Davidson et al v. Bain Capital Partners, LLC et al
Filing
894
Senior Judge Edward F. Harrington: ORDER entered. MEMORANDUM AND ORDER, Motions terminated: 781 MOTION for Summary Judgment (Renewed) filed by Kohlberg Kravis Roberts & Company, L.P., 783 MOTION for Summary Judgment (Renewed) filed by Silver Lake Partners, 776 MOTION for Summary Judgment on Count I (Renewed) MOTION for Reconsideration on Count II filed by TC Group IV, L.P., TC Group III, L.P., 777 MOTION for Summary Judgment , Rene wed filed by Bain Capital Partners, LLC, 779 MOTION for Summary Judgment Renewed filed by Thomas H. Lee Partners, L.P., 785 MOTION for Summary Judgment (Renewed) filed by Apollo Global Management, LLC, 787 MOTIO N for Summary Judgment (Renewed) filed by The Blackstone Group L.P., 773 MOTION for Summary Judgment , Renewed filed by Providence Equity Partners, Inc., 797 SEALED MOTION filed by Texas Pacific Group, 788 MOTION for Summary Judgment (renewed) filed by Goldman Sachs Group, Inc..(Folan, Karen)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
**************************
KIRK DAHL, ET AL., Individually and
on Behalf of All Others Similarly Situated,
Plaintiffs
v.
CIVIL ACTION NO.:
07-12388-EFH
BAIN CAPITAL PARTNERS, LLC, ET AL.,
Defendants.
**************************
MEMORANDUM AND ORDER
July 16, 2013
HARRINGTON, S.D.J.
Count One of the Plaintiffs’ Fifth Amended Complaint sets forth an allegation of an
overarching conspiracy on the part of the Defendants, who are private equity firms, “to allocate
the market for and artificially fix, maintain, or stabilize prices of securities in club LBOs in
violation of § 1 of the Sherman Act, 15 U.S.C. § 1.” Plaintiffs are shareholders of the companies
that underwent such LBOs. In a March 13, 2013 Memorandum and Order (the “Prior Order”),
this Court denied summary judgment on Count One, holding that there was a genuine issue of fact
as to the existence of an overarching conspiracy, and allowed that count to proceed, albeit on a
more limited basis than Plaintiffs had initially alleged. Dahl v. Bain Capital Partners, LLC, No.
07-12388-EFH, 2013 WL 950992 (D. Mass. March 13, 2013). The Court held that the evidence
only supported an “overarching agreement between the Defendants to refrain from ‘jumping’ each
other’s announced proprietary deals”1 and that the claim would move forward under this more
narrowly-defined overarching conspiracy. Id. at *16. The Prior Order, however, left open the
issue of whether the evidence supported each Defendant’s connection to the more narrowly
defined conspiracy under the summary judgment standard. Id. That issue as it relates to each
Defendant is now before the Court on the Defendants’ ten (10) renewed individual motions for
summary judgment.
I. Legal Standards.
a. The Summary Judgment Standard.
Summary judgment is appropriate “if the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(c). In ruling on a summary judgment motion, the Court views the record “in the light most
favorable to the nonmovant.” Hoffman v. Applicators Sales and Service, Inc., 439 F.3d 9, 11 (1st
Cir. 2006) (citing Santiago–Ramos v. Centennial P.R. Wireless Corp., 217 F.3d 46, 50 (1st Cir.
2000)). All reasonable inferences are to be drawn in the favor of the nonmoving party.
Poulis–Minott v. Smith, 388 F.3d 354, 361 (1st Cir. 2004).
b. Section 1 of the Sherman Antitrust Act.
Section 1 of the Sherman Act prohibits “every contract, combination . . . or conspiracy, in
restraint of trade or commerce among the several States . . . .” 15 U.S.C. § 1. A Section 1 claim
1
In the Prior Order, the Court referred to “nine” proprietary deals, but this number
includes a deal that Plaintiffs erroneously identified as proprietary at the oral argument. Texas
Genco was an auction, not a proprietary transaction and, therefore, is excluded from the more
narrowly-defined alleged conspiracy. The accurate count of proprietary deals–the only deals still
at issue–is eight. Those transactions are: (1) Kinder Morgan (2) Harrah’s (3) TXU (4) AMC (5)
Aramark (6) HCA (7) Freescale (8) Sungard.
2
requires “(1) the existence of a contract, combination or conspiracy; (2) that the agreement
unreasonably restrained trade . . . and (3) that the restraint affected interstate commerce.” Lee v.
