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

April 13, 2012

JAN DOMANUS AND ANDREW KOZLOWSKI, BOTH INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF KRAKOW BUSINESS PARK SP.Z O.O.,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 COMPANY, 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.,
DEFENDANTS,
AND 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 INJUNCTION

This action arises out of plaintiffs' allegations of a complex, bicontinental racketeering and fraud scheme spanning over ten years and featuring, at the helm of its operations, defendants Adam Swiech, Derek Lewicki, and Richard Swiech (to whom I refer collectively herein as the "direct defendants," although in reality they are only a subset of the direct defendants named in the case, which also include two of these defendants' wives, and a number of entities the direct defendants control). Plaintiffs claim that this is an ongoing scheme, and that it violates RICO, 18 U.S.C. §§ 1962(a)-(d), as well as Illinois statutory and common law.

Now before me is plaintiffs' motion for a temporary restraining order and preliminary injunction seeking to prevent Adam Swiech from "(i) voting his shares [in derivative defendant Krakow Business Park SP. Z O.O., hereinafter 'KBP'] to approve any issuance of KBP shares that would reduce Plaintiffs' shareholdings below 25%, or (ii) from alienating his current KBP shareholdings." The direct defendants have jointly filed a response opposing the motion, while the derivative defendants (the KBP entities, to which I refer collectively as "KBP" unless otherwise specified) have filed a separate opposition. For the reasons that follow, I grant plaintiffs' motion to the extent discussed below.*fn1

I.

This opinion, necessarily pithy in view of the extremely short window of opportunity to prevent an act plaintiffs characterize as the "culmination" of defendants' scheme, does not purport to set forth an exhaustive account of the factual landscape, nor does it address the totality, or even the bulk, of the evidence plaintiffs have submitted in conjunction with the instant motion. It does, however, acknowledge the significant evidence plaintiffs have proffered in partial support of their RICO and state claims, all of which I determined, for reasons explained in a memorandum opinion and order of March 13, 2011, withstood five separate motions for dismissal pursuant to Fed. R. Civ. P. 12(b)(6). Domanus v. Lewicki, 779 F. Supp. 2d 739 (N.D. Ill. 2011). It also addresses the substantial arguments raised in the parties' briefs and at oral argument on April 11, 2012, at which the parties agreed that a full evidentiary hearing on plaintiffs' present motion was unnecessary.

I begin by summarizing, using admittedly broad brush strokes, the allegations in plaintiffs' complaint that are minimally necessary for understanding what is presently at stake.

Plaintiffs are minority shareholders in KBP ("minority" according to the books, that is, since they claim to have been fraudulently deprived of their rightful majority status). As I explained in my March 13, 2011, opinion, their complaint alleges that the direct defendants engaged in four broad categories of misconduct, which in concert have allowed them effectively to loot KBP of its assets, to misappropriate KBP assets for themselves, and to wrest control and ownership of KBP from plaintiffs. The complaint describes sham contracts and payments for inadequate consideration (Compl. at ¶¶ 36-49); self-dealing leases (¶¶ 50-51); land misappropriation (¶¶ 52-53); and construction kickbacks (¶¶ 54-57), and it sets forth, with respect to each type of alleged wrongdoing, substantial detail. The details include allegations about specific transactions and the basis for plaintiffs' belief that the transactions were fraudulent.

The complaint goes on to explain how the direct defendants allegedly used their ill-gotten gains "to dilute plaintiffs' ownership interest in KBP and otherwise to cause them individual injury." Domanus, 779 F. Supp. 2d at 745. Plaintiffs specifically identify nine "supposed 'capital contributions'" Adam Swiech made to KBP between 1998 and 2003, in which Adam acquired 14,702 newly issued KBP shares. Compl. at ¶ 58. The effect of these "capital contributions" (which, plaintiffs explain in the complaint, and again in the instant motion, provided no net benefit to KBP because they were funded either with money siphoned off from KBP, or through Adam's "forgiveness" of non-existent loans to the company) was to increase Adam's stated ownership interest from roughly ten percent in 1997 to approximately seventy-four percent (where it remains today), while proportionately decreasing plaintiffs' cumulative interest to their current twenty-six percent.

Thereafter, Adam caused KBP to execute certain transactions that produced dividends or other benefits of ownership that should have inured to each shareholder proportionally to his or her interest in KBP; but because of the dilution of plaintiffs' ownership interest, coupled with misrepresentations Adam made to the plaintiffs about the transactions (the details of which are set forth in the complaint, but need not be rehearsed here), plaintiffs received only a fraction of the benefits to which they were entitled, or in some cases, none at all. I concluded that the foregoing allegations, taken together, stated viable claims under RICO and Illinois law.

