Reports that Matter

United States v. Philip Morris USA Inc.: Amended Final Opinion · 2006

Document Destruction Policies

Section 82 of 124

Document Destruction Policies

3929. At various times, different Defendants attempted to and did destroy documents which were adverse to their public and litigation positions on smoking and health. While these efforts were often part of larger, legitimate institutional document retention policies, at other times -- as with the BAT Group -- they were clearly intended to render unavailable written materials which could prove damaging to or inconsistent with Defendants' litigation position and public relations stance.

BAT Group

3930. For decades, Brown & Williamson implemented permanent retention policies and placed "legal holds" on documents in its possession related to smoking and health litigation because of its extensive involvement in such proceedings. (no bates) (JD 012740 at 680081625); (no bates) (JD 012741 at 680260666); (no bates) (JD 012742); (no bates) (JD 012743); (no bates) (JD 011283); (no bates) (US 76154); (no bates) (JD 011288); (no bates) (JD 013217). These legal holds required individual departments, including Research & Development and Marketing, among others, to preserve documents in connection with litigation filed against the company, and they superseded all other retention policies. (no bates) (JD 011281).

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3931. For example, in 1977, after receiving an FTC subpoena, Brown & Williamson employees were instructed to retain all documents responsive to that subpoena. See, e.g., (no bates) (JD 011282 at 679006817-18).

3932. In 1994, Brown & Williamson was named as a defendant in the Castano litigation and ordered to retain certain documents pre-dating March 1994. Castano v. American Tobacco, Civil Action No. 94-1044A (E.D. La. 1994); (no bates) (JD 011288). In accordance with its policy, Brown & Williamson again issued a broad legal hold on documents as required by the Court in Castano. (no bates) (JD 011288); (no bates) (JD 012747).

3933. Despite these benign document retention policies, B&W allowed destruction of certain documents to prevent the disclosure of adverse information. For example, in a 1981 memorandum, titled "thinkpiece on additives issue," Kendrick Wells, then corporate counsel for Defendant B&W, quoted Robert Northrip of Shook, Hardy & Bacon: "If company testing began to show adverse results pertaining to a particular additive, the company control would enable the company to terminate the research, remove the additive, and destroy the data." 682764441-4461 at 4458 (US 21030).

3934. Outside of B&W itself, BAT Group documents demonstrate that the companies' document management policies were motivated, in substantial part, by a concern that BATCo and other BAT Group research might be attributed to B&W in smoking and health litigation in the United States. As early as 1970, attorneys at Shook, Hardy & Bacon wrote a seven-page letter to B&W's General Counsel expressing concern that BAT Group research documents would be subject to discovery and that these documents "constitute a real threat to the continued success in the defense of smoking and health litigation." 301097079-7085 at 7081 (US 46580); see also Cannar TT, 06/17/04, 260:10-262:30, 263:4-15, 264:26-265:3; 680800858-0865 (US 30917); Wells WD, 64:17- 65:16; Wells WD, 5:15-6:18, 109870594-0596 (US 34873). Although the letter never instructs B&W as to what should be kept in its files, it stated that "employees in both companies [BATCo and Brown & Williamson] should be informed of the possible consequences of careless statements on this subject." 301097079-7085 at 7085 (US 46580).

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3935. On May 29-30, 1984, Kendrick Wells, Robert Northrip, David Schechter, BATUS General Counsel, BAT executives and in house attorneys, and trial counsel met in New York to discuss United States product liability litigation. 521015673-5675 (US 52687). The group noted that "developments have rendered products liability actions against tobacco manufacturers more difficult to defend in the 1980's and that adverse evidence which could be attributed to the defendants is a serious problem." 521015673-5675 at 5673 (US 52687). At that meeting, trial counsel concluded that it "is likely that statements by a tobacco affiliate of B&W would be admitted and smoking and health research done in-house or by contract by any company owned by the BAT certainly would be admissible." 521015673-5675 at 5673 (US 52687); Schechter WD, 10:3-10:9. The group also decided that "[d]irect lawyer involvement is needed in all BAT activities pertaining to smoking and health from conception through every step of the activity." 521015673-5675 at 5674 (US 52687); Schechter WD, 12:4-12:8.

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3936. In February 1985, BAT Industries directed David Schechter to investigate the "attribution issue" -- whether statements and positions of affiliates of B&W could be attributable to it in litigation. Schechter WD, 12:20-14:17; 680582454-2462 (US 54049*); see also 516003172- 3172 (US 21732).

3937. In 1985, Schechter retained the firm of Simpson, Thatcher & Bartlett, to explore the bases on which BAT Group research could be discovered in litigation in the United States against B&W, and on which knowledge of such research could be attributed to B&W. Schechter WD, 20:12-22:5; 301060827-0855 (US 28152).

3938. Later that year, Schechter also asked the New York firm Paul, Weiss, Rifkind, Wharton & Garrison to "consider hypothetically whether documents in the possession of B.A.T. Industries or its United Kingdom subsidiary, BATCo[], could be discovered by a plaintiff in a U.S. lawsuit against Brown & Williamson." 521015579-5582 at 5579 (US 52686); Schechter WD, 28:15- 29:17; see also Wells WD, 6:19-8:4.

3939. Paul Weiss concluded in a memorandum that "[y]ou should act on the assumption that discovery of the documents would be available." Schechter WD, 29:18-30:2; 521015579-5582 at 5579 (US 52686).

3940. Thus, by 1985, outside counsel from Paul, Weiss and Simpson, Thacher had both concluded that research reports in the possession of BAT Industries and BATCo could be discovered in litigation brought in the United States against B&W. Schechter WD, 30:18-32:5, 32:9-33:3, 33:14-20, 38:16-39:3; 521015578-5578 (US 52685).

3941. In 1985, Nicholas Cannar became Head of BATCo's Legal Department. At the direction of Richard Baker, the BAT Industries Chief Solicitor, Cannar became responsible for the document retention policies for BAT companies worldwide. Gulson WD, 22:22-24. Alison Kay Kinnard was also involved in the design and management of the document management programs. 325351561-1562-1562 (US 29245). Those programs required, in general, that all BAT Group operating companies institute a records management policy requiring destruction of documents, including research and development documents, if they had already been retained for a certain period of time. Cannar TT, 06/21/04, 340:35-341:4, 356:77-358:27, 360:1-364:6; see also 202347085-7086 (US 22032); Schechter WD, 45:11-48:10.

