Elkton Care Center Associates Ltd. Partnership v. Quality Care Management, Inc.

MURPHY, C.J. In the Circuit Court for Cecil County, a jury (the Honorable Dexter M. Thompson, Jr., presiding) found that Elkton Care Center Associates Limited Partnership t/a Medpointe (Medpointe), appellant, breached its contract with Quality Care Management, Inc. (QCM), appellee. Appellant argues that it is entitled to a new trial and, in support of that argument, presents two questions for our review: 1. Whether the inadvertent disclosure during discovery of a memorandum containing communications protected by the attorney-client privilege and the work product doc ⁵³⁵ trine constituted a waiver of Medpointe’s right to claim said protections at trial? 2. Whether the trial court’s decision, over Medpointe’s objections, to permit the jury to hear evidence of communications protected by the attorney-client privilege and the work product doctrine was harmless error?

For the reasons that follow, we shall affirm the judgment of the circuit court. Factual Background Appellant constructed a nursing home in Elkton, Maryland and on June 27, 1994, entered into a Nursing Center Management Agreement with appellee. The agreement, which provided that appellee would manage the nursing home for an initial term of three years, included the following “termination” clause: 11. Termination.

The Owner shall have the right to terminate this Agreement and the employment of the Manager, and except as to liabilities or claims which shall have accrued or arisen prior to such termination, all obligations hereunder shall cease upon the happenings of any of the following events: (1) If the Manager files ... bankruptcy.... (2) By the taking of the entire or a substantial portion of the Facility, or its services, through lawful condemnation proceedings by any governmental authority. (3) The loss by the Owner ... due to its default on any mortgage or other obligation, or by operation of law. (4) .... substantial damage or destruction of the Facility by fire or other casualty ...

(5) The giving of written notice by either party or the other if a party has been grossly negligent in the performance of its obligations under this Agreement (including, without limitation, failure to obtain the initial operation license for the Facility or causing the Facility to be in danger of losing its operating license, although State and/or Federal deficiencies including, but not limited to, fast track impositions, are ⁵³⁶ not in and of themselves uncommon nor decisive indication of negligence on the part of Q.C.M., or qualification as a health care provider for Medicare or Medicaid reimbursement purposes) and such notice sets forth the details of such alleged breach, and the defaulting party shall not, within thirty (30) days after the mailing of such notice, have cured such breach, or if such breach is of a nature that it cannot be cured within such (30) day period have commenced and at all times thereafter have diligently proceeded with all acts required to cause such breach. Any such termination shall be without prejudice, however, to any and all rights and remedies of the non-defaulting party. (6) Failure to maintain 85% occupancy after twenty-four (24) months of operation if directly and unequivocally due to gross negligence on the part of Q.C.M-....... ■ (7) At the completion of the first twenty-four month period of operation Owner shall review the past twenty-four (24) months performance of the Manager. If the operational and economical goals as agreed between parties at the inception of this Agreement have not been met' Owner has the unequivocal right to terminate or amend this Agreement.

(a) Operational Goals. • The Facility shall have a trained staff capable of providing services that meet all local, state and federal requirements. (b) Economical Goals. Net income before taxes at the end'-of the first twenty four (24) months operatibnal period shall be within the parameters of the Budgets of the Facility as determined by the public accounting firm specializing in long term care reimbursement and as agreed upon- by both Owner and Q.C.M. If budgeted goals are ’not met due to unforeseen events which were not directly the fault of Q.C.M., Q.C.M. shall not be considered negligent, such as but not limited to a reduction in Medicare/Medicaid reimbursement, etc. ⁵³⁷ Q.C.M. makes no guarantees that operational and economic goals will be obtained although the intent of Q.C.M. is to attain and/or exceed Budget and Owner expectations. (8) The sale of the property by the Owner.... -During the third year the Manager will be paid his fee through the date of termination.

In November of 1996, appellant terminated its agreement with appellee pursuant to Paragraph 11(7) of the Nursing Center Management Agreement. In April of 1998, appellee sued appellant for “wrongful termination” of the agreement. Procedural History During the discovery phase of this case, pursuant to a request for document production, a lawyer in the firm that was then representing appellant produced a box that contained a number of documents. It was agreed that (1) appellee’s counsel would examine the documents in the box and identify which documents they wanted copied, and (2) appellant’s counsel would make, and deliver to appellee’s counsel, a copy of each document that had been “tabbed” by appellee’s counsel.

