Matthews v. Stolier

• Court: U.S. District Court — Eastern District of Louisiana
• Writing for the Court: JANE TRICHE MILAZZO, UNITED STATES DISTRICT JUDGE
• Citation: Matthews v. Stolier, 207 F.Supp.3d 678 (E.D. La. 2016)
• Decision Date: 13 September 2016
• Docket Number: CIVIL ACTION NO: 13-6638
• Parties: Charles MATTHEWS, et al v. Jack STOLIER, et al.

207 F.Supp.3d 678

Charles MATTHEWS, et al

v.Jack STOLIER, et al.

CIVIL ACTION NO: 13-6638

United States District Court, E.D. Louisiana.

Signed September 13, 2016

Marie Olympia Riccio, Marie Riccio Wisner, Attorney at Law, Yvette Anne D'Aunoy, Middleberg Riddle Group, Lanny R. Zatzkis, Zatzkis, McCarthy & Associates, LLC, New Orleans, LA, for Charles Matthews, et al.

Richard C. Stanley, Thomas P. Owen, Jr., Stanley, Reuter, Ross, Thornton & Alford, LLC, Cassandra Hewlings, Krebs, Farley & Pelleteri, LLC, Stephen Charles Resor, Amy Dunn Hotard, Marcelle P. Mouledoux, Salley, Hite, Mercer & Resor, L.L.C., David Scranton Daly, Frilot L.L.C., Elizabeth A. Roussel, Justin Boron, Adams & Reese, LLP, Sidney W. Degan, III, James A. Rowell, Degan, Blanchard & Nash, New Orleans, LA, Michael J. Vondenstein, E. Stuart Ponder, John Charles Duplantier, Hailey, McNamara, Hall, Larmann & Papale, Thomas M. Young, Frances Irene McGinnis, George P. Hebbler, Jr., Hebbler & Giordano, LLC, Elliot Mitchell Lonker, Allen & Gooch, Jay M. Lonero, Christopher Raymond Pennison, Stephanie Villagomez Lemoine, Thomas H. Peyton, Larzelere, Picou, Wells, Simpson, Lonero, LLC, Metairie, LA, for Jack Stolier, et al.

ORDER AND REASONS

JANE TRICHE MILAZZO, UNITED STATES DISTRICT JUDGE

Before the Court is Defendants Stephen Sullivan; Sullivan Stolier, A Partnership; Sullivan Stolier and Resor, A Professional Law Corporation; Sullivan Stolier Knight, L.C.; Michael Schulze; Jefferson LTAC, L.L.C.; and James Fritschen's (for purposes of this Motion the "Moving Defendants") Motion for Partial Summary Judgment (Doc. 213). For the following reasons, the Motion is GRANTED .

BACKGROUND

Sometime prior to the events giving rise to this suit, Lazarus Healthcare, LLC ("Lazarus") acquired ownership of Camillus Specialty Hospital, LLC ("Camillus"),¹ a long-term acute care ("LTAC") hospital in Gretna, Louisiana. Charles Matthews is the sole owner of Lazarus.

In the fall of 2012, a dispute developed between Camillus and the landlord of the building that housed the hospital. During the course of that dispute, Matthews began searching for another facility in which to house Camillus. While he attempted to resolve the facility issues, Matthews also sought management assistance. To that end, Matthews retained Defendant Red River Healthcare Management Company, LLC ("Red River") to provide management services to Camillus. Red River is owned and operated by Defendants Jimmy and Connie Morgan ("the Morgans").

Matthews eventually discovered that Louisiana Specialty Hospital, LLC ("LSH"), an LTAC operating in the West Jefferson Medical Center, was closing and he began to explore the possibility of moving Camillus into the space being vacated by LSH.² As Matthews pursued this opportunity, he learned that the then-operator of LSH might be interested in selling the entire facility, including its license to operate.³ Matthews retained Defendant Steve Sullivan, an attorney, to negotiate the terms of the sale. They allege that Defendant Michael Schulze assisted Sullivan with the preparation of various documents. Plaintiffs claim that Sullivan and Schulze are employed by several named law firms ("Law Firm Entities").⁴

Plaintiffs claim that, during the negotiations to purchase LSH, Sullivan began conspiring with the other Defendants to deprive Matthews of the opportunity to purchase LSH. Despite the alleged conspiracy, WJLT Hospital, LLC ("WJLT") was formed to purchase LSH. Matthews held a 91.1% ownership interest in WJLT, Sullivan held a 4.9% interest, and another individual held the remaining 4%. WJLT purchased LSH from the hospital's previous owner. As part of the contract to purchase LSH, Plaintiffs claim that Matthews was forced to appoint Red River as the manager of WJLT and divest himself of his interest in St. Charles Rehabilitation Hospital, LLC.

