Opinion
652251/2017
10-08-2020
STARR RUSSIA INVESTMENTS III B.V., Plaintiff, v. DELOITTE TOUCHE TOHMATSU LIMITED, Deloitte LLP, Deloitte CIS Limited, Deloitte CIS Holdings Limited, Zao Deloitte & Touche CIS, Defendant.
Starr Russia Investments III B.V., Boies Schiller Flexner LLP, 55 Hudson Yards, New York, NY 10001, (212) 446-2300, for Plaintiffs. Deloitte Touche Tohmatsu Limited, HUGHES HUBBARD & REED, One Battery Park Plaza, New York, NY 10004, (212) 837-6000, Deloitte LLPDeloitte CIS Limited, Deloitte CIS Holdings Limited, KRAMER LEVIN NAFTALIS & FRANKEL LLP, 1177 Avenue of the Americas, New York, NY 10036, (212) 715-9100, ZAO Deloitte & Touche CIS, Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, (212) 839-5300, for Defendants.
Starr Russia Investments III B.V., Boies Schiller Flexner LLP, 55 Hudson Yards, New York, NY 10001, (212) 446-2300, for Plaintiffs.
Deloitte Touche Tohmatsu Limited, HUGHES HUBBARD & REED, One Battery Park Plaza, New York, NY 10004, (212) 837-6000, Deloitte LLPDeloitte CIS Limited, Deloitte CIS Holdings Limited, KRAMER LEVIN NAFTALIS & FRANKEL LLP, 1177 Avenue of the Americas, New York, NY 10036, (212) 715-9100, ZAO Deloitte & Touche CIS, Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, (212) 839-5300, for Defendants.
Andrew Borrok, J.
The following e-filed documents, listed by NYSCEF document number (Motion 023) 638, 639, 640, 641, 642, 643, 644, 645, 646, 647, 648, 649, 650, 651, 652, 653, 654, 655, 656, 657, 658, 659, 660, 661, 662, 663, 664, 665, 666, 667, 668, 669, 670, 671, 672, 673, 694, 708, 732, 733, 734, 735, 736, 737, 738, 739, 740, 741, 742, 743, 744, 745, 746, 747, 748, 749, 750, 751, 752, 753, 754, 755, 756, 757, 758, 759, 760, 761, 762, 763, 764, 765, 766, 767, 768, 769, 770, 771, 772, 773, 774, 775, 776 were read on this motion to/for DISCOVERY
The following e-filed documents, listed by NYSCEF document number (Motion 024) 674, 675, 676, 677, 678, 679, 680, 681, 682, 683, 684, 685, 686, 687, 688, 689, 690, 691, 692, 693, 709, 716, 717, 718, 719, 720, 721, 722, 723, 724, 725, 726, 727, 728, 729, 730, 731 were read on this motion to/for DISCOVERY
Upon the foregoing documents, and for the reasons set forth on the record (10.08.2020), ZAO Deloitte & Touche CIS's (D-ZAO ) motion pursuant to CPLR § 3124 (i) (Mtn Seq. No. 23) for an order compelling Starr Russia Investments III B.V. (Starr ) to produce the Risk Advisory Group Report (the RAG Report ) and all communications discussing its factual findings and all responsive documents that it has shared with third-parties, including all communications with FPK Capital/J.C. Flowers (JC Flowers ) from 2007 to 2015 and (ii) (Mtn. Seq. No. 24) for an order compelling Starr to produce all documents and communications related to the Center for the National Interest, Inc. (CNI ), Alexander Torshin, or Maria Butina for the period 2006 through 2015 is decided in accordance with the below. Familiarity with the facts is presumed.
