Matthews et al v. Stolier et al

Filing 76

ORDER AND REASONS granting in part 20 , 42 , & 71 Motions to Dismiss. Plaintiffs are granted leave to amend their complaint within 20 days of this order for the sole purpose of remedying the deficiencies outlined herein. Signed by Judge Jane Triche Milazzo. (ecm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

CHARLES MATTHEWS, ET AL

CIVIL ACTION

VERSUS

NO: 13–6638

JACK STOLIER, ET AL

SECTION: "H"(2)

ORDER AND REASONS
Before the Court are three Motions to Dismiss (Docs. 20, 42, and 71). For
the following reasons, the Motions are GRANTED IN PART.
BACKGROUND
Plaintiffs, Charles Matthews and his wife Sherita Matthews, filed this
suit in Louisiana state court asserting a litany of claims against multiple
defendants. Defendants removed the matter to this Court, invoking the Court's
federal question jurisdiction. Since the matter was removed, the Court has
denied a motion to remand and dismissed one Defendant, CNA Insurance
Company. Most of the remaining defendants have filed Motions to Dismiss.
The labyrinth of facts and claims constructed by Plaintiffs' pleadings,
1

which total 70 pages in length, has proven treacherous to navigate. It is often
difficult to discern what claims are made against which defendants and by
whom. Ultimately, it appears that Plaintiffs allege the following facts.
Sometime prior to the events giving rise to this suit, Lazarus Healthcare,
LLC ("Lazarus") acquired ownership of Camillus Specialty Hospital, LLC
("Camillus"),1 a long-term acute care ("LTAC") hospital in Gretna, Louisiana.
Matthews is the sole owner of Lazarus.
In the fall of 2012, a dispute developed between Camillus and the landlord
of the building that housed the hospital. During the course of that dispute,
Matthews began searching for another facility to house Camillus. While he
attempted to resolve the facility issues, Matthews also sought management
assistance. To that end, Matthews retained Defendant, Red River Healthcare
Management Company, LLC ("Red River"), to provide management services to
Camillus. Red River is owned and operated by Defendants Jimmy and Connie
Morgan ("the Morgans").
Matthews eventually discovered that an LTAC operating in the West
Jefferson Medical Center, Louisiana Speciality Hospital, LLC ("LSH"), was
closing and he began to explore the possibility of moving Camillus into the space
being vacated by LSH.2 As Matthews pursued this opportunity, he learned that
the then-operator of LSH might be interested in selling the entire facility,
1

Camillus is referred to in the petition by varying names, including, Camillus Hospital,
Camillus Specialty Hospital, Crescent City Specialty Hospital.
2

In the petition LSH is referred to as West Jefferson LTAC, Jefferson Extended Care,
Louisiana Specialty Hospital, and Jefferson LTAC.

2

including its license to operate.3 Matthews retained Defendant Steve Sullivan,
an attorney, to negotiate the terms of the sale. Defendant Michael Schulze
allegedly assisted Sullivan with the preparation of various documents.4
Matthews claims that Sullivan and Schulze are employed by several named law
firms ("Law Firm Entities").5
Matthews claims that, during the negotiations to purchase LSH, Sullivan
began conspiring with the other named Defendants to deprive Matthews of the
opportunity to purchase LSH. Despite the alleged conspiracy, WJLT, LLC
("WJLT") was formed to purchase LSH. Lazarus (Matthews's company) held a
91.1% ownership interest in WJLT, Sullivan held a 4.9% interest, and another
individual held the remaining 5%. WJLT purchased LSH from the hospital's
previous owner. As part of the contract to purchase LSH, Matthews claims that
he was forced to appoint Red River as the manager of WJLT, and divest himself
of his interest in St. Charles Rehabilitation Hospital, LLC.6
After LSH was purchased, Matthews claims that Sullivan and Schulze
engaged in a series of fraudulent acts designed to mislead Matthews into
3

Owning LSH and its medicare number provided several business advantages not
otherwise available to Camillus.
4

Schulze is referred to in the petition as Schulze, Schultz, and Schulz. It appears that
"Schulze" is the correct spelling.
5

The "Law Firm Entities" named in the petition are Sullivan, Stolier and Resor;
Sullivan and Stolier; and, Sullivan, Stolier and Knight. Matthews alleges that Sullivan and
Schulze are employees of the Law Firm Entities.
6

The relevance and involvement of St. Charles Rehabilitation Hospital, LLC in the facts
of this suit is nebulous at best. Matthews alleges that, prior to the events at issue, he sold his
ownership interest in the St. Charles hospital to an unrelated third party. Thus it appears
that, at the time of the purchase of LSH, Matthews had no interest in the hospital of which to
divest himself.

