Bank of NY suit in Russia may restart from scratch

* Judge says case will start anew if not settled by June 19

* Sides not confident that quick deal possible

By Simon Shuster

MOSCOW, May 27 (Reuters) - The judge hearing the Russian government's $22.5 billion lawsuit against Bank of New York Mellon (BK.N) said on Wednesday she would restart the two-year-old case from scratch if the sides did not settle it soon.

Attempts to settle the case out of court have gone nowhere despite three months of negotiations and it may be given back to the court for a final judgement, both sides have said.

However, Judge Lyudmila Pulova said if the case was not settled by June 19, when Andrei Lopota, one of the three judges on the panel, will leave the bench, the case would have to start all over again. Lopota has presided with Pulova over the case since it began.

"On June 19, Judge Lopota's term on the bench will end," Pulova told the court. "Under the procedural regulations, that means we will have to start from the beginning with his replacement."

Andrei Tartyshev, the third judge, confirmed to Reuters outside the courthouse that this would mean beginning the lawsuit again, including presenting evidence and calling witnesses.

This could saddle the Bank of New York with millions of dollars more in legal fees, including the cost of its elite legal team from British law firm Clifford Chance and shuttling expert witnesses from the United States.

For more than two years, Russia has been seeking compensation from the U.S. bank after a former vice-president, Lucy Edwards, admitted to helping to launder $7 billion from Russia in the late 1990s through Bank of New York accounts.

NEGOTIATIONS STALLED

The government's lawyers and the bank appeared stunned by the judge's move.

"That's impossible. They can't do that," said Steven Marks of the Florida-based law firm Podhurst Orseck, which designed the case for the Russian government.

Neither side was confident that a settlement could be reached by June 19.

Sources close to the talks have told Reuters throughout the process that no real progress has been made, and some have described emotional scenes and raised voices at the negotiating table.

"The time that has already been wasted does not allow us to count on the possibility of a settlement in the future," Maxim Smal, a lawyer for the Russian government, told the court.

Ivan Marisin, lead council for the Bank of New York Mellon, said the bank would continue to insist on any settlement reflecting "the absolutely meritless nature of the case".

After the hearing, Marisin said the judge had the right under Russian law to begin the case anew.

Settlement talks began in March after the Russian government called the bank to the table. But the two sides voiced radically different opinions on how much it should cost to end the case, ranging from $1.5 million to close to $1 billion. [ID:nLA934740]

For more than two years, the case had been bogged down in procedural issues, mainly over jurisdiction, and had not moved into arguing the merits of the case at the time the settlement talks began. (Editing by Karen Foster)