Mtn. Seq. No. 23
In 2007, Starr engaged Allen and Overy (A & O ) to represent it in its investment in the Investment Trade Bank (ITB) transaction. A few months later, in February 2008, Starr approached JC Flowers about becoming a co-investor. JC Flowers engaged Skadden, Arps, Slate, Meagher & Flom LLP (Skadden ) to represent it. As is often the case, the potential co-investors agreed to share due diligence materials and costs. Later that year, Skadden commissioned the Risk Advisory Group (RAG ) to produce the RAG Report, which RAG Report is dated June 9, 2008 (i.e., on or about the time of Starr's initial investment in ITB in June 2008 and prior to Starr's subsequent investment in ITB in August 2009 (NYSCEF Doc. No. 71, ¶¶ 3 and 5), and which RAG Report Skadden shared with Starr. In response to D-ZAO's request for production of the RAG report, Starr has refused to produce the report claiming that it is covered by the attorney-client privilege and or the common interest privilege. Both arguments fail.
The RAG Report was produced for Skadden who represented JC Flowers, and not Starr. Although there may have been an agreement to share due diligence materials and/or due diligence costs, there is no written expression of a joint representation by Skadden and A & O as to both JC Flowers and Starr. Nor is there a written understanding as to privilege (e.g., a written agreement which indicates the documents produced and shared during the course of due diligence are privileged and must be treated as confidential and not further shared with others). Notably, Starr does not proffer an affirmation from a lawyer from A & O or Skadden describing the scope of the representation or identifying both Starr and JC Flowers as clients in the ITB transaction. Thus, the RAG Report is not protected by the attorney client privilege.
In addition, if there was a joint representation as Starr contends, the common interest privilege would not apply to the RAG Report because it does not protect due diligence materials which are prepared for transaction structuring purposes. The common interest privilege protects only documents prepared in anticipation of litigation ( Ambac Assur. Corp. v. Countrywide Home Loans, Inc. , 27 NY3d 616, 629 [2016] ). Although Starr indicates that it anticipated litigation as early as 2008, the argument rings hollow. The fact that one evaluates litigation risk and or uses litigation risk as a negotiating tool does not mean that litigation is reasonably anticipated. The report produced in 2008 — i.e., prior to Starr's additional investment made in 2009 — simply was produced for due diligence and structuring purposes (Pl. Mem. in Opp., NYSCEF Doc. No. 732 at 7-8; RAG Report, NYSCEF Doc. No. 772 at 1), not in anticipation of litigation and the report therefore must be produced within 7 days of this decision and order.
Finally, Starr has put its knowledge and what risks were known to it at issue in the case such that any privilege as to any facts or other business information revealed in the RAG Report would be waived in any event ( Deutsche Bank Trust Co. of Ams. v. Tri-Links Inv. Trust , 43 AD3d 56, 63-63 [1st Dept 2007] ). Starr's claim as to D-ZAO is that D-ZAO induced it to invest in the ITB transaction based on materials which D-ZAO produced. To wit, Starr claims that it expected Mr. Gudkov to have run ITB as a prudent and conservative manager. The Deloitte UK Defendants are in this case based on Starr's alter-ego theory as it relates to the 2010 decision not to exit the ITB investment. Simply put, what facts and other business information, including as revealed in the RAG Report, Starr knew and when it knew those facts or information are critically important to the prosecution of its claims and also to the defendants' defenses in this case.
The communications between JC Flowers and Starr are similarly not privileged prior to the time that they reasonably anticipated litigation ( Ambac , 27 NY3d at 629 ). This appears to be 2011 when they began together hiring outside counsel. In 2011, for example, Starr and JC Flowers jointly engaged the Russian law firm EDAS Law Bureau concerning potential contract claims arising from the shareholders' agreement. From 2013-2015, they engaged Hogan Lovells LLP, and from 2014-2016, they engaged another Russian law firm, Liniya Prava, regarding potential arbitration or litigation against ITB. Starr and JC Flowers shared the legal fees for these engagements.
