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Hospital Authority of Rockdale County v. Gs Capital Partners V Fund

January 20, 2011


The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:




GS Capital Partners V Fund, L.P., GS Capital Partners V Offshore Fund, L.P., GS Capital Partners V GmbH & CO. KG, and GS Partners V Institutional, L.P. (collectively, "GSCP") move under Fed. R. Civ. P 12(b)(6) to dismiss Plaintiff Hospital Authority of Rockdale County's ("Hospital Authority") second amended complaint. Hospital Authority's claims arise out of a series of agreements in 2007 which contemplated the sale of plaintiff's hospital to Signature Hospital Holding, LLC. In connection with the sale, GSCP signed a commitment to finance Signature's asset purchase agreement up to $87.7 million. Shortly before closing, GSCP informed Hospital Authority that it would provide only $35 million in financing and, Hospital Authority alleges, the deal fell through. Because the sale did not close with Signature, Hospital Authority received $1 million in liquidated damages from Signature. Defendants claim that such payment was Plaintiff's sole remedy for any breach or failure to close involving this proposed transaction.

Hospital Authority subsequently sold the hospital to a different buyer for less money and, on October 15, 2009, commenced this action against GSCP for breach of its commitment to finance on two grounds-by anticipatory repudiation and by breach of the duty of good faith and fair dealing. GSCP argues that it cannot be liable for breach of a commitment to finance which was conditioned on the execution of an asset purchase agreement which never occurred. In addition, it maintains that Hospital Authority suffered no injury because Signature always had the absolute right to walk away for a payment of liquidated damages, which Hospital Authority admittedly received. Hospital Authority counters that GSCP's anticipatory breach of the financing commitment caused the deal to collapse, preventing the occurrence of the condition that GSCP now claims excuses its breach. It also argues that GSCP cannot seek the benefits of Signature's payment of liquidated damages, as they were provided for in a contract to which GSCP was not a party.

I. Facts*fn1

In August 2007, Hospital Authority, a public entity, and its lessee Rockdale Medical Center, Inc. ("RMC"; collectively, "Sellers"), entered into a letter of intent with Signature for the sale of a hospital at a purchase price of $87.7 million. (2d Am. Compl. ¶¶ 15, 16.) An asset purchase agreement was drafted but never signed. (Id. ¶¶ 15, 29.) The proposed sale required the approval of the Office of the Attorney General of Georgia under the Georgia Hospital Acquisitions Act, O.C.G.A. § 37-7-400, et seq., and the Buyer and Sellers filed an application for approval.

The commitment letter, dated August 27, 2007, was drafted by GSCP. Paragraph 1 of the letter requires GSCP to "provide, or . . . cause the provision of, financing to Signature, in connection with the transactions contemplated by the [asset purchase agreement], for consideration of up to $87.7 million in the aggregate." (Decl. of Shahzeb Lari in Supp. ("Lari Decl.") Ex. 4, ¶ 1.) Paragraph 1 also provides that the amount of commitment "may be reduced in a manner agreed to by the Investors and Signature in the event that Signature does not require all of the financing." Paragraphs 2(a) and 6 further condition the commitment on the execution of the asset purchase agreement and disclaim any responsibility for the closing of the sale. (Id.

¶¶ 2(a), 6 ("[N]othing in this letter agreement shall be read as a guaranty of performance or other obligation of [GSCP] to undertake or ensure the performance of any obligation of any party under the [asset purchase agreement]").) Paragraph 8 provides that all financing obligations terminate on the earlier of (i) the termination of the asset purchase agreement; (ii) the completion of the sale of the hospital to Signature; or (iii) January 31, 2008. (Id. ¶ 8.)

On August 28, 2007, Hospital Authority, as seller, and Signature, as buyer, signed a Good Faith Deposit Agreement ("Deposit Agreement") under which Signature placed a $1 million deposit in an escrow account as consideration for the Sellers' agreement to negotiate exclusively with Signature until the earliest of the three events named in ¶ 8 of the Commitment Letter. (Lari Decl., Ex. 3, § 1.5.) The Agreement provided that the deposit would serve as liquidated damages to compensate the Sellers for lost opportunities, time, and expenses if the transaction was not completed. Under its terms, if Signature backed out "for any reason," the sellers would receive the deposit. (Id. § 2.1(a)(vi).) The agreement further provided that "such sum constitutes Sellers' sole remedy in respect of a breach or failure to close by Signature." (Id. § 1.5.)

Hospital Authority contends that Sellers and Signature were "ready, willing and able to close the transaction," having confirmed to the Attorney General their intent to proceed, when, on December 18, 2007, GSCP informed Sellers that it was not willing to fund the entire $87.7 million purchase price, but only $35 million. (Id. §§ 23, 27.) This reduced the financing available by 60%. Hospital Authority contends that this decision caused the proposed transaction to collapse right before the expected Attorney General approval and closing, at a time when securing alternate financing was virtually impossible. (Id. §§ 34, 37.) GSCP's decision caused Hospital Authority to risk breaking the obligations in its bond agreements, lower bond ratings, and higher interest payments, with losses for hospital operations and in staff. (Id. § 34.) Sellers and Buyer looked for alternative financing to no avail. (Id. § 36.) In February 2009, Hospital Authority sold the hospital to Historic LifePoint Hospital, inc. in a less beneficial transaction. (Id. §§ 39.)

Hospital Authority filed the second amended complaint on February 8, 2010, claiming over $29 million in damages against GSCP for breach of contract by (1) anticipatory repudiation; and (2) breach of the duty of good faith and fair dealing. (Id. ¶¶ 40, 43, 48.)

II. Discussion

When considering a motion to dismiss made pursuant to Fed. R. Civ. P. 12(b)(6), the Court assumes all facts alleged in the complaint are true, and resolves all reasonable inferences and ...

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