Hous. Metro Ortho & Spine Surgery, LLC v. Juansrich, Ltd.

HOUSTON METRO ORTHO AND SPINE SURGERY, LLC;ELITE AMBULATORY SURGERY CENTERS, LLC;LORI RAMIREZ; JAMES ALBRIGHT, M.D.; CARL PALUMBO, M.D.;NAVIN SUBRAMANIAN, M.D.; ALAN RECHTER, M.D.; MARK PROVENZANO, M.D.;JUAN CARLOS BUSTOS, M.D.; ASIF CHAUDRY, M.D.;AND NEWTON DUNCAN, M.D., Appellants v. JUANSRICH, LTD., AND RICHARD FRANCIS, M.D., Appellees

NO. 14-19-00732-CV

State of Texas in the Fourteenth Court of Appeals

July 6, 2021

On Appeal from the 215th District Court Harris County, Texas

Trial Court Cause No. 2015-24460

MEMORANDUM OPINION

Appellee Richard Francis, M.D., through his business entity, appellee Juansrich, Ltd. (collectively "Juansrich"), owned an interest in appellant Houston Metro Ortho and Spine Surgery, LLC ("Metro"), an ambulatory surgical center. Juansrich shared ownership in Metro with several other surgeons, including appellants James Albright, M.D., Carl Palumbo, M.D., Navin Subramanian, M.D., Alan Rechter, M.D., Mark Provenzano, M.D., Juan Carlos Bustos, M.D., Asif Chaudry, M.D., and Newton Duncan, M.D. Appellant Elite Ambulatory Surgery Centers, LLC ("Elite") also owned an interest in Metro and managed the daily operations of the surgery center. Appellant Lori Ramirez was an officer of Elite. As Class A members of Metro, the surgeons agreed, among other things, that each would conduct a certain percentage of their eligible procedures at Metro. A dispute began when appellants believed Dr. Francis had stopped performing procedures at Metro.

Metro terminated Juansrich's ownership interest in Metro. It then filed suit against Dr. Francis seeking to enforce a noncompetition agreement contained in the "Company Agreement of Houston Metro Ortho and Spine Surgery Center LLC" (the "LLC Agreement"). Believing it was owed significant sums as payment for its ownership interest in Metro, as well as for missed distributions of earnings made while it was still a member of Metro, Juansrich filed counterclaims alleging numerous causes of action including breach of contract, conversion, aiding and abetting, and unjust enrichment. The trial court granted Dr. Francis's motion for partial summary judgment asserting that the noncompetition agreement was unenforceable. It then realigned the parties making Juansrich the plaintiff. The trial court subsequently granted two Rule 166 motions filed by Juansrich and conducted a bench trial on the remaining issues. At the conclusion of the bench trial, the trial court found in favor of Juansrich. Juansrich elected to recover on its conversion cause of action. The trial court signed a final judgment awarding (1) Juansrich $9,855,596.85 in damages on Juansrich's conversion cause of action and $23,048.50 in attorney's fees in connection with Juansrich's efforts to inspectMetro's records, and (2) Dr. Francis $403,918.15 in attorney's fees and costs for defending against Metro's noncompete claim.

Because Metro has not challenged the $23,048.50 attorney's fees award on appeal, we affirm that part of the trial court's final judgment. Concluding that none of Juansrich's tort claims can support the final judgment, we reverse the trial court's final judgment based on conversion and render judgment that Juansrich take nothing on those claims. In addition, because the primary purpose of the LLC Agreement was not for the provision of personal services, we reverse and render judgment that Dr. Francis take nothing on his request for attorney's fees for defending against Metro's suit seeking to enforce the non-compete contained in the LLC Agreement. We conclude that the trial court erred when it granted Juansrich's first and second Rule 166 motions, which Juansrich relied on to support its breach of contract cause of action. As a result, Juansrich cannot now elect to recover on its breach of contract claim seeking payment for its ownership interest. We therefore remand that cause of action to the trial court for further proceedings. Finally, we conclude that the evidence is legally sufficient to support the trial court's judgment on Juansrich's claim for missed distribution payments. We therefore affirm that part of the trial court's final judgment.

BACKGROUND

Dr. Francis is an orthopedic surgeon. Dr. Francis and Dr. Rechter, another orthopedic surgeon, were the original doctors involved in the formation of Metro. Ramirez, Elite's chief executive officer, was the moving force in the formation of Metro and the recruitment of doctors as investors in Metro. Metro is an ambulatory surgery center that specializes in orthopedic, pain management, spine, and pediatric ear, nose, and throat procedures. As an ambulatory surgery center, Metro performs only outpatient surgery cases. Metro's Class A members consistentirely of doctors and some of those doctors' business organizations. Juansrich is a Class A member and it eventually owned about 19.50 units of Class A membership in Metro.¹ Juansrich paid a total of $195,000 for those units. The doctor appellants are all Class A members of Metro. Elite is the sole Class B member. Elite handles the day-to-day business operations of the surgical center, such as managing the staff.

