How do I replace line breaks with valid html but not when in an html element already

It seems you need to process top-level HTML text nodes only (text nodes don't have child nodes):

var html = "Dear Person,\r\nHello and welcome to this example.\r\nTodo: <ul><li>item 1</li>\r\n<li>item 2</li>\r\nThanks.";
var doc = new HtmlDocument();
doc.LoadHtml(html);
var textNodes = doc.DocumentNode.ChildNodes
    .OfType<HtmlTextNode>()
    .ToList();

foreach (var node in textNodes)
    node.Text = node.Text.Replace(Environment.NewLine, "<br />");

This will produce something like this:

Dear Person,<br />Hello and welcome to this example.<br />Todo: <ul><li>item 1</li>\r\n<li>item 2</li>\r\nThanks.</ul>