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Full Opinion
MEMORANDUM AND ORDER
This matter is before the court on Exxon’s Motion to Impose Sanctions on Gulf Oil Corporation, General Atomic Company, and Scallop Nuclear, Inc. (the counterclaim defendants) pursuant to Rule 37(b), Federal Rules of Civil Procedure, for failure to produce approximately 14,000 documents consisting of 40,000 pages located in Canada under the possession, custody, and control of Gulf Minerals Canada Limited (GMCL), a Gulf subsidiary. The withheld documents pertain to uranium marketing and activities of an international uranium cartel from 1971 through 1975 under which price controls and market allocations were established for sales of uranium throughout the world.
Discovery orders under Rule 37(a), F.R. Civ.P. requiring Gulf to produce documents responsive to Exxon’s discovery requests were issued on November 16, 1979 and January 14, 1980. Gulf failed to fully comply with the discovery orders on the grounds that production of the withheld documents would violate Canadian penal law.
In its Motion for Sanctions, Exxon contends that the withheld documents are crucial to a fair trial of the case; that the failure to produce was caused in part by the fault of Gulf; and that due process requires the dismissal of the Complaint and entry of a default judgment on its Counterclaim.
The proceedings on this sanctions motion included twenty-three days of evidentiary hearing generating 3000 pages of transcript, approximately 2000 additional pages of various depositions introduced in evidence, and thousands of pages of documentary exhibits.
I. BACKGROUND
This action was brought by General Atomic Company (GAC), a partnership composed of Gulf Oil Company (Gulf) and Scallop Nuclear, Inc. (Scallop) to enforce a uranium supply contract against Exxon Nuclear Company Inc. (ENC). As amended, GAC’s complaint seeks a declaratory judgment that the contract under which ENC was to deliver six million pounds of uranium to Gulf is valid and binding. Plaintiff seeks specific performance and damages for breach in excess of $250,000,000.
As a defense, ENC asserts that the contract is null and void because it was made in violation of U.S. antitrust laws. ENC and its parent organization, Exxon Corporation (Exxon), have filed a counterclaim against GAC, Gulf and Scallop for antitrust damages under the Sherman Act, 15 U.S.C., Sections 1 and 2, declaratory relief, fraud, negligent misrepresentation, unfair competition, and intentional interference with a business expectancy. Counterclaim plaintiffs assert that Gulf secretly participated in an international uranium cartel beginning in 1971 until at least 1976, and that the
The Gulf Uranium Organization
Gulf through its divisions, affiliates, and subsidiaries is in the business of exploring for, acquiring, mining, milling and processing, fabricating, purchasing, and selling uranium and nuclear fuels. It entered the uranium business in 1967 by purchasing a company known as General Atomic which was a manufacturer of nuclear reactors. It operated as a Gulf subsidiary in San Diego, California under the name of Gulf General Atomic until it became part of a new division called Gulf Energy and Environmental Systems (Gulf Energy). This entity was involved in the marketing of uranium and the manufacturing and servicing of nuclear reactors.
In 1967 Gulf undertook the exploration and development of uranium ore bearing properties. A Gulf division in Denver, Gulf Minerals Resources Company (Gulf Minerals) was assigned responsibility for this production function of Gulf’s uranium business. In 1967 Gulf discovered massive deposits of uranium at Rabbit Lake in Saskatchewan. Pursuant to Canadian law, Gulf established a wholly-owned subsidiary, Gulf Minerals Canada Limited (GMCL) headquartered in Toronto to develop the Rabbit Lake uranium project. Gulf Minerals in Denver had administrative responsibility to oversee GMCL’s operations.
In addition to its Canadian uranium reserves, Gulf, through its division, Gulf Minerals, began to acquire substantial uranium reserves in the United States. In the early 1970’s it acquired the Mt. Taylor property in New Mexico which contained the largest uranium ore deposit in the United States. Through Gulf Energy (San Diego), Gulf also engaged in the purchase of substantial quantities of uranium on the open market from other uranium producers and middlemen such as Exxon and ENC.
