Krakow Bus. Park Sp. z o.o in Liquidating Bankr. v. Locke Lord, LLP

• Decision Date: 28 September 2015
• Docket Number: No. 08 CV 4922,08 CV 4922
• Citation: 135 F.Supp.3d 770
• Parties: Krakow Business Park Sp. z o.o in Liquidating Bankruptcy, et al., Plaintiffs, v. Locke Lord, LLP, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

135 F.Supp.3d 770

Krakow Business Park Sp. z o.o in Liquidating Bankruptcy, et al., Plaintiffs,

v.Locke Lord, LLP, et al., Defendants.

No. 08 CV 4922

United States District Court, N.D. Illinois, Eastern Division, Eastern Division .

Signed September 28, 2015

Adam N. Hirsch, Alan Francis Curley, Fay Clayton, Robert Lawrence Margolis, Robert Scott Michaels, Robinson, Curley & Clayton, P.C., Chicago, IL, for Plaintiffs.

Lucas M. Fuksa, Thomas Delcorps Carroll, Fuksa Khorshid, LLC, Edward W. Feldman, Kay L. Dawson, Marc Oliver Beem, Thomas M. Staunton, Miller, Shakman & Beem LLP, Lawrence R. Desideri, Matthias A. Lydon, Matthew Robert Carter, Winston & Strawn LLP, James R. Figliulo, Joseph A Donado, Stephanie D. Jones, Figliulo & Silverman, P.C., Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

Manish S. Shah

, United States District Judge

Jan Domanus and Andrew Kozlowski are shareholders of a Polish corporation called Krakow Business Park (KBP) and several of its subsidiaries. Domanus and Kozlowski claim that, beginning in 1997, some of the companies' other shareholders—including Adam Swiech, his brother Richard Swiech, and Derek Lewicki—began to steal from the businesses through a series of fraudulent transactions. In 2008, Domanus and Kozlowksi filed in federal court a civil action against Lewicki and the Swiech brothers (and others), alleging violations of, among other things, the Racketeer Influenced and Corrupt Organizations Act. Domanus and Kozlowski brought their suit both directly and derivatively, so the KBP entities were added as nominal defendants to the complaint.

John Dienner, an attorney at Kubasiak, Flystra, Thorpe & Rotunno, was counsel of record for the KBP entities from August 2010 to October 2011. Several attorneys from Locke Lord LLP took over the representation in 2011, remaining counsel of record until their disqualification in May 2012. Two years later, the corporations entered bankruptcy proceedings in Poland, and the companies—now under the control of a trustee—were realigned as plaintiffs in the pending suit.

Following realignment, plaintiffs (which now included Domanus, Kozlowski, and the realigned KBP entities) filed supplemental complaints against the attorneys who had represented KBP. Plaintiffs claim that the lawyers—Dienner and several attorneys at Locke Lord—joined the original defendants' ongoing RICO conspiracy. The lawyer defendants move to dismiss the claims against them. For the reasons discussed below, the motions are granted.

I. Legal Standard

Rule 8(a)(2) of the Federal Rules of Civil Procedure

requires that a claim for relief contain "a short and plain statement of the claim showing that the pleader is entitled to relief." The complaint need not include specific facts, but it must provide the defendant with fair notice of what the claim is, and the grounds upon which it rests. Olson v. Champaign Cnty., Ill., 784 F.3d 1093, 1098–99 (7th Cir.2015) (citing Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) ; Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). The complaint must present enough factual matter, accepted as true, that the claim to relief "is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ); Firestone Fin. Corp. v. Meyer, 796 F.3d 822, 826 (7th Cir. Aug. 10, 2015) (citing Gogos v. AMS Mech. Sys., Inc., 737 F.3d 1170, 1172 (7th Cir.2013) ). In considering a motion to dismiss under Rule 12(b)(6), the district court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in the plaintiff's favor. Firestone, 796 F.3d at 826 (citations omitted); Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 946 (7th Cir.2013) (quoting Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir.2010) ).

II. Facts

A. The Formation and Operation of KBP

Krakow Business Park (KBP) is a Polish company involved in the development of certain real estate near Krakow, Poland. Specifically, the company oversees the construction and management of several large office buildings that make up the business park. See Third Amended Complaint, [210] ¶ 22; Supplemental Complaint, [755] ¶ 1 (incorporating by reference paragraphs 1 through 97 of the Third Amended Complaint); Second Supplemental Complaint, [770] ¶ 1 (same).¹ KBP also has twelve wholly-owned subsidiaries (KPB–1 through—11, and KBP–TT), created to own the individual office buildings in the park. See [210] ¶ 23. As of April 2010, five such buildings had been completed. See id.