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3943. During the process of constructing what became the1985 Document Retention Policy, BATCo asked its outside counsel, Lovell, White & King ("Lovell"), to perform a review of BAT Group smoking and health documents located at BATCo's Southampton, England GR&DC in order "to place [it] in such a position as to be able to answer any Requests for Production or Interrogatories emanating from U.S. Courts. . . ." (no bates) (US 34839 at 107443681); 202313482-3483 (US 92077). The impact that sensitive documents might have on smoking and health litigation in the United States was a primary concern driving BAT Group document retention policies. B&W, the American company, paid for the document review at BATCo, the British company. 301156374- 6374 (US 16004); 301157557-7557 (US 16005); 301156376-6376 (US 16006).

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3944. On May 15, 1986, at a meeting at its research facility in Millbank, England, BATCo legal personnel instructed the leadership of the GR&DC to dispose of documents under the rubric of "spring cleaning" before the GR&DC files were copied for possible production in health and smoking litigation in the United States.

[Nick Cannar of the BAT legal department] said that Mr. [Patrick] Sheehy [Chairman of BAT Industries] did not wish it to be seen that BATCO had instituted a destruction policy only when the possibility of their being involved in litigation became real and after they had instructed solicitors. Thus, it was decided that no destruction policy should be adopted, rather that R&DC [Research & Development Centre] would tidy up the loose papers held by individuals, which "spring clean" could involve the destruction of documents such as previous drafts.

It was agreed that such a "spring clean" of all of the loose papers held outside the official filing systems is essential to enable L.W.&K.'s [BATCo's lawyers Lovell, White & King] "task force" to carry out stages I and III (the listing and reviewing of the files).

107443680-3689 at 3682 (US 34839).

3945. During his trial testimony in this case in Australia in 2004, Cannar invoked the Australian self-incrimination statute (referred to in the Cannar transcript as "Section 128" of the Evidence Act of 1995) to avoid answering over one hundred questions relevant to his role in document management polices of BAT Group companies, including BATCo, B&W, and Wills.38 Section 128 Privilege in respect to self-incrimination in other proceedings states: (1) This section applies if a witness objects to giving particular evidence on the (continued...) -1437-

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(...continued) ground that the evidence may tend to prove that the witness:

(a) has committed an offense against or arising under an Australian law or a law of a foreign country; or

(b) is liable to a civil penalty.

(2) Subject to subsection (5), if the court finds that there are reasonable grounds

for the objection, the court is not to require the witness to give that particular evidence, and is to inform the witness:

(a) that he or she need not give the evidence; and

(b) that, if he or she gives the evidence, the court will give a certificate under this section; and

(c) of the effect of such a certificate.

(3) If the witness gives the evidence, the court is to cause the witness to be given a certificate under this section in respect of the evidence.

(4) The court is also to cause a witness to be given a certificate under this section if:

(a) the objection has been overruled; and

(b) after the evidence has been given, the court finds that there were reasonable grounds for the objection.

(5) If the court is satisfied that:

(a) the evidence concerned may tend to prove that the witness has committed an offence against or arising under, or is liable to a civil penalty under, an Australian law; and

(b) the evidence does not tend to prove that the witness has committed an offence against or arising under, or is liable to a civil penalty under, a law of a foreign country; and

(c) the interests of justice require that the witness give the evidence; the (continued...)

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For example, Cannar asserted the self-incrimination privilege in response to numerous questions concerning the importance of document retention policies to BATCo and the BAT Group, the purpose of Wills's document retention policy, the circumstances leading to preparation of the Foyle Memorandum, as well as many other related topics. Cannar TT, 06/16/04, 150:11-21, 151:14-15, 151:37-152:1, 167:29-168:8; Cannar TT, 06/17/04, 194:47-195:39, 202:5-39; Cannar TT, 06/24/04, 619:15-19.

3946. Cannar's testimony in this case about his role in BAT's document management policies was remarkably evasive and uninformative. Until 2003, when he retired, Mr. Cannar worked for BAT in various high level legal and executive capacities, including serving as Head of

(...continued) court may require the witness to give the evidence.

(6) If the court so requires, it is to cause the witness to be given a certificate under this section in respect of the evidence.

(7) In any proceeding in an Australian court:

(a) evidence given by a person in respect of which a certificate under this section has been given; and

(b) evidence of any information, document or thing obtained as a direct or indirect consequences of the person having given evidence; cannot be used against the person. However, this does not apply to a criminal proceeding in respect of the falsity of the evidence.

(8) In a criminal proceeding, this section does not apply in relation to the giving of evidence by a defendant, being evidence that the defendant;

(a) did an act the doing of which is a fact in issue; or

(b) had a state of mind the existence of which is a fact in issue.

(9) A reference in this section to doing an act includes a reference to failing to act.

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I think it is abundantly clear that Mr Cannar may reasonably be supposed to have knowledge about a wide range of matters . . . listed in the letter of request and that, generally speaking, he has not been making a genuine attempt to give evidence about them.

He gave evidence, in a fragmented way, over four days last week . . . looking back now, and considering the transcript, it is noteworthy that he really has not said very much at all. . . .

Cannar TT, 06/21/04 order (US 16236),39 The orders of the Australian Court were rendered in open court and are recorded as separate volumes of the Cannar Trial Transcript. They have also been assigned US Exhibit numbers. -1440- 3:16-21, 4:9-14. With respect to Cannar's repeated assertions against self-incrimination, Justice Brownie found the assertions "spectacularly" suspect given that when the self-incrimination claim was overruled, Cannar would simply assert a lack of memory. In this regard, Justice Brownie stated:

some of the objections can scarcely be regarded as reasonably taken. For example, he did not commence to work for any tobacco company until 1981, but he claimed privilege against self-incrimination in respect of such matters as his graduating in law in 1969 and the details of his legal career before 1981. These are merely the most spectacularly unimpressive claims for privilege.

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He repeatedly claimed privilege and then, upon being directed to answer, said that he could not remember. It was not just his asserted lack of memory that seemed to me to be significant, but rather the combination of the claim for privilege followed by a ruling that he should answer the question, followed immediately by an assertion of non-recollection.

