Dahl V Bain Capital, Hearing Transcript Dec. 18, 2012

Case 1:07-cv-12388-EFH Document 757 Filed 01/07/13 Page 1 of 234
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UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS * * * * * * * * * * * * * * * KLEIN, et al * Plaintiffs, * * vs. * * BAIN CAPITAL PARTNERS, * LLC, et al * Defendants. * * * * * * * * * * * * * * * *
CIVIL ACTION No. 07-12388-EFH
BEFORE THE HONORABLE EDWARD F. HARRINGTON UNITED STATES DISTRICT SENIOR JUDGE DAY ONE MOTION HEARING A P P E A R A N C E S
11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Courtroom No. 13 John J. Moakley Courthouse 1 Courthouse Way Boston, Massachusetts 02210 December 18, 2012 9:55 a.m. SCOTT & SCOTT LLP 707 Broadway, 10th Floor San Diego, California 92101 for the plaintifs By: Christopher M. Burke, Esq. ROBINS, KAPLAN, MILLER & CIRESI LLP 2800 LaSalle Plaza 800 LaSalle Avenue Minneapolis, Minnesota 55402-2015 for Plaintiffs, By: K. Craig Wildfang, Esq. George D. Carroll, Esq.
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APPEARANCES, CONTINUED
KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005 for the defendants By: Craig S. Primis, Esq. David R. Dempsey, Esq. SIMPSON THACHER & BARTLETT LLP 425 Lexington Avenue New York, New York 10017-3954 for the defendants By: Joseph F. Tringali, Esq. Ryan A. Kane, Esq. SIMPSON THACHER & BARTLETT LLP 1155 F Street, N.W. Washington, D.C. 20004 for the defendants By: Peter C. Thomas, Esq.
O'MELVENY & MYERS LLP Times Square Tower 7 Times Square New York, New York 10036 for the defendants By: Jonathan Rosenberg, Esq. Abby Rudzin, Esq.
CAROL LYNN SCOTT, CSR, RMR Official Court Reporter One Courthouse Way, Suite 7204 Boston, Massachusetts 02210 (617) 330-1377
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 defendants.
P R O C E E D I N G S THE CLERK: All rise. Please be seated.
Court is in session.
This is civil action No. 07-12388, Klein versus Bain Capital. record. MR. WILDFANG: the plaintiffs. MR. BURKE: Honor, Christopher Burke. MR. TRINGALI: Your Honor, Joseph Tringali. On behalf of the plaintiffs, Your Craig Wildfang, Your Honor, for Will counsel identify themselves for the
I'll be arguing the first part of the omnibus motion on behalf of all the defendants. MR. KANE: Ryan Kane on behalf of all
MR. PRIMIS:
Craig Primis from Kirkland &
Ellis on behalf of the defendants. MR. DEMPSEY: David Dempsey from Kirkland &
Ellis on behalf of the defendants. THE COURT: (Laughter.) THE COURT: A pretty good crowd. Who is everybody else?
What is this, a slip and fall case? (Laughter.) THE COURT: Okay. I will hear from the
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defendants on the omnibus motion. MR. TRINGALI: hand up to you a binder. plaintiffs. Your Honor, to begin, may I
It has been provided to the
There are certain exhibits that I will be
referring to during the argument. (Whereupon, a binder was given to the Court and the Law Clerk.) THE COURT: This case is complex factually but
legally it seems -- and I will hear argument to the contrary -- but legally we are concerned with Count 1, the so-called overarching conspiracy, and Count 2, a garden variety conspiracy. MR. TRINGALI: Honor. THE COURT: That element seems to be the one That's absolutely correct, Your
that has been primarily argued. MR. TRINGALI: That is absolutely right, Your
Honor, because quite frankly the issue for you is, as far as we're concerned, if you agree as the plaintiffs have pled that they are, in Count 1 they are pleading one overarching combination to allocate all these transactions and to rig all the bids on all those transactions and they must tie that all together, one agreement, Count 1, there is no evidence of that. Count 2 obviously deals with a separate issue and
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that will be argued separately later today. But Count 1, as you noted in your October 5 order -- October 15th order, Your Honor, where you pose the two legal questions that Mr. Primis will argue, that alleges, quote, according to Your Honor, one overarching combination. What the plaintiffs claim there is that the
eleven defendants agreed to allocate or divide among themselves and agreed to rig the prices to be paid on 27 separate transactions, including, principally what they seek damages on, 17 leveraged buyouts where a public company is taken private by defendants. And those 17 LBOs, Your Honor, valued, were valued at more than 250 billion dollars. period, 2003 to 2007. And it's over a five-year
That's the massive scope of the 250 billion dollars worth of
conspiracy they've alleged.
transactions over a five-year period. For their own strategic reasons, Your Honor, for one of the reasons you suggested early in this case which was how do you join all these disparate transactions together, they decided to swing for the fences and to go big with the conspiracy that they have claimed here. But now,
Your Honor, on this motion they must be held accountable by you for that choice. When the plaintiffs first described the alleged one overarching combination to Your Honor at the motion to
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dismiss, your reaction was, and I'm quoting, Your Honor, "That you have never heard or seen anything like it." Your Honor, it was for good reason. And,
It's because it didn't And discovery over
happen and it could not have happened.
the years, and we've had three phases, as you know, of discovery have shown that. We've had more than ten million We've had
pages of documents produced by the defendants. more than 50 depositions.
And in none of that evidence,
none of that evidence, none of the documents, none of the depositions do you see any evidence of an overarching conspiracy that links together these 27 transactions. Every witness who was questioned at a deposition about an overarching conspiracy testified there was no such thing and nor do any documents mention such an agreement. And to find otherwise, Your Honor, in connection with this motion requires you to find in the absence of any evidence to support it that the defendants expended enormous time, effort and expense pursuing deals that according to the plaintiffs they already knew they would not win and that defendants continued to submit bids, bidding against each other and raising the price to ultimately be paid by the winning bidder, all the time knowing that it was a sham and that they wouldn't win. The plaintiffs have to prove on Count 1, and that's all we're focusing on, the one overarching combination, not
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what they alleged happened on a single deal, not tied to the other 27. And they either have to do that through direct And I submit, Your Honor, they
evidence or circumstantial. have neither.
I am sure they're going to argue -THE COURT: and then go on. MR. TRINGALI: THE COURT: Absolutely, Your Honor. Let me ask you this one question
Let's assume that there is a
conspiracy on Count 1, HCA, Freescale, Philips, throw another one in there, what is the ruling in that situation? MR. TRINGALI: The ruling is you deny -- you
grant our motion for summary judgment as to Count 1, Your Honor, because that's not the conspiracy they've alleged in Count 1. The Count 1 conspiracy that they have alleged is all 27 transactions, all of those LBOs agreed to, allocated by those 27 defendants. alleged. That's not the claim they have
Mr. Primis will address this in further detail but For whatever reasons they As
they have a separate HCA claim.
decided not to include Freescale and NXP, for example. Your Honor just suggested, it could have potentially happened; but, in any event, the claim we have here in
Count 1 and the claim that they have told you from day one they were alleging was a 27-deal, all large LBOs, 250
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billion dollars' worth of LBOs over a 5-year period.
That's
what they wanted, that's what they must be held to, Your Honor. And if you, and if you -- well, the plaintiffs will argue today I'm sure that there are certain documents that they'll say are sufficient to defeat the motion on Count 1 as the overarching combination -THE COURT: I missed that last phrase. I'm sorry?
MR. TRINGALI: THE COURT: what? MR. TRINGALI:
You said the plaintiffs will argue
I'm sure they're going to argue
to you today that they do have certain documents that will show the overarching combination. Your Honor is that they do not. What I'm submitting to
That the test will be not
what an individual deal -- what happened on an individual deal but what happened with regard -- whether they have any evidence that ties together all of these transactions in the combination that they allege for you, which is not -- which was an allegation of an overarching conspiracy to rig bids and allocate all deals. And that's where I say, Your Honor,
that they will not have the proof. And let's look at some of the evidence, Your Honor. First they tell that you there is no overarching conspiracy -- they tell you that there is no overarching
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conspiracy to allocate the deals, okay.
