Opinion
2015 CA 1210
07-28-2016
ST. JAMES BEHAVIORAL HEALTH HOSPITAL, INC. v. GOPINATH GOPALAM, APOLLO MANAGEMENT CONSULTANTS, LLC AND SEVENHILLS HEALTHCARE, LLC
Erin Wiley Lanoux Robert Ryland Percy, III Gonzales, Louisiana Counsel for Plaintiff/Third Appellant St. James Behavioral Health Hospital, Inc. Thomas M. Lockwood Baton Rouge, Louisiana Counsel for Plaintiff/Third Appellant Rama Kongara, M.D. Sidney A. Marchand, III Donaldsonville, Louisiana Counsel for Plaintiff/Third Appellant Wendell B. Smith Pegram J. Mire, Jr. Gonzales, Louisiana Counsel for Plaintiff/Third Appellant Lance Bullock, M.D. Brian F. Blackwell Robert B. Dunlap Charles L. Patin, Jr. J. Christopher Alexander Baton Rouge, Louisiana Counsel for Defendant/First Appellant Gopinath Gopalam Brian F. Blackwell Robert B. Dunlap Charles L. Patin J. Christopher Alexander Baton Rouge, Louisiana Counsel for Defendant/Second Appellant Apollo Management Consultants, LLC
NOT DESIGNATED FOR PUBLICATION
On Appeal from the Twenty-Third Judicial District Court In and for the Parish of Ascension State of Louisiana
No. 103,146 Honorable Ralph Tureau, Judge Presiding Erin Wiley Lanoux
Robert Ryland Percy, III
Gonzales, Louisiana Counsel for Plaintiff/Third Appellant
St. James Behavioral Health Hospital,
Inc. Thomas M. Lockwood
Baton Rouge, Louisiana Counsel for Plaintiff/Third Appellant
Rama Kongara, M.D. Sidney A. Marchand, III
Donaldsonville, Louisiana Counsel for Plaintiff/Third Appellant
Wendell B. Smith Pegram J. Mire, Jr.
Gonzales, Louisiana Counsel for Plaintiff/Third Appellant
Lance Bullock, M.D. Brian F. Blackwell
Robert B. Dunlap
Charles L. Patin, Jr.
J. Christopher Alexander
Baton Rouge, Louisiana Counsel for Defendant/First Appellant
Gopinath Gopalam Brian F. Blackwell
Robert B. Dunlap
Charles L. Patin
J. Christopher Alexander
Baton Rouge, Louisiana Counsel for Defendant/Second Appellant
Apollo Management Consultants, LLC BEFORE: McDONALD, McCLENDON, AND THERIOT, JJ. McCLENDON, J.
In three separate appeals, the various parties challenge different aspects of the trial court's judgment following a trial on the merits regarding the ownership and management of an inpatient psychiatric hospital. For the following reasons, we amend the judgment in part, and we affirm as amended.
FACTS AND PROCEDURAL HISTORY
St. James Behavioral Health Hospital, Inc. is an inpatient psychiatric hospital established in 2006 by Dr. Lance Bullock, Dr. Rama Kongara, Wendell Smith, and Gopinath Gopalam. Each of the four members brought certain functional abilities to St. James. Dr. Bullock and Dr. Kongara were medical clinicians who could handle St. James's patient needs; Mr. Smith was a registered nurse with years of experience in clinical psychiatric work and management of psychiatric facilities; and Mr. Gopalam provided daily management of the facility and its business.
Gopinath Gopalam had previously incorporated St. James Behavioral Hospital, Inc. in 2004.
In November 2010, Mr. Smith, who was St. James's CEO, was forced to take a medical leave of absence and was no longer able to involve himself in the management of St. James. Mr. Gopalam, who had been acting as St. James's CFO, additionally assumed Mr. Smith's duties as CEO.
Following Mr. Smith's departure, St. James was confronted with two issues: the first was a question of what percentage of ownership in St. James could be held by its physician owners, Dr. Bullock and Dr. Kongara; the second issue involved the merger of Sevenhills Healthcare, LLC, an outpatient psychiatric program owned solely by Mr. Gopalam, with St. James.
Additionally, in August 2011, the Department of Health and Hospitals for the State of Louisiana ("DHH") issued a Survey Report in which DHH noted multiple deficiencies in St. James's operation and placed the hospital into "IJ" status, meaning that St. James was in "Immediate Jeopardy" of being closed if it did not comply with the requirements specified in the DHH survey. Prior to its compliance issues with DHH, St. James was doing well financially.
Dr. Bullock and Dr. Kongara determined that the DHH survey was the "last straw" under Mr. Gopalam's leadership and decided that they wanted to terminate Mr. Gopalam and rehire Mr. Smith in his place. Following a board meeting on September 1, 2011, Dr. Bullock and Dr. Kongara terminated Mr. Gopalam; hired Mr. Smith; severed ties with Apollo Management Consultants, LLC, a company owned solely by Mr. Gopalam; entered Apollo's office without Mr. Gopalam's knowledge or consent and took possession of Mr. Gopalam's computer.
In March 2012, St. James filed suit against Mr. Gopalam, Apollo, and Sevenhills, alleging that Mr. Gopalam, alone and in concert with Apollo and Sevenhills, breached fiduciary duties owed to St. James. These allegedly included acts of self-dealing by Mr. Gopalam by St. James entering into unfair contracts with himself and/or Sevenhills and/or Apollo, all of which allegedly substantially enriched Mr. Gopalam at the expense of St. James.
In September 2012, St. James filed a "First Amended, Restated, and Supplemental Petition," in which Dr. Kongara, Dr. Bullock, and Mr. Smith (sometimes collectively referred to as "St. James") joined as petitioners. Therein, St. James alleged that Mr. Gopalam's acts of self-dealing and breaches of fiduciary duties included withholding information to his personal advantage; the use of St. James corporate funds for his personal benefit and that of his companies; inflation of sums due from St. James to him or his companies; underpayment of amounts due from him or his companies to St. James; misapplication of the St. James's corporate funds; and gross mismanagement of St. James. Also, Dr. Bullock and Dr. Kongara sought the return of corporate stock that they alleged was "wrongfully transferred" to Mr. Gopalam.
Mr. Gopalam, Apollo, and Sevenhills filed a reconventional demand, alleging, among other things, that St. James breached its Outpatient Psychiatric Department Partial Hospitalization Program Management Agreement with Apollo and its Employment Agreement with Mr. Gopalam; that St. James breached its Billing Services Agreement with Apollo; that St. James violated the Louisiana Unfair Trade Practices and Consumer Protection Law by engaging in fraud, misrepresentation, deception, and/or unethical acts in their dealings with Mr. Gopalam and Apollo; and that Dr. Kongara and Dr. Bullock and Mr. Smith breached the fiduciary duty owed by each of them to Mr. Gopalam in various particulars.
In their reconventional demand, the plaintiffs-in-reconvention also alleged that Dr. Kongara defamed Mr. Gopalam by publishing false and defamatory statements concerning Mr. Gopalam by accusing Mr. Gopalam of stealing and attempting to steal money from St. James. The plaintiffs-in-reconvention further asserted that Apollo was entitled to indemnification from St. James, pursuant to Section 6.2 of the Management Agreement.
Additionally, Mr. Gopalam, Apollo, and Sevenhills filed an exception raising the objection of res judicata, asserting that the claims by Dr. Kongara seeking return of his stock were barred by res judicata.
