Collaborators or Conspirators? After Seven Years of Litigation, a US$590 Million Settlement – and Four Takeaways

Cooperation is often good in business. There are many industries where even competitors form joint ventures to reduce their individual risks, to cut costs or to pool their expertise. Those goals are certainly legal, and, in many cases, unquestionably pro-competitive and pro-consumer. 

Private equity is one of the industries where that type of joint activity regularly takes place. That’s what makes a recent case, the Dahl LBO case, so interesting.

In Dahl, leading private equity companies got sued for conspiring to limit the number of bidders on an LPO deal. They supposedly used artificial bidding protocols that reduced the level of competition for any buyout, which ultimately reduced the shareholder return on the LBO. 

This case dealt specifically with the financial markets. But, as we discuss at the end of this article, the case is important to any industry where competitors typically collaborate, because it shows the risk that legitimate joint venture activity could be mischaracterized as conspiracy.*

The Dahl case started in 2007. Shareholders of companies that had gone through leveraged buyouts filed an antitrust case against 11 leading private equity companies. They asked for billions in damages. The case dragged on for seven years, was heavily litigated, and went through five amended complaints. 

Just last fall, the last party settled, bringing the total settlement amounts to about US$590 million, plus US$200 million in attorneys’ fees.

One of the legal theories in the case was that there was an “overarching conspiracy” to restrain trade in the LBO market. The complaint describes it this way:

  • Defendants and their co-conspirators engaged in a continuing agreement, understanding, and conspiracy in restraint of trade 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.

The complaint concluded that these acts “suppressed competition in 19 of the largest LBOs—and 8 related transactions—that closed between 2003 and 2007.”

Among other things, the complaint described a collaborative (read “friendly”) environment where the PE companies were staffed by people who worked closely with each other, who were often personal friends, who often switched jobs to work for competing firms during their careers and who allegedly followed “club etiquette” regarding buyout transactions. 

In particularly, the plaintiffs claimed that PE companies (1) formed “bidding clubs” to reduce competition for the LBOs; (2) gave each other “quid pro quo” courtesies that reduced competition; (3) manipulated auctions to reduce competition for the deal (and then compensated the conspiring losers by giving them a share of the deal later), and (4) refused to “jump” each other’s deals – or, if they did, would back down in the face of a direct request to desist.

As the case dragged along over seven years, the judge did narrow the issues. But he kept alive for trial the part of the “overarching conspiracy” claim that the defendants had agreed not to “jump” each other’s deals. If true, that could have constituted an horizontal agreement not to deal, a per se violation of the antitrust laws. All the defendants settled before the threatened trial date in November 2014.

Obviously, the defendants claimed that their actions were all unilateral decisions, made according to legitimate industry practices, and in their own self interests. Under US antitrust law, the tricky question was how to separate genuinely independent but parallel conduct (which is legal) from conspiratorial conduct (which is not).

The Supreme Court’s rule, expressed in Matsushita v. Zenith Radio, 475 U.S. 574, 588 (1986), is that “conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy.” In a later case, Bell Atlantic v. Twombly, 550 U.S. 544, 556 (2007), the Court added that 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 parties.”

Evidence that the court considered on these issues included an email in which one bank executive wrote that another bank “has agreed not to jump our deal since no one in private equity ever jumps an announced deal.” Another piece of evidence was a statement by one bank executive – made when another bank withdrew from bidding one a deal – that “club etiquette prevails.” Other similar statements included lines such as “he had told me before they would not jump a signed deal of ours.” 

The district court rejected the claims of a “market-wide overarching conspiracy,” and was frankly impatient with the “[p]laintiffs persistent hesitance to narrow their claim to something cognizable and supported by the evidence.” But, relying on the statements we just quoted, the court did allow the case to proceed on the theory that there might be an “overarching agreement between the Defendants to refrain from ‘jumping’ each other’s announced proprietary deals.”


This case settled before trial, so technically there is no “holding.” However, the US$590 million in settlements teaches a very powerful lesson that goes far beyond LBOs. 

