FI L ED U.S. COURT OF A P P E A LS E LE V EN T H C IR C U IT J UL 12 , 2006 THOMAS K. KAH

N CL ERK

Honora ble Mark E . Fuller , United States Chief District Judge f or the Middle District of * Alabama , sitti ngby

desig nation. [DO NOT PUBLISH] IN THE UN ITED STATES COURT OF APPEALS FO R T HE EL EV EN TH CIRC UI T

____ ____ ____ N o. 04- 1388 9

____ ____ ____ _ D.C. Dock etNo. 0 3- 20 25 6- CV-J EM MOU NT SIN AI ME DI CAL CENT ER OF GREATER MIAMI , INC., Pl ai nt iff -Ap pe ll an t, ve rs us HEIDRICK & STRUGGLES, INC., a Del aware co rp or at io n, HEIDRICK & STRUGGLES INTE RNATIONAL, INC., a D el aw ar e co rp or at ion , D ef en dants -Appe lle es .

____ ____ ____ __ Appeal f rom the United State s District Court fo r the S outhe rnD istri ct

of F lor ida

____ ____ ____ _ (J ul y 12 , 200 6) Before TJO FL AT and BARKE TT , C ircuit Judg es, and FUL LE R , D istrict Judg e. *2

PE R CU RIA M: In this case, a hospital, Mount Sinai Medical Center of G reate r Miam i, I nc. (“ Mt . S ina i” ), e m

plo y ed ahe ad hun te r, H ei dr ic k & S tr

uggl es , I nc . ( “ H &S ”) , to id en ti fy po ss ib le can di da te s fo r th e p os it io n o f ch ie f ex ecu ti ve off ic er (“ CEO”). T he he ad hun te r ide nti fi ed

f ive c an did at es , pr ovi din g to Mt . S ina i an “ E xe cutiv e Sum m ar y ” of e ac h c an did at e. T he hos pit al ’ s se ar chc om m itt ee int er

vie w ed the se candi da te s and a ske d f

our of the m to re tur n f or f urthe r int er

vie w s. A ft er

the se int er vie w s to ok p la ce , the se ar chc om m itt ee c onc lud ed

that e ac h of

the f our c an d i d a t e s wa s qu a l i f

i e dt o s e rv e a s C EO . On e o f th e f o u r wa s B r u c e P e rry, w hose m ost

r ec en t e m

plo ym en t w as a s th e CE O of Co m m uni ty H ospi ta ls o f Ce ntr al Ca lif

or nia . Mt . S ina i hi re d P er

ry , and h e as sum ed

his CE O dut ie s in Ja nu ary 19 99 . A cc or din g to the a lle ga tio ns o f Mt . S ina i’ s se co nd am en de d c om pla int ( the

“ co m pla int ”) , P er

ry pr ove d to be inc om

pe te nt, and h is i nc om

pe te nc e ca

use d th e hosp ita l t o lo se m ill ion s of dol lars . A s ar es ult , Mt . S ina i t er m inate d hi s em pl oym en t i n Oct ob er 2 00 1. Mt. S inai brough t this di versity action against H&S in an attem pt to recover its los se s. I ts c om

pla int se ek s c om

pe nsator y dam ag es – the ope ratin g lo sse s th e hosp ita l su sta ine d duri ng P er ry ’ s te nur e as CE O and the m one y it pa id t o H &S in3

fees and expens es. The c om plaint is fram ed in three counts. Count I alleges that H &S br ea ch ed

it s ob lig at ionund er

the c ontra ct

( the “ se ar chc ontra ct ”) to “ as sis t i n the identification andselection” of the hospit al’ s CEO and to carry out such obl igatio n in“ good

f ai th. ” Co unt

I I al le ge s th at

H &S f ra udul en tly ind uc ed Mt . Si n ai t o en t eri n t o th e s ea rc h co n tra ctb y m i s re p re s en t i n g th ati twa s th e “wo rl d ’s prem ier provider of exec utive level search and leader ship,” that it would “partner w ith[ Mt . S ina i] w iththe obj ec tiv es to bui ld the be st l ea de rs hip te am [] in the w or ld by hel pi ng [it ] hi re, d ev el op an d re ta in th e m os t ef fect iv e le ad ers in th is in du st ry ,” an d th at it w oul d id en tif

y , e va luate , and r ec om

m en d qu al if

ie d c an did at es f

or Mt . Si na i’ s C E O pos iti on. C ount I I furthe r al le ge s th at

H &S f ra udul en tly ind uc ed Mt . Sinai to hire Per

ry by m isrepresenting his qualifications, includin g circum stances sur ro undi ng h is p re vio us e m plo ym en ts a s aCE O of

