CONCLUSION

For the foregoing reasons, the defendants’ motion to dismiss is granted in part and denied
in part. The intent of this opinion is to put this case on the same track as the very similar DeLeo
case. The motion for costs and for a stay is denied. Beswir and the Swirsky Foundation are
dismissed for lack of personal jurisdiction. Count II is dismissed as to Pozios and Goldstein.
Count IX and the aiding and abetting allegations of Count VIII are dismissed. In addition, the
Rule 23.1 adequacy of representation issues raised in the motion are hereby referred to the
magistrate judge for a report and recommendation.

It is so ordered.

Oley = CL

7 Wayne R. Andersen
United States District Judge

pace: ly [3s 4003

13



defendants’ motion have been previously decided by this Court in the companion DeLeo case.
Thus, according to the plaintiff, the motion to dismiss should be denied under the principles of
res judicata.

We agree with the defendants that the doctrine of res judicata does not apply in this case.
The doctrine of res judicata prohibits parties from re-litigating claims previously adjudicated.
For res judicata to apply in federal court, three requirements must be met: (1) an identity of the
causes of actions; (2) an identity of the parties or their privies; and (3) a final judgment on the
merits. Golden v. Barenborg, 53 F.3d 866, 869 (7th Cir. 1995); In re Energy Co-op., Inc., 814
F.2d 1226, 1230 (7th Cir.), cert. denied sub nom., Energy Co-op., Inc. v. Phillips Petroleum Co.,
484 U.S. 928 (1987) (citations omitted). It is undisputed that a final judgment on the merits has
not been reached in the DeLeo case. Therefore, res judicata does not apply. However, that does
not mean that our prior rulings on the DeLeo motions to dismiss have no relevance in this case.
In fact, instead of res judicata, we feel the more appropriate analogy is to the “law of the case”
doctrine. Under the law of the case doctrine, any issue that is expressly or impliedly decided is
binding in subsequent proceedings before the deciding court or a lower court. Roboserve, Inc. v.
Kato Kagaku Co ., Ltd., 936 F. Supp. 522, 524 (N.D. Ill. 1996). While we acknowledge that
technically the motions to dismiss were filed in two separate cases, the indisputable similarities
between the two lawsuits makes this case amenable to our earlier rulings in the DeLeo case.
Therefore, we will apply as binding to this case our prior substantive rulings on the motions to
dismiss in the DeLeo case.

Our decision to apply by analogy our prior rulings in the DeLeo case makes short work of

many of the arguments raised here in the instant motion to dismiss. The impact on the individual



However, as even LaDuca has conceded in his complaint, the applicable provisions of the Florida
Business Corporation Act explicitly apply only to directors of Florida corporations. See Fla. Stat.
Ann. §§ 607.0830, 607.0831; Complt at {] 59, 60. EAI was a Florida corporation and that is
why we determined in our June 19, 2001 opinion that a cause of action against Swirsky pursuant
to these statutes was appropriate. See DeLeo, 2001 WL 687458, at *8. However, Pozios and
Goldstein were never directors of EAJ. Instead, they served as directors of ZCanada, a Canadian
corporation. Given the express language of the statute governing the actions of directors of
Florida corporations, it is impossible to apply that statute to directors of a Canadian corporation.
Thus, the statutory allegations in Count II are dismissed as to Pozios and Goldstein.

3. Section 10(b) and Rule 10b-5 Violations

In Count IV of the complaint, LaDuca alleges that Swirsky (and presumably Pozios and
Goldstein) “engaged in manipulative and deceptive practices, contrivances and practices in
connection with the purchase or sale of securities in violation of Rule 10b-5 and Section 10(b) of
the Securities Act of 1934.” (Complt. at 72.) The defendants have moved to dismiss this count
for failure to state a claim.

As we have stated numerous times in this opinion, it is our intention to apply our prior
rulings in the DeLeo case to the parallel arguments raised in the motion to dismiss in this case.