After a four-day bench trial, the trial court took the matter under advisement. The trial court rendered judgment that: (1) dismissed the claims made by Dr. Bullock, Dr. Kongara, Mr. Smith, and St. James against Mr. Gopalam, Apollo, and Sevenhills; (2) awarded Apollo $120,000.00 in connection with St. James's breach of the Billing Services Agreement; (3) awarded Apollo $610,288.07 in connection with St. James's breach of the Management Agreement; (4) awarded Mr. Gopalam $258,535.58 in connection with St. James's breach of the Employment Agreement; (5) dismissed the breach of fiduciary claims made by Mr. Gopalam against Dr. Bullock, Dr. Kongara, Mr. Smith, and St. James; and (6) rescinded the stock sale agreements between Dr. Bullock/Mr. Gopalam and Dr. Kongara/Mr. Gopalam conditioned upon payment of $25,000.00 by each doctor to Mr. Gopalam.
The judgment also dismissed Mr. Gopalam's defamation claim against Dr. Kongara and denied all parties' claims for attorneys' fees.
Three separate appeals have been filed, one by Mr. Gopalam, one by Apollo, and one by St. James, Dr. Bullock, Dr. Kongara, and Mr. Smith.
Mr. Gopalam has assigned the following as error in his appeal:
1. The trial court erred in not granting Mr. Gopalam's exception of res judicata as to the claims of Dr. Kongara.
2. The trial court erred in ordering the rescission of the sale of stock by Dr. Kongara and Dr. Bullock to Mr. Gopalam.
3. The trial court erred in failing to consider whether any error made by Dr. Kongara or Dr. Bullock was inexcusable.
4. The trial court erred in failing to find that Dr. Kongara, Dr. Bullock and Mr. Smith breached their fiduciary duties to Mr. Gopalam as officer and directors of St. James on numerous occasions.
5. The trial court erred in failing to award Mr. Gopalam damages for the repeated and consistent breach of fiduciary duties committed by Dr. Kongara, Dr. Bullock and Mr. Smith.
Apollo has assigned the following as error:
1. The trial court erred in finding that the Billing Services Agreement between Apollo Management and St. James was "subject to termination upon 60 days' notice."
2. Alternatively, the trial court erred in failing to consider and apply Louisiana Civil Code article 1770 to St. James's cancellation of the Billing Services Agreement
3. The trial court erred in failing to award Apollo Management the full measure of damages that it sustained as a result of St. James's cancellation of the Billing Services Agreement
4. The trial court erred in finding that St. James was ever excluded from participation in the Medicare or Medicaid programs.
5. The trial court erred in finding that the Management Agreement between Apollo Management and St. James was terminated because St. James was excluded from participation in Medicare and Medicaid programs.
6. The trial court erred in failing to award Apollo Management the full measure of the damages that it sustained as a result of St. James's cancellation of the Management Agreement
7. The trial court erred in failing to award Apollo Management interest on the amounts awarded to it in the Judgment.
St. James, Dr. Kongara, Dr. Bullock, and Mr. Smith have assigned the following as error in their appeal:
1. The Trial Court Erred in Failing to Find that Mr. Gopalam Breached the Fiduciary Duty Owed by Him to St. James, Drs. Kongara and Bullock, and Mr. Smith.
2. The Trial Court Erred in Failing to Find that Just Cause Existed for the Termination of the Outpatient Psychiatric Employment Agreement between Gopinath Gopalam and St. James.
3. The Trial Court Erred in awarding Apollo Management Consultants, LLC damages in the amount of $258,535.58 in Connection with its Finding That St. James breached its Outpatient Psychiatric Program Management Agreement (Joint Exhibit 47) with that Company.
DISCUSSION
MR. GOPALAM'S APPEAL
Res Judicata
In his first assignment of error, Mr. Gopalam contends that the trial court erred in concluding that Dr. Kongara's claims for rescission of the stock sale from Dr. Kongara to Mr. Gopalam were not barred by res judicata. Relevant to res judicata, Mr. Gopalam notes that the entire record in the matter entitled Rama K. Kongara, M.D. v. Gopinath Gopalam, bearing suit number 105,093, Division "E" on the docket of the 23rd Judicial District Court for the Parish of Ascension was filed into evidence in the current suit. On motion of the parties, suit number 105,093 was dismissed, with prejudice, on December 23, 2013. Mr. Gopalam asserts that the dismissal, with prejudice, of the referenced suit bars relitigation of the stock sale in the underlying suit.
There is no indication in the record that Dr. Bullock filed a similar suit.
The law governing res judicata is set forth in LSA-R.S. 13:4231, as amended in 1990, and provides:
Except as otherwise provided by law, a valid and final judgment is conclusive between the same parties, except on appeal or other direct review, to the following extent:
(1) If the judgment is in favor of the plaintiff, all causes of action existing at the time of final judgment arising out of the transaction or occurrence that is the subject matter of the litigation are extinguished and merged in the judgment.
(2) If the judgment is in favor of the defendant, all causes of action existing at the time of final judgment arising out of the transaction or occurrence that is the subject matter of the litigation are extinguished and the judgment bars a subsequent action on those causes of action.
(3) A judgment in favor of either the plaintiff or the defendant is conclusive, in any subsequent action between them, with respect to any issue actually litigated and determined if its determination was essential to that judgment.
The Louisiana Supreme Court has recognized that LSA-R.S. 13:4231 requires that the following five elements be satisfied for a finding that a second action is precluded by res judicata: (1) the judgment is valid; (2) the judgment is final; (3) the parties are the same; (4) the cause or causes of action asserted in the second suit existed at the time of final judgment in the first litigation; and (5) the cause or causes of action asserted in the second suit arose out of the transaction or occurrence that was the subject matter of the first litigation. Burguieres v. Pollingue, 02-1385 (La. 2/25/03), 843 So.2d 1049, 1053. Since the 1990 amendment to the res judicata statute, the "chief inquiry" is "whether the second action asserts a cause of action which arises out of the transaction or occurrence that was the subject matter of the first action." Id. A judgment of dismissal with prejudice shall have the effect of a final judgment of absolute dismissal after trial. LSA-C.C.P. art. 1673.
First, Mr. Gopalam asserts that no party challenged the validity of the judgment in Kongara v. Gopalam. Second, Mr. Gopalam notes that a judgment of dismissal has the effect of a final judgment of absolute dismissal after trial. See LSA-C.C.P. art. 1673. Third, the parties in both suits are clearly the same. Fourth, Mr. Gopalam avers that any cause of action asserted by Dr. Kongara in the instant suit (filed on March 19, 2012) clearly existed at the time the Kongara v. Gopalam suit (filed January 17, 2013) was filed. Finally, Mr. Gopalam asserts that the subject matter of the Kongara v. Gopalam suit was the return to Dr. Kongara of seventy-five shares of stock in St. James that had previously been purchased by Mr. Gopalam. Mr. Gopalam contends that the subject matter of the present litigation is the return to Dr. Kongara of fifty of the same shares of stock in St. James that had been previously purchased by Mr. Gopalam. As such, Mr. Gopalam asserts that Dr. Kongara cannot raise these claims again in the instant suit.
We disagree. The cause of action asserted in this suit did not arise from the same transaction or occurrence as that in Kongara v. Gopalam. The subject matter of the portion of the trial court's judgment at issue in the instant suit arises from a series of contracts in which Mr. Gopalam purchased fifty shares of Dr. Kongara's stock in St. James (along with fifty shares of Dr. Bullock's stock). Specifically, Dr. Bullock and Dr. Kongara each sold 5% of their shares in St. James to Mr. Gopalam when the physicians learned that they were potentially violating the federal Stark and anti-kickback laws by holding more than 40% ownership interest in St. James. Because the physicians owned a collective 50% interest in St. James, they each sold 5% of their shares to Mr. Gopalam, thereby reducing their collective ownership interest to 40%.
