Louisiana Health Care Group, Inc. v. Allegiance Health Management, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

09-1093

LOUISIANA HEALTH CARE GROUP, INC.

VERSUS

ALLEGIANCE HEALTH MANAGEMENT, INC., ET AL.

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APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF LAFAYETTE, NO. C-2007-6693
HONORABLE HERMAN C. CLAUSE, DISTRICT JUDGE

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ULYSSES GENE THIBODEAUX
CHIEF JUDGE

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Court composed of Ulysses Gene Thibodeaux, Chief Judge, Oswald A. Decuir, and
Elizabeth A. Pickett, Judges.

AFFIRMED.

Gregory David Frost
Scott Nikolaus Hensgens
Eric B. Landry
Breazeale, Sachse & Wilson, L.L.P.
P. O. Box 3197
Baton Rouge, LA 70821-3197
Telephone: (225) 387-4000
COUNSEL FOR:
Plaintiff/Appellee - Louisiana Health Care Group, L.L.C.

Richard E. Hiller
Shuey, Smith, LLC
401 Edwards Street - 13th Floor
Shreveport, LA 71101
Telephone: (318) 221-8671
COUNSEL FOR:
Defendants/Appellants - Allegiance Health Management, Inc.,
Bienville Medical Center, and Rock Bordelon

THIBODEAUX, Chief Judge.

Pursuant to a 2007 “Stock Sale Agreement,” the plaintiff-appellee,

Louisiana Health Care Group, L.L.C. (LHC), sold its one hundred percent (100%)

interest in Bienville Medical Center, Inc. (Bienville) to Allegiance Health

Management, Inc. (Allegiance). The Agreement provided for the retention by LHC

of certain account-receivable assets. Upon the collection of these receivables,

however, neither Bienville nor Allegiance remitted the funds to LHC.

LHC filed a Motion for Partial Summary Judgment (Motion) against

Allegiance and Bienville seeking payment of the amounts owed. The trial court

awarded LHC $575,696.68 for the accounts receivable and held Allegiance and

Bienville liable in solido for the amount owed plus interest, attorney fees, and court

costs. Allegiance and Bienville filed a suspensive appeal. For the reasons fully set

forth below, we affirm the judgment of the trial court.

I.

ISSUE

We must decide whether the trial court erred in granting the Motion for

Partial Summary Judgment filed by the plaintiff-appellee, Louisiana Health Care

Group, L.L.C., finding the defendants-appellants, Allegiance Health Management,

Inc., and Bienville Medical Center, Inc., liable in solido for $575,696.68.

II.

FACTS

In May of 2007, LHC agreed to sell all of its stock in Bienville Medical

Center to Allegiance for $180,000.00. However, pursuant to the Stock Sale

Agreement (Agreement) between LHC and Allegiance, LHC retained or excluded

certain assets from the sale under section three, entitled “Excluded Company Assets.”

Bienville was the subject of the sale and was referred to in the Agreement as

“Company.” At sections 3(B), 3(C) and 3(D), respectively, LHC retained “all

amounts payable and accounts receivable for services provided [by Bienville] prior

to the Effective Date” of July 1, 2007; “all Medicare and Medicaid cost report

settlements for cost reporting periods ending on or before the Effective Date;” and,

“all Uncompensated Care Distributions and Disproportionate Share Hospital

payments received by the Company [Bienville] during calendar year 2007.” The

effective date of the Agreement, July 1, 2007, coincided with the fiscal year which

ran from July 1 of each year through June 30 of the following year.

In November of 2008, having received none of the payments as provided

for under the Agreement, LHC filed a Motion for Partial Summary Judgment alleging

breach of contract, conversion, and unjust enrichment. As evidence, LHC attached

a copy of Bienville’s responses to LHC’s Request for Admissions, wherein Bienville

admitted to having received $431,604.49 in Medicare and/or Medicaid payments for

services rendered prior to July 1, 2007. Likewise, the responses also contained an

admission by Bienville that it had received $237,031.00 in Medicare and/or Medicaid

cost report settlements for the “year ended December 31, 2006.” LHC also attached

remittance printouts and other evidence showing the receipt by Bienville of an

additional $46,482.54 for services rendered between January 5 and June 30 of 2007.

Based upon the foregoing admissions and printouts, LHC asserted that

Bienville had received a total of $715,118.03 for services rendered during the periods

described in the Excluded Company Assets that Allegiance and LHC agreed upon as

being owned by, retained by, and reserved to LHC under the terms of the Stock Sale

Agreement. LHC further stipulated that it had received $139,421.35 for services

rendered by Bienville after the effective date of the Agreement. Applying a set-off

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in favor of Allegiance for that amount, LHC requested summary judgment in its favor

in the amount of $575,686.68, the difference between the receivables owed to LHC

and the set-off applied by LHC. The trial court found in favor of LHC, and in its

judgment dated March 10, 2009, the trial court granted the amount requested. In a

subsequent “Amended Judgment” dated March 30, 2009, the trial court designated

the prior judgment as final pursuant to La.Civ.Code art. 1915(B)(1). In a second

judgment dated March 30, 2009, the trial court, pursuant to the Stock Sale

Agreement, awarded LHC $42,487.75 in judicial interest, attorney fees and costs.

