Domanus et al v. Lewicki et al

Filing 657

Enter MEMORANDUM Opinion and Order Signed by the Honorable Elaine E. Bucklo on 1/11/2013. Mailed notice (jdh)

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

)
)
)
)
)
)
)
)
)
)
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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.

No. 08 C 4922

MEMORANDUM OPINION AND ORDER
Years

of

struggle

through

the

protracted

and

intensely

litigated discovery in this case (one of the oldest still pending
on my docket) have convinced plaintiffs that months after the close
of discovery, defendants Adam Swiech, Richard Swiech, and Derek
Lewicki have not produced–-and are unlikely ever to produce–-all of
the evidence to which plaintiffs are entitled under the Federal
Rules of Civil Procedure.

In the motion now before me, plaintiffs

argue that the only appropriate sanction at this juncture for the
serious and ongoing discovery abuses committed by these defendants
is a default judgment against them on each of the plaintiffs’
claims.

I agree that “enough is enough,” Pyramid Energy, Ltd. v.

Heyl & Patterson, Inc., 869 F.2d 1058, 1062 (7th Cir. 1989), and
for the reasons that follow (and others that merely reinforce the
appropriateness of the relief plaintiffs seek and need not be
addressed individually), I grant plaintiffs’ motion.
I.
Over the course of this litigation, the origins and twists of
which have been chronicled in numerous opinions-–some lengthy,
others succinct–-by me and by the two magistrate judges who have
presided over discovery (familiarity with all of which I presume
for present purposes), an unmistakable pattern has emerged.

That

pattern is one of ongoing discovery misconduct by defendants,
plainly

calculated

to

obstruct

2

the

orderly

resolution

of

plaintiffs’ claims on the merits.
discovery

have

gone

unheeded,

Multiple orders compelling

including

my

August

13,

2012,

sanctions order, which, in addition to ordering discovery, also
held Adam Swiech and Derek Lewicki in contempt of court for their
contumacious conduct and imposed sanctions of $200 per day on each
of them for as long as the conduct persisted.

None of these

previous orders has evidently sufficed, alone or collectively, to
secure compliance with rules designed to ensure the efficient and
orderly resolution of civil claims in federal court.1
To review, plaintiffs allege “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.”

Domanus v.

Lewicki, 779 F. Supp. 2d 739, 744 (N.D. Ill. 2011) (“Domanus
I”)(denying various motions to dismiss).

The complaint alleges

four distinct types of misconduct, describes specific transactions
representative

of

each,

explains

how

the

alleged

wrongdoing

supports plaintiffs’ RICO claims, and identifies the separate

1

Defendants acknowledge that they have not produced the
discovery required by my sanctions order, and they do not dispute
that neither the monetary sanctions I imposed, nor the attorneys’
fees Magistrate Judge Rowland later awarded plaintiffs in
connection with the sanctions motion, has been paid. See DN 634.
These failures amount to separate and additional violations of
court orders.
3

counts of their claim for relief.

The complaint, I concluded,

presented a story that was “cogent and plausible.”
Since
marshaled

that

time,

“significant

I

have

observed

evidence,”

that

despite

Id. at 745.

plaintiffs

defendants’

have

evasive

discovery, to support their RICO and state claims, Domanus v.
Lewicki, 857 F. Supp. 2d 719, 721 (N.D. Ill. 2012) (“Domanus
II”)(granting preliminary injunction), and indeed have concluded
that

the

injunction

evidence

was

sufficient

restraining

Adam

to

Swiech

warrant
from

a

preliminary

executing

certain

transactions as a KBP shareholder that plaintiffs argued would have
amounted to the “culmination” of defendants’ alleged scheme.

Id.

Of course, to win their preliminary injunction, plaintiffs had to
prove a likelihood of success on the merits of their case.
723.