Included among these documents was a memorandum from a lawyer to Mr. Willits, the president of Medpointe, who had retained that lawyer’s firm to determine what defenses would be available to appellant if appellee filed a wrongful termination action. This memorandum was expressly designated as “ATTORNEY/CLIENT PRIVILEGE ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION.” The memorandum was tabbed by appellee’s counsel, and a copy was later forwarded to appellee’s counsel along with copies of other tabbed documents. At trial, appellant’s trial counsel called Mr. Willits, who testified as follows during his direct examination: Q. And what I’d like to do is to cut right to the chaff [sic], if I could. I’d like you to point the ladies and gentleman of the jury to the section of the contract that Medpointe relies upon in terminating its management contract with OCM.

A. It’s on Page 10. ⁵³⁸ Q. We are on Joint Exhibit Number 1? A. Right. A. Subsection—or Section 7. Q. What portions of that section of the contract does Medpointe rely upon in saying that it had the unequivocal right to terminate the agreement?

A. The portion re[sic]lied upon—two, first one A and B. QCM did not meet their operational goals, nor did they meet their economic goals. Q. How is it that they did not meet their operational goals? A. They didn’t have a trained staff that maintained a quality of health care consistent with state and federal regulations. Additionally, they didn’t have a trained staff that maximized the reimbursement rates for Medicare; and their trained staff was not capable, according to the state, of providing in-house education for the employees of Medpointe.

Q. Can you tell the ladies and gentleman of the jury how is it they failed to meet their economic goals? A. The economic goals were established by the budget projections of May of '94, which the did not come close to meeting. Q. Now you say their budget, projections, what are you referring to? A. The projections that were prepared by Wolpoff & Company in May of '94, they are an exhibit, because I’ve seen them before in these proceedings.

Q. In that October-November 1996 time frame when the management contract is terminated, can you give the ladies and gentleman of the jury á sense of what the economic or financial condition of the facility was? A. The facility had a loss of approximately $800,000, and— THE COURT: What period are we talking about? ⁵³⁹ [APPELLANT’S COUNSEL]: October—November 1996 time period that—the contract termination time period. A. The facility had a loss of some $800,000, and we were maximized on our—maximized on our line of credit to something in excess of a million dollars. The following transpired during Mr. Willits’ cross-examination: [APPELLEE’S COUNSEL]: Isn’t it true that it wasn’t until after March of 1997 when [the] lawyer [retained by MedPointe’s principal owner] told you that you had breached the contract by improperly terminating it, that you first came up with the excuse that you testified to today? [APPELLANT’S COUNSEL]: Your Honor, I object to that.

THE COURT: Approach the bench. THE COURT:.... Have you all discussed this yet? Has everybody knew this was coming? [APPELLANT’S COUNSEL]: No, no, judge.

THE COURT: Where did it come from? [APPELLEE’S COUNSEL]: They produced it in their documents. We tabbed it. They copied it. They sent it to us.

I intend to use it. [APPELLANT’S COUNSEL]: I have no idea. I am not calling him a liar. I just have no idea. THE COURT: You better get together and discuss this ... you might have a waiver.

A luncheon recess occurred at this point. The following transpired when the proceedings resumed: THE COURT: ... How did you get this, by requesting documents? [APPELLEE’S COUNSEL]: We filed a request for production of documents, that was responded to; we went over, we inspected the documents. It was among them.

We said we want a copy, I think, of everything—or did you just tab it? ⁵⁴⁰ [APPELLEE’S CO-COUNSEL]: Your Honor, there was a—we got about a half full box, bankers box of documents that the other side produced. THE COURT: From whom? [APPELLEE’S CO-COUNSEL]: From the law firm representing the [appellant], and I tabbed the documents. I did not tab every document. I tabbed the documents I wanted.

