LeBlanc v. Lange

Citations: 365 S.W.3d 70; 2011 Tex. App. LEXIS 7655; 2011 WL 4398537Docket: No. 01-08-01029-CV

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

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Appellants David LeBlanc, Hedy Le-Blanc, LeBlanc Family Investments LLC, Shreveport GP, LLC, Shreveport Doctors Hospital 2004, Ltd., and Shreveport Hospital Management, Inc. challenge the trial court’s summary judgment favoring appellees B. John Lange, III and Ethicus Healthcare Group, LLC in a lawsuit alleging declaratory judgment, breach of fiduciary duty, legal malpractice, deceptive trade practices, negligent misrepresentation, and conspiracy. LeBlanc raises five issues, arguing the trial court erred by concluding: 1) no attorney-client relationship existed between LeBlanc and Lange; 2) no "special relationship" existed giving rise to a fiduciary duty; 3) the settlement agreement was fair; 4) Lange did not breach any fiduciary duty; and 5) Lange was entitled to summary judgment regarding claims of illegality, duress, and unconscionability. The court affirmed the trial court's decision. 

The case stems from a deteriorated personal and business relationship between LeBlanc, a businessman, and Lange, an attorney. Their association began in 1987 and evolved from a professional to a social friendship, leading to the formation of several corporate entities, including LifeCare Hospital, co-founded by LeBlanc in 1992. While LeBlanc claims Lange acted as his personal attorney during his tenure as CEO, Lange disputes this. Following LeBlanc’s termination as CEO in 2003, he sought Lange’s assistance for legal representation against LifeCare, but Lange referred him to other law firms, which represented LeBlanc until LifeCare's sale in 2005.

LeBlanc established the Hospital Partnership and Management Company to acquire and manage a healthcare facility, engaging Lange, who had extensive experience in healthcare acquisitions and management. In 2003, after LeBlanc's termination from LifeCare, Lange was at Jackson Walker, L.L.P., and assisted LeBlanc in forming Shreveport Doctors Hospital 2003, Ltd. (the Hospital Partnership) and Shreveport Hospital Management, Inc. (the Management Company), with Lange as the president and sole manager. The Hospital Partnership acquired Doctors Hospital in Shreveport, Louisiana, in April 2004, with LifeCare as the sole tenant under a lease effective until June 2006. LeBlanc incurred over $400,000 in attorney’s fees for these services.

In June 2004, following the acquisition, Lange left Jackson Walker to become LeBlanc’s equal manager at the Hospital, transitioning from legal counsel to business associate while LeBlanc managed operations. Both became minority limited partners in the Hospital Partnership and were the only shareholders and directors of the Management Company. Although Lange indicated he was no longer acting as LeBlanc's lawyer, LeBlanc contended he received no formal notice of this change.

Post-acquisition, LeBlanc and Lange aimed to venture into long-term acute care (LTAC) through the formation of Ethicus, planning to open an LTAC center in the Hospital after LifeCare's lease expired. To attract investors, LeBlanc pledged to secure their investments with proceeds from the future sale of his valuable but illiquid LifeCare stock. Investors John Styles and Ronald Colichia agreed to invest under these terms, with LeBlanc signing a "Collateral Pledge Agreement" to guarantee their investments. Lange facilitated the documentation and formation of Ethicus, which included LeBlanc, Lange, Styles, and Colichia as members.

Lange began his role in management at the Hospital in June 2004, focusing on negotiating a lease extension with LifeCare, its sole tenant, while excluding LeBlanc due to his ownership interest in LifeCare, which posed a conflict of interest. In December 2004, the Hospital's management structure changed, with the creation of Shreveport GP, LLC, retaining LeBlanc and Lange as its sole managers, and positioning SGP to lease the Hospital post-LifeCare. In 2005, LeBlanc had the opportunity to sell his LifeCare shares to The Carlyle Group for over $500 million, earning him approximately $50 million, contingent upon two conditions: a five-year non-competition agreement preventing him from engaging in any LTAC business and a one-year extension of LifeCare’s lease on unchanged terms. Lange viewed these conditions as detrimental to both the Hospital and Ethicus, which intended to lease the Hospital after LifeCare. The non-competition agreement would sever LeBlanc’s ties with Ethicus, depriving it of his industry experience and connections, while the lease extension would delay Ethicus’s operations, costing an estimated $4 million in potential profits. Due to the conflict of interest, LeBlanc could not unilaterally agree to the lease extension; only Lange, as the disinterested principal, could commit the Hospital. Consequently, LeBlanc approached Lange to negotiate a resolution, leading to discussions about the lease extension and non-competition agreement, during which Lange provided feedback on the agreement draft.

