Louisiana Health Care Group, Inc. v. Allegiance Health Management, Inc.
2010 La. App. LEXIS 369, 9 La.App. 3 Cir. 1093, 32 So. 3d 1138 (2010)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A company that promises the performance of a newly acquired entity under a stock sale agreement is liable for breach of contract if the acquired entity fails to perform, and both the acquiring company and the acquired entity can be liable for conversion if they refuse to remit funds contractually owed to another, even if initial possession was rightful.
Facts:
- In May 2007, Louisiana Health Care Group, L.L.C. (LHC) agreed to sell all of its stock in Bienville Medical Center, Inc. (Bienville) to Allegiance Health Management, Inc. (Allegiance) for $180,000.00.
- The Stock Sale Agreement (Agreement) stipulated that LHC would retain "all amounts payable and accounts receivable for services provided [by Bienville] prior to the Effective Date" of July 1, 2007, along with certain Medicare/Medicaid settlements and uncompensated care payments received by Bienville in 2007.
- Bienville subsequently received $431,604.49 in Medicare and/or Medicaid payments for services rendered prior to July 1, 2007.
- Bienville also received $237,031.00 in Medicare and/or Medicaid cost report settlements for the year ended December 31, 2006.
- Bienville received an additional $46,482.54 for services rendered between January 5 and June 30 of 2007.
- Despite collecting these funds, neither Bienville nor Allegiance remitted the contractually retained funds to LHC.
Procedural Posture:
- In November 2008, Louisiana Health Care Group, L.L.C. (LHC) filed a Motion for Partial Summary Judgment against Allegiance Health Management, Inc. and Bienville Medical Center, Inc. in the trial court (court of first instance), alleging breach of contract, conversion, and unjust enrichment.
- The trial court granted LHC's Motion for Partial Summary Judgment, awarding LHC $575,696.68 for the accounts receivable and holding Allegiance and Bienville liable in solido for this amount in a judgment dated March 10, 2009.
- The trial court subsequently issued an "Amended Judgment" dated March 30, 2009, designating the prior judgment as final.
- In a separate judgment also dated March 30, 2009, the trial court awarded LHC $42,487.75 in judicial interest, attorney fees, and costs.
- Allegiance and Bienville filed a Motion for a New Trial in the trial court, which was denied by judgment dated May 14, 2009.
- Allegiance Health Management, Inc. and Bienville Medical Center, Inc. (appellants) filed a suspensive appeal of the March 10, 2009 "Judgment" and the March 30, 2009 "Amended Judgment" to the Louisiana Court of Appeal, Third Circuit, but did not appeal the other March 30 judgment or the denial of a new trial.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an acquiring company become liable in solido for breach of contract and conversion when it agrees, as part of a stock sale, that the acquired company will remit certain retained accounts receivable to the seller, and the acquired company subsequently fails to do so?
Opinions:
Majority - Thibodeaux, Chief Judge
Yes, Allegiance Health Management, Inc. and Bienville Medical Center, Inc. are liable in solido for breach of contract and conversion for failing to remit funds due to Louisiana Health Care Group, L.L.C., as stipulated in their stock sale agreement. The court affirmed the trial court's grant of summary judgment against both defendants. Regarding breach of contract, the court found Allegiance liable because, even though Bienville was not a direct party to the Stock Sale Agreement, it was the subject of the agreement. Allegiance expressly agreed that funds generated by its newly acquired company, Bienville, prior to July 1, 2007, would be retained by and remitted to LHC. Citing Louisiana Civil Code articles 1976 and 1977, the court emphasized that future things can be the object of a contract, and a party who promises the obligation or performance of a third person is liable for damages if that third person does not perform. Thus, Allegiance breached its contract by failing to ensure Bienville's performance. For conversion, the court found Allegiance and Bienville liable, clarifying that while Bienville's initial receipt of the funds might have been lawful, its "subsequent refusal to surrender the goods to one who is entitled to them may constitute conversion." Bienville's own admissions confirmed receipt of the funds, and Allegiance, being contractually liable for Bienville's nonperformance, was also responsible. Their continued use of the funds, thereby preventing LHC from exercising its ownership rights, constituted conversion. The court dismissed Allegiance's claims of disputed material facts, finding the Agreement clear and noting that Allegiance and Bienville failed to meet their burden to prove any affirmative defenses.
Analysis:
This case significantly clarifies liability in scenarios involving asset retention in corporate acquisitions, emphasizing that an acquiring company can be held contractually responsible for the actions of the acquired entity it controls. It reinforces the application of Louisiana Civil Code articles 1976 and 1977 concerning third-party performance within contracts. Furthermore, the ruling elaborates on the tort of conversion, establishing that wrongful withholding of property can constitute conversion even if the initial possession was rightful, particularly when there is a contractual obligation to transfer those funds. The finding of in solido liability underscores that both the entity directly possessing the funds and the entity contractually obligating their transfer can be held jointly and severally responsible, impacting how future stock sale agreements involving retained assets are drafted and enforced.