3

believing that LSH was nearly insolvent. Matthews alleges that the named
Defendants then exploited this situation by coercing Matthews into signing a
power of attorney ("Power of Attorney") granting James Morgan the authority
to sell LSH. After Matthews signed the Power of Attorney, ownership of LSH
was transferred to JLTAC, LLC ("JLTAC"), an LLC owned by Sullivan and his
law partner, Defendant Jack Stolier. The contract of sale was executed by
Morgan, acting on behalf of WJLT pursuant to the Power of Attorney.
Matthews explains that, shortly after the Power of Attorney was executed,
LSH received a payment of nearly $800,000 ("PIP Payment").7 Matthews alleges
that Defendants knew about the pending payment but deliberately concealed it
from him to secure his consent to the sale. Matthews asserts that he would have
never executed the Power of Attorney had he known that LSH was in fact
financially stable.
Matthews also alleges that, during the brief time that he owned LSH,
Camillus made several loans to LSH. After JLTAC acquired ownership of LSH,
Matthews demanded repayment of the loans on behalf of Camillus. Matthews
claims that, after he demanded repayment, the Defendants engaged in a second
conspiracy in which they fraudulently divested Matthews of his ownership
interest in Camillus, thus depriving him of the proceeds of the loans.
Ultimately, Matthews requests that the Court undo a series of transactions and
place Matthews in full ownership of both Camillus and LSH. He also requests
7

The Court will occasionally refer to these payments by the name used in the petition,
"PIP Payments." PIP is an acronym used by Medicare and stands for "Periodic Interim
Payments." The Court omits a full discussion of the nature and significance of these payments
because it is not relevant to the issues currently before the Court.

4

damages for the various alleged wrongful acts of Defendants.
The petition appears to assert the following causes of action arising out of
the foregoing facts:8
1.

Fraud—Matthews asserts fraud claims against Sullivan, Stolier,
and the Morgans alleging that he was falsely led to believe that
LSH was nearly insolvent. He seeks damages for delictual fraud
and to annul four contracts on the basis of contractual fraud.9

2.

Breach of Fiduciary Duty—Matthews claims that Sullivan, Stolier,
Schulze, the Law Firm Entities, and the Morgans each breached
their fiduciary duties to him when they conspired to deprive him of
his ownership interest in LSH.

3.

Conspiracy—Matthews claims that Sullivan, Stolier, and the
Morgans conspired to (1) deprive him of his ownership interest in
the LSH and Camillus, (2) breach their respective fiduciary duties
to him, and (3) violate the duty of trust owed to him by Sullivan and
Stolier.

4.

Breach of Contract—Matthews claims that, in the event that the
four contracts at issue in the fraud claim are not annulled,
Defendants have breached the contracts.

5.

Breach of Employment Contract—Matthews claims that Sullivan,

8

Except where specifically noted, the term "petition" refers to both the state court
petition and the amended complaint.
9

The contracts are (1) the Power of Attorney, (2) the sale of LSH executed pursuant to
the Power of Attorney, (3) an operating agreement for WJLT, and (4) a management agreement
between the WJLT and Red River.

5

Stolier, and the Law Firm Entities breached their employment
contracts with him by failing to protect his ownership interest in
LSH.
6.

Breach of Fiduciary Duty—Matthews claims that the Morgans and
Red River, as managers of WJLT, breached their respective
fiduciary duties owed to him when they conspired to deprive him of
his interest in LSH.

7.

Legal Malpractice—Matthews claims that Schulze committed legal
malpractice when he failed to protect Matthews's ownership interest
in LSH.

8.

Negligence—Matthews claims that the Morgans and Red River
negligently failed to protect his ownership interests in LSH.

9.

Unjust Enrichment—Matthews claims that JLTAC has been
unjustly enriched by Defendants' actions.

10.

Unjust Enrichment—Matthews claims Sullivan, Stolier, the Law
Firm Entities, the Morgans, and Red River have been unjustly
enriched by their fraudulent actions.

11.

Conversion—Matthews claims that Sullivan, Stolier, the Law Firm
Entities, and Morgan stole his ownership interest in LSH.

12.

Violations of Louisiana Security Laws—Matthews alleges that
Defendants' actions violated Louisiana Securities laws.

13.

Violations of Federal Security Laws—Matthews alleged that
Defendants' actions violated Federal Securities laws.
6

14.

Miscellaneous Violations of Federal Law—Matthews alleges that
the Defendants have violated several federal criminal statutes and
the False Claims Act.

15.

Conversion—Matthews claims that Sullivan stole the PIP Payment
that was allegedly tendered to LSH shortly following Matthews's
execution of the Power of Attorney.

16.

Final Two Claims—the final two claims alleged in the amended
complaint request that Defendants immediately produce all
financial documents related to LSH and that the Court immediately
appoint an auditor, at Defendants expense, to examine the financial
records of LSH.

Defendants concede that some claims have been pled with sufficient
specificity to survive these Motions. In the interests of clarity, the Court will
discuss each claim individually and will note, as appropriate, which claims are
unchallenged for the purposes of this Motion.
LEGAL STANDARD
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead enough
facts "to state a claim to relief that is plausible on its face."10 A claim is
"plausible on its face" when the pleaded facts allow the court to “draw the
reasonable inference that the defendant is liable for the misconduct alleged."11
10

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 547 (2007)).
11

Id.

7

A court must accept the complaint’s factual allegations as true and must "draw
all reasonable inferences in the plaintiff’s favor."12 The court need not, however,
accept as true legal conclusions couched as factual allegations.13 If it is apparent
from the face of the complaint that an insurmountable bar to relief exists and
the plaintiff is not entitled to relief, the court must dismiss the claim.14 The
Court's review "is limited to the complaint, any documents attached to the
complaint, and any documents attached to the motion to dismiss that are central
to the claim and referenced by the complaint."15
LAW AND ANALYSIS
The remainder of this Order is organized in the following manner.
Initially, the Court addresses Defendants' standing arguments, then the Court
discusses each claim individually, whether or not it is challenged. Finally, the
Court delineates the specific claims that survive this Order and the extent to
which Plaintiffs are permitted to amend their petition in light of this Order.
I. Standing
The petition names as Plaintiffs Sherita Matthews, and Charles
12

Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009).