The Gulf-Exxon Uranium Contract
During the summer of 1972, Gulf (through Gulf General Atomic) began negotiating with ENC, and in August, 1972, a letter of intent for the purchase of six million pounds of uranium by Gulf was signed. Draft contracts were negotiated until May 11, 1973, when a final contract was signed wherein ENC agreed to sell and Gulf agreed to buy at certain prices six million pounds of uranium to be delivered at the rate of one million pounds per year beginning in 1979. The contract was assigned by Gulf in December, 1973 to the plaintiff, General Atomic Company, a newly formed partnership between Gulf and Scallop. In 1979, Gulf bought out Scallop and obtained the sole beneficial interest in the “uranium business” of the GAC partnership. The settlement provided, inter alia, that Gulf would indemnify the partnership for losses, damages and judgments arising from the uranium business as well as for any liabilities incurred in connection with Gulf’s participation in the cartel.
In its counterclaim Exxon alleges that during the contract negotiations, Gulf representatives concealed the fact that Gulf was a member of a secret international uranium cartel that intended to restrict the uranium supply and increase uranium prices. During the five years following the contract the price of uranium increased rapidly to about six times the contract price. Exxon eventually learned of the existence of the cartel and Gulf’s participation therein. In 1978 it informed GAC that it considered the contract null and void and
The International Uranium Cartel
The precise facts regarding the creation, development, and operation of the cartel are not completely known because much evidence continues to be located in foreign countries. However, several matters appear to be well established from the available evidence.
It is undisputed that from at least 1972 through 1975 there existed a uranium cartel consisting of various international uranium producers and foreign governments including Canada, South Africa, Australia, and Prance.
The objectives of the cartel were evident from the Johannesburg Rules adopted in Johannesburg in late May of 1972 (DX 51b) and from available cartel minutes. The cartelists sought to restrict the supply of uranium, set minimum prices and conditions on the sale of uranium, and allocate the production and marketing of uranium among themselves. The members agreed that the existence and activities of the cartel were to be secret (DX 14b). The cover title of the organization was established as “Market Research Organization” for its dealings with the outside world (DX 1002c) (DX 51b). The organization was also referred to by its members as “The Club” and “SERU”.
Gulf, acting through its Canadian subsidiary GMCL, became a member of the cartel at or before the Johannesburg meeting (May 28-June 2, 1972). In addition to the general manager of GMCL (Ediger of Toronto), three Gulf officials from the United States attended that meeting: Hoffman and Hunter from Gulf Energy (GAC’s predecessor) and Roger Allen, a Gulf attorney from Gulf Minerals in Denver. Earlier, GMCL had been invited by the Canadian government to attend a meeting of Canadian uranium producers in Ottawa in February 1972. Ediger of GMCL and S. A. Zag-noli, president of Gulf Minerals (Denver) attended.
A major issue regarding the cartel in this litigation is the relationship between the government participants and the uranium producers. Gulf contends that the uranium cartel was initiated, mandated and directed by the foreign nations involved, and GMCL was compelled by Canada to comply with cartel terms.
A second area of major dispute is the scope of the cartel’s activities. Although the Johannesburg Rules provided for the exclusion of the United States domestic uranium market from its terms, later cartel minutes indicate a broadening of cartel activities. The minutes of a September 5, 1972 cartel meeting reveal the prospect of taking anticompetitive actions against an American uranium producer:
There followed a general discussion of the impact of Westinghouse bidding in Europe. . . . Some members thought that Westinghouse should be approached directly, whereas other views were that it would be a dangerous move. The consensus finally reached was that if the club was to survive as a viable entity, it would be necessary to delineate where the competition was and the nature of its strength, as a prelude to eliminating it once and for all. (Emphasis added) (DX 97d)
Gulf’s reason for failing to comply with the discovery orders of November 16, 1979 and January 14, 1980 regarding documents in the possession, custody, and control of its Canadian subsidiary (GMCL) is that production would violate the Canadian Uranium Information Security Regulations (hereafter “Security Regulations”) thereby subjecting Gulf and its Canadian personnel to criminal penalties. The Security Regulations became law on September 23, 1976, approximately I8V2 months before GAC commenced this lawsuit. As amended, they provide that no person shall release any documents related to conversations, discussions, or meetings that took place between January 1, 1972 and December 31, 1975 involving the exporting from Canada or marketing for use outside Canada of uranium or its derivatives.
