David LeBlanc, Hedy LeBlanc, LeBlanc Family Investments Limited Liability Company, Shreveport GP, LLC, Shreveport Doctors Hospital 2003, Ltd., and Shreveport Hospital Management, Inc. v. B. John Lange III and Ethicus Healthcare Group, LLC.

Citation: Not availableDocket: 01-08-01029-CV

Court: Court of Appeals of Texas; September 22, 2011; Texas; State Appellate Court

Original Court Document: View Document

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Opinion issued on September 22, 2011, by the Court of Appeals for the First District of Texas, case number 01-08-01029-CV, involves appellants David LeBlanc, Hedy LeBlanc, LeBlanc Family Investments LLC, Shreveport GP LLC, Shreveport Doctors Hospital 2004 Ltd., and Shreveport Hospital Management Inc. challenging the trial court's summary judgment favoring appellees B. John Lange III and Ethicus Healthcare Group LLC. The appellants' claims include declaratory judgment, breach of fiduciary duty, legal malpractice, deceptive trade practices, negligent misrepresentation, and conspiracy. 

LeBlanc raises five issues on appeal: (1) the absence of an attorney-client relationship between LeBlanc and Lange; (2) the lack of a “special relationship” creating a fiduciary duty; (3) the fairness of the settlement agreement; (4) Lange's non-breach of fiduciary duty; and (5) Lange's entitlement to summary judgment regarding issues of illegality, duress, and unconscionability. The court affirmed the trial court's ruling.

The background indicates the suit arose from a deteriorated personal and business relationship between Lange, an attorney, and LeBlanc, a businessman and long-time friend, who had collaborated on several corporate entities. Their relationship, which began in 1987, evolved from a professional association to a social friendship. LeBlanc co-founded LifeCare Hospital in 1992, retaining Lange for various corporate transactions. Following LeBlanc's termination as CEO of LifeCare in 2003, he sought Lange's help for legal disputes but was referred to other law firms, which represented him until LifeCare's sale in 2005.

LeBlanc established a partnership, Shreveport Doctors Hospital 2003, Ltd. (the "Hospital Partnership"), and a management company, Shreveport Hospital Management, Inc. (the "Management Company"), to acquire and manage Doctors Hospital in Shreveport, Louisiana, with the assistance of attorney Lange from Jackson Walker, L.L.P. Lange, who had significant experience in healthcare acquisitions, was engaged by LeBlanc to facilitate the purchase, which occurred in April 2004. LeBlanc incurred attorney fees exceeding $400,000 for these services. In June 2004, following the acquisition, Lange left his law practice to join LeBlanc as an equal manager of the Hospital, becoming a minority limited partner in the Hospital Partnership through his family trust, while also serving as the president and sole manager of the Management Company. Lange indicated to LeBlanc that he was no longer acting as his lawyer, a statement supported by LeBlanc's understanding of Lange’s transition. Subsequently, LeBlanc and Lange sought to enter the long-term acute care (LTAC) business by forming Ethicus, planning to operate it similarly to LifeCare, with intentions to open an LTAC center in the Hospital after LifeCare's lease expired. To secure investors, LeBlanc, who held valuable but illiquid LifeCare stock, agreed to guarantee investments in Ethicus with future sale proceeds from his LifeCare shares, leading to investments from John Styles and Ronald Colichia. Lange facilitated the formation of Ethicus, which included LeBlanc, Lange, Styles, and Colichia as members.

Lange initiated negotiations to extend the Hospital's lease with LifeCare in June 2004, excluding LeBlanc due to his significant ownership stake in LifeCare, which posed a conflict of interest. In December 2004, based on tax advice, the Management Company was replaced by Shreveport GP, LLC (SGP), with LeBlanc and Lange as its only managers. SGP was designated to lease the Hospital, with plans for Ethicus to replace LifeCare as the lessee.

