Schaefer v. Miller

587 A.2d 491, 322 Md. 297, 1991 Md. LEXIS 64

• Court: Court of Appeals of Maryland
• Decided: March 26, 1991
• Docket: 112, September Term, 1989
• Status: Published

Opinions

MURPHY, C.J.,

announcing the judgment of the Court, in an opinion in which RODOWSKY and McAULIFFE, JJ., join; ELDRIDGE, J., concurs in the judgment in an opinion in which COLE and CHASANOW, JJ., join.

This case concerns punitive damages in a medical malpractice action. It focuses on our holding in H & R Block Inc. v. Testerman, 275 Md. 36, 838 A.2d 48 (1975), that “where the tort is one arising out of a contractual relationship, actual malice is a prerequisite to the recovery of punitive damages.” Id. at 47, 338 A.2d 48.

I.

It is well settled law in Maryland, and the general rule elsewhere, that punitive damages are prohibited in a pure action for breach of contract. Miller Building Supply v. Rosen, 305 Md. 341, 348, 503 A.2d 1344 (1986); Siegman v. Equitable Trust Co., 267 Md. 309, 313, 297 A.2d 758 (1972); St. Paul at Chase v. Mfrs. Life Insur., 262 , 278 A.2d 12, cert. denied, 404 U.S. 857, 92 S.Ct. 104, 30 L.Ed.2d 98 (1971); Restatement (Second) of Contracts § 355 (1979); 5 Corbin on Contracts § 1077 (1964).

“In a tort case where punitive damages are permitted, in order to obtain such an award a plaintiff must prove actual malice or its legal equivalent.” Siegman v. Equitable Trust Co., supra, 267 Md. at 313-14, 297 A.2d 758 (footnote omitted); see also D.C. Transit System v. Brooks, 264 Md. 578, 583-84, 287 A.2d 251 (1972); Daugherty v. Kessler, 264 Md. 281, 284, 286 A.2d 95 (1972); Associates Discount v. Hillary, 262 Md. 570, 581-82, 278 A.2d 592 (1971); St. Paul at Chase v. Mfrs. Life Insur., supra, 262 Md. at 237, 278 A.2d 12; Damazo v. Wahby, 259 Md. 627, 638, 270 A.2d 814 (1970). “Actual or express malice ... has been characterized as the performance of an act without legal justification or excuse, but with an evil or rancorous motive influenced by hate, the purpose being to deliberately and willfully injure the plaintiff.” Testerman, supra, 275 Md. at 43, 338 A.2d 48; Miller Building Supply v. Rosen, supra, 305 Md. at 347, 503 A.2d 1344; Henderson v. Maryland Nat’l Bank, 278 Md. 514, 519, 366 A.2d 1 (1976); Siegman v. Equitable Trust Co., supra, 267 Md. at 314, 297 A.2d 758; Drug Fair v. Smith, 263 Md. 341, 352, 283 A.2d 392 (1971).

Implied or legal malice “may be defined as conduct of an extraordinary nature characterized by a wanton or reckless disregard for the rights of others.” Wedeman v. City Chevrolet Co., 278 Md. 524, 532, 366 A.2d 7 (1976); see also General Motors Corp. v. Piskor, 281 Md. 627, 634, 381 A.2d 16 (1977); St. Paul at Chase v. Mfrs. Life Insur., supra, 262 Md. at 238-39, 278 A.2d 12.

As we stated in Testerman, the landmark case regarding punitive damages in actions arising out of contractual relationships is Knickerbocker Co. v. Gardiner Co., 107 Md. 556, 69 A. 405 (1908). In that case, the defendant caused a third party to break its contract with the plaintiff. There, we said that “if, for example, there was evidence tending to show that the defendant has caused the contract to be broken for the sole purpose, and with the deliberate intention of wrongfully injuring the plaintiff, exemplary damages might be recovered.” Id. at 569, 69 A. 405 (emphasis added). Consistent application of this rule foreshadowed the rule announced in Testerman. See, e.g., Siegman v. Equitable Trust Co., supra, 267 Md. at 314, 297 A.2d 758 (conversion of checking account funds); Daugherty v. Kessler, 264 Md. 281, 284, 286 A.2d 95 (1972) (tortious inducement to breach contract); St. Paul at Chase v. Mfrs. Life Insur., supra, 262 Md. at 238, 278 A.2d 12 (breach of contract; negligent performance of contractual obligation); Damazo v. Wahby, supra, 259 Md. at 639, 270 A.2d 814 (tortious inducement to breach contract).