Life Ins. Co. of N. Am., 829 F.Supp. 529, 535 (D.R.I. 1993), aff’d, 23 F.3d 14 (1st Cir. 1994).
“Section 1 by its plain terms reaches only ‘agreements’—whether tacit or express.” White
v. R.M. Packer Co., Inc., 635 F.3d 571, 575 (1st Cir. 2011) (citing Bell Atl. Corp. v. Twombly,
550 U.S. 544, 553, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “It does not reach independent
decisions, even if they lead to the same anticompetitive result as an actual agreement among
market actors.” White, 635 F.3d at 575. Accordingly, in order to survive summary judgment,
plaintiffs must produce direct or circumstantial evidence that is not only consistent with
conspiracy, but “tends to exclude the possibility of independent action.” Monsanto Co. v.
Spray–Rite Serv. Corp., 465 U.S. 752, 767, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984).
While the summary judgment standard, as set forth above, requires all reasonable
inferences to be drawn in favor of the nonmoving party, the Supreme Court has “limit[ed] the
range of permissible inferences from ambiguous evidence in a § 1 case,” holding that “conduct as
consistent with permissible competition as with illegal conspiracy does not, standing alone,
support an inference of antitrust conspiracy.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “[I]n other words, [plaintiffs] must
show that the inference of conspiracy is reasonable in light of the competing inferences of
independent action . . . .” Id.
Evidence that tends to exclude the possibility of independent action may include “parallel
behavior that would probably not result from chance, coincidence, independent responses to
common stimuli, or mere interdependence unaided by an advance understanding among the
3
parties,” Twombly, 550 U.S. at 556 n.4 (internal citations omitted), or “uniform behavior among
competitors, preceded by conversations implying that later uniformity might prove desirable or
accompanied by other conduct that in context suggests that each competitor failed to make an
independent decision,” Brown v. Pro Football, Inc., 518 U.S. 231, 241, 116 S.Ct. 2116, 135
L.Ed.2d 521 (1996) (internal citations omitted).
Plaintiffs must satisfy this standard with respect to each defendant alleged to have
participated in the purported conspiracy to show that each defendant committed themselves to the
conspiracy. See e.g., AD/SAT, Div. of Skylight Inc. v. Assoc. Press, 181 F.3d 216, 234 (2nd Cir.
1999).
II. Analysis.
The Court holds that there is a dispute of fact as to KKR, Bain, Silver Lake, Blackstone,
Carlyle, TPG, THL, and Goldman Sachs’s participation in the overarching conspiracy to refrain
from “jumping” each other’s announced proprietary deals. With the exception of THL, each of
these Defendants was involved in the circumstances surrounding the HCA and Freescale
transactions and it is those circumstances that serve as the basis for each aforesaid Defendant’s
connection to the alleged overarching conspiracy. As to THL, it is the evidence related to the
Harrah’s transaction that serves as the basis for its connection to the overarching conspiracy.
a. HCA, Freescale and the Prior Order.
In the Prior Order, the Court considered whether summary judgment should be allowed as
to the two counts set forth in Plaintiffs’ Fifth Amended Complaint. See Dahl, 2013 WL 950992
at *1. Count One alleges, as limited by the Prior Order, an overarching conspiracy on the part of
the Defendants to refrain from “jumping” each other’s announced proprietary deals. See id. at
4
*16. Count Two, on the other hand, alleges a conspiracy only as to the HCA transaction. The
Court found in the Prior Order that the evidence supporting both conspiracy claims was for the
most part predicated on the actions and statements made by the Defendants during the HCA and
Freescale transactions. See id. at *6.
As a general overview, the Freescale and HCA transactions involved two consortiums:
Consortium #1, which included Blackstone, Carlyle, and TPG; and Consortium #2, which
included KKR and Bain. In late July of 2006, Consortium #2 was negotiating a proprietary deal2
for HCA. The evidence, in the light most favorable to the Plaintiffs, showed that KKR had “asked
the industry to step down on HCA” and, despite strong interest in the company, Goldman Sachs,
Blackstone, Carlyle, and TPG promptly “stood down” after the deal was signed.