As with all limited liability companies, Metro is governed by a contract, the LLC Agreement. See Tex. Bus. Orgs. Code Ann. § 101.052. Among the key provisions in the LLC Agreement are sections 2.3, 4.3, and 10.7.

Section 2.3

Section 2.3(b)(iv) provides that each Class A member "shall perform at least one-third of such Class A Member's procedures that require or can be performed at an ambulatory surgery center at the [Metro] Center."

Section 4.3

Section 4.3 addresses redemption of members' ownership interests. Section 4.3 divides terminating events with respect to a member's ownership interest as either "Adverse Terminating Events" or "Non-Adverse Terminating Events." It further provides that the redemption price for a Class A member's units "shall be based on whether the Terminating Event is an Adverse Terminating Event or a Non-Adverse Terminating Event." An Adverse Terminating Event occurs when, among other events not at issue here, a Class A Member materially breaches the LLC Agreement. A Non-Adverse Terminating Event occurs with respect to a Class A Member if, among other things, the Class A Member is removed "for any reason or no reason," by "Supermajority Approval." The redemption price is alsoaffected by whether Metro has become "Operational" as defined in the LLC Agreement. Metro becomes "Operational" once it "is Medicare certified as an ambulatory surgical center." If Metro is not "Operational," or the termination is "Adverse," then the redemption price for a departing Class A Member's Units is limited to the departing Member's capital contribution. If Metro is "Operational," and the termination is "Non-Adverse," the redemption price is determined by a formula found in section 4.3(g)(ii) of the LLC Agreement.

Section 10.7

Section 10.7 of the LLC Agreement contains a non-competition clause. It provides that

[d]uring the term of a Class A Member's membership in [Metro], and for a period of one year thereafter, no Class A Member nor any of such Class A Member's Affiliates, except as provided below or through [Metro], shall, without prior written Consent of the Class B Member, directly or indirectly own, manage, operate, control, or participate in any manner in the ownership, management, operation, or control of, or serve as a partner, employee, principal, agent, consultant, or otherwise contract with, or have any financial interest in, or aid or assist any other person or entity that operates a facility (including an ambulatory surgical center or office-based or practice-based facility or operating site or room that provides any of the services offered by [Metro]) to provide outpatient surgical services, including a state-licensed, Medicare-certified or accredited surgery center or office-based surgical facility, within 10 miles of the location of [Metro's ambulatory surgical center] (the "Restricted Territory") nor may a Class A Member provide Facility Fee Procedures in such Class A Member's office. The preceding sentence shall not be construed to prevent a Class A Member or any of a Class A Member's Affiliate's from (i) maintaining staff privileges at any facility, (ii) providing professional surgical services and earning a professional fee thereon (but not acting as an owner or having a compensation or financial relationship) in any other ambulatory surgical center or hospital, (iii) performing any in-office procedures under local anesthesia that does not require the presence of an anesthesiologist ora certified registered nurse anesthetist, or (iv) having any financial relationship or owning an interest in any hospital within the Restricted Territory. For purposes of this Section 10.7, it shall be presumed that a person or entity competes with [Metro] and violates this provision if such person or entity has any interest in any facility or center of any type whatsoever for the conduct of, or compensation relationship with, any outpatient surgery center within the Restricted Territory.

The beginning of the Practice

In a "Confidential Private Offering Memorandum for Accredited Investors Only," dated May 6, 2011, Metro notified potential investors that

THERE IS NO CURRENT SURGERY CENTER. CONSEQUENTLY, THE SURGERY CENTER HAS NO OPERATIONAL HISTORY AND CURRENTLY CONDUCTS NO BUSINESS. IT IS CONTEMPLATED THAT THE SURGERY CENTER WILL NOT CONDUCT ANY OPERATIONS OR BUSINESS UNLESS AND UNTIL SUFFICIENT SUBSCRIPTIONS ARE RECEIVED AND ACCEPTED PURSUANT TO THIS OFFERING (THE MINIMUM AMOUNT OF WHICH IS YET TO BE DETERMINED BY THE COMPANY).

That same offering memorandum further warned potential investors that Metro did "not intend to service Medicare or Medicaid patients." Metro repeated those same warnings in a second confidential memorandum for potential investors dated January 1, 2012. Metro's business model was to operate as an out-of-network facility unaffiliated with managed care providers....