13

Iqbal, 556 U.S. at 678.

14

Jones v. Bock, 549 U.S. 199, 215 (2007).

15

Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir.
2010). All parties have submitted matters outside the pleadings. Plaintiff argues that this
automatically converts the instant Motions to motions for summary judgment. This is not
accurate. Rule 12(d) allows the Court to exclude such matters in its discretion. In this case,
the Court elects to exclude the attached documents. Accordingly, the Motions will be evaluated
under Rule 12.

8

Matthews. Plaintiffs further allege that Charles Matthews brings this action
both individually and on behalf of his "personal, direct or indirect membership
ownership interest" in WJLT, Camillus, Lazarus, LSH, and St. Charles Specialty
Rehabilitation Hospital, LLC.
Defendants argue that Matthews lacks standing to bring claims on behalf
of the named LLCs because they are manager-managed and he is not the
manager of any of them. Defendants further argue that Matthews lacks the
capacity to bring a derivative action on behalf of WJLT, Camillus, LSH and St.
Charles Rehabilitation Hospital (SCRH) because he has not a member of those
LLCs. Defendants concede that Matthews is the sole member of Lazarus but
argue that he has failed to state a claim for relief on behalf of Lazarus. In
response, Matthews argues that his claims are not brought on behalf of the LLCs
but rather on behalf of his ownership interest in each.
Defendants frame their argument as one that Matthews lacks
constitutional standing. While the Court ultimately concludes that Matthews
cannot bring claims on behalf of the LLCs, the Court does not reach that
conclusion on the basis of constitutional standing. Instead, the issue presented
is whether Matthews has procedural capacity under Louisiana law to sue on
behalf of the LLCs.16
FRCP 17(b) provides, in pertinent part:
(b) Capacity to Sue or Be Sued. Capacity to sue or be sued is
16

Constitutional standing is an inquiry completely separate from the question of
whether a plaintiff has the right to sue under the governing law. See Lexmark International,
Inc. V. Static Control Components, Inc., 134 S.Ct 1377, 1386 (2014).

9

determined as follows:
(1) for an individual who is not acting in a representative
capacity, by the law of the individual's domicile;
(2) for a corporation, by the law under which it was organized;
and
(3) for all other parties, by the law of the state where the court
is located
Clearly, Matthews's capacity to sue is governed by Louisiana law. Under
Louisiana law, "[e]xcept as otherwise provided by law, an action can be brought
only by a person having a real and actual interest which he asserts."17 "When
a plaintiff sues as . . . a legal representative, his authority or qualification is
presumed, unless challenged by the defendant . . . . When so challenged, the
plaintiff shall prove his authority."18 Accordingly, under Louisiana law, if a
defendant challenges a plaintiff's capacity to sue on behalf of another, the
plaintiff bears the burden of proving that he has the legal capacity to proceed.
Matthews's arguments regarding his procedural capacity to sue on behalf
of the named LLCs are opaque at best. He expressly disclaims that he is
bringing any claims on behalf of the individual entities or that he is attempting
to bring a derivative action.19 Instead, he argues that his respective ownership
interests in the LLCs have been damaged and that he is suing of behalf of those
ownership interests.
Essentially, Matthews argues that his property (the ownership interest in
the LLCs) has lost value because of Defendants' actions. Under Louisiana law,
17

La. Code Civ. Proc. art. 681.

18

Id. art. 700.

19

R. Doc. 51, p. 3–4.

10

civil actions may only be brought by persons.20 While an LLC is a juridical
person with the capacity to sue and be sued;21 a membership interest in an LLC
is classified as an incorporeal movable22 and does not have the capacity to sue.
In sum, Matthews's membership interests in the LLCs are incorporeal movables
under Louisiana law and do not have the capacity to sue. Moreover, Matthews
has not cited any case where a Louisiana court has permitted a person to sue on
behalf of a thing. The Court could dismiss the claims brought on behalf of
Matthews's ownership interests on this basis alone. However, the Court also
notes that the allegations of the petition reveal several independent reasons why
Matthews cannot meet his burden to demonstrate that he possesses the
procedural capacity to sue on behalf of the named LLCs. In an attempt to add
some clarity to this issue, the Court will discuss each named LLC in turn.
A. St. Charles Rehabilitation Hospital, LLC
As an initial matter, this Court is unable to ferret out any claim for
damage to this entity. Nonetheless, assuming arguendo that Matthews did
attempt to assert certain claims, he cannot meet his burden to prove that he has
the procedural capacity to proceed on behalf of any alleged ownership interest
in this entity.

Indeed, the clear allegations of the petition establish that

Matthews has no ownership interest in this LLC whatsoever. He specifically
alleges that he sold this LLC to a third party prior to the events in question and
that the sale was valid. Matthews cannot sue on behalf of an ownership interest
20

La. Code Civ. Proc. art 681.

21

Id. art. 690

22

La. Rev Stat § 12:1239.

