GUS Consulting GmbH v. Chadbourne & Parke, LLP, 74 A.D.3d 677, 905 N.Y.S.2d 158 (2010)

NY: underlying international corporate case

Student Contributor: Alexis Trezza

Facts: Defendants represented CAIB and its affiliates in international investments. Plaintiffs sued defendants for legal malpractice because plaintiffs allege that defendants failed to warn them, in 1998, of possible criminal consequences of their use of a simple partnership (SP) structure to invest in Gazprom (a Russian natural gas company). They continued to use the SP structure until 199 when their Russian offices were raided by Russian tax police and the Russian tax authorities subsequently investigated the legality of how the investments were structured. When threatened with criminal prosecutions for their investments, CAIB chose to cease all business in Russia in 2000 until the six-year statute of limitations had run and then to return to Russia to do business. Plaintiffs’ complaint allege that the SP structure was illegal under decree No. 529 of Russian law, but this assertion was rejected during a prior arbitration and any malpractice claim based on this argument is foreclosed. Defendants moved for summary judgment to dismiss plaintiffs’ complaint and same was granted. Plaintiffs appeal.

Issue: Should plaintiff’s claim for legal malpractice have been dismissed?

Ruling: Yes. Summary judgment dismissing the entire legal malpractice action was correctly granted because CAIB failed to present evidence in admissible form sufficient to raise a triable issue of fact as to proximate cause, which requires a showing that Chadbourne’s alleged failure to warn  of potential criminal consequences of its use of the SP structure proximately caused reasonably ascertainable damages. CAIB submitted no admissible evidence to dispute Chadbourne’s showing that the 1999 tax police raid was precipitated by a terminated employee in an effort to delay CAIB’s discovery of his theft of 100 million shares of Gazprom stock. Also, the shares of Gazprom stock that were “arrested” by Russian authorities following the 1999 raids were eventually released to CAIB, and no formal criminal prosecution was ever commenced against CAIB or any of its affiliates or officers. CAIB’s claim that, had Chadbourne properly advised it of potential criminal exposure, it would have changed or ceased its use of the SP structure and then would have been able to maintain its presence in Russia and grow its business there over the next six years, while the Russian economy rebounded, is too speculative to support a legal malpractice claim.

Lesson: An attorney who advises you that a particular investment  is legal doesn’t assure  that it is free from risk. The attorney’s careless advice may leave you exposed but may not rise to the level of legal malpractice.