On February 23, 2003, defendants Swirsky, Beswir, the Foundation,
Goldstein and Pozios brought the abovementioned motion to dismiss before the
District Court. In the motion, the defendants allege that the current plaintiff and
his attomey (David Axelrod) are tainted by their association with the disqualified
DeLeo counsel. Specifically, the defendants contend that Golden has been
significantly involved in this case, including working on case-related matters with
Axelrod; the defendants also allege that Golden may have some sort of fee
sharing agreement with Axelrod regarding the instant matter.

The defendants base their allegation on the following facts: (1) the three
versions of the complaint in this case are very similar to the complaints filed in
the DeLeo v. Swirsky case; (2) most of the allegations in the complaints, demand
letter, and unanimous written consent in this case are the same as contained in
the DeLeo v. Swirsky case; (3) the formatting of other papers filed with the
Florida court is identical to the formatting used by Golden in the DeLeo v.
Swirsky case; (4) Axelrod’s refusal to deny Golden’s involvement; and (5) a
demand letter from plaintiff LaDuca and his brother, Phillip LaDuca (who was a
plaintiff in the DeLeo suit) stating that Golden is LaDuca’s attomey. Plaintiff has
so far refused to take the steps requested by the defendants to prove the non-
involvement of Golden, which include declaring that Golden is not a decision
maker in the case and has no financial involvement in the case, having Golden
cease any representation of Thomas LaDuca, and insuring that Golden does
nothing to prosecute the case. In their motion, the defendants demand that this
Court either order discovery into the adequacy of the representation or take steps

4



For the reasons stated above, we recommend that the District Court
DENY defendants’ motion to disqualify the nominal plaintiff and his counsel, but
recommend that LaDuca be required to publicly state his disaffiliation from
attorney Golden. Specific written objections to this report and recommendation
may be served and filed within 10 business days from the date that this order is
served. Fed. R. Civ. P. 72(a). Failure to file objections with the District Court
within the specified time will result in a waiver of the right to appeal all findings,
factual and legal, made by this Court in the report and recommendation.

Lorentzen v. Anderson Pest Control, 64 F.3d 327, 330 (7" Cir. 1995).

ENTER:

YA p——
MICHAEL T. MASON
United States Magistrate Judge

Dated: September 4, 2003



As an initial matter, the defendants’ motion to dismiss should be denied
because they lack standing. To bring a motion before a court, the moving party
must establish an “injury in fact resulting from the action which the [he] seek[s] to
have the court adjudicate.” DeLeo v. Swirsky, 00 C 6917, 2002 WL 989526
(N.D.1II., May 14, 2002), quoting Valley Forge Christian Coll. v. Ams. United for
Separation of Church and State, Inc., 454 U.S. 464, 473 (1982). An injury in fact
generally must be sustained by the moving party himself. Warth v. Seldin, 422
U.S. 490, 499. In DeLeo, Judge Ashman explained that a defendant corporation
has standing to challenge the adequacy of the named plaintiff and his attorney in
a derivative suit. fd. at 14. Further, the Court clarified that the corporation is the
true plaintiff, positioned as a nominal defendant, and therefore the corporation,
not a director defendant, has the benefit of fair and adequate representation. /d.
The Court concluded that the interests that serve as the basis for allowing the
defendant corporation to challenge the fairness and adequacy of the
representation do not provide a basis for allowing an individual defendant to
make the same challenge. /d. In this case, EAI has declined to join the motion
to disqualify, and thus we find for the same reasons stated in Judge Ashman's
opinion, the individual defendants here lack standing to bring this motion.

However, Judge Ashman also noted that if evidence calls into question the
ability of the self-appointed named plaintiff to faithfully carry out his fiduciary role
and champion the interests of absent shareholders, Rule 23.1 imposes on the

court the requirement to act. In DeLeo, this duty caused the Court to sua sponte



to ensure that LaDuca and his counsel are independent of the former disqualified
counsel. If such actions are not feasible, the defendants request this Court to
dismiss the action.
Analysis

Shareholders’ derivative actions are governed by Federal Rule of Civil
Procedure 23.1. Brown v. Ferro Corp., 763 F.2d 798 (6th Cir. 1985). In pertinent
part, Rule 23.1 provides that the "derivative action may not be maintained if it
appears that the plaintiff does not fainy and adequately represent the interests of
the shareholders or members similarly situated in enforcing the right of the
corporation." Fed. R. Civ. P. 23.1. It is well settled that the fairness and
adequacy requirement of Rule 23.1 means that the named plaintiff must not have
antagonistic interests that would likely cause him to conduct the derivative suit in
a manner inconsistent with the interests of the shareholders.
Generally, the following factors may be considered to determine if a particular
plaintiff does not fairly and adequately represent the interests of other similarly
situated shareholders: (1) indications that the plaintiff is not a true party in
interest; (2) the plaintiffs unfamiliarity with the litigation and unwillingness to learn
about the suit; (3) the degree of control exercised by attorneys over the litigation;
(4) the degree of support received by the plaintiff from other shareholders; and
(5) the lack of any personal commitment to the action on the part of the
representative plaintiff. Rothenberg v. Security Management Co. Inc., 667 F.2d.
958 (11th Cir. 1982).


