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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 11, 2003 Decided November 4, 2003

No. 02-5210

UNITED STATES OF AMERICA,

APPELLEE

V.

PHILIP MORRIS INCORPORATED, ET AL.,

APPELLEES

BRITISH AMERICAN TOBACCO (INVESTMENTS) LTD., DIRECTLY AND AS

SUCCESSOR TO BRITISH–AMERICAN TOBACCO COMPANY, LTD.,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(99cv02496)

Bruce G. Sheffler argued the cause and filed the briefs for

appellant. Garyowen P. Morrisroe and Timothy M. Hughes

entered appearances.

 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 #02-5210 Document #782671 Filed: 11/04/2003 Page 1 of 7
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Sharon Y. Eubanks, Director, U.S. Department of Justice,

argued the cause for appellee. With her on the brief were

Stephen D. Brody, Deputy Director, and Daniel K. Crane–

Hirsch and Meredith L. Burrell, Trial Attorneys.

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

Opinion for the Court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge: On the motion of British American Tobacco (Investments) Ltd.—BATCo—for an emergency

stay pending its interlocutory appeal, we upheld our jurisdiction over the appeal, entered a stay of the district court’s

orders requiring the production of a document—the Foyle

Memorandum—and set the case down for expedited consideration. United States v. Philip Morris Inc., 314 F.3d 612 (D.C.

Cir. 2003). The issue is whether the district court should

have ruled on the applicability of BATCo’s general objections

before determining that the company had waived its claim of

attorney-client privilege with respect to the Foyle Memorandum.

I.

The facts of the case are thoroughly set forth in the court’s

opinion in Philip Morris Inc., from which we quote:

‘‘Appellee, the United States of America, initiated this

lawsuit against BATCo and five other tobacco companies in

September 1999 alleging that defendants violated the civil

provisions of RICO, 18 U.S.C. §§ 1961–68 (2000), by engaging

in ‘a pattern of racketeering activity’ to ‘conceal the health

risks of cigarette smoking and the addictiveness of nicotine.’

The government further alleges, in relevant part, that defendants have ‘destroy[ed] and conceal[ed] documents’ and taken

‘other steps to shield documents and materials from discovery.’ As a remedy, the government seeks, inter alia, disgorgement of defendants’ profits and recovery of the medical

costs of the tobacco companies’ customers.

‘‘The parties exchanged Comprehensive Requests for Production on August 22, 2000. The government requested that

the defendants produce ‘[a]ll documents relating to recordUSCA Case #02-5210 Document #782671 Filed: 11/04/2003 Page 2 of 7
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creating, record-keeping, record-retention, record dissemination or distribution, and/or record-destruction policies, practices, and procedures TTT in any part of your organization

that has or had responsibility for TTT research concerning

smoking and health or addiction.’ On November 6, 2000,

BATCo responded to the government’s document requests,

and objected, inter alia, to producing any documents created

prior to August 19, 1994, except those contained in the

Guildford Depository in England (the ‘Guildford objection’).

The Depository was established in response to a parallel

action filed against the same defendants by the State of

Minnesota and contains over one million documents. State of

Minnesota v. Philip Morris, Inc., No. C1–94–8565 (Minn.

Super. Ct. 1994). BATCo also objected to producing any

documents in the possession of third parties if the documents

were not also in BATCo’s possession, custody, or control (the

‘third-party objection’).

‘‘In March 2002, the Supreme Court of Victoria, Australia,

publicly released a decision regarding discovery in a case

involving W.D. & H.O. Wills (‘Wills’), an Australian subsidiary

of British American Tobacco Australia Services Limited

(‘BATAS’), in which BATCo has a minority ownership interest. McCabe v. Brit. Am. Tobacco Austl. Servs., Ltd., (2002)

V.R. 73. The decision quotes extensively from a March 1990

memorandum prepared for Wills by an attorney at the British

law firm Lovell, White & Durrant (‘Lovell’), in its capacity as

counsel for Wills and BATCo (the ‘Foyle Memorandum’ or

‘the memo’). See id. The Foyle Memorandum advises Wills

on modifying its document retention policy in light of increasing litigation against tobacco companies in the United States

and Australia.

‘‘Subsequent to the McCabe decision’s release, the government requested by letter that BATCo produce the Foyle

Memorandum. BATCo responded that it had been ‘unable to

locate the document[ ], or any evidence that plaintiff selected

[it] for production.’

‘‘On May 28, 2002, during the deposition of former BATCo

CEO Ulrich Herter, government counsel requested the ‘imUSCA Case #02-5210 Document #782671 Filed: 11/04/2003 Page 3 of 7
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mediate production’ of the Foyle Memorandum so it could be

used to refresh Herter’s recollection. When BATCo’s counsel

declined, government counsel initiated an emergency teleconference with the district court to determine whether BATCo

was required to immediately produce the Foyle Memorandum. During the teleconference, BATCo contended that the

document was covered by the Guildford objection and informed the Court that it did not even know if the document

was in its possession. Moreover, BATCo argued that the

Foyle Memorandum was protected by the attorney-client

privilege. The district court did not address BATCo’s Guildford and third-party objections. Instead, the court ruled that

BATCo had waived any claim of attorney-client privilege

because the memo had not been listed in BATCo’s privilege

log. The court added that BATCo was free to re-litigate the

underlying facts of the order before the Special Master in the

case. The following day, the district court issued a written

order memorializing the telephone ruling and requiring

BATCo to produce the memo ‘if the document is in the

control or possession of BATCo,’ and to make ‘all reasonable

effort to locate’ it. United States v. Philip Morris Inc., No.

99–2496 (D.D.C. May 29, 2002) (‘Order 157’).