In the DeLeo case, Swirsky raised virtually the same arguments attacking the 10b-5 claim as he
has done here. Therefore, for the reasons stated in our June 19, 2001 opinion, the motion to
dismiss Count IV as to defendant Swirsky is denied. See DeLeo, 2001 WL 687458, at *6-7.
With respect to Pozios and Goldstein, they too filed a motion to dismiss the 10b-5 claim in the

DeLeo case. Ina minute order dated May 23, 2003, we denied that motion. Accordingly, we



our lives.

In their motion to dismiss, the defendants argue there is reason to believe that plaintiff's
counsel in this case is not independent of plaintiff's counsel in the DeLeo case. Specifically, the
defendants assert that DeLeo counsel assisted in the drafting of the LaDuca complaint, that
DeLeo counsel may be the “puppet master” behind the LaDuca action, and that DeLeo counsel
may have some sort of financial arrangement with LaDuca counsel regarding fees and a slice of
any potential monetary judgment. If any of these allegations are true, then the defendants may
well be correct that the adequacy of representation requirement of Rule 23.1 has not been
satisfied. Accordingly, we will treat the Rule 23.1 issue in the same way we dealt with it in the
DeLeo case. We will refer this portion of the motion to dismiss to the magistrate judge on this
case for a report and recommendation on whether plaintiff's counsel here is independent from
plaintiff's counsel in the DeLeo case and whether the adequacy of representation requirement of
Rule 23.1 has been met.

Cc. Personal Jurisdiction over Beswir, The Foundation, Pozios and Goldstein

In this portion of their motion to dismiss, defendants Beswir, the Swirsky Foundation,
Pozios and Goldstein argue that this Court does not have personal jurisdiction over them. Again,
we have already addressed these issues in our prior orders in the DeLeo case and we will apply
our earlier rulings as law of the case here.

First, with respect to Beswir and the Swirsky Foundation, we determined in our June 19,
2001 opinion that we did not have personal jurisdiction over them because these defendants
“have shown an insufficient connection to Illinois... .” DeLeo, 2001 WL 687458, at * 5.

LaDuca has offered nothing in its response to the motion to dismiss to convince us that this



arguments in the motion is as follows:

A. Motion for Costs

This motion is denied. On J; anuary 24, 2003, we entered an minute order with respect to a
motion filed by the defendants in the DeLeo case that was styled as a motion to set aside or
modify the voluntary dismissal of the derivative plaintiffs and their claims. As part of that
motion, the DeLeo defendants requested that this Court award them fees and costs in connection
with defending the derivative lawsuit in this Court because plaintiff's counsel was aware that a
separate derivative action was pending in Florida (which, in an odd twist of fate, is the case we
are now deciding). In our January 24 order, we denied the motion to modify the voluntary
dismissal and we explicitly denied the defendants? request for fees and costs. In so doing, we
determined that, given the Florida lawsuit was filed in 2001, it was unlikely the defendants in
these cases were unaware of the existence of the other derivative suit then pending in Florida.
Nothing has been presented by the LaDuca defendants here to change this belief. Accordingly,
for the reasons stated here and in our J anuary 24 minute order in the DeLeo case, the motion for
costs and to stay pursuant to Federal Rule of Civil Procedure 41 (d) is denied.

B. Rule 23.1 Motion to Dismiss

This motion is more problematic. As the background section above indicates, there has
been a recurring problem in the DeZeo case concerning the impartiality of plaintiff's counsel.
This resulted in us granting a motion in the DeLeo case to disqualify plaintiffs counsel from
representing the putative class of EAI shareholders. The granting of this motion then compelled
counsel in the DeLeo case to voluntarily dismiss the derivative claims and instead pursue only

DeLeo’s individual claims against the defendants. The LaDuca derivative suit then came into


a Florida corporation. Pozios and Goldstein have argued that these counts should be dismissed
because LaDuca has not alleged that they owe fiduciary or disclosure duties to EAI or its
shareholders. We disagree.