Id. at

Although defendants objected to plaintiffs’ request for a

preliminary

injunction

on

several

grounds,

they

essentially

conceded that plaintiffs had met their burden on this element of
their claim, id. at 724 and n. 3 (noting that defendants did not
dispute

that

“extensive

evidence”

plaintiffs

offered

easily

surpassed the likelihood of success standard, and observing that
defendants “offer no response whatsoever to plaintiffs’ wellsubstantiated position” on this element of their claim), and they
declined the opportunity for an evidentiary hearing. Id. at 721.
Indeed, defendants’ insistence, now, that they are anxious to
have this case decided on its merits–-the trial of which, they are

4

adamant, will reveal “a side of this case that the Court has not
yet seen”-–is belied by their unbroken failure, until now, to
present any evidence of such a story, much less any evidence to
rebut the substance of plaintiffs’ allegations, at any of the
junctures at which such a proffer might have been expected.

Id.;

See also Domanus v. Lewicki, --- F. Supp. 2d ---, 2012 WL 1932840,
at *6 and n. 4 (N.D. Ill. May 29, 2012) (“Domanus III”) (denying
derivative

defendants’

motion

to

file

a

cross-claim

against

plaintiffs, noting that the motion filed by derivative defendants’
counsel–-which I disqualified, in the same order, on the ground
that counsel was pursuing the direct defendants’ interest in
violation

of

the

neutrality

rule–-offered

“no

evidence

that

reasonably supports their allegations, which, in some instances,
are belied by affirmative evidence in the record.”)
Now, with their backs to the wall, and, as discussed below, no
meaningful

response

to

their

undisputed,

ongoing

discovery

violations, defendants submit a handful of documents they claim
substantiate the long-heralded “other side” to plaintiffs’ story.
Defendants

attach,

for

example,

an

excerpt

from

a

document

apparently drafted by plaintiff Kozlowski, which they assert,
without any reasoned analysis, reveals plaintiffs’ “scheme” to
effect a hostile takeover of KBP.

Even assuming, however, that

this document reveals the existence of such a “scheme,”

(which

scheme, I note, is not apparently unlawful per se, and defendants’

5

conclusory discussion of it does not identify any law it allegedly
violates), defendants do not explain how the evidence constitutes
a defense to the unlawful conduct plaintiffs assert.

And finally,

even if I assume that defendants’ bare bones evidentiary proffer
supports their argument that plaintiffs are themselves involved in
an unlawful scheme to take over KBP, I would nevertheless be at a
loss-–as would an eventual jury--to evaluate fairly the parties’
competing

stories,

since

defendants’

persistent

discovery

violations have left irreparable holes in the factual record. That
is the problem at the heart of plaintiffs’ motion, and the one to
which I now turn.
II.
“The judicial system is premised on the honest, good faith
efforts of the parties involved. ...

Where honesty is replaced

with falsehood, a party’s right to litigate comes into question.”
Rosenthal Collins Grp., LLC v. Trading Techs. Int'l, Inc., No. 05
C 4088, 2011 WL 722467, at *6 (N.D.Ill. Feb.23, 2011)(Johnson, J.)
(citations omitted). Indeed, “[l]awyers and litigants who decide
they will play by the rules of their own invention will find that
the game cannot be won.”

Id. (quoting Nw. Nat’l Ins. Co. v.

Baltes, 15 F.3d 660, 663 (7th Cir. 1994).

Litigants who abuse the

judicial process, for example by flouting court orders and ignoring
lesser sanctions, should not be surprised to find themselves facing
a default judgment.

See Profile Gear Corp. v. Foundry Allied

6

Indus., Inc., 937 F. 2d 351, 352 (7th Cir. 1991)(“For a long time
courts were reluctant to enter default judgments, and appellate
courts were reluctant to sustain those that were entered.... Those
times are gone.” (quoting Metropolitan Life Insurance Co. v. Estate
of Cammon, 929 F.2d 1220, 1224 (7th Cir. 1991) (ellipses in
original)).
Rule 37 of the Federal Rules of Civil Procedure specifically
authorizes courts to issue a default judgment against a party who
fails to obey a discovery order, Fed. R. Civ. P. 37(b)(2)(B)(vi),
or fails to attend its own deposition.

Fed. R. Civ. P. 37(d)(3).