11

that he does not have. Therefore, any claims purportedly brought on behalf of
St. Charles Rehabilitation Hospital, LLC are dismissed.
B. Lazarus Healthcare, LLC
Lazarus is undisputably wholly owned by Matthews. Initially, it would
appear that Matthews has the procedural capacity to bring suit in the company's
name. Matthews, however, expressly disclaims that he is bringing any claim on
behalf of Lazarus or that he is bringing a derivative action. As explained above,
a person cannot sue on behalf of their membership interest in an LLC.
Matthews has failed to carry his burden to prove that he has the procedural
capacity to sue on behalf of his ownership interest in Lazarus, and claims
purportedly brought on behalf of Lazarus are dismissed
C. WJLT, LLC
WJLT was formed to purchase LSH. In his opposition, Matthews claims
that he owns WJLT. The allegations of his petition do not support his position.
Lazarus owns 91.9% of WJLT, Sullivan and others own the remaining
percentages. Matthews has no direct ownership interest in WJLT. Louisiana
law provides that the member of an LLC has no interest in the property of the
LLC.23 Because Matthews has no direct ownership interest in WJLT, he lacks
the authority to assert claims on its behalf. Any claims filed on behalf of WJLT
are dismissed.
D. Camillus Specialty Hospital, LLC
In the complaint, Matthews alleges that Lazarus is the sole owner of
23

La. Rev. Stat. § 12:1329 ("A member shall have no interest in limited liability
company property.").

12

Camillus.24 Because Lazarus, not Matthews, holds the ownership interest in
Camillus, Matthews cannot assert a claim on behalf of that ownership interest
for the reasons expressed above. All claims purportedly filed on behalf of
Camillus are dismissed.
E. Louisiana Speciality Hospital, LLC
Matthews also claims to own this entity, but the allegations of his petition
belie this conclusion. Matthews alleges that LSH was initially purchased by
WJLT and subsequently sold to JLTAC pursuant to the Power of Attorney that
Matthews seeks to annul. However, even assuming that Matthews is ultimately
successful in annulling the sale, ownership of LSH would not revert to him.
Instead it would revert to WJLT, an entity in which Matthews does not have a
direct ownership interest. In fact, Matthews never had a personal ownership
interest in LSH. Therefore, all claims filed on behalf of LSH are dismissed.
As a result of the Court's rulings on procedural capacity, all claims
purportedly brought on behalf of Matthews's ownership interests in the named
LLCs are dismissed. The only remaining plaintiffs are Charles Matthews and
his wife, Sherita Matthews.
II. Claims Alleged in the Petition
1) Fraud
Matthews alleges two distinct fraud claims in the petition. First, he seeks
damages on the ground that Defendants committed delictual fraud when they
24

The petition alleges that several Defendants conspired to take Camillus from
Matthews through a series of fraudulent transactions but that he is still the rightful owner of
Camillus. The Court assumes that this allegation is true for the purpose of this analysis.

13

misled him to believe that LSH was insolvent. Second, he seeks the recession
of four contracts on the ground that his consent to the contracts was procured by
the same fraud.
Defendants move to dismiss these claims because they have not been pled
with the specificity required by Rule 9(b). Rule 9(b) requires that "[i]n alleging
fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake."25 "A dismissal for failure to plead fraud with
particularity as required by Rule 9(b) is a dismissal on the pleadings for failure
to state a claim under Rule 12(b)(6)."26 Fifth Circuit precedent "interprets Rule
9(b) strictly, requiring the plaintiff to 'specify the statements contended to be
fraudulent, identify the speaker, state when and where the statements were
made, and explain why the statements were fraudulent.'"27 In cases concerning
"omission of facts, Rule 9(b) typically requires the claimant to plead the type of
facts omitted, the place in which the omissions should have appeared, and the
way in which the omitted facts made the misrepresentations misleading."28
a) Tort Claim
Matthews first claim is that of delictual fraud.
Louisiana

fraud

or

intentional

misrepresentation

The elements of a
claim

are:

1)

a

misrepresentation of a material fact; 2) made with intent to deceive; and 3)

25

Fed. R. Civ. P. 9(b).

26

Southland Sec. Corp. v. Inspire Ins. Solutions Inc., 365 F.3d 353, 361 (5th Cir. 2004).

27

Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 207
(5th Cir. 2009) (quoting Smallwood v. Pearl Brewing Co., 489 F.2d 579, 605 (5th Cir. 1974)).
28

Carroll v. Fort St. James Corp., 470 F.3d 1171, 1174 (5th Cir. 2006).

14

causing justifiable reliance with resultant injury.29 In the petition, Matthews
alleges that Sullivan and the Morgans knew, at the time Matthews signed the
Power of Attorney, that nearly $800,000 in PIP Payments were going to be
tendered to LSH within days. Matthews claims that Defendants deliberately
concealed this fact from him, instead misleading him to believe that the hospital
was nearly insolvent. Matthews insists that he would never have considered
selling the hospital if he were aware of this information.
These allegations are sufficient to state a claim for fraud against Sullivan
and the Morgans. The petition alleges that Sullivan and the Morgans had actual
knowledge of a fact (that the PIP Payment was forthcoming), that they
intentionally concealed that fact from him with the intent to deceive him into
believing the LTAC was insolvent, and that he lost the opportunity to realize
profits from the hospital as a result. The Court finds that the delictual fraud
claim against Sullivan and the Morgans was plead with sufficient particularity,
and Defendants motion to dismiss the claim is denied.
Matthews also seeks to assert a fraud claim against Jack Stolier,
Sullivan's law partner. Matthews has not alleged that Stolier was aware that
the payments existed, much less that the funds were about to be tendered to the
hospital, nor does Matthews allege facts from which the Court could conclude
that Stolier ever possessed an intent to deceive Matthews. In the amended
complaint, Matthews alleges that Stolier "knew or should have known [about the
payments] . . . as part of his duty of due diligence." This allegation is deficient
29

Kadlec Med. Ctr. v. Lakeview Anesthesia Assoc., 527 F.3d 412, 418 (5th Cir. 2008).

