Domanus et al v. Lewicki et al

Filing 634

MEMORANDUM Opinion and Order Signed by the Honorable Mary M. Rowland on 11/5/2012.Mailed notice(gel, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JON DOMANUS, et al.,
Plaintiffs,
v.
DEREK LEWICKI, et al.,
Defendants.

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No. 08 C 4922
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

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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

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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

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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

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that Plaintiffs are not entitled to fees incurred in filing their Rule 72 objections
before the District Judge, and that Plaintiffs’ supporting documentation provides an
insufficient record of work for which they are seeking compensation. (Resp. 4–8.)
A. Applicable Law
In seeking attorneys’ fees, Plaintiffs rely on Rule 37(b)(2)(C), which provides that
the court must order the disobedient party, the attorney advising that
party, or both to pay the reasonable expenses, including attorney’s
fees, caused by the failure, unless the failure was substantially
justified or other circumstances make an award of expenses unjust.
“Thus, under Rule 37(c), a court has authority to sanction a party who fails to
disclose information or makes misleading disclosures by awarding attorney’s fees
incurred by the opposing party as a result of the failure to make required
disclosures.” Lucy v. Jones, No. 03 C 8688, 2004 WL 2367778, at *4 (N.D. Ill. Oct.
20, 2004).
In determining the appropriate amount of attorney’s fees to award, district
courts enjoy wide discretion. Spegon v. Catholic Bishop of Chicago, 175 F.3d 544,
550 (7th Cir. 1999). In Hensley v. Eckerhart, 461 U.S. 424 (1982), the Supreme
Court observed that “[t]he most useful starting point for determining the amount of
a reasonable fee is the number of hours reasonably expended on the litigation
multiplied by a reasonable hourly rate.” 461 U.S. at 433; accord Spegon, 175 F.3d at
550. This calculation is commonly referred to as the “lodestar.” Spegon, 175 F.3d at
550.
The party seeking the fee award bears the burden to prove the reasonableness of
the number of hours and the hourly rates claimed. See Hensley, 461 U.S. at 433. In
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determining the award, the Court must “exclude from this initial fee calculation
hours that were not ‘reasonably expended’” on the litigation. Id. at 434. The Court
may then increase or reduce the modified lodestar amount by considering a variety
of factors, see id. at 434–35, the most important of which is the “degree of success
obtained,” id. at 436; accord Spegon, 175 F.3d at 550. With these principles in mind,
the Court turns to Plaintiffs’ request for fees.
B. Fees for Filing Rule 72(a) Objections
Plaintiffs have requested fees for their expenses in filing their motion for
sanctions and their objections to the Hard Drive Order and the Bank Records
Order. (Pet. 2, 4.) Defendants contend that Plaintiffs are entitled only to the fees
associated with bringing their motion for sanctions because, (1) Defendants’
purported discovery abuses did not cause Plaintiffs to file their objections; (2) the
District Judge’s order refers only to the costs of bringing Plaintiffs’ motion for
sanctions, not for bringing their objections to this Court’s orders; and (3) Rule 72
does not provide for an award of attorney’s fees. (Resp. 4–7.) The Court is not
persuaded by Defendants’ arguments.
Defendants’ attempt to divert attention away from their repeated discovery
abuses are unavailing. It was Defendants’ conduct—not the Magistrate Judge’s
“clearly erroneous” orders—that led the District Court to the “inescapable
conclusion” that “Defendants destroyed evidence and lied about it.” (Dkt. 552 at 2).
If Defendants had not destroyed the hard drive and then lied about it and had
complied with Judge Nolan’s three previous orders requiring production of the bank

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records (Dkt. 297, 448, 450), neither the motion for sanctions nor the Rule 72
objections would have been necessary. In further aggravation, in the period after
the Magistrate Judge issued the Bank Records Order but before Plaintiffs filed their
Rule 72 objections, Defendants again failed to produce the Adam Swiech Baer
Account documents. If Defendants had complied promptly with the Bank Records
Order, they would have obviated, at least in part, Plaintiffs’ need to file their Rule
72 objections.
Next, Defendants argue that the plain language of the District Judge’s order
contemplates awarding fees only for the cost of bringing Plaintiffs’ sanctions motion;
it makes no mention of awarding fees related to Plaintiffs’ objections. (Resp. 4.) The
Court is not inclined to draw such a narrow interpretation of the District Judge’s
order. The District Court found bad faith and egregious misconduct by Defendants,
so much so that it concluded that “escalating sanctions must remain on the table in
order to ensure compliance with court orders.” (Dkt. 552 at 3.) Denying fees on the
Rule 72 motion is not consistent with the findings of the District Court. Moreover,
the case law concerning the amount of fees to award mandates a court to consider a
number of factors, the most important factor of which is the “degree of success
obtained.” Hensley, 461 U.S. at 438. While the Magistrate Judge found that
sanctions were warranted, Plaintiffs were not satisfied with the remedy ordered. As
is their right, Plaintiffs objected and sought the remedy they believed the facts
warranted. The District Court agreed and granted Plaintiffs the full relief they

