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United States v. British American Tobacco Ltd.

November 2, 2004

UNITED STATES OF AMERICA, APPELLEE
v.
BRITISH AMERICAN TOBACCO (INVESTMENTS) LTD., APPELLANT PHILIP MORRIS USA INC., ET AL., F/K/A PHILIP MORRIS INCORPORATED, APPELLEES



Appeals from the United States District Court for the District of Columbia (No. 99cv02496)

Before: Edwards, Randolph, and Tatel, Circuit Judges.

The opinion of the court was delivered by: Tatel, Circuit Judge

Argued September 27, 2004

For the third time, we consider the district court's determination that one of the defendants in the United States' RICO action against cigarette companies waived its attorney-client privilege by failing to log a document sought in discovery. As we emphasized the last time around, "waiver of privilege is a serious sanction" that a court should impose only if a party behaves unreasonably or worse. See United States v. Philip Morris Inc., 347 F.3d 951, 954 (2003) (quoting First Sav. Bank, F.S.B. v. First Bank Sys., Inc., 902 F. Supp. 1356, 1361 (D. Kan. 1995)) (internal quotation marks omitted). Because the record in this case does not reflect the kind of behavior that would satisfy this demanding standard, we reverse and remand with instructions to allow the defendant to log the document.

I.

In 1999, the United States sued several tobacco companies, including appellant British American Tobacco (Investments) Limited ("BATCo"), alleging in part that these companies had violated civil provisions of the RICO statute, 18 U.S.C. §§ 1961-1968, by conspiring to mislead the public about the addictive nature and health risks of smoking. As part of its comprehensive document production request, made in 2000, the government sought all documents relating to the companies' record-retention and record-destruction policies from 1954 to the present. In response, BATCo raised several objections to various categories of documents. This interlocutory appeal involves three of those objections -- known as the Guildford, third-party, and foreign objections -- which we describe later.

BATCo owns a substantial minority of the other appellant, British American Tobacco Australia Services, Limited ("BATAS"). Until 1999, BATCo fully owned BATAS's predecessor, W.D. & H.O. Wills ("Wills").

In April 2002, the government requested that BATCo turn over a document referred to in an Australian court proceeding, McCabe v. British American Tobacco Australia Services Ltd., [2002] V.S.C. 73, to which BATAS was a party. Written for BATCo and possibly Wills in 1990 by Andrew Foyle, a solicitor in the London firm of Lovell, White & Durrant, this memorandum -- the Foyle memorandum -- discussed Wills's document-retention policy with reference to possible future litigation against BATCo and its affiliates in Australia and other parts of the world, including the United States. BATCo had neither produced this memorandum nor listed it on its privilege log. In response to the government's request, BATCo wrote that it needed more information to locate the memorandum.

Matters rested there until an emergency teleconference on May 28, 2002, during which the district court found that BATCo, by failing to log the document, had waived any privilege in it. Although the court ordered BATCo to produce the memorandum, it gave the company permission to relitigate the matter before the Special Master. During proceedings before both the Special Master and the district court, BATCo argued that it had no obligation to log the memorandum in the first place. According to BATCo, three of its general objections applied to the Foyle memorandum, meaning that the company had to log the memorandum only if the court overruled these objections. Without addressing BATCo's objections, the district court ruled that BATCo's failure to log the memorandum justified waiver of its attorney-client privilege as a sanction. In the same opinion, the district court noted that BATAS would "be deemed to have waived any opportunity to present" privilege claims of its own, since it was aware of the litigation and had "ample time" to intervene, yet had not done so. United States v. Philip Morris Inc., No. 99-2496 (D.D.C. July 2, 2002).

BATCo appealed, arguing that the district court erred by finding waiver of privilege before determining whether any of BATCo's three objections applied to the Foyle memorandum. Noting that "there is no question that the objections were timely raised," United States v. Philip Morris Inc., 314 F.3d 612, 621 (D.C. Cir. 2003) ( Philip Morris I ), we granted a stay pending appeal, id. at 622, and later vacated the district court's order, concluding that the court had erred by failing to address whether any of the objections applied, United States v. Philip Morris Inc., 347 F.3d 951, 954-55 (D.C. Cir. 2003) ( Philip Morris II ). We held that should the district court determine that the objections did not apply, it must "then decide whether the party should be deemed to have waived the privilege. Waiver is not automatic, particularly if the party reasonably believed that its objections applied to the document." Id. at 954.

On remand, in a decision designated as "Order 557" and issued in June 2004, the district court once again found that BATCo had waived any privilege it held in the Foyle memorandum. United States v. Philip Morris USA Inc., 321 F. Supp. 2d 87 (D.D.C. 2004). Specifically, the court determined that BATCo's three objections did not apply to the Foyle memorandum, that "BATCo's failure to locate, log, and object in a timely fashion ... was an intentional and knowing attempt to evade its discovery obligations," and that waiver of privilege was an appropriate sanction. Id. at 90-93.

Meanwhile, the government had moved in 2003 to require BATCo to turn over BATAS's documents from the McCabe proceedings. Reasoning that BATCo had sufficient control over BATAS to require such production, the district court granted this motion in Order 343. BATAS sought and received permission to intervene "to assert and, if necessary, litigate the privileges it holds in the documents in its possession that are the subject of the Court's Order #343." United States v. Philip Morris USA Inc., No. 99-2496 (D.D.C. Dec. 5, 2003). As part of its intervention, BATAS served the government with a log of McCabe documents over which it asserted privilege. Even though BATAS never identified Foyle as the author, this log included several entries for the Foyle memorandum -- over which BATAS claimed to retain its attorneyclient privilege by virtue of a higher Australian court's reversal of the McCabe decision. See British American Tobacco Australia Services Ltd. v. Cowell, [2002] V.S.C.A. 197, 2002 WL 31737235 (concluding that the judge in the McCabe proceedings erred in deeming BATAS's privilege in the memorandum waived).

Although BATAS formally intervened in the Order 343 proceedings, it filed nothing in the proceedings relating exclusively to the Foyle memorandum, i.e., the litigation that led to Order 557, until after the district court entered that order. At that point, BATAS sought an emergency stay, pointing to its privilege interest in the Foyle memorandum. BATAS also filed an appeal with this court, arguing that the district court erred by requiring BATCo to produce the memorandum without first addressing BATAS's privilege claims regarding the memorandum. Simultaneously, BATCo filed an appeal challenging the substance of Order 557. Having consolidated these appeals, we now must ...


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