15

for several reasons.

First, there is no allegation that Stolier had actual

knowledge of the payments. Additionally, the allegation is nothing more than
an attempt to recite the element of a cause of action without factual support.
Such allegations do not state a claim for relief.30 Therefore, the delitcual fraud
claim against Stolier is dismissed.
b) The Contract Claim
In this claim, Matthews seeks to annul four contracts on the basis of fraud:
(1) the Power of Attorney; (2) the sale of LSH executed pursuant to the Power of
Attorney; (3) an operating agreement for WJLT that was executed on October 18,
2012; and (4) a management agreement between the WJLT and Red River, also
executed on October 18, 2012. Defendants concede that Matthews has properly
pled this claim as to the first two contracts but move to dismiss the claims
pertaining to the third and fourth contracts.
Under Louisiana law,
there are three basic elements to an action for fraud against a party
to a contract: (1) a misrepresentation, suppression, or omission of
true information; (2) the intent to obtain an unjust advantage or to
cause damage or inconvenience to another; and (3) the error induced
by a fraudulent act must relate to a circumstance substantially
influencing the victim's consent to (a cause of) the contract.31
Defendants argue that Matthews cannot possibly prove the third element
of his claim as to the latter two contracts because the fraud he alleges occurred
after the challenged contracts were executed. The Court agrees. Matthews
30

Iqbal, 556 U.S. at 678.

31

Shelton v. Standard/700 Associates, 798 So. 2d 60, 64 (La. 2001).

16

alleges that the challenged operating agreement and the management
agreement were both executed on October 18, 2012. He also alleges that his
consent to these contracts was procured by the fraud related to the PIP Payment
discussed above. According to the petition, the earliest time that Defendants
could have possibly known about the payment was November 16, 2012.
Therefore, Defendants' failure to inform Matthews about the payment could not
possibly have influenced his consent to agreements executed nearly a month
before Defendants knew about the payments. Because the allegations of the
petition belie Matthews's claim for fraud with regard to the October 18, 2012
contracts, those claims are dismissed. Matthews's claims seeking to annul the
Power of Attorney and any documents executed pursuant to the Power of
Attorney will remain.
2) Breach of Fiduciary Duty
Matthews alleges that Defendants owed fiduciary duties to him and that
they breached those duties when they jointly conspired to deprive him of his
ownership interest in LSH. Defendants concede that the claim is properly pled
as to the Morgans, Red River, Sullivan, and the Law Firm Entities but argue
that it should be dismissed as to Stolier and Schulze.
The elements of a cause of action for a breach of fiduciary duty are: (1) the
existence of a fiduciary duty; (2) breach of that duty; and (3) damages.32
"Further, the cause of action requires proof of fraud, breach of trust or action

32

Brockman v. Salt Lake Farm P'ship, 768 So. 2d 836, 844 (La. Ct. App. 2 Cir. 2000);
see also U.S. Small Bus. Admin. v. Beaulieu, 75 F. App'x 249, 252 (5th Cir. 2003) (citing id.).

17

outside the limits of the fiduciary's authority."33
Assuming arguendo that Stolier and Schulze owed a fiduciary duty to
Matthews, Matthews has not pled facts from which the Court could conclude
that Stolier or Schulze committed fraud, breached Matthews's trust, or acted
outside of their authority. The Court has already held that Matthews has not
pled a fraud claim as to Stolier, nor has he pled any facts supporting a fraud
claim against Schulze. Additionally, Matthews has not pled any facts that
indicate that Stolier or Schulze ever personally took actions in breach of
Matthews's trust. Rather, the petition groups Stolier and Schulze with Sullivan
for the purposes of pleading this claim. It appears that Matthews's claim is that
Stolier and Schulze worked with Sullivan and are therefore jointly liable for his
actions. Matthews cites no law in support of the proposition that Sullivan's
alleged breach of fiduciary duty can be imputed to Stolier or Schulze. Therefore,
because there are no specific allegations supporting a claim for breach of
fiduciary duty against Stolier or Schulze, those claims are dismissed.
3) Conspiracy
In count 3 of the petition, Matthews alleges that Stolier, Schulze, and the
Morgans aided and abetted Sullivan's breach of fiduciary duty. "In the absence
of a conspiracy, there is no distinct cause of action for aiding and abetting under
Louisiana law."34 In count 4 of the petition, Matthews alleges that Stolier,
33

Brockman, 768 So. 2d at 844; accord Gerdes v. Estate of Cush, 953 F.2d 201, 205 (5th
Cir. 1992); Beckstrom v. Parnell, 730 So. 2d 942, 948 (La. Ct. App. 1 Cir. 1998).
34

Guidry v. Bank of LaPlace, 661 So. 2d 1052, 1057 (La. Ct. App. 4 Cir. 1995); accord
Stephens v. Bail Enforcement of Louisiana, 690 So. 2d 124, 130 (La. Ct. App. 1 Cir. 1997).