Ch ildre n’ s H ospi ta l i n W as hi ng to n, D.C. an d s ub se qu en tl y Co m m un it y Hos pi ta ls of C en tra l Ca li fo rn ia . Co unt I II a lle ge s th at

Mt . S ina i’ s c ontra ct

w ithH &S m ad e H &S af idu ci ar y and that the los se s M t. S ina i su sta ine d ( w hil e Pe rr y w as it s C E O ) w er e ca

use d by H & S ’s b r e a c h o f

th a tdu ty. The district court dism issed Mt. Sinai’ s Count II claim that H&S fr au dul en tly

ind uc ed Mt . S ina i t o e nte r int o th e se ar chon the gr ound that the co m pla int is de voi d of

am isr ep re se ntatio n of

m at er ia l f

ac t whic h in duc ed

Mt .Under Florida law, a pla intiff seekingto establish fraud in the induc ement must prove 1 th e f o l l o wi n g: (1 ) Amis re pr e se ntatio n o f a mate ri a l f

a c t; (2) The repr esentor of

the misrepre sentation, [si c] knew or should have known of th e s t at e m e n t ’ s f

a l s i ty; (3) Intent by

the re prese ntor that the re prese ntation will induce another to rely and a c t on it; (4) Resultinginjury

to the party

actingin justi fiable r eliance on the re prese ntation. L ou Ba chrodt Chevr olet, Inc., 570 So. 2d at 308. 4 Si na i t o c ontra ct

f or H &S ’ s se rv ic es . T he c ourt tre at ed H &S ’ s r ep re se ntatio ns ab out the f irm ’ s st an din g inthe r el ev an t bu sin es s c om m uni ty a s m er e puf

fi ng, and w e ag re e. W e fi nd n oth ing in the c om pla int that c oul d be c onsi de re d a m isrepresentation of a m aterial f act. See Lou Ba chrodt Chevrolet, Inc. v. S avage, 570 So . 2d 3 06, 308 ( Fl a. 4thD ist . Ct . App. 199 0) ( statin g th at apla int if f se ek ing to e sta bli sh f ra ud i n th e ind

uc em en t m

ust pr ove , int er

a lia , “ [a ] m isr ep re se ntatio n of a m aterial f

act”) . 1 T he c ourt di sm iss ed

the Co unt

I I cl ai m that H &S f

ra udul en tly ind uc ed Mt . Si na i t o e m

plo y P er ry und er the “ ec onom ic los s r

ule . ” W e ag re e, f

or the r ea sons the dis tr ic t c ourt gave in its dis posi tiv e or de r of Augus t 29 , 200 3, that the e c o n o mi c l o s s r

u l e b ar s th i s c l a i m. In cla im in g t ha t H&S frau du le nt ly induc editto em pl oy Perry

as i ts CEO, Mt. S inai is actually

say ing th at H &S brea ched its obli gations under the search contract – that the Exec utive Summ ary it provided to the hospi tal’ s search5

co m m itt ee c ont ai ne d m at er ia l m isr ep re se ntatio ns r eg ar din g P er ry ’ s pr ev iou s em plo ym en ts. T ha t i s, Mt . S ina i i s no t r el y ing on a ct s oc curr ing unr el at ed to H&S ’ s perform ance of the search contract. U nder Florida’ s econom ic loss rule, Mt. S inai’ s rem edy

is for brea ch of contract, not a tort action. Se e Casa Clara Co ndom ini um

A ss’ n v. Ch ar le y

T oppi no & S ons, I nc . , 620 S o. 2d 1 244, 124 6 (F la . 199 3) ; A lle n v. S te phan C o. , 784 S o. 2d 4 56, 457 ( Fl a. 4thD ist . Ct . App. 2000 ) (“ [W ] he re the f

ra ud c om pla ine d of

r el at es to the pe rf

orm an ce of

the contract, the econom ic loss rule will lim it the parties to their contractual rem ed ie s.”) . T he c ourt a lso r el ie d onthe e co nom ic los s r ule in dis m iss ing Co unt