Because of the relatedness of this matter and the derivative claims in
DeLeo, Golden's disqualification has the force of law to prevent Golden from
participating in the prosecution of the instant case as long as he continues to
represent DeLeo in his individual capacity; if defendants believe that Golden is
not adhering to the Court's order, they are free to bring a motion against him.
Axelrod is already similarly prohibited from working with Golden by the force of
Judge Ashman'’s order; one can analogize to a situation where a law firm is
required to build a “firewall” to prevent a particular disqualified attorney from
participating in the prosecution or defense of a case because of conflict issues.

At this point, we do not believe that the defendants’ general speculations
about the similarities between the filings in this case and the DeLeo matter
require us to investigate whether Golden is in fact maintaining his separation
from the instant suit. There is simply not enough evidence to raise any suspicion
that LaDuca is not able to adequately represent the plaintiff shareholders. This is
particularly so because there is no allegation that LaDuca has any interests
antagonistic to the rest of EAl’s shareholders. However, one issue needs to be
addressed. One of the LaDuca demand letters does state that Golden is
LaDuca's attorney. As Judge Ashman has already determined that Golden
cannot continue to represent any of the nominal plaintiffs in this case because of
his current representation of DeLeo, LaDuca should formally inform the parties
and the Court that Golden is not representing him for any matter in any way

related to this case.



“Minute Order Fort (96/97)

United States District Court, Northern District of Illinois

Name of Assigned Jud; Sitting Judge if Oth i
vor Magutrate Judge Wayne R. Andersen ‘than Assigned Judge Michael T. Mason
CASE NUMBER 02 C 8597 DATE 9/4/2003
CASE LaDuca vs. 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:
q) ia Filed motion of [ use listing in “Motion” box above.]
(2) a Brief in support of motion due
(3) Oo Answer brief to motion due . Reply to answer brief due. .
(4) Q Ruling/Hearing on set for at
(5) o Status hearing{held/continued to] {set for/re-set for] on set for at
(6) im) Pretrial conference[held/continued to] [set for/re-set for} on set for at :
(7) a Trial[set for/re-set for] on at
(8) Qa (Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) (ClLocal Rule 41.1 CIFRCP41(a\1) CI FRCP41(a)(2).
ao if [Other docket entry] © REPORT AND RECOMMENDATION is hereby submitted to Judge Andersen
recommending that the District Court DENY defendants’ motion to disqualify the nominal plaintiff and his
counsel, but recommend that LaDuca be required to publically state his disaffiliation from attorney Golden.
Specific written objections to this report and recommendation may be served and filed within 10 business days
from the date that this order is served. Fed. R. Civ. P. 72(a). Failure to file objections with the District Court
within the specified time will result in a waiver of the right to appeal all findings, factual and legal, made by this
Court in the report and recommendation Lorenizen v, Anderson Pest Control, 64 F.3d 327, 330 (7* Cir. 1995). All
matters relating to the referral of this case having been resolved, the referral is closed and the case is returned to
the assigned judge.
al) {For further detail see order attached to the original minute order.}
No notices required, advised in open court. ;
No notices required. + + number of notices ~
ao | Notices mailed by judge’s staff. SEP 0 5 7802
Notified counsel by telephone. 9 1914 isia‘s'n date docketed
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disqualify DeLeo and his attorney. In this case, we will address the adequacy of
Axelrod in order to put the issue to rest.

At this time, the evidence before us does not suggest that the named
plaintiff does not fairly and adequately represent the interests of shareholders.
The defendants have made no assertions about the named plaintiff's knowledge
of the facts supporting his claim, his commitment to the prosecution of this
lawsuit, or the competence of his counsel to assist in the litigation. They have
also not alleged that the plaintiff has a personal conflict of interest or
entanglements making it likely that the interests of other stockholders will be
disregarded. See Sonkin v. Barker, 670 F, Supp. 249, 251 (S.D. Ind. 1987).

Instead, the defendants’ only contention is that plaintiffs current counsel
may not be working independently from Golden, the disqualified DeLeo counsel,
and that Golden continues to be involved in this case. They argue that Axelrod
should aver his independence from Golden in order to satisfy Rule 23.1's
requirements or that we should undertake discovery into the question of
independence. Judge Ashman “reluctantly” disqualified Golden from representing
the nominal plaintiffs in the DeLeo suit as long as he represented DeLeo in a
New York lawsuit whose interests were antagonistic to those of the shareholders
of EAI. Even after Golden withdrew his representation of DeLeo in the New York
suit, Judge Ashman upheld the disqualification because Golden also represented
DeLeo in his individual capacity in the Illinois suit, and DeLeo’s interests were still

at odds with those of the other shareholders.


violated the law when he intentionally concealed the transaction from EAI's
shareholders. EAI was involuntarily dissolved on September 22, 2000.