Look, Your Honor,
if Your Honor will look at tab one of the binder. If you look at tab one, Your Honor, you will see a document written contemporaneously by one of the losers in the Neiman Marcus transaction. What do they write? "We
lost, very depressing, don't know price." If you turn to tab two, Your Honor, you will find what the losers write, this is in the Susquehanna transaction. best shot." If you turn to tab three, Your Honor, this is the Clear Channel transaction, what do you see the loser saying? "Raised bid to, quote, absolute stretch. disappointing outcome." Your Honor, none of that are the words of conspirators who agreed not to compete or conspirators who decided to divide the LBOs among themselves. words of competitors, not conspirators. These are the Very, very "Very disappointing. Gave it our absolute
Conspirators They
wouldn't be saying it's disappointing to have lost. gave it their best shot.
The conspirators under their
theory of an overarching conspiracy to allocate these transactions would already have known that they weren't going -- which ones they would win, which ones they would lose. They wouldn't be competing, giving it their best shot
and then expressing disappointment when they lose.
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The other thing they claim, Your Honor, as part of this overarching conspiracy as to all 27 transactions is that it was an overarching conspiracy to rig bids. "Rigging
bids," Your Honor, means that they knew each others prices and we deliberately bid below with some agreement as to us coming in. If you look at tab 4, Your Honor, this is written by a loser in the Neiman Marcus transaction. First of all,
what is their source of information as to what the winning price was for Neiman Marcus? It's the Wall Street Journal. "Wow, if we were
And what is their reaction to that price? going to lose, I'm glad it is by a lot." Turn to tab 6, Your Honor.
This is the reaction of What's the And what's
a losing bidder in the Toys "R" Us transaction. source of their information? The New York Post.
the reaction of the losing bidder? true, what are they thinking?"
"If, if, if this is
No indication of knowledge
of price and, in fact, surprise in learning the price, as it's recorded in the papers. And a final example, Your Honor, in tab 7, again, the reaction of the losing bidder in the Michaels transaction. "Giving it everything and more. If they beat
me, they have crossed into stupid territory." What you see in every one of these documents, Your Honor, is no agreement to rig bids, the losing bidder not
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knowing the price of the winning bid, and expressing surprise at how high the winning bid was. That is consistent in all the documents I just showed you and those are all contemporaneous documents and all of which disprove any idea that there has been an allocation. Again, those are all the words of competitors,
not conspirators, as to any overarching agreement to allocate and rig bids. Now, Your Honor, the issue, another issue that we've raised with regard to this overarching combination, Your Honor said you had never heard or seen anything like it, is its implausibility, the fact that how could you divide up 250 billion dollars worth of transactions over a five-year period? And if you turn to tab eight -THE COURT: Let ask me ask you this question. Yes, Your Honor.
MR. TRINGALI: THE COURT:
Assume for the sake of the
question that you have -- and, again, I am not saying there is any evidence -- but assume, so I am clarifying my thinking, that six of the defendants were involved in 20 transactions. Would that or would it not constitute an
overarching conspiracy? MR. TRINGALI: Your Honor, it would -- again,
this is going to be -- these are the questions --
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THE COURT:
If, in fact, there were. I know these are the questions
MR. TRINGALI:
you posed and they will be addressed by Mr. Primis. The answer is it would involve a conspiracy other than the conspiracy alleged in Count 1. alleged in Count 1 is very specific. The conspiracy
It's all LBOs were
divided and as soon as you move away from that you have a different conspiracy. And Mr. Primis will explain the
issues that arise as a result of that. There are different issues in terms of how exact plausible, as you start taking away transactions, as you start taking away defendants, so it is a very different conspiracy. It is not the conspiracy they have alleged.
And it creates different issues that, again, Mr. Primis will explain to you as to why it would, it fundamentally changes the case. THE COURT: All right. If you turn to tab eight, Your
MR. TRINGALI:
Honor, what we posed are some practical questions, practical questions as to why the overarching conspiracy that they allege simply could not have taken place. And these are,
first of all, we are talking about their idea is that we've divided up all transactions that are going to occur over a five-year period. billion. They used to say all LBOs above 2.5 Completely
Now they say the LBOs in this case.
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gerrymandered but, in any event, that's what it is. But what they failed to recognize, what they failed to explain to you, even though we've raised this now countless times, is it is implausible to have such a conspiracy when none of the defendants would know in 2003 which transactions were going to occur, when they would occur, in which industry and the size of the transaction. That's all laid out, Your Honor, in tab eight. And all of those questions are very important because how do you allocate, how do you say that Your Honor gets transaction A and someone else gets transaction B when you don't know when there will be a transaction B. don't know whether you'll want transaction B. You
You don't And
know whether you'll be able to bid for transaction B. you don't know the price of transaction B.
How do you trade
up all these transactions without knowing what the transactions are even going to be? And I'm going to show you a little later, Your Honor, a chart that will show you over this five-year period, this 250 billion dollars of deals, and we will show you who won and who lost. pattern, zero pattern. people win ten times. And Your Honor will find zero Other
People win once, twice.
People win 12 percent of the deals. There is zero
Somebody else wins 50 percent of the deals. pattern.
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The second issue, Your Honor, is in terms of the implausibility of this conspiracy and why you've never heard or seen anything like it is there is no knowing which third parties might submit bids and at what price. How could we
have agreed among ourselves as to which transactions each of us are going to get when other people are bidding? plaintiffs want to downplay strategic bidders. And the
And a
strategic bidder, Your Honor, is simply a competitor, someone who is already in the industry as opposed to these defendants who are what are called private equity firms who take the company private. And in numerous transactions you have strategic And you actually have strategic bidders who end up
being successful like, for example, in the Clear Channel situation where Cumulus, a radio station, wins the transaction. But in numerous transactions, Your Honor, you
have competitors looking at the business. THE COURT: Do these competitors, have they
the financial wherewithal? MR. TRINGALI: Absolutely, Your Honor. We're
talking about companies, Verizon for example, the phone, they looked at Alltell which was one of the transactions in this case. There is no claim ever made by the plaintiffs
that the strategics who looked were unable to make these transactions. Aramark, Sodexo (ph.) which is a major
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company, public company, major competitor of Aramark, they looked at that transaction. In each of these cases -- and the other thing, Your Honor, we find, for example, in TXU, Tenaska, which is a competitor of TXU in the utility business, they went out and got partners. There is nothing -- there are smaller private
equity firms and there are a number of private equity firms as large as some of the defendants here who are not defendants. And lo and behold, those people all end up
bidding in these situations. So not only is it other strategic companies, Your Honor, but in each of these transactions what you find is non-defendants bidding, sometimes with defendants, sometimes not with defendants. Sometimes with strategics, sometimes
with strategics looking at it alone. So how do we divide this market when it's not -these transactions when it's not only ours to have? does that give you any certainty if you passed on transaction A thinking you're going to get transaction B when you don't know who is going to be the bidders in transaction B? And, finally, Your Honor, and very significantly in terms of the implausibility of the conspiracy, there is no knowing who -- it is the target company and its advisers who are going to make the decision as to who will be allowed to How
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compete and whether it will be what's called an auction or a proprietary transaction. Let me explain that.
In several situations -THE COURT: What is the difference? Yeah, I'm going to explain
MR. TRINGALI: that, Your Honor.
An auction means that the company has decided we're going to pursue a transaction where we go private, where the public shareholders are all paid out and we become a private company. And we're going to do it by an auction. We're
going to tell people it's public, it's going to be publicly announced and we're going to either let everyone bid or we're going to select and say you can bid, you can't bid for whatever reason. That's an auction.
