Manish S. Shah, United States District Judge.
Jan Domanus and Andrew Kozlowski are shareholders of a Polish corporation called Krakow Business Park (KBP) and several of its subsidiaries. Domanus and Kozlowski claim that, beginning in 1997, some of the companies' other shareholders — including Adam Swiech, his brother Richard Swiech, and Derek Lewicki — began to steal from the businesses through a series of fraudulent transactions. In 2008, Domanus and Kozlowksi filed in federal court a civil action against Lewicki and the Swiech brothers (and others), alleging violations of, among other things, the Racketeer Influenced and Corrupt Organizations Act. Domanus and Kozlowski brought their suit both directly and derivatively, so the KBP entities were added as nominal defendants to the complaint.
John Dienner, an attorney at Kubasiak, Flystra, Thorpe & Rotunno, was counsel of record for the KBP entities from August 2010 to October 2011. Several attorneys from Locke Lord LLP took over the representation in 2011, remaining counsel of record until their disqualification in May 2012. Two years later, the corporations entered bankruptcy proceedings in Poland, and the companies — now under the control of a trustee — were realigned as plaintiffs in the pending suit.
Rule 8(a)(2) of the Federal Rules of Civil Procedure requires that a claim for relief contain "a short and plain statement of the claim showing that the pleader is entitled to relief." The complaint need not include specific facts, but it must provide the defendant with fair notice of what the claim is, and the grounds upon which it rests. Olson v. Champaign Cnty., Ill., 784 F.3d 1093, 1098-99 (7th Cir.2015) (citing Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The complaint must present enough factual matter, accepted as true, that the claim to relief "is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955); Firestone Fin. Corp. v. Meyer, 796 F.3d 822, 826 (7th Cir. Aug. 10, 2015) (citing Gogos v. AMS Mech. Sys., Inc., 737 F.3d 1170, 1172 (7th Cir.2013)). In considering a motion to dismiss under Rule 12(b)(6), the district court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in the plaintiff's favor. Firestone, 796 F.3d at 826 (citations omitted); Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 946 (7th Cir.2013) (quoting Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir.2010)).
Krakow Business Park (KBP) is a Polish company involved in the development of certain real estate near Krakow, Poland. Specifically, the company oversees the construction and management of several large office buildings that make up the business park. See Third Amended Complaint, [210] ¶ 22; Supplemental Complaint, [755] ¶ 1 (incorporating by reference paragraphs 1 through 97 of the Third Amended Complaint); Second Supplemental Complaint, [770] ¶ 1 (same).
After its formation in 1997, KBP had six primary shareholders, which included (among others) Adam Swiech; Adam's brother, Richard Swiech; Derek Lewicki; and Andrew Kozlowski. See id. ¶ 28. Jan Domanus became an additional shareholder in 2000. See id. ¶ 31. Domanus and Kozlowski claim that, starting in 1997, Adam Swiech (who was also president of the company) coordinated with his brother Richard and with Lewicki to misappropriate assets from KBP and its subsidiaries.
Lewicki and the Swiech brothers funneled a portion of the misappropriated funds to Chicago-area businesses and properties managed by those individuals. See id. ¶ 63. Adam Swiech, meanwhile, reinvested some of the stolen assets back into KBP as "capital contributions" — thereby augmenting Adam's ownership percentage in the company and diluting Domanus's and Kozlowski's shares. See id. ¶ 58. Adam also worked with his brother and Lewicki to scuttle a deal with a Luxembourg-based company that had agreed to buy all of KBP's outstanding shares. See id. ¶¶ 61-62.
In August 2008, Polish authorities arrested Adam Swiech in connection with his conduct at KBP, charging him with, among other things, money laundering, conversion, forgery, tax evasion, and leading an organized crime ring. See id. ¶¶ 10, 73. As a result of his arrest, Adam was forced to resign from his positions as president and sole management-board member of KBP. See id. ¶¶ 73, 75. Adam was able to retain de facto control over the business, however, by using his majority shares (obtained through the "capital contributions") to appoint friends and family members — including his brother, Richard, and Adam's and Richard's respective wives — to key management positions; he also voted his shares to amend KBP's articles of incorporation, now permitting a single board member (rather than a majority of members, as was formerly required) to bind KBP. See id. ¶¶ 73-75; [755] ¶¶ 41, 156. In February 2014, Adam was convicted on the first set of charges filed against him (i.e., filing with a Polish court KBP shareholder minutes containing forged signatures). See [755] at 2 n. 1. A trial on the other charges was (as of August 2014) set for early 2015, see id. but there is no information in the record about the outcome of that trial.
Richard Swiech and Lewicki were also charged by Polish authorities with crimes related to their activities at KBP. See [210] ¶¶ 6, 8. Lewicki was arrested in Poland, and was imprisoned there for a time, but was later released on bail. See id. ¶¶ 6, 76-77. There is no information in the record about the outcome of the prosecutions against Richard Swiech or Lewicki.
In August 2008, Domanus and Kozlowski filed suit against Lewicki, the Swiech brothers, and several other defendants — including Lewicki and Richard Swiech's wives — alleging violations of RICO, 18 U.S.C. § 1961 et seq., and state law. See [1], first amended at [51]. Domanus and
Domanus and Kozlowski later filed a motion for default judgment against Lewicki and the Swiech brothers. See [612]. The motion was granted as a sanction for the defendants' misconduct during the litigation. See [657]. Although default was granted on both the direct and derivative claims, Domanus and Kozlowski moved to stay a prove-up on the latter. See [664]. That motion, too, was granted, and briefing on damages for the derivative claims was deferred. See [666].
The defaulting defendants then moved to stay the prove-up of damages for the direct claims, arguing that a prove-up of claims against only some of the individual defendants would be inappropriate under Supreme Court and Seventh Circuit precedent. See [671] at 2-6 (discussing Frow v. De La Vega, 82 U.S. 15 Wall. 552, 21 L.Ed. 60 (1872); In re Uranium Antitrust Litigation, 617 F.2d 1248 (7th Cir.1980)). This motion to stay was denied, [677], and final judgment was entered against the defaulting defendants under Federal Rule of Civil Procedure 54(b), [698]. Approximately $413 million in damages were assessed against Lewicki and Richard and Adam Swiech on the direct RICO claims. See id. at 3 (entering judgment in the amount of $137.8 million, trebled under 18 U.S.C. § 1964(c)).
Lewicki and the Swiech brothers appealed both the order of default and the order denying their motion to stay prove-up of the direct claims. See June 28, 2013 Notice of Appeal, [704]. The Seventh Circuit determined that the default judgment was appropriate, and that the district court had not abused its discretion in denying the defendants' motion to stay the direct-claims prove-up because the plaintiffs had agreed to dismiss all claims
By April 2014, KBP had entered bankruptcy proceedings in Poland, and a trustee had assumed control over the corporation and its wholly-owned subsidiaries. See Plaintiffs' Unopposed Motion for Entry of Stipulated Order, [750] at 2. The companies were now willing and able to pursue on their own behalf the claims formerly designated as "derivative." See id. The corporations were realigned as plaintiffs. Then plaintiffs — which now included Domanus, Kozlowski, and the KPB entities — asserted claims against the attorneys who had represented the entities before realignment. See [755] (supplemental complaint); [770] (second supplemental complaint).
