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The New York Supreme Court need not stay litigation stemming from money-laundering charges against the Bank of New York because there is a pending federal case asserting the identical claims, a Manhattan Supreme Court justice has ruled. Justice Beatrice Shainswit’s decision in Katz v. Renyi, 604465/99, means that, for now, two shareholders’ derivative suits against directors and officers of the bank must coexist. Shainswit concluded that there was no need for the state court to step aside in favor of the federal case, since there are no issues of federal law in the cause of action, and there has not yet been an answer to the federal suit. Currently, the Katz case in Manhattan Supreme Court stands alongside a federal action, Hochenbaum v. Bacot, 99 Civ. 9977, which is before Southern District of New York Judge Denny Chin. The two cases, Shainswit said, stem from the same set of facts. A cause of action was filed in federal court five days before the Katz complaint, the judge observed, but that is only a “minimal difference” and does not justify the state court issuing a stay. Both lawsuits come in the wake of a federal investigation of the Bank of New York’s business dealings in Russia. The disgruntled shareholders allege that the directors and officers of the bank breached their fiduciary duty of care and loyalty by failing to adequately supervise the employees in charge of Russian deals. A former Bank of New York executive responsible for the bank’s dealings in Eastern Europe pleaded guilty in March to federal charges that he arranged illegal transfers of money from Russia to the West. More than $7 billion in funds earmarked by the International Monetary Fund for the rehabilitation of the Russian economy were allegedly funneled out of the country through accounts maintained by the Bank of New York. The bank fired the executive and his wife, who was also a Bank of New York employee. Bank chairman Thomas Renyi, a defendant in the lawsuit, accepted a cut in bonus payments as a voluntary sanction. The bank and its directors and officers have not been charged in the affair, which has come under the investigation of the U.S. Department of Justice, the Russian Prosecutor-General’s Office and European authorities. STAY ARGUED Defense counsel to the Bank of New York directors and officers argued for a stay of the civil case in Manhattan, saying that their clients must be protected from duplicative discovery and possible conflicting judicial rulings. But Shainswit sided with attorneys for the dissident Bank of New York shareholders, saying that the federal action has not yet been joined and there are no issues of federal law raised. “There is no real dispute that both the complaint filed here and the earlier filed [federal] action complaint are virtually identical in all respects,” Justice Shainswit wrote. “However, the pendency of an action before a federal court sitting in the same state as the state court presents no bar to the prosecution of the state action.” Defense counsel John L. Warden of Sullivan & Cromwell, who represents the Bank of New York directors and officers, said last week he expects the case to go forward in one court, with the other action being consolidated into it, abandoned or dismissed. Warden said that his clients were neutral as to whether the case went forward in Manhattan Supreme Court or Southern District federal court. “Our objective is to have only one proceeding,” he said. “But it is very uncertain at this point” as to which action will be the vehicle for litigating the dispute. Counsel to the dissident shareholders in Katz, Richard B. Brualdi of New York, could not be reached for comment on Friday afternoon. Shareholders’ lead counsel in the federal Hochenbaum litigation is Milberg Weiss Bershad Hynes & Lerach.

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