In light of Knickerbocker and its progeny there appear to be only two cases in which punitive damages have been permitted for torts arising out of contracts: Rinaldi v. Tana, 252 Md. 544, 250 A.2d 533 (1969) (tortious interference with contract) and McLung-Logan v. Thomas, 226 Md. 136, 172 A.2d 494 (1961) (trover and conversion). In both of these cases actual malice was established. In Rinaldi there was evidence of express animosity, and in McLungLogan there was evidence of an evil and spiteful motive.

In Testerman, the plaintiffs claimed negligent preparation of their tax returns. We held that “where the tort is one arising out of a contractual relationship, actual malice is a prerequisite to the recovery of punitive damages.” 275 Md. at 47, 338 A.2d 48. We there explicitly declined to extend the implied malice rule to torts arising out of contracts, id., and we have followed the Testerman rule on a number of occasions. See, e.g., Rite Aid Corp. v. Lake Shore Investors, 298 Md. 611, 471 A.2d 735 (1984) (slander of title); General Motors Corp. v. Piskor, supra, (false imprisonment and assault); Wedeman v. City Chevrolet, supra, (deceit); Henderson v. Maryland Nat’l Bank, supra, (conversion); Food Fair Stores v. Hevey, 275 Md. 50, 338 A.2d 43 (1975) (conversion).

II.

In 1973, Amelia R. Schaefer began seeing Gerald A. Miller, M.D., a board certified ophthalmologist, for annual eye examinations. In 1982, when Schaefer was 72 years old, Miller determined that she was developing a cataract in her right eye. A new prescription for stronger lenses improved Schaefer’s vision, and she was satisfied with the glasses.

At her next annual eye examination, in July 1983, Miller advised Schaefer that the cataract was ready to be removed. Viewing the evidence in a light most favorable to Schaefer, Miller advised her that the cataract needed to be removed but he did not perform an examination of her eye at that time and did not test her vision. Miller, on the other hand, claimed to have performed an acuity test, a binocularity test, and a glaucoma test.

Schaefer agreed to have Miller perform a cataract operation at St. Agnes Hospital on an outpatient basis. Thereafter Miller removed the cataract and implanted an intraocular lens in Schaefer’s eye.¹ The surgery went well and Schaefer went home that same day.

A few days after the surgery, Schaefer complained of pain in her eye. Miller determined that her eye was infected, and admitted her to the hospital. She was treated with antibiotics and Miller scheduled her for a vitrectomy (removal of pus from the eye). The vitrectomy revealed a significant amount of purulent material in Schaefer’s eye. Schaefer remained in the hospital for two weeks, during which time she was on antibiotics, suffered pain, and was unable to see out of the affected eye.

During a subsequent office visit, on August 24, 1983, Miller again determined that Schaefer’s eye was infected. On that occasion and two subsequent office visits, Miller treated Schaefer’s eye \yith laser therapy to open a membrane that was blocking her vision. After the last treatment, he told her that she had 20/40 vision in her eye. Schaefer visited Miller’s office one more time, when she received a new prescription for eyeglasses. Schaefer thereafter sought opinions of other ophthalmologists, one of whom was Dr. Dennis A. Gleicher, who later testified as an expert witness for Schaefer.

Schaefer filed a medical malpractice claim against Miller, on October 1, 1984. A unanimous Health Claims Arbitration panel awarded Schaefer $1.00 in compensatory damages and $25,000 in punitive damages. Both parties rejected the award. Thereafter, Schaefer filed a complaint against Miller in the Circuit Court for Baltimore City. It contained two counts: (1) that Miller performed the surgery on Schaefer without informed consent and (2) that Miller failed to comport with the applicable standards of care in Schaefer’s preoperative and postoperative treatment.

Before a jury, Dr. Gleicher testified that Miller failed to comply with the required standards of care for obtaining informed consent and treating Schaefer’s post-operative infection which caused her chronic pain, retinal degeneration, decreased visual acuity and light sensitivity.

Schaefer testified that Miller did not describe the surgical procedure involved in cataract removal or the accompanying risks. Her only knowledge of cataract removal came from a portion of a television program which she had seen about two months prior to the examination. She said that she was only willing to have her cataract removed and was unaware of anything about an intraocular lens implant.

Called as an adverse witness by Schaefer, Miller produced an informed consent form purportedly signed by Schaefer for the cataract removal and the intraocular lens implantation. Schaefer disputed that she had signed the document and adduced evidence that on a previous occasion in 1978, Miller forged a patient’s signature on an informed consent form for an intraocular lens implant. Subsequently, Miller admitted at the trial to having committed this act, and to rewriting some other records. He acknowledged that he was sanctioned in 1985 by the Commission on Medical Discipline which ordered that his license to practice medicine be suspended unless, among other requirements, he include an informed consent form in each operative patient’s chart, properly dated, signed by the patient, and witnessed by a third party.