In 2005, LeBlanc had the opportunity to sell his LifeCare interest to The Carlyle Group, which would yield him approximately $50 million. Carlyle insisted on two conditions: a five-year non-competition agreement barring LeBlanc from any LTAC business and a one-year extension of LifeCare’s lease under the 2004 terms. Lange opposed these conditions, believing they would harm both the Hospital and Ethicus, which aimed to lease the Hospital post-LifeCare. The non-competition agreement would sever LeBlanc's ties to Ethicus, depriving it of his expertise and connections, while the lease extension would delay Ethicus's potential operations for at least a year, resulting in a projected loss of $4 million.

LeBlanc could not unilaterally agree to Carlyle's conditions due to his conflict of interest; he needed Lange’s approval to extend LifeCare's lease, as Lange was the only disinterested party capable of committing the Hospital.

Lange engaged in discussions regarding the lease extension and non-competition agreement for the Hospital and Ethicus. He reviewed a draft of the non-competition agreement, providing feedback to LeBlanc and sharing concerns with Hospital and Ethicus officers, as well as paralegal Renee Hepler. On June 27, 2005, Lange requested the latest draft of the non-competition agreement, emphasizing the Hospital's and Ethicus's objections and asserting that LeBlanc lacked authority to make decisions without his consent. He followed up with further comments and sent a memo to LeBlanc outlining his rationale for his stance regarding the sale of LifeCare and the non-compete agreement, asserting his duties to the entities he managed.

In July 2005, Lange, along with Styles and LeBlanc’s son Chris, reached preliminary terms for a Settlement Agreement addressing the non-competition agreement and lease extension. The proposed Settlement Agreement included a lease extension for LifeCare, facilitating a $50 million stock sale to Carlyle, and required LeBlanc to pay Ethicus $3 million to compensate for anticipated losses. This compensation amount was based on Chris LeBlanc’s projection of Ethicus’s lost profits. The agreement also aimed to release LeBlanc's LifeCare stock from its pledge to Ethicus to allow the stock sale to proceed. LeBlanc reviewed multiple drafts of the agreement and communicated frequently with Lange, all while facing pressure from Carlyle to finalize the non-competition agreement before closing the sale of LifeCare.

LeBlanc signed the Settlement Agreement on July 14, 2005, following which Lange signed and sent the lease extension to Carlyle, and Styles and Colichia released their pledge on LeBlanc’s LifeCare stock. LeBlanc executed the non-competition agreement five days later. He received approximately $45 million from the sale of his LifeCare stock on August 12, 2005. Lange asserted that he did not represent LeBlanc personally but acted on behalf of the Hospital and Ethicus, maintaining an arm's length relationship with LeBlanc. LeBlanc failed to provide evidence demonstrating that he believed Lange was representing his interests in the transactions related to LifeCare. Jones, an attorney representing LeBlanc in related litigation, corroborated Lange's position, affirming that Lange was acting for the Hospital and Ethicus and that LeBlanc had separate, adverse interests. 

The Settlement Agreement required LeBlanc to wire $3 million to Ethicus by August 15, 2005, but instead, LeBlanc filed suit to void the Settlement Agreement in Collin County, contrary to the agreement's venue provision. LeBlanc's allegations included claims of breach of fiduciary duty, legal malpractice, and violations of the Deceptive Trade Practices Act against Lange, PMT, Ethicus, Styles, Colichia, and Hepler, while Ethicus countered with claims of breach of contract and fraudulent inducement. Summary judgment motions were filed by Lange, PMT, and Hepler, as well as by Ethicus, both seeking dismissal of LeBlanc's claims. On February 26, 2007, the trial court granted Ethicus partial summary judgment, dismissing LeBlanc’s claims against Lange and granting Ethicus’s counterclaim for breach of contract, rejecting LeBlanc's defenses of duress, unconscionability, and lack of consideration. All of LeBlanc’s tort claims against Lange were also dismissed.

On the same day, the trial court granted Lange’s motion to supplement summary judgment evidence but denied LeBlanc’s motion. On December 13, 2007, Lange filed for no-evidence and traditional summary judgment regarding LeBlanc’s claims of breach of informal fiduciary duty due to a claimed “special relationship.” Ethicus subsequently sought no-evidence summary judgment on LeBlanc’s illegality claim. LeBlanc responded to both motions. On May 16, 2008, the trial court ruled that no “special relationship” existed that would impose a fiduciary duty on Lange, dismissing LeBlanc’s illegality defense. LeBlanc appealed these summary judgments, which were finalized on September 24, 2008. 

