CHSPSC LLC v. ST FRANCIS HOSPITAL INC
Filing
19
ORDER granting in part and denying in part 8 Motion to Dismiss Complaint. Ordered by US DISTRICT JUDGE CLAY D LAND on 11/10/2015. (vac)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
COLUMBUS DIVISION
CHSPSC, LLC,
*
Plaintiff,
*
vs.
*
ST. FRANCIS HOSPITAL, INC.,
*
CASE NO. 4:15-CV-133 (CDL)
Defendant.
*
O R D E R
This action arises from the collapse of negotiations for
the acquisition of St. Francis Hospital, Inc. by CHSPSC, LLC.
It was public knowledge prior to and during these negotiations
that St. Francis faced a financial crisis due to accounting and
budget
miscalculations
and
that
this
crisis
provided
the
motivation for the sale of the long-time provider of hospital
services.
But
CHSPSC
alleges
in
its
complaint
that
representatives of St. Francis misrepresented and hid legal and
regulatory
issues
financial troubles.
that
went
beyond
St.
Francis’s
well-known
CHSPSC claims that St. Francis hid these
problems to induce CHSPSC to make a $5 million deposit toward
the purchase of the hospital.
After it discovered some of these
additional problems, CHSPSC continued its negotiations with St.
Francis, but the acquisition eventually fell through.
CHSPSC
brings the present action to recover its $5 million deposit plus
compensatory damages caused by St. Francis’s alleged fraud and
breach of contract.
St.
complaint
Francis
in
has
its
filed
entirety
a
motion
(ECF
No.
to
8).
dismiss
For
the
CHSPSC’s
reasons
explained in the remainder of this Order, the Court grants St.
Francis’s
contract
motion
claim
to
dismiss
regarding
CHSPSC’s
St.
premature
Francis’s
refusal
breach
to
of
refund
CHSPSC’s deposit, denies St. Francis’s motion to dismiss the
breach of contract claim regarding its alleged failure to abide
by the exclusive dealing provision of the contract, and denies
St. Francis’s motion to dismiss the fraud claim.
MOTION TO DISMISS STANDARD
“To survive a motion to dismiss” under Federal Rule of
Civil Procedure 12(b)(6), “a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)).
The complaint must include sufficient factual
allegations “to raise a right to relief above the speculative
level.”
Twombly, 550 U.S. at 555.
In other words, the factual
allegations must “raise a reasonable expectation that discovery
will reveal evidence of” the plaintiff’s claims.
Id. at 556.
“Rule
well-pleaded
12(b)(6)
does
not
permit
dismissal
of
a
complaint simply because ‘it strikes a savvy judge that actual
2
proof
of
those
facts
is
improbable.’”
Watts
v.
Fla.
Int’l
Univ., 495 F.3d 1289, 1295 (11th Cir. 2007) (quoting Twombly,
550 U.S. at 556).
CHSPSC’S FACTUAL ALLEGATIONS
CHSPSC
claims.
alleges
the
following
facts
in
support
of
its
The Court must accept these allegations as true for
purposes of the pending motion.
In
November
2014,
St.
Francis,
a
hospital
located
in
Columbus, Georgia, publicly announced that it found itself in a
serious financial predicament due to accounting and budgeting
miscalculations.
These financial problems motivated St. Francis
to explore drastic measures including the sale of the hospital.
CHSPSC became interested in purchasing the hospital and began
discussions with St. Francis.
During these discussions, CHSPSC
claims that it asked St. Francis whether the hospital’s problems
were purely financial or if the hospital also had significant
legal or regulatory problems.
According to CHSPSC, St. Francis
denied that it had any legal or regulatory problems, although it
knew
that
it
was
potentially
violating
Medicare
and
the
Department of Housing and Urban Development (“HUD”) regulations.
CHSPSC also alleges that St. Francis knew that HUD’s Office of
the Inspector General was auditing the hospital.
CHSPSC claims that at a meeting on January 8, 2015, it
specifically
asked
whether
St.
3
Francis
had
any
legal
or
regulatory
issues,
and
St.
Francis
existence of any such issues.
expressly
denied
the
After the meeting, St. Francis
discontinued discussions with CHSPSC as a potential buyer and
began exclusive negotiations with Piedmont Healthcare.
When the
Piedmont deal eventually collapsed, St. Francis resumed talks
with CHSPSC.
