Hutcheson Says Its Own Lawyer Was Secretly Sharing Information With Erlanger

Saturday, April 4, 2015

Hutcheson Medical Center claims in a new filing in its ongoing litigation with Erlanger Health Systems that it recently found that its own attorney in 2011 "was secretly and repeatedly sharing HMC's privileged and confidential information with Erlanger negotiators."

In a motion to amend in the fiercely-contested litigation in Federal Court in Rome, Ga., Hutcheson said attorney Ward Nelson of the Chattanooga firm of Miller and Martin "breached his professional and fiduciary obligations."

Hutcheson attorneys said, "The new information that has come to light is nothing short of remarkable."

The filing says, "As a result, Erlanger was able to secretly conspire with Miller & Martin to steer HMC towards execution of a series of contracts that are highly favorable to Erlanger – because, for example, they gave Erlanger the right as manager of Hutcheson Medical Center to borrow funds from itself that, if not repaid, would trigger Erlanger’s purported right to foreclose on the Hospital property.

"Moreover, the Deed to Secure Debt drafted by Miller & Martin over-collateralized the Line of Credit Note, by including the Hutcheson nursing home in addition to the main campus – a multi-million dollar windfall for Erlanger, directly attributable to its secret communications with HMC’s lawyers.

"In the aftermath, in an apparent quid pro quo, Erlanger has since engaged Miller & Martin to defend its interests in other matters including a currently pending discrimination lawsuit filed by Erlanger’s former CEO in Hamilton County, Tennessee.

"Needless to say, this new evidence of fraud, conspiracy, and fiduciary and attorney misconduct procured by Erlanger and arising out of the same series of transactions and occurrences underlying both Erlanger’s and HMC’s existing claims in this lawsuit, gives rise to new allegations and causes of action that must be added to HMC’s pleading in order for this matter to be fully and fairly adjudicated on its merits. These new allegations, and the required amended pleading, are the primary purpose of this Motion.

"After HMC filed its original Motion to Amend, Erlanger filed a Motion to Compel in which it attempts to downplay the significance of the secret blind carbon copy communications from Miller & Martin to Erlanger.

"Erlanger argues that the inclusion of representatives of the Hospital Authority of Walker, Dade and Catoosa Counties and the Counties themselves, on some of the emails, waived any privilege because HMC, the Hospital Authority and the Counties did not share a “common legal interest.”

"HMC disagrees, and will timely respond to Erlanger’s Motion. However, even if Erlanger were correct that the attorney-client privilege did not attach to the emails between HMC and Miller & Martin on which Erlanger was secretly bcc’d, that explanation on the part of Erlanger does not address: (1) the confidentiality of those emails, which on their face were indisputably communications between HMC’s lawyers and the parties on the Hutcheson side of the transaction, as opposed to the Erlanger side, and which indisputably discuss Erlanger as if its representatives were not included on the emails; (2) the fact that some of the emails included a “Confidential – Privileged and/or Work Product” header, added by Miller & Martin; (3) the fact that some of the emails disclosing HMC’s negotiating positions were direct communications between Miller & Martin and Erlanger not including any other parties; (4) Miller & Martin’s multi-million-dollar over-collateralization of the Line of Credit Note for the benefit of Erlanger; or (5) the fact that Miller & Martin, working in concert with Erlanger, procured from the HMC Board a waiver of any conflict arising from the fact that Jeff Woodard, HMC’s former in-house lawyer who moved to Erlanger just prior to the parties’ negotiations, was one of Erlanger’s primary negotiators. The HMC Board waived Mr. Woodard’s conflict after most of the secret email communications between Miller & Martin and Erlanger had already occurred, and without any knowledge of those communications."

The motion says Hutcheson in early 2011 had engaged Miller and Martin to represent it in negotiations with Erlanger over Erlanger taking over management of Hutcheson.

The filing by Hutcheson says, "In early 2011, HMC engaged Miller & Martin to represent HMC’s interests in connection with the negotiation of these documents – negotiations that included, on the one hand, HMC, the Hospital Authority and the Counties (who organized themselves, at the time, into a “Transition Committee”), and, on the other hand, Erlanger. In concert with Erlanger, however, HMC’s lawyers at Miller & Martin promptly disregarded their ethical and legal obligations to serve HMC’s interests and not to disclose HMC’s privileged and confidential information to anyone, much less to Erlanger, the very party with whom they were engaged by HMC to negotiate at arm’s length.