For summary judgment to be granted, the movant must demonstrate entitlement to judgment as a matter of law and show that no genuine issue of material fact exists, with evidence favorable to the non-movant taken as true. LeBlanc contends that a genuine issue exists regarding the existence of an attorney-client relationship with Lange at the time the Settlement Agreement was executed in 2005. Establishing such a relationship requires mutual intent to create it, either explicitly or implicitly, based on objective evidence of the parties’ actions and statements. A subjective belief alone is insufficient.

Under Texas law, an attorney-client relationship ends upon fulfilling the purpose of representation unless an agreement specifies otherwise. LeBlanc has not provided evidence of any such agreement. While both parties acknowledge Lange represented LeBlanc in acquiring a hospital in 2003, they dispute the extent and duration of this representation. Lange asserts he did not represent LeBlanc personally in disputes with LifeCare and referred him to the law firm FCJ. The evidence indicates that LeBlanc retained FCJ for disputes with LifeCare in Texas and another firm in Louisiana, with both firms representing him throughout his dealings with LifeCare until the sale of his stock in August 2005.

Lange left his law practice at Jackson Walker in June 2004 to manage the Hospital with LeBlanc, informing LeBlanc that he would no longer serve as his attorney. Subsequently, Lange represented Ethicus and the Hospital in a conflict with LeBlanc regarding a non-competition agreement and lease extension related to Carlyle's acquisition of LifeCare, making this representation clear to LeBlanc. Evidence, including Lange's testimony and email exchanges, supports that he acted in the interests of the Hospital and Ethicus, not LeBlanc, due to a conflict of interest. LeBlanc failed to provide evidence contradicting Lange's assertion of the termination of their attorney-client relationship or to show any written agreements or contracts establishing such a relationship post-2004. Although LeBlanc claimed, based on his own testimony and affidavit, that Lange remained his attorney, Texas law states that a subjective belief does not constitute evidence of an attorney-client relationship, and conclusory statements are insufficient as proof. Additionally, LeBlanc’s affidavit indicated he sought Lange's counsel on the non-competition agreement but did not clarify if Lange agreed to provide legal counsel or the nature of any advice given, with evidence suggesting otherwise.

Lange engaged in several legal actions after June 2004, including forming Ethicus, drafting documents outlining LeBlanc's obligations to Ethicus members, and providing structure and governance advice related to the Management Company. However, LeBlanc failed to present evidence that these actions were performed for him as a personal attorney. Instead, the relationship was characterized by mutual business interests, with Lange operating as general counsel for the Hospital and having fiduciary duties to the business entities, not to LeBlanc personally. Legal duties were owed to the entities, as established in Redmon v. Griffith, which clarifies that corporate officers owe fiduciary duties to corporations rather than individual shareholders.

LeBlanc cited an email from Lange regarding a non-competition agreement, but the content indicated Lange's focus was on protecting the interests of the business entities rather than providing personal legal counsel to LeBlanc. Lange raised concerns that the agreement could jeopardize the entities' rights and advised against signing it in its current form. Casual comments made in the email do not suggest an attorney-client relationship or personal representation of LeBlanc's interests.

LeBlanc also referenced another email from Lange to his counsel, which revealed that Lange's interests were adverse to LeBlanc's. Lange expressed his refusal to agree to a lease extension unless certain provisions were modified, indicating that he prioritized the business entities' interests above LeBlanc's. Overall, the evidence demonstrates that Lange's legal actions were conducted in the context of his fiduciary responsibilities to the business entities, not as personal legal representation for LeBlanc.

The e-mail in question is deemed not to reflect an attorney-client relationship between Lange and LeBlanc, as it aligns with Lange's role as a principal prioritizing the interests of business entities over LeBlanc's. Consequently, LeBlanc's evidence does not establish a genuine issue of fact regarding such a relationship at the time of the Settlement Agreement and the sale of LeBlanc’s LifeCare stock, leading the trial court to correctly conclude that no attorney-client relationship existed.

