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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 27, 2004 Decided November 2, 2004

No. 04-5207

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

Consolidated with

04-5208

Appeals from the United States District Court

for the District of Columbia

(No. 99cv02496)

–————

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

USCA Case #04-5207 Document #857375 Filed: 11/02/2004 Page 1 of 13
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Jack McKay and Bruce G. Sheffler argued the causes for

appellants British American Tobacco Australia Services, Ltd.,

and British American Tobacco (Investments) Ltd. With

them on the briefs were Barry H. Gottfried, Alvin B. Dunn,

and Philip A. Pfeffer.

Sharon Y. Eubanks, Director, U.S. Department of Justice,

argued the cause for appellee the United States of America.

With her on the brief were Peter D. Keisler, Assistant

Attorney General, Stephen D. Brody, Deputy Director, Carolyn Clark, Senior Trial Attorney, Meredith L. Burrell, Patrick M. Klein, and Daniel K. Crane–Hirsch, Trial Attorneys.

Before: EDWARDS, RANDOLPH, and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: 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 compaUSCA Case #04-5207 Document #857375 Filed: 11/02/2004 Page 2 of 13
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nies’ 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 attorUSCA Case #04-5207 Document #857375 Filed: 11/02/2004 Page 3 of 13
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ney-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 TTT 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,

USCA Case #04-5207 Document #857375 Filed: 11/02/2004 Page 4 of 13
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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 decide (1) whether BATAS’s

arguments are properly before us, and (2) whether the district court correctly ruled that BATCo waived its asserted

privilege in the Foyle memorandum.

II.

We can easily dispose of BATAS’s appeal. Despite having

full notice of the ongoing discovery proceedings exclusive to

the Foyle memorandum, BATAS filed nothing in those proceedings until the district court entered Order 557—more

than two years after the discovery battle over the memorandum began. BATAS now argues that the district court order

permitting it to intervene in Order 343 proceedings also

USCA Case #04-5207 Document #857375 Filed: 11/02/2004 Page 5 of 13
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authorized its intervention with regard to any litigation related to McCabe documents, including the proceedings specific

to the Foyle memorandum. Insisting that the authorized

intervention was limited in scope to proceedings related to

Order 343, the government responds that BATAS never

received permission to intervene in the proceedings specific to

the memorandum.

We need not decide which position is correct, for either way

we decline to consider BATAS’s appeal. If BATAS correctly

interprets the scope of its Order 343 intervention, then it

should have appeared in the proceedings specific to the Foyle

memorandum and raised its interests before the district court

entered Order 557. As we have repeatedly held, parties may

not raise claims for the first time on appeal. See, e.g.,

Krieger v. Fadely, 211 F.3d 134, 135-36 (D.C. Cir. 2000). If

the government is correct that BATAS’s intervention related

only to production obligations stemming from Order 343, then

BATAS is not a party to the Order 557 litigation and we lack

jurisdiction over its appeal. See Moten v. Bricklayers Int’l

Union of Am., 543 F.2d 224, 227 (D.C. Cir. 1976) (‘‘It has long

been settled that one who is not a party to a record and

judgment is not entitled to appeal therefrom.’’) (quoting United States v. Siegel, 168 F.2d 143, 144 (D.C. Cir. 1948))

(internal quotation marks omitted); cf. United States v.

AT&T, 642 F.2d 1285, 1290 (D.C. Cir. 1980) (permitting

appeal by party denied intervention ‘‘only if the district

court’s denial of intervention was erroneous’’). We thus

dismiss BATAS’s appeal.

III.

In Philip Morris II, we directed the district court to

‘‘decide whether any of BATCo’s three objections covered the

Foyle Memorandum; whether waiver was an appropriate

sanction if no objection applied; and whether, if an objection

did apply, it should be overruled.’’ 347 F.3d at 955. Following this framework, the district court determined that none of

the three objections applied to the Foyle memorandum and

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imposed privilege waiver as a sanction. 321 F. Supp. 2d at

90-93. We consider each of these determinations in turn.

