Monroe Surgical Hosp., LLC v. St. Francis Med. Ctr., Inc.
| Decision Date | 21 August 2014 |
| Docket Number | 49,600–CA,49,608–CW. |
| Parties | MONROE SURGICAL HOSPITAL, LLC, Plaintiff–Appellee v. ST. FRANCIS MEDICAL CENTER, INC., St. Francis North Hospital, Inc., Redfield E. Bryan, M.D., K. Scott Wester and Lisa Bradley, Defendants–Appellants. |
| Court | Court of Appeal of Louisiana — District of US |
Breazeale, Sachse & Wilson, Baton Rouge, by Claude F. Reynaud, Jr., Jeanne C. Comeaux, Claude F. Reynaud, III, for Appellants St. Francis Medical Center, Inc. and St. Francis North Hospital, Inc.
Nelson, Zentner, Sartor & Snellings, Monroe, by George M. Snellings, IV, Allison M. Jarrell, Ward & Condrey, Covington, by Joseph R. Ward, Jr., Lawrence Scott Patton, Breithaupt Dunn DuBos, et al by: Michael L. DuBos, Monroe, for Appellee, Monroe Surgical Hospital, LLC.
Before BROWN, STEWART and LOLLEY, JJ.
In this action by the plaintiff, Monroe Surgical Hospital, L.L.C. (hereafter “MSH”), alleging breach of fiduciary duty, unfair trade practices, and antitrust violations, the defendants, St. Francis Medical Center, Inc., et al (hereafter “SFMC”) are seeking review of the trial court's denial of an exception of no right of action and a motion for summary judgment. Having conducted a de novo review of this matter, we affirm the trial court's judgment and remand for further proceedings.
MSH is a physician-owned specialty hospital with 10 certified hospital beds for overnight patient care. SFMC is a full-service tertiary care hospital. Both are located in Monroe and are competitors. The relevant market, as agreed upon by the parties, is a 50–mile radius surrounding SFMC's downtown Monroe location. Prior to the events leading to this litigation, there were three full service hospitals in the relevant area—SFMC, North Monroe Medical Center (“NMMC”), and Glenwood Medical Center (“Glenwood”). MSH was seeking opportunities to allow it to grow and compete more directly with these other full-service healthcare entities.
In August 2004, SFMC purchased 138 units in MSH, gaining a minority interest.1 The parties's relationship, which lasted approximately 11 months, was governed by MSH's Third Amended and Restated Operating Agreement (“the Operating Agreement”), discussed infra. In negotiating its investment in MSH, SFMC obtained the right to appoint two managers to MSH's Board of Managers (“the board”). These individuals were SFMC's chief operating officer, K. Scott Wester (“Wester”) and its controller, Lisa Bradley (“Bradley”). The dispute between the parties primarily arises from the purchase by SFMC of North Monroe Medical Center (“NMMC”) in 2005, at a time when MSH was attempting to put together a deal with Hospital Partners of America, Inc. (“HPA”) to purchase NMMC. HPA partners with physicians in the ownership of acute care hospitals.
In short, Wester and Bradley, due to their positions on MSH's board were aware of its plans to acquire NMMC, and MSH claims that they used confidential information gained while serving on the board to benefit SFMC in its efforts to acquire NMMC and acted to thwart MSH's plans. In doing so, SFMC is alleged to have breached fiduciary duties owed by Wester and Bradley as managers2 , to have violated the Louisiana anti-trust law, La. R.S. 51:122, by engaging in activity designed to unreasonably restrain trade, and to have violated the Louisiana Unfair Trade Practices Act (“LUTPA”), La. R.S. 51:1401 et seq. The latter two theories are premised on SFMC's alleged scheme to remove NMMC as a competitor and to otherwise stifle competition by preventing MSH from entering the full-service hospital market.
As a condition of SFMC becoming a member of MSH, amendments were required which resulted in the Operating Agreement mentioned above. First, we note that § 6.01(a) of the Operating Agreement, provided that the business, affairs, and authority of MSH would be held by managers, with no member having authority to act on behalf of MSH or to bind it. Pursuant to § 6.02, SFMC was entitled to select one Class C manager and one Class B manager. On the board, SFMC's managers would have a combined voting power of 24 percent, a minority interest.