18

Sullivan and the Morgans conspired to deprive him of his ownership interest in
LSH. The petition is devoid of any allegations that Schulze participated in any
conspiracy.

Therefore, the aiding and abetting claim against Schulze is

dismissed.
Defendants additionally contend that the conspiracy allegations are
insufficient as a matter of law.

"Conspiracy is not a substantive tort in

Louisiana."35 "Instead, it is the tort which the conspirators agreed to perpetrate
and which they actually commit in whole or in part that constitutes the
actionable elements of a claim."36 In other words, a plaintiff may not simply
assert a claim for conspiracy. Instead, a plaintiff must establish that the alleged
conspirators agreed to, and actually did, commit a substantive tort.37 Once a
plaintiff establishes both the existence of a conspiracy and the underlying tort,
then the manner in which the plaintiff's damages are apportioned among the
defendants changes.38 Ordinarily, damages are apportioned among defendants
in proportion to their degree of fault as assigned by the jury, and each defendant
is liable for only his proportionate share of the damages.39 Where a conspiracy
is proven, however, solidary liability is imposed on all members of the conspiracy
and the conspirators, as a group, are each liable for the whole of the plaintiff's
35

Wooley v. Lucksinger, 14 So.3d 311, 435 (La. Ct. App. 1 Cir. 2008).

36

Crutcher-Tufts Resources, Inc. v Tufts, 38 So.3d 987, 991 (La. Ct. App. 4 Cir. 2010);
accord New Orleans Jazz & Heritage Found., Inc. v. Kirksey, 40 So.3d 394, 408 (La. Ct. App.
4 Cir. 2010).
37

Tufts, 38 So.3d at 991.

38

Id.; see also La. Civ. Code art. 2324.

39

La. Civ. Code art. 2324(B).

19

damages.40
Because conspiracy is not an actionable tort under Louisiana law, it cannot
persist as a claim in this action. Nonetheless, Matthews has alleged that
Sullivan, Stolier, and the Morgans conspired to commit several torts. Because
the Court ultimately concludes that Matthews has not pled any viable tort claim
against Stolier, the conspiracy allegations against him are dismissed. Because
Matthews has pled viable tort claims against Sullivan and the Morgans and has
plausibly alleged that they conspired among themselves to commit those torts,
Matthews will be permitted to put forth evidence of the alleged conspiracy
between Sullivan and the Morgans at trial.
4) Breach of Contract
In this count, Matthews asserts, as an alternative to the nullification of
the agreements, that Defendants are liable for breaching the agreements.
Defendants seek dismissal of this claim on the grounds that Matthews has not
pled any facts in support of it.
Matthews has pled that Defendants have breached their obligations under
the contract selling LSH to JLTAC.

Matthews particularly alleges that

Defendants have failed to pay him the amounts due under the contract. Because
Plaintiff has sufficiently pled a breach of this contract, this claim will remain.
As to the remaining contracts, Matthews has not pled the terms of the
contracts with any particularity, much less alleged how Defendants breached
those contracts. Accordingly, all breach of contract claims, except for the claim
40

Id. art. 2324(A); see also id. art. 1794 (defining solidary liability).

20

related to the sale agreement, are dismissed.
5) Breach of Employment Contract
In this claim, Matthews alleges that Sullivan, Stolier, and the Law Firm
Entities breached their employment contract with Matthews. While this claim
is couched as a breach of contract claim, it is nothing more than a redundant
legal malpractice claim. Louisiana courts have held that a breach of contract
claim against an attorney ordinarily does not arise unless the attorney "breaches
an express warranty of result."41 In the absence of such a breach, a client's
remedy against his attorney for deficient representation is a claim for legal
malpractice.42 Matthews does not allege that any of the attorney–defendants
warrantied any specific result. Therefore, the Court will construe this claim as
a claim for legal malpractice. Defendants concede that Matthews has pled a
legal malpractice claim against Sullivan and the Law Firm Entities but not
against Stolier.
To plead a claim for legal malpractice under Louisiana law Matthews must
allege: "(1) the existence of an attorney-client relationship; (2) negligent
representation by the attorney; and (3) loss caused by that negligence."43 In this
case, Matthews has not alleged any facts supporting his claim that Stolier ever

41

Cherokee Rest., Inc. v. Pierson, 428 So. 2d 995, 998 (La. Ct. App. 1 Cir. 1983).

42

See U.S. Fid. & Guar. Co. v. E.L. Habetz Builders, Inc., No. 06-895, 2008 WL 850431,
at *8 (W.D. La. Mar. 28, 2008) (holding that a claim for breach of contract against an attorney
would be construed as a malpractice claim where the breach related to the alleged failure to
provide competent legal services) (citing Kozan v. Comstock, 270 F.2d 839, 844–45 (5th Cir.
1959)).
43

MB Indus., LLC v. CNA Ins. Co., 74 So. 3d 1173, 1184 (La. 2011).