There was also the manner in which this happened repeatedly, as if he was fencing for time or delaying the inevitable or both.

Cannar TT, 06/21/04 order (US 16236), 5:1-7, 5:20-30. This Court agrees with and accepts Justice Brownie's findings. As a witness, Nick Cannar was not credible. For decades, he had worked for BAT and had every reason to lie in order to protect his client. Moreover, on the stand, he was so evasive and asserted Section 128 privilege so often that his testimony, credible or not, was of no value.

3947. In the late 1980s, executives at B&W became concerned over statements being written by company scientists in minutes of scientific meetings, as discussed in the previous section. See ¶¶3942. Andrew Foyle, a solicitor at Lovell, met with Wills's chief scientists Graham McGregor and Tas Wilson in Australia to learn how the Wills 1985 document management policy had been implemented by the Wills Research Department. McCabe at ¶ 25. Wilson and McGregor informed Foyle that unpublished enclosures to letters distributed by BAT's GR&DC had been destroyed and ". . . the 1985 retention policy had been applied and, consistent with that policy, documents would be destroyed when they reached the end of their retention period." Foyle TT, 04/28/04, 22:1-23:6, 24:9-25:11, 49:11-50:18, 57:9-20.

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3948. Following that meeting in Australia and pursuant to instructions from Nick Cannar at BATCo, Foyle prepared the Foyle Memorandum in 1990, and sent it to Fred Gulson in Australia, who was Wills in-house Solicitor and Company Secretary from 1989-1990. Foyle TT, 04/28/04, 17:10-14, 18:7-19:4. Gulson was the original recipient of the Foyle Memorandum. That Memorandum included a review of Wills's 1985 Document Retention Policy in light of ongoing product liability litigation and expressed concern that discovery requests against B&W might extend to BATCo's documents. McCabe at ¶ 22.

3949. The March 1990 Memorandum written by Foyle confirmed that W.D. & H.O. Wills (Australia) Limited ("Wills"), now known as BATAS, a subsidiary of both BAT plc and BATCo, had adopted a Document Retention Policy in December 1985 with the aid of Clayton Utz, an Australian law firm, after Cannar had issued his instructions to the BAT operating companies. Foyle wrote:

Wills' current document retention policy was introduced on the 30th December [sic] 1985 at a time when the tobacco companies in Australia anticipated the possibility of product liability litigation, although no case had actually been brought against any company. Clayton Utz [Wills's counsel] had previously been instructed to take steps to prepare the Industry, and Wills in particular, for litigation. One of their first actions was to review the document retention policy of the Company, hence the new policy.

(3/90 Foyle Memorandum excerpted in McCabe v. British Am. Tobacco Australia (Svcs.) Ltd., (2002) V.S.C. 73 at ¶ 23 (Supr. Ct. of Victoria at Melbourne Mar. 22, 2002) (Austl.), reversed on appeal; subsequent history omitted.40 In the Memorandum Opinion accompanying Order #896, issued March 14, 2005, the McCabe decision was discussed at length. At p. 3 of that Opinion, the Court ruled, as it had on a number of previous occasions, that "a court opinion is a public document of which it can take (continued...) -1442- In addition, it is important to reiterate the manner in which the Opinion spelled out the use which could be made of the McCabe opinion. Opinion #896 examined Australian law at some length, including the appellate decision reversing McCabe (see BATAS v. Cowell, [2003] VSCA According to Gulson, this statement from the Foyle

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Memorandum accords with his understanding of the genesis of the Wills Document Retention Policy. Gulson WD, 14:14-21. In addition, Gulson noted that "the facts relating to my tenure at Wills are set forth accurately," in the McCabe decisions' findings. Gulson WD, 13:19-23, 26:5-11. Upon observation at trial, the Court found Mr. Gulson's demeanor and testimony credible. His testimony was clear, internally consistent, and not impeached. Mr. Gulson had no reason to lie and demonstrated no affirmative bias against the Defendants. In addition, it is significant that he agreed to come to the United States to be a witness in this case without any compensation, other than his travel expenses, only to face inconvenience and cross-examination. For all these reasons, the Court fully credits Mr. Gulson's testimony.

(...continued) judicial notice, and therefore need not and will not be admitted into evidence." Consequently, the McCabe opinion was not admitted as an exhibit, although the Court took judicial notice of it.

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3950. Gulson explained that Wills's 1985 Document Retention Policy was comprised of two components, the written policy and the un-written purpose and application of the policy which were not reduced to paper for fear of discovery. Regarding the two distinct components of the document management policy, Gulson testified:

The written document's primary purpose was to provide cover for the actual document destruction enterprise, to ascribe an innocent housekeeping justification for the widespread destruction of sensitive documents. The Document Retention Policy wasn't simply the written policy itself, but the corporate knowledge of how the Policy was to be applied apart from the written language. My recollection of the Document Retention Policy comes not from the written document, but how it was explained to me by Nick Cannar, Andrew Foyle, Brian Wilson, a partner at Clayton Utz, and others, rather than from the document itself, since the written document was incomplete in terms of describing the actual workings and purpose of the Document Retention Policy.

Gulson WD, 16:21-17:7, 17:24-18:6.

3951. When he received the Foyle Memorandum, Gulson sent it, at Foyle's direction, to Brian Wilson, a lawyer at the Australian law firm of Clayton Utz, for answers to the questions Foyle raised regarding the use and implementation of the Document Retention Policy. Gulson WD, 32:18- 33:9; McCabe at ¶ 22. Foyle wanted Gulson to direct these questions to Wilson because:

There were serious concerns at BATCo that Wills' Document Retention Policy might leave the BAT Group vulnerable. Foyle was trying to strike the proper balance between destroying more documents, thereby risking an adverse inference against the companies; and not destroying more documents, thereby risking their discovery and use against companies in litigation.

Gulson WD, 29:20-30:5. Foyle also wrote:

For purposes of this exercise it can be assumed that, over the years, Wills has received copies of most of the sensitive documents generated by BATCo but that most of these (with the exception of the research reports) will have been destroyed as a result of the [1985] retention policy. It should also be assumed that a number of Wills employees have a detailed knowledge of the subjects to which many of the sensitive documents referred.