The event that triggered the present motion was plaintiffs' receipt, on April 2, 2012, of notice of a shareholders' meeting to be held on April 16, 2012, for the purpose of authorizing the issuance of 1,200 new shares of KBP for PLN 600,000 (Polish zloty) (roughly US $200,000). Plaintiffs strenuously oppose the issuance of these shares because the resulting further dilution of their ownership interest to less than twenty-five percent will render them unable, under Polish law, to block certain fundamental corporate changes, such as a merger with a third party. There appears to be no dispute that dilution of plaintiffs' interest below twenty-five percent is a certainty should the additional shares issue, unless plaintiffs contribute the requisite capital to maintain their current interest, which they state they do not presently have the financial wherewithal to do. Moreover, if the new shares issue to Adam Swiech, or to an individual or entity he controls (which appears likely, as explained below), Adam will control more than seventy-five percent of KBP, giving him carte blanche to effect fundamental corporate changes, including a merger in which a third party could take over the company.

II. "A party seeking to obtain a preliminary injunction must demonstrate: (1) its case has some likelihood of success on the merits; (2) that no adequate remedy at law exists; and (3) it will suffer irreparable harm if the injunction is not granted." Ty, Inc. v. Jones Group, Inc., 237 F.3d 891 (7th Cir. 2001). If these requirements are met, I must "consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable harm the moving party will suffer if relief is denied." Id. I must also consider the public interest, if any, in granting or denying the motion, then weigh all of the factors together. Id. The Seventh Circuit has adopted what it terms a "sliding scale approach," which means that "the more likely the plaintiff will succeed on the merits, the less the balance of irreparable harms need favor the plaintiff's position." Id. This analysis (which applies equally to motions for a temporary restraining order), Long v. Board of Educ., Dist. 128, 167 F. Supp. 2d 988, 990 (N.D. Ill. 2001), is not "mathematical," but rather "subjective and intuitive." Ty, 237 F.3d at 895-96.

Before embarking upon this analysis, however, I turn briefly to a threshold issue raised by the direct defendants, who argue that I "lack the power" under RICO to grant the relief plaintiffs seek. This argument merits only brief attention. To begin with, neither of the RICO cases plaintiffs cite, Amari v. Burgess, 07 C 1425, 2008 U.S. Dist LEXIS 6754 at *11 (N.D. Ill. Jan 28, 2008)(Ashman, MJ), and Jackson v. Rohm & Haas Co., No. 05-4988, 2008 U.S. Dist. LEXIS 117403 (E.D. Penn. Dec. 17, 2008), remotely suggests that district courts lack the authority under RICO to grant preliminary injunctive relief. The question in each case was whether the statute authorizes private plaintiffs to seek such relief. While it is true that Magistrate Judge Ashman suggested in Amari that it does not (and that the Jackson court cited this observation), Judge Ashman's citation was to the Seventh Circuit's opinion in National Organization for Women v. Scheidler, 267 F.3d 687 (7th Cir. 2001)("NOW"), rev'd on other grounds, 537 U.S. 393 (2003), the most salient holding of which was the affirmative conclusion that RICO empowers private plaintiffs to seek injunctive relief, rather than limiting them to suits for money damages. Id. at 699 (observing that "the plain text of the statute strongly suggests that private plaintiffs can seek injunctions"). The NOW court was not concerned with the question of preliminary relief at all.

Moreover, I agree with Judge Rakoff's observation in Motorola Credit Corp. v. Uzan, 202 F. Supp. 2d 239 (S.D.N.Y. 2002)(granting preliminary injunction under RICO), that "[i]t would be extraordinary indeed if Congress, in enacting a statute that Congress expressly specified was to be 'liberally construed to effectuate its remedial purposes,' Pub.L. NO.91--452, § 904(a), 84 Stat. 947 (1970), intended, without expressly so stating, to deprive the district courts of utilizing this classic remedial power in private civil actions brought under the act." Id. at 244. In short, I am satisfied that RICO both authorizes plaintiffs to seek preliminary injunctive relief and authorizes me to grant it.*fn2

I now return to the preliminary injunction standard set forth above and apply it to plaintiffs' motion. As to the first element, plaintiffs can show a likelihood of success on the merits by demonstrating a "better than negligible chance" of prevailing on at least one of their claims. Ty, 237 F.3d at 897. Plaintiffs submit that "extensive evidence" uncovered ...


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