21

represented him, much less that the representation was negligent. While
Matthews presents a conclusory allegation that Stolier represented him, he has
not pled any facts that support this conclusion. Conclusory allegations such as
this are generally insufficient to state a claim for relief.44 Additionally, the only
factual allegation made regarding Stolier (other than allegations that he now
has an ownership interest in LSH) is that Stolier requested that an independent
attorney represent Matthews with regard to the Power of Attorney transaction.
Even assuming arguendo that this single act created an attorney-client
relationship between Matthews and Stolier, Matthews has not alleged that
retaining independent counsel was negligent. Therefore, the legal malpractice
claim against Stolier is dismissed.
6) Breach of Fiduciary Duty
Matthews alleges that the Morgans and Red River breached fiduciary
duties they owed to him. All defendants named in this count concede that it is
appropriately pled.
7) Legal Malpractice
In this count, Matthews attempts to assert a legal malpractice claim
against Schulze and negligence claims against Sullivan, Stolier, and Knight,
LLC.45 The only claim that is challenged is the legal malpractice claim against
44

See Iqbal, 556 U.S. at 678 (holding that a formulaic recitation of the elements of a
cause of action does not state a claim for relief).
45

It appears that the negligence claims against the law firm entity sound in respondeat
superior. To the extent that this is true, Defendants do not challenge this claim because they
concede that a legal malpractice claim has been pled against a single firm employee, Sullivan.
However, in the Court's reading, it appears that Matthews may be attempting to assert
negligence claims against all employees of the firm personally. To the extent that this is

22

Schulze.
The sole allegation of negligence against Schulze is that he failed to
prevent Sullivan's alleged misconduct. This allegation fails as a matter of law.
Matthews alleges that Schulze was subordinate to Sullivan but that Schulze
nonetheless had a duty to prevent Sullivan's actions. Matthews has cited no law
in support of the proposition that a subordinate attorney can be held responsible
for the malpractice of his supervisor, nor could the Court find such a case.
Indeed, Matthews's opposition to the Motions does not even attempt to address
the malpractice claim against Schulze. The legal malpractice claim against
Schulze is dismissed.
8) Negligence
In this count, Matthews asserts ordinary and professional negligence
claims against the Morgans and Red River. Defendants have not challenged
these claims.
9) and 10) Unjust Enrichment
In these counts, Matthews alleges that Defendants, Sullivan, Stolier, the
Law Firm Entities, the Morgans, Red River, and JLTAC have been unjustly
enriched at Matthews's expense.

Defendants move to dismiss all unjust

enrichment claims.
The Louisiana Supreme Court has clearly stated that unjust enrichment
is a remedy of last resort in Louisiana.46 In Walters v. MedSouth Record
intended, Matthews has not pled any facts to support such a claim, and it is therefore
dismissed.
46

Walters v. MedSouth Record Mgmt., LLC, 38 So. 3d 243, 244 (La. 2010).

23

Management, LLC, the plaintiff initially asserted a tort claim against the
defendant.47 After the tort claim was dismissed on the basis of prescription, the
plaintiff amended his petition to add a claim for unjust enrichment.48 The
Louisiana Supreme Court held that the unjust enrichment claim was
unavailable to plaintiff as a matter of law because he had pled a valid tort claim
and the remedy of unjust enrichment is available only when the law provides no
other possible remedy.49 The Court specifically held that the eventual dismissal
of the tort claim was irrelevant because, "[t]he mere fact that a plaintiff does not
successfully pursue another available remedy does not give the plaintiff the right
to recover under the theory of unjust enrichment."50 Thus, under Louisiana law,
if a plaintiff is able to plead a valid claim under any legal theory, he may not
pursue a claim of unjust enrichment.
The relief that Matthews seeks pursuant to his unjust enrichment claim
is available pursuant to other, validly plead, claims. The Court has already held
that Matthews has pled at least one valid contract or tort claim against each of
the defendants named on the unjust enrichment claims except Stolier and
JLTAC. Additionally, as to Stolier and JLTAC, Matthews seeks rescission of the
contract selling LSH to JLTAC (which is allegedly co-owned by Stolier). This
remedy is available pursuant to Matthews's claim for nullification of the sale.
Thus, the remedy that Matthews seeks against JLTAC and Stolier is available
47

Id.

48

Id.

49

Id.

50

Id.

24

pursuant to a validly pled claim, and an unjust enrichment remedy is not
available. Because all of the remedies that Matthews seeks pursuant to unjust
enrichment are available pursuant to other, properly pled claims, the unjust
enrichment claims are unavailable as a matter of law and are dismissed with
prejudice.
11) Conversion
In this count, Matthews alleges that Mr. Morgan, Sullivan, and Stolier
stole his ownership interest in LSH. Defendants move to dismiss this claim.
While Louisiana recognizes the tort of conversion, it is not the strict
liability conversion action known to the common law.51 Instead, Louisiana
recognizes a cause of action for the "unlawful interference with the ownership
or possession of a movable."52 This action arises in seven distinct circumstances,
but all generally require that the defendant assert possession or ownership over
the plaintiff's property.53 In this case, Matthews argues that Mr. Morgan,
Sullivan, and Stolier are asserting ownership over his property, LSH. The
petition, however, does not support such a claim.
The petition alleges that JLTAC acquired ownership of the hospital from
WJLT. Matthews directly owned Lazarus, which held an ownership interest in

51

Dual Drilling Co. v. Mills Equip. Investments, Inc., 721 So. 2d 853, 856–57 (La. 1998).

