Case 4:15-cv-00133-CDL Document 8 Filed 08/28/15 Page 1 of 2

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF GEORGIA
COLUMBUS DIVISION
CHSPSC, LLC,
Plaintiff,
v.

Civil Action No. 4:15-cv-00133-CDL

ST. FRANCIS HOSPITAL, INC.,

Defendant.
DEFENDANT ST. FRANCIS HOSPITALS
MOTION TO DISMISS CHSPSCS COMPLAINT
COMES NOW Defendant St. Francis Hospital, Inc. (St. Francis) and submits this
Motion to Dismiss CHSPSC, LLCs Complaint pursuant to Rule 9(b) and Rule 12(b)(6) of the
Federal Rules of Civil Procedure. In support of this Motion, St. Francis relies on the following:
1. The Complaint and all exhibits attached thereto; and
2. Brief in Support of Defendant St. Francis Hospitals Motion to Dismiss CHSPSCs
Complaint, filed contemporaneously herewith.
For the reasons stated in St. Franciss Brief in Support of its Motion to Dismiss, St.
Francis respectfully requests that the Court dismiss CHSPSC, LLCs Complaint in its entirety.
Respectfully submitted this 28th day of August, 2015.
TROUTMAN SANDERS LLP

5200 Bank of America Plaza

600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Telephone: 404-885-3000
Facsimile:
404-885-3900

/s/ J. Nick Phillips

William N. Withrow, Jr.
Georgia Bar No. 772350
Pete Robinson
Georgia Bar No. 610658
J. Nick Phillips
Georgia Bar No. 986208
Kathleen M. Campbell
Georgia Bar No. 839699
Counsel for St. Francis Hospital, Inc.

Case 4:15-cv-00133-CDL Document 8 Filed 08/28/15 Page 2 of 2

CERTIFICATE OF SERVICE
I hereby certify that the foregoing DEFENDANT ST. FRANCIS HOSPITALS
MOTION TO DISMISS CHSPSCS COMPLAINT was electronically filed with the Clerk of
Court using the CM/ECF system, which automatically serves notification of such filing to all
counsel of record.
This 28th of August, 2015.
/s/ J. Nick Phillips
J. Nick Phillips
Georgia Bar No. 986208
26556056

Case 4:15-cv-00133-CDL Document 8-1 Filed 08/28/15 Page 1 of 18

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF GEORGIA
COLUMBUS DIVISION
CHSPSC, LLC,
Plaintiff,
v.

Civil Action No. 4:15-cv-00133-CDL

ST. FRANCIS HOSPITAL, INC.,

Defendant.

BRIEF IN SUPPORT OF DEFENDANT ST. FRANCIS

HOSPITALS MOTION TO DISMISS CHSPSCS COMPLAINT
COMES NOW Defendant St. Francis Hospital, Inc. (St. Francis) and submits this Brief
in Support of its Motion to Dismiss CHSPSC, LLCs (CHSPSC) Complaint pursuant to Rule
9(b) and Rule 12(b)(6) of the Federal Rules of Civil Procedure.
INTRODUCTION
This action arises out of CHSPSC and St. Franciss (collectively referred to herein as the
Parties) unsuccessful attempt to structure a deal for CHSPSC to acquire St. Francis Hospital
and its affiliated entities. Beginning on March 12, 2015, the Parties agreed to engage in
negotiations to evaluate the potential sale of St. Francis to CHSPSC. As with any acquisition
of this magnitude, CHSPSC wanted to undertake the necessary due diligence before agreeing to
purchase St. Francis. On April 9, 2015, the Parties signed a Letter Agreement evidencing their
intent to evaluat[e] a proposed acquisition, subject to CHSPSCs due diligence. The Letter
Agreement makes clear that both Parties understood that a mutually agreeable deal might not be
reached, and both Parties agreed to bear their own expenses in connection with the negotiation
and evaluation of the potential transaction.

