Deleted e-mails cost Philip Morris $2.75 million.

A federal judge July 21 ordered Philip Morris USA Inc. to pay $2.75 million in sanctions for destroying e-mails sought by the Justice Department in its suit against the tobacco giant, United States v. Philip Morris USA Inc.

U.S. District Judge Gladys Kessler imposed the steep sanction for what she described as the company's "reckless disregard and gross indifference" to a court order requiring preservation of relevant evidence. As an additional penalty, the judge barred Philip Morris from using testimony at trial from any of its 11 top executives, including the director of corporate responsibility, whom sources say allowed the continued deletion of the e-mails over a two-and-a-half-year period.

After learning of the possible problem in February 2002 during the deposition of a company employee, Philip Morris began an inquiry into the matter. However, it was not until June 19, 2002--four months later--that Philip Morris notified the court about the possible loss of e-mails by employees. Moreover, sources say Philip Morris continued its monthly deletions of e-mail in February and March of 2002. In addition, Phillip Morris specifically identified at least 11 employees who failed to follow the appropriate procedures--and those employees hold some of the highest positions in the company, including the director of corporate responsibility and the senior principal scientist in research.

Philip Morris said it believes the penalty is too harsh, according to Digital Discovery & e-Evidence. "Philip Morris USA has furnished millions of pages of documents to the government for its review in this case, and no one knows for sure whether any e-mails were lost as a result of this incident," said William S. Ohlemeyer, Philip Morris USA vice president and associate general counsel. "Because the company acted in good faith, quickly brought this to the Court's attention and took immediate corrective action, it believes the fine and other penalties -including barring the testimony of some Philip Morris USA employees--are unwarranted."

Philip Morris said it is studying its legal options in light of the ruling. Kessler's decision came just one day after a federal judge in New York imposed sanctions against financial services firm WB Warburg for destroying e-mails in an employment discrimination case, Zubulake v. UBS Warburg LLC. In that case, Judge Shira Scheindlin said she would allow the jury to make an "adverse inference" at trial that the missing e-mails contained information damaging to Warburg.