The Objections

The Guildford objection relates to a depository, developed

by BATCo during an earlier lawsuit, which contains BATCo

documents written prior to August 18, 1994. BATCo objected to the government’s discovery requests

to the extent that discovery sought is obtainable

from another source that is more convenient, less

burdensome and less expensive. This source is the

Guildford DepositoryTTTT

BATCO objects to the Comprehensive Requests

to the extent they may purport to require BATCo to

conduct an enormously expensive, duplicative and

unduly burdensome review of documents that BATCo has already made available by production into

the Guildford Depository. BATCo will not produce

documents located in the Guildford Depository for

discovery and inspection outside of the Guildford

Depository.

BATCo concedes that the Guildford Depository does not

contain the Foyle memorandum. It nevertheless argues that

the Guildford objection, properly interpreted, applies to any

document, like the Foyle Memorandum, written before August 18, 1994, regardless of whether the document is at

Guildford.

The district court rejected BATCo’s argument, noting that

‘‘the Guildford Objection, on its face, applies only to documents which actually were produced into the Depository.’’

321 F. Supp. 2d at 91. ‘‘As the Foyle Memorandum was not

‘obtainable from,’ ‘made available’ at, or ‘located in’ the Guildford Depository—explicit requirements for application of the

Guildford Objection—it is clear that the Guildford objection

can not be read to cover the Foyle Memorandum.’’ Id. We

agree. As the district court aptly explained, BATCo’s interpretation makes no sense in light of the objection’s plain

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language—which BATCo itself drafted. Simply put, the

Guildford objection has no applicability to the Foyle memorandum because the memorandum is not at Guildford.

The plain language of BATCo’s third-party objection bears

an equally meager relationship to BATCo’s interpretation.

BATCo objected to the document request ‘‘to the extent that

[it] purports to require BATCo to produce documents in the

possession of a third party or non-party which are not in the

possession, custody or control of BATCo.’’ BATCo does not

claim that it lacks control over the memorandum; indeed, the

district court found that BATCo had control since February

2002. See 321 F. Supp. 2d at 91. Instead, BATCo interprets

the objection to apply to all documents in the hands of third

parties, regardless of whether those documents are within

BATCo’s control. Under BATCo’s interpretation, the objection would apply to the Foyle memorandum because BATCo’s

law firm possessed its only copy—even though the district

court had found that BATCo had control over this copy, see

id.

Once again, the district court rejected BATCo’s interpretation. Id. Once again, we readily agree. As the objection’s

plain language indicates, ‘‘a party’s possession, custody, or

control of a document is the crucial question for application of

the Objection.’’ Id. BATCo’s interpretation reads the

phrase ‘‘which are not in the possession, custody or control of

BATCo’’ out of the objection altogether. Cf. Mastrobuono v.

Shearson Lehman Hutton, Inc., 514 U.S. 52, 63 (1995) (‘‘A

document should be read to give effect to all its provisions

and to render them consistent with each other.’’). Because

BATCo has control over the Foyle memorandum, the thirdparty objection does not apply.

The foreign objection poses a harder case. It states:

BATCo objects to these Comprehensive Requests on

the grounds that they are overly broad, unduly

burdensome and not reasonably calculated to lead to

the discovery of admissible evidence to the extent

that they purport to seek documents pertaining to

the manufacture, advertising, marketing, promotion

USCA Case #04-5207 Document #857375 Filed: 11/02/2004 Page 8 of 13
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or sale of tobacco products not sold in the United

States or activities of any kind undertaken for markets outside the United States.

As we read the district court’s opinion, that court held that

the foreign objection deals with documents pertaining to

activities undertaken solely for foreign markets. See 321 F.

Supp. 2d at 92. Rejecting BATCo’s reading ‘‘that its Foreign

Objection covers documents having any relationship to a

market outside the United States,’’ the court observed that

this interpretation would ‘‘produce the untenable result that

virtually all of [BATCo’s] documents would be subject to the

Foreign Objection—BATCo is, after all, based in England.’’

Id.

