Vermilion Hospital, Inc. v. John Patout

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

05-82

VERMILION HOSPITAL, INC.

VERSUS

JOHN PATOUT, ET AL.

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APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF ACADIA, NO. 82080
HONORABLE EDWARD RUBIN, DISTRICT JUDGE

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SYLVIA R. COOKS
JUDGE
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Court composed of Ulysses Gene Thibodeaux, Chief Judge, Sylvia R. Cooks and J.
David Painter, Judges.

AFFIRMED.

D. Reardon Stanford
Hoyt, Hodge & Stanford, L.L.C.
315 South College Road
Lafayette, LA 70503
(337) 234-1012
COUNSEL FOR PLAINTIFF/APPELLANT:
Vermilion Hospital, Inc.

Nicholas Gachassin, III
Danielle E. DeKerlegand
The Gachassin Law Firm
P.O. Box 80369
Lafayette, LA 70598-0369
(337) 235-4576
COUNSEL FOR DEFENDANTS/APPELLEES:
John Patout and PsychManagement Partners, L.L.C.

F. Douglas Wimberly
Cloyd, Wimberly & Villemarette, L.L.C.
900 South College Road, Suite 200
P.O. Box 53951
Lafayette, LA 70505-3951
(337) 289-6906
COUNSEL FOR DEFENDANT/APPELLEE:
Acadia-St. Landry Hospital Service District

COOKS, Judge.

Vermilion Hospital appeals the trial court’s grant of the defendants’ exception

of no cause of action, dismissing its claims with prejudice. For the following reasons,

we affirm.

FACTS AND PROCEDURAL HISTORY

Acadia-St. Landry Hospital is a hospital located in Church Point, Louisiana,

that is managed by the Board of Commissioners for the Acadia-St. Landry Hospital

Service District. In the late 1990's, Acadia-St. Landry Hospital began operating at a

loss. Due to this financial situation, it was recommended that it seek “Critical Access

Hospital” (CAH) status. Such status would increase the medicare reimbursement

payments to the hospital, and could help alleviate its financial concerns.

Acadia-St. Landry Hospital maintained its own psychiatric unit that was

managed by PsychManagement Partners, L.L.C., which was wholly owned by John

Patout. However, according to then-existing Medicare regulations, a hospital could

not obtain CAH status if it also had a “distinct part psychiatric unit.” Thus, Acadia-

St. Landry could not maintain its own psychiatric unit if it wished to acquire CAH

status. However, the hospital could obtain CAH status if it leased space to another

provider who could provide psychiatric services to its patients. Under such a

scenario, psychiatric services would still be available at Acadia-St. Landry Hospital.

In furtherance of this plan, Vermilion Hospital, Inc., which owns and operates

Vermilion Hospital, a psychiatric hospital in Lafayette Parish, was contacted about

leasing space from Acadia-St. Landry Hospital and providing psychiatric services.

Vermilion Hospital made a proposal to lease the space. Vermilion Hospital received

no response to the proposal, and submitted a second proposal. This proposal also has

not been acted upon.

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Vermilion Hospital filed suit alleging PsychManagement Partners and John

Patout blocked the acceptance of Vermilion’s proposal. Acadia-St. Landry Hospital

Service District was also named as a defendant. Vermilion Hospital alleged Patout

was hired by Acadia-St. Landry’s Board of Supervisor’s as “Hospital Chief Executive

Officer and/or Consultant to the Board.” They contended in this role Patout’s

“responsibility was to review the operations and management of the Hospital and

make recommendations to the Board regarding same.” Vermilion Hospital asserted

the defendants “conspired to block the Hospital’s attainment of CAH status and to

reject and/or refuse to accept the Vermilion proposals, despite the fact that the

proposals were in the best interests of the Acadia-St. Landry Hospital to prevent

Patout and/or PsychManagement from losing its ongoing contact with the Hospital.”

Vermilion contended this arrangement was a clear and obvious conflict of interest and

unethical under the law, and amounted to a conspiracy that injured Vermilion

Hospital.

In response to the suit, Defendants filed exceptions of vagueness and no cause

of action against Vermilion Hospital. Additionally, Patout and PsychManagement

Partners filed an exception of prescription and a motion for sanctions. After a

hearing, the trial court granted the exception of no cause of action and dismissed

Vermilion’s claims with prejudice. The trial court noted during the hearing that it

was a “giant leap” to say that, in the role of consultant, defendant principally engaged

in a conspiracy to injure Vermilion. The judgment was silent as to the other

exceptions. Vermilion appealed the trial court’s judgment granting the exception of

no cause of action.