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McCabe at ¶ 98.

3952. In the Memorandum, Foyle sought advice from Clayton Utz, the Australian law firm, which had drafted the 1985 Document Retention Policy, on the issue of whether the destruction of documents by Wills could result in a finding of adverse inference if litigation did actually commence. In the Memorandum he wrote:

  1. To what extent is there a risk that the destruction of documents in accordance with the 1985 retention policy will cause the Court to apply the adverse inference principle, taking into account:

(a) the wording of the policy,

(b) the circumstances prevailing at the time it was introduced (e.g., whether product liability actions had been threatened against Wills or the industry generally),

(c) the extent to which Wills will need to claim privilege for documents produced in 1985 and later, on the grounds that the documents were produced in contemplation of anticipated proceedings.

Id. at ¶ 29.

3953. Foyle was also concerned about BATCo research which was destroyed by Wills: "Might BATCO's documents be more at risk? For example might the Court order Wills to retrieve from BATCO copies of the BATCO documents destroyed by Wills?" Id. at ¶ 31.

3954. In his memorandum, Foyle expressed numerous problems with Wills's 1985 Document Retention Policy in light of anticipated litigation. His first concern was that: "(a) The wording of the policy (coupled with timing of its introduction) might lead to the inference that the real purpose of the policy was to destroy sensitive smoking and health documents." McCabe at ¶ 27. Gulson confirmed this concern as "particularly pressing . . . since the real purpose of the Policy was, in fact to destroy sensitive smoking and health documents." Gulson WD, 27:2-9.

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3955. Foyle next expressed the concern that:

(b) Aspects of the implementation of the policy might support that inference, for example the immediate destruction of the unpublished enclosures to the SRG [Wills's Scientific Research Group] letters.

(c) The retention of a set of the BATCO research reports means that a plaintiff will have access to much sensitive BATCO research. The information in the reports is enough to prompt searching questions about the underlying research policy and also questions about what follow up action was taken by BATCO in the light of the research results.

(d) The retention of the BATCO reports might encourage a plaintiff to seek discovery of BATCO's documents, either by asserting that Wills has control over documents in the possession of BATCO, or by using the Hague Convention. The research reports might enable a plaintiff to frame a Hague Convention request for documents with the requisite degree of specificity and/or to identify the BATCO employee from whom oral testimony is required.

(e) Wills's access to the BATCO computer gives them the de facto right to details of results of BATCO's research. The summaries of the reports which are on the database are sufficiently informative to be of real interest to a plaintiff's lawyer.

(f) The knowledge that Wills' senior scientists have of BATCO research could rule them out as a witness at any trial in Australia.

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McCabe at ¶ 27. These additional concerns expressed by Foyle in his memorandum were also confirmed by Gulson, who explained that the computer link with the GR&DC in Southampton was actually severed because of BATCo's concern that its scientific documents might be made available to plaintiffs in Australian litigation. Gulson WD, 27:3-28:15.

3956. In view of all of these concerns, Foyle proposed a new document management policy for Wills, making the following observations:

  1. It is understood that the destruction of documents now or in the past by Wills contravenes no law or rule in Australia and that, in that sense, Wills can do what it likes with its documents. Presumably, if a court disapproved strongly of the destruction of the documents, then it might draw adverse inferences from that fact.
  1. It should be assumed that Wills' documents (what is in them and what has happened to them) will be a matter of great interest to a plaintiff's lawyer in a product liability action. How Wills responds to questions about its documents will require careful thought, especially because of the implications which the answers may have for the BAT group as a whole. It would be sensible, therefore, to assess the nature and extent of any problems which the current document retention policy may pose and to take appropriate remedial action now, rather than wait for the litigation to begin. Generally, what is needed is a strategy for handling the documents issue in litigation.

McCabe at ¶ 28; Gulson WD, 28:17-19:9. Gulson explained that when Foyle wrote in his Memorandum -- that "Wills' documents (what is in them and what has happened to them) will be a matter of great interest to a plaintiff's lawyer in a product liability action" -- he was referring to the fact that some documents would be harmful to the BAT Group, if produced in litigation, because the "documents may raise questions regarding what happened to the other, destroyed documents." Gulson WD, 29:1-9.

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3957. Finally, Foyle posed the following questions to Clayton Utz regarding the specifics of a revised document management policy:

  1. Should changes be made to the way in which the policy is currently being applied, for example, in relation to the SRG documents?
  1. What should be done about the copies of the BATCO research reports held by Wills? In this connection:

(a) Would the continued retention of these reports compromise Wills position via a vis the destruction of its other [scientific] documents? This question should be answered on the basis of the information given in this memorandum on the content of the reports. If more information is needed it can be supplied by LWD [Lovell, White, Durrant]. It would be undesirable for Clayton UTZ to seek information from Wills about the reports.

(b) Is there any reason why Wills should not now destroy its copies of most of the reports, if the motive for doing so were that the information in the reports is not relevant to Wills' Current "research mission"?

(c) Would the termination, or the restriction, of Wills' access to the reports database on the BATCO computer cause any problems?

  1. Would implementation of the proposed new retention policy hinder or help Wills' position on the documents issue?

McCabe at ¶ 32; Gulson WD, 29:10-32:17.

3958. In a March 29, 1990 letter responding to the questions raised in the Foyle Memorandum, Clayton Utz attorney Brian Wilson wrote to Gulson:

Wills' destruction of documents has not occurred during litigation in relation to which those documents might be relevant. If it had, that would be extremely strong evidence of an intention "to do something likely to interfere with the course of justice. . . ."

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The destruction has occurred, instead, in a situation where litigation has been, and still is, contemplated. But it can be said that it has not occurred only because of that fact and in order adversely to affect the litigation. This is where the wording of the 1985 retention policy statement [for which Clayton Utz had been the architect] becomes very important.

