Judge Orders Philip Morris, Altria to Pay $2.75 Million

A federal judge has ordered Philip Morris USA and parent Altria Group Inc. to pay $2.75 million in sanctions after finding that senior executives failed to preserve e-mails that might be relevant to the Justice Department’s lawsuit against the tobacco industry.

The sanctions imposed by U.S. District Judge Gladys Kessler in Washington were unusually tough for a case of mishandling evidence. She accused the firms of “reckless disregard and gross indifference” in violating a court order that prohibited destroying records. As added punishment, she barred them from calling as witnesses any of the 11 top executives, including the director of corporate responsibility, who allowed the deletion of e-mails over a period of 2 1/2 years.

Philip Morris, the top U.S. cigarette maker, said that it was weighing its options and that the ruling was unjust because the company had essentially turned itself in. “This is a harsh penalty given the fact that the company brought this matter to the court’s attention as soon as it was discovered,” said William S. Ohlemeyer, vice president and associate general counsel.

The ruling was the latest in a string of pretrial defeats for the tobacco defendants, including Lorillard Tobacco Co., Liggett Group Inc., R.J. Reynolds Tobacco Holdings Inc., Brown & Williamson Tobacco Corp. and British American Tobacco, along with Philip Morris. Justice lawyers have accused them of conspiring to mislead the public about the risks and addictiveness of smoking and the possibility of manufacturing safer and less addictive cigarettes. The trial of the multibillion-dollar fraud and racketeering case is scheduled to start Sept. 13.

In other rulings in recent weeks, Kessler denied several motions by the industry seeking to limit its exposure by narrowing the scope of issues and potential damages. In one major ruling, Kessler declared in May that the government can pursue its claim for disgorgement by the companies of up to $280 billion in allegedly ill-gotten gains. Last week, a federal appeals court agreed to hear an industry appeal of that ruling.

The sanctions ruling against Philip Morris was for violating an order issued by Kessler in October 1999 that required tobacco companies to preserve all records containing information that might be relevant to the case. Despite the order, she said, until the spring of 2002, Philip Morris and Altria routinely deleted e-mails that were more than 60 days old.

She said the company became aware of the violations in February 2002 but continued deleting e-mails through March and did not notify the court until June of that year.

“There is no question that a significant number of e-mails have been lost,” violating not only the court order but also the firm’s own internal procedures for preserving records, Kessler wrote. It was “particularly troubling” and “astounding” that at least 11 senior executives holding “some of the highest, most responsible positions in the company” were involved.

While not mentioned by name in Kessler’s order, the 11 executives were identified by Philip Morris and named in court papers filed by the Justice Department. They included Ellen Merlo, former senior vice president of corporate affairs; Peter Lipowicz, senior principal scientist in research, development and engineering; Suzanne LeVan, vice president of Marlboro; Mike Pfeil, vice president of communications and public affairs; and Elizabeth Culley, director of corporate responsibility.

Kessler said it was impossible to know whether, or how badly, the government’s case had been harmed because “we don’t know what has been destroyed.” But she said stiff sanctions were proper because Philip Morris had behaved recklessly, and “it is essential that ... the corporate and legal community understand that such conduct will not be tolerated.”

Stephen McG. Bundy, a professor of civil procedure and legal ethics at the UC Berkeley law school, said the penalty seemed large given the uncertainty over what evidence might have been lost. “But it seems clear that the judge felt that the company’s failure to abide by the court order was a very serious violation.”