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U.S. v. PHILIP MORRIS INCORPORATED

April 6, 2004.

UNITED STATES OF AMERICA, Plaintiff,
v.
PHILIP MORRIS INCORPORATED, et al., Defendants



The opinion of the court was delivered by: GLADYS KESSLER, District Judge

MEMORANDUM OPINION — Redacted

This matter is before the Court on the United States' Motion to Quash Subpoenas Issued by Counsel for Neil H. Koslowe, Shearman & Sterling, and BATAS,*fn1 the Opposition and Reply ("Motion to Quash"), as well as the United States' Motion to Disqualify Neil H. Koslowe and Shearman & Sterling from Representing BATAS, the Opposition and Reply ("Motion to Disqualify"). Because of the interrelationship between the factual and legal issues in both Motions, the Court is considering them together and will issue one Opinion. There will be separate Orders for each Motion. Upon consideration of all the pleadings and exhibits, the applicable case law, and the entire record herein, the Court concludes that the Motion to Quash should be granted and the Motion to Disqualify should be granted. I. PROCEDURAL BACKGROUND

The United States has been attempting to compel BATCo. to produce certain documents in the possession of its Australian affiliate, BATAS, for almost two years. On April 14, 2003, after litigation regarding two United States Motions to Compel, the Court issued Order #343 granting those Motions and ordering BATCo. to produce or log the documents in issue by May 14, 2003 (later extended to June 1, 2003 in Order #354). On October 20, 2003, after further litigation, the Court found BATCo. in contempt of Court due to its continued failure to produce a privilege log for documents covered by Order #343, which BATCo. alleged were withheld on privilege grounds. Order #419, United States v. Philip Morris USA Inc., No. 99-cv-2496 (GK), 2003 WL 22462167 (D.D.C. October 20, 2003).

  Sometime in October 2003, although the precise date is not clear from the record, BATAS retained as its counsel in this matter Shearman & Sterling, a prominent New York City-based law firm, and Neil H. Koslowe, one of the partners in its Washington, D.C. office. On October 23, 2003, counsel for BATAS, including Mr. Koslowe, and the Government met and conferred to discuss BATAS' intention to file a Motion for Leave to Intervene. On December 5, 2003, after filing of the Motion and litigation over its merits, the Motion to Intervene was granted in Order #449. On December 11, 2003, Government counsel wrote a letter to Mr. Koslowe, formally raising the issue of his disqualification based on his prior representation of the United States in tobacco. matters.*fn2 On December 16, 2003, Mr. Koslowe responded, and on December 23, 2003, the United States replied with more specific information regarding the number of hours he reported working on tobacco. matters and reminding him that he had worked on highly confidential documents. In this letter, the Government requested a meet and confer on its anticipated Motion to Disqualify Mr. Koslowe and Shearman & Sterling from continuing to represent BATAS in this law suit.

  On December 29, 2003, Mr. Koslowe responded by requesting numerous documents from the Government. No previous mention had been made of the need for discovery on the part of Mr. Koslowe or Shearman & Sterling in previous conversations with the Government. The United States replied that same day, providing copies of certain time records showing the hours that Mr. Koslowe reported working on the tobacco. matters, but refusing to provide any privileged documents or formal discovery. On December 30, 2003, the United States again requested an expedited meet and confer. Because of Mr. Koslowe's unavailability, it was not possible for the meet and confer to take place until January 6, 2004.*fn3 At that meet and confer, the Government indicated it had no objection to Mr. Koslowe's efforts to use informal discovery by contacting Department of Justice lawyers with whom he had worked.

  On January 12, 2004, Mr. Stephen J. Marzen, who represented Mr. Koslowe and Shearman & Sterling at the January 6, 2004 meet and confer, telephoned the Government and reported that neither Mr. Koslowe nor Shearman & Sterling would be voluntarily withdrawing, and that they anticipated filing a cross-motion for discovery shortly. No such motion for discovery has ever been filed. On January 21, 2004, the Government filed its Motion to Disqualify.