The evidence further showed that in September of 2006, Consortium #1 was close to
securing a deal to purchase Freescale when Consortium #2’s KKR and Bain, along with Silver
Lake, sent an indication of interest to the Freescale Board, disrupting Consortium #1’s deal.3 The
Consortium #1 Defendants, shocked by Bain, KKR, and Silver Lake’s action, began considering
mounting, as retaliation, a competing bid for HCA.4 Due to the threat of the competing bids, the
2
A proprietary deal, as opposed to an auction, is a deal in which the Target Company
would either deal with one buyer or a consortium of buyers and sign an agreement for sale. The
signed agreement would then be announced to the public and the Target Company would have a
period of time between the announcement of the signed agreement and its formal closing to find a
better offer. During this “go-shop” period, the Target Company’s financial advisor “proactively
goes out to buyers, and also responds to all inquiries that are received, and tries to stimulate the
interest and to create a higher bid for the company.”
3
Goldman Sachs was a sell-side advisor to the Freescale Board.
4
Silver Lake, whose investing focus was technology companies, was not involved with the
HCA transaction.
5
consortiums communicated with each other and abruptly “stood down” from each other’s deals.
As to Count Two, the Prior Order held that a dispute of fact existed as to Goldman Sachs,
Carlyle, TPG and Blackstone’s participation in an agreement to “step down” on HCA.5 Id. at
*17. The Court, accordingly, denied Goldman Sachs, Carlyle, TPG and Blackstone’s summary
judgment motions as to Count Two. The Court concluded the following:
The evidence establishes that [Goldman Sachs, Carlyle, TPG, and Blackstone]
showed interest in the HCA transaction, but promptly “stepped down” from
making a topping bid within 48 hours of the commencement of the fifty-day
“go-shop” period. The evidence further shows that [Goldman Sachs, Carlyle,
TPG, and Blackstone ] communicated their decision to “step down” on HCA to
[KKR and Bain] within ninety-six hours of the commencement of the “go shop”
period and subsequently lamented having forgone a potentially lucrative deal.
Dahl, 2013 WL 950992 at *16.
The Court also found that two statements suggested that Goldman Sachs, Carlyle, TPG,
and Blackstone were acting pursuant to a prior agreement to refrain from “jumping” HCA. Id. at
*16-17. The first statement was made during an intra-office email exchange between executives
of Carlyle after they had learned that Consortium #2 had decided to compete for Freescale. Id. at
16. The statement reads, “[a]nd just think, KKR asked the industry to step down on HCA.” The
Court held that this statement was significant because, in light of the fact that each Defendant
promptly “stepped down” after the deal was signed and announced, it indicated that there was a
prior agreement to refrain from “jumping” HCA. Id. The Court further noted that “the shock
conveyed in the statement by the Carlyle executive at KKR’s decision to pursue Freescale
indicates that KKR’s decision was a breach of its agreement not to pursue Freescale.” Id.
5
KKR and Bain were originally named in Count Two, but were previously dismissed due
to shareholder releases for the HCA transaction.
6
The second statement was made by a Blackstone executive after Consortium #2 decided
to pass on Freescale. Id. at 17. It reads, “Henry Kravis [of KKR] just called to say
congratulations and that they were standing down because he had told me before they would not
jump a signed deal of ours.” The Court held that this statement suggested that there was a
previous agreement not to “jump” Freescale and that KKR had ultimately decided to adhere to
that agreement. Id. The Court also held that, in combination with the rest of the evidence, the
statement provided an inference that the decision by Consortium #1 to “step down” on HCA was
in exchange for KKR “stepping down” on Freescale. Id.
The Court reaffirmed its holding on Count Two in a June 20, 2013 Memorandum and
Order denying the Count Two Defendants’ Motion for Reconsideration. Dahl, 2013 WL 950992
at *24.
As to Count One, the Court found that the evidence established a “larger picture” of an
overarching conspiracy on the part of the Defendants to refrain from “jumping” each other’s
announced proprietary deals. Id. at *15-16. The Court singled out three fundamental pieces of
evidence that connected the circumstances of the Freescale and HCA transactions to the
overarching conspiracy. Id. at *15. The three pieces of evidence were critical to the Court’s
holding on Count One because, unlike the majority of other evidence supporting a conspiracy only
as to HCA and Freescale, these fundamental pieces of evidence indicated a continuous agreement
across the proprietary deals. The three fundamental pieces of evidence were:
1. An email by a TPG executive regarding the Freescale transaction, stating that “KKR
has agreed not to jump our deal since no one in private equity ever jumps an announced deal.”
2. The fact that no Defendant ever “jumped” an announced proprietary deal during the
7
“go-shop” period.
3. A Goldman Sachs executive’s observation, upon learning that KKR had decided to
withdraw from the Freescale transaction, that “club etiquette prevails.”