After its formation in 1997, KBP had six primary shareholders, which included (among others) Adam Swiech; Adam's brother, Richard Swiech; Derek Lewicki; and Andrew Kozlowski. See id. ¶ 28. Jan Domanus became an additional shareholder in 2000. See id. ¶ 31. Domanus and Kozlowski claim that, starting in 1997, Adam Swiech (who was also president of the company) coordinated with his brother Richard and with Lewicki to misappropriate assets from KBP and its subsidiaries.

See id. ¶¶ 29, 34. According to Domanus and Kozlowski, Lewicki and the Swiech brothers concocted and executed an elaborate scheme to loot the business through a series of misdeeds, which included, among other things: (1) causing KPB and its subsidiaries to enter sham contracts with Lewicki or the Swiechs (or with other companies owned or controlled by them), pursuant to which KBP paid those individuals (or companies) for services that were never performed, or for land at intentionally-inflated prices, see id. ¶¶ 34, 36–49; (2) causing KBP's subsidiaries to lease office-building space at below-market rates to a company controlled by the Swiech brothers, who then caused that company to lease the same space to third-party tenants at market rates, see id. ¶¶ 34, 50–51; (3) misappropriating from KBP's subsidiaries various parcels of land, collectively worth about $28 million, see id. ¶¶ 34, 52–53; and (4) demanding and receiving kickbacks from building contractors, paid for by KBP's subsidiaries in the form of artificially increased construction costs, see id. ¶¶ 34, 54–57.

Lewicki and the Swiech brothers funneled a portion of the misappropriated funds to Chicago-area businesses and properties managed by those individuals. See id. ¶ 63. Adam Swiech, meanwhile, reinvested some of the stolen assets back into KBP as "capital contributions"—thereby augmenting Adam's ownership percentage in the company and diluting Domanus's and Kozlowski's shares. See id. ¶ 58. Adam also worked with his brother and Lewicki to scuttle a deal with a Luxembourg-based company that had agreed to buy all of KBP's outstanding shares. See id. ¶¶ 61–62.

B. Criminal Charges in Poland

In August 2008, Polish authorities arrested Adam Swiech in connection with his conduct at KBP, charging him with, among other things, money laundering, conversion, forgery, tax evasion, and leading an organized crime ring. See id. ¶¶ 10, 73. As a result of his arrest, Adam was forced to resign from his positions as president and sole management-board member of KBP. See id. ¶¶ 73, 75. Adam was able to retain de facto control over the business, however, by using his majority shares (obtained through the "capital contributions") to appoint friends and family members—including his brother, Richard, and Adam's and Richard's respective wives—to key management positions; he also voted his shares to amend KBP's articles of incorporation, now permitting a single board member (rather than a majority of members, as was formerly required) to bind KBP. See id. ¶¶ 73–75; [755] ¶¶ 41, 156. In February 2014, Adam was convicted on the first set of charges filed against him (i.e., filing with a Polish court KBP shareholder minutes containing forged signatures). See [755] at 2 n. 1. A trial on the other charges was (as of August 2014) set for early 2015, see id. but there is no information in the record about the outcome of that trial.

Richard Swiech and Lewicki were also charged by Polish authorities with crimes related to their activities at KBP. See [210] ¶¶ 6, 8. Lewicki was arrested in Poland, and was imprisoned there for a time, but was later released on bail. See id. ¶¶ 6, 76–77. There is no information in the record about the outcome of the prosecutions against Richard Swiech or Lewicki.

C. The Civil Suit Against Lewicki and the Swiechs

In August 2008, Domanus and Kozlowski filed suit against Lewicki, the Swiech brothers, and several other defendants—including Lewicki and Richard Swiech's wives—alleging violations of RICO, 18 U.S.C. § 1961 et seq.,

and state law. See [1], first amended at [51]. Domanus and Kozlowski brought their claims both individually and derivatively on behalf of KBP (though neither of the first two complaints named KBP as a party). See id. KBP and its subsidiaries were ultimately added as nominal defendants to the third amended complaint, [210].

Domanus and Kozlowski later filed a motion for default judgment against Lewicki and the Swiech brothers. See [612]. The motion was granted as a sanction for the defendants' misconduct during the litigation. See [657]. Although default was granted on both the direct and derivative claims, Domanus and Kozlowski moved to stay a prove-up on the latter. See [664]. That motion, too, was granted, and briefing on damages for the derivative claims was deferred. See [666].

The defaulting defendants then moved to stay the prove-up of damages for the direct claims, arguing that a prove-up of claims against only some of the individual defendants would be inappropriate under Supreme Court and Seventh Circuit precedent. See [671] at 2–6 (discussing Frow v. De La Vega, 82 U.S. 15 Wall. 552, 21 L.Ed. 60 (1872)

; In re Uranium Antitrust Litigation, 617 F.2d 1248 (7th Cir.1980) ). This motion to stay was denied, [677], and final judgment was entered against the defaulting defendants under Federal Rule of Civil Procedure 54(b), [698]....