The evidence showed that the consent form, which Miller claimed Schaefer signed, was signed by Miller in both the doctor and witness signature blanks. The time and place blanks were not completed. The consent form was not part of the St. Agnes Hospital records, but was produced by Miller when Schaefer requested her medical records.

The trial judge instructed the jury on the applicable standards for determining negligence vel non. He said:

“This case then is simply a claim of negligence by a patient against her doctor and as I indicated to you at the outset of the trial, the words medical malpractice should be of no concern to you and is simply a term often used to describe a negligence action against a health care provider. What we are concerned about is simply whether or not the defendant was negligent in any way with respect to the plaintiff.”

The court also instructed the jury that it could award Schaefer punitive damages upon a finding that Miller acted with implied malice. It gave the following instruction:

“Punitive damages may only be awarded if you find that the defendant was not merely negligent, but acted with malice. That is, he acted so recklessly or outrageously as to indicate a wanton disregard for the rights, health or safety of the plaintiff or with a callous indifference to the consequences.”

On June 16, 1988 the jury returned a verdict of $350,000 in compensatory damages and $750,000 in punitive damages. Schaefer consented to a remittitur of the compensatory damages from $350,000 to $50,000. On August 5,1988 judgment was entered against Miller for $50,000 in compensatory damages and $750,000 in punitive damages.

Miller appealed to the Court of Special Appeals. He argued that the judgment for punitive damages should be reversed because the tort committed by him arose out of a contractual relationship, and there was no evidence of actual malice. The Court of Special Appeals, in an opinion by Judge Karwacki, agreed and reversed the punitive damages award. Miller v. Schaefer, 80 Md.App. 60, 559 A.2d 813 (1989). Thereafter, we granted Schaefer's petition for a writ of certiorari.

III.

In the Court of Special Appeals, Schaefer argued that Miller committed three distinct torts: fraud, battery and negligence. As to fraud, Schaefer contended that Miller fraudulently induced her to undergo the surgery when it was not necessary and, because the representation was false, no contractual relationship was created. As to the battery, Schaefer argued that by implanting an intraocular lens without any consent, Miller committed a battery upon her.

In its opinion, the intermediate appellate court pointed out that Schaefer’s complaint did not contain any allegations of fraud or battery and that her action was based solely upon two theories of negligence, namely, that Miller performed the surgery without informed consent and that Miller failed to comport with the applicable standards of care in Schaefer’s preoperative and postoperative treatment. 80 Md. App. at 72, 559 A.2d 813. It also pointed out that the jury instructions and the “issues as framed for the jury and approved by counsel on the special verdict sheet, were couched in terms of whether [Miller] conformed with the required standards of care in his treatment of [Schaefer].” ² Id. at 73, 559 A.2d 813. The court concluded that because the torts of fraud and battery were not asserted at trial, they would not be addressed on appeal, citing Maryland Rule 8-131(a). Thus, the focus of the case before the intermediate appellate court was “whether the two counts of negligence actually litigated by Schaefer arose out of a contractual relationship.” Id.

The Court of Special Appeals noted that the relationship between physician and patient is a consensual one arising out of an express or implied contract. Id. It reviewed the relevant authority regarding the relationship between physicians and patients and the nature of malpractice suits. Citing a number of Maryland cases, and analogizing medical and legal professional malpractice suits, the court determined that before a physician may be found liable for an act of medical/malpractice, it is essential that a patient-physician relationship be in existence at the time the alleged act occurred. Id. The court relied in part upon Hoover v. Williamson, 236 Md. 250, 253, 203 A.2d 861 (1964), where we said

“that ordinarily recovery for malpractice or negligence against a doctor is allowed only where there is a relationship of doctor and patient as a result of a contract, express or implied, that the doctor will treat the patient with professional skill and the patient will pay for such treatment, and there has been a breach of professional duty to the patient.”³

The court concluded that a contractual relationship arose in this case when Schaefer accepted Miller’s diagnosis that the cataract in her right eye had to be removed. Id., 80 Md.App. at 75, 559 A.2d 813. It reasoned that “[b]ased on this consensual agreement, certain obligations were created, including [Miller’s] duty to inform [Schaefer] of the procedure to be used and the risks involved as well as his duty to treat her properly.” Id. (citing Roebuck v. Steuart, 76 Md.App. 298, 325, 544 A.2d 808 (1988); Miller v. Kennedy, 11 Wash.App. 272, 522 P.2d 852, 860 (1974), aff'd per curiam, 85 Wash.2d 151, 530 P.2d 334 (1975); Woods v. Brumlop, 71 N.M. 221, 377 P.2d 520, 524 (1962)).

