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A special master appointed by a U.S. federal court in tobacco litigation brought by the United States has ordered an Australian company to turn over a lawyer’s memo that allegedly serves as a blueprint for destroying discoverable documents under the guise of document preservation.

The company, British American Tobacco (Investments) Ltd., is a defendant in the litigation brought by the U.S. Department of Justice. The company claims that the document is protected by attorney-client privilege and the work-product doctrine.

The 1990 memo, known as the Foyle Memorandum, has been central in Australia’s own tobacco litigation.

In March 2002, in a products liability suit brought by a smoker and his family, an Australian judge struck British American Tobacco’s defense, in part because of the Foyle memo. A jury awarded 700,000 Australian dollars in damages, about $500,000 in U.S. money.

The decision was overturned in December 2002 by the Supreme Appeal Court of Victoria, which said that the memo appeared fully and frankly to set out the difficulties facing tobacco companies in the wave of expected litigation.

A unit of British American Tobacco, Brown & Williamson, is one of five defendants named by the United States in a suit brought under the Racketeer Influenced and Corrupt Organizations Act. The civil suit filed in the U.S. District Court for the District of Columbia alleges that the tobacco companies conspired to hide the dangers of smoking and destroyed and concealed documents. The government seeks $289 billion in damages. U.S. v. Philip Morris, 99-CV-2496 (D.D.C.).

Testimony of the memo’s author, Andrew Foyle of London’s Lovells, was scheduled to begin this week, under rules of the Hague Convention for the taking of testimony abroad. British American Tobacco’s U.S. attorney, New York’s Chadbourne & Parke, has filed objections to the special master’s recommendations, but the deposition is still scheduled.

Judge Gladys Kessler of the U.S. District Court for the District of Columbia has been demanding the Foyle memo for almost two years. According to court documents, British American Tobacco once claimed that it did not know where it was — if it ever existed. The company now asserts that its claim of privilege is covered by a more general privilege claim, and that comity ought to be accorded to Australia’s appeals court decision.

British American Tobacco has twice appealed orders to produce the memo to the U.S. Circuit Court for the District of Columbia. In its last opinion, the D.C. Circuit sent the matter back to the district court to determine, among other things, whether British American Tobacco’s more general objections should cover the memo. BAT v. U.S., 02-5210 (D.C. Cir.).

Among its other arguments, the U.S. government asserted that the defendant should not be allowed to assert its privilege because the memo allegedly proposed the commission of fraudulent acts.

Special Master Richard A. Levie, in a finding issued earlier this month, dismissed each of the defendant’s objections, then turned to the sanction issue. He said that British American Tobacco’s conduct was “inexcusable.”

Notwithstanding that conclusion, Mr. Levie, in an in-camera review of the memo, found that such a document would ordinarily qualify for the attorney-client privilege and the work-product doctrine, but for the crime-fraud exception. Under that exception, otherwise privileged documents lose their protection if the client made or received the communication with the intent to further an unlawful or fraudulent act and that the act was carried out. Under the work-product exception, the act need not have been carried out.

Mr. Levie pointed to an affidavit of a former in-house counsel of an Australian tobacco company that got the Foyle memo. The writer said the memo reflected an industry policy of destroying documents “under the guise of an innocent house keeping arrangement.”

Chadbourne’s David Wallace called the special master’s recommendation “analytically flawed.” A Justice Department attorney declined to comment. Trial is set for mid-September.

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