In addressing LeBlanc's claim that the trial court erred by denying him leave to supplement the summary judgment record, the court found no error. After the summary judgment motions were filed and argued, LeBlanc sought to introduce additional evidence. However, Texas law requires that any late-filed responses be accompanied by a showing of good cause, which LeBlanc failed to provide. His rationale of seeking fairness did not satisfy the criteria needed for late filing, and the trial court acted within its discretion in denying the motion.

Regarding the assertion of a "special relationship" giving rise to an informal fiduciary duty between LeBlanc and Lange, the court maintained that such a relationship does not automatically arise from trust or confidence. A fiduciary relationship, particularly in business contexts, must exist independently of the contractual agreement at issue. The court upheld the summary judgment ruling, confirming that no informal fiduciary duty existed between the parties.

Determination of fiduciary duty, when underlying facts are undisputed, is a legal question for the court. In LeBlanc's affidavit, he cites a long-term personal and business relationship with Lange, including shared activities and events. However, these facts do not establish a "special relationship" that would create a fiduciary duty. A precedent case, Meyer, involved a similar situation where a court found that despite a close friendship and collaboration, the relationship did not constitute a fiduciary one due to the nature of their transactions being arms-length and for mutual benefit. Similarly, LeBlanc's dealings with Lange concerning the Settlement Agreement were also arms-length transactions, with Lange explicitly representing the interests of the Hospital and Ethicus due to a conflict of interest. LeBlanc was represented by other parties during these dealings, further negating the existence of a fiduciary relationship. The longevity and cordiality of their friendship, as well as LeBlanc's subjective trust in Lange, do not suffice to impose fiduciary duties, as established by Texas case law.

In Dodson v. Kung, the Fourteenth Court of Appeals affirmed a summary judgment against Dodson, who claimed breach of an informal fiduciary duty based on a personal and professional relationship with Kung. The court noted that despite Kung's superior wealth and experience, Dodson was not a naive individual; at 36, he had business experience and understanding of contracts. The court found no evidence indicating that the parties were not dealing at arm's length or on equal terms, concluding there was no breach of fiduciary duty.

Applying similar reasoning, the court held that LeBlanc and Lange, co-founders of LifeCare, were equal partners with no evidence of a superior position held by Lange. Thus, no special relationship existed that would give rise to a fiduciary duty. Consequently, the court overruled LeBlanc's claims regarding the fairness of a Settlement Agreement, breach of fiduciary duty, and remaining claims of fraud and misrepresentation, asserting that Lange had no fiduciary duty to disclose information or to refrain from misrepresentations, as there was no evidence of any material misrepresentation by Lange.

A defendant seeking traditional summary judgment must conclusively disprove at least one element of the plaintiff's cause of action. In fraud cases, the elements include: 1) a material misrepresentation was made; 2) the representation was false; 3) the speaker knew it was false or made it recklessly; 4) the speaker intended for the other party to act on it; 5) the party relied on the representation; and 6) the party suffered injury. LeBlanc alleges that Lange misrepresented the purpose of changing the Hospital's general partner, asserting that he would not have permitted his replacement as president had he known. He contends that this misrepresentation prevented him from signing a leasing agreement, forcing him to sign a Settlement Agreement for the sale of LifeCare. However, evidence shows Lange informed LeBlanc that he could not sign the lease extension due to a conflict of interest, which is legally supported. LeBlanc failed to prove this statement was false, leading to the conclusion that Lange disproved essential elements of both negligent misrepresentation and fraud.

Regarding violations of the Texas Deceptive Trade Practices Act (DTPA), Lange claimed summary judgment was warranted as LeBlanc did not qualify as a "consumer" under the Act. The DTPA defines a consumer as an individual or entity that seeks or acquires goods or services, excluding businesses with assets over $25 million. Whether someone qualifies as a consumer is a legal question. LeBlanc's argument hinged on the assertion that Lange acted as his attorney, which was determined not to be the case. LeBlanc provided no evidence that Lange offered goods or services to him. Thus, the trial court correctly granted summary judgment on LeBlanc’s DTPA claims, making further discussion on his financial status unnecessary.