Case 4:15-cv-00133-CDL Document 8-1 Filed 08/28/15 Page 2 of 18

As expected, CHSPSC engaged in due diligence and, according to the Compliant, learned
the material facts alleged in the Complaint. Significantly, after learning these facts, including
alleged legal and regulatory problems, CHSPSC did not back out of negotiations. Instead,
CHSPSC alleges it modified (and thus ratified) the Letter Agreement and continued to engage in
further negotiations for the acquisition of St. Francis. Indeed, the Complaint goes to great
lengths to explain that CHSPSC never abandoned its attempt to purchase St. Francis.
In sum, CHSPSC claims that, although it learned of alleged legal and regulatory
problems during due diligence and nonetheless decided to move forward with the transaction, it
was defrauded because it was not told about a Department of Housing and Urban Development
Office of the Inspector General (HUD-OIG) audit regarding regulatory issues. This nonsequitur reveals CHSPSCs claim of fraud for what it really is: an eleventh-hour negotiation ploy
to drive down the acquisition price. Indeed, after CHSPSC claimed it was shocked to learn of
a HUD-OIG audit and report, it quickly followed up with a substantial modification of its
original purchase proposal. St. Francis would not give in to these strong-arm tactics.
Although CHSPSCs allegations of fraud are demonstrably false, the Court need not
reach the issue because CHSPSCs Complaint, no matter how vaguely and artfully worded, fails
to state a claim upon which relief can be granted. CHSPSCs breach of contract claim is barred
by the plain terms of the Letter Agreement attached to the Complaint, as well as CHSPSCs
failure to allege facts sufficient to support its contract claim. CHSPSCs fraud claim is barred
because it learned of the alleged fraud during its due diligence but then ratified the Letter
Agreement and continued to pursue the acquisition of St. Francis, and also because CHSPSC
failed to plead its fraud claim with particularity as required under Rule 9(b). Under no set of
facts can CHSPSCs claims survive, as evidenced by the Complaint itself. Accordingly, the
Complaint should be dismissed.
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FACTUAL ALLEGATIONS
For purposes of St. Franciss Motion to Dismiss, the Court must accept the allegations in
the Complaint as true. However, St. Francis does not admit the allegations in the Complaint and
vehemently denies any alleged fraudulent conduct or breach of contract. As shown below, even
taking these allegations as true, CHSPSC fails to state a claim upon which relief can be granted.
I.

CHSPSC and St. Francis Agreed To Negotiate the Potential Sale of St. Francis to
CHSPSC, at Which Time CHSPSC Knew of St. Franciss Financial Difficulties and St.
Franciss Ongoing, Weekly Communications with HUD.
In December 2014, representatives of CHSPSC reached out to representatives of St.

Francis regarding a potential sale of St. Francis. (Compl. 10.) The Parties conferred in person
on January 8, 2015. (Id. at 13.) During the January 8, 2015 meeting, the Parties did not agree
(formally or informally) to pursue a sale of St. Francis. In fact, following the January 8, 2015
meeting, St. Francis entered into exclusive negotiations with one of CHSPSCs competitors,
Piedmont Healthcare (Piedmont), for the potential sale of St. Francis. (Id. at 21-22.) The
deal between St. Francis and Piedmont ultimately fell through. (Id. at 23.) CHSPSC alleges
that, on information and belief, Piedmont ended negotiations because its due diligence had
uncovered St. Franciss many legal problems, including the HUD audit. (Id. at 24.) However,
CHSPSC does not allege what specific legal or regulatory problems Piedmont allegedly
uncovered, the basis for its assertion that Piedmont withdrew from negotiations for this reason,
whether Piedmont told St. Francis that it withdrew from negotiations as a result of uncovering
such problems, or when any such communications between Piedmont and St. Francis occurred.
After Piedmont and St. Francis ceased negotiations, St. Francis resumed talks with
CHSPSC. (Compl. 23.) On March 12, 2015, CHSPSC and St. Francis agreed to pursue a sale
of St. Francis to CHSPSC, and CHSPSC provided St. Francis a list of due diligence items it
wished to review in evaluating the potential sale. (Id. at 29.) At this time, CHSPSC knew of
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St. Franciss financial difficulties. (Id. at 14-15, 23, 26.) And shortly after this agreement to
pursue negotiations, CHSPSC admits that it was made aware of ongoing, weekly
communications between St. Francis and HUD. (Id. at 32.) CHSPSC does not allege that St.
Francis denied CHSPSC access to its communications with HUD.
II.

