Domanus et al v. Lewicki et al

Filing 494

MEMORANDUM Opinion and Injunction Signed by the Honorable Elaine E. Bucklo on 4/13/2012:Mailed notice(ca, ).

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

)
)
)
)
)
)
)
)
)
)
)
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.
)
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.

1

No. 08 C 4922

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.1

1

Plaintiffs state that an order from a Polish court prevents
Adam Swiech from alienating his shares. The appropriateness of
similar relief in this court was not fleshed out in the parties’
2

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.
however,

acknowledge

the

significant

evidence

It does,

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

briefing, nor discussed in the arguments on this motion.
3

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 (¶¶ 5457), 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

4

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

entitled, or in some cases, none at all.

to

which

they

were

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

5

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

6

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

Organization

to
for

the
Women

Seventh
v.

Circuit’s

Scheidler,

267

opinion
F.3d

in

687

National
(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

7

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
extraordinary

injunction
indeed

if

under

RICO),

Congress,

in

that

“[i]t

enacting

a

would

statute

be
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.2
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 to date supports the factual
allegations in their complaint, easily surpassing this standard.

2

Moreover, the direct defendants have raised no meaningful
argument as to why plaintiffs would not be independently entitled
to the interim relief they seek by virtue of their state law
claims, on which it appears plaintiffs also have a likelihood of
success based on the same evidence they assert in support of
their RICO claims. See Motorola, 202 F. Supp. 2d at 249.
8

I agree, and, indeed, conspicuously absent from both the direct and
the derivative defendants’ opposition briefs is any suggestion to
the contrary.3
Despite the apparent lack of dispute on this point, for the
sake of completeness, I summarize below some of the evidence
plaintiffs

have

identified

to

misconduct in their complaint.

substantiate

the

allegations

of

This evidence includes:

•

Bank records reflecting payments made between 1998 and
2002 to “TSP,” an entity controlled, at least as of March
of 2000, by Adam’s cousin, Dariusz Swiech. These payments
were purportedly for services that defendants have
produced no evidence were actually performed by TSP (in
fact, the evidence suggests that the services were
actually performed by another company, CB Richard Ellis,
which was also paid by KBP). Moreover, bank records show
that within days of receiving the payments, TSP paid
roughly the same amounts to “SARA,” a gardening company
Adam controlled;

•

Land title records showing that Adam in fact paid only PLN
488,800 for three parcels of land he resold to KBP in
August of 1998 for PLN 700,800, despite representing to
plaintiffs that he sold the land to KBP for the same price
he had paid;

•

Evidence of payments from KBP to Adam and SARA between
1997 and 2003, for which defendants have produced no
evidence that KBP received any consideration, and which
are contrary to KBP’s financial statements for those years
affirmatively stating that no related-party transactions
were conducted;

3

To the extent this section of plaintiffs’ brief is what the
derivative defendants dismiss as “straw man arguments,” their
cavalier remark does not conceal the fact that they offer no
response whatsoever to plaintiffs’ well-substantiated position on
an essential component of their claim for injunctive relief. The
direct defendants’ assertion that plaintiffs’ likelihood of
success on the merits is “irrelevant” is similarly futile.
9

•

Evidence that in May of 2003, Adam received KBP stock in
exchange for the forgiveness of a “loan” he allegedly made
to KBP in the form of payments to Polcon Construction
Corp. (an entity controlled by Lewicki and Richard Swiech)
for services purportedly rendered to KBP. Defendants have
produced no evidence either that Polcon provided any
services to KBP, or that Adam made any payments to Polcon
at all.

•

Loan agreements, land appraisals, and land transfer
agreements collectively showing that the direct defendants
used SMAL (which was then majority-owned by Lewicki) to
misappropriate land from KBP and four of its subsidiaries.

•

Evidence suggesting that Adam misappropriated a portion
of plaintiff Domanus’s shares by failing to register the
shares in the KBP shareholder registry, then later
claiming that Domanus surrendered the shares by failing
to pay a “loan” that never existed.
This evidence
includes: bank records reflecting Domanus’s purchase;
declarations signed by Adam in 2000 and 2001 stating that
the shares had to be temporarily registered to Swiech for
technical reasons, but were being held for Domanus as
beneficial owner; Domanus’s declaration that Adam
repeatedly promised to sign the shares over on request,
and that Domanus never took a loan secured by the shares;
and the putative loan agreement, which bears indicia of
forgery.

