| GUS Consulting GmbH v Chadbourne & Parke LLP |
| 2010 NY Slip Op 05672 [74 AD3d 677] |
| June 24, 2010 |
| Appellate Division, First Department |
| GUS Consulting GmbH, Formerly Known as CreditanstaltInvestment Bank AG, et al., Appellants, v Chadbourne & Parke LLP,Respondent. |
—[*1] Flemming Zulack Williamson Zauderer LLP (Mark C. Zauderer of counsel), forrespondent.
Judgment, Supreme Court, New York County (Barbara R. Kapnick, J.), entered January 21,2010, dismissing the complaint in this legal malpractice action, pursuant to an order, same courtand Justice, entered January 14, 2010, which, inter alia, granted defendant's motion for summaryjudgment, unanimously affirmed, with costs. Appeal from the aforesaid order unanimouslydismissed, without costs, as subsumed in the appeal from the judgment.
Plaintiffs, Creditanstalt Investment Bank AG and its affiliates (collectively, CAIB), allegethat, due to Chadbourne's negligent failure to warn them in 1998 of possible criminalconsequences of their use of a simple partnership structure (SP structure) to invest in the Russiannatural gas company, Gazprom, they continued using that investment structure, until, in 1999,their Russian offices were raided by Russian tax police. The Russian tax authorities thenengaged in a prolonged investigation, allegedly focused on the legality of the structure of theinvestments. As a result of the threat of criminal prosecutions, CAIB chose in early 2000 tocease all business in Russia until the six-year statute of limitations had run, and then to acquireanother corporation in order to reestablish its presence there.
The complaint alleges that the SP structure was illegal under Russian law, specificallydecree No. 529, and that the Russian tax police undertook an investigation because the SPstructure was illegal. However, the contention that the SP structure was illegal under Russianlaw was rejected in an arbitration brought against plaintiff CIS Emerging Find Limited (CISEF)in which CISEF asserted that its contract with the claimant was void because it was part of theSP structure that was illegal under decree No. 529. Since the issue was actually and necessarilydecided in the arbitration, in which CISEF had a full and fair opportunity to litigate the issue,CISEF and the other plaintiffs, who are admittedly in privity with it, are precluded fromrelitigating it herein (see Kaufman v Eli Lilly & Co., 65 NY2d 449, 455 [1985]; Active Media Servs., Inc. v Grant Prideco,Inc., 35 AD3d 165 [2006]). Thus, to the extent the complaint is based on allegationsthat Chadbourne negligently advised plaintiffs that the SP structure was legal, although risky,under Russian law, the malpractice claim is foreclosed.
Summary judgment dismissing the entire legal malpractice action was correctly granted[*2]because CAIB failed to present evidence in admissible formsufficient to raise a triable issue of fact as to proximate cause, which requires a showing thatChadbourne's alleged failure to warn it of potential criminal consequences of its use of the SPstructure proximately caused reasonably ascertainable damages (see AmBase Corp. v Davis Polk &Wardwell, 8 NY3d 428, 434 [2007]; Barbara King Family Trust v Voluto Ventures LLC, 46 AD3d 423,424-425 [2007]). CAIB submitted no admissible evidence to dispute Chadbourne's showing thatthe 1999 tax police raid was precipitated by a terminated employee in an effort to delay CAIB'sdiscovery of his theft of 100,000,000 shares of Gazprom stock. Further, the shares of Gazpromstock that were "arrested" by Russian authorities following the 1999 raids were eventuallyreleased to CAIB, and no formal criminal prosecution was ever commenced against CAIB or anyof its affiliates or officers. CAIB's claim that, had Chadbourne properly advised it of potentialcriminal exposure, it would have changed or ceased its use of the SP structure and then wouldhave been able to maintain its presence in Russia and grow its business there over the next sixyears, while the Russian economy rebounded, is too speculative to support a legal malpracticeclaim (see AmBase Corp., 8 NY3d at 434; Zarin v Reid & Priest, 184 AD2d 385,387-388 [1992]). Concur—Saxe, J.P., Friedman, Nardelli, Moskowitz and Richter, JJ.[Prior Case History: 26 Misc 3d 1212(A), 2010 NY Slip Op 50072(U).]