After LSH was purchased, Plaintiffs claim that Sullivan and Schulze engaged in a series of fraudulent acts designed to mislead Matthews into believing that LSH was nearly insolvent. Plaintiffs allege that Defendants then exploited this situation by coercing Matthews into signing a power of attorney ("Power of Attorney") granting James Morgan the authority to sell LSH. After Matthews signed the Power of Attorney, ownership of LSH was transferred to JLTAC, LLC ("JLTAC"), an LLC owned by Sullivan and his law partner, Defendant Jack Stolier. The contract of sale was executed by Morgan, acting on behalf of WJLT pursuant to the Power of Attorney. As part of this transaction, JLTAC and LSH issued a $1.2 million promissory note to WJLT (the "JLTAC-WJLT Note"). WJLT subsequently issued a $1.2 million promissory note to Matthews, whereby all payments received on the JLTAC-WJLT Note would be transferred to Matthews as received.

Plaintiffs claim that, shortly after the Power of Attorney was executed, LSH received a payment of nearly $800,000. Plaintiffs allege that Defendants knew about the pending payment but deliberately concealed it from Matthews to secure his consent to the sale. Plaintiffs assert that Matthews would never have executed the Power of Attorney had he known that LSH was in fact financially stable.

Plaintiffs also allege that, during the brief time that Matthews owned LSH, Camillus made several loans to LSH. After JLTAC acquired ownership of LSH, Matthews demanded repayment of the loans on behalf of Camillus. Plaintiffs claim that, after Matthews demanded repayment, Defendants engaged in a second conspiracy in which they fraudulently divested Matthews of his ownership interest in Camillus, thus depriving him of the proceeds of the loans. Ultimately, Plaintiffs request that the Court undo a series of transactions and place Matthews in full ownership of both Camillus and LSH. Plaintiffs also seek damages for the various alleged wrongful acts of Defendants.

After entertaining a series of Motions to Dismiss, the Court has delineated the following claims as the sole surviving claims in this action: (1) a fraud claim, sounding in tort, against Sullivan and the Morgans; (2) a claim to nullify the Power of Attorney, and any contracts executed pursuant to the Power of Attorney, on the basis of fraud; (3) breach of fiduciary duty claims against the Morgans, Red River, Sullivan, and the Law Firm Entities; (4) a breach of contract claim related to the contract selling LSH to JLTAC; (5) a breach of contract claim on behalf of WJLT for breach of the two promissory notes executed by JLTAC; (6) a legal malpractice claim against Sullivan, Schulze, and the Law Firm Entities; (7) negligence claims against the Morgans and Red River; and (8) claims for violations of Louisiana and federal securities laws.

In this Motion, the Moving Defendants move for dismissal of Plaintiffs' claims arising under federal and state securities laws. Plaintiffs oppose this Motion.

LEGAL STANDARD

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."⁵ A genuine issue of fact exists only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."⁶

In determining whether the movant is entitled to summary judgment, the Court views facts in the light most favorable to the non-movant and draws all reasonable inferences in his favor.⁷ "If the moving party meets the initial burden of showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial."⁸ Summary judgment is appropriate if the non-movant "fails to make a showing sufficient to establish the existence of an element essential to that party's case."⁹ "In response to a properly supported motion for summary judgment, the non-movant must identify specific evidence in the record and articulate the manner in which that evidence supports that party's claim, and such evidence must be sufficient to sustain a finding in favor of the non-movant on all issues as to which the non-movant would bear the burden of proof at trial."¹⁰ "We do not ... in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts."¹¹ Additionally, "[t]he mere argued existence of a factual dispute will not defeat an otherwise properly supported motion."¹²

LAW AND ANALYSIS

This Motion involves Plaintiffs' claims that the actions of the Moving Defendants violated both federal and state securities laws. These claims were used as the jurisdictional predicate for removal under the Court's federal question jurisdiction; however, the Court has not yet been called on to define the precise parameters of these claims. The Moving Defendants ask for summary judgment on these claims. They contend that the allegations of securities law violations are limited to fraud surrounding the transaction whereby ownership of LHS was transferred from WJLT to the newly created JLTAC (the "LHS Transaction"). Two relevant promissory notes were issued as part of this transaction: a $1.2 million promissory note issued by JLTAC and LSH to WJLT (the "JLTAC-WJLT Note") and a $1.2 million promissory note issued by WJLT to Matthews (the "WJLT-Matthews Note"). The Moving Defendants aver that any additional alleged violations of securities laws are outside of the pleadings and not properly before the Court. Plaintiffs argue that they have alleged four separate violations of securities laws. As a preliminary matter, the Court notes that its inquiry relative to the securities claims on the earlier Motion to Remand was limited to whether Plaintiffs had, on the face of the petition, alleged claims under federal law. This question is wholly distinct from the Court's present inquiry into the sufficiency of these claims, which Defendants now challenge on summary judgment. The Court...