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Haines v. Liggett Group Inc.

filed: September 4, 1992; As Amended September 17, 1992.

SUSAN HAINES, AS ADMINISTRATRIX AD PROSEQUENDUM AND EXECUTRIX OF THE ESTATE OF PETER F. ROSSI
v.
LIGGETT GROUP INC., A DELAWARE CORPORATION; LOEW'S THEATRES INCORPORATED, A NEW YORK CORPORATION; R.J. REYNOLDS TOBACCO CO., A NEW JERSEY CORPORATION; PHILIP MORRIS INCORPORATED, A VIRGINIA CORPORATION; THE TOBACCO INSTITUTE PETITIONERS. HONORABLE H. LEE SAROKIN, UNITED STATES DISTRICT JUDGE FOR THE DISTRICT OF NEW JERSEY NOMINAL RESPONDENT



Petition for Mandamus to the United States District Court for the District of New Jersey. (D.C. No. 84-00678)

Before: Greenberg, Alito and Aldisert, Circuit Judges.

Author: Aldisert

Opinion OF THE COURT

ALDISERT, Circuit Judge.

Several important questions are presented in this original petition in mandamus filed by leading tobacco companies. They request us to direct the district court to vacate its order that the crime-fraud exception to the attorney-client, work product and joint defense privileges applies to various documents here, but the primary issue that we must decide is whether the district court properly exercised its reconsideration function under 28 U.S.C. § 636(b)(1)(A) of the Federal Magistrates Act, as amended.

The Act provides that "[a] Judge of the court may reconsider any pretrial matter under this subparagraph (A) where it has been shown that the magistrate's order is clearly erroneous or contrary to law." In exercising its review function under this standard, the district court here considered facts that were not before the magistrate Judge.

This is not an appeal from final judgment. Rather, it involves a very sensitive issue of discovery that is part of an ongoing personal-injuries action brought under diversity jurisdiction. Because this is a discovery matter, the district court's order is not immediately appealable. Borden Co. v. Sylk, 410 F.2d 843, 845 (3d Cir. 1969). We must first decide the extent to which we may reach this issue in proceedings brought under the All Writs Act, 28 U.S.C. § 1651(a), which provides, "The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." In re School Asbestos Litig., 921 F.2d 1310, 1313 (3d Cir. 1990), cert. denied, 111 S. Ct. 1623 (1991). Petitioners, various tobacco companies who are defendants in the ongoing litigation, insist that matters ordered disclosed by the district court are privileged and that the crime-fraud exception does not apply.

We deem it appropriate at the outset to explain the nature of the crime-fraud exception, and to do this we refer to the Supreme Court's recent description of the attorney-client privilege's purpose and the reasons for the exception:

We have recognized the attorney-client privilege under federal law, as "the oldest of the privileges for confidential communications known to the common law." Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S. Ct. 677, 682, 66 L. Ed. 2d 584 (1981). Although the underlying rationale for the privilege has changed over time, see 8 J. Wigmore, Evidence § 2290 (McNaughton rev. 1961), courts long have viewed its central concern as one "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of Justice." Upjohn, 449 U.S. at 389. That purpose, of course, requires that clients be free to "make full disclosure to their attorneys" of past wrongdoings, Fisher v. United States, 425 U.S. 391, 403 (1976), in order that the client may obtain "the aid of persons having knowledge of the law and skilled in its practice," Hunt v. Blackburn, 128 U.S. 464, 470 (1888).

The attorney-client privilege is not without its costs. Cf. Trammel v. United States, 445 U.S. 40, 50 (1980). "Since the privilege has the effect of withholding relevant information from the factfinder, it applies only where necessary to achieve its purpose." Fisher, 425 U.S. at 403. The attorney-client privilege must necessarily protect the confidences of wrongdoers, but the reason for that protection--the centrality of open client and attorney communication to the proper functioning of our adversary system of Justice--"ceases to operate at a certain point, namely, where the desired advice refers not to prior wrongdoing, but to future wrongdoing." 8 Wigmore, § 2298, p. 573 (emphasis in original); see also Clark v. United States, 289 U.S. 1, 15 (1933). It is the purpose of the crime-fraud exception to the attorney-client privilege to assure that the "seal of secrecy," ibid., between lawyer and client does not extend to communications "made for the purpose of getting advice for the commission of a fraud" or crime. O'Rourke v. Darbishire, [1920] A.C. 581, 604 (P.C.).

United States v. Zolin, 491 U.S. 554, 562-63 (1989) (footnotes omitted).

The traditional and practical importance of the privilege and the proper application of the exception are at the heart of petitioners' arguments. In addition to challenging the application of section 636(b)(1), petitioners contend that the district court erred in considering the crime-fraud exception: that it applied an evidentiary standard at odds with that set forth in Zolin and that it compounded its error by quoting publicly, before any review process was completed, portions of petitioners' documents claimed to be privileged. Finally, because of certain statements made by the district court in the opinion accompanying its ruling--statements criticizing the tobacco industry that generated widespread attention in the media--petitioners request that the ongoing district court proceedings be assigned to another Judge "to preserve Justice and the appearance of impartiality." Mandamus Petition at 3 (hereinafter "Pet.").