ANALYSIS

A peremptory exception of no cause of action presents a question of law, which

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we review de novo, applying the same standard as that applied by the trial court.

Craft v. Allstate Ins. Co., 95-160 (La.App. 3 Cir. 8/30/95), 663 So.2d 116, writ

denied, 95-2403 (La. 12/15/95), 664 So.2d 454. The exception tests the legal

sufficiency of the petition, and is triable on the face of the papers. City of New

Orleans v. Board of Dirs. of La. State Museum, 98-1170 (La. 3/2/99), 739 So.2d 748.

No evidence is admissible in support of or in opposition to the exception. Jones v.

Tezeno, 99-1693 (La.App. 3 Cir. 3/1/00), 758 So.2d 896. To withstand the exception,

the petition must set forth the material facts upon which the cause of action is based.

Kahn v. Jones, 95-259 (La.App. 3 Cir. 11/2/95), 664 So.2d 700. A petition which

simply sets forth factual conclusions without supplying facts to support those

conclusions is insufficient. Id.

Vermilion argues on appeal that the conspiratorial conduct of the defendants

was a violation of public policy constituting an unfair trade practice; and it therefore

states a cause of action. The Louisiana Unfair Trade Practices and Consumer

Protection Act (LUTPA) states that “[u]nfair methods of competition and unfair or

deceptive acts or practices in the conduct of any trade or commerce are hereby

declared unlawful.” La.R.S. 51:1405. It confers a right of action on any person who

“suffers any ascertainable loss of money or movable property, corporeal or

incorporeal,” for actual damages resulting from unfair trade practices, in addition to

court costs and attorney fees. La.R.S. 51:1409. The determination of what is an

unfair trade violation must be made on a case-by-case basis. Copeland v. Treasure

Chest Casino, L.L.C., 01-1122 (La.App. 1 Cir. 6/21/02), 822 So.2d 68.

The jurisprudence has held that there is no LUTPA violation when the alleged

conduct is simply “the appropriate exercise of good business judgment and the proper

workings of free enterprise.” Monroe Medical Clinic, Inc. v. Hospital Corp. of

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America, 522 So.2d 1362, 1365 (La.App. 2 Cir. 1988). Stated another way,

“[b]usinesses in Louisiana are still free to pursue profit, even at the expense of

competitors, so long as the means used are not egregious.” Turner v. Purina Mills,

Inc., 989 F.2d 1419, 1422 (5th Cir.1993).

Except for the Louisiana First Circuit Court of Appeals, Louisiana courts, both

state and federal, have uniformly held the personal right of action granted under

LUTPA applies only to direct consumers or to business competitors. See National

Gypsum Co. v. Ace Wholesale, Inc., 98-1196 (La.App. 5 Cir. 6/1/99), 738 So.2d 128;

Monroe Medical Clinic, Inc., 522 So.2d 1362; Gil v. Metal Serv. Corp., 412 So.2d

706 (La.App. 4 Cir.), writ denied, 414 So.2d 379 (La. 1982); Tubos de Acero de

Mexico, S.A. v. American Int’l. Inv. Corp., Inc., 292 F.3d 471 (5th Cir. 2002);

Cashman Equip. Corp. v. Acadian Shipyard, Inc., 2002 WL 1433876 (E.D.La. 2002)

. Only the first circuit has given the statute a broader reading, and held that any

person who suffers any ascertainable loss as a result of an act or practice declared

unlawful by La.R.S. 51:1405 may bring an action individually but not in a

representative capacity to recover actual damages. See Plaquemine Marine, Inc. v.

Mercury Marine, 03-1036 (La.App. 1 Cir. 7/25/03), 859 So.2d 110; Capitol House

Preservation Co. v. Perryman Consultants, Inc., 98-1514 (La.App. 1 Cir. 12/10/98),

725 So.2d 523, writ denied, 99-548 (La. 4/9/99), 740 So.2d 637; Jarrell v. Carter,

577 So.2d 120 (La.App. 1 Cir.), writ denied, 582 So.2d 1311 (La.1991); Roustabouts,

Inc. v. Hamer, 447 So.2d 543 (La.App. 1 Cir.1984). However, we note, although

several panels on the first circuit have given an expansive interpretation to the

statute’s protective reach, other panels have decided to follow the other circuits more

restrictive holding that the personal right of action granted under LUTPA applies only

to direct consumers or to business competitors. See Thibaut v. Thibaut, 607 So.2d

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587 (La.App. 1 Cir. 1992), writ denied, 612 So.2d 38 (La. 1993). We elect to follow

the prevailing jurisprudence. Thus, Vermilion must show that it is either a consumer

or business competitor of PsychManagement and John Patout. Likewise, it must

show it is either a consumer or business competitor of Acadia-St. Landry Hospital.

