The latest evidence that Enron and Arthur Andersen are not aberrations comes from Australia.
There, a judge has concluded that British American Tobacco (BAT) has engaged in a massive document-destruction scheme intentionally designed to thwart smokers or former smokers from bringing suit against the company.
The judge found the document destruction to be so serious that he directed a verdict for the plaintiff in the case before him, a 51-year-old Australian woman named Rolah Ann McCabe, without permitting BAT to mount a defense.
In a 133-page decision issued in March but just recently made public, Judge Geoffrey Eames details an elaborate, carefully considered, company-wide document-destruction scheme
“The predominant purpose of the document destruction,” the judge found, “was the denial to plaintiffs of information which was likely to be of importance in proving their case, in particular, proving the state of knowledge of the defendant of the health risks of smoking, the addictive qualities of cigarettes and the response of the defendant to such knowledge.”
The company was a defendant in various lawsuits from 1990 until 1998, during which time shredding may have stopped, though the judge expresses skepticism about this claim.
In February 1996, Phyllis Cremona brought suit against BAT in Australian courts. In the course of the discovery phase of that litigation, BAT’s subsidiary identified 30,000 documents as possibly relevant to the proceeding. With a few exceptions, BAT scanned all of the documents, creating electronic versions. Company lawyers also indexed and summarized virtually all of the documents. The lawyers rated each document on a scale of one to five, according to how damaging each was likely to be to the company in litigation. A rating of five meant the document was a “knockout” against the company, a rating of one a “knockout” for BAT.
Only about 200 of the documents were requested by the plaintiff in the Cremona case.
When the Cremona case ended and with no pending litigation, BAT’s chief counsel told an associate, “now is a good opportunity to dispose of documents if we no longer need to keep them. That should be done outside the legal department.”
Thousands of the 30,000 documents were then destroyed. Also destroyed were the electronic versions of the documents, the summaries, indices and ratings.
“The decision to destroy all such lists and records,” the judge concluded, “can only have been a deliberate tactic designed to hide information as to what was destroyed.”
In 2001, the McCabe litigation commenced. In the course of discovery, the plaintiff’s lawyers requested a range of materials which it appears would have included many of the documents in the Cremona database, but were destroyed after that case’s completion.
Rather than acknowledge the destruction of the documents, however, BAT lawyers engaged in a series of obfuscations and delaying tactics. The judge found that the BAT lawyers misled both the court and the plaintiff’s lawyers, though eventually through persistent questioning the document-destruction scheme was revealed.
BAT defended, and continues to defend, the shredding on the grounds that the company was not obligated to hold on to documents that may be useful to an opposing party in some future litigation. With no litigation pending after the Cremona case, document destruction was proper, the company claims.
But the judge stated that while corporations are not obligated to store documents indefinitely, they are not free to destroy them in anticipation of future litigation. In BAT’s case, the company and its lawyers viewed future litigation as a “virtual certainty,” the judge held. “At all times those who took the decisions about the implementation of the policy regarded future proceedings to be not merely likely, but to be a near certainty,” Judge Eames wrote. “It was that certainty which meant that any opportunity to destroy documents which arose by virtue of the elimination of current proceedings was to be seized upon.”
The judge concluded that the exact prejudicial effect to McCabe was unknowable — since “the prejudice to the plaintiff might be immense by virtue of the deliberate destruction of one document, which might have been decisive in her case” — but potentially extreme. Accordingly, the judge issued a ruling in favor of McCabe, without permitting BAT to mount a defense.
A jury issued an award of more than $350,000. With their client likely to die at any time, McCabe’s lawyers had agreed before trial that no punitive damages would be sought, in order to expedite the trial.
BAT has said it will appeal the judge’s decision.
The potential implication of the decision is enormous. While Judge Eames’ decision will have no binding effect in future cases, other judges, confronted with the same evidentiary problems as in the McCabe case, are likely to consider following Eames’ example. BAT may find itself in Australia facing the flood of litigation it long feared, but without the ability to defend itself.
The decision also has potential implications in the United States, especially because Judge Eames’ findings are that U.S. lawyers for BAT — both company counsel and the Kansas City tobacco firm of Shook Hardy and Bacon — played a critical role in directing the document destruction.
Move over Ken Lay, Jeffrey Skilling and David Duncan of Arthur Andersen. You have company.
Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and the co-director of Essential Action. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press, 1999).
(c) Russell Mokhiber and Robert Weissman