Unlike the Guildford and third-party objections, the foreign

objection has several plausible interpretations. It could apply

to ‘‘documents pertaining to TTT activities of any kind undertaken [solely] for markets outside the United States’’ (the

district court’s view), to ‘‘documents pertaining to TTT activities of any kind undertaken [to any degree] for markets

outside the United States’’ (BATCo’s view), or to something

in between. Standing alone, the second approach seems the

most natural, but it also creates tension with the objection’s

first part—BATCo’s stated reasons for objecting. BATCo

objected that production would be ‘‘overly broad, unduly

burdensome and not reasonably calculated to lead to the

discovery of admissible evidence to the extent’’ that it had to

produce such documents. If we read BATCo’s objection as

applying to all documents that reference a foreign market,

then the scope of this objection would sweep so far beyond

BATCo’s reasons for objecting as to create a near absurdity.

BATCo would have no obligation to produce documents that

would be admissible and highly relevant to the government’s

RICO charges as long as such documents also referred to

activities undertaken for foreign markets.

This internal contradiction makes it difficult to infer the

meaning of the foreign objection from its language alone. A

letter sent by the government to BATCo, however, helps shed

light upon the proper scope of the objection. Cf. Davis v.

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Chevy Chase Fin., Ltd., 667 F.2d 160, 169-70 (D.C. Cir. 1981)

(noting that where provisions within a contract appear to

conflict, the court may look to extrinsic evidence in construing

it). In that letter, the government described BATCo’s representations of the foreign objection as follows: ‘‘Our notes

reflect your statement that BATCo intends to search for and

produce documents responsive to the United States’ Comprehensive Requests that contain information that ‘reasonably

bears’ on the U.S. market or that ‘relates to core issues in

this case.’ ’’ The letter then gave examples of what ‘‘we

understand are TTT BATCo’s views on what is discoverable in

this action,’’ including ‘‘internal or external BATCo communications relating to the marketing of safer cigarettes anywhere

in the world’’ and ‘‘an overseas marketing campaign being

considered for use in the United States.’’ We think this

letter reveals the proper interpretation of the foreign objection—that it applies only to documents with at most a de

minimis relationship to U.S. markets and the core issues in

this case. Not only does this interpretation comport with the

objection’s purpose—limiting document production to ‘‘admissible’’ materials—but when asked about the letter at oral

argument, counsel for BATCo stated, ‘‘I don’t think it’s

inconsistent with the foreign objection.’’ He went on to

concede, ‘‘If BATCo did undertake a marketing plan for

cigarettes that were to be sold in the United States as well as

others, BATCo wouldn’t take the position that that was an

activity for a foreign market and not produced [sic].’’

The district court concluded that given its interpretation of

the foreign objection, that objection did not apply to the

Foyle memorandum because ‘‘by providing legal advice about

document management policies undertaken to minimize litigation risks, particularly in the United States, the Memorandum

also addresses the United States’ market.’’ 321 F. Supp. 2d

at 92. We agree, although we think it a closer case than did

the district court. The Foyle memorandum raised concerns

about litigation in the United States. ‘‘ ‘BATCO has a more

general concern that any disclosures in Australia could be

used by plaintiffs who are interested in bringing product

liability actions against any member of the BAT Group,’ even

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in the United States.’’ Cowell, [2002] V.S.C.A. 197, ¶ 87

(quoting the memorandum). While the activity at issue in the

memorandum—the document-retention policy at Wills—involved only Australia, the memorandum suggests that this

activity was undertaken to reduce the risks that BATCo

research documents would fall into the hands of plaintiffs in

the United States, as well as plaintiffs in Australia and other

countries. The Foyle memorandum thus relates sufficiently

to the U.S. market and core issues in this case that it falls

outside the scope of the foreign objection.

The Sanction

Because none of BATCo’s three objections applies to the

Foyle memorandum, BATCo should have either produced or

logged the document. BATCo’s failure to log, however, does

not necessarily trigger waiver of privilege as a sanction. As

we stated in Philip Morris II, ‘‘[w]aiver is not automatic,

particularly if the party reasonably believed that its objections applied to the document. ‘As the federal rules, case law

and commentators suggest, waiver of privilege is a serious

sanction most suitable for cases of unjustified delay, inexcusable conduct, and bad faith.’ ’’ 347 F.3d at 954 (quoting First

Sav. Bank, F.S.B. v. First Bank Sys., Inc., 902 F. Supp. 1356,

1361 (D. Kan. 1995)). The district court found that BATCo

lacked reasonable belief that its objections applied to the

Foyle memorandum, a decision we review for abuse of discretion. Cf. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 401-

02 (1990) (determining that abuse of discretion is the proper

standard in the Rule 11 context for reviewing a district

court’s finding as to what constitutes reasonable inquiry).