The Court determined that the first two pieces of evidence indicated a uniformity of
conduct within the industry to refrain from “jumping” each other’s announced proprietary deals.
Id. The Court further held that the third piece of evidence indicated that such uniformity may not
be the result of independent action because “the term ‘club etiquette’ denotes an accepted code of
conduct between the Defendants.” Id.
The Court, accordingly, held in the Prior Order that there was an issue of fact as to the
existence of an overarching conspiracy under Count One. Id. at *16. The Court, however,
reserved the issue of whether each Defendant was, in turn, connected to that overarching
conspiracy.
b. Each Defendants’ Connection to the Overarching Conspiracy.
Turning to each Defendants’ connection to the overarching conspiracy, the Court holds
that the evidence in the light most favorable to the Plaintiffs creates an issue of fact, as it did
under Count Two, as to whether Goldman Sachs, Carlyle, TPG, and Blackstone had a prior
agreement with Consortium #2’s KKR and Bain to “stand down” on the HCA transaction.
Likewise, the same evidence creates an issue of fact as to whether KKR, Bain, and Silver Lake
had a prior agreement with the Consortium #1 Defendants to “stand down” on Freescale. The
three fundamental pieces of evidence act to connect those prior “stand down” agreements to the
single overarching conspiracy to refrain from “jumping” announced proprietary deals under Count
One. The evidence taken together, in the light most favorable to the Plaintiffs, shows that the act
8
of “standing down” or not “jumping” announced proprietary deals was more than an isolated
event applicable to the Freescale and HCA transactions. Rather, the three fundamental pieces of
evidence suggest that “standing down” was the practice of the industry instituted pursuant to a
code of conduct agreed to by the Defendants.
The “club etiquette” statement is especially significant to the HCA and Freescale
Defendants’ connection to the overarching conspiracy because it connects the industry practice of
never “jumping” announced proprietary deals to an established code of conduct. It also,
moreover, connects the isolated agreement to “stand down” on Freescale to a continuing
agreement across the industry. For instance, the statements “no one in private equity ever jumps
an announced deal”; “he had told me before they would not jump a signed deal of ours”; and
“club etiquette prevails” all refer to Consortium #2’s reason for “standing down” on Freescale.
The first statements shows that the Freescale “stand down” was in conformity with the practice in
the industry.6 The second shows that the Freescale “stand down” was the result of an agreement
that at least encompassed the Freescale transaction. The “club etiquette” statement, however,
shows that the Freescale “stand down” agreement and the practice of the industry was in an
adherence to an established code of conduct.
While Silver Lake, unlike Bain and KKR, was not involved in the HCA transaction, there
is sufficient evidence to connect it to the “stand down” agreement on Freescale and, in turn, to the
overarching conspiracy. First, the evidence in the light most favorable to the Plaintiffs shows that,
after Consortium #2 decided to “stand down” on Freescale, executives at Silver Lake spoke with
6
One of the Defendants’ experts also concluded that refraining from “jumping” deals was
the practice in the industry.
9
executives of Bain and KKR to discuss a strategy for restoring peace with Consortium #1. That
strategy, in which Silver Lake took part, involved “olive branch” emails and “personal checkin/congrats.” The evidence shows that Silver Lake wanted to restore the peace because it was
concerned about its position in Philips/NXP, a transaction for which Silver Lake, KKR, and
members of Consortium #1 were currently involved. Second, in the aftermath of the Freescale
“stand down,” Silver Lake defended its actions stating, in response to the fact that Consortium #1
was “still bitching about us jumping their deal”, that “we did not jump an almost signed deal.”
This statement indicates that Silver Lake understood the conspiracy to allow for bidding on deals
that were not signed, but that once a deal is signed, it was not to be “jumped.”