It is undisputed that the Security Regulations apply to the documents being withheld, and that they prohibit Gulf from identifying as well as producing the regulated documents. Knowing consent or acquiescence to a violation of the Regulations could subject an individual or corporate entity to criminal prosecution (TR 61). Violation of the regulations is an offense punishable by imprisonment for up to five years and/or a fine not exceeding $10,000 (TR 58-59; G-6).
Gulf’s position is that no Canadian documents are being withheld on the basis of any Canadian law other than the Security Regulations (Gulf’s Post Sanctions Hearing Brief, p. 28; TR 99). Prior to the passage of the Security Regulations on September 23,1976, Gulf relied on the Ontario Business Records Protection Act of 1947 (hereafter “Ontario Act”) as an excuse for non-production of Canadian documents in other litigation.
The Ontario Act forbids the removal of any business records from Ontario pursuant to an order of a foreign court unless such removal is a part of a regular reporting practice by a subsidiary to a foreign parent. The Act has no penal sanctions and is not enforceable unless a provincial court issues an order prohibiting removal. Because no such order has been sought or issued, the Ontario Act is not, nor has it ever been, a legitimate impediment to production by Gulf. See In re Uranium Antitrust Litigation, 480 F.Supp. 1138, 1143 (N.D.Ill.1979); United Nuclear Corporation v. General Atomic Company, 629 P.2d 231, 293 (N.M.1980) (DX 5145).
During the course of this lawsuit, Gulf has made several good faith attempts to overcome the prohibitions of the Security Regulations. A Canadian law firm was retained in August of 1978 to explore methods by which GMCL’s documents could be made available to this and other courts (TR 64). In a letter to the Canadian Minister of Energy, Mines and Resources, a meeting was requested to discuss several proposals (G-16). The meeting was unproductive and the Canadian government viewed the discovery requests as unacceptable (G-17). After the Canadian national election in May of 1979 resulted in a new government (Prime Minister Joseph Clark), Gulf counsel sent a letter dated September 12, 1979 to the Prime Minister and the new Minister of Energy, Mines and Resources requesting a
In addition, Gulf petitioned the Canadian courts for relief. Letters rogatory were presented to the Supreme Court of Canada on January 15,1980 and Gulf presented oral argument on February 20, 1980. The Supreme Court denied the relief sought in a written opinion on March 18, 1980 (G-21; TR 81-82).
While Gulf’s efforts to overcome the Security Regulations constitute a prima facie showing of good faith to comply with the production orders, Gulf’s conduct prior to the passage of the Security Regulations must ako be evaluated to determine the appropriateness of sanctions.
III. BASIS FOR SANCTIONS
Gulf contends that because Canádian law forbids production of the cartel documents in the custody of GMCL in Canada, its failure to produce them in this litigation is due to an innocent inability to comply, and in view of its good faith efforts to produce, there is no basis for the drastic sanctions of dismissal and default judgment.