As we discussed in our June 19, 2001 opinion in the DeLeo case, there is a line of cases
in Florida which state that the director or officer of a subsidiary owes a common law fiduciary
duty to the parent corporation. DeLeo, 2001 WL 687458, at *8 (citing Garner v. Pearson, 374 F.
Supp. 580 (MLD. Fla. 1973) and Westec v. Carpenter, 434 F.2d 195 (5th Cir. 1970)). In that
opinion, we concluded that, because Swirsky was an officer on the board of ZCanada, he owed
fiduciary and disclosure duties to EAI and its shareholders. Jd. In this case, we are presented
with an identical situation. Pozios and Goldstein were also members of the ZCanada board of
directors. Accordingly, they too had common law fiduciary and disclosure duties to EAI and its
shareholders. Furthermore, the complaint adequately states a cause of action for fraudulent
concealment. Specifically, the complaint alleges that Pozios and Goldstein “concealed material
facts from EAI’s independent shareholders in not disclosing (i) the existence of the Pledge, (ii)
the terms of the Pledge, (iii) the material facts concerning the Pledge, (iv) that the Pledge was
part and parcel of their illegal and fraudulent scheme to divert ZCanada for themselves to the
detriment of EAI’s independent shareholders and (v) their intent to use the Pledge to
misappropriate EAI’s assets.” (Complt. at § 64.) Therefore, Pozios and Goldstein’s motion to
dismiss the breach of fiduciary duty and fraudulent concealment counts is denied.

2. Violation of Florida Business Corporation Act
In this portion of the complaint, LaDuca has alleged that Swirsky, Pozios and Goldstein

are liable to the EAI shareholders because they violated their statutory fiduciary duties.



Minote Order Form (06/97)

United States District Court, Northern District of Illinois

COFRCP4(m) OLocal Rule 41.1 CFRCP41(a)(1) CO FRCP41(a)(2).

a stay is denied.

(i) ff [For further detail see order attached to the original minute order.]

aa Magistrate Judge Wayne R, Andersen “than Assigned Judge

CASE NUMBER 2 C 8597 DATE 7/18/2003
CASE Thomas LaDuca et al vs. Benjamin Swirsky et al
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: Of the motion being presented.]

DOCKET ENTRY:

(1) Q Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

3) o Answer brief to motion due___. Reply to answer briefdue____

(4) Qa Ruling/Heatingon__setfor____at

(5) Oo Status hearing{held/continued to] [set for/re-set for]on__—_—setfor___—_at

(6) o Pretrial conference[held/continued to] [set for/re-set for]on____——s set for at

(7) oO Trial[set for/re-set for]on__—at__

(8) Qa (Bench/Jury trial] [Hearing] held/continued toa

(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

(10) 4 [Other docket entry] Enter MEMORANDUM, OPINION AND ORDER: The defendant’s
motion to dismiss [31-2] is granted in part and denied in part. The motion for costs [31-1] and for

No notices required, advised in open court.

No notices required. number of notices

Document

~ Number

Notices mailed by judge's staff.

JUL 2 4 2008

date docketed

or

.
docketing deputy ifpials

Notified counsel by telephone.

Y | Docketing to mail notices. j

Mail AO 450 form.

|
7 | Copy wtadgemagistratejudge. Mar yunod ds :

courtroom
TSA deputy’s

initials — —_.
Date/tigne received in _
central Clerk’s Office mailing depuyintals

yisia Sf

date mailed notice

y



5. Aiding and Abetting a Rule10b-5 Violation

In Count VIII of the complaint, LaDuca alleges that Pozios and Goldstein both actively
participated in the alleged securities fraud and aided and abetted Swirsky in his alleged attempt to
swindle EAI shareholders. The defendants argue that the aiding and abetting allegations must be
dismissed because the Supreme Court has ruled that “the text of the 1934 Act does not itself
reach those who aid and abet a § 10(b) violation.” Central Bank of Denver, N.A. v. First
Interstate Bank of Denver, N.A., 511 U.S. 164, 177, 114 S.Ct. 1439 (1994). LaDuca responds to
this argument by stating that he did not intend to allege that any of the defendants were engaged
in aiding and abetting a violation of Section 10(b) or Rule 10b-5 (despite partially labeling Count
VIII “Aiding and Abetting”). Therefore, since the parties seem to be in agreement on this point,
to the extent that Count VIII does in fact allege aiding and abetting liability, those portions of the
complaint are dismissed.

