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