The power of a court to impose the severe sanction of dismissal for a party’s failure to produce documents located under its control in a foreign country where disclosure is forbidden by foreign law was addressed by the Supreme Court in Societe Internationale v. Rogers, 357 U.S. 197, 78 S.Ct. 1087, 2 L.Ed.2d 1255 (1958). In that case a Swiss holding company brought suit against the Attorney General under the Trading with the Enemy Act for the return of property seized by the U. S. Government. Pursuant to discovery requests, the District Court ordered Societe Internationale to produce certain relevant records of its Swiss bank. The records were not produced on the grounds that production would violate Swiss secrecy laws which, carried criminal penalties. The District Court ruled that unless full production were made, the complaint would be dismissed, but delayed dismissal while plaintiff attempted to negotiate with the Swiss government for release of the records. Several thousand documents were produced as a result of this effort, but full compliance with the production order was never realized. The District Court found the missing records might be crucial to outcome of the litigation and dismissed the complaint even though it had concluded that plaintiff had shown good faith in its efforts to comply with the court’s order. On appeal the Supreme Court held that the production order was justified notwithstanding the penal nondisclosure law but that a party’s failure to fully comply with the production order “due to inability fostered neither by its own conduct nor by circumstances within its control” does not justify the sanction of dismissal. 357 U.S. at 211, 78 S.Ct. at 1095. However, the Court did not completely preclude the imposition of sanctions. Rather, it held that a mere failure to satisfy a production order was a basis for sanctions and that the reasons for noncompliance and the good faith of the non-producing party “are relevant only to the path which the District Court might follow in dealing with petitioner’s failure to comply.” 357 U.S. at 208, 78 S.Ct. at 1094. The Court stated that in the absence of complete disclosure, the district court possessed “wide discretion to proceed in whatever manner it deems most effective”, 357 U.S. at 213, 78 S.Ct. at 1096, such as drawing inferences of fact unfavorable to the non-producing party as to particular events related to the withheld documents.
It is clear from Societe that where a party’s failure to comply with a production order has been due to its “willfulness, bad faith, or any fault”, 357 U.S. at 212, 78 S.Ct. at 1096, the sanction of dismissal is not precluded. In making this determination, it is relevant to consider conduct of the non-producing party which occurred prior to the
Like the government in Societe, Exxon contends that Gulf has “courted the legal impediments” to production of the cartel documents. In evaluating this contention, we consider not only Gulf’s recent efforts to comply with the court’s orders, but also Gulf’s conduct prior to passage of the Canadian Security Regulations (September 23, 1976) including an inquiry as to how the withheld documents came to be located in Canada.
In order to prevail on its motion for dismissal and default judgment, Exxon must establish by a preponderance of the evidence that: (1) the failure to fully comply with the production orders was caused by “willfulness, bad faith, or any fault” of Gulf; (2) the withheld documents may be crucial to the outcome of this litigation; (3)' Exxon is prejudiced by the failure of discovery in the presentation of its case; and (4) the sanctions sought are commensurate with the prejudice to Exxon and the degree of fault attributable to Gulf.
IV. GULF’S PRESENT INABILITY TO PRODUCE HAS BEEN FOSTERED BY ITS OWN CONDUCT
Exxon contends that any impediments to Gulf’s present inability to comply with the production orders are attributable to Gulf’s strategy of concealment. In support of this contention, Exxon claims that (1) Gulf housed its cartel documents in Canada in anticipation of uranium antitrust litigation, (2) Gulf failed to produce the cartel documents in other litigation prior to the passage of the Security Regulations, and (3) Gulf destroyed cartel documents which had entered the United States.
Housing Documents in Canada
Soon after Gulf began its participation in the cartel in 1972, it established a policy of limited distribution of cartel-related documents by which such information would be housed in Canada, and transmittal to the United States would be avoided. Donald Hunter who was the director of Uranium Supply and Distribution at Gulf Energy in San Diego (GAC’s predecessor) and attended the Johannesburg cartel meeting in late May of 1972 testified that
There was a clear understanding that any documentation — any notes, any correspondence relative to the workings of the international producers would be limited to Canadian, that there would be no flow of information or documentation from Canada to the U.S. (Deposition of Don Hunter, DX 5148, p. 282-283)
When Hunter returned from Johannesburg, he destroyed his working papers from the meetings as the result of instructions from his superiors (DX 4440, p. 805).