As to THL, Plaintiffs refer to an email correspondence between THL executives’
discussing the Harrah’s transaction. Plaintiffs contend that this email string shows a connection to
the overarching conspiracy because it shows that THL did not want to compete for Harrah’s if
other Defendants were close to finalizing a signed deal. In the email correspondence, one THL
executive states, “let me know if I should have [a contact at UBS, advisor to Harrah’s Special
Committee,] make intro for us to the situation. I know we typically don’t bust things up - I’m
trying to find out from my friend who is the CFO what the status of the deal is - early or late
stage.” A second executive responds, “I hate ambulance chasing someone elses deal if its pretty
baked. Find out status.” This correspondence, in the light most favorable to the Plaintiffs, creates
an issue of fact as to whether THL did not pursue Harrah’s because of an agreement to refrain
from “jumping” another Defendant’s proprietary deal. The correspondence indicates that placing
bids at a late stage was not THL’s practice and that, while THL would compete for the
transaction at an earlier stage, it would not “bust things up” for another Defendant at a later
10
stage (including the stage before the deal is signed and before deal protection measures are in
place). The implication in the light most favorable to the Plaintiffs is that THL will not harm an
associate after a certain agreed-upon point in the proprietary deal negotiation process.7 This
implication is consistent with Henry Kravis’s statement in Freescale that KKR “would not have
upset [Consortium #1’s] previous deal if he had known how close [Consortium #1 was to signing
the deal].” Such evidence tends to exclude the possibility that THL’s decision to refrain from
“jumping” Harrah’s was independently arrived at and suggests that the decision was made
pursuant to an understanding between the Defendants that each other’s late-stage proprietary
deals were not to be “jumped.”
The evidence in the light most favorable to the Plaintiffs, therefore, acts to exclude the
possibility that each of the aforementioned Defendants were acting independently when choosing
not to “jump” announced proprietary deals.
As to the two remaining Defendants, Providence and Apollo, the evidence does not
support a connection to the overarching conspiracy. There is no evidence that Providence was
involved in the HCA and Freescale transactions and the evidence of its involvement in other
7
Although the Court does not base its holding on THL’s involvement in the Aramark
transaction, Plaintiffs further contend that the evidence shows that THL and its partners were
requesting other Defendants to “step down” from Aramark in a similar way that KKR had
requested that the industry “step down” on HCA. Plaintiffs cite to a statement in an email
between executives at Goldman Sachs, THL’s partner in the Aramark deal, which states “[t]rying
to get the word out that given 40% voting control by management this is a done deal, although
stock continues to trade above offer price of $32 . . . down a bit today.” Plaintiffs contend that
this email can be read to show that Goldman, and by implication THL, was spreading the word to
other Defendants that Aramark was a “done deal” so that the other Defendants would “step
down.” Plaintiffs also refer to a statement by an employee of Credit Suisse, the advisor to the
Special Committee of Aramark’s board, who remarked that “gs and jpm are telling lbo firms to
stay away and the [special] committee is upset about this.”
11
transactions is insufficient to connect it to the overarching conspiracy. Plaintiffs’ brief primarily
refers the Court to evidence showing that Providence considered transactions outside its
investment focus. Plaintiffs flatly contend that Providence “made no effort to ‘jump’” those
transactions. Such evidence does not exclude the possibility that not “jumping” was a decision
reached by Providence independently of any overarching conspiracy.
As to Apollo, it had interest in the HCA transaction but, unlike the other Defendants
therein, did not abruptly “stand down” after the HCA deal was signed and announced. Rather,
the evidence indicates that Apollo considered “jumping” Consortium #2’s announced deal long
after the other Defendants had “stood down.” Apollo’s consideration of “jumping” the HCA
announced deal is inconsistent with the overarching conspiracy to refrain from “jumping” any
announced deals.
While Apollo never ultimately submitted a topping bid on HCA, Plaintiffs do not cite to
evidence tending to exclude the possibility that Apollo acted independently in “standing down.”
Plaintiffs instead argue that the evidence shows that Apollo’s interest in “jumping” Consortium
#2’s announced deal was for the purpose of leveraging a piece of the final deal. Plaintiffs cite to
an internal communication between two Apollo executives regarding the HCA transaction. In the
communication, one executive questions whether “apollo would want to topple a kkr deal” and
concludes:
p.s. be careful of the kkr call. They offered Warburg a piece but they turned it
down because it was too small. I’m sure they offered tpg a piece to stand down.
We’re not in that boy’s club yet and let’s not agree to stand down too quickly and
meekly. I’m tired of mike michaelson ignoring us.
This communication acts in Apollo’s favor as it shows that Apollo, at that point, viewed
12
itself as an outsider to any potential conspiracy. While Apollo speculated that they may be offered
some benefit to “stand down,” there is no evidence to suggest that such a result occurred. The
evidence does not, for instance, indicate that Apollo received something from KKR or abruptly
“stood down” after talking to KKR. Nor does the evidence otherwise indicate that Apollo
subsequently joined the overarching conspiracy. Apollo’s ultimate decision not to “jump” the
HCA deal does not, on its own, tend to exclude the possibility that its decision was independently
arrived at.
As to the other transactions which Apollo considered, Plaintiffs fail to cite evidence
tending to exclude the possibility that Apollo was acting independently in “standing down.”