A proprietary transaction, Your Honor, think of it as exclusive, which is that sometimes target companies don't want it to be public, that they're thinking of going privately. Well, Your Honor would probably imagine what happens is as soon as there is a press release the stock price jumps up because the shareholders think they're going to get some premium as they do, and, therefore, the price rises and that creates an artificial distortion of the market. It's also a problem for target companies once they
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announce they're going to go private because there is an issue of an employee disruption. Employees may think my job
is not secure, I don't know what's going to happen with new management, I don't know whether I'm going to be able to have a job, so they may start leaving the company. Also there is a disruption in terms of your customers. Customers may not want to deal with you and
enter into a long-term contract with you, for example, if they also are uncertain as to what your future is. So what
they do there in that situation where they don't want to be public about it and let all these potential harms happen is they just deal -- they go out and either they're contacted by a private equity firm or they contact through their advisor and investment banker one or two private equity firms and say we want to explore an LBO, a private trans- -going private but we want to do it secretly, just with you. We want to get to a price that is acceptable to us. we do, then we will sign a deal with you. proprietary transaction. And if
And that's a
Everybody else is not bidding.
Everybody else doesn't have knowledge of the transaction. And, Your Honor, in those situations, the proprietary transaction, in example after example even though it's a proprietary transaction -- and this gets to the issue of the lack of control and the lack of ability to have this conspiracy -- what you find is the target company,
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the company who is going to do a proprietary transaction consistently rejecting the price that the group they've reached out to for a proprietary transaction is offering them until they get to the price that is acceptable to them. So even though there is nobody else bidding, what you have is the board saying no, no, no, no, and finally they get to the price where the board says yes. So, again, the inability to implement this conspiracy and to agree among ourselves who is going to get which transaction is frustrated by the point that we don't control the process. The target company, even in a bid
situation, often decides who they're going to allow to bid and who they're not going to allow to bid. In a proprietary transaction they select who they're going to have -THE COURT: How many of these transactions
were auctions and how many were proprietary? MR. TRINGALI: is going to show you that. THE COURT: Okay. Probably the easiest way is to Your Honor, I have a chart that
MR. TRINGALI: give you that. THE COURT:
All right. Let me address, Your Honor, in And I want to set up
MR. TRINGALI:
a moment the circumstantial evidence.
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by giving you the legal standard. nine.
And this is behind tab
It's really the Matsushita case by the Supreme Court
because there are specific rules that even the plaintiffs acknowledge exist in an antitrust conspiracy case such as this under Section 1 alleging a conspiracy to allocate and rig bids. And it's not the typical summary judgment is There are limitations.
there any genuine issue of fact.
For example, Matsushita says that it limits, antitrust law limits the range of permissible inferences from ambiguous evidence. Conduct as consistent with permissible
competition as with illegal conspiracy does not standing alone support an inference of antitrust conspiracy. THE COURT: Say that again. Okay. This is the top quote,
MR. TRINGALI: Your Honor.
And what it says is that conduct, if you have
conduct that's alleged by the plaintiffs, for example, joint bidding is one of the conduct, one of the issues of conduct that they allege, if joint bidding is as consistent with permissible competition as with illegal conspiracy, we win. And there are numerous reasons, and the plaintiffs don't deny this, why joint bidding is completely in somebody's independent interests. It allows you to pool capital, diversify your risk, all things that are in your independent interest. And so
long as you have an independent reason to support your
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conduct, as long as there is a permissible inference with regard to permissible -- sorry -- inference with regard to permissible competition as opposed to illegal conspiracy, then they lose, we win. And that really gets to the next point, Your Honor, and that's also in the Matsushita case which is that they must present evidence, the plaintiff seeking damages must present evidence to survive a motion for summary judgment, quote, that tends to exclude the possibility that the alleged conspirators acted independently. So if we act, if we can show the possibility that we were acting independently so when we submitted joint bids it was because we wanted to pool capital, we wanted to diversify risk or, Your Honor, when we don't jump a bid because we -- and I'll show you examples of this -- had individually decided we're going to lose or that the price is too high. That's the independent action that Matsushita
says if you have that independent -- if you have the possibility that the conspirators acted independently, the plaintiffs lose. And, Your Honor, there is two other cases that we cite in the next two pages that I'll just bring to your attention, which is simply if there is a jump ball, we win -THE COURT: So what you are saying is that no
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matter what the formal recitation of the principles of summary judgment, in an antitrust case the plaintiff must present evidence that tends to exclude the possibility -MR. TRINGALI: THE COURT: independently? MR. TRINGALI: Absolutely, Your Honor. And Of independent --
-- the conspirators acted
that is different, obviously, than any summary judgment case, not antitrust, that Your Honor would decide. Your
Honor typically in an antitrust case obviously is going to see is there any genuine issue of fact, disputed issue of fact, material issue of fact. But in an antitrust case under the Supreme Court the plaintiffs have this added burden. And that's
consistent in the Supreme Court cases of having to exclude the possibility of independent action. And, Your Honor,
here the circumstantial evidence both demonstrates competition, and you saw that in the various documents that I presented to you, because there you saw the words of competitors, not conspirators. But it also doesn't meet the
Matsushita test of tending to exclude the possibility of independent action. Remember, Your Honor, first the target companies control the LBO sale and they decide who would be invited to bid and the composition and size of those groups. And I
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mentioned -THE COURT: Say that again. The target companies, in other
MR. TRINGALI:
words, the companies that are going to be the subject of this supposed conspiracy, they're the ones who control the sale. They decide who is going to bid, who they're going to
allow to bid, who they're not going to allow to. THE COURT: proprietary? MR. TRINGALI: have, Your Honor. proprietary. THE COURT: Every one of them? Every one of them, exactly, Well, those are the only two we In all cases or just auction and
Every transaction is either auction or
MR. TRINGALI: Your Honor. THE COURT:
All right. Of the LBOs that are at issue
MR. TRINGALI:
in this case that they seek damages on, every one. So if you look, Your Honor, what you're going to find is, for example, if you look at tab 11, just to show you some examples where it is the company, not defendants, who are deciding who can bid or who cannot bid. In Alltel,
Bain, for example, one of the defendants, it was told no by Alltel's financial advisor Merrill Lynch when it wanted to participate in the auction.
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Quote, Merrill Lynch not budging on letting us in Quote, Already have a competitive process. So that was Merrill Lynch, Alltel's financial advisor, not the defendants, saying Bain, you can't participate. So think, Your Honor, how could we have an agreement that allocated Alltel to Bain if Alltel won't let Bain even participate? We also have this fact, and this happens in the Clear Channel situation, that we can't even control whether it's going to be a proprietary or an auction transaction. What happened in Clear Channel, it started as a proprietary transaction. They were just dealing with Providence and But the Alltel --
KKR, two of the defendants in this case.
I'm sorry -- the Clear Channel board rejected the price, $35. You'll see in tab 12, "Rejected 35, board not happy.
Pencils down." So you know what happens, Your Honor? It goes from
a proprietary transaction that the board was pursuing to the board deciding to do a public auction. happens in the public auction? And guess what
The two people that were
selected by Clear Channel to do the proprietary deal, they lose because somebody else bids against them and bids a higher price. That again, Your Honor, shows you the
implausibility of the conspiracy.
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And then in Alltel, another example of how we cannot even possibly implement this conspiracy because we don't control who gets which deal. is there is a bid deadline. and there is a bid deadline. In Alltel what happens
This is an auction situation Let's say it was June 15th.