Generally, under the Stark Law, physicians are prohibited from referring designated health services payable by Medicare or Medicaid to any entity in which the physician (or an immediate family member) has a financial relationship unless an exception is met. See 42 U.S.C. § 1395nn. The anti-kickback statute provides criminal penalties for individuals or entities who knowingly and willfully offer, pay, solicit, or receive remuneration in order to induce business payable by Medicare or Medicaid. See 42 U.S.C. § 1320a-7b(b).
By contrast, Kongara v. Gopalam, concerned a different contract entered into between Mr. Gopalam and Dr. Kongara, in which the parties therein agreed [a] "to split 'fifty-fifty' (50/50) all assets, profits, losses, and liabilities related to ..." the three hundred and fifty shares of stock owned by them in St. James; and [b] that either of them possessed the option "... at any time to exchange shares between them at the prorated cost of $25,000.00 for [fifty] shares executing all necessary documents to evidence ownership of the said shares as provided for in the [the contract]." Accordingly, the suits involved different contracts, negotiated separately and for different obligations, and performed under different terms. Therefore, we find no error in the trial court denying Mr. Gopalam's exception raising the objection of res judicata. Mr. Gopalam's first assignment of error is without merit.
Rescission of Stock Sale
In his second assignment of error, Mr. Gopalam asserts that the trial court erred in ordering the rescission of the sale of stock by Dr. Bullock and Dr. Kongara. The physicians assert that they were not made aware of any alternative option for ensuring St. James's compliance with the federal laws (other than each selling 5% of their stock), even though Mr. Gopalam had been informed by counsel that there would be no violations of the federal laws if the physicians did not refer any patients to St. James. The trial court, in rescinding the stock sale, concluded that the physicians were not aware of this alternative option such "that there was no meeting of the minds."
Mr. Gopalam asserts that the evidence presented at trial clearly established that Dr. Bullock and Dr. Kongara were aware of the alternative option, i.e., that they could retain their collective 50% ownership in St. James if they would agree not to refer any patients to St. James. Mr. Gopalam notes that after the physicians learned of the potential violations of the federal laws, St. James's board of directors hired a law firm to provide a legal opinion on the ownership structure of St. James. In response, in a letter sent to Mr. Gopalam, the firm outlined the two above-referenced alternatives. Mr. Gopalam notes that he forwarded the letter to both physicians and told them to "[p]lease read it [thoroughly]." Mr. Gopalam notes that Dr. Bullock acknowledged "reviewing" the firm's letter, and Dr. Kongara recalls reading it but that he "was lost because [he did not know] the subject." Mr. Gopalam notes that over the course of several board meetings, the stock sale issue was addressed, and Dr. Bullock and Dr. Kongara raised issues at the meetings regarding valuation of the shares. An attorney reviewed the potential stock sale transaction, and in a six-page e-mail to Mr. Gopalam, counsel addressed the valuation and stock sale issue and also indicated that the alternative of no referrals was a viable option. Mr. Gopalam forwarded the e-mail to both Dr. Bullock and Dr. Kongara. Mr. Gopalam notes that on January 19, 2011, almost six months after the federal law concerns were first raised, the stock sale was consummated. In light of the foregoing, Mr. Gopalam concludes that Dr. Bullock and Dr. Kongara were notified of the second viable option.
In his related third assignment of error, Mr. Gopalam asserts that any error made by the two physicians in failing to recognize that there was a second viable option when they received correspondence from counsel addressing same was inexcusable in the context of a rescission of a contract. Courts generally will refuse rescission unless they conclude that the error is excusable, i.e. that the party in error did not fail to take elementary precautions that would have avoided his error, such as making certain that he was reasonably informed. Peironnet v. Matador Resources Co., 12-2292, 12-2377 (La. 6/28/13), 144 So.3d 791, 810 (citing Litvinoff, Vices of Consent, Error, Fraud, Duress and an Epilogue on Lesion, 50 La.L.Rev. 1, 36 (1989)). Further, personal circumstances of the party in error, such as age, experience and profession, are to be taken into account. An error made by a professional person concerning a matter within his field of expertise would no doubt be regarded as inexcusable. Id.
Mr. Gopalam asserts that it is incongruous for the trial court to find that all parties to the proceedings were sophisticated and educated, but that Dr. Bullock and Dr. Kongara did not understand that there were two viable options. Mr. Gopalam asserts that the evidence clearly established that Dr. Bullock and Dr. Kongara were well aware of the fact that they could have chosen the second option recommended by counsel and "agree[d] not to refer patients to the Hospital."
A contract is formed by consent of the parties through offer and acceptance. LSA-C.C. art. 1927. Consent may be vitiated by error, fraud, or duress. LSA-C.C. art. 1948. Error vitiates consent only when it concerns a cause without which the obligation would not have been incurred and that cause was known or should have been known to the other party. LSA-C.C. art. 1949. Error may concern a cause when it bears on the nature of the contract or any other circumstances that parties regarded or should have in good faith regarded as cause of the obligation. LSA-C.C. art. 1950.
Consent of the parties is necessary to form a valid contract. Where there is no meeting of the minds between the parties, a contract is void for lack of consent. Stockstill v. C.F. Industries, Inc., 94-2072 (La.App. 1 Cir. 12/15/95), 665 So.2d 802, 820, writ denied, 96-0149 (La. 3/15/96), 669 So.2d 428.
A trial court's determination regarding whether there was a meeting of the minds of the parties to constitute the requirement of consent is a factual finding. See Marcantel v. Jefferson Door Co., Inc., 01-1307 (La.App. 5 Cir. 4/10/02), 817 So.2d 236, 239. A court of appeal may not set aside a trial court's finding of fact in the absence of "manifest error" or unless it is "clearly wrong." Rosell v. ESCO, 549 So.2d 840, 844 (La. 1989). The Louisiana Supreme Court has provided a two-part test for the reversal of a factfinder's determinations:
1) The appellate court must find from the record that a reasonable factual basis does not exist for the finding of the trial court, andStobart v. State through Dep't of Transp. and Dev., 617 So.2d 880, 882 (citing Mart v. Hill, 505 So.2d 1120, 1127 (La. 1987)). This test dictates that a reviewing court must do more than simply review the record for some evidence which supports or controverts the trial court's finding. Stobart, 617 So.2d at 882. The reviewing court must review the record in its entirety to determine whether the trial court's finding was clearly wrong or manifestly erroneous. Id. Accordingly, the issue to be resolved by a reviewing court is not whether the trier of fact was right or wrong, but whether the factfinder's conclusion was a reasonable one. Id.
2) The appellate court must further determine that the record establishes that the finding is clearly wrong (manifestly erroneous).