About one month after Johannesburg, L. T. Gregg, a uranium market analyst employee under Hunter, was transferred by Gulf to GMCL in Toronto to serve as manager of international uranium sales. Gregg later became Gulf’s representative on the cartel’s Operating Committee. Although Gulf contends that the Gregg transfer to Toronto was for sound business reasons, there is evidence that the purpose of the transfer was to implement the cartel concealment policy. Hunter has testified that Gregg was transferred to Canada “because we did not want documentation relating to the cartel in San Diego, Gulf Energy and Environmental Systems files.” (DX 4440, p. 784-5 citing DX 4393, p. 98). In his
Q. ... Now, if you had remained based in San Diego, how in the world could you have avoided generating documents with regard to the activities of the uranium cartel? You couldn’t, could you?
A. Sitting here today and trying to imagine a way to do it, no, I cannot. (TR 1179)
Gregg also testified that after arriving in Canada, he had an understanding with Edi-ger, the General Manager of GMCL, to avoid transmittal of documents reflecting cartel activities into the United States (TR 1016-1017) and that he “didn’t send any club documents to anybody in the U.S.” (TR 1041)
Instead, some cartel-related documents that had accumulated in the United States were sent to GMCL in Toronto. On October 6,1972, Roger Allen, general counsel for Gulf Minerals shipped cartel-related documents from Denver to GMCL in Toronto. This shipment took place shortly after Allen had received the minutes of the Ottawa cartel meeting of September 5,1972 wherein the members reached the consensus that “if the club was to survive as a viable entity, it would be necessary to delineate where the competition was and the nature of its strength, as a prelude to eliminating it once and for all.” (DX 97d). Allen testified that he could not remember what documents he sent to Toronto and that the purpose of the shipment was for legitimate business reasons pertaining to forthcoming arbitration negotiations with Gulf’s partner, UCL in the Rabbit Lake uranium project. Mr. Allen did admit that the shipment consisted of “all of the important cartel documents” (TR 2284). Mr. Gregg of GMCL to whom the documents were sent testified that the purpose of Allen’s shipment was to carry out the secrecy policy.
Gulf contends that the limited distribution policy regarding cartel related documents was not adopted or followed in anticipation of litigation or to frustrate discovery. Frank O’Hara, a Gulf attorney testified that dissemination was limited for several legitimate reasons. First, wide dissemination would have been inconsistent with the Canadian Government’s policy that documents referring to the cartel be accorded confidential treatment and the Government’s express statement that information relating to the terms and conditions under which export permits would be granted would not be released since it was not in the public interest to do so (TR 1482). Second, the cartel and the Canadian Government’s minimum pricing and quota allocation requirements applied • only to GMCL, a separate Canadian corporation (TR 1482-83). Thus there was no business need for general dissemination to others within the Gulf organization (in the U.S. or elsewhere) of documents relating to the formation or operation of the cartel. Third, since many cartel-related documents were considered by the Gulf Law Department to be subject to the attorney-client privilege, O’Hara was concerned that their circulation outside the “control group” might constitute a risk of waiver (TR 1483-84). Fourth, the wide dissemination of cartel-related documents in the United States was unnecessary and undesirable since the United States market was excluded from the cartel.
Gulf’s argument that it was a legitimate business practice to avoid dissemination of cartel documents to its offices in the United
Nevertheless, it will be advisable that Frank [O’Hara] be kept adequately and currently informed of significant developments which might affect Gulf’s overall antitrust posture. (DX 74b)
Surely, normal business practice would have resulted in copies of cartel minutes being sent to O’Hara. But, O’Hara never received any cartel minutes after September 1972. (TR 1561, 1691)
Contrary to Gulf’s position, there is substantial evidence that the policy of avoiding dissemination of cartel-related information to Gulf offices in the United States was motivated in large part by apprehension of antitrust litigation. Gregg testified that one of the reasons for the policy was that he and Ediger “had [an] awareness of the fact that there was a set of antitrust laws in existence in the United States under which this [cartel] activity might be construed as being illegal.” (TR 1037) In his testimony before the Grand Jury in 1977, Gregg stated:
Q. The documents that you worked with in your capacity as Marketing Manager for Gulf Minerals Canada, Limited,—
A. Yes.
Q. —were there any efforts on your part or other employees of Gulf to isolate them from other Gulf subsidiaries or the Gulf parent and did you make a conscious effort to keep them in Canada?