Plaintiffs otherwise rehash many of the arguments that the Prior Order held to be unavailing, such
as evidence that Apollo exchanged participation in deals with other Defendants. Such evidence
does not establish Apollo’s connection to the overarching conspiracy.
For the foregoing reasons, Apollo and Providence are dismissed from the case. Other
issues raised by KKR, Bain, Silver Lake, Blackstone, Carlyle, TPG, THL, and Goldman Sachs
(the “Remaining Defendants”) are addressed below.
c. Admission of Statements, Hearsay, and the Coconspirator Exception.
The Remaining Defendants contend that the statements cited by the Plaintiffs to establish
their participation in the conspiracy are inadmissible hearsay that do not fall under the
coconspirator exception to the hearsay rule. To admit an out-of-court statement as non-hearsay
under the coconspirator exception, a court must find by a preponderance of the evidence that (1)
a conspiracy existed, (2) the declarant and defendant were both members of the conspiracy, and
(3) the statement was made in the course of and in furtherance of the conspiracy. Fed. R. Evid.
13
801(d)(2)(E); United States v. Petrozziello, 548 F.2d 20 (1st Cir. 1977). The court may consider
both independent evidence and the statements themselves when making this finding. Id.
As to the “in furtherance” requirement, while “mere narrative” of past events or “idle
chatter” by a coconspirator does not suffice, statements made to keep coconspirators abreast of
an ongoing conspiracy’s activities and to review, to interpret, and to devise strategy satisfy the
requirement. See United States v. Haldeman, 559 F.2d 31, 110–12 (D.C. Cir. 1976) (en banc)
(narratives of past events considered in furtherance of the Watergate cover-up since discussion
and review of past events was necessary for planning strategy); see also United States v. Salgado,
250 F.3d 438, 450 (6th Cir. 2001) (concluding that statements informing coconspirators of fact
that replacement driver was used to transport cocaine were not “idle chatter” but were “in
furtherance” of conspiracy by informing members of conspiracy of coconspirator’s activities);
United States v. Flores, 572 F.3d 1254, 1264 (11th Cir. 2009) (construing the “in furtherance”
requirement liberally and finding statements met the standard by fostering cohesiveness within
gang).
The statements at issue along with the extrinsic evidence of the Remaining Defendants’
conduct, which those statements put in context, establish by a preponderance of the evidence that
the Remaining Defendants were all members of a conspiracy to refrain from “jumping” announced
proprietary deals. Furthermore, the statements which are internal communications of one
Defendant or communications between Defendants about the conspiracies’ operations acted to
inform other participants in the conspiracy of coconspirators’ actions and to interpret those
14
actions.8 The statements are, therefore, in furtherance of the conspiracy. Accordingly, those
statements are admissible against each Defendant under the coconspirator exception to the
hearsay rule.9
8
The “asked the industry to step down on HCA” statement was made by a Carlyle
executive who had just been informed by another Carlyle executive that KKR had sent an
indication of interest to Freescale. The statement is in furtherance of the conspiracy because it
acted to review and interpret for other members of the conspiracy KKR’s recent action in light of
KKR’s prior request to “stand down” on HCA. The Blackstone executive’s statement that KKR
had “told me before they would not jump a signed deal of ours” and the TPG executive’s
statement that “no one in private equity ever jumps an announced deal” both acted to convey to
other participants in the conspiracy the fact that KKR was adhering to the conspiracy and the
reason for their decision. Such statements are in furtherance of the conspiracy because they act to
keep participants abreast of events related to the ongoing conspiracy. The Goldman Sachs
executive’s statement that “club etiquette prevails” acted to affirm to another Goldman Sachs
executive that the action of Consortium #2’s “stepping down” on Freescale constituted a return to
the regular operation of the conspiracy.