CHSPSC and St. Francis Executed a Letter Agreement Evidencing Their Evaluation and
Negotiation of the Potential Sale of St. Francis to CHSPSC.
On April 9, 2015, the Parties executed a Letter Agreement evidencing their agreement to

evaluat[e] a proposed acquisition by affiliates of CHSPSC of the facilities which comprise St.
Francis Hospital. (Compl. 33 & Ex. A.) The Letter Agreement made clear that the Parties
were evaluating the proposed acquisition and that CHSPSC would engage in due diligence
related to the potential transaction. (Compl., Ex. A.) In fact, the Term Sheet appended as
Exhibit A to the Letter Agreement states that CHSPSC anticipate[d] due diligence taking 10 to
12 weeks. (Compl., Ex. A, Term Sheet at 5.) The Letter Agreement specifically contemplated
the substantial time and money CHSPSC will spend evaluating the proposed acquisition.
(Compl., Ex. A.) It also provided that [e]ach party shall bear its own expenses in connection
with the negotiation and execution of this letter and the potential transaction. (Compl., Ex. A,
2.c.)
The Letter Agreement provided that St. Francis would negotiate exclusively with
CHSPSC until June 30, 2015. (Compl., Ex. A, 3.) In consideration of St. Franciss agreement
to negotiate exclusively with CHSPSC, CHSPSC made a deposit of $5 million (the Initial
Deposit) to cover St. Franciss cash flow deficiencies during the pendency of the negotiations.
(Compl., Ex. A, 3-4 & Term Sheet, at 5.) The Letter Agreement provided that the Initial
Deposit would only be refunded if the transaction did not go through and St. Francis closed a
transaction with another party: [T]he Initial Deposit and the Additional Deposit shall be

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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, Term Sheet, at 5.)
III.

CHSPSC Discovered Regulatory Violations During the Course of Its Due Diligence But
Ratified the Letter Agreement and Continued to Pursue the Sale.
As contemplated, CHSPSC engaged in due diligence for over three months after the

Parties executed the Letter Agreement. (Compl. 37.) CHSPSC alleges that, in June 2015,
during the due diligence period, it realized St. Francis had potentially violat[ed] Medicare and
HUD regulations in at least four significant respects for a number of years. (Id. at 42.) The
Complaint further states: In CHSPSCs judgment, these violations were substantial enough to
expose St. Francis to tens of millions of dollars in liability in the event of an enforcement action
by the government or a private lawsuit by a whistleblower. (Id.)
On June 30, 2015, representatives for St. Francis and CHSPSC met in person regarding
the regulatory violations CHSPSC had uncovered, and to discuss how the parties would move
forward with the transaction. (Id. at 52.) CHSPSC alleges that, at the June 30, 2015 meeting,
the Parties agreed to continue negotiating the potential sale of St. Francis and to modify the
Letter Agreement to extend the exclusivity provision for the duration of the negotiations. (Id. at
55.) According to the Complaint, [t]his agreement represente[d] a binding modification to the
Letter Agreement. (Id. at 80.) Also at the June 30, 2015 meeting, CHSPSC alleges that it
insisted St. Francis disclose the violations to federal authorities (i.e., HUD). (Id. at 52.)
During further due diligence, St. Francis allegedly informed CHSPSC for the first time that
HUD-OIG was conducting an audit (the HUD-OIG Audit). (Id. 57.)
Significantly, there are no allegations in the Complaint of a single legal or regulatory
problem that was not disclosed before June 30, 2015. Nor does the Complaint allege that the
HUD-OIG Audit concerned a legal or regulatory problem of which CHSPSC was unaware as of

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June 30, 2015. The Complaint also does not allege that there were any legal or regulatory issues
that were not discovered by CHSPSC during the course of its due diligence.
IV.

St. Francis Withdrew from Negotiations When It Became Apparent That a Mutually
Agreeable Deal Would Not Be Reached by the Parties.
After learning of the HUD-OIG Audit, CHSPSC admits that it did not cease negotiations;

rather, it pursued additional negotiations and modifications to the Letter Agreement in an effort
to reach a deal with St. Francis. (Compl. 64.) However, on July 21, 2015, St. Francis ceased
negotiations with CHSPSC when it became apparent the Parties could not mutually agree on the
terms of the sale. (Id. at 65.)
V.

CHSPSC Instituted the Instant Lawsuit After Negotiations Ended.

On August 7, 2015, CHSPSC brought the present lawsuit alleging claims for (I) fraud,

(II) breach of contract, and (III) fees and expenses of litigation. The Complaint alleges breach of
contract based on St. Franciss alleged failure to refund the Initial Deposit and abide by the
Letter Agreements exclusivity provision. The crux of CHSPSCs fraud claim is that, prior to
entering into the Letter Agreement, St. Francis failed to disclose and misrepresented the legal
and regulatory problems underlying the HUD-OIG Audit, the fact of the Audit, and the details
surrounding the termination of negotiations between St. Francis and Piedmont. As explained
below, all of these claims should be dismissed.
ARGUMENT AND CITATION TO AUTHORITY
I.