And two of the defendants decide we're going to do what they called internally in their documents a "dawn raid." So they
put in what they considered to be a preemptive bid, a price high enough that they think no one is going to try to beat it before the bid deadline. And what does Alltel and its financial advisor do? Alltel decides to accept that price and shut down the process. And then, so what you find then is the people who
are about to bid, do they say we had an agreement, we divided it up and we agree that Alltel will go to those people who did what they call the "dawn raid"? No, what
they do instead, Your Honor, is express once again surprise and disappointment. conspirators. If you look at tab 13, this is one of the losing, one of the people who was shut out, shut out of the Alltel auction because of what Alltel did. And what they say is, It's the words of competitors, not
"We are surprised and disappointed that the company would shut down a process with so little time left to go." They also write, "My team spent a lot of time, a
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lot of precious time and money on this and wanted to at least get to the finish line and put our best foot forward. The Carlyle, Blackstone, Providence guys are even more furious and crying foul." If you turn to tab 14 you have the words of Providence and their reaction to being shut out in Alltel. "Very strange and disappointing." And in tab 15 you see Carlyle's reaction. quite mistreated here." So what you find, Your Honor, is that it is the company who decides who is going to bid, it is the company decides which price they're going to accept, and it's the company who's going to decide how they're going to conduct that process, whether they're going to allow it, they're going to do it proprietary and select who they want to deal with, whether they're going to have an auction, and if they have an auction, who they're going to let team with whom. So how do we control how to divide it up? Aramark is another situation, Your Honor, where what you find is management controlling the process. Sometimes what you have is management themselves, in this, in Aramark you have the CEO of Aramark, chief executive officer, Mr. Neubauer, who decides he wants to take the company private so he reaches out to two of the defendants here -- actually to one defendant and one nondefendant which "We feel
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again shows you that we can't control who is going to even bid because Neubauer in this case goes out not only to T.H. Lee who is one of the defendants but Warburg who is not one of the defendants, and because of his relationships with them from prior transactions and prior dealings, those are the two people he decides he's going to work with. So we can't allocate the transaction and say Your Honor gets Aramark when Aramark's CEO is leading the process and he's deciding who he is going to do a deal with. The other thing, Your Honor, is they allege this bid-rigging conspiracy that we, you know, we got together, we agreed to submit sham bids to keep the prices low, completely inconsistent with the documents, contemporaneous documents, Your Honor, which show that we didn't know what other firms were paying and we expressed surprise and disappointment and say we couldn't even get to that price. Again, the words of competitors, not conspirators. So, for example, if you look at tab 16, you find one of the losing bidders saying -- this is with regard to the Michaels transaction. "While we are disappointed to
have lost out, the deal team felt that we ultimately stretched as far as we could. Disappointing but I feel as
if we put a huge price on the table -- well above where we would have 'liked' to buy it." Note that two of the firms in the consortium and
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one in ours dropped along the way. price rigging, Your Honor?
How does that indicate What it shows is
It doesn't.
people paying as much as they think they can and people dropping out, people dropping out, even from the winning bid because they think the price got too high. Turn to tab 17, Your Honor, and this is the reaction of another defendant. They say, "They paid a huge How does that
fricking spread to the rest of the field."
indicate that there was price fixing and knowledge of that? Turn to tab 18, Your Honor. crazy." "I feel like they're
This, again, is when they get it from the Wall The Wall Street Journal reporting, "Went And the reaction?
Street Journal.
for a hundred bucks to TPG and Warburg." "I feel like they're crazy."
If you turn, Your Honor, to tab 19, what I've tried to show Your Honor, and, first of all, this first of all indicates to Your Honor, in response to your question when you had -- which were proprietary and which were auctions, and you will see, Your Honor, that what we have done is if it is blue, it is a proprietary transaction. orange, it's an auction. THE COURT: Why are there just 17 and not 27? Because, Your Honor, the If it's
MR. TRINGALI:
plaintiffs will agree with this, that there are only 17 LBOs for which they're seeking damages which they have standing
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so the others are things that they said we also conspired about but they're not part of their claim for damages and they don't have standing to challenge those. But what's interesting about this chart, Your Honor, this is one of the charts I wanted to show you. shows that there is no pattern. Apollo, one of the defendants. Look, for example, at It wins a proprietary This
transaction for AMC which is a movie theater company in July of 2004. It doesn't win again until December of 2006 when
it wins Harrah's, the gambling company. And if you look at all of the other defendants, you will see zero pattern. conceivable rate. versus auctions. Nobody is winning and losing at any
Nobody is winning proprietary deals They're involved in both. And no one is
controlling when they win, when they lose. If you look at tab 20, Your Honor, that, again, shows you which ones are proprietary and which ones are auction with a P and an A. It's probably a little simpler
than color coding -- sorry, Your Honor. THE COURT: Okay. Go ahead, I have got it. And what tab 20 shows
MR. TRINGALI:
Okay.
you is the variety among the defendants in terms of these 17 LBOs, in terms of how many they win and lose. two. Apollo wins
Somebody else wins five, four, two, seven, two, five, Where is the pattern? Where is
three, two, nine, three.
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there some equitable distribution among these defendants to allocate when they're all winning different numbers of transactions? And the other thing I wanted to point out, Your Honor, in terms of the nondefendants and the inability to do this transaction, in eight of the transactions you have nondefendants as part of the winning consortium. And if you look at tab 21, all we attempted to do was give you -THE COURT: Let me ask you this:
With respect to those nondefendants -MR. TRINGALI: THE COURT: Yes.
-- are they grouped or designated
as part of the so-called alleged co-conspirators or no? MR. TRINGALI: The plaintiffs say they're They don't say who they are
other unnamed co-conspirators. or not.
But more importantly, Your Honor, they have given
you no evidence on this motion that any of these supposed co-conspirators were co-conspirators. So, for example, at one point they said to you in an earlier complaint that management of these target companies was fundamental to the conspiracy and they were co-conspirators. No evidence with regard to management. They said the
They don't even make that claim anymore.
investment bankers who advised the companies were
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co-conspirators. co-conspirators.
They say other private equity firms were But it's an allegation in the complaint.
There is no evidence on this motion as to any of that. If you turn to tab 21, Your Honor, what we have attempted to do, again, to show you the implausibility of the conspiracy is do something very simple. The number of
the, the 17 transactions and how many each defendant won of those 17, and you will see the percentage varies from 12 to 53 percent and everything in between. THE COURT: Just one question. Yes.
You are on 21 now; is that right? 21, I'm sorry, Your Honor.
I just want to look closely. Is there any
There is only 10 defendants rather than 11. reason for that or am I miscounting? MR. TRINGALI:
Oh, J.P. Morgan, Your Honor, is
not a, did not -- J.P. Morgan is only involved as a defendant as a bank, not as a private equity arm, so it did not acquire any of these transactions. THE COURT: Okay. Your Honor, let me just,
MR. TRINGALI:
because I'm running late here, with regard to the rules and what the plaintiffs do is they say, they try to, instead of coming up with any evidence of an overarching conspiracy,
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they say we had some rules. can be thought of as rules. THE COURT:
And, by the way, they say what
That is, I would think they argue
motive, opportunity, expert testimony but the thrust it would appear of their case either lies or it doesn't lie with respect to the so-called courtesy or whatever, how do you describe it? MR. TRINGALI: THE COURT: Quid pro quos.
Yes, or "club courtesy." Yeah. And, Your Honor, the
MR. TRINGALI:
answer is that it doesn't work, okay, because these rules that they say which is club etiquette or club courtesy -THE COURT: Club etiquette, yes. All they're describing is
MR. TRINGALI:
behavior that has taken place in certain of the transactions. It doesn't go to the overarching combination.
What it -- what you find in every one of these 27 transactions and particularly the 17 LBOs that are the subject of damages is competition and we've shown you that now in numerous examples. So when they say there is club etiquette, it's meaningless. So, for example, they say to you one of the
things in the rules, one of this club etiquette is that we do club bids, we do joint bids. First of all, they've told you, and Your Honor has
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recognized in your own order that the shareholders don't, that they don't contest the legality of club deals. So they
make a big deal about the fact that we do club bids, that we joined together. THE COURT: practice of this -MR. TRINGALI: They're saying it. I'm not. Are you saying that is part of the
They're saying that's one of the rules. claims. THE COURT:
That's one of their
No, my question to you is is the
fact that private equity firms as a matter of practice have, in other words, it is part of the tradition that they do join together, the joining together is normal or traditional; is it not or isn't it? MR. TRINGALI: and traditional. It is, Your Honor. It's normal
And, most importantly for Your Honor,
well, there's probably a few things that are most important on this issue. But first and foremost, it has nothing to do
with the overarching combination because if you have three groups, three bidding groups, which you often have, and they're bidding against each other, how does that translate to what the plaintiffs' claim is, which is an allocation agreement that we're not going to compete against each other. So the mere fact that you have three bidding groups
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as opposed to three or six individual bidders is meaningless in terms of whether or not the defendants have agreed to divide up the transactions among themselves. Three bidding
groups are still bidding against each other and the price is still going up. So what does that have to do with the That's the problem they have.
overarching combination? That's No. one.
