Phoenix v. Johns Hopkins

• Citation: 892 A.2d 1185,167 Md. App. 327
• Decision Date: 27 February 2006
• Docket Number: No. 1050 September Term, 2004.,1050 September Term, 2004.
• Parties: PHOENIX SERVICES LIMITED PARTNERSHIP v. JOHNS HOPKINS HOSPITAL.
• Court: Court of Special Appeals of Maryland

892 A.2d 1185

167 Md. App. 327

PHOENIX SERVICES LIMITED PARTNERSHIP v. JOHNS HOPKINS HOSPITAL.

No. 1050 September Term, 2004.

Court of Special Appeals of Maryland.

February 27, 2006.

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Andrew J. Graham (Laura Maroldy, Kramon & Graham, on the brief), Baltimore. Neil J. Ruther, on the brief, Towson, for Appellant.

Martin S. Himeles, Jr. (P. Andrew Torrez, Zuckerman Spaeder, L.L.P., on the brief), Baltimore, for Appellee.

Panel: MURPHY, C.J., HOLLANDER and ADKINS, JJ.

HOLLANDER, Judge.

This appeal is rooted in a contract dispute between Phoenix Services Limited Partnership ("Phoenix"), appellant, and Johns Hopkins Hospital ("JHH" or "Hopkins"), appellee. Under the contract, Phoenix was obligated to remove medical and other waste generated by JHH. In February 2003, seven years prior to the anticipated expiration of the contract, Hopkins terminated the parties' agreement. Claiming that the termination was "for cause," Hopkins refused to pay the early termination fee of approximately $5 million. Consequently, on March 14, 2003, Phoenix filed a "Complaint for Declaratory Relief" in the Circuit Court for Baltimore City. As amended, Phoenix sought a declaration, inter alia, that JHH unlawfully terminated the contract. In its answer and counterclaim, JHH sought opposing declarations.

The circuit court held a seven-day bench trial in March 2004. In a "Memorandum Opinion" dated June 18, 2004, the court ruled that JHH was justified in terminating the contract. On July 7, 2004, the court issued its "Declaratory Judgment" in favor of JHH.

On appeal, Phoenix poses four questions, which we quote:

I. Did the circuit court err in rejecting the Certificate of the Independent Engineer and substituting its judgment for the Independent Engineer's "Certified Assurance"?

II. Did the circuit court err when it inserted into the parties' contract a new and additional requirement that the Independent Engineer's Certificate be unconditional and contain no assumptions?

III. Did the circuit court err in finding that the Independent Engineer did not certify that any changes had been made by Phoenix?

IV. Did the circuit court err when it refused to admit evidence that the plan certified by the Independent Engineer actually worked?

For the reasons that follow, we shall vacate and remand.

I. FACTUAL AND PROCEDURAL BACKGROUND¹

JHH and other Baltimore area hospitals (the "Founding Hospitals") contracted with Phoenix to create and operate a "Regional System" for the disposal of medical and non-medical waste. The parties' relationship is governed by a "Waste Supply Agreement" (the "Agreement") dated November 16, 1989, and the "First Amendment to Waste Supply Agreement" (the "Amendment"), dated November 15, 1994 (collectively, the "Contract").²

In connection with the establishment of the Regional System, Phoenix constructed a facility in Baltimore City containing two large incinerators designed to dispose of both medical and non-medical waste (the "Facility"). Phoenix also established a "Transportation System" for the collection and conveyance of unsegregated medical and general waste from the Founding Hospitals to the Facility. See Agreement, ¶ 3.0.³ Under the Contract, JHH was obligated to pay for the processing of a certain guaranteed annual tonnage of waste (the "GAT") for a period of twenty years. See Agreement, ¶ 6.0; ¶ 2.0. JHH produces an average of about 700,000 pounds of waste each month. At peak times, it produces 3,000 pounds of waste per hour.⁴

Article 3 of the Agreement pertains to "Disposal of Waste," while Article 4 pertains to the "Transportation System." It states, in part:

4.0. Transportation. In accordance with the Transportation Addendum, MWA, at its sole expense, shall, commencing on the Notification Date, transport all Acceptable Waste from Waste Supplier's place of business to the Facility in compliance with Applicable Law, subject to the other terms and conditions of this Agreement. As described in this Article, MWA shall provide certain equipment for the collection, storage and transportation of Acceptable Waste within Waste Supplier's place of business and from Waste Supplier's place of business to the Facility. The Transportation System shall be installed and operated according to the terms and conditions contained in the Transportation Addendum. MWA shall at all times maintain the Transportation System in good working order.

