STATE OF MINNESOTA DISTRICT COURT

COUNTY OF RAMSEY SECOND JUDICIAL DISTRICT

CASE TYPE: OTHER CIVIL

 

The State of Minnesota,

By Hubert H. Humphrey, III,

Its Attorney General,

and

Blue Cross and Blue Shield of Minnesota,

Plaintiffs,

vs.

Philip Morris Incorporated,

R.J. Reynolds Tobacco Company,

Brown & Williamson Tobacco Corporation,

B.A.T. Industries, p.l.c.,

British-American Tobacco Company Limited,

BAT (U.K. & Export) Limited,

Lorillard Tobacco Company,

The American Tobacco Company,

Liggett Group, Inc.,

The Council for Tobacco Research - U.S.A., Inc., and

The Tobacco Institute, Inc.

Defendants.

Court File No. C1-94-8565

December 30, 1997

________________________________________________________

Plaintiffs’ request for sanctions against The American Tobacco Company ("American") and Brown & Williamson Tobacco Corporation as successor by merger to The American Tobacco Company ("B&W") came on for hearing on December 9, 1997, before the Honorable Kenneth J. Fitzpatrick.

Incorporating the findings of record to date, expressly including but not limited to the findings set forth in the Orders of this Court filed May 8, 1997, and June 18, 1997, the Court makes the following ORDER based upon the record, arguments of counsel, and supplemental filings made by the parties.

WHEREAS, in light of almost 100 years of cigarette manufacture and sale by American and its affiliates, American’s substantive document production and responses to discovery in this case are minuscule and incomplete;

WHEREAS, American has evolved through a number of corporate reorganizations, some pre-complaint and some, more tellingly, post-complaint, and is now related as parent/subsidiary or sister subsidiary to Fortune Brands, Inc., formerly American Brands, Inc., Gallaher Limited of the U.K., and B&W, successor by merger to American;

WHEREAS, on May 8, 1997, the Court filed its Order Granting Plaintiffs’ Motion to Compel Relating to Depositions of Brown and Williamson Tobacco Corporation and The American Tobacco Company (CLAD #933) ("May 8 Order"), ordering B&W and American to provide complete, full, and unevasive answers to specific questions regarding the existence and location of smoking and health research documents and documents regarding the advertising, marketing, and promotion of cigarettes and, further, ordering B&W and American to produce the documents so identified;

WHEREAS, on May 19, 1997, B&W and American filed purported "responses" to the questions set forth in the May 8 Order, challenging, however, the Court’s authority to seek information which they described as "beyond the scope of reasonable inquiry" and "inconsistent with the case management orders governing discovery in this case;"

WHEREAS, Plaintiffs moved for enforcement of the May 8 Order and for sanctions against American (CLAD #985-986) on June 3, 1997; B&W as successor by merger to American filed its memorandum in opposition on June 9, 1997 (CLAD #1004); and the matter was heard on June 17, 1997;

WHEREAS, on June 18, 1997, the Court issued its Order for Enforcement of this Court’s Order of May 8, 1997, and Notice of Hearing for Sanctions (CLAD #1033) ("June 18 Order"), finding that B&W and American willfully violated the Order of this Court, failing to produce the documents or to answer the questions in a complete and unevasive manner as required by the May 8 Order;

WHEREAS, the Court scheduled a sanctions hearing to take place on June 24, 1997, pursuant to Minn. R. Civ. P. 11, 26.07, and 37.02 and Minn. Stat. § 549.21, giving B&W and American fair notice and yet another opportunity to comply with the May 8 Order;

WHEREAS, rather than showing a good faith effort to comply with the May 8 and June 18 Orders, B&W sought relief in the Minnesota Court of Appeals in no fewer than three ways: Petition for Discretionary Review, Notice of Appeal of the Order of June 18, and Petition for Prohibition and/or Mandamus of the Orders of May 8 and June 18;

WHEREAS, on July 22, 1997, the Minnesota Court of Appeals denied relief of any sort to B&W, flatly stating: "We are troubled by the numerous requests for interlocutory review of non-dispositive pretrial rulings in this litigation. . . . [W]e caution counsel that awards [of attorney fees or sanctions] may be made in the future. . . ." (emphasis added);

WHEREAS, despite the Appellate Court’s admonition, B&W petitioned the Minnesota Supreme Court for a Writ of Prohibition and for its Review;

WHEREAS, on November 13, 1997, the Minnesota Supreme Court denied the petitions filed by B&W for further appellate review of the May 8 and the June 18 Orders;

WHEREAS, pursuant to the Court’s September 4, 1997, Order, the parties were granted the opportunity to file simultaneous briefs relating to appropriate sanctions, which briefs the parties agreed to file by November 28, 1997 (see CLAD #1737);

WHEREAS, Plaintiffs filed their submissions on November 28, 1997 (CLAD #1753-1755) and B&W filed its submission December 2, 1997 (CLAD #1768);

WHEREAS, less than ten hours before the scheduled sanctions hearing, B&W filed Supplemental Responses to the questions set forth in the Court’s May 8 Order, which long-awaited "responses" the Court hereby finds to be incomplete, evasive, and lacking in good faith and due diligence;

WHEREAS, the Court finds American and B&W to remain in willful violation of this Court’s May 8 and June 18 Orders;

WHEREAS, the Court finds that B&W and American received repeated sufficient notice that the Plaintiffs were seeking sanctions and that the court would consider imposing sanctions and, therefore, their argument that they were denied due process is frivolous;