I II , the br ea ch -o f- fi duc iary -d

uty c la im . W e af

fi rm it s r uli ng o n th e gr ound

that C ount I I I ’s a l l e g a t i o n s f

a i l t o s t a t e s u c h ac l a i m. Aparty se ek ing to es ta

bli sh the e xis te nc e of

af idu ci ar y r el at ion shi p m

ust al le ge “ som e de gr ee of

de pe nde nc y

on o ne sid e an d so m e de gr ee of und er takin g on the oth er

sid e to a dvi se , c ouns el , and p ro te ct the w eake r party . ” Barn ett B an k of W . F la. v. H ooper, 498 So. 2d 923, 927 (Fla. 1986 ). “ When the parties are de al ing a t arm ’ s le ngth, af idu ci ar y r el at ion shi p do es not

e xis t be ca

use the re is no duty im pose d one ith er

party to pr ote ct

or be ne fi t the oth er . ” T ay lor W oodr ow H om es F la . , I nc . v. 4/4 6- ACo rp . , 850 S o. 2d 5 36, 541 ( Fl a. 5thD ist . Ct . App.6

2003 ). Mt . S ina i do es not a lle ge that H &S und er

too k to pe rf

or m any dut ie s f or Mt . S ina i othe r than th ose e m bodi ed in the se ar chc ontra ct , in w hic h H &S m er el y ag reed , at arm ’s-le ng th , to pe rfo rm th e d is cret e se rv ic e o f pr es en ti ng CEO candi da te s to Mt . S ina i, an e qua lly sop his tic at ed

party . T he c ontra ct , by

it s expr es s te rm s, le ft

to Mt . S ina i the ta sk o f ult im at el y se le ct ing aCE O and d id n ot im po se up on H&S an y

on go in g dut ie s t o “ ad vi se , cou ns el , andpro te ct ” Mt . Sin ai . This brings us to the district court’ s disp ositio n of Count I, which the court m ad e in it s o rd er o f Ju ne 30 , 20 04 , gra nt in g H& S’s m ot io n fo r su m m ary jud gm en t. T he thr ust of Mt . S ina i’ s arg um en t i s th at H &S br ea ch ed

it s duty to dis ch ar ge it s co nt ractua l o bl ig at io ns in go odfai th . Fl or ida lawim pli es in ev er

y c ontra ct ac ove nant o f good

f ai th and f ai r dealing, Burger King Corp. v. W eaver, 169 F.3d 1310 , 1315 (11th Cir. 1999), whi ch “ is de si gn edto pro te ctth e co nt ract in g p art ie s’ reas on ab le ex pe ct at io ns ,” Co x v. CS XI nte rm oda l, I nc . , 732 S o. 2d 1 092, 109 7 ( Fl a. 1st D ist . Ct . App. 1999 ). If a contrac t “ appears by

word or silence to invest o ne party with a degre e of dis cr et ion ” in the pe rf

orm an ce of

it s c ontra ct

ua l dutie s, the im

pli ed c ove nant o f good f ai th and f ai r de al ing “ lim its that party ’ s a bil ity to ac t c ap ri ci ousl y

to contravene the rea sonable cont ractual e xpectations of the other party .” Id. at 1097 -98. T he im

plied covenant o f good faith and fair dealing does not , how ever,7

“ vary the e xpr es s te rm s of

ac ontra ct , ” id. a t 10 98, but , r athe r, “ atta ch es to the pe rfo rm an ce o f sp eci fic co nt ractua l o bl ig at io ns ,” Cen tu rio n Ai r Car go v. UPS C o., 42 0 F .3d11 46 (11 th Cir . 20 05 ). H &S c onc ed es that i t om itt ed f ro m P er ry ’ s E xe cutiv e Sum

m ar y the fo llo w ing f

ac ts: ( 1) that C om

m uni ty H ospi ta ls r ep orte d alos s of $11 , 944, 000 dur ing P er

ry ’ s la st y ear as CE O , w hic h c au se d C om m uni ty H ospi ta ls’ s bo nds to b e downgr ad ed ; and ( 2) that P er ry f ile d ac la im

a ga ins t C om

m uni ty H ospi ta ls f

or se ve ranc e pay , w hic h w as de nie d by apane l of

arb itr at or s. Mt . S ina i f

ai ls, however, to produce a scintilla of evidence to sho w that any one at H& S had been aware of t he ex is te nc e o f th os e fac ts when H&S p rep aredth e Exe cu ti ve Su m m ary. In his depos ition , C hristop her Clar k, the H &S em

ploy ee in char ge of the Mt. Sinai account, testified that H &S m erely reiter ated in the Exec utive Summ ary inf orm at ionpr ovi de d by

