71070 HWY 21 v. Cardiovascular Specialty Care Ctr. of Covington

383 So.3d 205

2023-0641 (La.App. 1 Cir. 12/27/23)

71070 HWY 21, LLC

v.CARDIOVASCULAR SPECIALTY CARE CENTER OF COVINGTON, LLC, Cardiovascular Specialty Cath Center of Covington, LLC, and Cardiovascular Specialty Care Center ASC, LLC

NO. 2023 CA 0641

Court of Appeal of Louisiana, First Circuit.

Judgment Rendered: December 27, 2023

Appealed from the 22nd Judicial District Court, In and for the Parish of St. Tammany, State of Louisiana, Case No. 2023-10179, The Honorable Reginald T. Badeaux, Judge Presiding

Normand F. Pizza, Shannon Howard-Eldridge, Kenneth R. Whittle, Mandeville, Louisiana, Counsel for Plaintiff/Appellee 71070 Hwy 21, LLC

Yvette A. D’Aunoy, Ira J. Middleberg, Brett M. Dupuy, New Orleans, Louisiana, Counsel for Defendant/Appellant Cardiovascular Specialty Care Center of Covington, LLC, Cardiovascular Specialty Cath Center of Covington, LLC, and Cardiovascular Specialty Care Center ASC, LLC

BEFORE: GUIDRY, C.J., CHUTZ, AND LANIER, JJ.

LANIER, J.

₂This appeal arises out of a summary eviction proceeding brought by plaintiff, 71070 Hwy 21, LLC ("Hwy 21, LLC"), against defendants, Cardiovascular Specialty Care Center of Covington, LLC ("Cardio"), Cardiovascular. Specialty Cath Center of Covington, LLC ("Cath Center"), and Cardiovascular Specialty Care Center ASC, LLC ("ASC"). The trial court granted the eviction. For the reasons that follow, we vacate and remand for further proceedings.

FACTS AND PROCEDURAL HISTORY

The facts of this case are undisputed. On March 4, 2013, Marigold Property, LLC ("Marigold") purchased the land at 71070 Highway 21 in Covington, Louisiana ("the property") for the sum of $476,992.25. Dr. Farhad Aduli, the manager and sole owner of Marigold, testified that he formed Marigold in December 2012 to purchase and develop the property. In October 2013, Marigold entered into a contract for the construction of a building on the property.

In June 2017, Cardio entered into a lease with Marigold for one-half of the building. According to Martin Fischer, the cardiology practice administrator who formed Cardio in May 2017, Cardio is a group practice that performs cardiology diagnostic procedures.¹ Mr. Fischer indicated that Cath Center is a wholly owned subsidiary of Cardio and is treated as a "disregarded entity" for tax purposes, noting one hundred percent of Cath Center "rolls up financially" to Cardio. He further testified ASC is an ambulatory surgical center, with a separate tax ID number, licensed with the State of Louisiana that operates at the facility on Mondays. The initial lease with Marigold was a five-year lease with four, five-year extensions. Because the building was merely a shell at the time, Cardio planned to expend a substantial amount of money for the build-out of the first half ₃of the building.² Thus, as noted by Mr. Fischer, it was important they be able to keep the space "for at least the life of the build-out." In June 2018, Cardio leased the second half of the building and constructed a build-out with the sole purpose of becoming an ambulatory surgical center.³ This lease had an initial four-year term with four, five-year options to renew. On October 26, 2021, Cardio exercised its option to renew its leases with Marigold, renewing both leases for an additional five-year term effective June 1, 2022. Mr. Fischer testified Cardio always paid its rent on time and was current on its rent obligations. Moreover, Cardio never received a notice from Marigold that it had violated any lease provisions.

According to the record, in December 2017, Marigold signed a promissory note in favor of Dr. Aduli in the amount of $5,000,000.00. On the same date as the promissory note, Dr. Aduli executed a collateral mortgage on the property in his favor, referencing the promissory note. Dr. Aduli testified this note was for Marigold to "recognize the amount of money that [he] had contributed … to the LLC … the land and the building and any potential future costs that [he] would incur, including loans." Dr. Aduli acknowledged, however, that other than the funds used to purchase the land and construct the shell building, he was unaware of any other funds being transferred by him to Marigold after the date of this promissory note, adding there was no ledger or any other financial document that tracked what Marigold owed to him personally.⁴

₄In April 2019, Dr. Aduli began performing procedures at Cardio’s facility. Thereafter, in July 2019, Dr. Aduli, through Louisiana Heart and Vascular ASC Services, LLC, joined Cardio as a member.⁵ Subsequently, on December 28, 2021, Cardio’s members voted unanimously to expel Dr. Aduli and Louisiana Heart and Vascular ASC Services, LLC from the company. Dr. Aduli testified he was upset by the decision to terminate his membership as he "would have expected [his] colleagues to be more ethically correct."