The second problem they have is under that Matsushita test that Your Honor recognized with regard to summary judgment, they can't exclude the possibility of independent action because firms do have an incentive, an independent incentive to join together, to pool their capital and diversify their risk. It's the same thing as
Your Honor deciding rather than putting all your money in one stock, in one company, you're going to go into a mutual fund and diversify your risk so your savings are not going to be dependent on how one stock performs but, in fact, how 30, 40 stocks perform. And it's no different when the private equity firms, because they have investors, they have people who are like you, a share -- you know, someone who owns a mutual fund and those people want returns. And by diversifying
their risk, by having more transactions that they've participated in, not at the full level but as partners, by taking 20 percent of it or whatever, they are diversifying
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their risk so if one transaction goes bad, they may have another transaction that actually goes well. But so, anyway, the whole thing about club bidding, Your Honor, No. one, they don't challenge it. No. two, it has nothing to do with the overarching combination because the clubs, the joint bids are still competing against each other. And, No. 3, it fails under the Matsushita test of independent action. The other two I want to just jump, go to very, very quickly is the no jumping and the quid pro quo. jumping, Your Honor, there again it fails. THE COURT: Explain that again. I'm sorry? On no
No jumping. Oh, I'm sorry, Your Honor, I
MR. TRINGALI: should have done that.
I'm just trying to go quickly,
that's the only problem. "No jumping" means they're saying that we don't top somebody else's bid. bids all the time. The problem is we top each other's
So the -- and, so what you see is Clear
successive round, multiple rounds of bidding.
Channel, Michaels, Neiman, Sabre, Susquehanna, Texas Genco, Toys "R" Us, any of those transactions you're going to see multiple rounds of bidding.
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So the fact that in an auction situation we're not bidding against each other, we are not having multiple rounds of bidding and not increasing the price each time, that's just preposterous. And in the proprietary transactions I mentioned to you, Your Honor, the price is continually going up even when they're dealing with just one bidding group. The other issue is it fails the Matsushita test, Your Honor, because there is a reason why people don't bid, why people decide at some point not to keep bidding. I can
decide that it's worth it for me at $50 but I can also decide that when it goes up to $55 it's too high a price. And if you look at the tabs starting at tab 22, what you will see, Your Honor, is these defendants all showing their independent reasons why they decided not to jump, not to pursue a transaction after a certain point. In Aramark Apollo says, "We probably spend money and time and piss off friends and they pay a few bucks more and we get nothing." How, Your Honor, is that inconsistent
with the Matsushita test excluding the possibility of independent action? In Aramark, this is tab 23, Blackstone says, "But even if we can offer something a little more for Aramark, Neubauer," that's the CEO, "and his group would likely bump their offer." Again, its own independent action.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26.
To speed this along, Your Honor, if you turn to tab
THE COURT:
26? 26, Your Honor. This is with
MR. TRINGALI:
regard to the Kinder Morgan transaction.
Carlyle decides
not to compete, not to bid, observing that with Kinder, and this is Rich Kinder who's the CEO, with him owning so much stock, and he's aligned with another group, it's hard for anyone else to get this done. to back. And, finally, Your Honor, this is with regard to TXU, this is tab, the last tab, tab 27, this is Carlyle. What did they say in the TXU transaction? "I think we are a day late and a dollar short on this deal and trying to top it is only going to result in our spending a lot of money to lose." Your Honor, that is the classic example of what Matsushita says defeats any attempt -- defeats the plaintiffs' burden here, because this is clear evidence of independent reason why a defendant decides not to continue to compete for a transaction. late, a dollar short. to lose. They're a dollar -- a day Also he is the guy you want
They're going to spend a lot of money
Nothing under the antitrust laws requires you to
continue to bid when you think you're going to lose and you're going to waste your money.
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And, finally, Your Honor, the quid pro quos that were mentioned, there again, no evidence of market allocation. In no way do they tie anybody saying I got you
in on this deal so you get me in on that deal to this 27-deal overarching combination. That's No. one.
No. two, we point out in our briefing, and I'm not going to go through them here, there are numerous cases that say referrals are perfectly proper. antitrust laws. No. three, again, the Matsushita test, Your Honor, referrals are perfectly within your independent interests. Why is it not in my independent interest at a law firm if I get a referral from a firm in the United Kingdom, for example, for a transaction in the United States, if I then have a transaction in the United Kingdom, to go to that law firm and give them a referral so that they will continue to refer business to me? Absolutely complete business sense, They don't violate the
satisfying the Matsushita test of independent reason, not a conspiratorial reason. And I would finally add, Your Honor, just for a second that most of the quid pro quos they mentioned to you don't even make any sense. So, for example, they say in What
Clear Channel, Blackstone, KKR to come to its group.
they don't tell you is they lost so it's a great quid pro quo that I say, Your Honor, join me in this bid and we can
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lose together. In Community Health Carlyle they say went to Goldman Sachs. What they don't tell you is the Community
Health deal never happened. In Education Management Carlyle they say brings in Bain. What they don't tell you is that Bain loses. In
Michaels stores Bain they say gives it to Carlyle but Carlyle -- let's Carlyle come in but what they don't tell you is Carlyle drops out because Carlyle thought the price was too high. And in Neiman, Your Honor, supposedly they say Goldman Sachs offered that opportunity to T.H. Lee but what they don't tell you is that T.H. Lee lost Neiman Marcus. So they give you great examples, Your Honor, of people doing normal business behavior, of letting someone come in to a deal when they ask but they also leave out all the times when people asked to come into a deal and are refused. HCA, for example, Goldman Sachs, Carlyle and TPG all wanted KKR, Bain and Merrill to let them in at the end and they said no. In TXU Bain and Carlyle wanted to come So you can
into that transaction and KKR and TPG said no. point to examples -THE COURT:
Let me ask you this question:
You have made a strong argument but at summary
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judgment we do have plaintiffs' experts who opine that there is, I don't think they use the term "an overarching conspiracy" but basically some type of a conspiracy or some type of anticompetitive conduct. that? What am I going to do with
Does that present a -- well -MR. TRINGALI: THE COURT: What it does --
-- substantive controversy? No, Your Honor, it doesn't for
MR. TRINGALI: this reason.