The trial court found that at the time Dr. Bullock and Dr. Kongara sold their stock to Mr. Gopalam, they were unaware of the second option in which they could agree not to refer any patients to St. James. In reaching this conclusion, the trial court apparently relied upon the fact that Mr. Gopalam was the liaison between St. James and the attorneys, and that the physicians relied upon the verbal communications relayed to them by Mr. Gopalam. As CFO (and later CEO) of St. James, Mr. Gopalam owed a fiduciary duty to St. James and to Dr. Bullock and Dr. Kongara. See former LSA-R.S. 12:91(A) ("Officers and directors [of a corporation] shall be deemed to stand in a fiduciary relation to the corporation and its shareholders.") At trial, Dr. Bullock testified that he trusted Mr. Gopolam to tell the physicians what the attorneys told him. Dr. Bullock testified that it was neither he nor Dr. Kongara's idea to sell the stock. According to Dr. Bullock, Mr. Gopalam explained to them that "we had to sell our 5% shares" and "we would be outside the safe harbor if we didn't sell [our stock] to him." Even though some of the attorneys' communications to Mr. Gopalam were forwarded to the physicians, their responses seem to indicate that they believed they were only given one option. Dr. Bullock, in an e-mail reply to Mr. Gopalam, indicated that after reviewing counsel's initial letter, he was "convinced that we cannot have more than the 40% share of the hospital." Dr. Kongara, who testified in his deposition that he was still confused about the federal law, indicated that "somebody should have explained [the letter] to us more in depth." Moreover, with regard to his conversations with Mr. Gopalam regarding the stock sale, Dr. Kongara testified:
Dr. Bullock testified there was sufficient business to keep St. James open without the physician referrals. This is because he never referred any patients to St. James since he had no private practice from which to refer them. Dr. Kongara and his son made less than 5% of their physician referrals to St. James.
Louisiana Revised Statutes 12:91(A) was effective through December 31, 2014, but repealed by 2014 La. Acts No. 328, § 5. The substance of former LSA-R.S. 12:91(A) can now be found in LSA-R.S. 12:226(A), which became effective on January 1, 2015.
He [Mr. Gopalam] didn't give us clear indication because we were -- we were -- we both come under the grandfather clause; so what he told us is not true.Given the special relationship between the parties and the physicians' reliance on Mr. Gopalam, we cannot conclude that the trial court committed manifest error in concluding that there was "no meeting of the minds." In doing so, the trial court apparently concluded the existence of an error that vitiated consent. Accordingly, Mr. Gopalam's second and third assignments of error are without merit.
He told us Medicare will be after us if we - if we kept 50 percent of the share, we would be in trouble with Medicare, and we believed him. We trusted him. We sold our shares.
***
When he took 35 percent, that is the time he changed the whole pattern. He wanted to -- he is more hungry. He wanted to acquire the whole company and put us out. That is a fact.
Breach of Fiduciary Duties Owed to Mr. Gopalam
In his fourth assignment of error, Mr. Gopalam asserts that the trial court erred in failing to find that Dr. Kongara, Dr. Bullock, and Mr. Smith, as officers and directors of St. James, breached their fiduciary duties owed to him. Mr. Gopalam avers that Dr. Kongara, Dr. Bullock, and Mr. Smith, developed a plan to remove Mr. Gopalam from his position as CEO/CFO, remove him from St. James's board of directors, deprive him of income generated by St. James's operation, and destroy Apollo's ongoing business. Mr. Gopalam avers that St. James's profit and loss statement for 2013 shows that St. James lost over $200,000.00, but that Dr. Kongara, Dr. Bullock, and Mr. Smith paid themselves board of director fees totaling $405,000.00. Moreover, Mr. Gopalam notes that while St. James has not paid Mr. Gopalam anything since September 1, 2011, the three remaining directors have paid themselves almost $1,000,000.00. Mr. Gopalam asserts that by paying themselves exorbitant director fees when St. James was losing money, Dr. Bullock, Dr. Kongara, and Mr. Smith breached their fiduciary duties to Mr. Gopalam.
We note that the claims asserted by Mr. Gopalam appear more appropriately categorized as a shareholder derivative action. Generally, shareholder derivative actions are used almost exclusively as a means of suing corporate officers and directors for alleged breaches of fiduciary duties owed by them to the corporation. Morris & Holmes, Business Organizations, § 34.01 at 160, in 8 La. Civ. L. Treatise (1999).
Directors of a corporation may serve as corporate officers or agents and be compensated for their services. Morris & Holmes, Business Organizations § 22.04 at 561, in 7 Louisiana Civil Law Treatise (1999). Mr. Gopalam only points to one year where the board members received payments even though St. James sustained a loss that year. Although Mr. Gopalam asserts that the board's fees are exorbitant, the evidence reflects that the fees paid to the board are significantly less than what they were when Mr. Gopalam was a board member. Specifically, the monthly payments being distributed to the board members at the time of Mr. Gopalam's departure totaled over $112,000.00 per month, with Mr. Gopalam receiving $52,000.00 per month and Dr. Bullock and Dr. Kongara receiving $30,000.00 each per month. Since that time, the board members have each been paid over $10,000.00 per month. Also, Dr. Bullock, Dr. Kongara, and Mr. Smith were only paid director fees, plus fees for extra duties. In light of the foregoing, we are unable to conclude that the trial court was manifestly erroneous in finding that Dr. Bullock, Dr. Kongara, and Mr. Smith did not breach any fiduciary duties in paying for their services as board members.
Mr. Gopalam also avers that on October 28, 2011, the newly constructed St. James board (comprised of Dr. Bullock, Dr. Kongara, and Mr. Smith) voted to retroactively pay Mr. Smith a director fee of $160,000.00 for a period of time that Mr. Smith did not serve on the board or perform any services whatsoever for St. James. The trial court, in its judgment, found that this retroactive payment was a breach of a fiduciary duty owed to shareholders, and that the "shareholder(s) legal rights to pursue this issue are preserved."
Moreover, Mr. Gopalam asserts that St. James spent upward of $2,000,000.00 after September 1, 2011, in legal fees for St. James and the personal legal expenses of Dr. Bullock, Dr. Kongara, and Mr. Smith. Mr. Gopalam avers that these fees were never approved in accordance with St. James's by-laws. Mr. Gopalam asserts that by failing to conduct its business in accordance with the by-laws, Dr. Bullock, Dr. Kongara, and Mr. Smith caused damages to him by significantly reducing the value of his interest in St. James.
Mr. Gopalam references sections 10.2 and 10.3 of the by-laws, which provide:
10.2 To the extent that a director, officer, employee, or agent of the Corporation has been successful on the merits or otherwise in defense of any such action, suit or proceeding, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually incurred by him in connection therewith.
10.3 The indemnification hereunder (unless ordered by the court) shall be made by the Corporation only as authorized in a specific case upon a determination that the applicable standard of conduct has been met. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding, or (b) if such a quorum is not obtainable and the Board of Directors so directs, by independent legal counsel, or (c) by the shareholders. [Emphasis added.]
The corporate by-laws authorize St. James to reimburse any officer or director who is sued by reason that he is or was an officer of the corporation if he acted with good faith and in a manner he reasonably believed to be in or not opposed to the best interest of St. James. In accordance with subsection 10.2 of the corporate by-laws, because all members of the board were parties, they could not determine whether the corporation could indemnify them. Rather, they could be indemnified if independent legal counsel approved or by vote of the shareholders. According to Mr. Smith, the board has not "done any of this without advice from counsel, and would not have done it if we didn't feel like that we could legally do it." The burden of proof was on Mr. Gopalam to establish violation of the corporate bylaws. Mr. Gopalam failed to carry his burden of proof to establish that the legal expenses were not paid in accordance with St. James's bylaws. Accordingly, we cannot conclude that the trial court erred in concluding that Dr. Bullock, Dr. Kongara, and Mr. Smith breached no fiduciary duties for payment of these legal fees. Mr. Gopalam's fourth assignment of error is without merit.
The entirety of the stock was owned by the four board members.
Because we find no merit in Mr. Gopalam's fourth assignment of error, we pretermit discussion of Mr. Gopalam's fifth assignment of error.