CHSPSC alleges that St. Francis told CHSPSC that
the Piedmont deal did not go through solely because Piedmont was
unwilling to assume St. Francis’s debt, even though St. Francis
allegedly
because
knew
it
that
learned
Piedmont
of
St.
withdrew
Francis’s
from
the
negotiations
substantial
legal
and
regulatory problems, including the HUD audit.
As
claims
CHSPSC
that
conducted
St.
Francis
its
preliminary
continued
to
due
diligence,
misrepresent
that
it
the
hospital’s problems were purely financial and denied that the
hospital
had
specifically
any
regulatory
alleges
that
its
or
due
legal
problems.
diligence
requests
CSHSPC
covered
issues such as the HUD audit, but that St. Francis failed to
disclose the audit.
After CHSPSC completed its preliminary due diligence, the
parties, on April 9, 2015, entered into an agreement regarding
further negotiations for the acquisition of the hospital.
The
relevant provisions of the agreement provide that: (1) CHSPSC
would
make
a
$5
million
deposit
toward
the
purchase
of
the
hospital, and (2) St. Francis would negotiate exclusively with
4
CHSPSC until June 30, 2015.
The agreement, which included the
conditions for a refund of the $5 million deposit, states:
In the event that CHS does not close the transaction
without cause, then CHS shall forfeit the Initial
Deposit (but not the Additional Deposit).
Otherwise,
the Initial Deposit and the Additional Deposit shall
be refunded to CHS as a breakup fee if the transaction
does not close and St. Francis closes a transaction
with another party.
Compl. Ex. A, Letter Agreement, ECF No. 2-2 at 8.
CHSPSC continued to conduct its due diligence over the next
several months, and St. Francis did not disclose the hospital’s
legal and regulatory problems, including the HUD audit.
CHSPSC
claims that in June 2015 it discovered for the first time that
the
hospital
had
potentially
violated
Medicare
and
HUD
regulations in four significant ways over the course of several
years.
On June 30, 2015, the parties met to discuss the potential
regulatory
violations
that
CHSPSC
had
discovered.
At
that
meeting, CHSPSC demanded that St. Francis report its regulatory
violations to federal authorities.
CHSPSC also extended the
period for exclusive negotiations under the agreement to allow
CHSPSC to do additional due diligence.
that
by
modifying
the
agreement
to
St. Francis contends
extend
the
period
for
exclusive negotiations after it learned of the additional legal
and regulatory problems, CHSPSC ratified any alleged fraud and
waived its fraud claim.
5
Ten days later, on July 10, 2015, CHSPSC discovered for the
first
time
auditing
that
St.
negotiations
HUD’s
Office
of
Francis.
Shortly
collapsed.
CHSPC
the
Inspector
after
this
demanded
a
General
was
discovery,
the
return
its
$5 million deposit and payment of its expenses.
of
St. Francis
refused, contending that the agreement did not require a return
of
the
deposit
until
it
consummated
a
deal
with
some
other
buyer.
DISCUSSION
I.
Fraud Claim
CHSPSC contends that it was defrauded by St. Francis when
St.
Francis
misrepresented,
among
other
things,
(1) the
hospital’s lack of legal or regulatory problems, (2) the HUD
audit,
and
(3) the
acquisition.
reason
that
Piedmont
withdrew
from
the
St. Francis argues that the fraud claim should be
dismissed because CHSPSC waived it by ratifying the agreement
after it learned of the alleged fraud, and because CHSPSC has
failed
to
allege
the
facts
in
support
of
the
claim
with
sufficient particularity.
A.
Waiver of Fraud Claim
A defrauded party waives its fraud claim if it has “full
knowledge of the” fraud and then “acts in a manner inconsistent
with a repudiation of the contract.”
v.
Swift
Textiles,
LLC,
532
F.
6
Denim N. Am. Holdings, LLC
App’x
853,
859
(11th
Cir.
2013)(emphasis added) (quoting Brooks v. Hooks, 221 Ga. 229,
235, 144 S.E.2d 96, 100 (1965)).
St. Francis argues that CHSPSC
learned of the alleged fraud prior to agreeing to modify the
contract
proceeding
to
extend
with
negotiations
the
the
contract
while
misrepresented
exclusive
fully
its
legal
negotiation
aware
and
By
and
continuing
the
St.
modification
period.