P er ry , and M t. S ina i pr oduc ed no e vid en ce to co unt er

va il Cl ark ’s tes ti m on y . A lth oughCl ar

k te sti fi ed

that he w as aw ar e of

one of the a lle ge d om iss ion s – t ha t Co m

m un ity Hos pi ta ls was c om

pr is edof 9 56 be ds du rin g o nl y th e la sttwo m onth s of Per

ry ’ s tenure as CE O – H &S m ade clear in the E xecutive Sum m ary that C om m uni ty H ospi ta ls w as not

c om pr ise d of 956 be ds d

ur ing the e nti re ty

of Perr y ’ s tenure. The E xecutive Sum m ary states that Com

m unityHospitals wasIn its memorandum in oppositi on to H&S’s motion for summary judgme nt, Mt. S inai 1 a sse rt s: I f He idrick & Strugg les, one c old night, had g one under neath the Ma cAr

thur Causewa y Br idge [i n Miami, Florida] and selec ted five home less persons huddled there ag ainst the cold, put them in its van, driven them to Mount Sinai and prese nted them to the Trustee s as ca ndidates for

the job of Chief Executive Of fi c e r, fr om t

he He idric k’ s [si c ] vie w o f i ts r e sp on sib ili tie s und e r t his c ontr a c t, i t would have f

ulfilled its contract . . . . Although w e know nothingof the four candidates other than Per ry prese nted to Mt. Si nai, Perry had ser ved as CEO f

or two hospitals, Children’s Hospital and Community Hospitals, which, 8 com prised of “ 446 st affe d acute beds and 300 staffe d convalescent beds” when Perr y began his term

as CE O of the hosp ital. T he Exec utive Summ ary provides that C om m uni ty H ospi ta ls w as c om

pr ise d of “ 616 sta ff

ed a cute c ar e be ds and 3 40 sta ff ed c onva le sc en t be ds, ” i. e. 956 be ds, onl y a t the ti m e Pe rr

y le ft Co m m uni ty H ospi ta ls. H &S the re fo re c le ar ly r ep re se nte d th at

the siz e of

Co m m uni ty H ospi ta ls h ad

c hange d duri ng P er

ry ’ s te nur e, c ulm inatin g init s e nlarg em en t t o a 95 6 b edho sp it al . Be ca use the e vid en ce f

ai ls t o e sta

bli sh tha t H &S int en tio na lly m isr ep re se nte d or

om itt ed any f ac ts whic h w oul d have m isl ed Mt . S ina i a s to Perr y ’ s professional backgrou nd, Mt. Sinai is left w ith a claim that H&S breac hed it s co nt ractwit h M t. Si na i b y fai li ng ad equa te ly to i nv es ti ga te Perry’ s b ack gr ou nd . T he c ontra ct

be tw ee n H &S and M t. S ina i, how ev er , im pose d up on H &S onl y

the duty to “pr es en t” to Mt . S ina i C E O c an did at es , not ind ep en de ntl y

to inv es tig at e the ba ck gr ound s of

tho se c an did at es . T he c ontra ct le ft w ithMt . S ina i the 1reg ardle ss of their fina ncial per formanc es duringhis tenures, made him at least fac ially qualified fo r t he CEO po sit ion . T his c a se the re fo re do e s n ot p re se nt t he qu e sti on

of wh e the r H & S wo uld have br eac hed the implied cove nant of g ood faith and f air de alingby

prese nting to Mt. Sinai “five homeless per sons” or five persons other wise utterly

lackingin qualification to serve as CEO fo r M t. S ina i. 9 discretion ult im ately

to select a C EO from

the candidates presented by H& S. If Mt. S inai desired further inquiry into Perry ’ s background , it c ouldhave perform ed th e in qu iry its el f orha d H& S d o s o, b ut , ala s, M t. Si na i ch os e n ei th er co ur se . Be ca use “ the im

pli ed obl igatio n of

goo d f ai th c annot

be use d to vary

the e xpr es s te rm s of ac ontra ct , ” CS XI nte rm oda l, I nc . , 732 S o. 2d at 10 98, Mt . S ina i’ s c la im fo r br each of c on tra ctfai ls . AFFIR MED.