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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.
2
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 Ameri-
can Tobacco (Investments) Ltd.—BATCo—for an emergency
stay pending its interlocutory appeal, we upheld our jurisdic-
tion 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 consider-
ation. 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 Memoran-
dum.
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 defen-
dants have ‘destroy[ed] and conceal[ed] documents’ and taken
‘other steps to shield documents and materials from discov-
ery.’ As a remedy, the government seeks, inter alia, dis-
gorgement of defendants’ profits and recovery of the medical
costs of the tobacco companies’ customers.
‘‘The parties exchanged Comprehensive Requests for Pro-
duction on August 22, 2000. The government requested that
the defendants produce ‘[a]ll documents relating to record-
3
creating, record-keeping, record-retention, record dissemina-
tion or distribution, and/or record-destruction policies, prac-
tices, 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 inter-
est. 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 increas-
ing litigation against tobacco companies in the United States
and Australia.
‘‘Subsequent to the McCabe decision’s release, the govern-
ment 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 ‘im-
4
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 telecon-
ference with the district court to determine whether BATCo
was required to immediately produce the Foyle Memoran-
dum. During the teleconference, BATCo contended that the
document was covered by the Guildford objection and in-
formed 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 Guild-
ford 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 ‘reit-
erat[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 imme-
diately produce the memo. Id.
5
‘‘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 accompa-
nying order). Thus, the court concluded that BATCo’s failure
to list the memo on the privilege log waived BATCo’s attor-
ney-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 objec-
tion and to describe the document only when the document is
6
‘‘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 docu-
ment 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 docu-
ment. ‘‘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, ad-
vertising, marketing, promotion or sale of tobacco products
not sold in the United States or activities of any kind under-
taken 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
7
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 discre-
tion 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.