The DeLeo case was not resolved on the merits. In 2002, Swirsky
brought a motion to disqualify DeLeo and his attorney (Bruce Golden) from
representing the interests of EAI’s shareholders because DeLeo and Golden did
Not satisfy the Fed.R.Civ.P. 23.1 requirement of fair and adequate
representation. Specifically, Swirsky asserted that DeLeo was a party to another
lawsuit filed in New York where he was also represented by Golden. In the New
York litigation, DeLeo contended that Zconnexx stole the domain name
<www.yellowpage.net> from Yellow Pages Network, Inc, a corporation half-
owned by DeLeo. In the Illinois suit, DeLeo’s position was that
<www.yellowpage.net> was a part of the Zconnexx’s business foundation.
Swirsky asserted that DeLeo’s positions in the two lawsuits created irreconcilable
conflict of interest. Having considered the circumstances of the case, Magistrate
Judge Ashman held that unfair and inadequate representation did not cause an
injury to Swirsky as a defendant director and therefore Swirsky lacked the
standing to bring the motion to disqualify. Nevertheless, DeLeo and Golden were
disqualified on the court's own motion.

Recognizing the similarities between the DeLeo matter and the LaDuca
case, Florida District Judge Ryskamp — to whom the instant matter was first
assigned ~ granted defendants’ motion to transfer the suit from the District Court
for the South District of Florida to the District Court for the Northern District of

Illinois in November, 2002.


been disqualified from representing any nominal plaintiffs in this or any related
matter.
Background

On October 22, 2001, plaintiff Thomas LaDuca brought a derivative action
on behalf of the shareholders of Easy Access International, Inc. ("EAI") against
defendants Benjamin Swirsky, Beswir Properties Inc. (“Beswir’), the Joel Swirsky
Foundation (the “Foundation”), Anthony Goldstein, John Pozios and EAI. The
suit was initially filed in the United States District Court for the Southern District of
Florida. In the complaint, LaDuca alleges that defendants Swirsky (EAI's
chairman), Goldstein (Swirsky's son-in-law) and Pozios (Swirsky and Goldstein's
attorney) pledged EAI's common stock of Zconnexx, EAI’s wholly-owned
subsidiary, to Beswir without consideration. LaDuca alleges that the transfer was
executed through a sham pledge agreement.

The derivative claims in the instant lawsuit are similar to derivative claims
in the action DeLeo v. Swirsky, which was filed before Judge Anderson in the
Northern District of Illinois in 2000. Like the instant suit, DeLeo involved an
allegedly fraudulent transaction of securities between EAI and Swirsky and
Beswir Properties, Inc.? In DeLeo, plaintiff Neal DeLeo alleged that EAI pledged
all of its shares of Zconnexx to Beswir without consideration. DeLeo asserted

that as the result of this transaction, EAI lost ownership of Zconnexx and Swirsky

? See 00 C 6917, 2002 WL 1447855 (N.D.IIl, July 2, 2002). Our description of the DeLeo case
comes from Judge Anderson's opinion deciding the motion to dismiss and Judge Ashman's report and
recommendation regarding the motion to disqualify, 00 C 6917, 2002 WL 989529 (N.D.II. May 14, 2002).

2


IN THE UNITED STATES DISTRICT COURT Bip...
NORTHERN DISTRICT OF ILLINOIS Sp ada
EASTERN DIVISION 0

THOMAS LaDUCA, as Representative
of the Shareholders of EASY ACCESS
INTERNATIONAL, INC.,

Plaintiffs,
No. 02 C 8597
v.

BENJAMIN SWIRSKY, BESWIR
PROPERTIES, INC., THE JOEL SWIRSKY
FOUNDATION, ANTHONY GOLDSTEIN
JOHN POZIOS and EASY ACCESS
INTERNATIONAL, INC.,

)

)

)

)

)

) Judge Wayne R. Andersen
)

) Mag. Michael T. Mason
)

)

Defendants. )

REPORT & RECOMMENDATION

Michael T. Mason, United States Magistrate Judge:

On July 18, 2003, the District Court granted in part and denied in part a
motion to dismiss the complaint in a derivative lawsuit filed by plaintiff Thomas
LaDuca, as representative of the shareholders of Easy Access International, Inc.
(‘EAI”).’ In its opinion, the Court withheld decision on one issue — whether to
disqualify plaintiff and his counsel as the representatives of the derivative lawsuit
because they do not meet the requirements of Fed.R.Civ.P. 23.1. Instead, the
District Court referred the matter to us for a report and recommendation. For the
following reasons, we recommend the District Court DENY the defendants’
motion, but require plaintiff LaDuca to affirm that he is not receiving any legal

services or advice regarding this case from attorney Bruce Golden, who has

* See LaDuca v. Swirsky, 02 C 8597, - WL ~, (N.D.III., July 18, 2003).