Plaintiffs claim that the attorneys who represented the KBP entities before realignment — first Dienner (at KFTR), then Jaszczuk, Safer, and Schlessinger (at Locke Lord) — betrayed their true clients
John Dienner, an attorney with the law firm of Kubasiak, Fylstra, Thorpe & Rotunno, P.C., was counsel of record for the KBP entities from August 2010 to October 2011. See [269]; [431]. He was recruited to represent KBP by Richard Karr at Gordon & Karr, LLP, an attorney for the Lewicki/Swiech defendants. See [770] ¶¶ 5, 27.
After Dienner was retained to represent KPB, he began working on a motion to quash service on the corporation. See id. ¶ 54. Dienner drafted the motion solely at the direction of the defendants and their counsel at Gordon & Karr, and performed no independent assessment to determine whether filing the motion would be in KBP's best interest. See id. Dienner also worked closely with the defendants and their counsel in responding to discovery requests concerning the motion to quash. He consulted with Gordon & Karr about responding to interrogatories and document requests, see id. ¶¶ 55-56, and he stopped trying to obtain responsive documents after Karr asked him to "consider a more aggressive path," because the "clients [were] getting desperate for a dismissal and the court's jurisdiction over KBP may be their last best hope." Id. ¶¶ 56-57 (quoting November 15, 2010 E-mail from Richard Karr to John Dienner, [770-6] at 2-3
Dienner continued to work with the defendants' attorneys when drafting the reply brief for the motion. See [770] ¶ 58. He attached to the brief an affidavit signed by the then-acting president of KBP (and alleged criminal), Dariusz Burek. See id. It was defendants' counsel, however, who prepared the draft affidavit, and Dienner filed it with only minor revisions — without first checking to see if the statements in the affidavit were true (which plaintiffs say there were not), or if Burek was competent to make them. See [770] ¶ 58.
Domanus and Kozlowski moved to strike the Burek affidavit, and Dienner let the attorneys at Gordon & Karr prepare the response to that motion. See id. ¶ 59. The motion to strike also addressed the corporation's need for independent counsel — an issue raised earlier by Domanus and Kozlowski in a prior filing. See id.; see also Plaintiffs' Motion to Strike Declaration of Dariusz Burek, [359] at 3; Plaintiffs' Response in Opposition to the KBP Entities' Motion to Quash Service of Summons and For Other Relief, [353] at 13-14.
The court denied the motion to quash (which was also, in the alternative, a motion to dismiss for lack of personal jurisdiction). See id. ¶ 60; [368] at 20-25. A few months later, Dienner wrote to Lewicki:
September 9, 2011 E-mail from John Dienner to Derek Lewicki, [770-7] at 2.
Plaintiffs claim that Dienner also agreed to participate in a fraudulent billing scheme devised by the Lewicki/Swiech defendants and their attorneys at Gordon & Karr. Before Dienner was retained to represent KBP, Gordon & Karr had entered into an agreement with some of the KBP entities to represent them as well as the Lewicki/Swiech defendants. See [770] ¶ 30. Gordon & Karr's billing invoices were addressed directly to KBP (so that KBP would pay them, which it did), but the invoices did not identify the client for whom the invoiced services had been performed, or the particular attorneys who had performed them; the invoices stated only that services had been provided in connection with the "Polish Litigation." See id. The descriptions of these services were similarly vague. See id.
When Dienner was retained in August 2010, Gordon & Karr's July 2010 invoice to the KBP entities was still outstanding. See id. ¶ 32. Lewicki e-mailed Karr, explaining that KBP was ready to pay the July invoice but payment would have to go through Dlugopolski (the company's attorney in Poland) and Dienner. See id.; see also August 4, 2010 E-mail from Derek Lewicki to Richard Karr, [770-2] at 2. Lewicki stated that certain changes would have to be made to the invoice, and attached to his e-mail a copy with the needed revisions. See [770] ¶ 32; [770-2] at 2-6. Lewicki instructed Karr not to send any billing correspondence to KBP, but to Dlugopolski instead. See [770] ¶ 33; [770-2] at 2.
As Lewicki had requested, Dienner — to whom Karr had forwarded Lewicki's message, see [770] ¶ 32; August 5, 2010 E-mail from Richard Karr to John Dienner, [770-2] at 2 — removed Gordon & Karr's letterhead (which included the firm's name and address) from the invoice, leaving that space blank, see [770] ¶ 35. He did attach
Dienner followed the same approach — minus the invoice for KFTR's retainer — in the ensuing months, but the bills went unpaid. See id. ¶¶ 37-38. Then, in November of that year, Lewicki sent Karr an e-mail with an attachment, explaining: "this is the version of invoice which will be safe for them. Don't ask why, don't make any comments I know it's stupid." Id. ¶¶ 38-39; November 15, 2010 E-mail to Richard Karr, [770-3] at 2. The attachment was Dienner's September 2010 (as-yet-unpaid) invoice package. See [770-3] at 3-11. Typewritten onto the documents were various changes suggested by Lewicki. See id.
Karr forwarded the e-mail and attachment to Dienner, and the two spoke with Lewicki through Skype. See [770] ¶¶ 38, 44; November 15, 2010 E-mail from Richard Karr to John Dienner, [770-3] at 2. Together, the three agreed that Gordon & Karr would redact from its own invoices any references to Lewicki's name (as Lewicki had requested, see [770-3] at 7), and that Gordon & Karr would continue to forward its (redacted) invoices to Dienner, who would in turn continue to remove from the letterhead Gordon & Karr's identifying information, leaving it blank. See [770] ¶ 44. It was also agreed that Dienner would begin to redact from KFTR's invoices the "Invoice Summary" section, which in prior billings had denoted the total fees and expenses incurred by KFTR, and that he would now refer in his cover letter simply to "Additional Legal Services" rather than to services provided by Gordon & Karr. See id. ¶ 44.
Pursuant to their new agreement, Karr and Dienner each revised their firm's August and September 2010 bills and composed their October 2010 bills in a similar fashion. See id. ¶ 45. Before he could send the new invoice packages to Dlugopolski, however, Dlugopolski sent him an e-mail rejecting the outstanding (unrevised) August and September invoices that had never been paid, stating that they could not be paid because they sought payment for Gordon & Karr's services, while it was KFTR who was representing the company. See id. Baffled, Dienner questioned Karr, who told him simply to send to Dlugopolski "the revised bill the way we discussed." Id. ¶ 46 (quoting November 17, 2010 E-mail from Richard Karr to John Dienner, [770-4] at 2). Karr explained that Dlugopolski's e-mail had been sent for cover. [770] ¶ 46; [770-4] at 2.
Dienner sent Dlugopolski the revised invoice package, and received on December 8, 2010 a letter purporting to be from a KBP board member. See [770] ¶¶ 47-48. The letter stated that KBP agreed to pay the total invoiced amount on the assumption that that amount represented fees and expenses incurred by Dienner. See id. ¶ 48. Although more than 70% of the invoice was for Gordon & Karr's services, not Dienner's or KFTR's, Dienner made no comment and Dlugopolski wired the entire payment to Dienner. See id. ¶¶ 48-49. As he had done before, Dienner wrote out a check to Gordon & Karr for the latter's share of the bill. See id. ¶ 49. Dienner continued to prepare invoices in this way through September 2011. See id.