Allegiance and Bienville filed a Motion for a New Trial, which, after a hearing on the

matter, was denied, pursuant to judgment dated May 14, 2009.

Allegiance and Bienville appealed the original “Judgment” of March 10,

awarding LHC $575,686.68, and appealed the “Amended Judgment” of March 30,

2009, designating the original judgment as final. They did not appeal the additional

March 30 judgment awarding interest, costs and attorney fees. Nor did they appeal

the May 14 judgment denying the new trial. Therefore, while the defendants-

appellants assigned as error the trial court’s denial of a new trial and argued the issue

in their appellate brief, the motion and order for this appeal clearly did not include the

May 14, 2009 judgment denying the new trial. Accordingly, we will not address the

issues or the evidence referenced in the Motion for New Trial but will limit this

decision to the Motion for Summary Judgment granted in favor of LHC and against

the appellants, Allegiance and Bienville, in solido.

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III.

LAW AND DISCUSSION

Standard of Review

A motion for summary judgment will be granted “if the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to material fact and that

mover is entitled to judgment as a matter of law.” Sher v. Lafayette Ins. Co., 07-2441

p. 5 (La. 4/8/08), 988 So.2d 186, 192. Using the same criteria, courts review a grant

or a denial of a motion for summary judgment de novo. Id.

Breach of Contract

Allegiance contends that the trial court erred in granting partial summary

judgment to LHC and against Allegiance under a breach of contract theory because

Allegiance never received the funds from Medicare or Medicaid and did not breach

the contract by failing to deliver funds that it never received. Rather, Allegiance

argues that the funds were received by Bienville and that Bienville, which was not a

party to the Stock Sale Agreement, is under no obligation to transmit the receivables

to LHC.

The Stock Sale Agreement provides that LHC is transferring its

ownership of one hundred percent (100%) of Bienville’s outstanding stock to

Allegiance for consideration in the amount of $180,000.00. However, the Agreement

also provides, under section three (3), “Excluded Company Assets,” that “the parties

agree” that the seller, LHC, “shall retain all rights, title and interest” in and to the

following:

A. Any and all bank accounts, and prior to the Effective
Date Company shall transfer and assign to Seller all its
rights, title and interest in and to Company’s bank

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account which receives remittances from third party
payors, including Medicare . . . .

B. Any and all amounts payable and accounts receivable
for services provided prior to the Effective Date . . . .

C. Any and all Medicare and Medicaid cost report
settlements for cost reporting periods ending on or before
the Effective Date, and

D. Any and all rights to any [and] all Uncompensated Care
Distributions and Disproportionate Share Hospital
payments received by [Bienville] during calendar year
2007. . . .

Therefore, while Bienville was not a party to the Agreement, it was the

subject of the Agreement. Allegiance agreed that funds generated by its newly

acquired company, Bienville, prior to July 1, 2007, and not yet received (hence,

outstanding accounts receivable), would not be part of the sale but would be retained

by, and remitted to, LHC. The argument that Allegiance had no contractual

obligation under the Agreement to obtain the receivables from Bienville, which it

now owned, and to deliver those receivables to LHC, or to cause Bienville to remit

the receivables directly to LHC, has no merit. “Future things [such as amounts

payable and accounts receivable] may be the object of a contract.” La.Civ.Code art.

1976. Moreover, pursuant to La.Civ.Code art. 1977, and the Agreement, Allegiance

is obligated for the performance of Bienville. More specifically, our Civil Code

provides:

Art. 1977. Obligation or performance by a third person

The object of a contract may be that a third person
will incur an obligation or render a performance.

The party who promised that obligation or
performance is liable for damages if the third person does
not bind himself or does not perform.

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Accordingly, under articles 1976 and 1977, Allegiance agreed in writing

that its newly acquired company, Bienville, would reserve for LHC the future

collections, or future payments on accounts receivable, for certain Medicare and/or

Medicaid payments and for designated services that Bienville provided prior to July

1, 2007. Through the Agreement, Allegiance promised to LHC that Bienville would

render performance by remitting the receivables that it collected, and because

Bienville has not performed, Allegiance is liable for the payments. Because

Allegiance has not remitted the payments for which it is liable, it has breached its

contract with LHC. The trial court did not err in finding breach of contract.

Conversion

Allegiance argues, in a somewhat contorted effort to create an issue of

fact, that it is unknown what the Agreement contemplated, but that Allegiance could

not have converted funds that it never received, and Bienville could not have

converted funds if it were not a party to the Agreement. Ostensibly quoting Dual

Drilling Co. v. Mills Equipment Investments, Inc., 98-0343 (La. 12/1/98), 721 So.2d

853,1 Allegiance defines conversion as “a distinct act of dominion wrongfully exerted

over another’s property in denial of or inconsistent with the owner’s rights therein.”