"For example, beginning less than one week after being engaged by HMC, and continuing for the duration of the negotiations,Ward Nelson of Miller & Martin repeatedly bcc’d representatives of Erlanger on emails he sent to representatives of his own client HMC and the other parties on the Hutcheson side of the transaction (i.e., the Hospital Authority, and the Counties) whose interests were aligned with HMC’s interests.

"On March 19, 2011, for example, HMC’s lawyer emailed his client and representatives of the Hospital Authority and the Counties regarding a red-lined version of the Line of Credit Note that he had received from Erlanger’s in-house counsel, Jeff Woodard.

"In the email, Mr. Nelson made several comments on Mr. Woodard’s draft, and advised that certain of the edits suggested by Mr. Woodard would not work and appeared to have been “inadvertent” on Mr. Woodard’s part. He also noted, as if Mr. Woodard was not included on the email (as would be expected in any email to one’s client concerning positions taken by the opposing party in ongoing  negotiations), that Mr. Woodard had “confirmed to [him] today” that the edits were inadvertent. Unbeknownst to the recipients of HMC’s lawyer’s email, however, Mr. Nelson bcc’d Mr. Woodard himself.

"When Chad Young, counsel for Catoosa County, responded with an email directed just to Mr. Nelson, counsel for HMC, Mr. Nelson took it upon himself not only to copy (cc) representatives of his own client HMC on his reply, but also (unbeknownst to them) to again blind carbon copy (bcc) Mr. Woodard as well as Doug Fisher, Erlanger’s Vice President of Governmental and Corporate Affairs.

"HMC’s counsel also added to the existing subject line on the email chain the words “Confidential – Privileged and/or Work Product,” thus expressly acknowledging that the subject matter of his email to his client HMC and to Mr. Young was a privileged communication (seeing as HMC, the Hospital Authority, and the Counties were all subject to a common interest privilege in connection with their negotiation of the April 25, 2011 agreements with Erlanger).

"Mr. Nelson wrote in his privileged reply, among other things, that “the better deal we negotiate now, the less need there will be for refinance (at least for the Erlanger note) later,” but “having said that, I doubt Erlanger will come off of their LIBOR +4% with 5% floor regardless.”

"Mr. Nelson also referred to a phone call he had received from Mr. Woodard and the content of that phone call, and he noted that the most recent draft of the Management Agreement was “not perfect” but that “we are going to have to give and take a little,” seeing as “they accepted every one of our changes but ... one ....” (Emphasis added.)

"All of these comments refer to negotiations between HMC, the Hospital Authority and the Counties, on the one side, and Erlanger on the other side. The comments refer to the former group as “we” and “our,” and to Erlanger as “they.” Nevertheless, in disregard of their professional, ethical, contractual and other legal obligations to their client HMC, and unbeknownst to HMC, Miller & Martin bcc’d the two Erlanger representatives (Messrs. Woodard and Fisher) who were negotiating the transaction for Erlanger.

"The email chain discussed above is just one of at least eighteen examples that HMC has uncovered to date where Miller & Martin bcc’d Erlanger representatives on privileged and confidential emails and gave no indication whatsoever that Erlanger was secretly“listening in.”

"In yet another example, on March 10, 2011, Mr. Nelson wrote to HMC and representatives of the Hospital Authority that “the hospital will be out of funds in a matter of days,” that “we are obviously running out of time,” and that “Erlanger will likely not welcome any substantial deal changes.” He also wrote that he would be “speaking with Jeff Woodard,” Erlanger’s in-house counsel, “about the [latest] draft.”

"Little did HMC know, Mr. Woodard himself was bcc’d on the email, along with Mr. Fisher and Dale Hetzler, Erlanger’s Senior Vice President and Chief Legal Officer – thus receiving direct information from their co-conspirator Miller & Martin concerning the weakness of HMC’s negotiating posture.

"In another example, on April 18, 2011, Mr. Nelson wrote to HMC and representatives of the Hospital Authority and the Counties, forwarding an email from Mr. Hetzler and commenting on Erlanger’s position that the documents at that point were complete and could not be changed in any material way.