Plaintiffs' complaint against Dienner includes one RICO claim — conspiracy to violate RICO, in violation of 18 U.S.C. § 1962(d) (Count I) — and five claims under state law: civil conspiracy (Count IV), legal malpractice (Count VI), breach of fiduciary duty (Count V), aiding and abetting a breach of fiduciary duty (Count III), and aiding and abetting fraud (Count II). See id. ¶¶ 92-121. All counts are also brought against KFTR under a theory of vicarious liability. See id. ¶¶ 97, 103, 108, 112, 117, 121. Dienner and KFTR each filed a motion to dismiss the claims against them. [787]; [791].
In the fall of 2011, Locke Lord LLP replaced KFTR as the law firm representing KBP in the ongoing litigation. Three of the attorneys on the Locke Lord team were Martin Jaszczuk, Jay Safer, and Daniel Schlessinger. Plaintiffs claim that, like Dienner, these attorneys also joined the Lewicki/Swiech defendants' RICO conspiracy.
Locke Lord was first contacted about representing the KPB entities in May 2011. See [755] ¶ 22. Szymon Gostynski, a Polish lawyer who knew the Lewicki/Swiech defendants, reached out to Jay Safer about taking on the case. See id. At the time, and as discussed above, the KBP entities had different counsel (Dienner at KFTR) than did the Lewicki/Swiech defendants (Karr at Gordon & Karr), but Gostynski wanted Locke Lord to take over for both; he made clear to Safer that Locke Lord's role would be to defeat Domanus and Kozlowski on the merits of their claims. See id.
Safer asked Jaszczuk and Schlessinger, two other attorneys at Locke Lord, to head the representation. See id. ¶ 23. Jaszczuk and Schlessinger spoke with Lewicki, who explained that although the defendants were unable to pay for their own defense, KBP could pay the bill. See id. Because this was not permitted by Polish law, however, and because the Polish authorities had been scrutinizing KBP's expenditures during the ongoing criminal investigation of Lewicki and the Swiechs, Locke Lord would have to conceal on its invoices that its services had been performed for the defendants. See id. Lewicki described how the current attorneys had gotten around this problem (i.e., through the billing scheme discussed above), and sent to the Locke Lord attorneys a sample invoice. See id. ¶¶ 23-24.
The Locke Lord attorneys agreed with Lewicki that once Locke Lord came on board, it would bill KBP for any services affecting the corporations, billing the defendants separately for only the services performed just for them. See id. ¶¶ 28, 30. This way, KBP would pay the majority of each invoice. See id. ¶ 28.
Locke Lord eventually prepared two separate engagement letters — one for the KBP entities, and one for the Lewicki/Swiech defendants (although both called for KBP to pay Locke Lord's retainer). See id. ¶¶ 29-30. Before the agreements were executed, however, Jaszczuk raised a concern: Domanus and Kozlowski had in previous filings questioned the independence of Janusz Dlugopolski, KBP's attorney in Poland. See id. ¶ 32; see also Domanus's and Kozlowski's Opposition to the KBP Entities' Motion to Quash, [353] at 14. Jaszczuk worried that Locke Lord's representing both the individual and derivative defendants might also be challenged;
The three then agreed on a new approach: Locke Lord would find another law firm to represent the individual defendants, but Locke Lord — now formally representing only the KPB entities — would still defend Lewicki et al.'s interests on the merits (by, for example, litigating the defendants' counterclaim, in the form of a "cross-claim" filed by KBP). See id. The defendants' attorney would therefore need to defend the latter for free, agreeing instead to take a larger-than-normal contingency fee for any counterclaims "jointly" prosecuted with counsel at Locke Lord.
Fuksa agreed to represent the Lewicki/Swiech defendants for $200 per hour, with a possible contingency fee if the above-mentioned counterclaims were successful. See id. ¶ 39. The plan was for Locke Lord to handle the majority of the work related to the "common interest" shared by KBP and the individual defendants. See id. Fuksa appeared as counsel for the defendants in September 2011, and Locke Lord sought leave to appear for the KBP entities a month later. See id. ¶¶ 40, 44. (In the meantime, Locke Lord had revised its retention agreement with KBP, eliminating any reference to a joint representation. Id. ¶ 40.) Domanus and Kozlowski did not formally object to the substitution, but they did file a response to the motion for leave to appear, expressing their concern that the defendants intended to enlist the Locke Lord attorneys in helping with their own defense — "perhaps even on the KBP Entities' dime." Id. ¶ 44 (quoting Plaintiffs' Response to Derivative Defendants' Motion for Leave to File Appearance of New Counsel, [428] at 6). Locke Lord acknowledged that it could not represent both KBP and its directors, see [429] at 4 n. 1, but said it had no intention of representing the defendants, see id. at 3. Locke Lord's motion to appear was granted. [431].
Once the Locke Lord attorneys were formally on board, Domanus and Kozlowski forwarded to them various materials collected during the case, including: bank records for accounts held by the Lewicki/Swiech defendants; reports from a forensic accountant appointed by the court in Poland; agreements and invoices prepared by the individual defendants; and Domanus's and Kozlowski's interrogatory responses, which purported to explain the basis for their claims (as well as identify documents and other evidence supporting them). See id. ¶ 46. Domanus and Kozlowski also sent Locke Lord a hard drive containing approximately 60 gigabytes' worth of documents from the Polish prosecutor, which included, among other things, additional bank records, reports from Polish tax authorities, the criminal charges brought against Lewicki and the Swiech brothers in Poland, and interviews with several third parties who had allegedly performed services for the KBP entities but who were never paid for their work. See id. ¶ 47. Locke Lord did not review the materials on the hard drive. See id. ¶ 90.
Neither of these statements, say plaintiffs, was true. As explained in the complaint against the Lewicki/Swiech defendants, and in the documents Domanus and Kozlowski had given to Locke Lord, the deal was a stock sale between KBP's shareholders and the potential buyer — so KBP itself was not even a party to the proposed transaction. See id. ¶ 53. Schlessinger's statements were based solely on what the Lewicki/Swiech defendants had told him. See id. According to plaintiffs, the Locke Lord attorneys also had no reason to seek documents from Kozlowski's employer, because KBP had no claims or defenses pending in the litigation. See id. ¶ 55.
Jaszczuk opposed production, arguing that the records were irrelevant because the accounts at issue had been opened after the individual plaintiffs filed their third amended complaint. See id. But Jaszczuk's opposition was unsuccessful, and the magistrate judge ordered the defendants to turn over the records. See id. Plaintiffs claim that what they received showed Lewicki had thousands of dollars from the KBP entities in one of his accounts. See id.
Domanus and Kozlowski also sent discovery requests to Locke Lord, requesting information about KBP's contracts with, and payments to and from, the Lewicki/Swiech defendants. See id. ¶ 61.
The reports became an issue in plaintiffs' later motion to disqualify the Locke Lord attorneys. In opposing that motion, Locke Lord stated that it had obtained a report and shared it with its client's representative in Poland, but left out that it had gotten the report at defendants' direction (and had sent it to them directly, as well). See id. ¶¶ 71-72; Response of the KBP Entities to Plaintiffs' Motion to Disqualify Locke Lord, LLP, [463] at 12.
The proposed cross-claim was tendered to the district court in connection with Locke Lord's opposition to the motion to disqualify them as counsel for KPB. See [463]; [464]; [464-1].