‘‘On May 30, 2002, BATCo and the government twice

appeared in telephonic conferences before the Special Master

in which BATCo sought to attack Order 157. Although the

argument in the first conference is not part of the record,

BATCo appears to have raised its Guildford and third-party

objections in this conference. See Oral Rep. and Recom. 56

at 35 (BATCo counsel raising objection in context of ‘reiterat[ing] what I said this morning’). It definitely raised them

in the second conference. See id. at 35, 43. Like the district

court, the Special Master did not address these objections.

Instead he concluded that, because the Foyle Memorandum

was in the possession of Lovell, it was ‘within the control and

possession of BATCO’ and thus required to be logged in the

privilege log. Oral Rep. and Recom. 55 at 11. The Special

Master therefore recommended that the district court issue

an ‘order of further compliance’ so that BATCo would immediately produce the memo. Id.

USCA Case #02-5210 Document #782671 Filed: 11/04/2003 Page 4 of 7
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‘‘BATCo then submitted to the district court a sealed copy

of the Foyle Memorandum and moved the district court to

reconsider its orders compelling production. BATCo again

urged the court to consider its Guildford and third-party

objections before requiring BATCo to produce or log the

Foyle Memorandum. See BATCo Br. in Supp. of Mot. for

Recons. at 14. On July 2, 2002, the court denied the motion

to reconsider and ordered BATCo to produce the memo

within two days. United States v. Philip Morris Inc., No.

99–2496 (D.D.C. July 2, 2002) (order compelling production).

The court held that because BATCo had ‘knowledge and

possession’ of the Foyle Memorandum ‘by at least February

of 2002,’ BATCo was required under Federal Rule of Civil

Procedure 26(e), to ‘identify and/or designate the document’

as privileged at that time. Philip Morris, No. 99–2496, slip

op. at 4 (D.D.C. July 2, 2002) (memorandum opinion accompanying order). Thus, the court concluded that BATCo’s failure

to list the memo on the privilege log waived BATCo’s attorney-client privilege claim. Id. at 4–5. The court did not

further address BATCo’s objections.’’ 314 F.3d at 615–16.

II.

Rule 34(b) of the Federal Rules of Civil Procedure requires

a party who objects to a document request to state ‘‘the

reasons for the objection.’’ FED. R. CIV. P. 34(b). If the party

withholds ‘‘otherwise discoverable’’ documents on the basis of

privilege, ‘‘the party shall make the claim expressly and shall

describe the nature of the documents TTT in a manner that,

without revealing information itself privileged TTT, will enable

other parties to assess the applicability of the privilegeTTTT’’

FED. R. CIV. P. 26(b)(5). BATCo never did any of this with

respect to the Foyle Memorandum. The question is whether

it was required to do so in order to preserve its attorney

client privilege claim. See 8 CHARLES ALAN WRIGHT ET AL.,

FEDERAL PRACTICE AND PROCEDURE § 2016.1 (2d ed. 1994).

Rule 26(b)(5) requires the party to note its privilege objection and to describe the document only when the document is

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‘‘otherwise discoverable.’’ This means, as the 1993 Advisory

Committee Notes to Rule 26(b)(5) explain, that if a broad

discovery request includes an allegedly privileged document,

and if there is an objection to the scope of the request, the

court should first decide whether the objection covers the

document. If the court finds that the document is within the

scope of the objection, and the court overrules the objection,

it must then give the party an opportunity to list the document on a privilege log pursuant to Rule 26(b)(5). ‘‘In short,

if a party’s pending objections apply to allegedly privileged

documents, the party need not log the document until the

court rules on its objections.’’ Philip Morris, 314 F.3d at

621. On the other hand, if the court determines that the

objection does not cover the allegedly privileged document, or

that the objection was not made in good faith as Rule 26(g)

requires (FED. R. CIV. P. 26(g)), the court may 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. ‘‘As the federal rules, case law and commentators

suggest, waiver of a privilege is a serious sanction most

suitable for cases of unjustified delay, inexcusable conduct,

and bad faith.’’ First Sav. Bank, F.S.B. v. First Bank Sys.,

Inc., 902 F. Supp. 1356, 1361 (D. Kan. 1995); see 8 CHARLES

ALAN WRIGHT ET AL., supra, at 234–35.

BATCo presents three objections that, it claims, covered

the Foyle Memorandum. Two are mentioned above: the

Guildford objection and the third-party objection. The third

is what we shall call the foreign objection: BATCo objected

to producing documents ‘‘pertaining to the manufacture, advertising, marketing, promotion or sale of tobacco products

not sold in the United States or activities of any kind undertaken for markets outside the United States.’’ During the

emergency teleconference, BATCo specifically mentioned

only its Guildford objection. The district court then said that

‘‘because this is being brought as an emergency matter and

because I am relying on the oral representations of counsel,

if, after serious examination and thought is given to this by

the parties, if one party believes that the representations

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made to me in this call were truly inaccurate, then that party

is certainly free to litigate the issue on the first level’’ before

the special master. In later proceedings before the special

master, BATCo referred in general terms to its third-party

and foreign objections as additional reasons for not producing

the Foyle Memorandum.

Where does this leave us? Given the considerable discretion district courts have in managing discovery, see, e.g., Food

Lion, Inc. v. United Food & Commercial Workers Int’l

Union, 103 F.3d 1007, 1012 (D.C. Cir. 1997), we are reluctant

to sort this out for the first time at the appellate level. It

should be for 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, in which event BATCo must have the opportunity

to log its privilege claim pursuant to Rule 26(b)(5) or to

produce the document.

The orders requiring production of the Foyle Memorandum

are vacated and the case is remanded for further proceedings

consistent with this opinion.

So ordered.

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