"Mr. Nelson again wrote about Erlanger as if its representatives were not on the email, while secretly blind carbon copying Messrs. Woodard, Fisher and Hetzler. In other instances, Mr. Nelson simply forwarded emails marked “Confidential – Privileged and/or Work Product” to Erlanger’s representatives without copying anyone else, as if he was working for Erlanger and not for HMC.

"For example, on March 22, 2011, Mr. Nelson forwarded “privileged and/or work product” comments from Max Morrison, who was the chair of the Hutcheson “transition team” (consisting of representatives from HMC, the Hospital Authority, and the Counties) that was responsible, on the Hutcheson side, for negotiating the transaction with Erlanger, to Messrs. Woodard, Fisher and Hetzler at Erlanger.

"In another example, on March 15, 2011, Mr. Nelson forwarded Miller & Martin’s current drafts of the Line of Credit Note and Security Deed to Mr. Woodard at Erlanger, telling Mr. Woodard that his email was “not for massive forwarding yet because no one has reviewed yet.”

"In other words, even before he received any comments from his own client HMC, or from anyone else on the Hutcheson side of the transaction, Mr. Nelson shared his drafts with Erlanger to, as he put it in the email, “give you a sense of where M&M is on these.”

"In the midst of these secret communications between Miller & Martin and Erlanger, Miller & Martin drafted the Deed to Secure Debt that would secure the Line of Credit Note. On March 14, 2011, after receiving the draft from one of his partners, Mr. Nelson responded, in pertinent part: “[W]e just met w Erl[anger] ... [T]he collateral us only the main campus not the nhealth, nhome, child care, etc. Pls revise accordingly.” (Typos in original.)

"In other words, Erlanger had agreed that the main campus of the Hutcheson hospital was sufficient collateral for the Line of Credit Note, and HMC’s counsel knew that this was what Erlanger agreed. Nevertheless, in the final version of the Deed to Secure Debt, the excess collateral was included – an obvious windfall for Erlanger, attributable to HMC’s own lawyers.

"Shortly before the closing of the parties’ transaction, Mr. Nelson undertook to convince his client HMC to execute a waiver of Mr. Woodard’s conflict of interest with respect to the negotiations. On March 28, 2011, after weeks of secret communications between Mr. Nelson and Mr. Woodard and others at Erlanger, Mr. Nelson presented a waiver letter to the HMC Board and convinced the Board to authorize its Chairperson to sign it. 

"The HMC Board waived Mr. Woodard’s conflict after most of the secret email communications between Miller & Martin and Erlanger had already occurred, and without any knowledge of those communications. In any event, the waiver pushed through by Miller & Martin and Erlanger related only to conflicts based on Mr. Woodard’s past work for HMC; it did not authorize disclosure to Erlanger of any privileged and confidential HMC information concerning the Management Agreement negotiations.

"Ultimately, on April 25, 2011, facilitated by the secret collaboration between Erlanger and HMC’s lawyer, the parties executed the Management Agreement, the Line of Credit Note,the Deed to Secure Debt, and related documents.

"Erlanger’s mismanagement of the hospital over the ensuing 28 months, while meanwhile drawing down the full $20 million available under the Line of Credit Note, is the subject of HMC’s existing Counterclaim.

"On August 20, 2013, HMC and the Hospital Authority terminated the Management Agreement. On February 27, 2014, Erlanger initiated this lawsuit seeking to collect on the Line of Credit Note, and since filing its Complaint Erlanger has sought to foreclose pursuant to the Deed to Secure Debt. (These efforts are now stayed pursuant to the Court’s Order dated October 24, 2014.)

"All of these efforts on the part of Erlanger (which we now know were facilitated in part by HMC’s own lawyers) led HMC to file for bankruptcy on November 20, 2014,at which point this Court stayed these proceedings by Order dated November 21, 2014.

"On February 20, 2015, at the request of the parties, the United States Bankruptcy Court for the Northern District of Georgia lifted the stay of this case, at which point HMC’s current, undersigned counsel began reviewing the documents that had been produced by Miller & Martin in response to a subpoena (which were produced in the midst of the parties’ briefing of the foreclosure issue, and which HMC did not review prior to the automatic stay), and located multiple, extremely troubling communications including those discussed above."


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