Jan Domanus v. Derek Lewicki
2014 U.S. App. LEXIS 2140
| 7th Cir. | 2014Background
- Plaintiffs (shareholders Domanus and Kozlowski) sued KBP co‑shareholders Adam and Richard Swiech and Derek Lewicki for RICO and related state claims, alleging looting, fraudulent transfers, dilution of plaintiff stock, and sabotage of a sale to Orco.
- Extensive discovery disputes: defendants failed to produce bank records (including a Julius Baer Swiss account and an HSBC Poland account), destroyed or misrepresented a computer hard drive, delayed depositions, and produced a surprising “amended” tax return at a deposition.
- Magistrate judge imposed relatively moderate sanctions (adverse jury instructions, spoliation instruction); plaintiffs objected and district judge reviewed the magistrate’s nondispositive orders for clear error.
- District judge escalated sanctions: held Adam Swiech and Lewicki in contempt for failing to produce bank records, found bad faith spoliation (hard drive) and barred use of hard‑drive documents, ordered efforts to obtain emails, and required fees/fines.
- Defendants still did little to comply; district court entered default judgment against the three defendants and awarded trebled RICO damages (~$413 million) based on plaintiffs’ expert valuation tying adjusted ownership percentages to an Orco deal and an earlier Apollo offer.
- Defendants appealed, arguing (1) district court abused its discretion by overruling magistrate and imposing harsher sanctions, (2) default was unwarranted, (3) damages methodology was unreliable and a hearing was required, and (4) damages should have been stayed pending claims against non‑defaulting defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court abused discretion by imposing harsher discovery sanctions over magistrate’s rulings | District court properly escalated sanctions given repeated discovery abuses and need to ensure compliance | Magistrate’s orders were adequate; district court incorrectly substituted harsher sanctions | Affirmed: district court did not abuse discretion—contempt and harsher sanctions reasonable given noncompliance and credibility findings |
| Whether default judgment was appropriate for discovery abuse | Default warranted because there was a clear record of delay, contumacious conduct, willfulness/bad faith, and lesser sanctions had failed | Default inappropriate because compliance was impossible; district court applied an overly “exacting” impossibility standard | Affirmed: default proper—defendants failed to show good‑faith, extensive efforts to comply and their conduct supported default |
| Whether damages calculation (using adjusted ownership %, Orco offer, Apollo offer) and denial of a damages hearing were proper | Plaintiffs’ valuation fairly compensates harm; defendants’ obstruction justified use of available valuation methods; hearing unnecessary | Valuation uncertain (stale Apollo offer, tentative Orco deal); defendants entitled to hearing to challenge figures | Affirmed: district court did not abuse discretion; plaintiffs met relaxed proof standard, defendants offered no alternative expert, and hearing unnecessary |
| Whether damages should be stayed pending resolution of claims against non‑defaulting defendants | No stay needed because plaintiffs committed to dismiss non‑defaulting defendants if judgment affirmed, avoiding inconsistent awards | Damages hearing & award should be stayed while related claims proceed to avoid inconsistent results | Affirmed: stay denied—no risk of inconsistent awards given plaintiffs’ commitment and judicial estoppel |
Key Cases Cited
- Weeks v. Samsung Heavy Indus., 126 F.3d 926 (7th Cir.) (magistrate discovery rulings reviewed for clear error)
- Dotson v. Bravo, 321 F.3d 663 (7th Cir.) (sanctions reviewed for abuse of discretion)
- Maynard v. Nygren, 332 F.3d 462 (7th Cir.) (default requires clear record of delay or contumacious conduct; review of sanctions)
- Autotech Techs. LP v. Integral Research & Dev. Corp., 499 F.3d 737 (7th Cir.) (contumacious conduct and contempt: clear and convincing evidence standard)
- United States v. Terry, 572 F.3d 430 (7th Cir.) (deference to district court credibility findings)
- Xiao v. Mukasey, 547 F.3d 712 (7th Cir.) (credibility determinations in immigration context)
- Crabtree v. Nat’l Steel Corp., 261 F.3d 715 (7th Cir.) (spoliation inference that missing evidence would be unfavorable)
- e360 Insight, Inc. v. Spamhaus Project, 658 F.3d 637 (7th Cir.) (weigh cumulative discovery misconduct, not just final straw)
- Dundee Cement Co. v. Howard Pipe & Concrete Prods., Inc., 722 F.2d 1319 (7th Cir.) (review of default entries and damages hearings)
- Wehrs v. Wells, 688 F.3d 886 (7th Cir.) (default establishes liability but plaintiff must prove damages; damages need not be exact)
- BCS Servs., Inc. v. Heartwood 88, LLC, 637 F.3d 750 (7th Cir.) (relaxed proof standard and broad latitude in quantifying damages when defendant obstructs)
- Lewis v. City of Chicago Police Dep’t, 590 F.3d 427 (7th Cir.) (abuse of discretion standard for evidentiary rulings)
- In re Uranium Antitrust Litig., 617 F.2d 1248 (7th Cir.) (concerns about holding damages hearings while related claims against non‑defaulting defendants remain)
- Societe Internationale Pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197 (U.S.) (impossibility defense requires proof of diligent, exhaustive efforts to comply)