What it doesn't present to you is a material And
fact as to the existence of the overarching conspiracy. that is the issue for Your Honor. THE COURT: Say that again. It doesn't present to you a
MR. TRINGALI:
material fact as to the existence of an overarching conspiracy because what the plaintiffs' experts do is one of their experts says nothing more than there are all these things that go on in the industry that could, could, and he actually uses the words "it wouldn't surprise me," that's what he says, "it wouldn't surprise me" if the prices were depressed because there are these factors that would facilitate collusion. He doesn't say that there was this overarching agreement, which is what they -- what you need on this motion. And the other two experts that submitted a joint
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report to Your Honor, what they do is they say there are all these facts out there that make us think there is something wrong here. But, again, they, A, don't deal with any of the
things I just mentioned to you today which Your Honor has to deal with under Matsushita because you have a -- you have -you can't just have them saying there are these factors that might indicate something is wrong and then have us show you all the reasons, all the independent reasons and say that defeats it. But the things that they raise with Your Honor are complete red herrings. I'll just give you a few examples. Assume it is. Assume that -- it
THE COURT:
is kind of a very generalized opinion, assume that, and that its connection with the facts is somewhat tenuous. It is
tough to get rid of, if I were tending that way, expert testimony because it may well in an ordinary case present a genuine dispute of fact. MR. TRINGALI: Well, but, Your Honor, it
doesn't -- but the way you do get rid of it here is it doesn't present to you a genuine issue of material fact as to the existence of an overarching agreement to allocate those 27 transactions. What they do is say to you there are these various factors that could have let this happen but what they don't do is, first of all, deal with all the stuff that did, in
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fact, happen, all the competition, or present any evidence to Your Honor to substitute for -- to raise the material issue of fact. So the fact that you get a professor who cites to you economic, you know, an article, economic article does nothing to create for you the material issue of fact you need under Matsushita that says it wasn't in our independent interest, No. one, the conduct. conspiracy is plausible. No. two, that the
And quite frankly, the things that
they've done simply make no sense. THE COURT: Let me ask you this:
Assume for the sake of this question that the expert testimony, assume that it is not that persuasive to me, a judge. Assume that. Is that my prerogative or is it
a question and should it go to the jury for the jury to evaluate this so-called, not so-called but expert testimony? MR. TRINGALI: Your Honor, it's for you and
the reason why it's for you is because if you find that that expert opinion does not present a material issue of fact as to the existence of the overarching conspiracy, and I submit it does not, neither of those reports do, and, in fact, they don't even pretend to do because those reports quite frankly don't distinguish whether those supposed, the supposed behavior -- those reports could be identical if they were talking about an individual deal, which the plaintiffs say
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they're not doing here, they're not doing deal-by-deal allegations or the overarching conspiracy. And those
reports do not, Your Honor, do not provide to you any basis for finding a material fact as to the existence of the overarching combination. And that, Your Honor, is your role
and solely your role at this motion. It is not for a jury to decide if Your Honor doesn't find that the expert evidence has provided you with a material issue of fact as to the existence of the overarching conspiracy. And their experts merely saying
that you have motive, you have opportunity, you have these plus factors, you have situations, none of which they tie together to all 27 transactions, none -- they can't substitute, the expert opinions can't substitute for the lack of proof of the overarching conspiracy. That at the
end of the day is the issue for Your Honor, is do you have evidence of an overarching conspiracy as alleged by the plaintiffs to allocate the 27 transactions? And their
expert saying we think the prices should have been higher, that doesn't do anything for Your Honor because there are one hundred reasons why and that's, again, brings you back to the Matsushita test which is if there are a hundred reasons why and some of those reasons are completely consistent with independent action and not with conspiracy, then they don't satisfy, those expert opinions don't satisfy
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the Matsushita test for you. And they will talk, for example, about how some of these transactions, the highest, the person who had the highest valuation didn't win. What they forget to tell you
is they use, for example, in Freescale they use the example that KKR had the highest valuation. Well, what they don't
tell you is that was when KKR didn't do any diligence. And when KKR did its diligence, it's uncontradicted that KKR said it couldn't get to that amount anymore. The other thing is that they actually show you that in virtually the majority of the circumstances the person who had the highest valuation actually was in the winning group and their only complaint is that that person also had some of the -- people had lower valuations. show, Your Honor? What does that
It shows that people who aren't willing
to pay as much ultimately were forced to pay more money because a winning bidder paid that much money and paid what its evaluation showed. So how does that create a material issue of fact for you? It doesn't, Your Honor. And then just throwing
out economic literature and economists to say there could be something here, that couldn't be. on summary judgment. That's not what they get
On summary judgment Your Honor has to
find that there is a material issue of fact, that there was an overarching conspiracy. And I submit to Your Honor
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everything I have just gone through with you says there isn't and says that they fail under the Supreme Court test that you have to decide this motion under. And now, Your Honor, I want to defer obviously to Mr. Primis so he can respond to the two questions you posed. THE COURT: long do you expect to go? MR. PRIMIS: I was planning to go about 15 We will take a break after. How
minutes, Your Honor, unless there are some questions that extend it. THE COURT: MR. PRIMIS: Okay. Judge, if I may, can I also hand
out a few demonstratives that will assist the argument? THE COURT: MR. PRIMIS: Sure. Judge, my name is Craig Primis
and with the consent of all the defendants I am here to answer the Court's two questions in the order of October 15, 2012 which Your Honor has already previewed with Mr. Tringali. I'd like to proceed with really three points.
The first is I want to carefully define the conspiracy that the plaintiffs have alleged. Second, I want to walk the Court through the consistent strategic decision throughout this case to plead it in a very specific way, that being an overarching conspiracy.
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And then the third thing I'd like to do is turn to the law because the Court asked what are the legal consequences of a finding of some other conspiracy than the one that's been alleged. And I have provided the Court with And I don't intend to go
a spiral bound book of 11 cases.
through all of those cases with Your Honor but I wanted the Court and the chambers to have those because there hasn't been briefing on these issues. And what we found is that
there is a very consistent and strong body of case law in the First Circuit and this district which would counsel in favor of summary judgment on Count 1 and the bringing of Count 1 to a close. With that introduction, Judge, I want to respond to the question you asked Mr. Tringali. different hypothetical conspiracies. You posed two One where you take
away seven deals and five defendants and then a different one where you maybe just have HCA and Freescale and Philips. But neither of those scenarios really changes the conclusion that the defendants are entitled to summary judgment on Count 1 and Count 1 should be dismissed at this stage because of the way the plaintiffs have very clearly and consistently pled Count 1 in their complaint. The place I want to start, and it's not in the handout there, but the place I want to start is in paragraph two in the introduction of the fifth amended complaint.
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What the plaintiffs allege there -THE COURT: MR. PRIMIS: Paragraph two? Paragraph two of the complaint. I'll read it, it's
It's not in the handout I just gave you. very short. I'll read it to Your Honor. THE COURT: MR. PRIMIS: All right.
And obviously paragraph two of
the introduction is the place where a plaintiff would want to make clear what their case is about. There they said,
and I'm quoting, "Defendants' conspiracy involves 19 LBOs of large publicly-held companies and eight related transactions, for a total of 27." They then list all 27 of the deals and then they say, "These LBOs and transactions were not separate, isolated events. Rather, they were interconnected deals
that defendants carefully planned, coordinated and tracked as part of their ongoing conspiracy." That is the overarching conspiracy that has been pled. And as it's been pled in the fifth amended complaint, They're not separate
all of these deals are interconnected. isolated events.
And so to take three or four transactions or to take six defendants with some subset of transactions, the interconnected nature of this global overarching conspiracy that's been alleged goes away.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 illustrative.
THE COURT: MR. PRIMIS: THE COURT:
Let's take HCA. Yes, Your Honor. In Count 1. Again, assume for the
sake of this question, not indicating anything, assume that there is some evidence of conspiracy with respect to HCA, assume that. Should I -- and that is all there is. Should
I grant a motion for summary judgment in the entirety or grant it but exclude HCA? MR. PRIMIS: Well, Your Honor, actually that's
the easiest scenario because we have Count 2 -THE COURT: Well, I know that but this is just
MR. PRIMIS: THE COURT:
Okay.
Yes, take any --
Assume that there is some evidence And, again, that is just for
on HCA but on nothing else.
the sake of this question so I can understand the purport of your argument. Do I grant defendants' motion in its
entirety because, notwithstanding HCA, that does not constitute an overarching conspiracy or do I grant it with respect to all the defendants and all the transactions except for that one? MR. PRIMIS: Well, Your Honor, or a third
option which is given that they have made the consistent strategic decision to plead a global overarching conspiracy which incorporates all 27 of these transactions which as
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they've alleged were not separate and isolated, were part of an integrated whole, that claim by definition is over. There is no material factual dispute that there is no 27-deal overarching conspiracy. So Count 1 we should get summary judgment on under the hypothetical posed by Your Honor. That leaves a
separate question of what -- whether some case can go forward that has this HCA focused transaction but for, from the defendants -THE COURT: MR. PRIMIS: But not in Count 1. But that's not Count 1. Count 1,
and we can now -- and, besides, I should just make the point that in the hypothetical that Your Honor posited, pick any transaction, it could be HCA, pick some other transaction where you think there may be a factual dispute just about that deal. Obviously at that point the many defendants who
had nothing to do with that transaction, they should clearly be out of the case. there. THE COURT: Your argument is overarching was But our argument really doesn't stop
pled, therefore, there has to be sufficient evidence with respect to the overarching conspiracy. MR. PRIMIS: Absolutely. And it comes right
down to Rule 56 which says that the disputed issues of fact have to be material. A material factual dispute about one
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transaction or even two or three transactions, that is not material to the question of whether the companies represented by this very full courtroom got together somehow and all 11 defendants rigged 27 transactions and then got everyone else who had to be in on the deal to go along with it, that's preposterous, and that count is ripe for dismissal. And before I turn to the cases that we believe strongly support what we're arguing and including the number of First Circuit cases, I do want to emphasize that this has been a consistent strategy of the plaintiffs. Now, when
they wanted to plead some kind of other conspiracy or lesser conspiracy, they knew how to do that. There was a count on a deal called PanAmSat and Your Honor dismissed it because it had legal flaws. have a count on HCA. in the HCA count. the HCA count. They
Now, they didn't include the Freescale
They didn't include the Philips deal in
And there are reasons they didn't do that.
