The Eleventh Circuit Answers The Question: When Is a Deal a Deal?

The case law in most states includes a line of cases arising out of failed corporate acquisitions.  The typical case goes like this.  The parties sign a letter of intent to pursue a merger or acquisition.  The letter of intent states that the deal is not binding until the parties sign a definitive agreement.  The parties never sign a definitive agreement and the deal is cancelled.  A disappointed party claims that, despite the language of the letter of intent, the parties had reached an enforceable deal.  In St. Joseph Hosp., Augusta, Georgia, Inc. v. Health Mgmt. Assoc., Inc., Case No. 11-13069 (decided Jan. 24, 2013), the United States Court of Appeals for the Eleventh Circuit considered such a case arising under Georgia law.  The Court took an unusual path to resolve it.

The plaintiff, St. Joseph’s Hospital (the “Hospital”), owned a hospital in Augusta, Georgia.  The Hospital executed a letter of intent to sell certain of its assets to Hospital Management Associates, Inc. (“HMA”).  The parties prepared a draft asset sale agreement that stated it would be binding upon execution.  Before the parties executed the agreement, they needed to submit the transaction to the Georgia Attorney General for approval (the Attorney General needed to approve certain hospital acquisitions).  HMA issued press releases announcing the transaction and engaged in other activities to facilitate the transition to new ownership.  HMA made SEC filings announcing the deal.  The parties submitted to the Federal Trade Commission and the U.S. Department of Justice the notification required by the Hart-Scott-Rodino (“HSR”) Antitrust Improvement Act.  The parties also executed a letter of intent that stated that it was intended only as an expression of mutual intent and was not binding upon the parties.  The letter of intent was included in the HSR filing.

HMA cancelled the deal before the Georgia Attorney General could hold a scheduled hearing on it.  The Hospital sued HMA and contended that the parties had reached a binding agreement.  The Court of Appeals rejected the claim that the parties had made a binding written contract because they had not signed the proposed asset sale agreement.  However, the Hospital also contended that the parties had reached an oral agreement to close the transaction.  Pointing to the press releases, the SEC filings and the transition efforts of HMA, the Hospital argued that a jury could find that the parties had reached a binding oral agreement. 

In concluding that the parties had not reached a binding oral agreement, the Court did not focus on the written language in the letter of intent.  Instead, the Court focused on the submissions in connection with the HSR filings.  The notification, submitted under penalty of perjury, stated that the asset sale agreement would not become binding until signed by the parties and that the parties would proceed to closing after the Georgia Attorney General approved the transaction.  The Court concluded that in light of those sworn representations, the parties could not have had a binding oral agreement.

Claims such as those asserted by the Hospital are difficult to win.  The focus on the HSR filings as a basis for disposing of the breach of contract claim is unique.  Parties making such filings might be advised to pay careful attention to what they say in them.  Because the submissions are under penalty of perjury, statements in the HSR might be treated as conclusive on the matters addresses and not merely as items of evidence to be weighed against other evidence.

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