Southern Update: Gulf Coast Hospice LLC v. LHC Group Inc.

Letter of intent communicating intent not to be bound until execution of final acquisition documents precluded formation of a binding contract of sale, notwithstanding the words, actions and performance of the parties. Gulf Coast Hospice LLC v. LHC Group Inc., 273 So.3d 721 (Miss. 2019).

By: Jeff Dutson (King & Spalding)

The prospective seller (the “Seller”) of a hospice business entered into a letter of intent with a prospective purchaser (the “Purchaser”), that included a tentative purchase price and non-exhaustive list of conditions precedent to the closing of the acquisition, including the negotiation, execution and delivery of the definitive asset purchase agreement, the receipt of all necessary consents and approvals and the satisfactory completion of due diligence by the Purchaser. Between the signing of the letter of intent and the proposed closing of the transaction, (i) the Purchaser announced to the Seller’s employees that Purchaser intended to acquire the Seller’s hospice business, (ii) discussed staffing cuts and salary decreases with Seller’s employees, including Linda Rogers, the head administrator and a key employee, and (iii) commenced onsite tasks in preparation of closing, including the installation of a new telephone and computer system, setting up new email accounts for employees and transferring utility services to the Purchaser’s name.

Five employees resigned shortly thereafter and, following a dispute between the Purchaser and Rogers regarding staffing matters, Rogers resigned. Closing of the transaction was then postponed and after failing to receive a non-competition agreement from Rogers, negotiations ceased. The Seller asserted claims stemming from the failed acquisition, including breach of contract and various claims relating to fraudulent and negligent misrepresentation.

The Mississippi Supreme Court affirmed the trial court’s grant of summary judgment on each claim. The Court noted that while a letter of intent is not an enforceable contract to purchase, its terms are otherwise enforceable. Because the letter of intent unambiguously stated that the closing of the transaction was subject to the satisfaction of mutually agreeable terms and conditions, including the negotiation, execution, and delivery of the satisfactory and definitive asset purchase agreement, a condition the parties agree was not met, no enforceable contract to purchase ever existed. The Court highlighted that neither the Purchaser’s onsite actions nor any amount of oral agreement as to specific terms would frustrate the parties’ express intent not to be bound without a final executed asset purchase agreement. The Court then held that the Seller’s claims relating to fraudulent and negligent misrepresentation were barred because the alleged misrepresentations were not made with the present intent not to perform. Although the closing of the transaction did not come to fruition, it was undisputed that the Purchaser fully intended to acquire the hospice business of the Seller at the time of the announcement to employees and other communications relating to the finalization of the transaction. It was only after learning of planned departure of the employees and Rogers’ refusal to sign the non-disclosure agreement, that the Purchaser refused to consummate the transaction.