The court considered but found no merit in Schaefer’s contention that because her consent was not informed as to the particular type of cataract operation performed, there was no contract out of which the tort arose and thus the Testerman punitive damage rule did not apply. Citing Sard v. Hardy, 281 Md. 432, 379 A.2d 1014 (1977), the court said that a claim under the informed consent doctrine was one of negligence. Id., 80 Md.App. at 75-76, 559 A.2d 813. It said that while the jury determined that Miller did not give Schaefer sufficient information to make an independent and knowing decision to have the cataract operation, the breach of Miller’s duty to inform did not vitiate the contractual relationship between the parties. Id. at 76, 559 A.2d 813. The lack of sufficient information, the court held, rendered the consent ineffective as a defense to negligence but did not change the contractual nature of the doctor-patient relationship. It concluded that Miller’s tortious conduct arose out of the preexisting contractual relationship. In this regard, it determined that there was a sufficient nexus between Miller’s negligent acts and the contractual relationship out of which they arose. Id. at 76, 559 A.2d 813. The tort in this case, it said, consisted of nothing more than an allegedly negligent performance of a contract obligation. It therefore said that in view of the contractual relationship between the parties, to recover punitive damages for the negligence committed required that Schaefer prove actual malice under Testerman, of which there was utterly no evidence. Thus, the court reversed the judgment for punitive damages.

IV.

In her certiorari petition, Schaefer claimed that

“[t]he essence of plaintiff’s case at trial was that 1) the defendant either negligently or fraudulently failed to obtain the plaintiff’s informed consent in violation of fiduciary duties, 2) the defendant either negligently or fraudulently induced the plaintiff to have cataract surgery when it was not needed in violation of his fiduciary duties, 3) the defendant performed an intraocular lens implant without obtaining any consent, much less informed consent, also in violation of his fiduciary duties, and 4) the defendant was negligent in failing to recognize the plaintiff’s postoperative infection earlier, failed to treat it immediately, performed a vitrectomy when it should have been performed by an expert and negligently performed laser treatments on the plaintiff’s eye.”

Upon this foundation, Schaefer presented two questions in her certiorari petition:

1. Whether the verdict for punitive damages should be reinstated because the torts in this case did not arise out of a contractual relationship and therefore punitive damages may properly be obtained on a showing of implied malice.

2. Whether implied malice is the proper standard in a contract action involving a breach of fiduciary duty.

In opposing Schaefer’s petition, Miller protested that the torts of battery and fraud were never asserted at the trial. He said that “[t]here was never even a claim, let alone an issue of fraudulent inducement or battery”; rather, the plaintiffs pleadings alleged only negligence, as the Court of Special Appeals held. The only liability issues, according to Miller’s answer, were informed consent, preoperative and postoperative negligence, and causation. He maintained that because Schaefer alleged only negligence, the case was tried on that theory and was submitted to the jury only on those issues, and only pursuant to jury instructions pertinent to those issues.

V.

Before us, Schaefer argues that Testerman and its progeny establish artificial distinctions between actual ana implied malice that complicate the objectives of punitive damages. While she does not argue for a direct overruling of Testerman, she urges that we create an exception to the Testerman rule, establishing implied rather than actual malice as the standard for the recovery of punitive damages in contract actions involving a breach of fiduciary duty. Schaefer further asserts that there was fraud in the inducement of the contract in this case, which breached the doctor-patient fiduciary relationship and thus voided the contractual relationship. She claims that it was not necessary that she specially pled fraud and battery to recover punitive damages because Miller, through his wanton and egregious behavior, overstepped the line which divides negligence from fraud in a medical malpractice case. In this regard, she says that the allegations of her complaint are not essentially contractual in nature, but rather relate to tortious conduct evidencing a breach of fiduciary duty, and thus implied malice is the approved standard for an award of punitive damages. During oral argument, Schaefer candidly admitted that she consciously declined to allege breach of a fiduciary duty as a separate count for several reasons, one of which was to avoid the risk of denial of insurance coverage under Miller’s malpractice policy.

We agree with the Court of Special Appeals that a contractual relationship existed between Miller and Schaefer and that it was not vitiated by Miller’s tortious conduct. We also agree with that court that Schaefer’s failure to allege the independent torts of breach of a fiduciary duty and battery foreclose her from seeking an exception to the Testerman rule in contract actions involving a breach of fiduciary duty.

