FORTUNE — The landmark private equity conspiracy lawsuit will carry on, albeit in a more limited form.
A Boston judge today denied a defendant motion to dismiss the entire class-action suit, which had accused 10 private equity firms of conspiring on 19 buyout transactions that occurred before the financial crisis.
The original complaint argued that the firms had organized an overarching conspiracy to fix prices, partially evidenced by how losing bidders occasionally were added to the winning consortium. The plaintiffs also alleged that personal friendships between private equity executives at competing firms led to impropriety.
Judge Edward Harrington, however, sided with the private equity firms on this central charge, seeming to blame the plaintiff attorneys for focusing on the forest rather than the trees. From his ruling: “Plaintiffs persistent hesitance to narrow their claim to something cognizable and supported by the evidence has made this matter unnecessarily complex and nearly warranted its dismissal.”
What Harrington allowed to stand was a specific charge that the private equity firms had a tacit agreement not to jump each other’s proprietary deals. In other words, once a PE firm reached agreement to acquire a company — none of the other private equity firms would offer a superior price during the “go-shop” process.
The only defendant exempted from this continuing charge was JPMorgan Chase & Co. (JPM), because “the evidence does not establish that JP Morgan was in the business of bidding on Target Companies and does not otherwise support its participation in the narrowed overarching conspiracy.”
What also goes forward is a secondary claim that four firms — The Blackstone Group (BX), The Carlyle Group (CG), Goldman Sachs (GS) and TPG Capital — agreed to “stand down” on the auction for hospital chain HCA (HCA). The firms that ultimately purchased HCA — Bain Capital and Kohlberg Kravis Roberts & Co. — were released from this claim by Harrington.
In explaining his decision on HCA, Harrington pointed to two statements:
- An intra-office email exchange at The Carlyle Group, after KKR decided to get into the bidding on Freescale (which Blackstone already had agreed to buy). Carlyle managing director Daniel Akerson wrote: “And just think, KKR asked the industry to step down on HCA.”
- An email from Blackstone Group president Tony James after KKR ultimately decided to pass: “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.”
Harrington basically is telling all parties that the plaintiffs overreached with their original complaint, but that there is enough smoke on deal-jumping (particularly in regards to HCA) that it’s worth investigating to see if there’s an actual fire.
Not surprisingly, a number of the private equity defendants are focusing on the positive. For example, a Blackstone spokeswoman writes: “We are pleased the court saw through the absurdity of a ’vast overarching conspiracy’ involving 27 deals and will allow us and the other defendants to demonstrate to the court that even the modified claims should not go to a jury.” We received similar statements from KKR and TPG Capital.
Other private equity firms named in the complaint are: Apollo Global Management, Providence Equity Partners, Silver Lake Partners and Thomas H. Lee Partners. The lead plaintiff on the class action is someone named Kirk Dahl, who was a shareholder in Freescale Semiconductor and Univision.
Harrington’s entire ruling is below:
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