4.1. Disposal Carts. Subject to the provisions of the Transportation Addendum, MWA shall provide to the Waste Supplier disposal carts ... for the purpose of collecting, storing and transporting Acceptable Waste to the Facility. . . . The number of such carts shall be reasonably sufficient to allow the collection and removal of all Acceptable Waste from Waste Supplier's place of business. . . .

Article 16, entitled "Dispute Resolution," states, in part:

(b) When the amount of the matter in controversy exceeds Two Hundred and Fifty Thousand Dollars ($250,000.00), such Issue shall be decided by arbitration conducted by three (3) arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, provided that the party to such arbitration shall have, for a period of six (6) months following initiation of such arbitration proceeding, all rights of discovery provided by the Maryland Rules of Civil Procedure and Practice then pertaining.

(c) The agreement to arbitrate contained in this Section shall be specifically enforceable under the Maryland Arbitration Act as amended. The award rendered by the arbitrator(s) shall be final, and judgment may be entered upon and in accordance with applicable law in any court having jurisdiction thereof.

(Emphasis added).

Pursuant to the "Recitals" portion of the Agreement, construction of the Regional System was to be financed, in part, "by tax-exempt bonds issued by the Maryland Industrial Development Finance Authority ("MIDFA")." The Agreement served as security for the bonds; because the bonds had a term of twenty-one years, "long term commitments" were sought for use of the Facility. Neil Ruther, Esquire, Vice-President and General Counsel for Phoenix, explained at trial that the bond underwriters' legal counsel insisted that the Agreement contain "strict provisions that would make it next to impossible in all but the most extreme circumstances for the hospitals to cancel [their] agreements." Therefore, JHH was entitled to terminate the Agreement "for any reason," so long as it gave thirty days' notice and made a substantial payment to Phoenix in accordance with calculations specified in the Agreement. See Agreement, ¶ 14.2.

At the outset, JHH briefly participated in the Regional System. But, the parties agreed that Phoenix was then unable to service Hopkins adequately. JHH was not brought back into the system until 1992. Even then, JHH continued to experience problems with Phoenix's performance.

Ruther characterized Phoenix's performance during the period of 1992 to 1994 as "spotty." He acknowledged that "the system of carts ... was still problematic" and the plant was "in fairly severe financial difficulty." Ruther also recalled that, in the winter of 1994, Phoenix "was not able to process" appellee's waste "in accordance with the Contract." In February 1994, because of MWA's poor performance, JHH suspended its participation in the Regional System.⁵

Joanne E. Pollak, Esquire, Vice-President and General Counsel of JHH, wrote to Ruther on February 18, 1994. She said:

JHH notifies MWA ... that MWA has not met its obligations under the Agreement and is incapable of curing such failure to perform without a substantial revision and/or reorganization of MWA's operations and finances. Because the health and welfare of JHH's patients and employees have been directly affected by MWA's prior inability to perform under the Agreement, JHH cannot permit resumption of MWA service until a long-range plan of meaningful correction has been agreed to by JHH and MWA.... During the plan development period, JHH will burn its own waste and the parties' obligations under the Agreement will be suspended.

* * *

Repeated telephone calls from representatives of JHH through the summer and fall of 1993 advised MWA of the repeated and severe breach of contract provisions. Meetings between representatives of JHH and MWA to discuss the deficiencies occurred on September 1, 1993, October 18, 1993, November 10, 1993, and December 20, 1993. . . .

Despite these repeated notifications, meetings and correspondence, MWA's performance did not improve. Indeed, the consistent and persistent lack of performance culminated in a disastrous situation for JHH at the end of January [1994]. Over a period of several days, MWA did not perform and the waste accumulated at JHH causing severe health and safety hazards. The piles of trash and red-bag wastes were piled to the ceiling in the corridors in the basement of the Hospital and on the patient floors of the Hospital. Patients, visitors and professional personnel walked between walls of waste to travel from the Emergency Room to the X-Ray Department or up to the patient halls. Entranceways to elevators were blocked with stacks of waste. On many patient halls there was no room to move stretchers with patients between the piles of waste. Under any standard, MWA's performance was wholly inadequate....

In contrast to the originally envisioned regional waste concept [under the Agreement] which would avoid continual contact with medical wastes by JHH's employees, these employees have been forced over the past year, and were forced during this recent critical period, to handle red-bag wastes on a continual basis. . . .

On June 13, 1994, Phoenix filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. As part of Phoenix's reorganization plan, Grotech Capital Group ("Grotech"), a Maryland venture capital firm,⁶...