Francis
had
that
regulatory
troubles,
CHSPSC,
according to St. Francis, waived any fraud claim arising from
St. Francis’s failure to disclose fully its legal and regulatory
issues.
CHSPSC responds that it was not fully aware of the
complete extent of the fraud.
Specifically, it maintains that
it knew only of potential Medicare and HUD violations—not the
HUD
audit—when
it
agreed
to
the
extension
negotiation provision on June 30, 2015.
of
the
exclusive
It was not until ten
days later, on July 10, 2015, that CHSPSC learned for the first
time
that
collapsed.
HUD
It
was
auditing
is
not
St.
clear
Francis.
why
CHSPSC
The
was
deal
then
comfortable
continuing due diligence after learning of the Medicare and HUD
regulation
breaker.
violations,
but
then
found
the
HUD
audit
a
deal
CHSPSC will eventually have to establish why knowledge
of the alleged regulatory violations did not make a difference
in their decision to continue negotiations, but the HUD audit
did.
But that is an issue for summary judgment.
7
At the motion
to dismiss stage, CHSPSC has sufficiently alleged that it made a
difference.
“Under Georgia law, whether a party has waived its right to
rescind an agreement is ordinarily a question of fact for the
jury to decide.”
Id. at 859.
Although the issue can be decided
as a matter of law, “the facts and circumstances essential to
the waiver issue [must be] clearly established.”
Id. (quoting
Forsyth Cty. v. Waterscape Servs., LLC, 303 Ga. App. 623, 630,
694 S.E.2d 102, 110 (2010)).
Based on CHSPSC’s allegations in
its complaint, which the Court must accept as true at this stage
of
the
litigation,
allegations
clearly
the
Court
establish
cannot
that
alleged fraud and waived its claim.
conclude
CHSPSC
has
that
those
ratified
the
Accordingly, St. Francis’s
motion to dismiss the fraud claim must be denied.
B.
Rule 9(b) Particularity Requirement
St. Francis also maintains that CHSPSC has failed to allege
its fraud claim with sufficient particularity in violation of
Federal
Rule
unpersuasive.
of
Civil
Procedure
9(b).
This
argument
is
CHSPSC has sufficiently stated the facts upon
which its fraud claim is based.
If those facts are proven,
CHSPSC will have established the essential elements of a fraud
claim under Georgia law.
Accordingly, St. Francis’s motion to
dismiss the fraud claim pursuant to Rule 9(b) is denied.
8
II.
Breach of Contract Claims
CHSPSC
contends
that
St.
Francis
breached
the
agreement
that the parties entered into on April 9, 2015, in two ways:
(1) by failing to refund CHSPSC’s $5 million deposit after the
deal collapsed, and (2) by engaging in negotiations for the sale
of St. Francis with other potential buyers during the period
that
St.
Francis
had
agreed
to
negotiate
exclusively
with
CHSPSC.
A.
Breach of the Contract Clause Requiring Refund of the
Initial Deposit
The parties’ agreement states:
In the event that CHS does not close the transaction
without cause, then CHS shall forfeit the Initial
Deposit (but not the Additional Deposit).
Otherwise,
the Initial Deposit and the Additional Deposit shall
be refunded to CHS as a breakup fee if the transaction
does not close and St. Francis closes a transaction
with another party.
Compl. Ex. A, Letter Agreement, ECF No. 2-2 at 8.
CHSPSC alleges that it had just cause not to close the
transaction.
present
Therefore, the Court assumes for purposes of the
motion
that
CHSPSC
has
not
pursuant to the terms of the contract.
forfeited
its
deposit
But the agreement does
not authorize the return of the deposit immediately upon the
termination of negotiations.
The agreement plainly states that
if the negotiations are terminated for cause, CHSPSC is entitled
to a refund of the deposit when two conditions are met: (1) the
deal
between
CHSPSC
and
St.
Francis
9
does
not
close,
and
(2) St. Francis closes a transaction with another buyer.
The
first
St.
condition
has
been
met
because
the
deal
between
Francis and CHSPSC collapsed, but CHSPSC does not allege that
the second condition—that St. Francis has closed a transaction
with another buyer—has been met.
Thus, under the plain terms of
the contract, CHSPSC is not yet entitled to a refund.
“The
cardinal rule of [contract] construction is to ascertain the
intention of the parties.”
App.