Only the plaintiffs know what they are but they're strategic decisions that the plaintiffs have made. So I'd like to review the history just for a moment, if I can, Your Honor. THE COURT: (Laughter.) MR. PRIMIS: It has been a long history. If you go to the first slide.
It has been a long history.
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If you go to the first slide, Mr. Tringali mentioned the motion to dismiss hearing. And that's where
the Court said, "This is a very unusual conspiracy, I have never seen anything like it." I just pause and note at that point -THE COURT: ignorance, not because -(Laughter.) MR. PRIMIS: THE COURT: (Laughter.) MR. PRIMIS: The Court specifically asked is No, it's because of your wisdom. Oh. Well, that may be because of my
this, you know, is there some other conspiracy, is there some other way to look at that and the plaintiffs disclaimed it. They said we're not going on deal-by-deal allegations.
We have an allegation of an overarching market conspiracy. And even though the Court said at that point in time that it was skeptical about this very conspiracy, the plaintiffs have gone ahead and amended their complaint five times. This is the sixth complaint in this case. And along the way in July of 2011 when they proposed a fifth amended complaint, as we have here on slide one, they said, Since the filing of the original complaint, plaintiffs have consistently alleged an overarching conspiracy. The proposed fifth amended complaint asserts
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the same Sherman Act claim for the overarching conspiracy. And then if we go to the next page, in addition to paragraph two which I have read -THE COURT: This is only housekeeping but is
it now 17 and 10 rather than 19 and 8? MR. PRIMIS: THE COURT: MR. PRIMIS: Yes. That is what it is, 17 -There are 17 LBOs, 8 non-LBOs,
just divisions of companies that weren't, didn't have shareholders. THE COURT: MR. PRIMIS: which weren't deals. Yes. And then there are two deals No one ever
They never closed.
purchased the company. THE COURT: So there are really 17 that
damages are being sought for at this time. MR. PRIMIS: THE COURT: MR. PRIMIS: Yes. Okay. And, of course, many of those
have releases tied with them so it gets very chopped up, but, yes, it's 17 deals with shareholders. So then in the next page we really just wanted to flag for the Court, in addition to paragraph two which says as clearly as we could do it that these are all interconnected deals as part of an overarching conspiracy,
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we just wanted to note that Count 1 is defined as the overarching market allocation on the bottom part. And on
the top slide they refer to defendants' overarching conspiracy. And so the plaintiffs have consistently proceeded down a path of overarching conspiracy and they did it knowing that the Court had questions about it and knowing that the Court was skeptical about whether such a conspiracy could be ever pulled off or why anyone would ever agree to it. And so when the Court says do we have a smaller three-deal conspiracy or a six-defendant conspiracy, neither of those counts is within Count 1 of the complaint, of the fifth amended complaint. It's not within any version of the
complaint that has ever been filed. THE COURT: MR. PRIMIS: Say it again. What I said was any smaller
conspiracy that the Court posits as a hypothetical, whether it's the HCA/Freescale one or the five-defendant conspiracy, none of those can fairly be read to be within Count 1 of the complaint and so Count 1 should be dismissed and we should receive, we're entitled to summary judgment on that count. And this is not like a simple drug conspiracy where you find that one person wasn't involved or didn't get the phone call, wasn't at the meeting. And it's not like a
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breach of contract claim where they throw in a tort theory and say, ah, it's really a contract case, we'll toss out the tort theory. The interconnected, interrelated nature of this conspiracy is fundamental to Count 1 of the complaint and on that they have not made their showing. Under any of the
standards that Mr. Tringali has put before the Court they have not made that factual showing so we are entitled to summary judgment. And, importantly, I just want to emphasize that when you start pulling out defendants or transactions, you get a very different case, okay. longer exists. The integrated whole no
So if the plaintiffs' theory is that one
transaction was an inducement for another transaction, okay, and you pull out one of those two transactions, well, then we have to look at the transaction that remains in the case in a whole new light which defendants were involved in that, which -- what were the inducements for the transaction that remains in the case? Well, maybe there is only one
defendant that was in on that deal and that defendant wasn't in any other of the remaining transactions so now that defendant should be dismissed and that transaction no longer fits in the conspiracy. And it's a house of cards the way that they've pled it because every time you pull one out, all the inducements
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and the so-called quid pro quos, they go away for some number of transactions and what's left is not the conspiracy that they have alleged. Now, the question then that remains is what do we do in that situation, because it sounds like the Court may have some questions about the HCA/Freescale situation, although it's not the same as the 27-deal transaction. So the path that we would propose is that you grant summary judgment on Count 1. Count 2 which will be argued
this afternoon is the HCA count and we'll address why that one doesn't hold up. But the important point about the
HCA/Freescale count that the Court has hypothesized is that the plaintiffs have never pled that count. complaints. They've had six And so it
They have never pled that count.
raises the question, well, why haven't they pled that count? And -THE COURT: MR. PRIMIS: not alleged -THE COURT: MR. PRIMIS: Oh, no, not Freescale but HCA. Yes, they have pled HCA. But it Well, they pled it in Count 2. No, they didn't. Freescale is
raises the question why didn't they put Freescale in as part of the Count 2 conspiracy. THE COURT: to my mind too. Well -It came
That is a good question.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 corporation.
MR. PRIMIS:
Yes.
And these plaintiffs are
some of the most -- and they'll be happy to know that I'll say this on the record -- some of the most sophisticated antitrust plaintiffs' counsel in the country. just miss this. They didn't
There were reasons why they didn't do it.
And we can look at the HCA/Freescale situation just as an example. They don't want a conspiracy count that That's the one where
focuses on the Freescale transaction.
three of the defendants plus a nondefendant put in a letter of interest that caused the winning team to have to raise its bid by almost a billion dollars. The shareholders did
very well on the Freescale transaction. Now, they claim that the Freescale transaction was somehow connected to HCA but they don't want to have to prove a case where there was a topping bid of almost a billion dollars. And then the Court mentioned the Philips deal. Well, Philips isn't a public company. THE COURT: MR. PRIMIS: That was just an example. I know but just to show why there
were strategic decisions that they have made not to plead that count. And, by the way, they've never asked you to
plead that count so -THE COURT: Well, maybe, maybe it is a private
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MR. PRIMIS:
Indeed.
The Philips deal was the
acquisition of a private division of a company so there were no shareholders. So it's a very messy business if the Court is going to get involved in trying to save some kernel of a count once Count 1 is dismissed because there are all sorts of reasons why the plaintiffs have proceeded they way they have done. And the Court might craft some conspiracy out of
Count 1 that they have already made a judgment that they wouldn't plead or that it's not worth investing in. gone with the global overarching conspiracy. really the most strategic decision. the case law, okay. What does the First Circuit say you do in that situation? three. And I want to ask the Court to turn to slide They've
And it's
And that brings us to
Your Honor, we've got an excerpt of a case called And James versus Watt is a decision that
James versus Watt.
was written by then Judge Breyer, now Justice Breyer, in 1983. And in that case Justice Breyer was looking at a
situation where the plaintiff tried to switch their theories after the defendants had filed for summary judgment. just like we have here. So
And the district court didn't let
them and the First Circuit said no. And as the Court can see, Justice Breyer said, "The facts suggest to us that the pleadings in this case were
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drawn as part of a litigating strategy and plaintiffs showed the district court no reason why they should not be bound by the consequences of that strategy." Now, this case is nearly 30 years old but it's been reaffirmed and it's been discussed by the First Circuit in recent decisions. There is another case that I want to draw to Your Honor's attention. This is in, Judge, if you go to the
booklet I handed to you, if you turn to page, tab -- I'm sorry -- tab one. page 57. And we want to focus in particular on
Now, this case just for the record is ACA This is a 2008 decision
Financial Guaranty, 512 F.3d 46. from the First Circuit.