Motion to Dismiss Standard.

A motion to dismiss for failure to state a claim for which relief can be granted pursuant to

Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint. At
the motion to dismiss stage, all well-pleaded facts are accepted as true, and the reasonable
inferences therefrom are construed in the light most favorable to the plaintiff. Bryant v. Avado

Case 4:15-cv-00133-CDL Document 8-1 Filed 08/28/15 Page 7 of 18

Brands, Inc., 187 F.3d 1271, 1273 n.1 (11th Cir. 1999). However, the court is not required to
accept a plaintiffs legal conclusions. Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260 (11th
Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Moreover, the court is not
required to accept as true a legal conclusion couched as a factual allegation. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007).
In evaluating a motion to dismiss, the court may consider the complaint and any
documents attached to and incorporated in the complaint. Arango v. U.S. Dept of the Treasury,
115 F.3d 922, 923 n.1 (11th Cir. 1997); see also Fed. R. Civ. P. 10(c) (A copy of a written
instrument that is an exhibit to a pleading is a part of the pleading for all purposes.).
Moreover, the Eleventh Circuit has made it clear that when a plaintiff attaches exhibits to a
complaint and the exhibits contradict the allegations of the complaint, the exhibits control.
Blake v. Bank of Am., N.A., 2015 U.S. Dist. LEXIS 106601, at *8 (N.D. Ga. June 24, 2015)
(citing Griffin Indus., Inc. v. Irvin, 496 F.3d 1189, 1205-06 (11th Cir. 2007)).
In order to survive a motion to dismiss for failure to state a claim, a plaintiff must allege
enough facts to state a claim to relief that is plausible on its face. Twombly, 550 U.S. at 570;
see also Iqbal, 129 S. Ct. at 1950. Where there are dispositive issues of law, a court may
dismiss a claim regardless of the alleged facts. CHIS, LLC v. Liberty Mut. Holding Co., 2015
U.S. Dist. LEXIS 90175, at *6 (M.D. Ga. July 13, 2015) (citing Marshall Cnty. Bd. of Educ. v.
Marshall Cnty. Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993)).
II.

Applicable Law.
In a case founded on diversity jurisdiction, the district court must apply the forum states

choice of law rules. Federated Rural Elec. Ins. Exch. v. R. D. Moody & Assocs., 468 F.3d 1322,
1325 (11th Cir. 2006). In this case, Georgia law applies to both CHSPSCs fraud and contract
claims. Georgia courts prohibit the application of a foreign states common law. Poe v. Sears,
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Roebuck & Co., 1 F. Supp. 2d 1472, 1476 (N.D. Ga. 1998). [W]here the plaintiff fails to plead
a foreign statute, it is presumed that the foreign state follows the common law and the court
should apply Georgia law. Id.; see also O.C.G.A. 9-11-43 (A party who intends to raise an
issue concerning the law of another state or of a foreign country shall give notice in his pleadings
or other reasonable written notice.). In this case, CHSPSCs Complaint makes no reference to
the law of other states, and, in fact, asserts claims under Georgia law. (See Compl. 85.)
Accordingly, Georgia law applies.
III.

CHSPSCs Breach of Contract Claim Must Be Dismissed.

A. CHSPSCs Breach of Contract Claim Based on St. Franciss Alleged Failure to
Return the Initial Deposit Is Barred by the Plain Terms of the Letter Agreement.
The construction of a contract is a question of law for the court. Honea v. Gilbert, 236

Ga. 218, 219 (1976) (holding plaintiffs complaint failed to state a claim when the plain language
of the contract allowed defendants actions). The cardinal rule of [contract] construction is to
ascertain the intention of the parties. Duffett v. E & W Props., 208 Ga. App. 484, 486 (1993)
(quoting O.C.G.A. 13-2-3). [W]here the language of a contract is clear, unambiguous, and
capable of only one reasonable interpretation, no construction is necessary or even permissible
by the trial court. Dodds v. Dabbs, Hickman, Hill & Cannon, LLP, 324 Ga. App. 337, 343
(2013). It is well settled that the terms and phrases contained in a contract must be given their
ordinary meaning. Jackson Cnty. v. Upper Oconee Basin Water Auth., 330 Ga. App. 11, 14
(2014) (citations omitted); see also O.C.G.A. 13-2-2(2).
Here, St. Francis and CHSPSC executed a Letter Agreement for CHSPSCs proposed
acquisition of St. Francis, which is attached to CHSPSCs Complaint. (Compl. 33 & Ex. A.)
Platintiff alleges that the Letter Agreement is a valid, binding contract between CHSPSC and