Domanus and Kozlowski filed a motion to disqualify Locke Lord, which the court granted in May 2012. See [455]; [520]. After disqualification, the Locke Lord attorneys continued to communicate with the Lewicki/Swiech defendants and the latter's counsel. Jaszczuk, for example, advised Dlugopolski's office about how the defendants' alleged co-conspirators could enforce a judgment against Domanus. See id. ¶ 111. Following a discussion with Safer and Schlessinger, Jaszczuk also told Fuksa, defendants' counsel in the civil litigation, that Locke Lord would oppose on grounds of privilege any subpoena from Domanus and Kozlowski seeking communications between the Locke Lord attorneys and defendants' attorneys (or defendants themselves). See id. ¶¶ 112-13. The Locke Lord attorneys also told Dlugopolski and the defendants that if KBP would pay its outstanding balance to Locke Lord, the latter would consider litigating the cross-claim in a separate suit. See id. ¶¶ 111, 115.
In August 2014, plaintiffs filed a supplemental complaint against Locke Lord and Jaszczuk, Safer, and Schlessinger. As with their complaint against Dienner, plaintiffs brought in this complaint a RICO conspiracy claim (alleging violation of 18 U.S.C. § 1962(d)) (Count I), and state-law claims for civil conspiracy (Count IV), legal malpractice (Count VI), breach of fiduciary duty (Count V), aiding and abetting a breach of fiduciary duty (Count III), and aiding and abetting fraud (Count II). See id. ¶¶ 145-68. Locke Lord and the three attorney defendants collectively filed a motion to dismiss the claims against them. [761].
The Locke Lord defendants argue, among other things, that plaintiffs are estopped or otherwise precluded under the Frow/In re Uranium doctrine from bringing certain of their claims, see [765] at 44-48, and that plaintiffs have failed to state a proper RICO conspiracy claim, see id. at 14-37.
The Locke Lord defendants first argue that plaintiffs are precluded from bringing certain claims — specifically, their RICO (Count I), civil-conspiracy (Count IV), and aiding-and-abetting claims (Counts II-III) — under a legal doctrine articulated in Frow v. De La Vega, 82 U.S. 15 Wall. 552, 21 L.Ed. 60 (1872), and In re Uranium Antitrust Litig., 617 F.2d 1248 (7th Cir. 1980).
In Frow, the plaintiff claimed that fourteen defendants had joined together in a conspiracy to defraud the plaintiff out of a particular tract of land. See 82 U.S. at 552-53. Thirteen of the defendants answered the complaint, but one defaulted, and a final decree of judgment was entered against him — awarding to the plaintiff
The primary concern in Frow was the risk of inconsistent determinations of liability. But, as the Seventh Circuit later explained in In re Uranium, such inconsistency is not so troubling — and so Frow does not apply — where the liability asserted is not joint, but joint and several. See 617 F.2d at 1256-57. The concept of joint liability is based on the idea that someone who joins together with others to commit a tortious act is himself "entirely responsible for the damage resulting from that concerted conduct." Id. at 1257. Joint and several liability, on the other hand, allows for the possibility that only some of the defendants may be found to have joined the conspiracy at all. See id. Thus, in a joint-and-several-liability case, a determination that some of the defendants are liable is not necessarily inconsistent with a determination that other defendants are not. See id. It follows that in such cases, unlike in joint-liability cases, default judgment may be entered as to certain defendants before the merits have been adjudicated as to the remaining ones. See id. at 1258. What is not permitted, however — even in joint-and-several-liability cases — is entering damages against a defaulting defendant before assessing what damages (if any) are owed by the non-defaulters.
The concerns with prematurely entering damages against a defaulter are twofold. The first is, once again, a risk of inconsistency. If damages are entered against a defaulting defendant and the plaintiff later prevails against the answering ones, then damages will need to be proven against the latter, and the second award may differ from the first. See id. at 1262. Distinct awards would be unacceptable because liability is not merely several (though it is the "several" component that renders Frow inapplicable), but also joint. See id. The second concern is one of judicial economy. If, for example, it is determined after entering damages against the defaulters that the plaintiff did not have standing to bring suit in the first place, then the damages hearing was "a useless exercise." Id. For these reasons, damages hearings against defaulting defendants in general may not be held until the liability of the non-defaulters has been determined and the entire claim resolved. See id.
In the present case, joint and several liability was asserted against the individual (non-KBP) defendants — which included Lewicki (and his wife), the Swiech brothers (and Richard Swiech's wife), and various companies held or controlled by those individuals. See [210] at 72-73. Default judgment was entered against only Lewicki and the Swiech brothers. The Locke Lord attorneys argue that because plaintiffs elected to proceed with a damages hearing against the defaulters on what were formerly the "direct" claims (briefing was stayed for damages on the "derivative" claims, see [664] at 2, 7; [666]), and obtained a damages award on those claims, plaintiffs cannot now assert those same claims against Locke Lord. See [765] at 44-47.
If Domanus and Kozlowski were permitted to assert against the Locke Lord attorneys the same claims for which they have already obtained an enforceable damages award, that would effectively rescind their earlier commitment. Plaintiffs argue that their earlier promise was to dismiss the direct claims as asserted against particular non-defaulting defendants (which plaintiffs did, see [726]; [732]) — and the Locke Lord defendants necessarily were not included in that group, because they were not then parties to the case. See [776] at 61-62. But plaintiffs' argument takes too narrow a view of what Domanus's and Kozlowski's commitment truly was.
The purpose of Domanus's and Kozlowski's promise was to avoid the problem identified in In re Uranium — a problem of potentially inconsistent damages awards. What plaintiffs now argue is, in effect, that Domanus and Kozlowski agreed to dismiss their direct claims only against the then-named non-defaulting defendants, thus implicitly reserving the right to replace those particular defendants with other ones at a later time. But such a promise would not have eliminated the risk of inconsistent damages awards, because any damages assessed against the later-added defendants might differ from those assessed against the defaulters for the same claims. A commitment qualified in the way plaintiffs now argue Domanus's and Kozlowski's promise was qualified is, under In re Uranium, no commitment at all.
Domanus and Kozlowki wanted to proceed to a damages determination against Lewicki and the Swiech brothers as soon as possible, and, in order to do so, they promised to dismiss their "direct" claims against all non-defaulting defendants. This promise necessarily included an agreement not to assert the very same claims against other parties at a later date. Plaintiffs are estopped from pursuing against any defendant any "direct" claim for which damages have already been assessed against the Lewicki/Sweich defendants. See Domanus, 742 F.3d at 304.
In addition, there are the "derivative" claims. The Locke Lord attorneys argue that plaintiffs are also precluded from asserting against Locke Lord any of what were formerly the derivative claims, because: (1) the Seventh Circuit construed Domanus's and Kozlowski's promise as a promise to dismiss all claims pending against the non-defaulting defendants; and (2) such a construction makes sense, because the conduct that allegedly resulted in "direct" injuries is the same conduct that supposedly caused the derivative ones. See [765] at 47-48. The attorneys' arguments are unpersuasive.