APPOLLO'S APPEAL
Termination of the Billing Services Agreement
In its first assignment of error, Apollo contends that the trial court erred in concluding that the Billing Services Agreement between Apollo and St. James was subject to termination upon sixty days' notice. In reaching this conclusion, the trial court relied upon the following provision found in section 5.1 of the Billing Services Agreement:
Apollo notes that the Billing Services Agreement required St. James to pay Apollo $21,000.00 per month in consideration for "inpatient/outpatient services billed by APOLLO on behalf of [St. James]." Apollo notes that the Billing Services Agreement also required St. James to pay Apollo $3,000.00 per month for bookkeeping services.
This Agreement shall remain in full force and effect for three (3) years from the Effective Date of this Agreement. This agreement is auto renewed for another (3) year term unless the previous term is terminated with or without cause upon the provision of sixty (60) days['] notice.Apollo contends that the trial court's interpretation of the second sentence renders the first sentence superfluous and meaningless. Apollo asserts that there would be no reason for the parties to agree to an initial three year term if the contract could be terminated upon sixty days' notice at any time.
On the other hand, St. James contends that the language "previous term" as used in Section 5.1 of the Billing Services Agreement clearly establishes that the agreement could be terminated by either party with sixty days' notice. St. James avers that there is no language excluding the initial term from the sixty-day termination notice provision.
Interpretation of a contract is the determination of the common intent of the parties. LSA-C.C. art. 2045. When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent. LSA-C.C. art. 2046. A provision susceptible of different meanings must be interpreted with a meaning that renders it effective and not with one that renders it ineffective. LSA-C.C. art. 2049. Each provision in a contract must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole. LSA-C.C. art. 2050. If the terms of a written contract are susceptible to more than one interpretation, or the intent cannot be ascertained from the language employed, parol evidence is admissible to clarify the ambiguity or show the intention of the parties. Commercial Properties Development Corp. v. State Teachers Retirement System, 00-0392 (La.App. 1 Cir. 3/28/01), 808 So.2d 534, 540.
We find section 5.1 of the Billing Service Agreement unclear and susceptible to more than one interpretation. As such, parol evidence can be considered to clarify the ambiguity and show the parties' intentions. In his deposition, Mr. Gopalam testified that he understood that the Billing Service Agreement could be terminated by either party at any time on sixty days' notice. Although Mr. Gopalam's trial testimony was inconsistent with his deposition testimony insofar as he indicated at trial that the sixty-day term only applied to renewals, we find no manifest error in the trial court's finding that the parties intended the contract to be subject to termination at any time upon sixty days' notice. See Guest House of Slidell v. Hills, 10-1949 (La.App. 1 Cir. 8/17/11), 76 So.3d 497, 499. ("Where factual findings are pertinent to the interpretation of a contract, those factual findings are not to be disturbed absent manifest error.") Because the discretion vested in the trier of fact is so great, and even vast, an appellate court should rarely disturb its findings on review, McGlothlin v. Christus St. Patrick Hosp., 10-2775 (La. 7/1/11), 65 So.3d 1218, 1231. An appellate court on review must be cautious not to re-weigh the evidence or to substitute its own factual findings just because it may have decided the case differently. Id. Apollo's first assignment of error is without merit.
In its related second assignment of error, Apollo contends that the trial court should have considered and applied LSA-C.C. art. 1770 to St. James's cancellation of the Billing Services Agreement. Under LSA-C.C. art. 1770, a resolutory condition (cancellation of the Billing Services Agreement) that depends solely on the will of the obligor must be fulfilled in good faith. Apollo asserts that the evidence established that St. James lacked good faith in exercising any right it had to terminate the Billing Services Agreement. Apollo maintains that it "did everything it was supposed to under the Billing Services Agreement" and there were no deficiencies in its performance. Apollo notes that termination of an agreement because of purely personal rather than business reasons could constitute bad faith. LSA-C.C. art. 1770, Official Revision Comments-1984, comment (f). Apollo contends that St. James's reasons for terminating the contract were purely personal because of Mr. Gopalam's association with Apollo.
On the other hand, St. James asserts that it had valid reasons for terminating the contract with Apollo. St. James avers that the board voted to terminate all agreements between Apollo and St. James after it was brought to the board's attention that Mr. Gopalam in his capacity as sole owner and operator of Apollo was managing St. James's finances, allegedly with complete disregard for St. James's best interests. St. James asserts that it was left with no other choice but to cut all ties with Mr. Gopalam in his capacity as St. James CEO and CFO, as well as in his capacity as Apollo's sole owner and operator.
In his deposition, Dr. Kongara testified that he believed Mr. Gopalam was concerned solely about his self-interest rather than the interest of St. James or its shareholders. Dr. Kongara indicated that he believed Mr. Gopalam was attempting to acquire all shares in St. James for himself. Dr. Kongara was also concerned that none of the medical records could be located at St. James. Dr. Kongara indicated that Mr. Gopalam "doesn't communicate. We don't have access to the financial records. Anything, nothing. We don't know what is going on."
Additionally, Dr. Bullock testified that he was concerned with Mr. Gopalam's cost-cutting measures, resulting in reduced patient care, and that this was his primary motivating factor for wishing to terminate Mr. Gopalam's relationship with St. James. Dr. Bullock testified that prior to St. James's Billing Services Agreement with Apollo, Mr. Gopalam "had handled all of the billing for St. James." Dr. Bullock also testified that he was becoming more concerned about Mr. Gopalam's management of St. James since he was the one receiving an increase in the number of complaints from staff and Mr. Richard Bennett, St. James's administrator, regarding Mr. Gopalam's extreme cost-cutting measures. Due to these cost-cutting measures, Dr. Bullock testified that there were difficulties getting basic nursing items and things such as bed pans. Mr. Bennett corroborated this testimony, and also indicated that due to the cost-cutting measures he was concerned with patient care and safety.
As stated previously, in August 2011, St. James received the DHH survey report, where DHH reported multiple deficiencies in St. James's operation and placed St. James into "Immediate Jeopardy" status. Mr. Heath Veuleman, an expert in healthcare administration and regulatory compliance, testified that he was retained shortly after Mr. Gopalam was terminated to assist St. James in complying with the deficiencies found in DHH's survey. Mr. Veuleman testified that the board members were seriously concerned about St. James and how it was managed under Mr. Gopalam. Based on his evaluations, Mr. Veuleman found St. James to be out of compliance with industry standards, and he noted issues that had not been properly addressed including "inadequate staffing, [and] core functions of the Hospital, notwithstanding substandard patient care." Mr. Vueleman's expert opinion was that DHH's adverse findings "were directly related to improper funding by the management, Mr. Gopalam, who exercised both financial and operational control."
Considering the foregoing and following our review of the entire record, we conclude that the trial court was not manifestly erroneous in determining that St. James acted in good faith in cancelling the contract with Apollo. Clearly, the trial court found that St. James had legitimate business reasons for severing its ties with Apollo. Apollo's second assignment of error is without merit.
Termination of the Management Agreement
In its related fourth and fifth assignments of error, Apollo asserts that the trial court erred in finding that St. James could terminate the Management Agreement based on DHH excluding St. James from participating in the Medicare or Medicaid programs. Specifically, the Management Agreement provides:
In consideration of providing various management services, the Management Agreement required St. James to pay Apollo a management fee of $20,000.00 per month plus certain specified reimbursable expenses.