LeBlanc contends that the Settlement Agreement is illegal under Texas Penal Code section 32.43(b), which prohibits fiduciaries from accepting benefits without their beneficiaries' consent. However, the court finds this statute inapplicable since Penal Code violations cannot create private causes of action, citing A.H. Belo Corp. v. Corcoran. Additionally, LeBlanc has not demonstrated that the Settlement Agreement constituted an illegal contract, as no fiduciary relationship exists between him and Lange; any fiduciary duty would be between Lange, as manager of SGP (the Hospital's general partner), and Ethicus. There is no evidence that Lange accepted any benefit without the necessary consents, particularly since LeBlanc signed the Settlement Agreement. Consequently, the court affirmed the summary judgment regarding the alleged illegality of the Settlement Agreement.

Regarding LeBlanc's claim of duress, he must prove five elements: a legally unjustified threat or action, that such a threat destroyed free agency, that it coerced the opposing party into an action they would not otherwise take, that the restraint was imminent, and that there was no means of protection. LeBlanc argues that Lange lacked justification for refusing to extend the lease, claiming fraudulent authority over the general partner of the Hospital. However, since LeBlanc, as an interested party, was barred from exercising that authority, this argument fails. LeBlanc also asserts that Lange's refusal violated a fiduciary duty to him, but the court has already ruled that no such duty exists. Even if refusing to extend the lease was against the Hospital's best interests, this does not negate Lange's legal right to make such decisions as the disinterested manager of the Hospital's general partner. Thus, LeBlanc did not conclusively establish the first element of his duress claim.

LeBlanc contests the trial court's summary judgment declaring the Settlement Agreement void due to unconscionability. In Texas, the burden of proving unconscionability lies with the party asserting it, requiring evidence of both procedural and substantive unconscionability. Procedural unconscionability involves examining the contract formation process and whether there was a meaningful choice, while substantive unconscionability assesses the fairness of the contract terms. For a claim of substantive unconscionability to succeed, the terms must be "sufficiently shocking or gross" to warrant judicial intervention.

The facts indicate no procedural or substantive unconscionability in this case. LeBlanc was poised to earn $50 million from selling his LifeCare stock but was required to sign a non-competition agreement that affected his and Lange’s business interests. Lange voiced his objections to this agreement, representing their mutual entities. The Settlement Agreement originated from a meeting on July 8, 2005, and involved weeks of negotiations. The $3 million compensation offered by Styles aimed to release LeBlanc’s stock from its pledge to Ethicus’s investors, based on an estimated $4 million profit loss for Ethicus.

LeBlanc, a sophisticated businessman with legal representation, could have sought revisions to the non-competition terms. Despite feeling pressure to sign the agreement to facilitate the stock sale, there were no "shocking" circumstances indicating procedural unconscionability. Furthermore, the Settlement Agreement, which provided a resolution to a complex issue, did not contain any substantive unconscionability, as its terms were not "shocking" or "gross" from LeBlanc's viewpoint. The option for Lange to purchase LeBlanc's interest in the Hospital for $3.8 million also did not present any unconscionable aspect.

A provision allowing the Hospital to be released from LeBlanc's non-competition agreement while compensating him significantly is deemed valid. The court finds no substantive unconscionability, affirming the trial court's ruling against LeBlanc on claims of fraud, misrepresentation, DTPA violations, illegality, duress, and unconscionability. The appellate court, including Justices Keyes, Sharp, and Massengale, upholds the trial court's judgment. LeBlanc's additional claims against other parties are not challenged on appeal. LeBlanc's assertion that attorney Lange represented him personally is unsupported by evidence, as the legal opinion provided was related only to the Hospital's acquisition. Furthermore, LeBlanc's claim of Lange owing him a fiduciary duty lacks adequate argumentation and citation, resulting in waiver of that issue on appeal. Lastly, LeBlanc's plea of illegality was presented solely as a defense against the Settlement Agreement, not as a claim against Lange, and was addressed in a separate summary judgment motion.