The court of appeals did describe Domanus's and Kozlowski's promise as a promise "to dismiss all claims against the non-defaulting defendants." 742 F.3d at 304. But the appellate court was discussing a prove-up of only the direct claims. Plaintiffs had obtained an order of default on both the direct and derivative claims, but a prove-up was conducted — and final judgment entered — only as to the direct ones. See [698] at 5 (entering judgment under Rule 54(b) on Counts I through XIV); [210] at 42-56 (denoting those counts as "direct"). It was the district court's decision not to stay prove-up on the direct claims (as the defaulters had requested) that was under review on appeal. The derivative claims, as the defaulters themselves noted in their appellate brief, were still pending in the district court. See [COA-23] at 7-8.
Estoppel aside, the Locke Lord attorneys argue that the principles articulated in Frow and In re Uranium nonetheless prohibit plaintiffs from moving forward with their derivative claims because there is still a risk of inconsistent results. Since the derivative claims stem from the same transactions as do the direct ones, say the attorneys, it would be logically inconsistent to find that the attorneys are not liable for the derivative claims — a possibility if the plaintiffs fail to prove, for example, that the conduct in which the Lewicki/Swiech defendants engaged amounts to a RICO violation — while continuing to hold the defaulting defendants liable (and ordering them to pay damages) for Domanus's and Kozlowski's direct injuries. See [762-1] at 47-48; [793] at 40-41.
Frow's reasoning does not apply here. Frow asks whether a default judgment against one defendant would necessarily be logically inconsistent with judgments in favor of other defendants on the same claim. See Marshall & Ilsley Trust Co. v. Pate, 819 F.2d 806, 812 (7th Cir.1987) (discussing In re Uranium, 617 F.2d at 1257-58). In this case, however, a judgment against Lewicki and the Swiech brothers on the direct claims would not necessarily be in
In re Uranium addresses the risk of conflicting damages awards where, as here, the concern in Frow does not apply. But the risk of inconsistent damages awards is not an issue for the derivative claims. As just explained, the direct injuries necessarily differ in kind from the derivative ones, and damages have been determined only as to the former. A single damages hearing for the derivative claims as to all liable defendants may be held at the same time, and the Lewicki/Swiech defendants would have an opportunity to seek appropriate relief under Rule 60. See Marshall, 819 F.2d at 811-12.
Plaintiffs claim that the Lewicki/Swiech defendants were involved in an ongoing conspiracy to loot the KBP companies by: causing the KBP entities to execute sham contracts with the defendants or companies owned or controlled by them; causing the entities to lease building space at below-market rates (to a Swiech-controlled company); causing the entities to pay increased "construction costs" that in reality were kickbacks to the defendants; and misappropriating from the subsidiaries several tracts of land. Plaintiffs contend that, in developing and executing this scheme, the defendants violated multiple provisions of RICO, including those set forth in Sections 1962(c) and (d) of the statute. See [210] ¶¶ 111-16 (alleging violation of 18 U.S.C. § 1962(c)); id. ¶¶ 127-31 (alleging violation of 18 U.S.C. § 1962(d)).
Subsection (d) of RICO makes it unlawful to conspire to violate any of the substantive provisions of the statute (subsections (a), (b), or (c)). See 18 U.S.C. § 1962(d). Subsection (c) prohibits "any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." Id. § 1962(c). To state a claim for relief under § 1962(c), a plaintiff must allege: (1) conduct (2) of an enterprise (3) through a pattern of racketeering activity. DeGuelle v. Camilli, 664 F.3d 192, 199 (7th Cir.2011) (quoting United States v. Shamah, 624 F.3d 449, 454 (7th Cir.2010)). "Enterprise" is defined by the statute as any individual or legal entity (including any partnership, corporation, or association), or any group of individuals "associated in fact although not a legal entity." 18 U.S.C. § 1961(4). A pattern of racketeering activity is, generally, the commission within a ten-year period of at least two "predicate acts" as enumerated
In their complaint against the Lewicki/Swiech defendants, Domanus and Kozlowski allege a variety of enterprises — including the KBP entities (each as an individual enterprise), and an association-in-fact enterprise comprising Lewicki, the Swiech brothers, and other defendants to the complaint (e.g., the companies owned or controlled by those defendants) — that Lewicki and the Swiech brothers used to carry out their agreement to loot the businesses. See [210] ¶¶ 112-15. (Other members of the conspiracy included Lewicki's wife and Richard Swiech's wife. See id. ¶ 129.) Plaintiffs say that the defendants' RICO conspiracy was carried out through a series of predicate acts that included mail and wire fraud (18 U.S.C. §§ 1341, 1343), money laundering (18 U.S.C. § 1956), and violations of the Travel Act (18 U.S.C. § 1952). See [210] ¶¶ 78-97.
Plaintiffs now claim that the Locke Lord attorneys joined this same conspiracy. See [755] ¶ 9. In their motion to dismiss, the Locke Lord defendants argue not that there was no conspiracy among the Lewicki/Swiech defendants, but that plaintiffs have not adequately alleged that the Locke Lord attorneys joined it.
To state a claim for conspiracy under 18 U.S.C. § 1962(d), a plaintiff must allege: (1) that the defendant agreed to maintain an interest in or control of an enterprise or to participate in the affairs of an enterprise through a pattern of racketeering activity; and (2) that the defendant further agreed that someone would commit at least two predicate acts to accomplish those goals. DeGuelle, 664 F.3d at 204 (quoting Slaney v. Int'l Amateur Athletic Fed'n, 244 F.3d 580, 600 (7th Cir.2001)). An agreement to participate in the affairs of an enterprise is an agreement to knowingly facilitate the activities of those who are operating the enterprise in an illegal manner. Frost Nat'l Bank v. Midwest Autohaus, Inc., 241 F.3d 862, 869 (7th Cir.2001) (quoting Brouwer v. Raffensperger, Hughes & Co., 199 F.3d 961, 967 (7th Cir.2000)).
At a general level, plaintiffs' theory is that the Locke Lord attorneys knowingly facilitated the racketeering activities of the Lewicki/Swiech defendants by agreeing to: (1) get the Lewicki/Swiech defendants "off the hook" for their alleged misdeeds, thus allowing those individuals both to keep what they had stolen from the KBP entities and to maintain control of the companies (and so continue their looting); and (2) extract payment for Locke Lord's legal services (in reality performed for the defendants) from the KBP entities. See, e.g., [755] ¶¶ 6, 73. But if the attorneys did not know about the defendants' racketeering activities — or know that the defendants were apt to engage in the same activities in the future if given the opportunity — then the attorneys could not have knowingly facilitated those activities. So a threshold question is, what did the attorneys know?
According to the supplemental complaint, the Locke Lord attorneys knew about the defendants' racketeering activities
As for the allegations set forth in the third amended complaint, it may reasonably be assumed that the Locke Lord attorneys at least read them (and also that they saw the document written by the Polish prosecutor, which had been filed on the district court's case docket, see [329-1]). But plaintiffs do not allege that the attorneys knew those allegations were true, and nor, without more, would it be reasonable to conclude that the attorneys honestly believed the truth of such allegations. An allegation in a complaint is a statement of what the complainant undertakes to prove with evidence, not evidence itself of that statement's truth.