2.2 Termination: This Agreement may be terminated only as follows:
***
B. A party shall be deemed to have terminated this Agreement effective on the date on which one of the following events occurs:
While Apollo concedes that DHH did initiate proceedings to revoke St. James's license and to terminate St. James's Medicaid Provider Agreement, Apollo asserts that St. James was never excluded from participation in either the Medicare or Medicaid programs. Apollo opines that although St. James could not admit Medicaid patients or bill Medicaid for services provided to those patients for a limited period of time, it was never "excluded" or expelled from the Medicaid program.(i) the party, or any of its officers, directors, members or shareholders are excluded from participation in the Medicare or Medicaid programs;
On the other hand, St. James notes that DHH sent Mr. Bennett correspondence dated October 12, 2011, wherein DHH notified St. James that its Medicaid Provider Agreement would be terminated as of October 21, 2011. Specifically, the letter stated, in pertinent part:
...Since you are the subject of a sanction and a departmental proceeding by virtue of the License Revocation Notice dated October 7, 2011, the secretary has authorized me to terminate your Medicaid Provider Agreement for the above provider numbers effective October 21, 2011. Any Medicaid participants remaining in your facility after that date must be transferred. I am also suggesting that you should cease admission immediately.When questioned on cross-examination as to whether St. James's license was terminated, Mr. Bennett testified:
A. It was terminated. My understanding is our Medicaid license agreement, if you will, whatever word we're using, was suspended. I don't remember the exact timeframe. I think it was for about a five or six month period.
Q. Suspended. And that's again a very specific term.
A. Well, that's my word. If they [DHH] said terminated, terminated then. It says here terminated so that's my mis-speak.Mr. Bennett also acknowledged that St. James was allowed to continue operation so long as it complied with DHH's directives. While DHH agreed to rescind that termination in February of 2012, St. James notes that it was precluded from billing Medicaid for any services during that time. Similarly, Mr. Veuleman testified that St. James's Medicaid Provider Agreement was "terminated by Medicaid so they couldn't ... bill for any services by Medicaid." Moreover, Mr. Veuleman indicated that St. James had to "re-apply" to be eligible for Medicaid.
In light of the foregoing, we cannot conclude that the trial court manifestly erred in concluding that St. James's Medicaid Provider Agreement was terminated on October 21, 2011. Accordingly, given the trial court's conclusion that the Medicaid Provider Agreement had been terminated, the board had cause under section 2.2 to terminate the Management Agreement. Apollo's fourth and fifth assignments of error are without merit.
Damages for Breach of Billing Services Agreement and Management Agreement
In its third and sixth assignments of error, Apollo asserts that it is entitled to an enhanced award of damages as a result of St. James's cancellation of the Billing Services Agreement and Management Agreement. The trial court awarded Apollo $120,000.00 in regard to the Billing Services Agreement and $258,535.58 in regard to the Management Agreement. These awards were based on the amounts allegedly due under both contracts before they were validly terminated by St. James. Apollo asserts that it should receive damages for the length of the terms of both agreements. However, because we conclude that the trial court was not manifestly erroneous in determining that the Billing Services Agreement and the Management Agreement had been properly terminated by the board under the terms of both agreements, we likewise find no merit in these assignments of error.
Legal Interest
In its seventh assignment of error, Apollo contends that the trial court erred in failing to award interest on the judgment in favor of Apollo. Specifically, Apollo notes that LSA-C.C.P. article 1921 provides that "[t]he court shall award interest in the judgment as prayed for or as provided by law." Because "shall" in article 1921 is mandatory, the court lacks discretion to deny interest if interest is prayed for or provided by law. Bickham v. Bickham, 02-1307 (La.App. 1 Cir. 5/9/03), 849 So.2d 707, 710-11. Since Apollo prayed for interest in its "Answer and Reconventional Demand," Apollo concludes that the trial court's failure to award interest is clearly wrong.
St. James concedes that Apollo may be entitled to interest, but avers that since Apollo drafted a proposed judgment and did not include an award of interest it may have waived any right to interest. We disagree. St. James provides no law or jurisprudence in support of its argument, and we cannot find any either. Accordingly, because Apollo prayed for interest on the amounts awarded, we conclude that Apollo is entitled to legal interest from the date of judicial demand. We find merit in Apollo's seventh assignment of error.
ST. JAMES'S APPEAL
Breach of Fiduciary Duty Owed to St. James
In their first assignment of error, St. James, Dr. Bullock, Dr. Kongara, and Mr. Smith (collectively referred to as "St. James") assert that the trial court erred in failing to find that Mr. Gopalam breached the fiduciary duty he owed to them. St. James asserts that the fiduciary claims arise from its merger with Meadowood, which is a Community Mental Health Center (CMHC) operated by Sevenhills Healthcare, LLC, with the latter entity being wholly owned by Mr. Gopalam.
Christopher Johnston, an attorney who represented St. James beginning in 2009, practices in the regulatory aspects of healthcare and in healthcare transactions. Mr. Johnston testified at trial that CMHCs like Meadowood had been confronted in 2011 both with a change in reimbursement levels under Medicare and with a requirement that more of their patients had to be non-Medicare in order for them to participate in Medicare, which made it difficult for CMHCs to operate profitably. According to Mr. Johnston, the only way that CMHCs could survive these changes was to become part of a hospital, as the reimbursement changes did not affect hospital-based outpatient psychiatric programs. Thus, most CMHCs were trying to sell themselves to a hospital.
Mr. Johnston testified that Mr. Gopalam advised him to prepare the documents to merge Meadowood with St. James. Mr. Johnston, recognizing Mr. Gopalam's apparent conflict, advised Mr. Gopalam that he had to give full disclosure to his business partners, discuss the numbers with his partners, and obtain their full approval.
Mr. Johnston indicated that Mr. Gopalam wanted a contract providing that St. James pay for all costs to run the program in addition to a $20,000.00 flat monthly management fee. Additionally, Mr. Johnston testified that Mr. Gopalam wrote to him with a specific request that he incorporate "more [leverage] ... to Apollo to get money out of the hospital without raising questions." Mr. Johnston also testified that Mr. Gopalam wanted the management contract terminable only if 100% of St. James's board voted to terminate it, which Mr. Johnston believed was one-sided.
Mr. Johnston recalled, after receiving these instructions, that he again urged Mr. Gopalam to make full disclosure of these instructions because of the inherent conflict of interest in Mr. Gopalam selling a business he owned to another entity in which he was also an owner. Mr. Johnston indicated that he advised Mr. Gopalam to obtain an appraisal of the real estate that St. James was renting to Meadowood, as well as a valuation of the management contracts and employment contracts that St. James had with Mr. Gopalam's entities because of the potential conflict of interest.
Mr. Johnston testified that the ultimate deal between St. James and Meadowood was "aggressive from the CMHC's perspective," because in other similarly-situated mergers "hospitals were getting the lion's share of the revenues."
Dr. Bullock testified that he never directly communicated with Mr. Johnston, that Mr. Gopalam was the "go between," and that Mr. Gopolam was "telling us that we had to do it the way he was describing it to us; what eventually was done." Similarly, Dr. Kongara testified that he "totally trusted [Mr. Gopalam]. That's it." Further, St. James notes that Mr. Gopalam and Mr. Smith were the only members who had any experience managing outpatient clinics, and the negotiations between St. James and Meadowood were conducted during the period in which Mr. Smith was on medical leave.
St. James asserts it is simply unbelievable that any rational person, armed with full disclosure of all pertinent facts, would have approved St. James's merger with Meadowood. St. James avers that Mr. Gopalam was only concerned about implementing a plan to "save" Meadowood, and did so in a way that transferred all of Meadowood's overhead to St. James, including a mark-up on expenses and an additional $20,000.00 monthly management fee payable to Apollo.
St. James also notes that Mr. Gopalam, in calculating monthly expenses for which St. James would be billed under the Management Agreement, marked those expenses up 25%, despite the fact that the contract did not provide for such a mark-up. We are concerned about the purported 25% markup on expenses. However, relief in this regard has been afforded St. James in connection with St. James's third assignment of error.