9
Some of the statements, while double hearsay, fall within the ambit of the coconspirator
exception. For instance, the statement that “Henry Kravis [of KKR] just called to say
congratulations and that they were standing down because he had told me before they would not
jump a signed deal of ours,” involves both a statement by Henry Kravis to a Blackstone executive
to inform him of Consortium #2’s decision and reason for “standing down” and a statement by the
Blackstone executive to his colleague to inform the colleague of Consortium #2’s decision and
reason for “standing down.” Both statements were made by members of the conspiracy and in
furtherance of the conspiracy. The Defendants argue that the statement “KKR asked the industry
to step down” contains multiple hearsay by unidentified declarants. KKR’s instructions to the
industry, however, is not being introduced for its truth, only for the fact that the instruction was
made. Fed. R. Evid. 801(c) (hearsay is evidence a “party offers . . . to prove the truth of the
matter asserted”). “An order or instruction is, by its nature, neither true nor false and thus cannot
be offered for its truth.” United States v. Shepherd, 739 F.2d 510, 514 (10th Cir. 1984); see also
United States v. Murphy, 193 F.3d 1, 5 (1st Cir. 1999); United States v. Bellomo, 176 F.3d 580,
586-87 (2d Cir. 1999); United States v. Reilly, 33 F.3d 1396, 1410 (3d Cir. 1994); United States
v. Tuchow, 768 F.2d 855, 868 n.18 (7th Cir.1985); United States v. Gibson, 675 F.2d 825,
833-34 (6th Cir. 1982); Butler v. United States, 481 A.2d 431, 438 n.10 (D.C. 1984). The
statement by KKR instructing the industry to step down, therefore, is not hearsay and, while the
email conveying the fact that the instruction was made between Carlyle executives is hearsay, it
falls within the coconspirator exception.
15
d. Significance of Released Transactions.
The Remaining Defendants argue that they cannot be connected to the overarching
conspiracy because they have been released from claims involving certain transactions.
Specifically, Carlyle, TPG, Blackstone, and Goldman argue that they cannot be considered to
have participated in the overarching conspiracy because the evidence connecting them to the claim
arose out of the Freescale transaction, a transaction for which they have been released from all
claims. Similarly, KKR and Bain argue that they cannot be considered to have participated in the
overarching conspiracy because they have been released from the HCA transaction. THL,
likewise, argues that it has been released from the Aramark transaction. The overarching
conspiracy claim, however, does not arise out of any specific transaction but was an agreement
across all eight announced proprietary transactions. A release by one group of shareholders does
not, thereby, bind another group of shareholders for damages sustained pursuant to the
overarching conspiracy. See Metropolitan Property and Cas. Ins. Co. v. Shan Trac, Inc., 324
F.3d 20, 25 (1st Cir. 2003) (court approved release of in personam claims “cannot resolve the
rights of non-parties to anything” and “does not bind non-parties who were never served or given
an authorized form of notice requiring them to present their claims”); see also E.E.O.C. v. Waffle
House, Inc., 534 U.S. 279, 294 (2002) (“It goes without saying that a contract cannot bind a
nonparty.”).
Moreover, each Defendant’s connection to the overarching conspiracy is not based on
conduct related to the transaction for which they have been released. Rather, Carlyle, TPG,
Blackstone, and Goldman Sachs are connected to the conspiracy through their conduct relative to
HCA, namely “stepping down” from that transaction and Bain, KKR, and Silver Lake are
16
connected to the conspiracy through their conduct in “standing down” on Freescale. Likewise,
THL is connected to the conspiracy through its conduct and statements related to the Harrah’s
transaction. Accordingly, the releases do not mandate dismissal.10
e. Evidence of Independent Action.
Each Remaining Defendant also cites to contemporaneous documents and statements
tending to show independent, legitimate reasons for not pursuing each proprietary deal.
Defendants contend that this evidence renders any notion of an overarching conspiracy
implausible. There is, without doubt, strong evidence that each Defendant determined that certain
transactions were not worth pursuing for independent reasons, such as a hesitance to enter an
industry in which the company operates, the price of the transaction, regulatory hurdles related to
the transaction, deal-protection measures and other characteristics specific to each transaction.
The Remaining Defendants’ arguments with respect to these justifications, however, go to the
weight of the evidence, a matter with which the Court is not concerned on summary judgment.
While evidence may show that the Remaining Defendants had independent concerns
related to certain transactions, such evidence acts only to create a genuine issue of fact as to the
Remaining Defendants’ reasons for not “jumping” announced proprietary deals. The evidence
does not render Plaintiffs’ theory implausible. Sworn testimony of Defendants’ executives may be
disbelieved and contemporaneous documents may articulate additional independent concerns
notwithstanding the existence of the conspiracy. The evidence, however, when viewed in the light
most favorable to the Plaintiffs, creates a genuine issue as to the Remaining Defendants’
10
Many of the Defendants signed shareholder releases for some or many of the other six
proprietary deals. It is, however, each Defendant’s conduct with respect to the deals for which
they have not been released which connects them to the overarching conspiracy.
