Koch v. Specialized Care Services, Inc., Civil No. MJG-04-1395.

• Decision Date: 23 September 2005
• Docket Number: Civil No. MJG-04-1395.
• Citation: 437 F.Supp.2d 362
• Parties: Timothy E. KOCH, et al., Plaintiffs v. SPECIALIZED CARE SERVICES, INC., et al., Defendants.
• Court: U.S. District Court — District of Maryland

437 F.Supp.2d 362

Timothy E. KOCH, et al., Plaintiffs v. SPECIALIZED CARE SERVICES, INC., et al., Defendants.

Civil No. MJG-04-1395.

United States District Court, D. Maryland.

September 23, 2005.

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Christopher B. Mead, Mark Scott London, London and Mead, Washington, DC, for Plaintiffs.

Creighton Reid Magid, Dorsey and Whitney LLP, Washington, DC, Gregory M. Weyandt, Marianne D. Short, Michelle S. Grant, Dorsey and Whitney LLP, Minneapolis, MN, for Defendants.

Memorandum Opinion

GAUVEY, United States Magistrate Judge.

Presently pending before the Court are plaintiffs' motion to compel production of documents and responses to interrogatories, (Paper No. 39), defendants' motion for a protective order (Paper No. 40), and plaintiffs' motion to compel responses to their Fed.R.Civ.P. 30(b)(6) deposition notice.¹ (Paper No. 46.) The motions are fully briefed. A hearing was held on June 2, 2005.

For the reasons set forth below, the Court GRANTS IN PART the motion to compel production of withheld documents, ordering the production of certain (but not all) documents for which defendants had asserted privilege, GRANTS the motion for a protective order and finally, GRANTS plaintiffs' motion to compel responses to their deposition notice because the information they seek is proper.

I. Background

Plaintiffs are Timothy E. Koch, Mary Charbonnet Koch (his wife), Suzanne Koch (his sister), Timothy K. Koch (his son), and Mary, Leslie, and Allison Koch (his daughters). Koch and his family were the sole shareholders in a family business, Specialized Risk International, Inc. ("SRI"). SRI sold insurance for organ and bone marrow transplants to health insurers and health maintenance organizations.

The defendants are Specialized Care Services ("SCS"), United Resource Networks, Inc. ("URN"), and the CEO of URN, Dr. Richard Migliori and the President of URN, Mr. Robert Webb. SCS is an affiliate of URN, a subsidiary of United Health Group, Inc. ("UHG").

Defendant SCS bought SRI in 2003 and paid Koch and his family for ninety percent of SRI's stock. Under the Secondary Purchase Agreement between Koch and SCS, SCS retained the option of acquiring the remaining ten percent of SRI stock subject to certain conditions. As part of SCS's purchase of SRI, Koch entered into an employment agreement with UHG at the same time, agreeing to remain with SCS for an additional three years unless terminated early.

The relevant provision of the Secondary Purchase Agreement provides that the purchase price of the retained SRI shares would depend on the circumstances of Koch's separation from the company. Specifically, the Agreement set forth that if Koch was terminated for cause or voluntarily resigned, then he would be paid $1.00 for all the retained shares. If he was terminated without cause, then he would receive the full value for the stock, $6,250,000 at a minimum.

Two claims remain before the Court:² that SCS breached the Secondary Purchase Agreement in failing to pay Koch at least $6.25 million for the remaining SRI stock, the amount due under the contract if UHG terminated Koch without cause (Count I); and that Dr. Richard Migliori and Robert Webb of URN tortiously interfered with Koch's employment agreement and the Secondary Purchase Agreement, resulting in plaintiffs'"los[ing] the opportunity to earn the full $12,500,000 purchase price for their remaining SRI stock" (the maximum amount Koch could receive at the end of the agreement if he remained employed) (Count III). (Paper No. 1, 16-17).

It is undisputed that after Koch began work at SCS, management conflicts arose among Koch, Webb, and Migliori. A meeting was held on March 5, 2004, for the discussion of a business opportunity, but was dominated by differences of opinion as to operations. Present at the meeting were Koch, Mary Charbonnet Koch, Sue Koch, Migliori, Webb, David Wichmann, the CEO of SCS, Ted Lyle, the actuary of SCS, and Mike Mikan, the CFO of SCS. All agree that Wichmann asked if everyone could continue to work together. However, there is disagreement between the parties as to what was said and what transpired thereafter. This disagreement as to facts does not, however, prevent resolution of this discovery dispute.