•

Evidence that Richard Swiech and Bozena Sanecka-Swiech
(Richard’s wife), both of whom sit on the management
boards of KBP or its subsidiaries, receive payment for
work they do not perform.
The foregoing is more than sufficient to satisfy plaintiffs’

burden to show a “better than negligible” chance of prevailing on
their claims at trial.
Where the parties’ dispute heats up is on the issue of whether
plaintiffs lack an adequate remedy at law and thus will suffer

10

irreparable

harm

in

the

absence

of

the

requested

relief.4

Plaintiffs open their argument on this point with the proposition
that the dilution of a party’s stake in a business itself may
represent irreparable harm, citing USCIC of N.C. v. Ramcell, Inc.,
07 C 5746, 2007 U.S. Dist. LEXIS 82168, at *15 (N.D. Ill. Nov. 6,
2007)(Bucklo, J.).

Indeed, I expressly recognized that principle

in Ramcell, as have other courts.

See, e.g., International Equity

Investments, Inc. v. Opportunity Equity Partners, Ltd., 441 F. Supp.
2d 552, 563 (S.D.N.Y. 2006); Suchodolski Associates, Inc. v. Cardell
Financial Corp., 03 C 4148, 2003 U.S. Dist. LEXIS 24933, at *12-13
(S.D.N.Y. Dec. 10, 2003).

Several courts have also noted that the

deprivation of corporate rights that diminishes a shareholder’s
control over the corporation is likewise irreparable.
Ramcell, 2007 U.S. Dist. LEXIS 82168, at *15;
Investments,

See, e.g.,

International Equity

441 F. Supp. 2d at 563-64; Bancorpsouth Bank v. Hall,

No. 6:10-cv-03390-DGK, 2011 U.S. Dist. LEXIS 12012, at *16 (W.D. Mo.
Feb. 7, 2011).

These propositions and the foregoing citations

4

The parties do not address the second element of the
analysis-–whether an adequate remedy at law exists-–separately
from the third element of irreparable harm. Indeed, the
distinction between the two is not immediately obvious, although
the Seventh Circuit summarized the difference in Roland Mach. Co.
v. Dresser Industries, Inc., 749 F.2d 380, 386 (7th Cir.
1984)(“The absence of an adequate remedy at law is a precondition
to any form of equitable relief. The requirement of irreparable
harm is needed to take care of the case where although the
ultimate relief that the plaintiff is seeking is equitable,
implying that he has no adequate remedy at law, he can easily
wait till the end of trial to get that relief.”). In any event,
the two elements are often analyzed together, as I do here.
11

(among

others)

are

at

the

fore

of

plaintiffs’

argument

on

irreparable harm. Accordingly, defendants’ attempt at oral argument
to portray plaintiffs’ reliance on these established principles as
some

sort

of

newly

hatched

idea,

drummed

up

in

response

to

defendants’ opposition, is as disingenuous as it is ineffectual.
For all of defendants’ own emphasis on this element of the analysis
(the first statement of several to appear in bold and underlined
typeface

in

the

derivative

defendants’

opposition

brief

is:

“Plaintiffs can show no irreparable harm”), they fail to articulate
any meaningful basis on which to distinguish plaintiffs’ pertinent
and persuasive authority.
Indeed, defendants ignore these cases entirely,5 and instead
premise their arguments on the demonstrably false assertion that the
only irreparable harm plaintiffs identify is a potential merger
between KBP and SMAL.

To be sure, plaintiffs emphasize the

separate and additional irreparable harm they would suffer in the
event of a merger between KBP and SMAL, after which SMAL could
become

the

majority

shareholder

of

the

merged

entity.

That

scenario, plaintiffs explain, “would enable the culmination of
Defendants’

fraud:

permanently

depriving

Plaintiffs

of

any

opportunity to reclaim their rightful majority ownership of KBP.”
Pl.’s Mot. at 14.

But this eventuality merely illustrates the

5

The direct defendants half-heartedly attempt to distinguish
Ramcell on its facts, but they do not explain why the factual
distinctions they note compel a different result in this case.
12

significance of plaintiffs’ ability to maintain sufficient control
over KBP to block such a merger.
As for the specific merger between KBP and SMAL, defendants’
insistence that it is nothing but a “dreamt-up notion” that is “not
even on the horizon,” Dir. Def.’s Opp. at 7; Deriv. Def.’s Opp. at
12, is belied by plaintiffs’ evidence that less than six months ago,
at a shareholders’ meeting on October 28, 2011, Adam voted to
approve a capital increase that would have issued 1,200 shares to
SMAL 03 sp. z.o.o. (“SMAL”), a non-party Polish corporation that is
majority-owned by Adam’s daughter.6