The initial ITB investment was made in June 2008 and the additional investment in August 2009. The exit option was not exercised in 2010. If Starr anticipated litigation prior to the 2010 exit option, it had a duty to mitigate its damages and potentially should have exercised the exit option to minimize their damages. To the extent that Starr argues that it anticipated litigation in 2008, they offer an email, dated May 2008 from Tim Hanford of FPK Capital to Kani Zhao which describes litigation risk, and provides for an estimate of damages and indicates that they are getting close to the "time for Mr. Greenberg to communicate his intentions to Mr. Gudkov" and further provides that "there is basis for the bank to use our breach as evidence of bad faith" (NYSCEF Doc. No. 760). There is however no evidence of a demand, or a refusal of a demand or any other indication that if certain accommodations were not met, Starr would sue or be sued. If anything, the fact that Mr. Greenberg had not yet communicated his intentions undermines the position that at this time Starr reasonably anticipated litigation. Finally, as discussed above, 2008 was also prior to the time that the additional investment was made in 2009. To the extent that Starr indicates that it consulted with A & O and Skadden in 2010 about the possibility of filing claims under the relevant E & O policies related to the investigation of ITB by the Central Bank of Russia, this also does not substantiate the notion that they reasonably anticipated litigation. Accordingly, communications prior to the engagement of the Russian firms in 2011 must also be produced within 7 days of this decision and order.
Mtn Seq. No. 24
Reference is made to a Decision and Order (the October 2019 Order ), dated October 23, 2019 (NYSCEF Doc. No. 718). In the October 2019 Order this court ordered Starr to produce documents from 2006-2015 as it related to Starr or other Starr entities' investments in Russia as they may provide information relevant to whether Starr detrimentally relied on D-ZAO's representations in investing in ITB and any exit decisions.
The first part of [D-ZAO's] document request seeking documents and communications relating to Starr Russia or other Starr entities' investments in Russia is relevant to Starr Russia's claim that it was induced to invest in ITB in reliance on [D-ZAO's] misrepresentations and suffered damages as a result. These documents may provide information relating to Starr Russia's allegations that it detrimentally relied on D-ZAO's representations in investing in ITB in 2008 and any exit decisions — i.e., holding its investment through 2015. They are therefore material and necessary to [D-ZAO's] defenses with respect to Starr Russia's fraud and negligent misrepresentation claims. However, the production shall be limited to documents relating to Starr Russia or other Starr entities' investments in Russia from 2006 through 2015
(NYSCEF Doc. No. 718 at 12-13 [internal citation omitted] ).
Addressing D-ZAO's request for documents and communications relating to Alexander Torshin, Maria Butina, and CNI, the court ordered that "Starr Russia is directed to provide an affidavit setting forth custodians and search terms used in connection with its efforts to locate responsive documents by November 7, 2019" (id. at 13).
In response to the October 2019 Order, Starr produced an affidavit which indicates that it limited its search of documents and communications with Alexander Torshin, Maria Butina, or CNI to documents pertaining to ITB from 2005-2016 (NYSCEF Doc. No. 722, ¶¶ 3, 9, 15, 16). This does not comply with the October 2019 Order as the court did not include any such restriction and indicated on the record on October 23, 2019 and in the October 2019 Order that D-ZAO was entitled to any such documents and communication relating to investments in Russia, not just ITB (NYSCEF Doc. No. 719, Oct. 23, 2019 Hearing Tr. at 60:9-66:5) and to the extent that these documents have not been produced, they must be produced within 7 days of this decision and order together with an affidavit in compliance with the October 2019 Order.
To the extent that either D-ZAO attempts to argue that Starr should be required to produce more than that which was set forth in the October 2019 Order or that Starr argues that it should be required to produce less than what was required by the October 2019, this amounts to an untimely motion to reargue and is therefore denied. Finally, to the extent that D-ZAO relied on discovery produced to date that demonstrates that Starr's chairman, Hank Greenberg, solicited CNI's views about Mr. Gudkov and whether they should be concerned if there was a history of a Russian mafia member of the ITB board, this does not support broadening discovery beyond this court's prior ruling on D-ZAO's prior motion to compel as set forth in the October 2019 Order.
Accordingly, it is
ORDERED that Mtn Seq. No. 23 and Mtn. Seq. No. 24 are granted to the extent set forth herein and Starr shall produce the documents required by this decision and order within 7 days.