In addition, the inherent power of federal courts “to manage their
own

affairs

so

as

to

achieve

the

orderly

and

expeditious

disposition of cases” encompasses “the ability to fashion an
appropriate

sanction

for

conduct

which

abuses

the

judicial

process,” as well as the “power to punish for contempts.” Chambers
v. NASCO, Inc., 501 U.S. 32, 43-45 (1991).2
judgment is indeed considered “draconian,”

Although a default

Maynard v. Nygren, 332

F.3d 462, 468 (7th Cir. 2003), it is warranted “when there is a
clear record of delay or contumacious conduct, or when other, less
drastic sanctions have proven unavailing.” Id. Moreover, a default

2

Chambers also acknowledged that courts may, in the exercise
of their inherent powers, assess attorneys fees against a party
that “shows bad faith by delaying or disrupting the litigation or
by hampering enforcement of a court order.”
7

judgment is an appropriate discovery sanction against a party who
has shown “bad faith, willfulness, or fault.” Id. at 467.
In considering a motion for default judgment, I must consider
the egregiousness of the conduct established, Barnhill v. U.S., 11
F.3d 1360, 1368 (7th Cir. 1993), and “weigh not only the straw that
finally broke the camel’s back, but all the straws that the
recalcitrant party piled on over the course of the lawsuit.”

e360

Insight, Inc. v. Spamhaus Project, 658 F.3d 637, 643 (7th Cir.
2011).
Many of the discovery abuses on which plaintiffs rely were the
subject of my August 13, 2012, sanctions order.

In that order, I

addressed defendants’ continued failure to produce certain bank
records that had been the subject of multiple judicial orders
compelling

production

beginning

in

2010.3

I

concluded

that

defendants had “willfully violated three orders” related to these
records, and, because I found that neither Adam Swiech nor Derek
Lewicki had made a good faith effort to obtain the records, I held
each of them in contempt of court, and again ordered them to
produce the records under penalty of daily monetary sanctions for
non-compliance.
I also addressed defendants’ destruction of a hard drive “in
the midst of discovery,” after producing selected items removed
from it, and concluded that Richard Swiech and Lewicki had acted in

3

These orders are found at DN 297 and DN 449 of this docket.
8

bad faith. Specifically, I found that they “destroyed evidence and
lied about it.”

As a sanction for their manipulation of evidence,

I ordered defendants to “obtain all relevant emails from their
email service providers and produce them within 45 days.”
Defendants acknowledge that they have not complied with any
aspect of my August 13, 2012, sanctions order, insisting that it is
“impossible” for them to do so. It is true, as defendants observe,
that a party cannot be sanctioned for failing to produce material
that it is not within that party’s power to obtain.

Societe

Internationale Pour Participations Industrielles et Commerciales,
S.A. v. Rogers, 357 U.S. 197, 210 (1958).

It is also true,

however, that “impossibility” is an exacting legal standard, which
requires “extensive efforts at compliance” undertaken in good
faith.

Id.

It is no surprise that defendants make no mention of

this standard, since they plainly come nowhere close to meeting it.
As to the records from Adam Swiech’s Julius Baer account
(which account, it bears recalling, is one of numerous bank
accounts

whose

existence

defendants

initially

concealed),

defendants admit that information about the account may be obtained
by its holder pursuant to a written request.

They then argue that

Adam has “done everything in [his] individual power[]” to obtain
these records, citing a single letter Adam claims to have sent to
the

bank

(which

“certification”

letter
of

was

Adam’s

not,

counsel,

9

in

fact,

Lucas

attached

Fuksa,

to

the

despite

the

representation that it was “attached hereto as Exhibit C”),4 along
with one email and three phone calls by Mr. Fuksa, only one of
which resulted in a substantive conversation–-the one in which Mr.
Fuksa was told that account information could be obtained pursuant
to a request in writing.5

No reasonable person could deem these

token efforts “extensive.” I agree with plaintiffs that extensive,
good faith efforts to comply with my order would have included, at
a minimum, additional letters, faxes, or phone calls to the bank to
ascertain how properly to utilize the admittedly available avenue
for obtaining information by written request.