While it is true that making

SMAL a minority shareholder of KBP does not affirmatively establish
Adam’s

intent

to

effectuate

an

immediate

merger

of

the

two

companies, it certainly removes the scenario from the realm of the
wholly speculative.7
Having denied that plaintiffs stand to suffer any harm at all
in the absence of an injunction, defendants essentially skip over
the balance-of-the-harms portion of the preliminary injunction

6

Plaintiffs successfully challenged the share issuance on
technical grounds in the Krakow Court; but the parties do not
appear to dispute that the technical defect has been resolved,
and neither side has suggested that the share issuance now under
scrutiny would violate Polish law.
7

Plaintiffs also point out the ease with which SMAL could
become a majority shareholder in an entity resulting from a
merger between SMAL and KBP, citing evidence that SMAL owns $12
million worth of land rightfully belonging to KBP, “which could
readily be converted to stock in such a merged entity.” Pl.’s
Mot. at 14.
13

analysis, except to claim, without any factual support, that KBP’s
day-to-day

operations

will

be

critically

impaired

(even,

the

derivative defendants suggest, to the extent the company’s very
existence may be threatened) without the proposed capital injection.
But even assuming there is a factual basis for defendants’ claim of
KBP’s need for immediate capital to conduct its ongoing business,
the injunction plaintiffs seek would not, contrary to defendants’
suggestion, prohibit KBP generally from raising the funds it needs.
The plaintiffs’ proposed injunction

simply forecloses one discrete

avenue for doing so: through a capital call that will inevitably
result in a critical dilution of plaintiffs’ interest in the
company, and that appears, based on all of the available evidence,
specifically designed to effectuate just this result in accordance
with defendants’ ongoing scheme. Accordingly, defendants’ concerns
about the purported overbreadth of the injunction are unwarranted.
For the same reason, defendants’ invocation of the business
judgment rule is unavailing.

Contrary to defendants’ suggestion,

plaintiffs do not ask me to substitute my judgment for that of the
KBP management board to decide “whether, when and how to raise
capital to fund operations.”

Deriv. Def.’s Opp. at 7.

There is no

question that such questions generally must be left to corporate
management.

But

plaintiffs

do

not

ask

me

to

pronounce

upon

“whether” or “when” KBP can or should raise capital, and, to the
extent they seek to restrict “how” KBP may do so, the evidence they

14

present provides an ample basis, under the governing legal standard,
for doing so.

In any event, “the presumption that normally shields

defendants for their business decisions does not apply if the
plaintiff presents evidence of fraud, bad faith, or self-dealing.”
Georgeson v. DuPage Surgical Consultants, LTD., No. 05 C 1653, 2007
WL 914219, at *5 (N.D. Ill. Mar. 22, 2007) (Manning, J.) (citing
cases).

As set forth above, plaintiffs have presented substantial

evidence of all three.
Because I conclude that plaintiffs have met the first three
requirements for a preliminary injunction, and that the balance of
harms weighs in their favor, the remainder of the analysis falls
quickly into place.

As plaintiffs note, the public has both an

interest in preventing fraud and an interest in enforcing RICO. See
Hollinger Int’l, Inc. v. Hollinger, No. 04 C 698, 2008 WL 161683,
at *4 (N.D. Ill. Jan. 16, 2008) (Valdez, MJ); Allstate Ins. Co. v.
St. Anthony’s Spine & Joint Inst., P.C., 691 F. Supp. 2d 772, 788
(N.D. Ill. 2010)(one of the aims of RICO is to “protect the public
from those who would run organizations in a manner detrimental to
the public interest”) (quoting Cedric Kushner Promotions, Ltd. v.
King, 533 U.S. 158, 165 (2001)).

Meanwhile, defendants do not

assert any public interest in denying relief, and none is apparent.
Having

weighed

all

of

the

foregoing

factors

together,

I

conclude that plaintiffs are entitled to the TRO and preliminary
injunction they seek.

15

III.
For the foregoing reasons, plaintiffs’ motion for a temporary
restraining order and preliminary injunction is granted.

Defendant

Adam Swiech is enjoined from voting his shares to approve any
issuance of KBP shares that would reduce plaintiffs’ shareholdings
below twenty-five percent. Within seven days, plaintiffs shall post
a bond in the amount of $400,000.
ENTER ORDER:

___________________________
Elaine E. Bucklo
United States District Judge
Dated:

April 13, 2012

16