484,
486,
430
Duffett v. E&W Props., Inc., 208 Ga
S.E.2d
858,
859
original) (quoting O.C.G.A. § 13-2-3).
in
the
contract
reveals
that
(1993)
(alteration
in
The unambiguous language
intention.
Here,
the
parties
clearly stated under what conditions a refund would be made.
Those
conditions
Francis has not
have
not
yet
occurred.
Accordingly,
St.
breached the clause regarding refund of the
deposit.
Whether CHSPSC will eventually be entitled to a return of
its deposit is not ripe for adjudication.
“A claim is not ripe
for adjudication if it rests upon ‘contingent future events that
may not occur as anticipated, or indeed may not occur at all.’”
Texas v. United States, 523 U.S. 296, 300 (1998) (quoting Thomas
v.
Union
(1985)).
Carbide
Agric.
Prods.
Co.,
473
U.S.
568,
580-81
Because CHSPSC’s right to relief is contingent on a
future event that may or may not occur—whether St. Francis sells
the
hospital
to
another
buyer—CHSPSC’s
10
claim
to
recover
the
deposit is not presently ripe.
Accordingly, the Court dismisses
that claim.
B.
Breach of the Contract Clause Requiring St. Francis to
Negotiate Exclusively with CHSPSC
CHSPSC also alleges that St. Francis breached the provision
of
the
agreement
exclusively
providing
with
CHSPSC
that
and
St.
Francis
not
share
information with other potential buyers.
that
the
claim
should
be
dismissed
would
any
negotiate
confidential
St. Francis argues
because
the
complaint
consists of bare legal conclusions without factual allegations
to support them.
St. Francis’s argument is not supported by a
review of the factual allegations contained in the complaint.
The complaint contains ample factual allegations to “raise
a right to relief above the speculative level.”
U.S. at 555.
selling
The complaint alleges that St. Francis discussed
the
hospital
confidential
that
St.
with
information
Francis
other
with
had
who
to
Compl. ¶¶ 67, 81.
identify
which
very
St.
Francis
information
likely
are
potential
other
agreed
CHSPSC.
confidential
Twombly, 550
buyers
buyers
and
shared
during
the
period
negotiate
exclusively
with
Although the complaint does not
negotiated
St.
Francis
within
the
with
or
shared,
exclusive
what
those
control
precise
details,
of
St.
Francis, are not necessary to satisfy the pleading standard that
requires
“a
short
and
plain
statement . . . showing
11
that
the
pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), and
that the claim is plausible.
See Twombly, 550 U.S. at 570.
St. Francis also argues that the complaint does not allege
legally
cognizable
provision
of
commenting
the
damages
for
agreement.
specifically
on
breach
The
the
of
Court
nature
the
exclusivity
disagrees.
of
Without
damages
that
are
available to CHSPSC if it is able to prove that such damages
were
proximately
caused
by
St.
Francis’s
breach
of
the
exclusivity provision in the agreement, the Court finds that at
a
minimum
Accordingly,
CHSPSC
St.
has
alleged
Francis’s
a
motion
claim
to
for
dismiss
damages
the
here.
breach
of
contract claim based on the exclusivity provision is denied.1
CONCLUSION
The
Court
dismisses
CHSPSC’s
breach
of
contract
claim
arising from St. Francis’s refusal to refund the deposit because
the claim is not ripe for adjudication.
St. Francis’s motion to
dismiss is denied as to the remaining claims.
The stay in this action is lifted.
(ECF No. 8).
Within 21 days of
today’s order, the parties shall submit to the Court a joint
1
St. Francis also seeks dismissal of CHSPSC’s claim for attorneys’
fees and litigation expenses because, according to St. Francis, all of
the underlying substantive claims (for fraud and breach of contract)
must be dismissed. But, as discussed above, CHSPSC’s claims for fraud
and breach of the contract clause requiring exclusivity withstand the
motion to dismiss. The Court therefore denies St. Francis’s motion to
dismiss the claim for attorneys’ fees and expenses.
12
proposed
scheduling
order
that
complies
with
the
previously
issued Rules 16/26 order (ECF No. 10).
IT IS SO ORDERED, this 10th day of November, 2015.
S/Clay D. Land
CLAY D. LAND
CHIEF U.S. DISTRICT COURT JUDGE
MIDDLE DISTRICT OF GEORGIA
13
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