It makes four very telling points:

 In any market where there is joint competitor activity, there is always a risk that buyers will try to create an antitrust claim.

This risk is especially heightened in subscription markets – including PE activity or insurance subscription markets – where selected participants may bid on or sign up for a deal, and then admit some of the losing bidders later on.

As you can expect, there are always indiscriminate emails or other communications that have the potential to save the plaintiff’s case. Here, the single line “no one in private equity ever jumps an announced deal” helped rescue what the court otherwise saw as a floundering case. It should be obvious that many companies are totally unaware of what email evidence their servers contain. If there is any doubt about this, consider the Libor emails.

We have suggested before that competitors always make business decisions in their unilateral self interests. But in cases like Dahl, where the losers could become winners later on anyway – the antitrust risk could be dramatically increased if companies seem to forego business in favor of a competitor. In those cases (which are really predictable), it makes sense to keep memos made at the time that record the business basis for the decision.

Our conclusion is that even where a company has an antitrust policy in place, and believes that it is operating in compliance with antitrust standards, it still needs to back that up with regular compliance audits. The defendants in the Dahl case all initially claimed that the case had absolutely no merit. Despite that, they settled for US$590 million to avoid a trial. Prudence and compliance audits can help avoid detect dangers and avoids results like that.

Guilt by Association: Four Questions to Ask about your Trade Association Activity

In 1918, the newly-formed FTC sued the Association of Flag Manufacturers of America. The case is reported at 1 FTC 55 (1918). The FTC charged that the trade association conspired to raise the prices of American flags. Once the FTC attacked their price fixing activities, the trade association dissolved. It apparently had no other purpose in life than price fixing.

Over the years, the FTC and DoJ have agreed that trade associations can serve pro-competitive purposes. But they also warned that trade associations are one of the leading incubators for anti-competitive activity. It’s true that some of that anti-competitive activity takes place in the restaurants and bars that surround formal trade association activities. But there is also an unbroken track of enforcement actions against trade associations based on their official, on-the-record anti-competitive activities.

The FTC recently announced their most recent enforcement actions against four trade associations. The charges are all very similar: they all encouraged their members to engage in overtly anti-competitive activity, often in their by-laws or “code of ethics.” Here are quick highlights from the four proceedings:

  1. The National Association of Residential Property Managers adopted a “Code of Ethics” with these overtly anti-competitive conditions:
    • Professional Members shall refrain from criticizing other property managers or their business practices.
    • The Property Manager shall not knowingly solicit competitor’s clients.

Apparently, in their so-called “ethics training,” property managers were told that this behavior was required for good standing.

  1. The National Association of Teachers of Singing had rules that prevented teachers from (a) soliciting each other’s students; (b) taking any student who hadn’t paid an earlier teacher; (b) advertising prices or scholarships; or (d) competing on price-related terms.
  2. The Professional Lighting and Sign Management Companies of America had bylaws that (a) barred members from providing lighting or sign services in another member’s territory, without that member’s consent; (b) created a price schedule for work performed in another member’s territory; and (c) barred former members from competing for clients of current members for up to one year after they left the trade association.
  3. The Professional Skaters Association had a code of ethics that banned teachers from soliciting each other’s students.

It’s actually rather touching, in a nostalgic sort of way, that these trade associations still seem to be unaware, in the 21st century, that horizontal customer allocations and agreements not to compete are illegal. In any event, the associations will probably remember the lessons they were just taught, because the FTC imposed consent decrees whose provisions run for 20 years!

Is your company at risk through guilt by association? 

Here are four questions you need to answer:

  1. Has your company reviewed your trade association’s bylaws, ethics code and its own antitrust compliance program?
  2. Does your legal department review trade association agendas before your employees attend those meetings?
  3. Has your company provided antitrust training to your employees who go to trade association meetings?
  4. Does that antitrust training give them practical, easy-toapply advice about (a) what to do if competitive issues come up during formal sessions; and (b) what to do if competitive issues come up during informal “social” sessions?