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St. Francis. (Id. 77.) Yet the plain and unambiguous language of the Letter Agreement
precludes CHSPSCs claim for a refund of the Initial Deposit.
The Letter Agreement states that the Good Faith Deposit provision in Exhibit A shall be
legally binding on the parties. (Compl., Ex. A., 4.) And the Good Faith Deposit provision
specifically states that 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 the transaction with
another party. (Compl., Ex. A., Term Sheet at 4 (emphasis added).) Under the plain terms of
the Letter Agreement, CHSPSC is not entitled to a refund of the Initial Deposit under any
circumstances until St. Francis closes the transaction with another party, which the Complaint
does not allege has occurred (and which, in fact, has not occurred). Accordingly, St. Franciss
failure to return the Initial Deposit in response to CHSPSCs prior demands does not constitute a
breach of the Letter Agreement and is expressly permitted under the Letter Agreement. As a
result, CHSPSCs breach of contract claim based on a failure to refund the initial deposit must be
dismissed in accordance with the plain language of the Letter Agreement.
B. CHSPSCs Breach of Contract Claim Based on an Alleged Violation of the
Exclusivity Provision Is Not Sufficiently Pled.
i. CHSPSC Alleges No Facts in Support of Its Legal Conclusion that St. Francis
Breached the Exclusivity Provision.
CHSPSCs claim that St. Franciss breached the Letter Agreements exclusivity provision
fails because CHSPSC offers nothing more than bare legal conclusions, which do not stand up to
a Rule 12(b)(6) motion to dismiss. [C]ourts are not bound to accept as true a legal conclusion
couched as a factual allegation. Twombly, 550 U.S. at 555. And [f]actual allegations must be
enough to raise a right to relief above the speculative level . . . . Id.
In this case, CHSPSC asserts two allegations regarding St. Franciss alleged breach of the
exclusivity provision: (1) upon information and belief, St. Francis did not honor the exclusivity
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or confidentiality clauses of the Letter Agreement, but was instead pursuing parallel negotiations
with other potential buyers and sharing confidential information with them. (Compl. 67.)
And (2) St. Francis breached the Letter Agreements exclusivity and confidentiality provisions
by actively negotiating with other potential buyers and sharing confidential information during
the Letter Agreements exclusivity period. (Compl. 81.) These allegations are nothing more
than legal conclusions. There are no factual allegations in the Complaint identifying any parties
with whom St. Francis allegedly negotiated or shared information, what information was shared,
or why such actions violated the Letter Agreements exclusivity provision. Indeed, there are no
factual allegations whatsoever underlying these legal conclusions. Accordingly, CHSPSCs
claim for breach of the exclusivity provision fails to state a cognizable claim.
ii. CHSPSC Alleges No Legally Cognizable Damages as a Result of St. Franciss
Alleged Breach of the Exclusivity Provision.
The elements for a breach of contract claim in Georgia are the breach, which must be
more than de minimis, and the resultant damages to the party having the right to complain about
the contract being broken. TechBios, Inc. v. Champagne, 301 Ga. App. 592, 595 (2009). Here,
CHSPSCs claim for breach of the exclusivity provision fails because CHSPSC does not allege
any legally cognizable damages as a result of that alleged breach. CHSPSCs alleged damages
are (1) the Initial Deposit, and (2) their money and time spent during due diligence and
negotiations. CHSPSC alleges no other damages as a result of the alleged breach of the
exclusivity provision. As explained above, under the plain terms of the Letter Agreement,
CHSPSC is not entitled to a return of the Initial Deposit. In addition, under the plain terms of the
Letter Agreement, each Party agreed to bear its own expenses in connection with the
negotiation and execution of this letter and the potential transaction. (Compl., Ex. A., 2.c.)
Accordingly, CHSPSCs claimed damages are barred by the plain language of the Letter

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Agreement. CHSPSCs claim for breach of the exclusivity provision therefore must be
dismissed.
IV.

CHSPSCs Fraud Claim Must Be Dismissed.