In his Memorandum and Order dated April 1, 2005, Judge Garbis set out the parties' competing views as to the succeeding events, which culminated in Koch's receipt of a letter on March 10, 2004, from Tom Ryan, SCS's in-house counsel purporting to formally accept Koch's resignation effective March 5, 2004, and exercising SCS's rights under the Secondary Purchase Agreement to purchase Koch's remaining shares for $1.00. On March 11, 2004, Koch responded to Ryan's letter denying that he resigned and subsequently brought this litigation.

The present discovery dispute largely involves plaintiffs' entitlement to communications that circulated between the defendants and counsel before and after the meeting with Koch on March 5, 2004, and communications related to the resignation letter sent on March 10, 2004. Defendants have listed these communications on a revised privilege log claiming attorney-client privilege and work product doctrine.³ Plaintiffs seek to discover these documents, arguing that privilege either does not apply as the communications were intended to be made public or has been lost by allegedly tortious or fraudulent conduct of the defendants.⁴

II. Discussion

A. Plaintiffs' Motion to Compel Production of Allegedly Privileged Documents

Plaintiffs have moved to compel a full response to its Interrogatory No. 17 and the production of accompanying documents under Request No. 18 listed on defendants' November 4, 2004 revised and December 10, 2004 supplemental privilege logs.⁵ (Paper No. 39 at 18.) In resisting discovery of the communications related to the alleged resignation of Koch, the defendants have claimed that the attorney-client privilege and work-product doctrine apply.⁶ Plaintiffs, in their motion to compel, seek to discover these communications, arguing that they are not privileged because the information sought was provided to in-house counsel with the knowledge and expectation that it would be communicated to Koch and his attorney. Alternatively, the plaintiffs argue that if the information is privileged, then the crime-fraud exception to the attorney-client privilege applies and they are entitled to the information. The Court rejects plaintiffs' first argument, but agrees that some Of the documents at issue satisfy the crime-fraud exception and therefore are not privileged.

I. The Attorney-Client Privilege and Disclosure to a Third Party

The attorney-client privilege is recognized as "the oldest of the privileges for confidential communications known to the common law." Upjohn v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). Nevertheless, because the application of the privilege interferes with the truth-seeking function of the judicial system by withholding relevant information from the fact finder, the privilege contains limitations and should be narrowly construed. E.I. du Pont de Nemours & Co. v. Forma Pack, Inc., 351 Md. 396, 415, 718 A.2d 1129, 1138 (1998). Because this is a diversity action involving exclusively state law claims, Maryland privilege law applies. See Fed.R.Evid. 501.

Only those communications pertaining to legal assistance and made with the intention of confidentiality fall within the protection of privilege. Forma-Pack at 415-16, 718 A.2d at 1138 (quoting Burlington Indus. v. Exxon Corp., 65 F.R.D. 26, 37 (D.Md.1974)). With respect to the first element, a communication "must relate to professional advice and to the subject-matter about which such advice is sought" in order to qualify for privilege. Forma-Pack, 351 Md. at 416, 718 A.2d at 1138-39 (quoting Lanasa v. State, 109 Md. 602, 617, 71 A. 1058, 1064 (1909)). In the current situation, the defendants undisputedly sought the legal advice of their in-house counsel. Defendants state that counsel reviewed Koch's employment agreement and the Secondary Purchase Agreement after the meeting and prior to the sending of the resignation letter to Koch. (Paper No. 39 Opp. at 7).

As to the second element for privileged communications, the Court must determine whether the communications were expected to be confidential. "It is essential that it not be intended for disclosure to third persons." Id. at 416, 718 A.2d 1129, 718 A.2d at 1139 (citing United States v. (Under Seal), 748 F.2d 871, 874 (4th Cir. 1984)) Even though Under Seal applied the federal common law of privilege, the Maryland Court of Appeals favorably cited it and applied its rule of law in Forma-Pack. Thus, the Court will apply the reasoning of Under Seal as adopted by the Maryland courts.

In Under Seal, the court held that the attorney-client privilege did not apply to a whole series of corporate documents "because the communications revealed could not reasonably have been expected to remain confidential." 748 F.2d at 877. In examining the documents at issue, the court stated that several of the documents contained information that "would reasonably be expected to be imparted to a third party." Id. at 877-78. The court declared, "if a client communicates information to his attorney With the understanding that the information will be revealed to others, that information ... will not enjoy the privilege." Id. at 875. Furthermore, in determining the intent of the client as to confidentiality, the court "must look to the services which the attorney has been employed to provide and determine if those services would reasonably be expected to entail the publication of the clients' communications." Id. (quoted in Forma-Pack, 351 Md. at 417, 718 A.2d at 1139). "Only when the attorney has been authorized to perform services that demonstrate the client's intent to have his communications published will the client lose the right...