6. Conspiracy to Defraud Allegation

Finally, in Count IX of the complaint, LaDuca alleges that Pozios and Goldstein should
be made liable to the EAI shareholders because they “engaged in a common scheme, plan and/or
course of conduct with and conspired with Swirsky in furtherance of the fraud.” (Complt. at 4
121.) The defendants argue this count should be dismissed for the same reasons that the aiding
and abetting allegations in Count VIII were dismissed (i.e. that they violate the Supreme Court’s
ruling in Central Bank). We agree.

It is a widely held belief among the different courts in this country that the Supreme
Court’s decision in Central Bank not only eliminated a private cause of action for aiding and

abetting a violation of the securities laws but it also rejected the continued viability of a

11



incorporate by reference the reasoning of that minute order and deny the motion to dismiss Count
IV in this case.
4, Violation of Florida Statutes Chapter 517

In Count V of the complaint, LaDuca asserts that the defendants violated Section 301 of
Chapter 517 of the Florida Statutes. Specifically, Section 301 prohibits the employment of “a
device, scheme or artifice to defraud” in connection with the offer, sale or purchase of a security.
Fla. Stat. Ann. § 517.301(a)(1). The defendants have argued that Section 301 cannot apply in
this case because the statute does not apply to fraudulent securities transactions that occurred
outside the state of Florida.

It is an accurate statement of Florida law that Chapter 517 of the Florida Code does not
apply to allegedly fraudulent securities transactions that took place outside of Florida. See Allen
v. Oakbrook Securities Corp., 763 So.2d 1099, 1100-01 (Fla. 4th Dist. 1999). Given this
precedent, the defendants argue that, because the Pledge is governed by the laws of the Province
of Ontario, Canada, Section 301 cannot apply. While the Pledge may well have such a choice of
law clause, that provision does not necessarily determine as a matter of law where the securities
transaction took place for purposes of Section 301. LaDuca has alleged in his complaint that the
allegedly fraudulent securities transaction exemplified by the Pledge actually took place in
Florida. He has stated that the Pledge was signed in Florida, it was foreclosed in Florida, and
that the stock certificate that was the subject of the Pledge was located in Florida. (Complt. at {1
22, 26, 29). Because we are required to accept these allegations as true for purposes of a motion
to dismiss, we find that the allegedly fraudulent Pledge transaction did take place in Florida.

Therefore, the motion to dismiss Count V is denied.

10



conclusion was incorrect. Therefore, for the reasons stated in our June 19, 2001 opinion, Beswir
and the Swirsky Foundation are dismissed from this lawsuit for lack of personal jurisdiction.

Next, we have already addressed the extent of our personal jurisdiction over Pozios and
Goldstein. In the DeLeo case, Pozios and Goldstein also argued there was no personal
jurisdiction over them despite the presence of a valid Rule 10b-5 claim against them. As we
noted in our May 23, 2003 minute order denying the defendants’ motion to reconsider in DeLeo,
while the plaintiff “has just barely satisfied the heightened pleading standards required to plead a
Rule 10b-5 cause of action against both Goldstein and Pozios,” it is enough to trigger the
nationwide jurisdictional grant of Section 27 of the Exchange Act of 1934. See 15 U.S.C. §
78aa. The same reasoning applies in this case. Though the Rule 10b-5 allegation against
Goldstein and Pozios is close in the instant case, it is sufficient at this stage of the proceedings to
justify application of Section 27. Accordingly, we find that we have personal jurisdiction in this
case over Goldstein and Pozios. It should be made clear, however, that the reservations
conceming personal jurisdiction expressed in our May 23, 2003 minute order apply with equal
force to this case.