Nothing in Vermilion’s petition suggests that it qualifies as a consumer of any

services provided by these defendants. Thus, to satisfy the standing requirement of

LUTPA, Vermilion must establish it engages in business that competes directly or

indirectly with the defendants as a business competitor. Tubos de Acero de Mexico,

S.A., 292 F.3d at 480.

While defendants elected to file only the exception of no cause of action,

La.Code Civ.P. art. 927(B) provides this court may recognize a no right of action

exception on its own motion. The exception of no right of action and the exception

of no cause of action have different functions. As stated by our supreme court in

Babineaux v. Pernie-Bailey Drilling Co., 261 La. 1080, 1095-97, 262 So.2d 328, 333-

34 (1972):

There has been much discussion about the purpose of the
exception of no right of action, and many attempts to differentiate that
exception from the exception of no cause of action. One of the best
statements of the definition of no right of action and of the basis of the
distinction between it and no cause of action was given by the late
Henry George McMahon: “The former (no cause of action) is used to
raise the issue as to whether the law affords a remedy to anyone for the
particular grievance alleged by plaintiff; the latter [no right of action]
is employed (in cases where the law affords a remedy) to raise the
question as to whether plaintiff belongs to the particular class in whose
exclusive favor the law extends the remedy, or to raise the issue as to
whether plaintiff has the right to invoke a remedy which the law extends
only conditionally.” McMahon, The Exception of No Cause of Action
in Louisiana, 9 Tul.L.Rev. 17, 29-30. See also McMahon, Parties
Litigant in Louisiana, 11 Tul.L.Rev. 529-30. . . .

In Bielkiewicz v. Rudisill, 201 So.2d 136 (La.App. 3rd Cir.1967),
Mr. Justice Tate of our court, then writing for the Court of Appeal,
correctly stated the purpose of the exception of no right of action:

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“The want of interest raised by the exception relates primarily to
whether the particular plaintiff falls as a matter of law within the general
class in whose favor the Law grants the cause of action sought to be
asserted by the suit, with the factual evidence admissible being restricted
as to whether this particular plaintiff does or does not fall within the
general class having legal interest to sue upon the cause of action
asserted.” * * *

“In short, the objection of no right of action raises the question of
whether the plaintiff has a legal interest in the subject matter of the
litigation, assuming (for the purpose of deciding the exception) that a
valid cause of action is pleaded by the petition. LeSage v. Union
Producing Co., 249 La. 42, 184 So.2d 727.”

We turn first to address Vermilion’s standing to assert a claim under LUTPA against

the defendants.

Standing: No Right of Action

I. PsychManagement and John Patout

LUTPA does not grant a right of action to every person or business entity that

is a victim of unethical or unfair business practices.1 To have standing under LUTPA,

Vermilion must engage in business that competes directly or indirectly with

PsychManagement as a business competitor. Tubos de Acero de Mexico, S.A., 292

F.3d at 480. Vermilion’s petition contradicts its allegation that “John Patout and

PsychManagement Partners, L.L.C. are its competitors relative to providing

psychiatric care.” The petition discloses, at all relevant times, PsychManagement and

John Patout, as a business, functioned solely as a management firm employed by

Acadia-St. Landry Hospital, who owned and continues to own and operate a

psychiatric unit as part of its hospital business. In addition to the allegation noted

above, Vermilion’s petition states:

1
Vermilion alleges Acadia-St. Landry, in appointing John Patout as a consultant to the
Board of Commissioners of the Hospital, created a conflict of interest prohibited by the Louisiana
Code of Ethics. Not all violations of the Louisiana Code of Ethics give rise to a cause of action
under LUTPA or the general tort law. Persons aggrieved by such conduct are permitted to file a
complaint with the Louisiana Board of Ethics and to seek remedies or punishments available under
the special provisions of the Code of Ethics.

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13.

At the time, and, on information and belief, continuing to this day,
the [Acadia-St. Landry] Hospital had a distinct part psychiatric unit at
the hospital.