I.

Susan Haines, administratrix of the estate of the deceased, Peter F. Rossi, a 40-year smoker, filed this personal injury action against petitioners, Liggett Group, Inc., Loew's Theatres, Inc., R.J. Reynolds Tobacco Co., Philip Morris Incorporated and the Tobacco Institute. She alleges claims of product liability, tort and conspiracy and seeks relief under concepts approved in Cipollone v. Liggett Group, Inc., 112 S. Ct. 2608 (1992).

As part of her case, Haines seeks discovery of certain documents relating to the Council for Tobacco Research ("the Council" or "CTR"). She argues that these documents are relevant to issues of liability, because they may constitute admissions, may bear on the credibility of parties and witnesses and may support the conspiracy theory.

The Council is the successor to the Tobacco Industry Research Committee, which was formed by several cigarette manufacturers to conduct scientific research on potential health hazards from smoking and to disseminate information to the public regarding this research. The Council did not conduct original research; rather, it funded independent research through a grant program directed by the Scientific Advisory Board. Pet. at 12.

Following the release of the 1964 Surgeon General's Advisory Committee Report on smoking and health, and the subsequent congressional hearings leading to the enactment of the Cigarette Labelling Act, 15 U.S.C. § 1331, et seq., the tobacco companies' lawyers advised the companies to fund independent scientific and medical investigations to assist in litigating future claims against the companies. This led to the creation of "CTR special projects," which "were different and separate in procedure, scope, and substance from the research funded by the Advisory Board grant program." Mandamus Pet. at 13. Each time a research project was proposed that might be of assistance in litigation, the companies consulted with their lawyers and decided, on a project-by-project basis, whether to fund the research as a special project. The approved projects were funded by the Council's accounting department, although some projects were co-funded by other funding institutions.

Haines acknowledges that the special projects were "administered, in large part, by attorneys for the cigarette companies." Respondent's Answer to Petition at 13 (hereinafter "Ans."). Haines contends that the documents sought may show that the Council was a fraudulent public relations ploy. While presented as an independent research organization, its actual function was to assist the tobacco industry in various ways. Ans. at 1-2. Haines contends that the special projects department funded research suggesting that no definite link had been established between smoking and disease. Id.

II.

On July 1, 1988, approximately four years after Haines filed her complaint, she served her third discovery request upon petitioners, seeking documents related to the Council and the Council's Special Projects. According to petitioners, respondent was prompted to request the discovery of these documents because of evidence that had been disclosed in Cipollone v. Liggett Group, Inc., 683 F. Supp. 1487 (D.N.J. 1988), a related case also pending before the same district Judge.

On July 5, 1990, in answer to respondent's third discovery request, petitioners claim to have produced:

over 2000 responsive documents. Specifically, petitioners produced (1) all correspondence, memoranda, research proposals, and research results prepared by the researchers themselves or others working under their direction; and (2) all correspondence to or from researchers, including correspondence with petitioners or their counsel.

Mandamus Pet. at 5. However, petitioners declined to produce approximately 1,500 documents which, although otherwise responsive, petitioners claimed were privileged as attorney-client communications or attorney work product. Accordingly, petitioners submitted logs identifying those documents.

Haines argued that the documents were not privileged communications or work product, and that even if they were, the crime-fraud exception applied, thereby annulling the privilege. On January 29, 1991, the district court appointed then-Special Master Joel Pisano to make a recommendation as to whether the documents withheld by petitioners were the type of documents to which the attorney-client and work product privileges applied. The order provided that the documents were to be treated as privileged "until entry of a final order by the [district Judge], and any appeal therefrom." Petitioners' App. Tab B, at 5. However, respondent objected to having the special master decide if the crime-fraud exception applied. While the special master considered whether the privileges were available at all, Magistrate Judge Hedges considered whether he or the special master should decide the question of the applicability of the crime-fraud exception.

On May 22, 1991, the magistrate Judge sent a letter opinion to the parties indicating that "the crime-fraud exception is an issue which should not be referred to a special master." Id. Tab A. In addition, after reviewing four file folders of documents that the special master had tagged as possibly "bearing on the crime fraud exception," the magistrate Judge concluded that he was "not satisfied that plaintiff has made a showing under Zolin sufficient to overcome the attorney-client privilege."