D. Substantive Motions to Dismiss

The defendants in this case have also attacked the substance of most of the claims in
LaDuca’s complaint. Before we begin to analyze these arguments, it is first important to note
that, because we have concluded the Court does not have personal jurisdiction over Beswir and
the Swirsky Foundation, all claims against those particular defendants are hereby dismissed.

1. Breach of Fiduciary Duty and Fraudulent Concealment

The parties agree that these particular claims are governed by Florida law because EAI is



Magistrate Judge Ashman, we granted the defendants’ motion to disqualify plaintiffs counsel.
To eliminate any subsequent taint of the disqualification on the derivative action, counsel for
DeLeo moved to voluntarily dismiss the derivative counts of the complaint and solely pursue the
plaintiff’s individual causes of action against the defendants. The instant case represents a
renewed effort to prosecute the derivative causes of action.

DISCUSSION

In ruling on a motion to dismiss, the Court must accept all factual allegations in the
complaint as true and draw all reasonable inferences in favor of the plaintiff. Szumny v. Am.
Gen. Fin., Inc., 246 F.3d 1065, 1067 (7th Cir. 2001). The purpose of a motion to dismiss is not
to decide the merits of the challenged claims but to test the sufficiency of the complaint. Weiler
v. Household Fin. Corp., 101 F.3d 519, 524 n. 1 (7th Cir. 1996). A court will grant a motion to
dismiss only if it is impossible for the plaintiff to prevail under any set of facts that could be
proven consistent with the allegations. Forseth v. Village of Sussex, 199 F.3d 363, 368 (7th Cir.
2000).

In their motion to dismiss, the defendants raise a variety of legal arguments attacking the
plaintiff's complaint. Specifically, they have asserted, inter alia, that they are entitled to costs
pursuant to Rule 41(d) because this complaint is an attempt at forum-shopping, that the
complaint should be dismissed because there is a continuing issue of counsel impartiality, that
this Court does not have personal jurisdiction over defendants Beswir, The Swirsky Foundation,
Pozios, and Goldstein, and that claims for breach of fiduciary duty, fraudulent concealment, and
violations of Rule 10b-5 and Florida Statues Chapter 517 have not been properly alleged. The

plaintiff has responded to this motion by noting that virtually all of the issues raised in the



Court on November 8, 2002. The case was originally assigned to Judge Aspen but he determined
that the case should be transferred to our docket because of the strong similarities between this
case and the DeLeo case.

For those who may not be as familiar with the history of this case as we are, we provide
the following brief statement of facts taken from one of our earlier opinions in the DeLeo case.

This action derives from an allegedly fraudulent transaction of securities between
EAI and Defendants Benjamin Swirsky (“Swirsky”) and Beswir Properties, Inc.
(“Beswir”). Plaintiff alleges that Swirsky controlled the Beswir entity through serving as
its director while, at the same time, serving as Chairman of the Board of EAI. The
transaction at the center of this controversy is a February 1, 1999 pledge (“Pledge”) of the
entire stock of Zconnexx (“ZCanada”), a wholly-owned subsidiary of EAI. DeLeo
alleges that EAI pledged all of its issued and outstanding shares of Common Stock of
ZCanada to Beswir without consideration. DeLeo further alleges that the transfer was, in
effect, a sham perpetrated by the entire Board of Directors of EAI, under Swirsky’s
control, upon EAI’s shareholders. As a result, EAI lost all of its ownership interest in
ZCanada.

In addition to the allegedly fraudulent transfer, DeLeo maintains that Swirsky
intentionally concealed all dealings between Beswir and EAI from EAI’s independent
shareholders. The ZCanada shares were distributed among members of ZCanada’s Board
of Directors, as well as other parties associated with Swirsky, including the Joel Swirsky
Foundation (“Foundation”), an entity controlled by Swirsky, at a factor of 1,000 less than
the value of the shares at incorporation. All of the activity, beginning with the pledge of
ZCanada’s shares, through their distribution, was allegedly done without notification of
or approval by EAI’s shareholders. EAI was involuntarily dissolved on September 22,
2000.