14.

At least as of July of 1992, this unit was managed by the
Defendant, PsychManagement Partners, L.L.C., which company, on
information and belief, is wholly owned by the Defendant, John Patout.

16.

This management was by way of contract between the applicable
entity and/or Defendant, Patout, and the Hospital for a fee or other
compensation.

Other than plaintiff’s barebones allegation that “John Patout and PsychManagement

Partners, L.L.C. are its competitors relative to providing psychiatric care,” nothing

in the petition suggests that PsychManagement and John Patout actually were

engaged directly or indirectly in the business of providing psychiatric services to

patients. We find Vermilion lacks standing to bring a LUTPA claim against

PsychManagement and Patout because the petition fails to disclose that Vermilion

and PsychManagement in fact are “competitors” under LUTPA. Although plaintiff

alleges that PsychManagement and John Patout contracted to provide management

services to Acadia-St. Landry by contract for “a fee or other compensation,” the

relationship between the parties is not thereby materially altered. PsychManagement

is not engaged in the business of providing psychiatric care. Vermilion further

alleges in its petition that “Patout made an unsuccessful bid (whether alone or in

conjunction with other investors) to purchase Vermilion Psychiatric Hospital prior

to the sale of said hospital to its current ownership.” However, Patout did not acquire

Vermilion nor is it alleged in the petition that Patout has owned or operated any other

psychiatric care unit or at any point engaged in the business of providing psychiatric

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care. The petition, read in the light most favorable to the plaintiff, recites facts that

identifies PsychManagement and Patout’s role as falling within the classification of

in-house management or independent management whose services are provided to

Acadia-St. Landry Hospital by virtue of a contract of employment. In either instance,

these defendants are not providing psychiatric care.

In National Gypsum Co., 738 So.2d 128, the appellate court found a distributor

of a supplier’s products was not a business competitor nor a consumer, and, therefore,

was not within the class to which LUTPA provides a remedy. It rejected the

distributor’s argument that it fit within the class of persons who have standing under

LUTPA because “[b]y definition, a distributor has the potential to compete with the

supplier by simply obtaining a different supplier of the same or similar products.” Id.

at 130. Vermilion simply has failed to prove it is a business competitor of

PsychManagement and Patout; and, thus, it lacks standing under LUTPA to bring a

claim against these defendants.

II. Acadia-St. Landry Hospital.

In the case of Acadia-St. Landry Hospital, it is apparent that Vermilion and

Acadia-St. Landry are competitors under LUTPA. Both hospitals are in the same

business of providing psychiatric services. Therefore, Vermilion has standing under

LUTPA to file suit against Acadia-St. Landry Hospital.

No Cause of Action

Despite its standing to bring suit, Vermilion’s petition does not set forth a

viable cause of action under LUTPA against Acadia-St. Landry. There is nothing in

the provisons of LUTPA that requires Acadia-St. Landry to divest itself of ownership

of the at issue psychiatric unit even if maintaining it is not economically prudent.2

2
Vermilion’s own petition makes an argument that Acadia-St. Landry’s action in not
accepting Vermilion’s proposal was, in fact, a reasonable, if not wise, business decision. In

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This case does not involve separate business entities competing to lease the

Hospital’s psychiatric facility. In its petition, Vermilion contends Acadia-St. Landry

is operating at a loss and its decision to maintain its own psychiatric facilities is

financially injurious to it. An unwise business decision does not in and of itself

create an unfair trade practice. Such a decision, even if unwise, falls within the

parameters of a permissible business judgment. Acadia-St. Landry Hospital Service

District’s decision to continue its existing contract with PsychManagement rather

than restructure the hospital in an attempt to gain CAH status, is not a business choice

LUTPA was designed to regulate.

DECREE

For the foregoing reasons, the judgment of the trial court dismissing

Vermilion’s claims with prejudice is affirmed. Costs of this appeal are assessed

against appellant, Vermilion Hospital.

AFFIRMED.

paragraph 43 of its petition, Vermilion states the defendants “have continued to conspire to prevent
the Hospital from obtaining CAH status until such time as CAH status could be obtained without
the necessity of cancelling the contract with PsychManagement Partners, L.L.C. and/or John Patout.”
This acknowledges that Acadia-St. Landry, in time, may have been able to obtain CAH status and
still operate its own psychiatric unit deriving a net profit on its total operation. Clearly, this would
provide a reasonable basis for its refusal to accept Vermilion’s proposal.

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