McCabe at ¶ 38 (excerpting Letter from Brian Wilson to Fred Gulson (Mar. 29, 1990)); see also Gulson WD, 33:10-20 (indicating that the text of the Wilson letter was accurately reproduced in the McCabe decision). Wilson followed this statement with a list of justifications for a document management policy -- including cost efficiency, litigation support, and sabotage prevention -- which could be offered as "clear evidence of an intention which is the complete opposite of an intention 'to do something likely to interfere with the course of justice.' This positive intention cancels out the negative impression created by destruction per se." Gulson WD, 33:10-20. The thrust of Wilson's advice was that as long as an excuse for destruction could be found, then BATCo could destroy documents without fear of an adverse inference in future litigation. Gulson WD, 33:25-34:2. Gulson believed that, in reality, the documents were actually being destroyed "due to litigation concerns," id. at 34:3-6, and the Court credits his testimony on this point.

3959. In early April 1990, Gulson arranged a meeting with Brian Wilson, John Oxland, and other lawyers from Clayton Utz to discuss their advice. 501582007-2008 (US 89419). In a letter pre-dating the meeting, Nick Cannar wrote to Gulson with a list of items to discuss during his visit including: "2. Document retention policy -- We have developed a draft research document retention policy for the B.A.T. Industries Group and a copy is enclosed. I would like to discuss this proposed policy with you and how it might be applied in Australia." 501582007-2008 (US 89419).

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3960. At the meeting, Cannar, Wilson, Oxland and Gulson discussed Wills's Document Retention Policy in the context

of a larger, BAT Group wide review of the document retention policy. All of the BAT Group companies' document retention polices were kept in lock step as much as possible, to ensure that no company would leave an opening through which damaging documents could be discovered and used against the rest of the BAT Group.

Gulson WD, 35:11-22.

3961. According to John Oxland's minutes of the April 1990 meeting, Wilson advised Wills and BATCo that Wills should "[k]eep all research docs which became part of the public domain and discover them. As to other documents, get rid of them, and let the other side rely on verbal evidence of people who used to handle such documents." McCabe at ¶ 42 (excerpting April 1990 Oxland minutes). Gulson's recollection is consistent with the meeting notes. Gulson WD, 36:7-16 ("to keep research documents that were in the public domain, and to destroy adverse research documents that the public or plaintiff's counsel would not be aware of").

3962. Wilson's recommendation was accepted and implemented by Wills. Id. at 36:16-18. In short, it was determined that the existing "Wills Document Retention Policy should be continued, that potentially damaging documents should continue to be destroyed, and that an innocent explanation should be provided for destruction." Id. at 36:18-23.

3963. Cannar, Gulson and the Clayton Utz lawyers had another meeting that same day in April 1990. At the second meeting, the lawyers discussed the ability of potential plaintiffs to discover a database maintained by Clayton Utz for the Tobacco Institute of Australia, which included "scientific documents from [TIA] member companies, profiles of likely witnesses, [and] information on judges." Because this database was maintained by a law firm, Cannar, Gulson and the Clayton Utz lawyers concluded that the documents could be withheld on grounds of privilege and that the member companies could destroy their copies to avoid production in litigation. Id. at 38:3-43:23; 304003742-3742 (US89400); 304003686-3690 (US 89418).

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3964. Following the meetings in April 1990 with Clayton Utz, Gulson wrote to S.J. Walker, a lawyer at the Australian law firm of Allen Allen & Hemsley, to seek a second opinion. Gulson sought the second opinion "[b]ecause the Document Retention Policy was a ruse." Gulson WD, 44:10-20, 32:20-24.

3965. Gulson was particularly concerned that the selective destruction of documents, which had occurred, could ultimately provide a roadmap for future plaintiffs to Wills's destruction of documents. Gulson expressed this concern in a May 16, 1990 letter to Walker: "The retention by Wills on a selective basis of certain reports may highlight the fact that other documents have been destroyed and could well compromise the position of Wills with respect to the practice and operation of the Document Retention Policy." McCabe at ¶ 46 (excerpting Letter from Fred Gulson to S.J. Walker (May 16, 1990)); see also Gulson WD, 45:14-46:2.

3966. As the foregoing Findings of Fact demonstrate, one purpose of Wills's 1985 Document Retention Policy was to destroy sensitive documents under the guise of well-accepted, good business practices. According to Gulson: "When I arrived at Wills, the Document Retention Policy had been to destroy damaging documents while keeping those that were beneficial to the company, and that remained the Policy at the time I departed Wills." Gulson WD, 47:15-17. Gulson emphasized that "[t]he Document Retention Policy wasn't simply the written policy itself, but the corporate knowledge of how the Policy was to be applied apart from the written language." Id. at 16:23-17:2.

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3967. When asked to describe the Document Retention Policy, Gulson answered:

It was the official title for what was more commonly known as the "Document Destruction Policy." The Policy was a program to ensure that all sensitive documents, all documents that if made public or discovered in litigation could potentially damage Wills, or Wills' affiliate companies in the BAT group, were sanitized.

Id. at 9:18-21. To "sanitize" Wills's documents meant to "destroy them or otherwise make them undiscoverable." Id. at 9:22-23.

3968. When asked about the purpose of the Document Retention Policy, Gulson responded that the Legal Department has responsibility for implementing it, and that

[t]he purpose of the Document Retention Policy was twofold, to protect the litigation position of Wills, and to protect the litigation positions of other BAT Group companies, especially our US affiliate Brown and Williamson, by ensuring that potentially damaging documents would not be discovered from Australia.

Id. at 9:24-10:1-4.

3969. Gulson explained that, while it was unusual to place control and direction in the Legal Department, it

was consistent with the purpose of Wills Document Retention Policy, since it was actually a document destruction policy. While it was important that the Document Retention Policy appear to be a rote housekeeping measure, of the kind that would normally be run by an audit or accounting department, the purpose of the Document Retention Policy was to protect Wills and the BAT Group from litigation by ensuring that potentially damaging documents were destroyed.

Id. at 12:15-24. In short,

[t]he written document's primary purpose was to provide cover for the actual document destruction enterprise, to ascribe an innocent housekeeping justification for the widespread destruction of sensitive documents.

1483

Id. at 16:22-24.

3970. When questioned very directly on the impact of the 1985 Document Retention Policy, Gulson confirmed that pursuant to that policy, "Wills was in fact destroying potentially damaging reports, while retaining favorable ones," although he personally never witnessed any such destruction. Id. at 45:24-46:2; Gulson TT, 2/17/05, 13824:1-6.