Lange identified potential issues with the non-competition agreement affecting the Hospital and Ethicus. On June 27, 2005, he emailed Greg Jones, LeBlanc’s attorney, to request the latest draft of the agreement for review, highlighting objections from both the Hospital and Ethicus. The following day, Lange reiterated to Jones that LeBlanc lacked authority to agree to anything regarding the lease extension without his consent and emphasized the need to address his prior comments about the lease and non-compete agreement. Additionally, Lange sent a memo to LeBlanc outlining his responsibilities as a manager of Ethicus entities and the rationale for his position on the sale of LifeCare and the non-compete agreement.

In July 2005, Lange, along with Styles and LeBlanc’s son, discussed a Settlement Agreement that aimed to reconcile the interests of all parties concerning the non-competition agreement and lease extension. Subsequently, Lange drafted this Settlement Agreement, which stipulated that the Hospital would extend the lease to LifeCare, facilitating LeBlanc's sale of LifeCare stock for $50 million. It also required LeBlanc to pay Ethicus $8 million for anticipated losses due to the lease extension, a figure derived from estimates of Ethicus’s lost profits as a licensed LTAC facility. The agreement included a provision for releasing LeBlanc’s LifeCare stock from its pledge to Ethicus to enable the stock sale to Carlyle.

LeBlanc reviewed multiple drafts and engaged in discussions with Lange while facing pressure from Carlyle to finalize the non-competition agreement before closing the LifeCare sale. He signed the Settlement Agreement on July 14, 2005, after which Lange executed and sent the lease extension to Carlyle. Styles and Colichia released the pledge on LeBlanc’s LifeCare stock, and five days later, LeBlanc signed the non-competition agreement, receiving the initial payment of approximately $45 million for his LifeCare stock on August 12, 2005.

Lange asserted that he was not representing LeBlanc personally but was instead acting on behalf of the Hospital and Ethicus, maintaining an arm's length relationship with LeBlanc. LeBlanc failed to provide any evidence indicating that he believed Lange was representing his interests in matters related to LifeCare. Testimony from Jones, LeBlanc's attorney, corroborated Lange's position, confirming that he acted on behalf of the Hospital and Ethicus and that LeBlanc had separate, adverse interests. Jones also stated there was no indication of an attorney-client relationship between Lange and LeBlanc in July 2005. Following the stock sale, despite an obligation to wire $3 million to Ethicus, LeBlanc filed a suit in Collin County attempting to void the Settlement Agreement, violating its venue provision.

LeBlanc brought claims against Lange and others for declaratory judgment, breach of fiduciary duty, legal malpractice, and more, while Ethicus counterclaimed for breach of contract. On August 28, 2006, Lange and others sought summary judgment on LeBlanc’s breach of fiduciary duty claims, and Ethicus sought summary judgment on both LeBlanc’s declaratory judgment claim and its own breach of contract counterclaim. After a hearing on September 18, 2006, the trial court granted Ethicus partial summary judgment on LeBlanc's claim to void the Settlement Agreement, dismissing his claims against Lange and granting Ethicus’s counterclaim for $3 million. LeBlanc's defenses of duress, unconscionability, and lack of consideration were also dismissed, along with all his original tort claims against Lange. Lange's unopposed motion to supplement the summary judgment evidence was granted, while LeBlanc's motion was denied.