DeLeo v. Swirsky, 2001 WL 687458, at *1 (N.D. Ill. June 19, 2001).

It is important to note a few other important procedural issues with respect to these two
cases. When the DeLeo case was originally filed, it was a putative derivative shareholder action
filed on behalf of EAI shareholders. However, in 2002, an issue was raised with respect to the
impartiality of plaintiffs counsel in the DeLeo case. Consequently, a motion to disqualify

plaintiff's counsel was filed. After a thorough analysis of the issues raised in that motion by



IN THE UNITED STATES DISTRICT COURT, ale
NORTHERN DISTRICT OF ILLINOIS 4! 2 3
EASTERN DIVISION yw a4 100

THOMAS LaDUCA, as Representative

of the Shareholders of EASY ACCESS
INTERNATIONAL, INC.,

Case No. 02 C 8597

Plaintiffs,

v. Wayne R. Andersen

)
)
)
)
)
)
)
) District Judge
BENJAMIN SWIRSKY, BESWIR )
PROPERTIES, INC., THE JOEL )
SWIRSKY FOUNDATION, ANTHONY )
GOLDSTEIN, JOHN POZIOS and )
EASY ACCESS INTERNATIONAL, _)
INC., )
)
Defendants. y
MEMORANDUM, OPINION AND ORDER
This case is before the Court on the motion of the defendants to dismiss plaintiff Thomas
LaDuca’s Amended and Restated Verified Complaint pursuant to Federal Rules of Civil
Procedure 12(b)(2) and 12(b)(6). For the following reasons, the motion to dismiss is granted in
part and denied in part.
BACKGROUND
The history behind this long and tortured lawsuit is well-known to the Court. While this
particular case has only recently been added to this Court’s docket, a nearly identical lawsuit with
identical legal issues and nearly complete symmetry in parties (DeLeo v. Swirsky, 00 C 6917) has

been a part of the Court’s consciousness since 2000. The instant lawsuit was originally filed in

the United States District Court for the Southern District of Florida but was transferred to this



conspiracy to defraud cause of action under Section 10(b) and Rule 10b-5. See, e.g., Dinsmore v.
Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin, 135 F.3d 837, 841-42 (2d Cir. 1998); In re
GlenFed, Inc., Sec. Litig., 60 F.3d 591, 592 (9th Cir. 1995); Krieger v. Gast, 1998 WL 677161,
at *9 (N.D. Ill. Sep. 22, 1998); Kidder Peabody & Co. v. Unigestion Int'l, Ltd., 903 F. Supp. 479,
496-98 (S.D.N.Y. 1995); In re MTC Elec. Techs. Shareholders Litig., 898 F. Supp. 974, 982
(E.D.N.Y. 1995); In re College Bound Consol. Litig., 1995 WL 450486, at *8 (S.D.N.Y. July 31,
1995); Van De Velde v. Coopers & Lybrand, 899 F. Supp. 731, 738 (D. Mass. 1995); Upton v.
McKerrow, 887 F. Supp. 1573, 1580 (N.D. Ga. 1995); In re Medimmune, Inc. Sec. Litig., 873 F.
Supp. 953, 964 n. 8 (D. Md. 1995); Otto v. Variable Annuity Life Ins. Co., 1995 WL 121519, at
*} (ND. Ill. Mar. 17, 1995). The reasoning behind these rulings is that “there is no mention of
conspiracy in the text of § 10(b). Just as Congress clearly knew how to impose aiding and
abetting liability when it chose to do so, thereby suggesting that its absence from § 10(b) should
not be disregarded, the existence of statutes expressly providing for conspiracy liability . . .
warrants the same conclusion here.” Dinsmore, 135 F.3d at 842. We agree with this reasoning
and join with the courts that have concluded that Section 10(b) does not create a private cause of

action for conspiracy to defraud. Therefore, Count IX is dismissed.

12