The quote by Allegiance is not found in Dual Drilling. Nonetheless, it is a fair, but

incomplete definition. Allegiance limits its definition of conversion and questions

whether the Agreement contemplates the receipt of funds by Allegiance “in exactly

the manner in which the funds at issue were received,” thereby implying no wrongful

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Conversion “is grounded on the unlawful interference with the ownership or possession of
a movable . . . . A conversion is committed when any of the following occurs: 1) possession is
acquired in an unauthorized manner; 2) the chattel is removed from one place to another with the
intent to exercise control over it; 3) possession of the chattel is transferred without authority; 4)
possession is withheld from the owner or possessor; 5) the chattel is altered or destroyed; 6) the
chattel is used improperly; or 7) ownership is asserted over the chattel.” Dual Drilling Co., 721
So.2d at 857.

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dominion. However, the definition of conversion is broader than argued. That is to

say,

The tort of conversion is an intentional act done in
derogation of the plaintiff’s possessory rights. It is
committed when one wrongfully does any act of dominion
over the property of another in denial of or inconsistent
with the owner’s rights. Any wrongful exercise or
assumption of authority over another’s goods, depriving
him of the possession, permanently or for an indefinite
time, is a conversion. Although a party may have rightfully
come into possession of another’s goods, the subsequent
refusal to surrender the goods to one who is entitled to
them may constitute conversion.

Kinchen v. Louie Dabdoub Sell Cars, Inc., 05-218 (La.App. 5 Cir. 10/6/05), 912

So.2d 715, 718 (emphasis added) (citations omitted), writ denied, 05-2356 (La.

3/17/06), 925 So.2d 544.

In its discovery responses to LHC’s Request for Admissions, Bienville

admitted to having received $431,604.49 in Medicare and/or Medicaid payments for

services rendered prior to July 1, 2007. Likewise, the responses also contained an

admission by Bienville that it had received $237,031.00 in Medicare and/or Medicaid

cost report settlements for the “year ended December 31, 2006.” Due to these

admissions by Bienville, and the above discussed liability of Allegiance for the non-

performance of Bienville, Allegiance’s self-serving and self-created dispute over the

fact of the receipt of funds cannot materially affect the propriety of summary

judgment in this case. Allegiance argues that neither it nor Bienville acquired

possession of funds in any unauthorized manner such that the tort of conversion has

been proved.

However, while the initial, and admitted, receipt of the funds by

Bienville may not have been wrongful, Bienville’s and Allegiance’s subsequent

refusals to surrender the funds to LHC, pursuant to the contract, constitute a

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conversion of the funds for use by the defendants and against the rights and interests

of LHC. Whether they used the funds for operations, payment of bills, or for

investment purposes, their use of the funds prevented LHC from using the funds for

their own purposes. The trial court did not err in finding that defendants converted

the LHC funds to their own use.

In summary, Allegiance argues that summary judgment is inappropriate

because there are disputed issues of material fact. Allegiance contends that the

Agreement is unclear and ambiguous as to when payments for services rendered by

Bienville were to be applied and to whom. This argument has no merit. As shown

above, the Agreement is very clear. The receivables for services rendered by

Bienville prior to July 1, 2007, the effective date of the sale and Agreement, were

excluded from the sale and were to be paid to LHC when collected. Under

La.Civ.Code arts. 1976 and 1977, the future amounts collected on Bienville’s

accounts payable and receivable for services before the effective date were designated

in the Agreement as belonging to LHC, and Allegiance contracted for and promised

performance by Bienville for the delivery of those payments.

For these same reasons, contrary to Allegiance’s assertions, it is

immaterial whether Allegiance actually received the funds itself, and it is immaterial

that Bienville was not a party-signatory on the Agreement. To the extent that

Allegiance disputes the amount of credit and setoff that Allegiance and/or Bienville

are owed, the amount of additional credits was not raised until the motion for a new

trial, which is not on appeal. Moreover, setoff is an affirmative defense. Because

LHC clearly showed the amounts owed to LHC, through the introduction of the

Agreement and the admissions by Bienville, the burden shifted to Allegiance and

Bienville to show that it could prove any affirmative defense that would defeat

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summary judgment. John C. Bose Consulting Engineer, LLC v. John T. Campo &

Associates, Inc., 07-1001 (La.App. 4 Cir. 2/20/08), 978 So.2d 1033, writ denied, 08-

0643 (La. 5/09/08), 980 So.2d 696. Allegiance and Bienville did not carry that

burden. Accordingly, we find no issue of material fact to prevent summary judgment

in this matter.

Because we have found Allegiance liable under breach of contract and

have found Allegiance and Bienville liable under tortious conversion of LHC assets,

and because we have found no issue of material fact to preclude summary judgment,

we need not discuss the other two theories of liability, equitable estoppel and unjust

enrichment.

IV.

CONCLUSION

Based upon the foregoing, we affirm the trial court’s judgment granting

summary judgment in favor of LHC. All costs of this appeal are assessed against

Allegiance Health Management, Inc. and Bienville Medical Center, Inc.

AFFIRMED.

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