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Jan Domanus and andrew Kozlowski, Both Individually and v. Derek Lewicki

March 14, 2011

JAN DOMANUS AND ANDREW KOZLOWSKI, BOTH INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF KRAKOW BUSINESS PARK SP.Z O.O., KBP-1 SP. Z O. O., KBP-2 SP. Z O.O., KBP-3 SP. Z O O., KBP-5 SP. Z O.O., KBP-6 SP. Z O.O., KBP-7 SP. Z O.O., KBP-8 SP. Z O.O., AND KBP-11 SP. Z O. O., PLAINTIFFS,
v.
DEREK LEWICKI, KATARZYNA SZUBERT- LEWICKI, RICHARD SWIECH, BOZENA SANECKA-SWIECH, ADAM SWIECH, SPECTRUM COMJPANY, LTD., ORCHARD MEADOWS HOMES, INC., ORCHARD MEADOWS HOMES, LLC, ORCHARD MEADOWS, LLC, LAKE RIDGE TOWNHOMES CORP., LAKE RIDGE, LLC, POLCON CONSTRUCTION CORP., PROTORIUS, LTD., SAXELBY ENTERPRISES, LTD., AND ADR ENTERPRISES, INC., AND DEFENDANTS. KRAKOW BUSINESS PARK SP. Z O.O., KBP-1 SP. Z O. O., KBP-2 SP. Z O.O., KBP-3 SP. Z O. O., KBP-5 SP. Z O.O., KBP-6 SP. Z O.O., KBP-7 SP. Z O.O., KBP-8 SP. Z O.O., AND KBP-11 SP. Z O. O. DERIVATIVE DEFENDANTS.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM OPINION AND ORDER

On August 28, 2008, plaintiffs, who are shareholders in corporate defendant Krakow Business Park SP. Z O.O. ("KBP"), brought an action alleging a pattern of fraud and deceit; corporate looting and misappropriation of corporate funds; and money laundering by various individual and corporate defendants. Plaintiffs asserted direct and derivative claims under 18 U.S.C. § 1962 ("RICO"), as well as liability under several common law theories including fraud, breach of fiduciary duty, civil conspiracy, and others. After the original complaint was amended, various defendants moved to dismiss the case on a variety of grounds. On August 19, 2009, I issued a memorandum opinion and order addressing a number of issues raised in the then-pending motions. Domanus v. Lewicki, 645 F. Supp. 2d 697 (N.D. Ill. 2009). I declined to dismiss the case on the asserted theory of forum non conveniens, but because I concluded that the amended complaint did not properly assert any individual claims distinct from the corporation's claims, and that the derivative claims could not proceed for failure to comply with Rule 23.1, I dismissed the complaint in its entirety. Although not a basis for my decision, I also noted the likely merit of arguments raised in defendants' motions for dismissal under Fed. R. Civ. P. 12(b)(6), and I admonished plaintiffs to bear these arguments in mind in any further iteration of the complaint.

Plaintiffs then filed a second amended complaint, which I dismissed without a written opinion and with explicit leave to amend. This brings us to plaintiffs' third amended complaint, which is the target of the pending motions. This complaint (which, for ease of reference, I generally refer to simply as "the complaint") names several additional defendants, including direct defendants (i.e., parties whose interests are adverse to plaintiffs'), as well as nominal or derivative defendants, whose interests are allegedly aligned with plaintiffs'. The complaint also adds direct and derivative claims. The direct claims now asserted are for violations of RICO, 18 U.S.C. §§ 1962(a)-(d), fraud, conversion, breach of fiduciary duty, tortious interference with prospective business advantage, civil conspiracy, violation of the Uniform Fraudulent Transfer Act (740 ILCS §§ 160/1 et seq.), and for an accounting. The derivative claims, brought on behalf of nominal defendants KBP and those of KBP's wholly owned subsidiaries that appear in the caption as derivative defendants, are for violations of RICO, 18 U.S.C. §§ 1962(a)-(d), fraud, breach of fiduciary duty, civil conspiracy, violation of the Uniform Fraudulent Transfer Act (740 ILCS §§ 160/1 et seq.), and for an accounting.

Nine motions to dismiss are currently pending.*fn1 Five of these are pursuant to Rule 12(b)(6).*fn2 In addition, the direct defendants have brought a joint motion to dismiss pursuant to Rule 12(b)(7),*fn3 and another pursuant to the common law theory of forum non conveniens.*fn4 Defendant Adam Swiech ("Adam") has moved to dismiss all claims against him for lack of personal jurisdiction.*fn5 Finally, the nominal defendants (i.e., KBP and its subsidiaries) have moved to quash service, in conjunction with which they assert that I lack personal jurisdiction over them.*fn6 I deny all of these motions for the reasons that follow.

Motions pursuant to Rule 12(b)(6)

In a collective 12(b)(6) motion, defendants insist that the complaint is "incomprehensible," "contradictory," and that it "jumbles" the defendants together such that it is "impossible for defendants to discern whether plaintiffs have stated a claim." I disagree. The complaint sets forth lucid, detailed allegations that identify with substantial precision the specific wrongdoing attributed to each defendant, and it further explains how the various defendants' malfeasance fits into their overall unlawful scheme. While plaintiffs' allegations are indeed copious, they are far from "incomprehensible." The basic story that emerges from the complaint is that the individual defendants, working with each other and with and through a host of foreign and domestic corporations that they control, engaged in a pattern of misconduct designed to rob KBP of its assets, which defendants then misappropriated for themselves, and used, among other things, to wrest control and ownership of KBP from plaintiffs.