  On January 26, 2004, the parties met and conferred regarding the proposed motion of Mr. Koslowe and Shearman & Sterling for an additional 10 days to respond to the disqualification Motion; the Government would consent to only an additional seven days. Two days later, on January 28, 2004, Koslowe, et al., filed a motion seeking an additional 17 (not 10) days to answer the disqualification Motion.*fn4 In that motion they mentioned, for the first time, a need to conduct discovery. The motion for extension of time was granted by Minute Order on January 29, 2004. On February 3, 2004, Mr. Marzen requested a meet and confer with the Government about a proposed motion to take depositions. That meet and confer was scheduled for February 4, 2004 at 5:00 p.m. Less than 10 minutes before the start of the 5:00 p.m. meet and confer, the United States received copies of subpoenas, attached to notices of depositions, requiring the attendance of four government attorneys as witnesses at depositions on February 9 and 10, 2004, and production of documents by February 10, 2004. At the February 4, 2004, meet and confer, Mr. Marzen stated that he intended to file a motion seeking the discovery that had already been served, on behalf of Koslowe, et al., No such motion has ever been filed.

  On February 6, 2004, at a regularly scheduled status conference with the Court, the Government raised the subpoena issue. The Court established a briefing scheduling, pursuant to which the United States filed its Motion to Quash. All subpoenas were stayed pending resolution of that Motion.

 II. THE PARTIES' FACTUAL ALLEGATIONS*fn5

  Mr. Koslowe was a long-time Department of Justice attorney who served there for 28 years. For the last 22 of those years, he was Special Litigation Counsel*fn6 for the Department in the Federal Programs Branch of the Civil Division and a member of the Senior Executive Service.

  Mr. Koslowe was assigned to work on particularly important, sensitive and difficult legal disputes by the Civil Division's Assistant and Deputy Attorneys General, as well as by its Branch Directors. It is clear from the materials submitted that he handled especially challenging issues and that he performed his own work. According to Mr. Koslowe, one of his specialities was defending Justice Department attorneys accused of violating the rules of professional conduct.

  In recognition of his 28 years of service, Mr. Koslowe received from the Attorney General the John Marshall Award for Outstanding Professional Achievement by a Litigator and from the President the Presidential Rank Award of Distinguished Executive for exceptional service to the American people over an extended period of time.

  In the spring or summer of 1995, Mr. Koslowe was assigned, with other Civil Division lawyers, the task of assisting the Food & Drug Administration ("FDA") and the Department of Health & Human Services with the Youth Tobacco. Rulemaking, in which FDA proposed to assert its jurisdiction over the tobacco. industry. See Regulations Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco. to Protect Children and Adolescents, 60 Fed. Reg. 41,314 (Aug. 11, 1995) (notice of proposed rulemaking); 61 Fed. Reg. 44,396 (Aug. 28, 1996) (final regulations). It is undisputed that Mr. Koslowe worked extremely closely with the then-FDA Commissioner, Dr. David Kessler,*fn7 and that his assignment was "to help protect the administrative record from subsequent challenge in court." Koslowe Decl. ¶ 16. Mr. Koslowe advised the FDA on legal issues relating to the compilation of the administrative record, helped draft portions of the FDA's basis-and-purpose statement, and helped respond to public comments. He also reviewed notes of interviews with confidential informants to the FDA, as well as other privileged and confidential documents that were used and/or relied upon during the rulemaking.

  On August 10, 1995, the day before actual publication of the FDA's notice of proposed rulemaking in the Federal Register, litigation was commenced against the FDA in North Carolina challenging its actions. See Coyne Beahm, Inc. v. FDA, 966 F. Supp.2d 1374 (M.D.N.C. 1997), rev'd sub nom, Brown & Williamson Tobacco. Corp. v. FDA, 153 F.3d 155 (4th Cir. 1998), aff'd, 529 U.S. 120 (2000); and its companion case, American Advertising Federation v. Kessler, 966 F. Supp.2d 1374 (M.D.N.C. 1997), rev'd sub nom, Brown & Williamson Tobacco. Corp. v. FDA, 153 F.3d 155 (4th Cir. 1998), aff'd, 529 U.S. 120 (2000) (collectively the "FDA Litigation"). In addition to challenging the legal basis for the FDA's assertion of jurisdiction over the tobacco. industry, the defendants in those two cases argued that the rulemaking was invalid under the Administrative Procedure Act, 5 U.S.C. § 701, et seq., because the FDA relied upon documents that were not included in the public administrative record.

