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