The substantive portion of the complaint is broken down into three sections. The first is the factual background, which alleges four distinct types of misconduct under the rubric "Misappropriation of Assets from KBP and its Subsidiaries." The categories of misconduct alleged are: sham contracts and payments for inadequate consideration (¶¶ 36-49); self-dealing leases (¶¶ 50-51); land misappropriation (¶¶ 52-53); and construction kickbacks (¶¶ 54-57). The allegations in each category set forth details of specific transactions, which details generally include the identities of the defendants involved, the value of the assets, the means through which the transaction was carried out (e.g., wire transfer), and the basis for plaintiffs' assertion that the transaction was fraudulent or otherwise wrongful. This section of the complaint then describes how defendants used proceeds generated by their misconduct to dilute plaintiffs' ownership interest in KBP and otherwise to cause them individual injury. It also alleges that defendants invested misappropriated funds in United States businesses, including the corporate direct defendants. Finally, this section describes the steps defendants took to conceal and perpetuate their wrongdoing.

The second section of the complaint is captioned "RICO Predicate Acts" and alleges how the wrongdoing described in the factual section, and certain specific acts exemplifying or relating to that wrongdoing, amount to mail and wire fraud (18 U.S.C. §§ 1341, 1343), money-laundering (18 U.S.C. § 1956(a)), and Travel Act (18 U.S.C. § 1952) violations, which are the "predicate acts" alleged to support plaintiffs' RICO claims.

In its third and final section, the complaint asserts twenty-five separate counts that identify plaintiffs' direct and derivative claims.

In short, the complaint is as well-organized as it is detailed, and the story it presents is cogent and plausible. Accordingly, defendants are reduced to grasping at straws to try and win dismissal under Rule 12(b)(6), and their various motions on this ground read accordingly. These motions generally seek to create the appearance of confusion, contradiction, or omission in the complaint where none exists. Defendants make only a half-hearted attempt to show that the complaint, read as a whole, fails to allege any of the elements of plaintiffs' various claims, or to meet the applicable pleading standards.*fn7 Instead, they pluck particular allegations out of the context of the complaint as a whole, and, viewing them in isolation, insist that they are improper because they are confusing, irrelevant, or incomplete. The following example illustrates this approach.

In support of their argument that plaintiffs fail properly to plead the requisite "predicate acts" to support their RICO claims, defendants attack subsection 91(c) of the complaint. Paragraph 91 generally alleges the use, by defendants Lewicki, Adam, and Richard Swiech ("Richard"), of the wires in interstate or foreign commerce in violation of 18 U.S.C. § 1343, and it identifies specific transactions in subsections (a)-(n). Subsection (c) alleges "wire transfers related to the sale of the KBP-100 building to First Property Fund, including, but not limited to, First Property Fund's wire transfer of $18,500,000 for purchase of the building and KBP-1's wire transfer, on behalf of KBP, of $571,000 to Domanus's Illinois bank account as his partial dividend." Defendants insist that plaintiffs "fail to provide any information regarding how or why" this transaction advances the alleged RICO scheme, wryly arguing that it is "hard to see how paying money to the plaintiff advanced the scheme to defraud," Def.'s. Mot. at 10 (DN 243-1). But paragraph 60 of the complaint provides precisely the information defendants assert is lacking and makes perfectly clear both why plaintiffs consider this transaction fraudulent and how it relates to the overall scheme.*fn8 Read in context, there is nothing confusing or incomplete about paragraph 91(c), and its relevance to the case is plain.

The additional arguments defendants raise in their collective 12(b)(6) motion are generally variations on the foregoing, disingenuous approach.

The separate 12(b)(6) motions filed by individual defendants and small subsets of defendants fare no better. The corporate defendants argue in their motion that all of the claims against them must fail because "the exact role of Lake Ridge, Orchard, and ADR in the overall scheme is entirely unclear," and because plaintiffs "do not list a single fact demonstrating that any money was actually transferred to or received by the corporate defendants." (Original emphasis) Defendants Lewicki and Richard insist in their separate motions that plaintiffs allege "very little actual wrongdoing" by them, and fail to allege that either had "any fraudulent intent." And defendants SzubertLewicki and Sanecka-Swiech argue that the claims against them fail because a portion of the factual allegations relating to them are made on information and belief. None of these arguments has merit:

The Corporate Entities

The role of the corporate entities is explicit and unambiguous in the complaint: Paragraph 63 alleges that the corporations used funds misappropriated from KBP to invest in businesses and properties in metropolitan Chicago. And because these companies were allegedly controlled by the individuals responsible for the misappropriation, it is reasonable to infer that the corporations knew (through their principals) that the funds were acquired unlawfully, and thus that their participation in the scheme was knowing. As to the corporations' second argument, plaintiffs need not plead evidence (i.e., proof that funds were actually transferred as alleged). Because the allegations that the ...


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