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Jon Domanus, et al v. Derek Lewicki

November 5, 2012

JON DOMANUS, ET AL., PLAINTIFFS,
v.
DEREK LEWICKI, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Mary M. Rowland

MEMORANDUM OPINION AND ORDER

Plaintiffs have filed a Petition for Fees for Bringing Motions for Discovery Sanctions. For the reasons stated below, the Petition is granted in part and denied in part.

I. BACKGROUND

A. The Complaint

This action arises out of Plaintiffs' allegations of a complex, bicontinental racketeering and fraud scheme spanning over ten years. On August 28, 2008, Plaintiffs, who are shareholders in 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 have named KBP and its wholly owned subsidiaries (the "KBP entities") as derivative defendants in this action, but seek no relief from these entities. Plaintiffs assert direct and derivative claims under 18 U.S.C. § 1962 ("RICO"), as well as liability under several common law theories including 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 gravamen of the Third Amended Complaint is that the direct Defendants, led by Derek Lewicki, Richard Swiech, and his brother, Adam Swiech, 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 the KBP entities of their assets, in order to finance real estate developments in suburban Chicago. The Complaint describes four types of misconduct: (1) sham contracts and payments for inadequate consideration; (2) self-dealing leases; (3) land misappropriation; and (4) construction kickbacks. Defendants reported proceeds generated by their misconduct as capital contributions by Adam Swiech, who then claimed to be the majority shareholder of KBP. These sham contributions diluted the shareholdings of Plaintiffs, who contend that they are the rightful majority shareholders of KBP, although they currently appear on the books as minority shareholders.

B. The Discovery Motions

On February 21, 2012, Plaintiffs filed a Motion for Discovery Sanctions Against Defendants asserting that Defendants (a) deliberately destroyed a hard drive that contained relevant evidence; and (b) failed to produce relevant bank account records, in violation of three Court orders. (Dkt. 459). On June 8, 2012, in two separate orders, one addressing the destruction of the hard drive ("Hard Drive Order"), and one addressing the failure to produce bank records ("Bank Records Order"), the Magistrate Judge granted in part and denied in part Plaintiffs' requests for discovery sanctions. (Dkt. 527, 528.) In the Hard Drive Order, the Court found that Lewicki and Richard Swiech had a duty to preserve the hard drive and were grossly negligent in failing to do so. The Court also concluded that Defendants' actions caused Plaintiffs prejudice by depriving them of the opportunity to have the hard drive forensically examined and to possibly recover additional responsive documents. Accordingly, the Court concluded that a spoliation charge against Lewicki and Richard Swiech was warranted. (Dkt. 528 at 26--27.)

In the Bank Records Order, the Court found that Lewicki had complied with the Court's orders and that no sanctions were warranted. (Dkt. 527 at 5.) However, the Court found that Adam Swiech had willfully failed to comply with the Court's orders and that Plaintiffs were prejudiced by Defendants' failure to produce documents from the Adam Swiech Baer Account. Accordingly, the Court recommended that if Adam Swiech failed to produce the Adam Swiech Baer Account records by the close of discovery, the District Judge should instruct the jury that (1) Adam Swiech failed to produce the Adam Swiech Baer Account records despite being ordered to do so; and (2) the jury should presume that if produced, the Adam Swiech Baer Account records would have been adverse to Defendants. (Id. 6.)

Plaintiffs filed objections to both the Hard Drive Order and the Bank Records Order. In their objections, Plaintiffs argued that Lewicki should be held in contempt for his failure to produce certain bank records. Plaintiffs also asserted that the sanctions imposed by the Magistrate Judge were inadequate.

On August 13, 2012, the District Judge granted Plaintiffs' objections. In regards to the Hard Drive Order, the District Judge concluded that "Defendants destroyed evidence and lied about it." (Dkt. 552 at 2.) Accordingly, the District Judge (1) ordered Richard Swiech and Lewicki to obtain all relevant emails from their email service providers and produce them within 45 days; and (2) precluded Defendants from using as evidence all documents culled from the hard drive before they destroyed it. (Id.) In regards to the Bank Records Order, the District Judge found Adam Swiech and Lewicki to be in contempt of court and gave them 10 days to produce the bank records or face a fine of $250 a day until they produce them. (Id.

3.) Additionally, if either Adam Swiech or Lewicki fails to produce the records and is fined, Defendants were ordered to document that the KBP entities were not funding any fine payments. (Id.) Finally, the District Judge ordered: "In light of my finding that Defendants violated court orders requiring disclosure of certain information, I grant Plaintiffs' request for reasonable expenses, including attorney's fees and costs, in bringing their motion for discovery sanctions. See Fed. R. Civ. P. 37(b)(2)(C)." (Id. 4.)

II. DISCUSSION

In their Petition, Plaintiffs seek $46,317.50 in fees they incurred in bringing their motions for sanctions, including filing two briefs before this Court and another two briefs before the District Judge. (Pet. 2.) In their objections, Defendants contend that Plaintiffs are not entitled to fees incurred in filing their Rule 72 objections before the District Judge, and that Plaintiffs' supporting ...


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