On December 8, 2022, Dr. Aduli executed a Dation en Paiement transferring the property, together with all buildings and improvements thereon, from Marigold to himself in payment of the $5,000,000.00 indebtedness. Again when asked about the $5,000,000.00 debt between himself and Marigold, Dr. Aduli acknowledged he had not loaned Marigold $5,000,000.00 but that the amount represented "the valuation of the property and the anticipated future loans to the property." Dr. Aduli further noted that according to the Dation en Paiement, the value of the property at the time of the transfer from Marigold to Dr. Aduli was $2,390,000.00, an amount agreed upon by both Dr. Aduli and Marigold.⁶

Four days later, on December 12, 2022, Dr. Aduli formed Hwy 21, LLC for the purpose of operating investment property. As with Marigold, Dr. Aduli was the sole member and manager of Hwy 21, LLC. On December 20, 2022, Dr. Aduli executed an Act of Capital Contribution whereby he transferred the property, together with all buildings and improvements thereon, from himself to Hwy 21, LLC. On that same date, Hwy 21, LLC mortgaged the property to Dr. Aduli for $5,000,000.00, even though Dr. Aduli testified he had only contributed the property, the building, and a "little bit" of funds to Hwy 21, LLC.

₅On December 27, 2022, Hwy 21, LLC sent letters to Cardio, Cath Center, and ASC notifying them that because there were no leases in place with Hwy 21, LLC, they were to vacate the property within five days of delivery of the notices. Mr. Fischer testified he was unaware of the legal significance of recording the leases, noting that of the 40-50 leases he has with his practice groups, none of them were recorded. He was in the process of getting legal advice with regard to recordation of leases for other buildings. Concerning the leases in question, Mr. Fischer acknowledged it was not until January 9, 2023, that he filed an Act of Deposit for each lease Cardio had with Marigold, causing the leases and the options to renew to be recorded in the conveyance records of St. Tammany Parish. Mr. Fischer further indicated that the day before he received the notice of eviction, he had plans to meet with Dr. Aduli and their respective legal counsel to negotiate the terms of the leases. However, the meeting was abruptly canceled, and he received the notices of eviction the next day.

Dr. Aduli testified it was not until late December 2022 that he realized Cardio did not have a lease with Hwy 21, LLC and that he would be able to evict defendants from the property. Dr. Aduli indicated he was within his legal right to evict defendants from the property; he could evict defendants and wanted to evict them.

When the parties refused to vacate the property, Hwy 21, LLC filed a Petition for Eviction and Request for Possession on January 10, 2023, naming Cardio, Cath Center, and ASC as defendants. In response to the petition, defendants filed an answer and affirmative defenses. Among other things, defendants raised the doctrines of piercing the corporate veil and single business enterprise. Defendants argued that although Hwy 21, LLC claimed to be a third party not subject to the leases in question, "the scheme perpetrated by [Dr. Aduli] makes clear that neither [Hwy 21, LLC] nor Marigold is a ’third party’ at all, but is ₆merely an alter ego of [Dr. Aduli]." Defendants further alleged that even if Hwy 21, LLC would be considered a third party, it is not entitled to rely on the public records doctrine because it conspired with Marigold and Dr. Aduli to commit fraud and deprive defendants of their rights under the leases.

The matter proceeded to hearing on March 7, 2023, at which time the trial court heard argument from the parties. Counsel for Hwy 21, LLC argued that as a third party, Hwy 21, LLC was entitled to rely on the public records doctrine. Counsel noted further that because the leases had not been recorded at the time of the change in ownership of the property, the leases had no effect on Hwy 21, LLC. Finally, counsel for Hwy 21, LLC also maintained that defendants’ affirmative defenses were inappropriate in a summary action for eviction and must be brought in a separate, ordinary proceeding.

After counsel finished presenting argument on behalf of Hwy 21, LLC, counsel for defendants made the following observation:

Your Honor … I thought I was listening to an opening statement but I’m assuming that’s the plaintiff’s presentation of their case.

This is a summary proceeding, but it’s still a trial and evidence has to be presented to the Court. And if there’s nothing else coming, I would move for a directed verdict dismissing the plaintiffs case with prejudice.

Thereafter, counsel for defendants indicated he had five witnesses he would like to present along with evidence that centered around why the eviction should be denied. He argued the public record doctrine is designed to protect innocent third parties, not a party who simply "changes the mask over their face" as Dr. Aduli did in this case. Counsel further asserted that the alter ego doctrine "should be applied to pierce through the corporate veil to...