A. Yes.
Q. Why is that?
A. We didn’t feel they should be distributed either outside of our offices or outside of Canada.
Q. What was the basis for that decision? A. Again, an apprehension that perhaps this might result in investigation under the antitrust laws, under the U.S. antitrust laws.
Q. Point of clarification. When you are talking about keeping documents in Canada, you are not talking about general documents related to your activities as marketing manager?
A. No.
Q. You are talking specifically about documents relating to the operation, formation and activities of the club, is. that correct?
A. That is right. We sent a large number of marketing-related documents to the States, to Denver and Pittsburgh, but not any that related to these club activities.
(Gregg; Grand Jury, 2/22/77 at 106-7 [emphasis supplied], admitted TR 1034-5, and Gregg deposition, DX 4472, p. 506-507.)
A few months after the limited dissemination policy was established, Gulf attorney O’Hara prepared a memorandum of law in November, 1972 dealing with the strategy of utilizing the Ontario Business Records Protection Act as a possible impediment to production of cartel-related documents housed in Canada. The preface of that memorandum provides:
The question of the authority of a United States court to require production of documents located in the office of a foreign subsidiary or affiliated company may well be of considerable importance in the event the United States Justice Department should become interested in investigating the activities of this organization. (DX 1117a)
The memorandum analyzes the Ontario Act and its shortcomings as a discovery impedĂ
Anticipation or fear of civil antitrust litigation in the United States is expressed in a GMCL memorandum prepared by Gregg, Ediger and Boyce in September 1973 in which they observed:
Any tampering with “the trade and commerce of the United States”, whether it be solely concerned with uranium for U.S. consumption or with a U.S. company who is carrying on foreign operations, invites the hot breath of the Sherman Act. U.S. case law abundantly proves that the arm is long and that treble damage litigants are often successful, both at home and abroad.
GMCL, because of its parent corporation, is probably the most vulnerable to an antitrust action filed in the U.S., and likely would be the first target that a U.S. litigant would go after, whether or not GMCL had any dealings with that litigant or not. (DX 2756a, at B-17-18)
The evidence clearly supports a finding that Gulf followed a deliberate policy of storing cartel documents in Canada with the expectation that they would be unavailable for discovery in anticipated litigation in the United States. For this conduct to amount to “courting legal impediments” to production under Soeiete, supra, it is not required that the actual litigation in which the documents are ultimately ordered produced must be either pending or specifically contemplated at the time the housing policy was initiated and followed. United Nuclear Corporation v. General Atomic, 629 P.2d 231, 308-309 (N.M.1980) (DX 5145).
Gulf’s Failure to Produce the Cartel Documents in Other Litigation Prior to the Passage of the Security Regulations
Gulf’s anticipation of litigation became a reality in late 1975 when it learned of a Department of Justice investigation into the activities of the cartel and when the UNC case was filed in New Mexico. (United Nuclear Corporation v. GAC) (DX 5145) Discovery requests in the UNC case requiring GAC to produce documents including the Canadian cartel documents were issued in 1976 several months prior to the passage of the Security Regulations. GAC produced its business records in the summer of 1976 but did not produce the cartel documents. After September 23, 1976, GAC relied on the Regulations as an impediment to production.