3971. Indeed, after the flurry of advice Gulson received in 1990 from Foyle, Wilson, and Allen Allen & Hemsley regarding Wills's Document Retention Policy, the written policy at Wills was revised only slightly "to ensure that from the outside the Document Retention Policy appeared to be an innocuous housekeeping process . . . ." Id. at 47:3-18.

3972. A primary focus of the Wills Document Retention Policy and the related policies at other BAT Group operating companies was to prevent any weak links in terms of the production of scientific documents in litigation by one BAT Group company that would come back to haunt, by attribution, another BAT Group company. The concern was explained by Wills in-house counsel, Frederick Gulson as follows:

The central research facility for the various BAT Group operating companies around the world was located at Southampton in England. Research from Southampton would be distributed to the other BAT Group companies around the world, including Wills. In addition, other BAT operating companies had their own research departments and facilities of varying sizes. The facility at Wills was not particularly big, but there were more significant research facilities at some of the larger operating companies, including Brown & Williamson in the United States, and BAT Germany's operating company in Hamburg. The companies all shared research. If incriminating smoking and health research documents were discovered by the public or a plaintiff in Australia, not only would the documents have been shared with the rest of the BAT Group companies, it probably came from one of the other BAT Group companies. As a result, a failure by Wills to safeguard sensitive documents in Australia, would threaten BAT operating companies across the globe. It was for this reason that the Document Retention Policy received such attention.

1484

Id. at 6:4-24, 9:24-10:16.

3973. Andrew Foyle reiterated this concern to Gulson in both conversations and in the Foyle Memorandum. Foyle told Gulson that

the importance of having and strictly adhering to the Document Retention Policy was to prevent potentially damaging documents from being discovered that could damage not only Wills, but also its parent and sister companies, in light of Will's possession and access to documents from Southampton and elsewhere in the BAT Group. There was a particular concern that Brown & Williamson would be vulnerable in litigation in the United States, and that the documents could be very damaging for it.

Id. at 26:12-17:1.41

3974. This concern was echoed in a contemporaneous letter prepared by Gulson and sent to S.J. Walker, a lawyer at Allen Allen & Hemsley. At the time Gulson wrote about:

the potential and substantial problem that would face our major shareholder in the event that any discovery made in Australia of BATCo's research could be used by future plaintiffs in other jurisdictions especially in the USA.

Gulson WD, 44:23-45:5.

John Welch, CEO of the Tobacco Institute of Australia (the Australian counterpart of the Defendant Tobacco Institute) from 1991 to 1992 also gave testimony that the TIA member companies destroyed potentially damaging documents, including in particular scientific studies, so as to keep those documents "out of litigation and out of the hands of those that could use the information to attack the industry." Welch WD, 9:5-16, 11:15-12:8. The TIA "member companies" included the Australian affiliates of BATCo, B&W, Reynolds and Philip Morris. Id. at 4:10-4:14. Because Welch's testimony was internally inconsistent, as well as inconsistent with the contemporaneous documentary evidence, it cannot be credited and is not relied upon.

1485

3975. Because scientific documents were shared throughout the BAT Group of companies, Cannar and Foyle had a "grave concern" that "if a document were discovered from Wills it could be used against BATCo or Brown & Williamson or another operating company." Id. at 45:5-13.

3976. The BAT document management program taught employees that "retained documents could have an effect on litigation, potentially the outcome of the litigation." Schechter WD, 53:7-10. The program encouraged employees to "limit the creation of documents" and to "avoid retaining any document longer than was needed for the operation of the business." Schechter WD, 53:11-14.

3977. In March, 1990, Brown & Williamson implemented a new document retention policy. See, e.g., (no bates) (JD 012743); (no bates) (JD 012744). The 1990 policy set forth, among other things, the requirement that departments follow retention schedules specifying the documents that needed to be retained, the period of retention, and the types of documents that could or should be discarded. (no bates) (JD 012743); (no bates) (JD 012744). When the 1990 policy was implemented, the decision was made to not discard any document dated earlier than 1988, regardless of subject matter and regardless of whether the document had any relation to smoking and health. (no bates) (JD 012743); (no bates) (JD 012744).

3978. Under the 1990 policy recipients were permitted to discard unaltered copies. (no bates) (JD 012743); (no bates) (JD 012744). Any documents that were otherwise scheduled to be discarded under the 1990 policy had to be retained if the Law Department placed a legal hold on them. (no bates) (JD 011288 at 334004672). In addition, all R&D reports were scheduled for permanent retention. Honeycutt, United States Dep., 4/23/02, 24:3-25:14; (no bates) (JD 012743); (no bates) (JD 012744); (no bates) (JD 013217).

1486

3979. In 1990, B&W mandated similar training sessions. 681000002-0002 (US 88651) (memorandum from B&W President Tommie Sandefur to all B&W employees telling them that "[d]uring the fourth quarter of 1990, employee meetings will be held to discuss records management at B&W and your role in the process.").

3980. The training materials used at the document handling sessions encouraged company employees to use oral rather than written communications. Wigand WD, 67:8-23; 503119213-9241 at 9216 (US 29646*) ("Another aspect is the 'sensitivity' of what we need to communicate. This is not just a matter of sensitivity from a legal point of view but there's also a matter of commercial sensitivity. Only put it on paper if you really need to. If you are in doubt, verbal communication is likely to be best.").

3981. As part of its efforts to conceal information and reduce its litigation exposure, BATCo sought to reduce the amount of documents its employees generated. As described in its "Records Management: Creation Retention" manual, BATCo repeatedly preached to its employees to use the "mental copy" rule. The "mental copy" rule asks employees to "imagine that the memo, note or letter you are about to write will be seen by the person that you would least like to read it." The employee is then to "send a 'mental copy' of your document to a newspaper, one of your competitors, a government agency, or potential plaintiff. Now: would you still write the memo? If so -- would you still write it the same way?" 325274431-4448 at 4434 (US 87012). That same document asked employees to "Think before you write," and to question "does it really need to be in writing to do the job?" 325274431-4448 at 4434 (US 87012) (emphasis in original); see also 321667716-7716 (US 88345); 325274431-4448 at 4433 (US 87012) ("Memos and notes can be barriers to effective communications and often need additional verbal explanation. Talking to someone face-to-face or on the phone is often the better way."); 325274431-4448 at 4435 (US 87012) ("Remember that verbal communication is best if you are dealing with a sensitive subject."); see also 503119213-9241 at 9230 (US 29646*) ("In order to help your [sic] decided how to write something, having decided it really needs to be a writing, we suggest that you use what we call the 'mental copy rule.' Imagine that what you are about to write will be seen by the person you would least like to see it. Send a mental copy (not to the real one of course!) of your record to the newspaper, to Philip Morris, to the Government or to a potential opponent in a court case.").

