By Walter Pierce
Nov. 15, 2013
Pending a successful appeal to the Louisiana Supreme Court, which is unlikely, a handful of Lafayette physicians and a limited liability company connected to them are off the hook for potentially millions of dollars in future rent for a south Lafayette Parish hospital that folded in 2009.
|Photo by Robin May|
In a ruling released in early November, the Louisiana 3rd Circuit Court of Appeal found in favor of three physicians — Tynes Mixon, Andrew Hargroder and Doreen Abadco — along with Houston-headquartered Southpark Acquisition Company LLC, which managed Southpark Community Hospital. The hospital opened its doors to the public in 2005, but after four years closed amid mounting lease debt to the landlord, Broussard Hospital Holdings. The appeals court in effect found that BHH has recouped all it was entitled to based on the circumstances and the terms of the lease.
“The hospital appears to have suffered financial difficulties from the start and by early 2009, was struggling to stay afloat,” the 3rd Circuit ruling recounts. “In fact, the situation was so dire vendors were refusing to provide supplies to the hospital unless they were paid in advance.”
Southpark Community Hospital seemed like a good idea when the ribbon was cut in 2005: a full-service (including surgical and post-op suites), 20-bed hospital serving the needs of a bustling Broussard-Youngsville area in south Lafayette Parish.
But the facility’s four-year lifespan was marked by near-constant financial difficulties, changing ownership twice and teetering on insolvency throughout. It finally closed its doors for good in June of 2009, with management handing employees their pink slips on the day it closed.
Two years before its ultimate demise, a group of 15 physicians in a range of specialities along with Southpark Acquisition signed on as guarantors of the hospital with small obligations ranging from 1 to 5 percent among the individual physicians and 55 percent for Southpark Acquisition, which also managed the hospital. The guarantors would, in theory anyway, refer their patients to Southpark Community Hospital. Coupled with the physicians who had an ownership stake in the hospital on the BHH side, these referrals would ensure a steady supply of customers and revenue. But, recalls Lafayette attorney Tim Basden, one of the lawyers who defended the physicians at the district court and appellate levels, things went south not long after Broussard Hospital Holdings took over.
“There became a bit of rift between the management company [Southpark Acquisitions LLC] and those physicians who were part of the owners’ group, and so they stopped referring their patients there,” Basden says. “In a small hospital like that they really only had to have 50 percent [occupancy] or so to survive, and if you had enough physicians with a financial stake in it, it seems like a pretty good business plan to me.”
But as the referrals dropped so did the patients, and Southpark Acquisition fell behind on its lease. Way behind. (The lease at issue before the 3rd Circuit commenced on Sept. 20, 2007, for a term of 20 years.) According to the appellate ruling, BHH began pressing Southpark Acquisition for the past-due rent in September of 2008; the hospital was more than $350,000 behind at that point, but according to court documents Southpark Acquisition ignored the issue until May of the next year. By then Southpark Community Hospital was in arrears to the tune of nearly $700,000. Several of the physician/guarantors ponied up their percentage shares — 1 to 5 percent — of the past due rent, but BHH demanded the entire lease be paid and ordered management out of the building. That amount came to a staggering $6.1 million, most of it for future rent obligations.
The physician/guarantors who didn’t fork over their obligations challenged the demand of future rent, which was the heart of the litigation. And according to Basden, the question really was a simple one before District Judge John Trahan: If Broussard Hospital Holdings evicted Southpark Acquisition from the hospital in June of 2009, could BHH also demand future rent? Trahan said no. The 3rd Circuit agreed.
“A landlord can’t kick the tenant out and collect future rent; it’s as simple as that,” Basden says. “It’s a very, very simple proposition, and it applies the same for an apartment: If you have a two-year lease or a one-year lease and you default on your rent in month three, they can either kick you out or they can accelerate your payments but they can’t do both, because if you have to pay the whole year you have a right to stay.”
Attorneys for Broussard Hospital Holdings did not return calls for this story, but according to the 3rd Circuit ruling, BHH actually collected more than it was entitled to based on the terms of the lease and the circumstances surrounding the hospital’s closure.
In rendering the ruling, Judge John E. Conery, writing for the 3rd Circuit majority, notes that “we find that [Broussard Hospital Holdings] received $1,200,000.00 in payments from Southpark Acquisition’s guarantors pursuant to their lease guarantees. Thus, [BHH] has already received the $686,170.94 that the parties stipulated was owed in past-due rent and no further sums are due.”
Adds Basden: “What the court simply held was, the future rent claim was forfeited by telling the people to leave, so the amount of past rent was really the total extent of the claim. The guarantors who paid satisfied the obligation.
“In other words they collected twice what they had a claim to — they were well paid.”