On appeal, the New Mexico Supreme Court affirmed the decision
Had GAC been more assiduous in its responsibility in discovery prior to September 23, 1976, Canadian cartel discovery could have been made without any serious foreign law entanglements. Ac*300 cord State of Ohio v. Crofters, Inc., [D.C.] supra, 75 F.R.D. [12] at 23. By failing to provide cartel information prior to the passage of the Canadian Uranium Information Security Regulations, and then relying on these Regulations as an excuse for nonproduction, GAC is “in the position of having slain [its] parents and then pleading for mercy on the ground that [it] is an orphan.” Life Music, Inc. v. Broadcast Music, Inc., [D.C.] supra, 41 F.R.D. [16] at 26. Accord Shepard v. General Motors Corporation, 42 F.R.D. 425, 427 (D.N.H.1967). (DX 5145, 629 P.2d at 293).
In addition to the UNC case, another uranium action entitled GAC v. Ranchers Exploration & Development Corp., et a 1. (New Mexico state court) was pending in early 1976 in which discovery requests sought production and identification of the Canadian documents. Interrogatories and document requests were served on GAC in May 1976 by Ranchers. (DX 5024, DX 5025). GAC’s counsel then negotiated with Ranchers’ counsel (Marshall Martin) to limit the scope of the discovery requests. In those negotiations, Gulf’s counsel informed Ranchers’ counsel that the Ontario Business Records Protection Act barred production of Canadian documents.
It is not the court’s intention to speculate whether the Canadian documents should have been produced in the Ranchers’ litigation. Indeed, no order to that effect was ever entered. The relevancy of the Ranchers’ case to our proceedings is simply that (1) there was litigation pending (in addition to the UNC case) before the Security Regulations were passed in which Canadian uranium documents were sought and (2) Gulf again relied on the Ontario Act as a discovery impediment which Frank O’Hara analyzed in his 1972 memorandum.
Contemporaneous with the pendency of the UNC and Ranchers cases, Gulf became involved with a grand jury investigation. In June of 1975 Gulf learned of a Justice Department investigation into the cartel. (DX 4218a) (DX 4262a). On November 11, 1975, Gulf attorney Frank O’Hara met with a Justice Department attorney who told him that the Department suspected that “the increases in uranium prices are tied to the alleged meetings” of the cartel members and that “there is a possible CID in the air” (DX 4132). Gulf reacted to this warning by attempting to marshall evidence to support antitrust defenses of sovereign compulsion and act of state. On December 4, 1975 at Roger Allen’s request, a GMCL employee in Toronto gathered Canadian government public statements relating to the uranium cartel. This collection of public statements was sent to O’Hara in Pittsburgh and Allen in Denver. (TR 2368-71, DX 1219) (TR 1759-1762)
On June 16, 1976, Gulf was served with a Grand Jury subpoena calling for production of cartel documents “wherever located.” (DX 2915) Other Canadian cartel members were also served (DX 2903a). Gulf retained the law firm of Howry & Simon in Washington to represent it in connection with the Grand Jury subpoena. On June 23, 1976 attorney Allen sent a copy of the Ontario Business Records Protection Act to Jack Howry and O’Hara (DX 5155). O’Hara sent a copy of his 1972 memorandum dealing with the Ontario Act to Howry & Simon in preparation for a meeting to be held on July 1, 1976 in Washington.
On June 30, 1976, GMCL president, Andrew Janisch of Toronto called S.A. Zagnoli, president of Gulf Minerals in Denver and reported as follows:
Mr. Janisch has been advised by telephone by the Energy, Mines & Resources people that they are convening a meeting of Canadian producers on July 13 in Otta*301 wa. Those invited are those who have received a subpoena from the Grand Jury. He has been told (or has concluded) that the Canadian government may decide that Canadian producers will be prohibited from passing on any information concerning Canadian uranium operations and the functions of their control over the uranium industry. (DX 2903a, emphasis supplied)
The next morning, Gulf Minerals attorney Allen and O’Hara met with Howry & Simon attorneys in Washington. They discussed the grand jury subpoena, and the Ontario Act as a possible impediment to production of documents from Canada (TR 1862-63; TR 1871 — 2; TR 1885). At the meeting, Allen conveyed the news from Zagnoli that the Canadian government may decide to prohibit the Canadian producers from disclosing any information in response to the subpoena concerning the uranium industry. (TR 1877) (DX 2903a) In July 1976 three news articles appeared in Toronto newspapers reporting the U.S. Justice Department’s investigation into the uranium cartel and the resistance by Canadian government officials to the subpoena. (DX 4264, DX 4265, DX 4266).