1487

3982. In a 1990 B&W records management video, Tommy Sandefur states that before writing a memorandum or letter, an employee should ask "is it necessary," "where will that piece of paper end up? Would you feel comfortable if a competitor, the government or the news media saw a copy of your document?" and "does it really need to be in writing? A phone call or face-to-face meeting is usually more effective." "Verbal communication is also the best way to share sensitive or confidential information." 632150212-0222 at 0214-0215 (US 87019).

3983. At a January 1990, meeting in New York City of representatives from various BAT Group components, including B&W and BATCo, participants were encouraged to establish document retention policies that would purge company files of any documents not currently subject to a document request in ongoing litigation because of the "[d]ifficulties faced by author company in explaining documents in a foreign court. . . ." Each company was expected to "[t]ighten the document retention policy . . . to the extent permitted by current litigation/discovery requests." 202347085-7086 (US 22032); 536489722-9722 (US 79172).

3984. On June 29, 1992, Sharon (Blackie) Boyse, a BATCo scientist, sent a facsimile to Jorge Basso Dastugue, a manager at BATCo's Argentine company Nobleza-Piccardo. The facsimile included a price quote from Healthy Buildings International ("HBI") to prepare information and materials for a public relations program on Indoor Air Quality in Buenos Aires. In the facsimile cover sheet, Boyse instructed Dastugue to keep HBI's involvement in the project quiet:

1488

Please also note, more importantly, that this an extremely sensitive document! HBI are [sic] currently under a considerable amount of investigation in the US about their connections with the industry. All references to companies in the quote has [sic] therefore been removed. Please do not copy or circulate this in any way and please destroy this fax cover sheet after reading! I know this sounds a little like James Bond, but this is an extremely serious issue for HBI.

304058260-8263 at 8260 (US 85632) (emphasis in original).

3985. In the summer of 1992, Simon Potter, an attorney with the law firm Ogilvy Renault in Montreal, which represented BAT's Canadian affiliate, Imperial Tobacco Limited, sent a letter to Stuart Chalfen, Solicitor of BAT Industries [the equivalent of General Counsel]; David Schechter, General Counsel of BATUS, which was B&W's immediate holding company; and John Meltzer, a lawyer at BAT's outside counsel Lovell, White, Durrant. The letter indicates that unless he received instructions to the contrary, Imperial Tobacco Limited planned to destroy sixty documents, including scientific studies. The letter includes a list of documents to be destroyed, including one document with the notation "not destroyed because never received by Imperial." 202313423-3425 (US 20377); Schechter WD, 60:9-62:14; 202313418-3421 (US 92072).

3986. In an August 7, 1992 letter to Chalfen, Schechter, and Meltzer, Simon Potter confirmed that "the documents mentioned in my letter of July 30 have indeed been destroyed." 202313429-3429 (US 20378); Schechter WD, 62:15-63:15.

1489

3987. David Schechter believed that Imperial Tobacco destroyed scientific documents in part to protect B&W in litigation, and the Court credits his statement on this point. 202313423-3425 (US 20377); 202313429-3429 (US 20378).

3988. In 1992, Graham Read, Head of Research and Development at BATCo, reported to Peter Clarke, BATCo's Solicitor, on "Imperial's access to R&D reports." Read stated that "[w]hether a requested report is faxed or couriered [from BATCo to Imperial], we attach an accompanying form seeking confirmation that it has been destroyed after use." 600232153-2154 (US 53322); Read PD, United States v. Philip Morris, 6/13/02, 59:14-67:11.

3989. The effort to sanitize the research files within the BAT Group of companies in 1990 was not limited to Wills in Australia. In 1990, Nick Cannar instructed Allison Kay Kinnard to create a program to administer document management policies at BATCo in the United States. Though he was uncertain about the destruction of research documents resulting from this program, Cannar stated that it probably occurred because ". . . that was the path we went down." Cannar TT, 6/21/04, 340:35-341:4, 356:77-358:27, 360:1-364:6.

3990. Starting in 1991, David Schechter was sent to Australia on many occasions at the request of BAT Industries's General Counsel to manage document issues in Australia. Schechter WD, 39:9-43:4. The trips were paid for by BATCo, who also paid for lawyers from Shook, Hardy & Bacon to accompany Schechter to Australia. Id.

3991. As part of his role managing the Australia litigation, Schechter had discussions with Wills's General Counsel regarding whether Wills's documents -- including smoking and health documents Wills received from other BAT Group companies -- could be destroyed during or after trial. Id. at 42:15-43:4. Schechter played an important role in monitoring Wills's document retention policy on behalf of B&W and other BAT Group entities. Gulson WD, 49:23-4, 50:17-51:15. He communicated regularly with BAT Group executives regarding document management issues. 202215750-5750 (US 89404).

1490

3992. From 1990 to 1996, a number of plaintiffs brought proceedings against Wills, the last one being Phyllis Cremona in 1996. In conjunction with that litigation, Wills undertook a review of its scientific documents in 1996 that led to the creation of a database of scientific documents known as the "Cremona database." McCabe at ¶¶ 59, 116. In 1996, Graham Maher, an attorney with the Australian law firm Mallesons, representing BATAS, began "to review documents which might become relevant in any future litigation. . . . Together with others, he summarized documents and had them scanned." Id. at ¶ 109; (no bates) (US 16226 at ¶ 2). As part of the effort to create the Cremona database, virtually all of the 30,000 documents identified by Wills as being potentially responsive to the Cremona litigation were imaged on computer discs, indexed, and summarized. McCabe at ¶ 112; (no bates) (US 16226 at ¶ 11). The document review also included ratings by the attorneys of each document, on a scale of one to five, according to how damaging it was likely to be to the company in any litigation, with a rating of five meaning the document was a "knockout" blow against the company. McCabe at ¶ 114.