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sought. (Dkt. 552 at 1, 4.) The litigation required for Plaintiffs to obtain the success
they achieved is, logically, the starting point for calculating the lodestar.
Finally, Defendants contend that Rule 72 does not contemplate an award of
attorney’s fees for raising successful objections. (Resp. 5.) Unlike Rule 37, Rule 72(a)
does not explicitly provide for an award of attorney’s fees to a party. However, as
this Court has found in a similar situation:
If only the original motion to compel were compensable, the feeshifting provision of Rule 37 would have little effect. A motion for
reconsideration that attacks the original motion to compel could cost as
much or more as the original motion itself; limiting the fees to the
original motion, therefore, would not “deter a party from pressing to a
court hearing frivolous requests for or objections to discovery.”
Catapult Comm’ns Corp. v. Foster, No. 06 C 6112, 2009 WL 2707040, at *2 (N.D. Ill.
Aug. 25, 2009) (quoting Fed. R. Civ. P. 37(a)(4), advisory committee’s notes (1970)).
Further, through its inherent powers, “a court may assess attorneys’ fees for the
willful disobedience of a court order . . . when the losing party has acted in bad
faith, vexatiously, wantonly, or for oppressive reasons.” Alyeska Pipeline Serv. Co. v.
Wilderness Society, 421 U.S. 240, 258–59 (1975). This inherent power “must be
exercised with restraint and discretion.” Chambers v. NASCO, Inc., 501 U.S. 32, 44
(1991); see Maynard v. Nygren, 332 F.3d 462, 470 (7th Cir. 2003) (“the assessment of
fees against counsel under the inherent powers of the court is permitted only when
there is a finding of willful disobedience or bad faith.”) (citing Chambers, 501 at 43;
Roadway Express v. Piper, 447 U.S. 752, 755–56 (1980)); Campbell v. Microsoft
Corp., No. 04-2060, 2006 WL 463263, at *4 (D.D.C. Feb. 24, 2006) (“While a district
court has some discretion to award costs, that discretion should be exercised only
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when a party’s inappropriate conduct meets the high threshold of bad faith.”). Here,
the District Judge explicitly found that Defendants acted in bad faith by destroying
the hard drive and then lying about it. (Dkt. 552 at 2.) The District Judge also found
Defendants in contempt of court for willfully violating court orders related to
producing the bank records. (Id. 3.) These are precisely the circumstances where
awarding Plaintiffs their attorney’s fees for filing both their motion for sanctions
and their Rule 72 objections is appropriate.
Defendants argue that “even where the sanctioned party objects to Rule 37
sanctions under Rule 72, each side is responsible for paying its own costs for
arguing the objections.” (Resp. 5.) Defendants’ cases do not support their argument.
None of them address whether fees are recoverable where a party files both a
discovery motion and Rule 72 objections. For example, in Maynard, the Seventh
Circuit ruled that Rule 37 does not apply to sanctions for filing a baseless
complaint. 332 F.3d at 471. Similarly, in Lucy, this Court ruled that defendants
were not entitled to “all of the attorney’s fees expended in defending this case” as a
Rule 37 sanction. 2004 WL 2367778, at *5. Royal Maccabees Life Insurance Co. v.
Malachinski, No. 96 C 6135, 2001 WL 290308 (N.D. Ill. March 20, 2001), did not
address fees for filing Rule 72 objections; instead, it merely ordered the parties to
conduct a good faith meet and confer to agree on fees that should be awarded prior
to plaintiff filing its fee petition. Id. at *23. Finally, Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384 (1990), observed that the Federal Rule of Civil Procedure 11
does not apply in appellate proceedings. Id. at 406.