CHSPSCs deceptively repetitive fraud claim boils down to three poorly defined and

insufficiently pled allegations: (1) St. Francis misrepresented its legal, regulatory, and
financial problems, troubles, issues, failures, risks, and exposures (hereinafter
referred to collectively as legal and regulatory problems). (Compl. 15, 16, 26-28, 40, 43,
60, 56, 70). (2) St. Francis misrepresented the reasons Piedmont withdrew from negotiations to
purchase St. Francis. (Id. at 24, 70). (3) St. Francis failed to disclose the HUD-OIG Audit
and otherwise misrepresented that it had provided CHSPSC with such regulatory and
compliance-related documentation. (Id. at 28, 30-32, 43-44, 47-49, 53-54, 70.) Each of these
alleged misrepresentations fails to establish fraud as a matter of law.
A. CHSPSC Ratified Any Alleged Fraud and Waived Its Fraud Claim When It Entered
Into the June 30, 2015 Modification of the Letter Agreement with Knowledge of St.
Franciss Alleged Misrepresentations.
A claim for fraud requires a plaintiff to plead and prove (1) a false representation or
omission of a material fact; (2) scienter; (3) an intent to induce the party alleging fraud to act or
to refrain from acting; (4) justifiable reliance; and (5) damages. Purdee v. Pilot Travel Ctrs.,
LLC, 2007 U.S. Dist. LEXIS 73878, at *4 (S.D. Ga. Oct. 3, 2007). However, Georgia law
precludes a fraud claim where the plaintiff ratifies and waives the fraud.
While the defrauded party may affirm the contract and sue for damages for the
fraud, this right of affirmance, with a saving of the right to sue for damages, has
its limitations, in that the defrauded party, in order to preserve his right to sue for
damages for the fraud, must do no act in affirming the contract, or otherwise,
which waives the fraud. If the defrauded party, with knowledge of the fraud, does
an act in ratifying or affirming the contract which shows his intention to abide by
the contract as made, with the fraud in it, and thus waives the fraud, he can not
afterwards set up the fraud and recover damages therefor . . . . [T]he party
defrauded . . . must not ask favors of the other party or offer to perform the
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contract on conditions which he has no right to exact, and must not make any new
agreement or engagement respecting it. If he does so, he waives the fraud.
Tuttle v. Stovall, 134 Ga. 325, 329 (1910).
In Tuttle, the petitioner alleged she purchased property from a seller and executed notes
in favor of the seller for the purchase of the property. Id. at 326. Upon taking possession of the
property, petitioner discovered the sellers misrepresentations. Id. Nevertheless, petitioner
continued to make payments on the notes and even proposed (and received) an extension from
the seller on one of the notes. Id. at 327. Petitioner then alleged fraud on the part of the seller
based on misrepresentations as to the purchased property. Id. at 328. The Georgia Supreme
Court held petitioner waived the fraud and could not set the same up to recover damages against
[the seller]. Id. at 331. By seeking an extension from the seller after learning of his fraud, the
petitioner condoned the fraud. Id. at 332. The Supreme Court noted that the petitioner
should not have procured the [seller] to agree to something not in the original contract and
induced [the seller] to believe that [the petitioner] did not consider that there was any fraud in the
contract, or, if there was, that [the petitioner] would make no defense to the collection on that
ground. Id. at 332.
Subsequent decisions applying Georgia law and evaluating similar fraud claims have
consistently followed the rationale and holding in Tuttle. See, e.g., Invest Air, Inc. v. Swearingen
Aviation Corp., 1979 U.S. Dist. LEXIS 13101, at *19-20 (N.D. Ga. Apr. 11, 1979) (finding
plaintiff had not shown any grounds for the recovery of tortious damages where it executed a
revision of an underlying contract with the defendant after learning of the defendants alleged
fraud; the revision constitute[d] an absolute waiver of the alleged fraud); Brooks v. Hooks, 221
Ga. 229, 236 (1965) (finding plaintiffs active participation in an underlying contract after