On December 13, 2007, Lange filed motions for no-evidence and traditional summary judgment regarding LeBlanc’s claims of breach of informal fiduciary duty due to a purported “special relationship.” Ethicus also filed a no-evidence summary judgment motion concerning LeBlanc’s illegality claim. LeBlanc responded, but on May 16, 2008, the trial court granted both motions, ruling that no “special relationship” existed that would impose a fiduciary duty on Lange, and dismissed LeBlanc’s illegality defense. LeBlanc appealed these summary judgments, which became final on September 24, 2008.

To succeed in a summary judgment, the movant must demonstrate entitlement to judgment as a matter of law and show no genuine issue of material fact exists, per Texas Rule of Civil Procedure 166a(c). Evidence favorable to the non-movant is assumed to be true, and all reasonable inferences and doubts must be resolved in the non-movant's favor.

LeBlanc contends the trial court erred by ruling against him since a genuine issue exists regarding the existence of an attorney-client relationship between him and Lange during the execution of the Settlement Agreement in 2005. An attorney-client relationship is established contractually and requires mutual intent, either explicit or implied, to create such a relationship, based on objective conduct and statements of the parties involved. LeBlanc must provide evidence showing tangible agreements contrary to the termination of the relationship upon completion of the employment purpose. Both parties acknowledge that Lange represented LeBlanc in the 2003 acquisition of the Hospital, but they dispute the representation's scope and duration. Lange asserted he did not represent LeBlanc in disputes with LifeCare and referred him to another law firm. Summary judgment evidence indicates LeBlanc engaged FCJ and Blue Williams for his disputes against LifeCare, and they represented him through the sale of his LifeCare 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 against LeBlanc regarding a conflict over a non-competition agreement and lease extension related to Carlyle's acquisition of LifeCare. Evidence, including Lange's testimony, email exchanges, and a memo to LeBlanc, indicated that Lange's representation was clear and focused on the interests of Ethicus and the Hospital due to the conflict of interest. LeBlanc did not provide evidence contradicting Lange's assertion about ceasing his role as attorney in 2004 and failed to show any formal attorney-client relationship, such as fee agreements or written contracts, after Lange's prior representation during the Hospital's acquisition. Although LeBlanc claimed that Lange was his attorney continuously since 1987, Texas law states that a subjective belief does not constitute evidence of an attorney-client relationship. Additionally, LeBlanc's self-serving statements were deemed insufficient to establish such a relationship under Texas law. The court noted that while testimony from an interested witness may count as summary judgment evidence, it must be capable of being readily controverted, which was not the case for LeBlanc's assertions about Lange's continuing role as his attorney.

LeBlanc's affidavit indicates that he requested Lange to review and advise him on a non-competition agreement related to the sale of his LifeCare stock, but it does not clarify whether Lange agreed to act as his attorney or what specific advice, if any, was provided. There is no evidence presented that Lange counseled LeBlanc as his attorney regarding the agreement. Conversely, evidence suggests that Lange's actions, such as the formation of Ethicus and related legal work, were performed in his capacity as general counsel for the Hospital and for the benefit of the business entities involved, not LeBlanc personally. Both LeBlanc and Lange were principals in these entities, which established Lange's fiduciary duties to them. LeBlanc cites an email from Lange that discusses the non-competition agreement, but the comments reflect Lange's obligations to the entities rather than personal counsel to LeBlanc. Specifically, Lange's concerns about the agreement stemmed from its implications for the Hospital and Ethicus, indicating that his advice was not aimed at protecting LeBlanc's interests. The only remarks in the email that could appear personal were deemed too casual and incidental to support a claim of personal legal representation, failing to create a genuine issue of material fact that would prevent summary judgment.

LeBlanc argues the existence of an attorney-client relationship with Lange at the time of signing the Settlement Agreement, citing a June 27 email from Lange to LeBlanc’s counsel. However, the email reveals Lange’s interests were adverse to LeBlanc's, as Lange expressed unwillingness to agree to a lease extension due to its negative impact on business interests. This indicates that Lange prioritized the business entities’ interests over those of LeBlanc, undermining the claim of an attorney-client relationship. Consequently, the trial court correctly determined that no such relationship existed when the Settlement Agreement was executed.