On the record before us, we conclude that the negligence in this case arose out of a contractual relationship which preexisted the tortious conduct; and that the negligence “found its source in the contract without which the wrong would not have been committed.” See Wedeman v. City Chevrolet Co., supra, 278 Md. at 529, 366 A.2d 7. And, as we later said in General Motors Corp. v. Piskor, 281 Md. 627, 640, 381 A.2d 16 (1977), in refining the requirements for torts arising out of contracts, there must “be a direct nexus between the tortious act and performance or breach of the terms and conditions of the parties’ underlying contract.” In that case, we recognized that the common thread in such cases was that “the tortious conduct and the contract were so intertwined that one could not be viewed in isolation from the other____ [In some cases], the tort consisted of nothing more than an allegedly negligent performance of contract obligations____ In one form or another, then, the tort arose directly from performance or breach of the contract.” Id. at 637, 381 A.2d 16.

It may be, as Chief Judge Gilbert said in his concurring opinion in this case, 80 Md.App. at 78, 559 A.2d 813, that no other jurisdiction has adopted the reasoning of Testerman. This reflects in part the wide diversity of reasons utilized across the country governing the award of punitive damages. For example, some states refuse to recognize punitive damages; others prohibit such damages unless expressly authorized by statute; still others limit punitive damages to costs of litigation. By statute in two states, punitive damages have been abolished against certain health care providers. See Ill.Ann.Stat. ch. 110, para. 2-1115 (SmithHurd 1983, 1989 Cum.Supp.); Or.Rev.Stat. § 18.550(1) (1989). Medical malpractice cases in some states differentiate between malfeasance, misfeasance and nonfeasance in punitive damage awards. See 2 Ghiardi & Kircher, Punitive Damages Law and Practice, §§ 17.04-17.07 (1985, 1989 Cum.Supp.). Other states have established other rules governing punitive damage awards, which, we think, reflect our determination in Testerman to formulate a workable standard for the award of punitive damages in various kinds of causes of action. As we said in General Motors Corp., supra 281 Md. at 639, 381 A.2d 16:

“Recognizing that torts arising out of contractual relationships exhibit characteristics of both tort and contract actions, we sought in Testerman to fashion a workable rule governing the recovery of punitive damages which would be more stringent than that applied in pure tort cases, but which at the same time would allow the possibility of recovery where the particular conduct clearly warranted the imposition of such damages.”

Finally, we allude again to Miller Building Supply v. Rosen, supra, a case in which an employer sued two of its former salesmen for fraud, civil conspiracy, and breach of fiduciary duty. There, the employer’s claims arose from the employment contracts between the employer and its former employees. 305 Md. at 348-49, 503 A.2d 1344. In that case, “[w]e decline[d] [the employer’s] invitation to create a fraud exception to the Testerman rule.” Id. at 355, 503 A.2d 1344.

We thus conclude that the award of punitive damages in this case was contrary to our holding in Testerman and was therefore properly reversed.

JUDGMENT AFFIRMED, WITH COSTS.

RODOWSKY and McAULIFFE, JJ., concur.

ELDRIDGE, J., concurs in the judgment with an opinion in which CHASANOW, J., and COLE, J. (Retired) join.

1 . In his brief, Miller asserts that intraocular lens implants are a standard technique in treating cataracts, and that they were “used in 90% of the cases at the time of [Schaefer's] operation, and in 95-98% of the cases at the time of trial.”

2 . The issues as framed on the special verdict sheet were as follows:

“1. Did the defendant comply with the standards of care applicable to him in making an adequate disclosure of material facts to the plaintiff relative to the treatment which she underwent, and did she knowingly and intelligently agree to this procedure being done?

"2. Did the defendant comply with the standards of care applicable to him in all of his pre-operative procedures and post operative care with respect to the plaintiff?

"3. If your answer to issue 1 or 2 is ‘no’, do you find that any such breach of standard of care by the defendant was the proximate cause of any injury, loss or damage to the plaintiff?

“4. If your answer to issue 3 is ‘yes’, in what amount do you award compensatory damages to the plaintiff?

"5. If you have awarded compensatory damages to the plaintiff, you may but are not required to award to the plaintiff punitive damages as well. Punitive damages may only be awarded if you find that the defendant was not merely negligent but acted with malice, that is he acted so recklessly or outrageously as to indicate a wanton disregard for the rights, health or safety of the plaintiff, or a callous indifference to the consequences. If you do award punitive damages, in what amount do you award them?”

3 . In Hoover, we recognized that a physician may incur a tort obligation under nonconsensual circumstances and independent of contract if he “assumes to act, even though gratuitously.” 236 Md. at 253, 203 A.2d 861.