Similarly, knowing that a prosecutor believes a criminal defendant likely committed the crimes of which he has been accused is not to know that the defendant in fact engaged in the conduct charged. Here again, plaintiffs do not allege that the Locke Lord attorneys believed the prosecutor's statements, and it would be unreasonable to draw such an inference. A prosecutor's expression of beliefs is in this sense no different from a plaintiff's allegations in a civil complaint: both explain what the speaker believes the evidence will show, but nothing about that expression provides opposing counsel with personal knowledge of underlying facts. The essence of most legal proceedings — whether civil or criminal — is a spirited debate about what the evidence demonstrates (or not). That a plaintiff or prosecutor reached a particular conclusion does not reasonably suggest that the defendant's attorney did, as well.
But plaintiffs say that the Locke Lord attorneys had in their possession more than just Domanus's and Kozlowski's allegations and a Polish prosecutor's conclusory statements. Domanus and Kozlowski had sent to the attorneys a large volume of discovery documents — including bank-account records, reports from Polish accountants and tax authorities, and interviews with various witnesses — purportedly showing the defendants' theft from the companies. See [755] ¶¶ 46-47. For the attorneys to "know" anything from these materials, however, the attorneys must have at least read them. But, of the documents received, 60 gigabytes' worth came on a hard drive that plaintiffs say the attorneys never reviewed. See id. ¶¶ 84, 90. Indeed, plaintiffs claim that the attorneys never conducted a meaningful investigation of the facts in the case, relying instead on what the defendants told them of what had happened. See [755] ¶¶ 53-54, 84, 90-91. These allegations suggest that the Locke Lord attorneys did a poor job of getting to the bottom of things, but not that they had knowledge of the racketeering activities described in the third amended complaint.
That said, it would be unreasonable to presume that, during the seven months in
But mere suspicions of wrongdoing (or of possible future wrongs) do not, without more, amount to knowledge of an ongoing RICO conspiracy. Plaintiffs claim that if the Locke Lord attorneys did not know about the defendants' racketeering, it was because the attorneys deliberately closed their eyes to the truth. See id. ¶¶ 91, 95; [776] at 41. Guilty knowledge can be inferred from a combination of suspicion and deliberate ignorance. See United States v. Crabtree, 979 F.2d 1261, 1269 (7th Cir. 1992); Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 131 S.Ct. 2060, 2070-71, 179 L.Ed.2d 1167 (2011) (subjective belief that there is a high probability that a fact is true, coupled with deliberate steps to avoid learning that fact, amounts to knowledge).
Plaintiffs here base their allegations of deliberate ignorance on an e-mail sent by Martin Jaszczuk to fellow Locke Lord attorneys Safer and Schlessinger, see [755] ¶ 82.
[765-1] at 2. Read in context, the e-mail contradicts rather than supports plaintiffs' claim of knowledge through deliberate ignorance.
The e-mail message does suggest that the Locke Lord attorneys chose not to examine all of the discovery materials they had been given (and that Jaszczuk, at least, wondered if the attorneys were getting from the defendants the complete story of what had happened). But the e-mail also explains that the reason for not digging deeper was that the attorneys might not be compensated for the looking. See id. ("The problem ... is that this case is just too big for us to ever fully learn given the type of money that KBP wants to spend.... [L]earning the entire case is probably not a realistic goal for us....").
With this context, the inference of willful blindness that plaintiffs seek to draw — namely, that the lawyers knew about the racketeering — is not a permissible one. What the plaintiffs have actually pleaded is that the lawyers were agnostic and did not subjectively believe that there was a high probability the defendants had committed the alleged racketeering. The supplemental complaint does not adequately allege the requisite knowledge for the lawyer defendants to be liable for RICO conspiracy.
But even if the lawyers knew about the racketeering, there is another problem with the supplemental complaint: plaintiffs have not alleged an agreement with the defendants to join their RICO conspiracy. If the attorneys' suspicions (and decision not to look at the discovery materials) were enough to infer their knowledge of racketeering activities, and if the attorneys expected the defendants to continue such activities if given the chance, then it could be said that the attorneys knowingly facilitated the racketeering by enabling further theft. This series of inferences, even if plausible, gets plaintiffs only so far. A Section 1962(d) violation requires more than just a knowing facilitation of racketeering activities. It also requires an agreement to knowingly facilitate such activities through a pattern of predicate crimes. See DeGuelle, 664 F.3d at 204; Frost, 241 F.3d at 869. Plaintiffs' allegations against the Locke Lord attorneys fall short on this point, as well.
The attorneys' fraud had two parts. First, say plaintiffs, the attorneys intentionally concealed from others (including their clients and the court) that they were assisting the defendants in the litigation. On more than one occasion, plaintiffs allege, the Locke Lord attorneys falsely professed their independence from the Lewicki/Swiech defendants, or at least neglected to disclose to the court that what they had done was done for defendants' benefit and at their direction. See, e.g., [755] ¶¶ 71-72; id. at 91-92. Second, the attorneys allegedly asserted in the litigation several misstatements of fact on defendants' behalf.
The Locke Lord attorneys ought not to have taken actions on the defendants' behalf or at their behest. In a shareholder's derivative suit, the corporation generally cannot participate in the merits of the defense. See 13 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Corporations § 5997 (database updated 2015); 3 James D. Cox & Thomas Lee Hazen, Treatise on the Law of Corporations § 15:17 (3d ed., database updated 2014); Sobba v. Elmen, 462 F.Supp.2d 944, 946-47 (E.D.Ark.2006). This general rule, sometimes referred to as the rule of corporate neutrality, reflects the fact that in derivative actions, the plaintiff stockholder is only a nominal plaintiff: the corporation, though named in the complaint as a defendant, is the real party-in-interest, as the benefit of any recovery inures to the company. See id.
The true (vice nominal) alignment of the parties in a derivative suit also prevents attorneys from representing certain clients
The attorneys' role, as plaintiffs correctly point out, was to remain neutral. However, that the attorneys prepared the cross-claim against Domanus and Kozlowski, sought discovery from the latter's employer, or obtained the background reports on those plaintiffs and their wives — and even that they allegedly lied about who they were doing them for — does not plausibly indicate that the attorneys joined the defendants' existing conspiracy.
In general, merely providing legal assistance to defendants in a RICO case is insufficient to show that an attorney has violated Section 1962(d). See RSM Prod. Corp. v. Freshfields Bruckhaus Deringer U.S. LLP, 682 F.3d 1043, 1051-52 (D.C.Cir.2012) (affirming the dismissal of a RICO conspiracy claim where the complaint alleged no more than "the provision of normal legal services"); Handeen v. Lemaire, 112 F.3d 1339, 1348 (8th Cir. 1997) (observing that "an attorney ... does not conduct an enterprise's affairs [by providing] run-of-the-mill ... professional services") (citations omitted); cf. Taylor v. Bettis, 976 F.Supp.2d 721, 737 (E.D.N.C. 2013) (holding that attorneys who render legal services to RICO defendants have not violated Section 1962(c) where the legal services did not go "to the heart of" the defendants' racketeering schemes) (citing Handeen, 112 F.3d at 1349). Plaintiffs complain that the attorneys here were not supposed to be helping the individual defendants at all. But this does not change the analysis, because the "betrayal" of Locke Lord's clients, as plaintiffs phrase it, does not in itself suggest that the attorneys agreed to help the defendants through a pattern of racketeering activity — the kind of agreement necessary under Section 1962(d). Just as providing advice to a client does not in itself permit an inference of agreement with that client's activities, neither does providing advice to individuals who the lawyer is not supposed to be advising.