As if to emphasize

the weakness of their argument, defendants rely on two cases in
which dismissal was upheld as a discovery sanction on facts similar
to those presented here.

See Moore v. Doe, 108 F.3d 1379 (Table)

(7th Cir. 1997) (affirming dismissal as sanction for “willfully
failing

to

comply

with

discovery

orders

and

[]

discovery

4

It appears that Adam’s letter to the bank appears elsewhere
in the record as Exhibit D to the Declaration of Robert Michaels
in support of plaintiffs’ motion. See DN 614-1 at 26. Having
reviewed the letter, I find that it supports plaintiffs’, rather
than defendants’ position. Among other reasons, the letter,
which is addressed generically to the bank, is dated August 21,
2012–-eight days after my sanctions order was entered and just
two days before it required full compliance. Nothing about the
letter suggests a meaningful attempt to comply with my order,
much less “extensive efforts” to do so.
5

Mr. Fuksa’s email, and the “failure notice” he states he
received in response, are similarly not attached to his
certification, despite the representation that they were attached
as Exhibits A and B. If these putative exhibits appear elsewhere
on the docket, I have been unable to find them.
10

obligations”), and National Hockey League v. Metropolitan Hockey
Club, Inc., 427 U.S. 639, 640 (1976)(affirming trial court’s
dismissal of action for plaintiffs’ “flagrant bad faith when after
being expressly directed to perform an act by a date certain...they
failed to perform.”)
Defendants’ claim of impossibility as to Lewicki’s HSBC bank
account records rings similarly hollow.

The meager evidence on

which they rely–-the same, generic announcement that HSBC was
terminating certain banking operations in 2011 that I previously
found insufficient, and one letter, addressed “to whom it may
concern”

at

HSBC

bank,

requesting

wire

transfer

confirmation

receipts for a particular account--fails to convince me that the
records I ordered defendants to produce are impossible to obtain.
Moreover, because the records were unquestionably available at the
time they were first compelled, defendants cannot now excuse their
failure to comply with my order on this basis.

See Pesaplastic,

C.A. v. Cincinnati Nilacron Co., 799 F.2d 1510, 1521-22 (11th Cir.
1986)(party who “failed to provide meaningful discovery by refusing
to identify the responsive documents,” then transferred responsive
documents to a third party, could not later assert impossibility as
excuse for failing to comply with court order).
Defendants’ argument that it is impossible to comply with my
order to obtain and produce emails from Richard Swiech’s and
Lewicki’s

email

providers

is

perhaps

11

the

flimsiest

of

all.

Defendants do not claim to have made any efforts whatsoever to
obtain emails from any but two of the multiple email service
providers

they

have

concededly

used,

or

from

providers

that

documents produced in discovery showed they have used for KBP
business.

For example, despite their production of KBP-related

emails from, for example, Lewicki’s and Richard Swiech’s addresses
at “comcast.net,” defendants do not claim to have made any effort
to obtain emails from Comcast in response to my August 13, 2012,
sanctions order.
In short, defendants have not manifested any serious effort to
comply with my August 13, 2012, sanctions order (or the multiple
discovery orders preceding that order), much less the kind of
“extensive efforts” they would have to show to substantiate their
claim that compliance is impossible.

Evidently, the monetary

sanctions I imposed in that order were not effective to put an end
to defendants’ discovery abuses.
Moreover, defendants have logged additional violations in the
intervening five months.
•

To highlight just a few:

Adam Swiech still has not sat for his deposition, despite
agreeing, in a joint status report filed pursuant to an
order by Magistrate Judge Nolan, that he would do so the
week of October 15, 2012 (see DN 524, 529), nor has he
provided the kind of evidence that could reasonably
substantiate his claim that an unspecified “medical

12

condition affecting his eye” has prevented him from doing
so.

The only evidence defendants offer as evidence of

Adam’s alleged incapacity is: 1) Adam’s statement, which
describes a surgery in March of 2012, a hospital stay
from July 23, 2012 to August 2, 2012, and a “sick leave”
from September 24, 2012 to October 7, 2012; and 2) a
photocopy of a document written in Polish, with no
translation, which purports to substantiate the “sick
leave.”