In its analysis, the district court focused almost exclusively

on BATCo’s delay in raising the objections. According to the

court:

Upon [learning about the Foyle memorandum] in

March, 2002, the government made repeated requests for production of the Memorandum. During

the next two months, despite its obligation to produce or log the Memorandum, BATCo did neither

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and never raised any of its three current Objections

as a basis for its refusal to do so. Only when the

document was the subject of a teleconference with

the Court, at least two teleconferences with the

Special Master, and two Reports and Recommendations, did BATCo finally proffer these three Objections as a basis for refusing to produce or log the

Foyle MemorandumTTTT [T]his Court cannot conclude that BATCo’s behavior was simply that of a

litigant withholding a document based upon a reasonable belief that it was covered by these Objections.

321 F. Supp. 2d at 93. Although a party’s failure to raise

objections in a timely manner may well justify an inference

that, rather than reasonably believing an objection applied,

the party has simply come up with a post hoc rationale for

withholding a document, we have two problems with the

district court’s reliance on delay in this case.

To begin with, we read the record quite differently from

the district court. The government first specifically requested the Foyle memorandum in mid-April, not—as the district

court stated, see 321 F. Supp. 2d at 93 n.7—in March.

Moreover, BATCo delayed less in raising its objections than

the district court thought. As we noted in Philip Morris II,

BATCo first referenced the Guildford objection in the initial

teleconference with the court and the other two objections in

a teleconference with the Special Master two days later. 347

F.3d at 954-55. Indeed, in the initial teleconference, the

district court explicitly gave the parties the right to relitigate

its ruling before the Special Master. See id.

Second, and most critically for this appeal, our two prior

opinions in this case stand for the proposition that BATCo

raised its objections in a timely fashion. See Philip Morris I,

314 F.3d at 621 (stating that ‘‘there is no question that the

objections were timely raised’’); Philip Morris II, 347 F.3d at

954-55 (remanding for the district court to address the merits

of the three objections). Accordingly, the district court’s

waiver analysis should have turned exclusively on whether

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BATCo had reason to believe its objections applied, not on

when BATCo raised the objections.

Taking timeliness off the table, we see no other basis in the

district court’s opinion for concluding that BATCo lacked

reasonable belief that at least one of its objections applied to

the Foyle memorandum. While the plain language of the

Guildford and third-party objections might justify a conclusion that BATCo acted unreasonably in invoking them, we

cannot say the same about the foreign objection. As we

discussed earlier, the objection is far from clear and BATCo’s

interpretation finds support in the objection’s text. Moreover, the district court identified no extrinsic factors—such as

how BATCo applied the objection in relation to the production of other documents—that might have suggested that

BATCo invoked the objection unreasonably. The government argues that BATCo changed its interpretation of the

foreign objection over the course of the litigation, but because

the government failed to make this point to the district court,

it may not do so here. See, e.g., United States v. Hylton, 294

F.3d 130, 135-36 (D.C. Cir. 2002) (noting that, absent exceptional circumstances, arguments not made to the district

court are forfeited). Given that the district court had no

basis beyond its reliance on delay for believing that BATCo

unreasonably invoked the foreign objection, we conclude that

the court should not have imposed privilege waiver as a

sanction. As we have said, waiver of attorney-client privilege

is a serious sanction that requires, at the very least, a

showing that BATCo failed to log the memorandum without

reasonable belief that its objections applied to it. See Philip

Morris II, 347 F.3d at 954.

We reverse and remand so that BATCo can log the Foyle

memorandum, and the government may, if it chooses, challenge the merits of BATCo’s privilege claim.

So ordered.

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