52

Id. at 857.

53

Id. The seven circumstances are: "1) possession is acquired in an unauthorized
manner; 2) the chattel is removed from one place to another with the intent to exercise control
over it; 3) possession of the chattel is transferred without authority; 4) possession is withheld
from the owner or possessor; 5) the chattel is altered or destroyed; 6) the chattel is used
improperly; or 7) ownership is asserted over the chattel." Id.

25

WJLT. WJLT, in turn, owned LSH. It is clear on the face of the petition that
Matthews never directly owned LSH. Any claim for conversion belongs to WJLT,
not to Matthews.54 Matthews simply cannot personally assert this conversion
claim, and it is dismissed.
12) and 13) Violations of Louisiana and Federal Securities Laws
Defendants have not moved to dismiss these claims, therefore the claims
for violations of Louisiana and Federal securities laws shall remain pending.
14) Miscellaneous Violations of Federal Law
Matthews alleges that Defendants violated several federal criminal
statues and the Federal False Claims Act. Defendants move to dismiss these
claims. Matthews provides no substantive opposition to the dismissal of these
claims.

Instead, he argues that the alleged violations "may still be the

evidentiary support for other causes of action." Because Matthews has not and,
in the Court's opinion, can not argue that these claims are properly pled, they
are dismissed.
15) Conversion
Matthews alleges that Sullivan stole the PIP Payments. This claim must
fail for the same reason as Matthews's other conversion claim: Matthews never
alleges that he personally owned the payments. Instead, he alleges that they
belonged to LSH. Because Matthews did not personally own or possess the PIP
Payments, he cannot assert a conversion claim with regard to them, and this
claim is dismissed.
54

Ogea v. Merritt, 130 So. 3d 888, 894–95 (La. 2013) ("[T]he law considers an LLC and
the member(s) comprising the LLC, as being wholly separate persons.").

26

16) Final Two Claims
In the final two claims, Matthews seeks (1) an injunction compelling
Defendants to produce all financial documents related to LSH, and (2) an
immediate independent audit of LSH's accounts at Defendants' expense. As to
the first claim, it appears to be a discovery request rather than a claim for relief.
To the extent that Matthews seeks financial documents, he may request them
through the traditional discovery process. As to the second claim, Matthews has
not cited to any provision of law that permits this Court to impose such an
onerous requirement on Defendants prior to a finding of liability. Moreover,
Matthews has not cited any provision of law that would permit the Court to
impose this remedy even after a finding of liability. Accordingly, both of the
claims are dismissed.
III. Surviving Claims
In light of this Order, the following claims survive these Motions: (1) a
fraud claim, sounding in tort, against Sullivan and the Morgans; (2) a claim to
nullify the Power of Attorney, and any contracts executed pursuant to the Power
of Attorney, on the basis of fraud; (3) breach of fiduciary duty claims against the
Morgans, Red River, Sullivan, and the Law Firm Entities; (4) a breach of
contract claim related to the contract selling LSH to JLTAC; (5) a legal
malpractice claim against Sullivan and the Law Firm Entities; (6) negligence
claims against the Morgans and Red River; and (7) claims for violations of
Louisiana and federal securities laws. All claims against Stolier and Schulze are
dismissed without prejudice. All claims brought on behalf of Matthews's alleged
27

ownership interest in an LLC and all unjust enrichment claims are dismissed
without prejudice.

The only surviving claims against Admiral Insurance

Company are those that survive against the Morgans or Red River, all remaining
claims against Admiral are dismissed without prejudice. Furthermore, all
claims pled against Defendant, James Fritschen survive.55 Finally, Matthews
may attempt, at trial, to impose solidary liability on Sullivan and the Morgans
by proving the existence of a conspiracy. All claims not specifically designated
as surviving this Order are dismissed without prejudice.
IV. Leave to Amend
The Court has dismissed several of Matthews's claims pursuant to Rules
9(b) and 12(b)(6).

Courts should ordinarily grant a plaintiff at least one

opportunity to amend before dismissing a complaint with prejudice for failure
to state a claim.56 Therefore, the Court will afford Plaintiffs the opportunity to
amend their complaint to address the deficiencies identified herein no later than
20 days following the issuance of this Order. However, Plaintiffs are only
granted leave to assert claims dismissed pursuant to Rules 9(b) and 12(b)(6). To
be clear, this means that Plaintiffs may only assert claims that Matthews may
assert in his personal capacity.57
CONCLUSION
55

Mr. Fritschen has not moved to dismiss any of the claims against him.

56

Hart v. Bayer Corp., 199 F.3d 239, 248 n.6 (5th Cir. 2000).

57

Matthews is also precluded from attempting to plead new claims under an unjust
enrichment theory for the reasons already stated.

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For the foregoing reasons, the Motions to Dismiss are GRANTED IN
PART. Plaintiffs are granted leave to amend their complaint within 20 days of
this order for the sole purpose of remedying the deficiencies outlined herein.
New Orleans, Louisiana, this 10th day of October, 2014.

_________________________________
JANE TRICHE MILAZZO
UNITED STATES DISTRICT JUDGE

29