In opposition, Mr. Gopalam argues that all board members were aware of his ownership interest in Meadowood and that Dr. Bullock acknowledged that the Meadowood program was successful. Mr. Gopalam also notes that the board agreed that it would acquire Meadowood.
Mr. Gopalam points out that the board obtained legal advice about how to structure the transfer of Meadowood to St. James prior to its acquisition. In an email dated December 13, 2010, Jennifer Papapanagiotou of the Liles Parker law firm provided a draft outline of "important considerations for the Hospital in the acquisition of Meadowood CMHC." Among the issues addressed in the outline were the (1) lease of building space, furnishings and equipment, and (2) the management agreement for the management of the new partial hospital program. According to Mr. Gopalam, although not reflected in the board minutes, he gave the document to the board members after he received it. Significantly, Mr. Gopalam indicated that he "told the Board everything [he knew]."
Further, during a meeting of St. James's board held on December 13, 2010, the board was provided with information concerning the expected revenue to be earned by St. James if it acquired Meadowood CMHC. During this meeting, the board "unanimously approved for Meadowood to come under" St. James. The board also approved a 95% to 5% split of gross revenues in favor of Meadowood. Finally, the minutes of the board meeting reflect that Mr. Smith, who owned a similar CMHC program, was offered the same arrangement, but, according to Mr. Gopalam, Mr. Smith, through his wife, declined the offer.
On December 20, 2010, Mr. Gopalam advised the board that paperwork was being completed for the transaction and that he would bring transactional documents to the next board meeting for review. In an e-mail dated January 17, 2011, Mr. Gopalam advised Mr. Johnston that the documents should be "protecting the interest of [St. James] and Apollo" and that "St. James should be protected that it is not going to [lose] a dollar in this deal."
On January 17, 2011, Mr. Johnston, in an e-mail, noted that he understood the parties negotiated a 95%-5% arrangement. Later, at the January 31, 2011 board meeting, as reflected in the minutes, Mr. Gopalam "presented the Board with Apollo Management contract and [Mr. Gopalam's] employment agreement for their review and explained how this works. He asked the board to review them and come up with any modifications to the next board meeting." In a subsequent board meeting on February 7, 2011, the "Board members reviewed the [A]pollo management contract and [Mr. Gopalam's] employment contract that were presented in previous meeting and signed the contracts and board resolutions."
Mr. Gopalam asserts that the foregoing establishes an extended period of time for the acquisition of the Meadowood CMHC business by St. James. Mr. Gopalam urges that it also establishes the transparency of the transaction. Mr. Gopalam opines that Dr. Bullock and Dr. Kongara were provided with all of the information that they needed and requested to make an intelligent and informed decision to proceed with the transaction or not. Moreover, Mr. Gopalam suggests that the transaction was undoubtedly fair to St. James insofar as it earned $1.85 million in 2012 and $1.60 million in 2013 from its outpatient programs.
Mr. Gopalam also testified that in the 95/5 arrangement agreement there was no risk of loss to St. James. Specifically, Mr. Gopalam testified that Apollo took all risks of chargebacks in the event that issues with Medicare arose. Mr. Gopalam testified that several hospitals with PHP programs were forced to close because of chargeback issues, and that Meadowood had previously had a chargeback issue arise where it had to pay $1.8 million back to Medicare. However, Mr. Gopalam indicated that he instructed Mr. Johnston to place all risk of chargebacks on Apollo with no risk to St. James.
Mr. Gopalam notes that William Waring, Jr., an expert in the field of healthcare law, healthcare regulation, and healthcare regulatory compliance, was asked to "express an opinion as to the reasonableness and fairness of the transactions that involved the partial hospital program and intensive outpatient program operations of the hospital." Mr. Waring testified that he "considered these transactions to be negotiations between well informed parties that took - that transpired over a long period of time and involved very significant discussion and disclosure."
As noted above, officers and directors of a corporation shall be deemed to stand in a fiduciary relation to the corporation and its shareholders. See former LSA-R.S. 12:91(A). Persons who owe fiduciary duties may not take even the slightest advantage, but must zealously, diligently and honestly guard and champion the rights of the person or entity to which they owe that duty. Noe v. Roussel, 310 So.2d 806, 819 (La. 1975). The fiduciary cannot take advantage of his position for his personal benefit to the detriment of the corporation or its shareholders. Spruiell v. Ludwig, 568 So.2d 133, 141 (La.App. 5 Cir. 1990), writ denied, 573 So.2d 1117 (La. 1991). Transactions between the directors and the corporation, however, are not voidable simply because of the relationship of the parties. See former LSA-R.S. 12:84(A), which provided:
Louisiana Revised Statutes 12:84 was repealed by 2014 La. Acts No. 328, § 5, eff. Jan. 1, 2015; however, the repeal does not affect "[a]ny ratification, right, remedy, privilege, obligation, or liability acquired, accrued, or incurred under the statute, before its repeal." LSA-R.S. 12:1-1703A(2).
No contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and any other business, nonprofit or foreign corporation, partnership, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the common or interested director or officer was present at or participated in the meeting of the board or committee thereof which authorized the contract or transaction, or solely because his or their votes were counted for such purpose, if:Because of the fiduciary relationship between the corporation and director, the burden of proof is on the director to prove his good faith in entering into the transaction and also the inherent fairness from the viewpoint of the corporation. Noe, 310 So.2d at 818.
(1) The material facts as to his interest and as to the contract or transaction were disclosed or known to the board of directors or the committee, and the board or committee in good faith authorized the contract or transaction by a vote sufficient for such purpose without counting the vote of the interested director or directors; or
(2) The material facts as to his interest and as to the contract or transaction were disclosed or known to the shareholders entitled to vote thereon, and the contract or transaction was approved in good faith by vote of the shareholders; or
(3) The contract or transaction was fair as to the corporation as of the time it was authorized, approved or ratified by the board of directors, committee, or shareholders.
In its reasons for judgment, the trial court recognized the changes in the Medicare reimbursement rates and found that the owners of St. James "agreed to acquire Meadowood to take advantage" of those changes. The trial court noted that all of Meadowood's patients were transferred to the "new St. James Partial Hospital Program," and found that St. James "unanimously approved that it would receive 5% of gross revenues of Meadowood with no risk whatsoever." The trial court found that St. James "earned substantial net profits from this arrangement." Moreover, the trial court noted that at a board meeting on July 11, 2011, it was Dr. Kongara who brought to the board's attention that since Mr. Gopalam had taken over as both CEO and CFO as of November 2010, "the hospital operations and finances had improved to $1,000,000.00 positive from a $150,000.00 negative." Further, the trial court noted that all parties were sophisticated, educated persons, and that the contracts signed by ail parties were legally binding. In light of those findings, the trial court concluded that Mr. Gopalam had not breached any fiduciary duties and was not guilty of bad faith and/or fraud. Additionally, the trial court concluded that there was no showing by a preponderance of the evidence that the contracts were predominantly self-dealing.