Certain operational covenants were added to the Operating Agreement due to the involvement of SFMC. These were set forth in § 2.07 as follows:
SFMC was also exempted from a noncompete provision in the Operating Agreement. Under § 6.12(a) of the Operating Agreement, members were prohibited from having a financial interest in competing entities in Ouachita Parish while they remained members and for one year following termination of membership. However, § 6.12(b) exempted SFMC from the above requirement.
Finally, § 13.05(a) provided for the amendment or restatement of the Operating Agreement or its articles by written amendment adopted by the managers. Relevant to SFMC, Subsection (b) provided:
(b) Notwithstanding Section 13.05(a) hereof, for so long as [SFMC] is a Member of the Company, [SFMC's] consent shall be required to amend the Operating Agreement or Articles of Organization; provided, however, that the failure to grant such consent may be overridden and the amendment adopted by a Major Decision of the Managers. If the amendment is passed over the objection of [SFMC], then [SFMC] shall have a “put option” to require MSH to repurchase [SFMC's] Membership Interest at Fair Market Value (as determined under the provisions of Section 10.04 of this Operating Agreement as of the date [SFMC] notifies the Company of its desire to exercise the “Put Option”). [SFMC] shall have 10 days from the effective date of the amendment to exercise such “put option,” and MSH shall be required within 90 days of [SFMC's] exercise of the option either to (I) repeal the amendment; or (ii) purchase the Membership Interests of [SFMC].
“Major Decisions” are delineated in § 6.04 and include such things as entering “into a joint venture, merger or consolidation with or into another entity.”
As stated, the record indicates that sometime in August 2004, SFMC became a member of MSH with the right to appoint two individuals to the board. Bradley was the main representative for SFMC who attended MSH's board meetings as SFMC's appointed manager.3
Bradley was present at the board meeting on October 20, 2004. Also present was Tim Schier (“Schier”) of Cain Brothers, an investment firm assisting MSH in securing other investors. Schier reviewed for the board an offer from HPA for a 51/49 joint venture. All, including Bradley, voted in favor of proceeding with negotiations. A “Strategic Partnering Update” paper dated October 20, 2004, indicates that MSH had received proposals from other entities besides HPA, that HPA was one of the entities it selected to make a presentation to MSH and MSH Realty, and that MSH planned a site visit to HPA's Twelve Oaks Medical Center located in Houston, Texas.
On November 10, 2004, SFMC's legal counsel, Bruce Mintz, wrote to MSH's counsel, Wesley Shafto, regarding SFMC's concerns about the proposed deal between MSH and HPA and MSH's engagement of Cain Brothers to locate potential investors or purchasers of a majority interest in MSH. SFMC complained that none of these plans were disclosed to it prior to its purchase of a minority stake in MSH. Mintz's letter noted that MSH's plans could be detrimental to SFMC's interests and reminded him of the provision in § 2.07 of the Operating Agreement requiring SFMC's consent to sell any membership interest to a “hospital ownership entity,” such as HPA. Despite SFMC's objections, MSH and HPA signed a Letter of Intent on November 15, 2004, for HPA's purchase of a 51 percent membership interest in MSH. In a letter to HPA, R. Alan Daugherty (“Daugherty”), MSH's Chief Executive Office, noted that SFMC may have a right of first refusal but had not indicated whether it intended to exercise that option.
MSH's board next met on November 29, 2004, with Bradley present. The HPA deal was discussed, along with a potential offer from SFMC. A motion was made and passed to amend the Operating Agreement to repeal § 2.07. Bradley voted against the motion. It is clear that MSH planned to proceed with HPA over SFMC's objections. Following the meeting, Shafto sent an email to Wester on November 30, 2004, in which he noted that Bradley had likely told him of the events at the board meeting. Shafto also mentioned MSH's “dire financial situation” and the MSH physicians' concerns about a rumor that SFMC was attempting to derail the HPA deal so that it could buy MSH on a “fire sale” basis.
At the board meeting on December 7, 2004, Schier announced that HPA had decided to back out of the proposed deal, citing as its reason a Congressional moratorium on physician-owned hospitals. Wester, who was present at the meeting as a guest, noted that SFMC was working on an offer...
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