In this action, plaintiffs claim that the defendant Chadbourne & Parke LLP ("Chadbourne") provided them with erroneous advice regarding the so-called Simple Partnership Structure ("SP Structure"), a derivative investment product designed and marketed by plaintiffs to allow non-Russians to invest in the securities of the Russian energy giant, Gazprom, despite restrictions on foreign ownership, and further claim that the Russian Tax Police raided their offices in Moscow in 1999 for alleged violations of those foreign ownership restrictions.

Defendant's defense is predicated, in part, on its contention that plaintiffs will be unable to prove the necessary elements of their prima facie case, including, reliance and causation. Specifically, defendant contends that plaintiffs will be unable to establish that they sustained damages as a result of their reliance on Chadbourne's advice or that Chadbourne's advice regarding the SP Structure caused the Tax Police to raid plaintiffs' offices.

An issue arose during the August 30, 2005 deposition in Manchester, Vermont of non-party Timothy Medland, a former executive of Creditanstalt Investment Bank AG ("CAIB") who resides in the United Kingdom, when plaintiffs' counsel told the witness, who was not represented by counsel, that certain testimony he was about to give in response to defendant's counsel's questions could violate plaintiffs' attorney-client privilege with Holme Roberts & Owen LLP, the firm that preceded Chadbourne as plaintiffs' counsel in Russia.^[FN1]

Defendant now moves by Order to Show Cause for an order:

(1)pursuant to CPLR § 3124 declaring that the plaintiffs have waived the attorney-client privilege with respect to any legal advice they received regarding the compliance of their Russian [*2]operation with Russian tax laws and licensure requirements; compelling plaintiffs to disclose information on these topics; and prohibiting plaintiffs from interfering with disclosure from third parties based upon such claims of privilege;

(2)pursuant to CPLR § 3126 and 22 NYCRR § 130-1 imposing sanctions for adversary counsel's frivolous conduct which curtailed Mr. Medland's deposition;and

(3)pursuant to paragraph (i) of the Confidentiality Order in this case dated February 10, 2005, relieving defendant of its obligation to provide plaintiffs with 72 hours advance notice of the filing of the two purportedly confidential documents attached to this motion because, inter alia, plaintiffs have in the context of the earlier court filings explicitly and in writing consented to the filing of these same purportedly confidential documents.

The attorney-client privilege is deemed waived when:

(1)assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense.

Defendant argues that by commencing this action, plaintiffs have placed at issue' any legal advice they received regarding the compliance of their Russian operation with Russian tax laws and licensure requirements, and further argues that plaintiffs waived the attorney-client privilege on those issues by permitting their former general counsel, Kyle Shostak, to testify in this case in July 2005 regarding the advice plaintiffs received on the same subjects.^[FN2]

Plaintiffs deny that Mr. Shostak testified as to the propriety of trading under certain licensing arrangements made by Creditanstalt-Grant in early 1997 and thus argue that his testimony cannot be [*3]deemed a waiver of the attorney-client privilege on that issue.

Plaintiffs further argue that while Chadbourne is entitled to argue that something other than illegality of the SP Structure provoked the Tax Police raids, any legal advice that plaintiffs may have received concerning other aspects of their Russian operations would not be probative of Tax Police motives and therefore is not "vital" to Chadbourne's defense in this action.^[FN3]

However, a review of the resolution dated February 28, 2000 issued by an Investigator for the Russian Tax Police (annexed as Exhibit "C" to defendant's Order to Show Cause) does not appear to support plaintiffs' position that the raid was precipitated solely by the formation and operation of the SP Structure, since the resolution cites violations occurring in 1997 and 1998, refers to entities not connected with the SP Structure, and accuses the targets of the investigation of "conducting illegal business activity and of repeated evasion of tax paying to the high extent which were done by the organized group."

Therefore, this Court finds that the issues of what legal advice plaintiffs received regarding the Russian operation's compliance with Russian tax laws and licensure requirements are central to defendant's defense in this action. The application of the privilege in this case would deprive defendant of vital information. See, Goldberg v. Hirschberg, 2005 WL 2295523 (Sup. Ct., NY Co.); Bolton v. Weil, Gotshal & Manges LLP, 4 Misc 3d 1029(A) (Sup. Ct., NY Co. 2004).

Accordingly, based on the papers submitted and the oral argument held on the record on November 14, 2005, this motion is granted to the extent of declaring that plaintiffs have waived the attorney-client privilege with respect to any legal advice they received from Holme Roberts & Owen or any other firm regarding the compliance of their Russian operation with Russian tax laws and licensure requirements, and finding that those subjects are legitimate topics of inquiry at the depositions in this action.

That portion of the motion seeking the imposition of sanctions based on plaintiffs' counsel's conduct during the deposition of Mr. Medland is denied, in the discretion of the Court, as this Court finds that there was a legitimate question as to the scope of the waiver of the privilege.

That portion of the motion seeking an order relieving defendant of its obligation to provide plaintiffs with 72 hours advance notice of the filing of the two purportedly confidential documents attached to this motion is resolved pursuant to Stipulation and Order to Place Under Seal Deposition Excerpt Appended to the Affirmation of Daniel Rothstein' dated November 15, 2005 and so-ordered by this Court on November 17, 2005.

A status conference shall be held in IA Part 12 on January 26, 2006 at 2:15 p.m. [*4]

This constitutes the decision and order of this Court.

Date:November 18, 2005____________________________

Barbara R. Kapnick

J.S.C.