparing and filing unneces-

sary motions;

• Time spent conducting redactions of confi-

dential information;

• Billing entries containing vague narrative

descriptions; and

• Billing entries reflecting excessive time

billed by partners for tasks that associates

could have performed.

The district court did not address any of these specific objec-

tions. Instead, it concluded that any and all time the defend-

ants’ attorneys spent litigating this case “was necessitated by

the unreasonable demands of [REXA’s] counsel in the first in-

stance.” Finding that REXA’s attorneys’ fees were equal to or

exceeded those incurred by Chester and MEA, the district

court “reject[ed] both [REXA’s] arguments and its calculus.”

Based on the record before us, we conclude that the district

court did not adequately justify its decisions on each of

REXA’s discrete objections to the defendants’ fee petition. See

Sottoriva, 617 F.3d at 976. Given the sizable fee award, it was

necessary to consider each of these objections. So, too, was an

examination required of the reasonableness of the hours that

defense counsel expended—and the dollar amounts

claimed—for defending against the lawsuit at each stage of

the case.

Setting aside whether the district court’s explanation

might have been sufficient to support a small or moderately

sized fee award, it is not an adequate basis on which to sustain

34 Nos. 20-2953, 20-3213, & 21-2033

the substantial sum of fees the court awarded. Cf. Schlacher,

574 F.3d at 857–59 (affirming the sufficiency of the district

court’s explanation for awarding $6,500 of the $12,495 in fees

the plaintiffs had sought, while noting that “greater detailed

findings in calculating the fee award might have been re-

quired in a higher-stakes case”). Because Chester and MEA

petitioned the district court for more than $2 million in attor-

neys’ fees, it was incumbent on the court to make specific find-

ings about each of REXA’s objections to the fee petition.

For instance, the court should have addressed REXA’s

contentions that Chester and MEA improperly petitioned for

fees associated with time their attorneys spent performing du-

plicative tasks and preparing unnecessary motions. See id. at

858 (“[O]verstaffing cases inefficiently is common, and district

courts are therefore encouraged to scrutinize fee petitions for

duplicative billing when multiple lawyers seek fees.”). Like-

wise, REXA’s objection that Chester and MEA sought reim-

bursement at partner rates for associate-level tasks warranted

the trial court’s review. The court’s orders do not disclose any

such analysis, so we cannot determine whether, or to what

extent, it considered those specific objections. We hold there-

fore that “the district court’s ruling was not sufficiently ex-

plained.” Sottoriva, 617 F.3d at 976. A remand is necessary so

that the court may give a more fulsome explanation.

On remand, the district court should keep in mind that it

may award fees pursuant to its inherent authority to sanction

misconduct in an amount sufficient to compensate the de-

fendants for the losses they sustained as a result of REXA’s

manipulation of documents and its attempts to mislead Ches-

ter. See Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. at 1186.

When engaging in this analysis, the court should consider

Nos. 20-2953, 20-3213, & 21-2033 35

each objection listed in the parties’ joint statement on the fee

petition. Although the court “need not undertake a line-by-

line inquiry” of Chester and MEA’s billing statements, Nichols

v. Ill. Dep’t of Transp., 4 F.4th 437, 444 (7th Cir. 2021), it should

review representative billing entries related to each specific

objection made by REXA. Oral or written findings, as to each

objection, will assist in this task. Based on its analysis of those

representative entries, the court may reach a conclusion as to

whether any portion of the requested fees is excessive. If the

fees are excessive in any respect, such as because the attorneys

engaged in overlapping work that was inefficient, a reduction

in fees is warranted. See Schlacher, 574 F.3d at 858–59. Should

the district court conclude a reduction in the fee award is war-

ranted, it should explain its choice to apply a discount in that

amount.

Our decision today does not mean that awarding $2.357

million in attorneys’ fees—or awarding the full amount re-

quested by the prevailing party when a large sum is at stake—

is necessarily an abuse of discretion, regardless of context. Ra-

ther, we conclude that more explanation to support the ruling

on fees is required here. The court must address what amount

of fees are traceable to the litigation misconduct, and it may

not impose an additional amount as punishment. Haeger, 137

S. Ct. at 1186.

V

For these reasons, we AFFIRM the district court’s grant of

summary judgment to Chester and MEA on REXA’s claim for

misappropriation of trade secrets and to Chester on REXA’s

claim for breach of an implied-in-fact contract. The portion of

the judgment awarding attorneys’ fees to Chester and MEA is

36 Nos. 20-2953, 20-3213, & 21-2033

VACATED, and this case is REMANDED for proceedings con-

sistent with this opinion.