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In sum, Plaintiffs are entitled to their reasonable expenses in filing both their
briefs in support of their motion for sanctions and their briefs with the District
Judge in support of their objections to the Hard Drive Order and the Bank Records
Order.
C. Lodestar
Defendants do not object to the hourly rate claimed by Plaintiffs’ counsel. (Resp.
7.) Instead, Defendants contend that the hours expended are excessive, the
supporting documents contain “only vague references to the activities being
performed,” and the paralegal hourly rates are unreasonable. (Id. 7–8.) The Court
disagrees.
With regard to the number of hours expended, Defendants sole argument is that
Plaintiffs’ counsel spent 108.8 hours generating approximately 70 pages of
pleadings, which results in an average of $661.67 per page. (Resp. 7.) Without citing
to any precedent, Defendants conclude that this fee per page “can hardly be called a
‘reasonable’ figure under Rule 37.” (Id.) The Court knows of no authority for
conducting a price-per-page analysis and does not find the proposal helpful.
Counsel spent 29.4 hours drafting their motion for sanctions and 18 hours
drafting the reply in support of sanctions. The Court finds these hours to be
reasonable, even efficient, given the factual and legal complexity of the motions to
compel. The sanctions motion contained a lengthy factual recitation of Defendants’
conduct, citations to several court orders and transcripts, and a lengthy affidavit in

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support with 14 attachments establishing the efforts by counsel to assure
compliance with discovery.1
On the other hand, the Court finds that 41.7 hours spent drafting the Rule 72
objections, as compared to the 29.4 hours drafting the sanctions motion, is
excessive. Given that the factual background for the objections should have been
largely lifted from Plaintiffs’ motion for sanctions and that parties are precluded
from raising new arguments in Rule 72(a) objections, see State Farm Mut. Auto. Ins.
Co. v. CPT Medical Servs., P.C., 375 F. Supp. 2d 141, 158 (E.D.N.Y. 2005) (district
court precluded from considering additional evidence that was not presented to the
magistrate judge in regard to a nondispositive motion);Jordan v. Tapper, 143 F.R.D.
567, 570 (D. N.J. 1992) (parties should raise any and all arguments before the
magistrate judge and not wait to raise new arguments before the district court), the
Court finds that the Rule 72 objections brief should have taken no more than 25
hours of attorney time. The Court believes the 18 hours spent on the reply in
support of the Rule 72 objections to be reasonable. In sum, the Court deducts 15.1
hours at an average attorney rate on the objections brief of $435 per hour, or
$6,568.50, from Plaintiffs’ fee request.
Next, Defendants challenge Plaintiffs’ billing records as unreasonably vague.
(Resp. 7.) But Defendants have not provided any specific objections other than
commenting that Plaintiffs’ “entries may be broken down into a handful of general

Plaintiffs do not appear to be seeking fees for time presenting their motions to the
court.
1

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categories—descriptions like ‘drafting,’ ‘research,’ ‘editing,’ and ‘revising.’” (Id.) “The
standard for determining whether hours are adequately documented is whether the
time records ‘taken in context’ enable the reviewing court to identify ‘the substance
of the work done.’” Krislov v. Rednour, 97 F. Supp. 2d 862, 870 (N.D. Ill. 2000)
(Bucklo, J.) (quoting Berberena v. Coler, 753 F.2d 629, 634 (7th Cir. 1985)); see
Hensley, 461 U.S. at 437 n.12 (Counsel “is not required to record in great detail how
each minute of his time was expended. But at least counsel should identify the
general subject matter of his time expenditures.”). Here, the Court finds that the
billing records submitted by Plaintiffs clearly identify “the substance of the work
done” in connection with filing the motion for sanctions briefs.
Finally, Defendants contend that “Plaintiffs have not explained what, exactly,
qualifies their paralegals to charge rates in excess of $110 per hour.” (Resp. 8.) The
determination of a “reasonable hourly rate” is based on the “market rate” for the
services rendered. Spegon, 175 F.3d at 554. The “actual billing rate for comparable
work is presumptively appropriate to use as the market rate.” Id. at 555 (citation
omitted). Here, the paralegal hourly rates “are the rates customarily charged by the
firm . . . in this and comparably complex cases.” (Clayton Decl. ¶ 8.) Moreover, other
courts in this market have found paralegal rates in excess of $110 reasonable in this
market. See, e.g., United Cent. Bank v. Kanan Fashions, Inc., No. 10 CV 331, 2012
WL 1409245, at *2–3 (N.D. Ill. April 23, 2012) (paralegal rate of $125 per hour
found reasonable); Tate v. Ancell, No. 08-0200, 2012 WL 2521614, at *2, *6 (S.D. Ill.
June 28, 2012) (paralegal rate of $185.17 per hour found reasonable).

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In sum, with the exception of the hours deducted with respect to filing the Rule
72 objections brief, all hours requested in connection with filing the motions that
resulted in the relief Plaintiffs were seeking will be allowed.
III. CONCLUSION
For the foregoing reasons, Plaintiffs’ Petition for Fees for Bringing Motions for
Discovery Sanctions [Dkt. 571] is GRANTED IN PART AND DENIED IN PART.
Plaintiffs are awarded $39,749.00 in fees.

E N T E R:
Dated: November 5, 2012
MARY M. ROWLAND
United States Magistrate Judge

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