This evidence is, to say the least, a far cry

from the evidence that prompted the Second Circuit to
reverse the district court’s entry of default in Marfia
v. T.C. Ziraat Bankasi, New York Branch, 100 F.3d 243
(2nd Cir. 1996), in which the lower court had declined to
address “undisputed medical reports” establishing that
the

deponent

had

undergone

open-heart

surgery,

was

suffering from postoperative complications, and had been
advised to “remain at home with limited activities,” but
nevertheless appeared for and completed the first day of
his deposition, only terminating it after “complaints of
illness” on the second day.
Adam’s

credibility

were

Id. at 246-48, 250. Even if
not

seriously

called

into

question by his serial lack of candor in affidavits
previously filed in this case, see, e.g., Domanus I, 779
F. Supp. 2d at 750 n. 12, the evidence defendants offer

13

does not, even on its face, provide any excuse for Adam’s
failure to schedule his deposition for any time after
October 7, 2012. Despite numerous, documented efforts by
plaintiffs’

counsel

to

schedule

Adam’s

deposition,

defendants still have not agreed to any date.
•

Previously unproduced documents responsive to plaintiffs’
discovery requests continue to come out of the woodwork,
despite

defendants’

repeated

production is complete.

assurances

that

their

As plaintiffs’ supplemental

memorandum in support of their default motion explains,
defendants introduced several documents at the October
23,

2012,

previously

deposition
been

of

Jan

produced,

Domanus

including

that

what

had

not

defendants

acknowledge is “an unsigned, amended 2006 tax return,
prepared by [defendants’ accountant] Robert H. Freeman,
CPA, ostensibly on behalf of John Domanus and his wife.”
Defendants

do

not

dispute

that

plaintiff

did

not

authorize or direct defendants’ accountant to create this
document, which contains the social security numbers of
Domanus, his wife, and their son, nor do they dispute
that the document was not produced to plaintiffs prior to
Domanus’s
defendants’

deposition.
frankly

Even

improbable

if

I

were

explanation

to

credit

that

the

document was created “merely for demonstration purposes”

14

and was never intended to be used as evidence in this
case,6 there remains the problem of defendants’ admitted
non-production, prior to Domanus’s deposition, of a
document

they

do

not

dispute

was

responsive

to

plaintiffs’ discovery requests.
•

Defendants

have

not

complied

with

Magistrate

Judge

Rowland’s order of November 5, 2012, directing them to
pay plaintiffs’ attorneys’ fees incurred in conjunction
with their sanctions motion.

In response to documented

follow-up inquiries by plaintiffs’ counsel, defendants’
counsel pointedly refused to confirm that his clients
intend

to

comply

with

the

order,

or

to

justification for his failure to do so.

offer

any

See Reply

Declaration of Robert Michaels, Exh. C. (DN 650-3)
The foregoing is a representative list-–not an exhaustive
one–-of defendants’ recalcitrant conduct in this litigation.

The

arguments and materials they offer in response to plaintiffs’
default motion only underscore the conclusion that defendants have
no intention of playing by the rules required of civil litigants in
federal court, and that no sanction short of a default judgment is

6

Plaintiffs’ position is that the document establishes that
defendants fabricated evidence in an attempt to commit fraud on
the court. In response, defendants concede that the document was
prepared by Robert Freeman at the direction of Richard Swiech,
without Domanus’s knowledge, “for purposes of illustration,” and
claim that they never intended to misrepresent it as a document
prepared on Domanus’s behalf.
15

likely to induce compliance with judicial orders.

Plaintiffs

cannot reasonably be expected to try their case in the face of such
intransigence.
III.
For the foregoing reasons, plaintiffs’ motion for a default
judgment on all claims asserted against defendants Adam Swiech,
Richard Swiech, and Derek Lewicki is granted.

ENTER ORDER:

________________________
Elaine E. Bucklo
United States District Judge
Dated: January 11, 2013

16