A meeting of Canadian government officials and Canadian uranium producers took place on July 13, 1976 (DX 2903a), but it is not known whether GMCL or Gulf personnel attended. On the same day five Gulf attorneys (O’Hara, Allen, Groves, Dotson, and Gidel) met in Pittsburgh to discuss the grand jury subpoena. (DX 5154). Two weeks later, Gulf in-house lawyers O’Hara, Allen, Groves and Dotson met with Howry & Simon lawyers to discuss the “grand jury uranium investigation” (DX 2923a). The agenda of that meeting reflects that the lawyers discussed:
GMCL files in Toronto, status of review. .. . Notice to Canadian Government before any Toronto files moved out of Canada. (DX 5156)
Gulf personnel did not move files out of Canada or duplicate the cartel-related documents for dissemination to the United States in preparation for compliance with the grand jury subpoena. However, they did prepare an inventory of the Canadian documents. In early July, Allen sent instructions to GMCL with a copy of the subpoena.
GMCL retained a Toronto law firm to conduct an inventory of its cartel documents. In August, Gulf attorneys Dotson and Gidel visited Toronto to assist in the project. They were instructed “not to bring back any documents.” The Gulf attorneys returned from Toronto with inventory worksheets identifying 3,400 cartel documents (DX 2899) along with notes of Dotson. (Dotson depo. DX 5083)
On September 23, 1976, the Uranium Information Security Regulations were promulgated by Canada (G-l). Four days later, a Howry & Simon attorney wrote to the Justice Department:
We would like to meet with you this week at your convenience to discuss the matter of Canadian documents located in the offices of Gulf Minerals Canada, Ltd., in Toronto, Ontario ....
bcc: Frank O’Hara
Roger Allen
Thomas Groves (DX 2946)
There is no direct evidence of collusion between Gulf and Canadian governmental officials in the months preceding the Security Regulations. It is not known whether Gulf contributed to the passage of the Security Regulations. It appears there was enough governmental self-interest manifested by the Canadian officials to promulgate the Regulations regardless of Gulf’s interest. However, it is clear that since 1972, Gulf was prepared to rely on the Ontario Act as an impediment to production of cartel-related documents in Canada. The impediment could be realized if Canada took necessary court action to trigger its enforceability as discussed in the O’Hara memorandum of 1972 and the Halpern memorandum of 1976.
The New Mexico Supreme Court in UNC v. GAC, supra, held that the housing of documents in Canada with the expectation that the Ontario Act would serve as the impediment amounted to “courting legal impediments” to production.
Although the Uranium Information Security Regulations were not in effect during the period the cartel was apparently in existence, the Ontario Business Records Protection Act was in effect. Although that Act is not a significant impediment to discovery, it was relied on by GAC in the court below as a total bar to the discovery of cartel records. If documents were housed in Canada with the expectation that the Ontario Act would be applicable, it is largely immaterial that the expectation was later realized in the form of a different secrecy law. When a party places documents outside this country with the expectation that production of those documents will be frustrated in litigation here, the strong policy in favor of broad discovery dictates that that party bear the consequences of the dilemma created by the realization of its expectations.
We hold . . . that there is substantial evidence to support the court’s finding that Gulf followed a deliberate policy of storing cartel documents in Canada, and*303 that this policy amounted to courting legal impediments to their production. Under Societe, these findings alone may be the basis for the imposition of s