17
connections to the overarching conspiracy because it shows that not “jumping” proprietary deals
was the uniform practice of these Defendants and tends to exclude the possibility that this practice
was the result of independent decisions.
f. Arguments of Specific Defendants.
A. Freescale as Evidence of a “Jump.”
KKR, Bain, and Silver Lake argue that they cannot be considered part of a overarching
conspiracy to refrain from “jumping” announced proprietary deals because they submitted an
indication of interest in the Freescale transaction and, thus, disrupted Consortium #1’s deal. They
contend that such action would contravene any finding of their participation in an overarching
conspiracy. There is evidence on the record, however, suggesting that KKR, Bain, and Silver
Lake believed they were acting in conformity with the agreement when they submitted the
indication of interest because Consortium #1’s deal had not yet been “announced.” An internal
Carlyle email states that “Kravis [of KKR] says he would not have upset the previous [Freescale]
deal if he had known how close we were.” Similarly, a Silver Lake executive defended the action
of submitting the indication of interest on Freescale by stating that “we did not jump an almost
signed deal.” This evidence in the light most favorable to the Plaintiffs shows that Bain, KKR,
and Silver Lake thought the deal was still open when they submitted the indication of interest and
would not have submitted it had they known the deal was close to being “signed” and
“announced.” Whether or not the Bain, KKR, and Silver Lake’s action weighs against a finding
of an overarching conspiracy is a matter for the jury.
B. Goldman Sachs’s investment Banking Arm’s Economic Interest.
Goldman Sachs argues that its participation in an overarching conspiracy to suppress
18
prices on proprietary LBOs would be against its economic self-interest. Goldman Sachs’s
business has two sides, an investment banking side, which, among other things, advises companies
seeking to sell themselves, and a private equity side, which purchases companies. Goldman Sachs
does not permit PIA (the private equity side) to bid for any company that IBD (the investment
banking side) is advising and vice versa. When acting as a sell-side advisor Goldman Sachs is
compensated on a percentage of the total transaction price. Goldman Sachs argues that it would
be against its self-interest to join an overarching price-fixing conspiracy because its investment
banking side seeks to maximize the price of target companies. It is plain, however, that Goldman
Sachs’s private equity side has an incentive to prevent other companies from “jumping” its signed
or announced proprietary deals. Whether the existence of its investment banking side diminishes
such an incentive to the point that it makes its alleged participation in an overarching conspiracy
unlikely is a question of fact for the jury.11
C. Silver Lake’s Technology-Only Focus.
Silver Lake asserts that it could not be part of an overarching conspiracy because of its
limited investment focus on the technology industry. It argues that its co-conspirators would have
no economic incentive to include Silver Lake in the broader conspiracy where Silver Lake was
already contractually bound not to compete for most deals. Silver Lake also argues that it would
be irrational for it to forfeit its ability to compete for the small number of proprietary deals that
satisfied its technology-only mandate. The Court disagrees that Silver Lake’s limited investment
11
Goldman also argues that it has long-standing policy of not “jumping” deals so as to
maintain relationships for other aspects of its business. Evidence supporting this contention only
acts to create an issue of fact as to whether the policy was instituted because of or in addition to
an overarching conspiracy to refrain from “jumping” announced proprietary deals.
19
focus renders its participation in the overarching conspiracy implausible. Silver Lake had
incentive to prevent other Defendants from jumping its technology-focused deals and other
Defendants, conversely, had incentive to prevent Silver Lake from jumping their technology
focused deals. Therefore, Silver Lake’s alleged participation in the overarching conspiracy is not
implausible, even where that participation may be limited.
Silver Lake further argues that its investment focus prevents its connection to a marketwide agreement since it could not have been involved in six of the eight transactions at issue. As
articulated above, there is evidence tending to show that Silver Lake was involved in the “stand
down” agreement on Freescale. Silver Lake is, therefore, in turn connected to the evidence
tending to show that such a “stand down” agreement on Freescale was in compliance with an
industry-wide code of conduct.
g. Conclusion.
For the reasons set forth above, KKR, Bain, Silver Lake, Blackstone, Carlyle, TPG, THL,
and Goldman Sachs’s Renewed Motions for Summary Judgment (Dockets No. 776, 777, 779,
781, 783, 787, 788, and 797) are, hereby, DENIED. Apollo and Providence’s Renewed Motions
for Summary Judgment (Docket No. 773 and 785) are, hereby, ALLOWED.
SO ORDERED.
/s/ Edward F. Harrington
EDWARD F. HARRINGTON
United States Senior District Judge
20
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