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learning of the defendants fraudulent conduct constituted a waiver of the defendants fraud
and precluded damages based on the alleged fraud).
Furthermore, knowledge of an alleged fraud also precludes a plaintiff from establishing
the justifiable reliance element of a fraud claim. Notice sufficient to excite attention and put a
party on inquiry shall be notice of everything to which it is afterwards found such inquiry might
have led. Bickerstaff Real Estate Mgmt., LLC v. Hanners, 292 Ga. App. 554, 559 (2008)
(citations and internal quotations omitted) (affirming summary judgment in favor of defendant
and holding, as a matter of law, plaintiff could not prove justifiable reliance where he was aware
of potential misrepresentations prior to closing on contract with defendant).
When CHSPSC modified the Letter Agreement on June 30, 2015, CHSPSC knew about
St. Franciss allegedly misrepresented legal and regulatory problems. (See Compl. 42, 54-55.)
Therefore, CHSPSC ratified the alleged fraud and waived any claim based on such fraud.
CHSPSC could not have justifiably relied on alleged misrepresentations that St. Francis had no
legal or regulatory problems because CHSPSC knew about the alleged legal and regulatory
problems at the time it entered into the June 30, 2015 modification to the Letter Agreement and
continued to pursue negotiations in accordance with the Letter Agreement. Because CHSPSC
has waived its fraud claim by way of ratification and because CHSPSC cannot establish
justifiable reliance on St. Franciss alleged misrepresentations, CHSPSCs fraud claim must be
dismissed.
CHSPSC attempts to avoid its waiver of the alleged fraud by claiming that St. Francis
misrepresented (1) the reasons Piedmont withdrew from negotiations with St. Francis, and (2)
that St. Francis failed to disclose the HUD-OIG Audit. However, pleading misrepresentations
regarding the Piedmont negotiations and HUD-OIG Audit as if they were separate from the
underlying alleged misrepresentations regarding St. Franciss legal and regulatory problems is a
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distinction without a difference. CHSPSC does not allege that the HUD-OIG audit concerned
any conduct different from the legal or regulatory problems it already knew about when it
ratified the contract on June 30, 2015. Nor does CHSPSC allege that Piedmont negotiations
broke down as a result of something other than the alleged legal and regulatory problems
CHSPSC had discovered. In fact, CHSPSC alleges that both events were simply consequences
of St. Franciss known legal and regulatory problems. (See Compl. 16 (alleging that Piedmont
withdrew from negotiations because of St. Franciss many legal problems), 24 (alleging that
the HUD-OIG audit was initiated to determine whether St. Francis had violated its regulatory
requirements).)
CHSPSC also fails to allege that Piedmonts reasons for withdrawing from negotiations
and the mere existence of the HUD-OIG Audit were independently material to CHSPSC. In fact,
when CHSPSC allegedly discovered St. Franciss legal and regulatory problems in June 2015, it
insisted that St. Francis voluntarily disclose[] the violations to the relevant federal authorities.
(Compl. 52.) In essence, a HUD-OIG Audit is what CHSPSC must have known was the likely
consequence of the legal and regulatory problems it discovered.
Accepting CHSPSCs allegations as true, the Complaint fails to state a claim for fraud
upon which relief can be granted because the Complaint alleges that CHSPSC ratified the Letter
Agreement and continued to pursue negotiations in accordance with the Letter Agreement after
discovering the allegedly misrepresented legal and regulatory problems. Accordingly,
CHSPSCs fraud claim must be dismissed.1

CHSPSC also alleges fraud based on St. Franciss failure to refund the Initial Deposit and
alleged breach of the exclusivity provision. (See Compl. 70.) These fraud allegations fail as a
matter of law because they have no basis in any duty arising outside the contractual relationship
between the Parties. To the extent CHSPSCs fraud claim is based on alleged breaches of the
Letter Agreement, these claims fail as a matter of law and must be dismissed. See Keys v.
Enrichment Servs. Program, 183 Ga. App. 8, 9-10 (1987) (stating that a fraud claim must be
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B. CHSPSC Has Not Pled Its Fraud Claim With Particularity As Required by Federal
Rule of Civil Procedure 9(b).
Federal Rule of Civil Procedure 9(b) requires a plaintiff to plead fraud with particularity
in order to alert[ ] defendants to the precise misconduct with which they are charged and [to]
protect[ ] defendants against spurious charges of immoral and fraudulent behavior. Bowers v.
Branch Banking & Trust Co., 2015 U.S. Dist. LEXIS 88298, at *13-14 (M.D. Ga. July 8, 2015).
To satisfy Rule 9(b), the complaint must identify: (1) precisely what statements
were made in what documents or oral representations or what omissions were
made, and (2) the time and place of each such statement and the person
responsible for making (or, in the case of omissions, not making) same, and (3)
the content of such statements and the manner in which they misled the plaintiff,
and (4) what the defendant[] obtained as a consequence of the fraud.
Brown v. J.P. Turner & Co., 2011 U.S. Dist. LEXIS 53118, at *5 (N.D. Ga. May 17, 2011).
Pleadings generally cannot be based on information and belief when Rule 9(b) applies; such
allegations are only permissible [w]here it can be shown that the requisite factual information is
peculiarly within the defendants knowledge or control. Id. at 7 (citation and internal quotation
omitted) (granting defendants motion to dismiss under Rule 9(b) where plaintiff improperly pled
fraud claims on information and belief).
CHSPSC repeatedly alleges that St. Francis misrepresented or failed to disclose its
legal and regulatory problems. However, CHSPSC has not identified a single legal or
regulatory problem with particularity. Furthermore, CHSPSC makes a number of the allegations
in its Complaint [o]n information and belief. (See Compl. 24, 39, 58 and 67.) In particular,
CHSPSC pleads its allegations that St. Francis fraudulently misrepresented Piedmonts reasons
for withdrawing from negotiations with St. Francis on information and belief. (Compl. 24.)
The reasons for Piedmont Healthcares withdrawal from negotiations with St. Francis are
based on an independent injury over and above the mere disappointment of [the plaintiffs]
hope to receive [the] contracted-for benefit . . . [a]ny breach of contract must arise from the
contract and does not give rise to an action for tort).
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peculiarly within Piedmont Healthcaresnot St. Francissknowledge or control. All St.