Additionally, LeBlanc contends that the trial court erred in denying his request to supplement the summary judgment record. The court denied this request after LeBlanc sought to introduce further evidence post-argument. Texas law requires that any late filing must demonstrate good cause, which LeBlanc failed to do, as he did not claim any mistake or accident but merely sought to introduce evidence for fairness. The trial court’s denial was consistent with established legal standards, and no abuse of discretion was found. Therefore, the trial court’s ruling stands, and LeBlanc’s first issue is overruled.

LeBlanc argues that the trial court improperly granted summary judgment by concluding there was no "special relationship" with Lange that would create an informal fiduciary duty. Texas law specifies that not all relationships characterized by trust and confidence qualify as fiduciary relationships. An informal fiduciary duty can emerge from personal relationships, but courts are cautious in recognizing such duties. For a duty to arise in business dealings, the relationship must exist prior to and independent of the agreement in question. In this case, the relevant facts provided by LeBlanc—long-term personal and business relationships, shared activities, and mutual attendance at significant family events—are undisputed but insufficient to establish a "special relationship" for fiduciary duty. The Texas Supreme Court's precedent in Meyer v. Cathey reinforces this, where a similar claim was rejected despite the existence of a close personal and business relationship, as the interactions were deemed transactional rather than fiduciary. The court emphasized that prior collaborations did not inherently create a fiduciary obligation.

LeBlanc and Lange's interactions regarding the Settlement Agreement were characterized as arm's-length transactions benefiting both parties as principals of the Hospital and Ethicus. Lange explicitly communicated his obligation to represent the interests of these entities due to LeBlanc's conflict of interest, while LeBlanc was counseled by FCJ and Blue Williams. The nature of their dealings does not establish a fiduciary relationship, despite their long friendship and cordiality, as these factors do not imply a confidential relationship. Legal precedents, including Crim Truck, Tractor Co. v. Navistar Int'l Transp. Corp. and Ins. Co. of N. Am. v. Morris, support that subjective trust alone does not convert an arm's-length transaction into a fiduciary relationship. The Fourteenth Court of Appeals in Dodson v. Kung similarly concluded that a personal relationship does not negate the arm's-length nature of business dealings, particularly when both parties are experienced and negotiating on equal terms. The evidence shows that LeBlanc and Lange were equal partners in their business dealings, with no evidence of one party holding superior authority. Consequently, the trial court correctly determined that no special relationship existed that would impose a fiduciary duty on Lange. LeBlanc's claim regarding the fairness of the Settlement Agreement, which relied on the existence of a fiduciary duty, was also rejected, as the court reaffirmed that no such duty existed. Thus, the issues raised by LeBlanc were overruled.

LeBlanc argues that the trial court made an error in granting summary judgment regarding the alleged breach of fiduciary duty by Lange, asserting that a factual dispute exists. However, since it has been established that Lange owed no fiduciary duty to LeBlanc, this argument is deemed moot. Additionally, in challenging the summary judgment on his remaining claims of fraud and misrepresentation, LeBlanc contends that Lange made material misrepresentations and that he relied on them to his detriment. The court found no evidence supporting LeBlanc's claims of misrepresentation or that Lange had a duty to disclose information, as no fiduciary relationship existed. The requirements for proving fraud include demonstrating a material misrepresentation, which LeBlanc failed to do. He asserts that Lange misrepresented the purpose of changing the Hospital's general partner, claiming he would have acted differently had he known he was being replaced. However, Lange's statement regarding LeBlanc's inability to sign the lease extension due to a conflict of interest was supported by law, negating the fraud claim. Consequently, Lange successfully disproved essential elements of both negligent misrepresentation and fraud, leading to the upholding of the trial court's summary judgment.