  The time records submitted by Mr. Koslowe to his superiors at DOJ indicate that he worked a total of 382 hours on the Coyne Beahm and American Advertising cases. Mr. Koslowe admits submitting such time statements but vigorously denies that he ever actually worked on the FDA tobacco. Litigation. Instead, he says that to the best of his recollection, he allocated the time he worked on the Youth Tobacco Rulemaking "as a matter of administrative convenience to the `case names' and `case numbers' for the litigation, even though [he] did not work on the litigation personally and substantially." U.S. Ex. 8, 12/30/04 ltr., Koslowe to Eubanks at 2.

  In 1997, Mr. Koslowe also submitted time records documenting his participation in DOJ's analysis of a June 1997 version of what ultimately became the Master Settlement Agreement ("MSA") between the states and the tobacco. industry.*fn8 As part of that analysis, Mr. Koslowe and Anne Weismann, an Assistant Director in the Civil Division, wrote a September 12, 1997 memorandum entitled "Access to Privileged Tobacco. Company Documents." U.S. in camera Ex. 9, 9/12/97 mem., Koslowe & Weismann to Grindder.*fn9 Mr. Koslowe's assignment was
[text redacted]
Id. at 11.

  In early 2000, the Deputy Attorney General, pursuant to Case Management Order #6 in this case, wrote all DOJ component heads requesting that they identify any tobacco-related materials in their offices. Mr. Koslowe identified numerous responsive documents in his office, including various litigation-related documents that the United States had withheld from production on grounds of privilege. U.S. in camera Ex. 1, 2/14/00 mem., Kovakas to Honigberg at 2-3. These materials included

  [text redacted] Id. at 3. These materials included: [text redacted]

 Id. at 2. In 2001, Mr. Koslowe left the Department of Justice to join Shearman & Sterling.

 III. MOTION TO QUASH

  A. Courts Have Substantial Discretion to Grant or Deny Discovery in Proceedings to Disqualify Counsel

  The case law is clear that courts have broad discretion to decide whether to grant any formal discovery in disqualification proceedings and, if so, how much. Lefrak v. Arabian American Oil Co., 527 F.2d 1136, 1140 (2d Cir. 1975). As the Second Circuit noted in Lefrak:
Certainly the method of conducting the inquiry is within the discretion of the judge charged with the responsibility of supervision. . . . Whether discovery is permissible is clearly within [her] discretion in any event.
Id; see also The European Community v. RJR Nabisco, Inc., 134 F. Supp.2d 297, 309 (E.D.N.Y. 2001) ("The quantum of discovery required in connection with such a [disqualification] motion is left to the discretion of the trial judge."). Moreover, the courts have focused on the need for an adequate record for appellate review, rather than any precise form or scope of discovery. See General Mill Supply Co. v. SCA Services, Inc., 697 F.2d 704, 710 (6th Cir. 1982) (stating that "an evidentiary hearing need not occur in every such [disqualification] motion," but that the factual inquiry must be conducted in a manner which will allow appellate review); McKinney v. McMeans, 147 F. Supp.2d 898, 900 (W.D. Tenn. 2001) (finding that "although it need not hold an evidentiary hearing, the court must satisfy itself that an adequate evidentiary record exists permitting later appellate review").

  In short, as long as the trial court concludes that there will be an adequate record for appellate review, whether in the form of affidavits, documents, or submissions in camera, the court may in its discretion decide whether discovery is either warranted or inappropriate. Indeed, as far back as 1869, the Supreme Court ruled that in proceedings charging unprofessional conduct, the manner in which the proceeding was to be conducted, "so that it was without oppression or unfairness, was a matter of judicial regulation." Randall v. Brigham, 74 U.S. 523, 540 (1869).

  In this case, Koslowe, et al., have had the benefit of informal discovery, i.e., discussions with other attorneys in the Justice Department who served at the same time that Mr. Koslowe did, data and records provided by the Justice Department, and information contained in Mr. Koslowe's own files and memory. The various declarations, documents, and in camera submissions provided by the Government and Koslowe, et al., will unquestionably be sufficient "to allow appellate review."

  Given the fact that this massive litigation is less than six months from trial, opening discovery on this satellite issue would unduly divert all parties from what must be their central ...


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