This was among them. We received documents in a—just a manila envelope from the—with a white first class sticker on it. I showed them to [appellee’s counsel] when I got them, and that’s what she wrote. The following transpired after Judge Thompson decided that appellee’s counsel could use the memorandum during Mr. Willits’ cross-examination: [APPELLEE’S COUNSEL]: Mr. Willits[,][sic] in March of 1997[,][sic] four months after you terminated [the operator’s] contract or his company’s contract[,][sic] you sought advise from a law firm in Carroll County or Baltimore ... [I]s that correct? [APPELLANT’S COUNSEL]: Objection[,][sic] your Hon- or.

MR. WILLITS: That’s correct. [APPELLEE’S COUNSEL]: And you requested that law firm to give you an analysis of the situation involving the termination of Quality Caret,] [sic] and strategy suggestions to prepare for a defense of a possible lawsuit. [I]sn’t that truefsic] sir? [APPELLANT’S COUNSEL]: Objection[,][sic] Your Hon- or. THE COURT: Overruled. MR.

WILLITS: We asked the law firm for their opinion of what the contract said. [APPELLEE’S COUNSEL]: Did they not advise you— subject to your lawyer’s objection!,][sic] did they not advise you[,][sic] “Under the plain language of the terms and ⁵⁴¹ conditions of the Agreement governing its termination]],][sic] Medpointe has not yet properly terminated the agreement”? MR. WILLITS: That was their reading of the contract. [C]orrect. THE COURT: Now ladies and gentleman. [Understand that this is an opinion rendered by a law firm that didn’t come in evidence that you can say, well the law firm said this[,][sic] therefore[,][sic] they didn’t meet it.

This is just solely given to you as to why Mr. Willits or the company may have done what they did afterwards. So that opinion may be a right opinion or wrong opinion. You are going to decide the issues of the case[,][sic] not a law firm. Go ahead. [APPELLEE’S COUNSEL]: And it was after this opinion[,][sic] Mr. Willits[,][sic] that you decided to latch onto Paragraph 7.[I]sn’t that right[,][sic] sir?

MR. WILLITS: Wrong. [APPELLANT’S COUNSEL]: Objection!,][aic] your Hon- or. THE COURT: Overruled. MR.

WILLITS: Wrong. THE COURT: He said wrong. [APPELLEE’S COUNSEL]: Strike that. Before I get back to that. Didn’t you also ask the law firm to give you a strategy to prepare for a defense of a possible lawsuit against it by—against you by OCM? [APPELLANT’S COUNSEL]: Objection.

MR. WILLITS: I don’t remember. THE COURT: Overruled. [APPELLEE’S COUNSEL]: Let me show you a document which has been marked as Exhibit—Plaintiffs Exhibit 15. Can you identify this document[,][sic] sir?

MR. WILLITS: That’s the memorandum from [the lawyer retained in March of 1997], ⁵⁴² [APPELLEE’S COUNSEL]: Okay. And would you read to the jury the last sentence in the introductory? Why don’t you just read the whole first introductory paragraph. [APPELLANT’S COUNSEL]: Your Honor, my understanding of why this is being presented to the witness is not'—for purposes of refreshing his recollection.

This is not a document that has been—at least at this point in time is not in evidence. THE COURT: Well[,][sic] I’m going to overrule that. I will allow that. [APPELLEE’S COUNSEL]: Read the introduction, sir. THE COURT: For reasons previously stated, you have got a continuing objection.

MR. WILLITS: The first paragraph? [APPELLEE’S COUNSEL]: Yes[sic] sir. “Per your instructions[.]”[sic] MR. WILLITS: “Per your instructions we have undertaken an analysis of the Nursing Center Management Agreement entered on June 27[,][sic] 1994 by and between Elkton Care Center Associates Limited Partnership[,][sic] owner[,][sic] and Quality Care Management Company[,][sic] Inc.[,][sic] QCM[,][sic] pursuant to which QCM was engaged to mange and operated Medpointe. The purpose of this analysis was to determine what should be the owner’s strategy in preparing for defense of a possible lawsuit against it by QCM on account of the early termination of the agreement by the owner.” . [APPELLEE’S COUNSEL]: So does this refresh your recollection that preparing a strategy for defense was part of the engagement of the law firm as well as giving you the opinion on termination?

MR. WILLITS: That’s what that said. [APPELLANT’S COUNSEL]: Objection. THE COURT: Overruled. As stated above, the jury concluded that appellant had breached the contract. ⁵⁴³ The Consequences of Inadvertent Disclosure Appellant argues that the