Thereafter, on May 29, 1991, Special Master Pisano filed a Report and Recommendation that discussed whether the documents were eligible for the privilege, without regard to the exception. He began by setting forth the factual background to this discovery dispute, noting that the Council had been formed to "coordinate common interest in the tobacco industry, to conduct scientific research on potential health hazards and to function as the industry's organ for disseminating information to the public as the issue developed." Report & Recommendation at 1. However, he observed that, following the Surgeon General's 1964 advisory committee report and the 1964-1965 congressional hearings that led to the enactment of the Cigarette Labeling Act, tobacco companies began funding the Council's special projects, consisting of scientific and medical research "that might be of assistance to develop evidence relevant to the anticipated smoking and health litigation." Id. at 2. He found that these research projects were "conducted by independent scientists affiliated with a variety of academic and research institutions who were not employed by or related to the tobacco industry" and that "these researchers were permitted to publish the results of their research with credit given to the CTR." Id. at 3-4.

Next, he noted that the Council had been forced to retain counsel because of the proliferation of tobacco litigation and the concomitant doubt cast upon the credibility of the Council's projects. As Dr. Colby, the Council's head of research and development, testified, he had become "a person wearing two hats. Number one, [he] was in charge of R & D information; number two, [he] was responsive to the legal department." Id. at 3.

Special Master Pisano emphasized that his role was a limited one. He stated that he was not "to investigate or comment upon the defenses which have been pleaded by counsel" in support of the discovery of documents concerning the Council and its special projects: "Rather, I am charged to inspect the body of documentary communication about the CTR special projects and to decide whether they are being legitimately withheld." Id. at 6.

After reviewing the legal precepts governing attorney-client and attorney work product privileges, he concluded that--

defendants have met their burden of proving that the documents plaintiff seeks to discover were prepared because of litigation that had already commenced and the prospect that future litigation would ensue.

More particularly, defendants have made a sufficient showing that the CTR research projects in issue were conducted upon the advice of their counsel for the chief purpose of developing evidence relevant to the existing and anticipated smoking and health litigation and to the legal issues raised by the Congressional hearings that led to the enactment of the Cigarette Labelling Act. . . .

The actual documents plaintiff seeks to discover were generated by the communication among defendants' corporate and outside litigating counsel, the communication among counsel and their clients, and counsels' communication with CTR employees. The documents reflect, in the main, Discussions concerning the proposed CTR projects, the progress of those projects, the possibility of recommending additional research ideas and the application of the research results to the legal theories available in defense of existing and anticipated litigation. Clearly, the CTR projects and the documents that were created in connection with those projects were part of defendants' legal strategy in defending litigation and are thus privileged.

Id. at 8-9. He further determined that the documents sought to be discovered by plaintiff "fall within 'the highly protected category of opinion work product' since the consultation among counsel and their clients concerning the CTR projects encompassed defendants' legal strategy and the evaluation of the strengths and weaknesses of their defense in the existing and anticipated smoking and health litigation." Id. at 9-10 (quoting Sporck v. Peil, 759 F.2d 312, 316 (3d Cir. 1985)). For these reasons, Special Master Pisano held that all but eight documents of the 1,500 withheld were protected under either the attorney-client or attorney work product privileges.*fn1

A.

Haines appealed to the district court from the magistrate Judge's order that the crime-fraud exception did not apply. The court conducted oral argument on July 9, 1991. More than four months later, the court ordered the parties to supply it with materials from the record in Cipollone, including "all excerpts from defendants' counsel in openings, closings or defendants' witnesses which make reference to the purpose, means and results of the research conducted or to be conducted by the Tobacco Institute Research Council and/or the Council for Tobacco Research." The court additionally ordered counsel to "identify in the record the moment when plaintiff's counsel first learned of the existence of the 'Special Projects' division." Petitioners' App. Tab E, at 2.

Petitioners wrote to the district Judge on December 10, 1991, in response to the court's request for documents and confirmed that they had complied with the court's order. However, petitioners asserted that--

the transcript excerpts are outside the record considered by Magistrate Judge Hedges on the motion under review. Moreover, their relevance to the issues in this appeal is not readily apparent. We would request that if these excerpts are going to affect the Court's decision in any manner, the Court should remand to the Magistrate Judge for consideration of the additional material (see Fed. R. Civ. P. 72(a); Local Rule 40D), or permit defendants an opportunity to address whatever questions the Court believes are raised by these materials.

Id. Tab F, at 3.

On February 6, 1992, the district court issued an opinion and order purportedly addressing the applicability of the crime-fraud exception and not the ultimate merits of the plaintiff's claims, yet the opening paragraphs of the opinion appear to address the merits:

In light of the current controversy surrounding breast implants, one wonders when all industries will recognize their obligation to voluntarily disclose risks from the use of their products. All too often in the choice between the physical health of consumers and the financial well-being of business, concealment is chosen over disclosure, sales over safety, and money over morality. Who are these persons who knowingly and secretly decide to put the buying public at risk solely for the purpose of making profits and who believe that illness and death of consumers is an appropriate cost of their own prosperity!

As the following facts disclose, despite some rising pretenders, the tobacco industry may be the king of ...


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