Lange successfully moved for summary judgment against LeBlanc’s claims under the DTPA, asserting that LeBlanc did not qualify as a "consumer" as defined by the Act. The DTPA defines a consumer as an individual or entity that purchases or leases goods or services, excluding businesses with assets over $25 million. The court determined LeBlanc's claim, based on an alleged attorney-client relationship with Lange, was unfounded since no such relationship existed. LeBlanc failed to provide evidence that Lange offered any goods or services to him, justifying the trial court's summary judgment on the DTPA claims.

LeBlanc also contended that the Settlement Agreement was illegal under Penal Code section 32.43(b), which addresses fiduciary misconduct. The court ruled that this statute does not create a private cause of action, and LeBlanc did not demonstrate that the Settlement Agreement constituted an illegal contract. Further, there was no evidence of a fiduciary relationship between LeBlanc and Lange, and LeBlanc had signed the Settlement Agreement, negating claims of illegality.

Lastly, on the matter of duress, LeBlanc challenged the summary judgment against his affirmative defense. The elements of duress require a threat or action without legal justification that undermines the other party's free will and ability to protect themselves. However, the court found no basis for LeBlanc's claims of duress in this case.

In *Chapman Children’s Trust v. Porter Hedges, L.L.P.*, the court addressed LeBlanc's affirmative defense of duress regarding Lange's refusal to extend a lease. LeBlanc argued that Lange lacked the legal right to refuse the lease extension, claiming Lange had fraudulently positioned himself in authority with the Hospital's general partner. The court rejected this argument, noting that LeBlanc, as an interested party, was legally precluded from exercising such authority. Furthermore, LeBlanc contended that Lange violated a fiduciary duty by refusing to extend the lease, but the court determined no such duty existed. LeBlanc also claimed that refusing the extension was against the Hospital's best interests, but even if this claim had merit, it did not affect Lange's legal right to make decisions for the Hospital as its disinterested manager. Consequently, LeBlanc did not sufficiently establish the first element of his duress claim.

Regarding the unconscionability of the Settlement Agreement, the court stated that it is a legal question requiring proof of both procedural and substantive unconscionability. Procedural unconscionability pertains to the contract formation process and the absence of meaningful choice, while substantive unconscionability concerns the fairness of the contract terms. The court found no evidence of shocking or gross circumstances in either aspect. LeBlanc stood to gain $50 million from selling his LifeCare stock, but the buyers required him to sign a non-competition agreement that affected both LeBlanc's and Lange's business interests. Lange expressed objections to the agreement on behalf of the related entities throughout the negotiation process. The Settlement Agreement emerged from arm's-length negotiations over several weeks, initiated in a meeting involving Lange and LeBlanc’s emissary, with compensation of $3 million offered for releasing LeBlanc’s stock from its pledge to Ethicus’s investors.

Chris LeBlanc estimated Ethicus's lost profits at approximately $4 million for its first year as a licensed LTAC facility. LeBlanc, a sophisticated businessman represented by legal counsel, was under pressure to sign a non-competition agreement to facilitate selling his LifeCare stock for over $50 million. Despite his claims of having no bargaining power, the court found no evidence of procedural unconscionability due to the absence of "shocking" facts in the dealings of sophisticated parties. The Settlement Agreement effectively resolved a complex issue by releasing LeBlanc’s stock from a pledge to Ethicus, compensating Ethicus for lost profits related to lease extensions, and enabling the profitable sale of his stock. A provision allowing Lange to buy LeBlanc’s interest in the Hospital for $3.8 million was also deemed reasonable and not shocking. Therefore, the trial court's ruling against LeBlanc regarding claims of fraud, misrepresentation, DTPA violations, illegality, duress, and unconscionability was upheld. Additionally, LeBlanc's claims against other parties were not challenged on appeal. He argued that Lange’s legal opinion from December 2004 indicated ongoing personal representation, but the court found no evidence supporting this. LeBlanc's assertion of a fiduciary duty owed by Lange was insufficiently briefed, leading to a waiver of that issue on appeal. Lastly, LeBlanc's claim of illegality was presented as a defense against the Settlement Agreement and had been subject to a separate summary judgment motion granted by Ethicus.