As explained above, one cannot become a member of a RICO conspiracy unless one has agreed to participate in the affairs of an enterprise through a pattern of racketeering activity. But not just any pattern of racketeering activity will do. Where, as here, the plaintiff claims that the defendant joined an existing RICO conspiracy, the plaintiff must prove that the defendant agreed to participate in the enterprise's affairs through the same pattern of racketeering to which the already-members of the conspiracy have also agreed. To be part of the same pattern, predicate acts must be related to each other. See Jennings v. Auto Meter Prods., Inc., 495 F.3d 466, 473 (7th Cir. 2007) (quoting H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989)). The pattern requirement is a standard, not a rule, so "its determination depends on the facts and circumstances of the particular case." Id. (citation omitted). Generally, though, predicate acts are related if they have the
The predicate acts to which the Lewicki/Swiech defendants allegedly agreed include mail- and wire-fraud violations, money laundering, and violations of the Travel Act, as effected through: the execution of sham contracts (which caused the KBP entities to pay the defendants, or companies owned or controlled by them, for services never performed, or for land at intentionally-inflated prices); the execution of self-dealing lease agreements (through which the defendants were able to lease from the KBP entities office space at below-market rates, and which space defendants then sub-leased to third parties at market rates); the extraction of kickbacks from building contractors (which KBP paid for through increased construction prices); and misappropriation of land from KBP.
These acts are different in purpose and different in kind than the acts in which the Locke Lord attorneys allegedly engaged by covertly representing the defendants' interests. The defendants' conspiracy was a conspiracy to line the defendants' pockets with the ill-gotten fruits of fraudulent business transactions at the heart of KBP's management and operations. Locke Lord's acts were about securing representation for the defendants — however improper it was to do so — in the pending litigation. The same is true of the billing scheme. Plaintiffs say that the attorneys plotted with the defendants to bill KBP for legal services in fact performed on the defendants' behalf. (This is the conduct also underlying the bulk of the money-laundering claims in the supplemental complaint. See [755] ¶¶ 141, 144(a).). But the reason for billing the KBP entities was defendants' inability to pay for their own defense, see id. ¶ 23, not a general intent to fatten the defendants' bank accounts through sham contracts and kickback schemes. The billing scheme, too, was about ensuring that the defendants were represented in the legal suit. These activities were not part of the same pattern as defendants' racketeering activities, and so one cannot infer from them an agreement to join the existing conspiracy.
Plaintiffs emphasize, however, that the attorneys did more than simply take sides in the pending litigation. They also objected (sometimes at the defendants' direction) to the production of various materials sought by Domanus and Kozlowski, and included in several litigation documents defendants' (inaccurate) account of the facts. See id. ¶¶ 53-54, 60-64, 90-91, 101-02. Plaintiffs argue that these allegations support an inference that the attorneys intended to conceal relevant evidence from scrutiny, and thus that they joined the defendants' conspiracy. But plaintiffs confuse intent with agreement.
A conspiracy is an agreement to inflict injury or harm, which, even if inferred from circumstantial evidence, requires a meeting of the minds. See Sow v. Fortville Police Dep't, 636 F.3d 293, 304-05 (7th Cir.2011) (citing Hernandez v. Joliet Police Dep't, 197 F.3d 256, 263 (7th Cir.1999)); see also Amundsen v. Chicago Park District, 218 F.3d 712, 718 (7th Cir. 2000) ("[I]f the agreement is not overt, the alleged acts must be sufficient to raise the inference of mutual understanding...." (quoting Kunik v. Racine Cnty., Wis., 946 F.2d 1574, 1580-81 (7th Cir.1991))) (internal quotation marks omitted). The Locke Lord attorneys based their (mis)statements of fact on the defendants' word, see [755] ¶¶ 53-54, 91, 102; [776] at 58
Likewise, Locke Lord's objections to producing documents in discovery do not suggest an agreement to conceal ongoing racketeering. Plaintiffs do not allege that the attorneys actually knew what was in the unproduced records — i.e., that the records evidenced the defendants' looting. To get to knowledge, then, one must go by way of willful blindness. But even assuming that the Locke Lord attorneys had the requisite kind of suspicions about what the unproduced documents contained, there is no indication in the supplemental complaint that those were anything but secret suspicions. There are no allegations, in other words, from which to conclude that the attorneys ever spoke about their suspicions with the Lewicki/Swiech defendants, or otherwise communicated a desire to help the defendants continue their racket.
To the extent there was an understanding between the attorneys and the defendants, plaintiffs have alleged only an understanding that the attorneys would lodge certain objections to document production, and prepare certain papers on the defendants' behalf (while including in those papers the facts as defendants had presented them). Plaintiffs therefore allege coordination, but not the kind that reasonably suggests a meeting of the minds — between the attorneys on the one hand and the defendants on the other — to conceal what had really happened through a shared intent to advance the underlying racketeering. Even at this preliminary stage, where the allegations of the complaints are assumed to be true, plaintiffs have not pleaded an agreement to join the defendants' RICO conspiracy. At most, plaintiffs have pleaded a secret intent on the attorneys' part to enable the defendants' theft.
Plaintiffs rely on United States v. Cueto, 151 F.3d 620 (7th Cir.1998), for the proposition that "intent" and "agreement" are the same. See [776] at 19 n. 4 (citing 151 F.3d at 635-36). Intent and agreement are not equivalent, and plaintiffs misread Cueto in asserting that they are. The portion of the Cueto opinion cited by plaintiffs describes the elements needed to prove (in a criminal case) a conspiracy to defraud under 18 U.S.C. § 371. They are: (1) an agreement to accomplish an illegal objective; (2) one or more overt acts in furtherance of the illegal purpose; and (3) an intent to commit the substantive offense. See 151 F.3d at 635 (citation omitted). Although Cueto explains that both "intent" and "agreement" may be inferred from circumstantial evidence, see id., Cueto does not, as plaintiffs urge, use the two terms interchangeably. They are separate elements of the larger "conspiracy" test. An unlawful intent, in other words, is necessary to prove a conspiracy, but it is not sufficient — one must also show, among other things, an agreement to achieve illegal ends. Cf. In re Brand Name Prescription Drugs Antitrust Litig., 288 F.3d 1028,
Of course, it is sometimes possible — as it was in Cueto — to infer both intent and agreement from the same evidence. In that case, an attorney was convicted of obstructing justice and conspiracy to obstruct justice after he prepared, with his client, letters and court documents that hindered investigations of the client's illegal gambling operation. See 151 F.3d at 624-28. Of critical importance in Cueto was the fact that the attorney had developed more than a professional relationship with his client; the two had entered into multiple secret business relationships, the survival of which depended on the continued success of the very gambling operation that law enforcement was trying to investigate. See id. at 627. It was this personal relationship — and, more importantly, the attorney's personal financial stake in the illegal operations — that permitted the jury to find both an intent by the attorney to hamper the federal investigations and an agreement (with his client) to do so. See id. at 636 (explaining that it was reasonable to conclude from this evidence that the attorney-client representation was "undertaken for a criminal purpose," and that the attorney had "agreed to participate in th[e] scheme for his personal financial gain"). Here, by contrast, there is no allegation from which to infer that if the attorneys had an unlawful intent, they also had an agreement with the defendants to carry it out.
