Domanus v. Locke Lord LLP
2017 U.S. App. LEXIS 1736
| 7th Cir. | 2017Background
- Shareholders Jan Domanus and Andrew Kozlowski (with Krakow Business Park and subsidiaries) sued the Swiech Group (majority shareholders) alleging a long-running scheme in Poland to loot the Business Park, causing substantial losses and criminal prosecutions in Poland.
- A default judgment (sanction for discovery abuse) was entered against the Swiech Group and affirmed in Domanus I, with plaintiffs representing they would dismiss claims against nondefaulting defendants.
- After Domanus I, plaintiffs filed supplemental complaints accusing U.S. law firms and lawyers (Kubasiak firm, Dienner; Locke Lord and several attorneys) of facilitating the Swiech Group’s scheme—by improper joint representation, concealment, and fraudulent billing—seeking RICO (18 U.S.C. § 1962(d)) and state-law relief.
- District court dismissed the supplemental complaints under Rule 12(b)(6): it applied judicial estoppel to bar some overlapping damages claims, found plaintiffs failed to plausibly plead that the lawyer-defendants knowingly agreed to join the RICO conspiracy or were willfully blind, and declined to decide other defenses, then relinquished supplemental state claims.
- On appeal, the Seventh Circuit accepted jurisdiction under Rule 54(b), construed the pleadings de novo, and focused on whether the supplemental complaints plausibly alleged agreement and knowledge necessary for a §1962(d) RICO conspiracy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs plausibly alleged the lawyers agreed to join the Swiech Group’s RICO conspiracy (agreement element of §1962(d)) | Lawyers restructured bills, coordinated defenses, concealed charges—these acts show an agreement to participate in looting and cover-up | Lawyers’ actions were ordinary (though perhaps unethical) legal representation and billing choices; no link tying them to the preexisting looting conspiracy | Dismissed: allegations explain self-interested legal representation but do not plausibly show agreement to join the RICO conspiracy |
| Whether plaintiffs pleaded lawyers had actual knowledge of the enterprise and intended to participate | The billing practices, communications, discovery material, and prosecutor’s statements put lawyers on notice of the conspiracy | Allegations are at best accusations and red flags; lawyers may review complaints and reports without treating them as true; no plausible allegation they actually knew the preexisting looting | Dismissed: pleaded facts do not support actual knowledge of the RICO conspiracy |
| Whether plaintiffs adequately pleaded willful blindness as an alternative to actual knowledge | Lawyers avoided exhaustive review of voluminous discovery and adopted a strategy to focus elsewhere—this shows deliberate avoidance of the truth | Email and strategy reflect cost-based, reasonable litigation choices, not deliberate actions to avoid learning critical facts; mere suspicion insufficient | Dismissed: allegations fail to show subjective belief of high probability plus deliberate actions to avoid learning the truth |
| Whether RICO §1962(d) reaches the foreign conduct and whether extraterritoriality or other defenses (Noerr-Pennington, causation) bar the claims | Plaintiffs framed §1962(d) conspiracy claims based on conduct that had U.S. contacts (lawyers, billing, funds) | Defendants argued RICO may not reach the predominantly foreign scheme post-RJR Nabisco; Noerr-Pennington and causation defenses also available | Court did not resolve extraterritoriality or Noerr-Pennington issues because dismissal rested on failure to plead agreement/knowledge; those defenses remain available but were not decided |
Key Cases Cited
- Domanus v. Lewicki, 742 F.3d 290 (7th Cir. 2014) (prior appeal resolving default judgment issues and plaintiffs’ commitment to dismiss certain claims)
- RJR Nabisco, 136 S. Ct. 2090 (2016) (Supreme Court on RICO’s extraterritorial reach)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard under Rule 12(b)(6))
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011) (standard for willful blindness)
- RSM Prod. Corp. v. Freshfields Bruckhaus Deringer U.S. LLP, 682 F.3d 1043 (D.C. Cir. 2012) (law firm’s knowledge of client wrongdoing not established solely by allegations, reports, or reputational evidence)