3993. After Cremona and Harrison (another pending case) were settled in March 1998, an existing litigation hold order requiring the preservation of documents was revoked. Id. at ¶ 128; see also 1226-1249 (US 16217); 1066-1066 (US 16218); 1294-1294 (US 16219); 1296-1296 (US 16220). Following the revocation of the hold order, Cannar concluded that "now is a good opportunity to dispose of documents if we no longer need to keep them. That should be done outside the legal department." McCabe at ¶ 128; (no bates) (US 16225 at ¶ 36). Cannar instructed longtime Wills employee Mal Nicholson to take the position of Records Manager and entrusted him with the responsibility for implementing the destruction policy. McCabe at ¶ 128; (no bates) (US 16225 at ¶ 36).

1491

For the next three months, Nicholson was engaged in the implementation process. The process did, in fact, involve lawyers, but they were lawyers from Mallesons, who reviewed all documents which had been collected for Cremona and Harrison, and once they confirmed that documents had passed the retention dates then they were destroyed.

McCabe at ¶ 129.

3994. During this time, Robyn Chalmers, outside counsel for Wills with the firm Mallesons, advised Wills:

I confirm that there is no specific obligation on you to retain documents for the purposes of legal proceedings where no such proceedings have been commenced. You are entitled to destroy any documents subject to the legislative requirements but as you have been advised previously, the court may draw an adverse inference from the destruction of such documents, depending on the circumstances of the destruction. Moreover, you may be required to produce any copies retained where originals are destroyed or to give oral evidence regarding the nature and content of the original documents. Arguments in your defence where records have been destroyed would include compliance with the legislative retention periods and a necessity to maintain your archives within responsible limits, given the administrative and storage costs of keeping a large quantity of data.

McCabe at ¶ 137; PMV0010213-0214 (US 88753). Despite Chalmers's advice, the document destruction went forward. McCabe at ¶ 139.

3995. Testifying in McCabe, Maher admitted that the effect of the policy was not only to destroy the documents but to obliterate knowledge of the fact of their prior existence. McCabe at ¶ 160. Maher's testimony confirmed that "[t]here was a sense of urgency" and that "the department managers were told they had to confirm compliance with the policy by 15 April 1998." Id. at ¶ 154; 1066-1066 (US 16218); 1296-1296 (US 16220). "The process of destruction of documents in which the defendant engaged included destruction of CD Roms on which they were all imaged." McCabe at ¶ 160. Chalmers confirmed that "the only copies of the Cremona database (one held at Wills and one at Mallesons) were destroyed." McCabe at ¶ 163.

1492

3996. It is patently clear from the extensive Findings of Fact set forth herein, that, in the words of Frederick Gulson, Wills's in-house counsel, the 1985 Document Retention Policy which was drafted for Wills, but in fact protected all BAT Group affiliates, subsidiaries, sister and parent corporations,

was a contrivance designed to eliminate potentially damaging documents while claiming an innocent "housekeeping" intent. . . . The whole purpose was to keep evidence out of the courts.

Gulson WD, 19:18-21. Moreover, it is also patently clear that the Foyle Memorandum, which purported to re-examine the effectiveness of that 1985 Policy, was intentionally drafted to further its purposes and to ensure that it was adapted to the demands of an ever-more threatening litigation environment.

3997. Finally, members of the BAT Group, in furtherance of the Policy's purposes, destroyed documents, routed them from one country or BAT facility to another, erased a useful litigation database as well as the fact that the documents it contained had ever existed as soon as the pre-existing judicial hold was lifted, and constantly exhorted their many employees to avoid putting anything in writing. All these activities were taken for one overriding purpose -- to prevent disclosure of evidence in litigation.42

1493

R.J. Reynolds

3998. At times, RJR attempted to and did destroy documents to protect its position in litigation. In 1969, RJR's research department confirmed to the legal department that it did

not foresee any difficulty in the event a decision is reached to remove certain reports from Research files. Once it becomes clear that such action is necessary for the successful defense of our present and future suits, we will promptly remove all such reports from our files.

500284499-4499 (US 21677).

3999. The document, titled "Invalidation of Some Reports in the Research Department," also states:

As to reports which you are recommending be invalidated, we can cite misinterpreting of data as reason for invalidation. A further reason is that many of these are needless repetitions and are being removed to alleviate overcrowding of our files.

As an alternative to invalidation, we can have the authors rewrite those sections of the reports which appear objectionable.

The Court would note that on April 14, 2004, more than a year before this case went to trial, Special Master Levie found that the Government had established a prima facie showing that the crime fraud exception applied, and therefore overcame BATCo's claims of attorney-client privilege and/or work product protection for the Foyle Memorandum. He recommended that the Court order BATCo to produce a copy of the Foyle Memorandum to the Government within two days. R&R #155.

While the subsequent history of R&R #155 is fairly tangled, and involved several trips to the Court of Appeals, this Court did not reach the central substantive issue -- whether the Government had established the crime fraud exception. With the benefit of hindsight, and on the strength of fully cross-examined, in-person testimony from several key witnesses for the Government (a luxury which the Special Master did not have), the Court concludes that the Special Master's ruling in this regard was eminently correct.

1494

500284499-4499 (US 21677).

4000. In 1991, at the same time or shortly before the FTC initiated proceedings against RJR's Joe Camel advertising campaign, RJR persuaded employees of the advertising agency of Young & Rubicam to destroy documents concerning the Joe Camel advertising campaign with the intent to prevent the documents from being available for use in the FTC's proceedings. This plan was confirmed in a November 1, 1991 facsimile cover sheet and letter sent from Mark Morrissey of Young & Rubicam to RJR stating, "[a]s we discussed . . . [t]his is what I'm going to destroy. . . . Also, under our current scrutiny, a wise move to rid ourselves of developmental work!!" The letter set forth a list of documents related to the Joe Camel campaign that were destroyed. 507647971- 7975 at 7971 (US 51232*). Edmund Leary, the recipient of this document, confirmed that this memorandum related to the destruction of materials that were not going to be pursued in brand marketing. Leary, United States Dep., 5/2/02, 75:16-20.