United States v. Cintolo, another case on which plaintiffs rely, is also unhelpful. In Cintolo, a criminal-defense attorney was convicted of conspiring to obstruct justice. 818 F.2d 980, 983 (1st Cir.1987). The indictment charged the attorney with conspiring with the alleged head of an illegal gambling ring to obtain information about an ongoing investigation. The lawyer was to get the information by using his position as counsel of record for one of the grand-jury witnesses in the case. He was also tasked with trying to prevent the witness from testifying truthfully before the grand jury. See id. at 983-84.
Cintolo explains why lawyers who do things attorneys commonly do, but who do them in order to achieve illegal ends, are not immune from liability just because of their status as lawyers. See id. at 990-96. This is a sound principle (and the principle cited by the Seventh Circuit in Cueto when discussing corrupt intent, see 151 F.3d at 631-34), but one that is ultimately irrelevant to the present inquiry. The question at hand is whether the attorneys reached an understanding with the Lewicki/Swiech defendants about putting an improper intent into action in support of a racketeering
Plaintiffs are correct that a corrupt intent can get a lawyer into trouble. But nefarious intentions do not in themselves an unlawful agreement make. Even if plaintiffs are right that the Locke Lord attorneys intended to facilitate the defendants' conspiracy, plaintiffs have not sufficiently alleged an agreement to join that conspiracy.
Because the federal claim against the Locke Lord defendants is dismissed, I decline to exercise supplemental jurisdiction over the state-law claims against those defendants. See 28 U.S.C. § 1367(c)(3). Counts II through VI of the supplemental complaint, [755], are also dismissed.
Dienner and KFTR also seek to dismiss the claims against them. Both argue, among other things, that plaintiffs are precluded under Frow/In re Uranium from bringing certain claims. See [789] at 39 (incorporating Locke Lord's arguments); [792] at 42 (same). Both argue that plaintiffs have also failed to state a proper claim that Dienner joined the defendants' RICO conspiracy. See [789] at 22-34; [792] at 28-42.
For the reasons discussed above in relation to Locke Lord's motion, plaintiffs are estopped from pursuing against Dienner or KFTR the "direct" claims for which damages have already been determined. These include the direct claims asserted in the third amended complaint, and any claim for damages stemming from the "capital raise" in 2012, see [770] ¶ 73. Direct claims based on the defendants' purported asset dissipation may be asserted if damages arising from those claims have not already been assessed. Plaintiffs are neither estopped nor precluded from pursuing against Dienner or KFTR their "derivative" claims.
Plaintiffs claim that Dienner joined the defendants' existing RICO conspiracy (and that KFTR is vicariously liable for Dienner's actions) by: preparing, at the defendants' direction (and at the direction of the defendants' then-counsel at Gordon & Karr) a motion to quash service on KBP and corresponding reply brief; appealing the district court's denial of that motion; preparing discovery responses in consultation with Gordon & Karr (and agreeing, at
At bottom, plaintiffs charge Dienner (and thus KFTR) with essentially the same wrongs as they do the Locke Lord attorneys. Dienner purportedly took sides in the litigation when he shouldn't have, participated in a billing scheme to get the KBP entities to pay for the individual defendants' defense costs, and conducted discovery according to the defendants' instructions. Dienner argues that he acted consistently with his clients' interests (i.e., with the KBP's interests), and that his billing procedures were appropriate. See [789] at 27, 32-34. Plaintiffs' allegations reasonably suggest otherwise. According to plaintiffs, Dienner prepared and filed the motion to quash, as well as responses to interrogatories and document requests, solely at the direction of the Lewicki/Swiech defendants and the latter's counsel — in some cases permitting those individuals to draft things themselves — without first determining whether such actions would actually benefit KBP. See [770] ¶¶ 54-58. If this is true, then Dienner, like the Locke Lord attorneys, likely violated the rule of corporate neutrality and perhaps other rules of professional conduct.
Nor were his invoicing procedures necessarily aboveboard, as Dienner claims. The corporations had been paying the defendants' legal bills before Dienner came on board, so Dienner asserts that he simply continued to forward those bills to the companies. See [789] at 27. But Dienner does not explain why the bills he "forwarded" neglected to say for whom their services had been performed, or why Dienner repeatedly agreed, at the defendants' behest, to redact Gordon & Karr's letterhead from those invoices. See [770] ¶¶ 30, 35, 44. Plaintiffs' complaint reasonably suggests that something sketchy was going on with the billing, and that Dienner knew it. See, e.g., id. ¶¶ 38-39 (alleging that Lewicki sent to Gordon & Karr an e-mail — later forwarded to Dienner — stating that "the [redacted] version ... will be safe for them. Don't ask why, don't make any comments").
Nevertheless, the complaint against Dienner suffers from much the same defects as does the complaint against the Locke Lord team. As explained above, neither the improper taking of sides in the ongoing litigation (or concealing that Dienner had done so), nor the allegedly fraudulent billing scheme, is in itself related to the Lewicki/Swiech defendants' pattern of racketeering activity as described in the third amended complaint. To the extent Dienner agreed to secretly represent the defendants' interests, or to bill the corporations for services provided to the defendants, he did not agree to participate in the affairs of an enterprise through the same pattern of activity as did the defendants.
There is also no plausible claim of an agreement to join the RICO conspiracy because there are no allegations from which to infer that Dienner actually knew about the defendants' purported wrongs. According to plaintiffs, Dienner "knew" about the defendants racketeering activities because he read the complaint describing them, and because a statement by the Polish prosecutor (conveying the prosecutor's belief that Adam Swiech had likely committed the crimes with which had been charged in Poland) was available on the court's docket. See id. ¶¶ 23, 25, 53. As with the Locke Lord attorneys, there is no allegation that Dienner knew that what he
In any event, even assuming that Dienner knew from discovery documents that Domanus's and Kozlowski's allegations of racketeering were true (but unlike with the Locke Lord defendants, plaintiffs do not make such an allegation against Dienner), still plaintiffs have not pleaded the requisite kind of agreement because, here again, there is nothing from which to infer that such knowledge was paired with a meeting of the minds. Absent any indication of a mutual understanding between Dienner and the defendants about what each side knew to be true, one cannot reasonably conclude that Dienner agreed to help the defendants carry on with their racketeering. Plaintiffs have not alleged enough to conclude that there was a conspiracy between Dienner and the defendants (or, more precisely, that Dienner joined the defendants' existing conspiracy). Count I of plaintiffs' second supplemental complaint, [770], is accordingly dismissed. I do not reach the parties' other arguments concerning Count I of the second supplemental complaint.
As the RICO claim against Dienner and KFTR is dismissed, I decline to exercise supplemental jurisdiction over the state-law claims asserted against those defendants. See 28 U.S.C. § 1367(c)(3). Counts II through VI of the second supplemental complaint, [770], are therefore dismissed, as well.
The integrity of the justice system depends on the honesty of the officers of the courts, and it is of no small concern when such virtues are abandoned. Plaintiffs certainly provide a detailed claim of wrongdoing by the attorney defendants, and plaintiffs may not be without recourse. But their path to relief based on these allegations is not through RICO, and thus not in federal court. For the reasons discussed above, Locke Lord's, Dienner's, and KFTR's motions to dismiss ([761], [787], and [791], respectively) are granted. Both the supplemental complaint, [755], and second supplemental complaint, [770], are dismissed without prejudice.