St. James asserts that the trial court, instead of requiring Mr. Gopalam prove his good faith in entering into the transactions and also the inherent fairness from the viewpoint of St. James, erroneously placed the burden of proof on it to prove breach and resulting prejudice to its interest. See Noe, 310 So.2d at 818. However, after our complete review of the record and the trial court's reasons for judgment, we find nothing to establish that the trial court failed to apply the appropriate burden of proof. Clearly, the trial court may have relied upon Mr. Gopalam's testimony that he told the board everything he knew before the board entered into the transactions. Further, in its reasons, the trial court found that St. James was able to take advantage of changes in Medicare reimbursement rates by acquiring Meadowood and that St. James made substantial net profits through its outpatient psychiatric programs as a result of the Meadowood merger. Additionally, Mr. Gopalam's interest in both Meadowood and Apollo were known by all parties when they entered into the transactions and St. James voluntarily chose to enter these contracts with Mr. Gopalam's entities and with Mr. Gopalam individually. Moreover, as noted by the trial court, all parties to the various transactions were educated and sophisticated. Thus, we do not find that the trial court improperly shifted the burden of proof. Accordingly, although we may have decided the matter differently had we been sitting as trier of fact, we cannot conclude that the trial court erred in finding that Mr. Gopalam did not breach any fiduciary duty with the exception of the retroactive pay increase, discussed below.
In connection with its first assignment of error, St. James also urges that the trial court was manifestly erroneous in concluding that Mr. Gopalam's $5,000.00 monthly pay increase was intended to be retroactive. We agree. St. James notes that the board agreed to pay Mr. Gopalam an additional $5,000.00 per month for assuming the role of CEO in Mr. Smith's absence. The agreement was reached approximately eight months after Mr. Gopalam assumed those additional duties. Mr. Gopalam retroactively applied the raise, paying himself an additional $40,000.00 for the prior eight months. Mr. Gopalam testified that Dr. Kongara, after noting at a board meeting that Mr. Gopalam had done a great job handling the additional responsibilities, made a motion that the payment be retroactive. According to Mr. Gopalam, it is what Mr. Smith would have earned if he were still there, so he believed he had earned that money after he assumed Mr. Smith's duties. However, no such motion appears in the corporate minutes nor do the corporate minutes reflect that the pay raise was to be retroactive. Therefore, we will amend the judgment in this regard.
Termination of the Outpatient Psychiatric Program Employment Agreement
In their second assignment of error, St. James asserts that the trial court erred in failing to find that just cause existed for the termination of the Outpatient Psychiatric Program Employment Agreement between Mr. Gopalam and St. James. St. James contends that it had cause to terminate the contract by reason that, while under Mr. Gopalam's watch, St. James lost its license to participate in the Louisiana Medicaid Program. St. James contends that the net effect of this was that neither St. James nor its outpatient program could see Medicaid patients from date of its revocation on October 12, 2011, until the license was reapplied for and obtained many months later, or it had to provide services to these patients pro bono.
The contract at issue, however, concerns Mr. Gopalam's employment as "Director of Hospital Outpatient Department." Unlike the Management Agreement with Apollo, there is no termination provision in the contract in the event that the outpatient clinic is excluded from participating in Medicaid. At trial, Heath Veuleman, St. James's expert qualified in the area of regulatory compliance and healthcare administration, testified that the deficiencies noted by the DHH survey did not involve the outpatient program. Specifically, the following exchange occurred between counsel and Mr. Veuleman:
The contract does provide for termination for cause in the event that the "[e]mployee is convicted of a crime that results in, or could result in, mandatory or permissive exclusion from Medicare, Medicaid or other federal healthcare program." However, that provision is not applicable under the facts presented herein.
Q. And since you have been involved with this initial survey from August, was there anything at all in that survey about any deficiency in St. James' outpatient program?Further, Mr. Johnston testified that Medicaid generally did not pay for outpatient psychiatric care. Rather, Mr. Veuleman recognized that the "vast majority" of St. James's outpatient services were Medicare, not Medicaid. Similarly, Mr. Gopalam testified that most of the patients that treated in the Meadowood program were Medicare patients. In light of the foregoing, we conclude that the trial court was not manifestly erroneous in finding that no just cause existed for the termination of the Outpatient Psychiatric Program Employment Agreement between St. James and Mr. Gopalam. St. James's second assignment of error is without merit.
A. I don't think so. In fact, I don't even think they went to the outpatient.
Damages for Breach of the Outpatient Psychiatric Program Employment Agreement
In its third assignment of error, St. James asserts that the trial court erred in awarding Apollo damages in the amount of $258,535.58 for St. James's breach of the Outpatient Department Partial Hospitalization Program Management Agreement from February through November 2011. St. James contends that there is no support in the record for that number. Rather, St. James avers that the highest reasonable amount that the trial court could have been awarded was $65,951.96.
Specifically, St. James avers that while $20,000.00 per month due under the Management Agreement is not disputed, the parties dispute what was due and owing under the expenses category and the specific cutoff date for any evidence regarding the expenses. According to St. James, $200,000.00 for the management fee was due under the management agreement (representing $20,000.00 per month from February through November 2011); $21,000.00 was due for van rental (representing March through July 2011); and expenses totaling $174,908.19 were due (representing March through July 2011 without the 25% markup); for a total of $395,980.19. Accordingly, St. James avers that the highest award the trial court could have awarded was $69,951.96 (representing $395,980.19 minus a credit for all sums paid by St. James to Apollo totaling $329,956.23).
Nothing other than $20,000.00 management fee due was at issue for February 2011 and August through November 2011.
The parties do not dispute that the credit for all sums paid by St. James to Apollo is $329,956.23.
In opposition, Apollo recognizes that the trial court did not explain how it arrived at the $258,535.58 figure, but avers that the calculation could reasonably be discerned from plaintiff exhibits 72 and 73. However, the purported monthly expenses in exhibit 73 appears to be a ledger sheet from "BRPHP" and reflects substantially higher amounts than the itemized expenses listed in plaintiff exhibit 72, which are the specific itemized expenses for "Apollo Management Consultants." Moreover, no testimony was given as to the significance of those numbers on plaintiff exhibit 73, and there is nothing in the record to indicate what those numbers reflect. By contrast, all monthly expense reports in plaintiff exhibit 72 are itemized with particularity. Accordingly, any reliance that the trial court may have placed on exhibit 73 was manifestly erroneous.
The Management Agreement was introduced as Joint Exhibit 47, and the agreement recognizes the $20,000.00 monthly management fee.
Utilizing exhibit 72, the expenses for March 2011 through July 2011, as reflected in the itemized invoices total $174,908.19. On the invoices, Apollo marked up those expenses an additional 25%. However, the Management Agreement itself does not provide that the reimbursable expenses are subject to a markup. Moreover, Phillip Monteleone, Mr. Gopalam's expert accepted in the fields of forensic accounting and business valuation, testified that the Management Agreement did not provide for markups and he did not add a markup to it when he calculated expenses. Similarly, Jason MacMorran, St. James's expert accepted in the fields of forensic accounting, public accounting, and business valuation, testified that he "didn't see anything on expense markups" in the Management Agreement.
Considering the foregoing, we agree with St. James's calculations and conclude that the record only supports an award of $65,951.96 arising from St. James's breach of the Management Agreement. Therefore, we will amend the judgment to reduce the amount due under the Management Agreement from $258,535.58 to $65,951.96.
CONCLUSION
For the above reasons, we amend the trial court's December 9, 2014 judgment to reduce the award against St. James Behavioral Health Hospital, Inc. and in favor of Apollo Management Consultants, LLC arising from the former's breach of the Outpatient Psychiatric Department Partial Hospitalization Program Management Agreement from $258,535.58 to $65,951.96. We also amend the judgment to order that Mr. Gopalam is liable to St. James Behavioral Health Hospital, Inc. in the amount of $40,000.00 arising from Mr. Gopalam's retroactive pay increase. We further amend the judgment to award Apollo Management Consultants, LLC legal interest from the date of judicial demand. Each party is to bear their own cost for each of the three appeals. The judgment is affirmed in all other respects.
JUDGMENT AMENDED AND AFFIRMED AS AMENDED.