WHEREAS, the Court finds B&W’s argument--that it is impossible for them to obtain documents--highly suspect and disingenuous considering that, no matter what corporate reorganizations were reported to be in the planning stages, no one can deny that the entity known as American (which was a subsidiary of American Brands and a sister subsidiary of Gallaher) was in existence when the Complaint was filed in August of 1994. The sale of American to B&W (and the alleged transfer of all American documents by American Brands to B&W and the later legal severance of corporate relationships to American Brands and Gallaher) occurred post-complaint, in December of 1994. The merger of American with B&W, B&W emerging as successor, did not occur until some months later, in 1995. The fact that discovery commenced after the sale and merger is irrelevant; the date of service controls. While Defendants attempt to distinguish Pesaplastic, C.A. v. Cincinnati Milacron Co., 799 F.2d 1510 (11th Cir. 1986) and Minnesota Mining & Mfg. v. Eco Chem., Inc., 757 F.2d 1256 (Fed. Cir. 1985), they offer distinctions without a difference. These cases held that corporations were able to respond to discovery requests, despite transfer of assets to other entities. Here B&W claims it is unable to search for documents from American’s parent and sister subsidiaries because of the "legal severance" occasioned by the post-complaint sale. American’s own purposeful actions in an attempt to divest itself of documents and corporate relationships were responsible for B&W’s subsequent alleged inability to comply with discovery requests and the Orders of the Court. Moreover, not even their own counsel take the "separate entities" argument seriously, as they consistently fail to distinguish among five of the defendants, for example:

WHEREAS, the Court has the authority and discretion to impose a variety of different sanctions for activity contemptuous of the Court in order that the authority of the judicial system does not continue to be flaunted;

WHEREAS, the Court finds that Plaintiffs have been prejudiced by B&W’s and American’s blatant disregard for court orders in this matter and the seven-month delay occasioned by B&W’s and American’s filing of frivolous appeals;

WHEREAS, in light of the joint defense claimed by the defendants in this action, a cooperative history extending more than forty years, the Court suggests the other defendants encourage B&W’s and American’s compliance with the Orders of this Court, lest their disdainful violations be found to taint all defendants;

WHEREAS, this Court concludes that sanctions are necessary because B&W and American have blatantly disobeyed an Order of the Court, have continued to be contemptuous of such Order, and have challenged the authority of the judicial system, and impugned the integrity of that system;

WHEREAS, the Court determines that such sanctions must be sufficiently harsh to chill any further willful disregard of the judicial system - "to penalize those whose conduct is deemed to warrant a sanction and to deter others who may be tempted to behave in such a way as to warrant the imposition of sanctions in the future";

WHEREAS, in addition to the reasons set forth above, the Court finds that harsh sanctions are required in this matter because even immediate compliance by American and B&W will not cure the prejudice Plaintiffs suffer due to the abuse of discovery; trial in this action will commence on January 20, 1998;

WHEREAS, in order to place the monetary sanctions in appropriate perspective, the Court notes that B.A.T. Industries, p.l.c., as parent company of B&W, earned sales in excess of one (1) billion British pounds and American’s successor by merger, B&W, had a domestic operating profit of approximately $880 million in 1996;

1. All alleged claims of privilege, whether attorney-client or work product, shall be stricken with respect to each document set forth in Exhibit 12 to the Affidavit of Gary L. Wilson filed November 28, 1997; and B&W and American shall produce said documents in their full and unredacted forms directly to Plaintiffs within ten days. This paragraph shall not apply to documents for which the remaining defendants have asserted a timely claim of joint defense privilege; B&W and American shall, instead, file a list of the Bates numbers of such documents, if any.

2. The Supplemental Responses of B&W to the Court’s Questions filed on December 8, 1997 (CLAD #1801) shall be immediately unsealed.

3. B&W and American shall pay the costs and expenses incurred by Plaintiffs, including reasonable attorneys’ fees, to litigate the issue of B&W’s and American’s discovery abuses, including fees and costs incurred in connection with (a) proceedings leading to this, the May 8, and the June 18 Orders; (b) responses to requests for appellate review; and © the taking of depositions of American deponents. To assist the Court in determining the appropriate amount of this monetary sanction, Plaintiffs shall file their Affidavit of Costs, Expenses, and Fees within fifteen (15) days of this Order.

4. B&W and American shall immediately pay to the Clerk of Court as a monetary sanction the sum of One Hundred Thousand and no/100ths Dollars ($100,000.00).

5. Should B&W and American remain in violation of the Court’s Orders ten (10) days after filing of this Order, B&W and American shall pay to the Clerk of Court the sum of One Hundred Thousand and no/100ths Dollars ($100,000.00) for each day thereafter during which Defendants fail to comply, said sums to be in addition to the initial monetary sanctions imposed in paragraphs 3 and 4 above. Said amount shall accrue daily, with interest at the legal rate on any unpaid balance, up to and including January 19, 1998.

6. If B&W and American remain in violation of the Court’s Orders, on January 20, 1997, the Court shall re-examine the amount of the monetary sanctions to determine whether additional encouragement is necessary to obtain defendants’ compliance.

7. In light of the prejudice to their case incurred by Plaintiffs as a result of B&W’s and American’s abuses, the Court will impose one or a combination of the following three sanctions or such other sanction/s the Court shall deem just, such sanction/s to be determined by the Court at the time of trial of this action. At that time, the Court will analyze and determine the extent of the prejudice incurred by Plaintiffs by reason of B&W’s and American’s violations. The Court will take into consideration the actions B&W and American have taken, if any, between the dates of filing of this Order and the time of trial to remedy their continued disregard for the authority of the court and the judicial process.

OR

OR

Dated: December 30, 1997 BY THE COURT:

Kenneth J. Fitzpatrick

Judge of District Court