Francis knew regarding Piedmonts reasons for withdrawing from negotiations is what Piedmont
communicated to St. Francis. Therefore, the exception permitting allegations of fraud to be pled
on information and belief does not apply in this case.
Finally, the purpose of Rule 9(b)s particularity requirement is squarely directed at
eliminating the types of allegations contained in CHSPSCs Complaintvague and unfounded
allegations that unjustifiably impugn St. Franciss reputation (and the reputation of the
individual, volunteer members of St. Franciss Board of Trustees named in the Complaint, as
well as its counsel) and deprive St. Francis of its ability to formulate a defense.
Accordingly, CHSPSCs allegations of fraud cannot satisfy the particularity requirement
of Rule 9(b) and CHSPSCs fraud claim must be dismissed.
V.

CHSPSCs Claim for Fees and Expenses Fails Because CHSPSCs Fraud and Breach of
Contract Claims Fail.
CHSPSC cannot recover attorneys fees and expenses as alleged in Count III of the

Complaint unless it prevails on its underlying claims. See Ga. Dept of Cmty. Health v. Data
Inquiry, LLC, 313 Ga. App. 683, 688 (2012) (Plaintiffs must prevail on their basic cause of
action in order to obtain litigation expenses under O.C.G.A. 13-6-11.); Sierra-Corral Homes,
LLC v. Pourreza, 308 Ga. App. 543, 548 (2011) (holding O.C.G.A. 9-15-14 only permits
attorney fees to be awarded for claims that are successful); 1507 Corp. v. Henderson, 447 F.2d
540, 542 (7th Cir. 1971) (concluding 28 U.S.C. 1927 does not create any penalty in favor of
the prevailing party nor does it sanction the taxing of any additions over regular costs).
Because CHSPSCs underlying claims for fraud and breach of contract must be dismissed,
CHSPSCs claims for attorneys fees and expenses under O.C.G.A. 13-6-11, O.C.G.A. 9-1514, and 28 U.S.C. 1927 also must be dismissed.

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CONCLUSION
For the foregoing reasons, St. Francis respectfully requests that the Court grant St.
Franciss Motion to Dismiss and dismiss CHSPSCs Complaint in its entirety.
Respectfully submitted this 28th day of August, 2015.
TROUTMAN SANDERS LLP
/s/ J. Nick Phillips
William N. Withrow, Jr.
Georgia Bar No. 772350
Pete Robinson
Georgia Bar No. 610658
J. Nick Phillips
Georgia Bar No. 986208
Kathleen M. Campbell
Georgia Bar No. 839699

5200 Bank of America Plaza

600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Telephone: 404-885-3000
Facsimile: 404-885-3900

Counsel for St. Francis Hospital, Inc.

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CERTIFICATE OF SERVICE
I hereby certify that the foregoing BRIEF IN SUPPORT OF DEFENDANT ST.
FRANCIS HOSPITALS MOTION TO DISMISS CHSPSCS COMPLAINT was
electronically filed with the Clerk of Court using the CM/ECF system, which automatically
serves notification of such filing to all counsel of record.
This 28th of August, 2015.
/s/ J. Nick Phillips
J. Nick Phillips
Georgia Bar No. 986208
26537373

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