And the reason why this is significant is because they picked up Justice Breyer's admonition from 30 years ago and reaffirmed it right here in 2008. the key section for the Court. page 57. "The plaintiffs argue that in the end they were entitled to wait and see if their amended complaint was rejected by the district court before being put to the cost of filing a second amended complaint." Now, notably here we're only talking about a second amended complaint in this case. amended complaints. We've already had five And I'll just read
It's the top right part on
But the plaintiffs here have done the
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exact same thing. They claim this would promote efficiency in the judicial system. Plaintiffs have it exactly backwards.
Their methodology would lead to delays, inefficiencies and wasted work. And on behalf of the group of defendants here who have spent tens of million dollars over the last five years of this case, I can tell you that there have been inefficiencies and wasted work if in reality that they had some sub-conspiracy that they knew about and didn't plead in their complaint. And this is the important part. "The plaintiffs do
not get leisurely repeated bites at the apple forcing a district judge to decide whether each successive complaint was adequate. Plaintiffs may not having the needed
information deliberately wait in the wings for a year and a half with another amendment to a complaint, should the Court hold the first amended complaint was insufficient. Such an
approach would impose unnecessary costs and inefficiencies on the courts and party opponents. This court, the First
Circuit, expressly disapproved a similar tactic in James," that's the Breyer case I just showed you, "and we do so again." And I won't go through all the cases in this booklet, Your Honor, but time and again where plaintiffs
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wait until summary judgment has been filed, and in the Styer case the First Circuit couldn't have been clearer that there is a more exacting burden to change theories when you get all the way down this far in the case. Time and again You're going
district courts have said you can't do that.
to be held to the strategic decisions you've made and the First Circuit has -THE COURT: As of this point there has been no
change of strategy that I am aware of. MR. PRIMIS: Right. Well, I suspect if the
global overarching conspiracy is in trouble, Your Honor, there may be and also, but -- from the plaintiffs but more importantly -THE COURT: How do you know that? You know,
you have only heard one argument. MR. PRIMIS: Oh, I'm not -- well, I'm here to
argue for our clients that there is no overarching -THE COURT: You are arguing that they may
switch their strategy but -MR. PRIMIS: THE COURT: that is their intention. MR. PRIMIS: That's exactly right. Well, at -At least so far I am unaware that
Notwithstanding the skepticism at the motion to dismiss stage years ago, notwithstanding the defendants' repeated
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attacks and runs at the overarching conspiracy and notwithstanding the Court's order of October 2012 which raised these questions, the plaintiffs have never changed strategy. So it brings me back really to the fundamental point for this purpose right now is given that they've pleaded this interconnected, interrelated conspiracy with all these deals and all these defendants, we would ask the Court not to read into that global overarching, very different, very ambitious conspiracy, some lesser conspiracy that the plaintiffs have never even sought to bring. is the fundamental point. And that's why we would be That
entitled to summary judgment on Count 1. And if there is some other conspiracy that the plaintiffs think they may have, they're going to have a tremendous procedural hurdle at that point to bring it but, you know, we can't foreclose that. The important thing is that these defendants who have labored under this charge of a global overarching conspiracy for all these years are really entitled to summary judgment because it has not been proven and there is no lesser conspiracy that can fairly be read out of Count 1 or that the Court can, you know, or that the Court could write into Count 1. It just doesn't exist and it's
inconsistent with the theory they've consistently alleged.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 session. recess.
Thank you, Your Honor. THE COURT: Okay. Why don't do we take a
ten-minute break and then I will hear from the plaintiffs. THE CLERK: All rise. Court will be in
(Recess.)
THE CLERK:
All rise.
Court is back in
Please be seated. THE COURT: I have one question to ask of
Attorney Tringali. MR. TRINGALI: THE COURT: Yes, Your Honor.
What I am concerned with is the
expert testimony because say in a normal negligence case you have two experts, it goes to the jury almost all the time. How does the Court evaluate the experts' testimony under a conclusion, if that is what it is, that it doesn't reach the ultimate issue of on overarching conspiracy or is it done under a Daubert analysis? Again, if I were to go that way
that doesn't take into consideration, if it doesn't, the Mat- -MR. TRINGALI: THE COURT: analysis? Matsushita. What is the
-- Matsushita case.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Group.
MR. TRINGALI: think those -THE COURT:
Your Honor, quite frankly I
How do I confront these experts? Your Honor, I think both of Either
MR. TRINGALI:
those ways you just explained go to the same result.
it's because Your Honor finds that they don't go to the material -- they don't create a material fact as to the overarching combination, which is the claim here, or that Your Honor finds that they don't meet the Daubert standards in terms of actually presenting you with what you find as sufficient evidence. And, Your Honor, let me just quote to you from the Brooke Group case, a Supreme Court case -THE COURT: The what case? Brooke Group, B-R-O-O-K-E
MR. TRINGALI:
It's a Supreme Court case where the Court wrote,
"Expert testimony is useful as a guide for interpreting facts but it is not a substitute for them." And that I think is the fundamental issue here, which is that if they don't have facts, they don't have evidence as to this overarching allocation agreement where we've all agreed supposedly to allocate all these 27 transactions and to rig the prices on all those transactions, having an economist say that it could have happened, wouldn't be surprised if it happened, that I can
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come up with lots of different formulas to come up with why the prices seem different than what they should have been, that doesn't create -- that doesn't substitute for creating the Matsushita standard of eliminating the independent action on the part of the defendants. And that's where Your
Honor need -- the plaintiffs need to meet their burden. And putting forth an economist, three economists, they can give you volume, Your Honor, they can give you quantity but it's not quality. They need to give you
something that shows that there was an overarching agreement to allocate these transactions. Simply having an economist
say I can give you a hundred different quotes from economic literature that would say that a conspiracy can exist here because these defendants know each other or these defendants attended each other's birthday parties or they call each other on a first-name basis, unremarkable facts, Your Honor. But that doesn't substitute for evidence of an overarching allocation agreement of these 27 transactions or sham bids. That's the problem. THE COURT: Okay. Thank you.
I will hear from the plaintiffs. Good morning, Your Honor.
MR. WILDFANG:
Craig Wildfang from Robins, Kaplan, Miller & Ciresi for the plaintiffs.
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I will be starting the argument today and arguing basically the legal standards. My colleague Mr. Burke will
then describe how the facts of the case relate to the legal standards. And we've handed up to Your Honor a binder with
materials in it which I may make reference to. And I would encourage Your Honor even if I don't get to each of the items in that binder to read them at your leisure. They're all informative. Your Honor, I'll come back to the expert question in a bit but I want to start by answering Your Honor's questions posed in your October order. Basically Your Honor hypothesized two different sets of facts and asked for the legal consequences if Your Honor were to find some essentially subset of the overarching conspiracy. And, Your Honor, we would submit
that in that case under both scenarios there is evidence sufficient to go to the jury on the question of whether there was an overarching conspiracy and who the conspirators were and how extensive was that conspiracy. The defendants get summary judgment in this case only if the Court were to conclude that no reasonable jury could find any single combination was related to or interdependent with any other single combination. And I
will now in the rest of my argument try to explain to you why those are the right answers.
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The reason that's the right answer is that if there is evidence that a reasonable jury could find a conspiracy in violation of Section 1 of the Sherman Act, that is a question that the jury should hear. position is -THE COURT: Nobody can quarrel with that. But The defendants'
let's assume that on Count 1 that they might conclude or could conclude that there is a conspiracy with respect to HCA. What happens to that count? MR. WILDFANG: Your Honor, in Count 1, if Your
Honor were to determine that there were some, some portion of that count as to which our proof fails but some portion of that count as to which the proof is sufficient to get to the jury, that should go to the jury. And the reason for
that is as stated in United States versus Mubayyid, a First Circuit case from 2011, 658 F.3d 35. THE COURT: Is that in your group here? I don't think we cited it in
MR. WILDFANG: our briefs.
It's in response to your questions. THE COURT: What is the name of the case? United States versus Mubayyid, It's a 2011 First Circuit
MR. WILDFANG:
M-U-B-A-Y-Y-I-D, 658 F.3d 35. case.
Now, that case was a criminal conspiracy case, Your Honor, and the question was whether or not, where the
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government proved a narrower conspiracy than charged in the indictment, whether or not that meant that the conviction had to be thrown out. And what the First Circuit said, in
reversing the district court, the First Circuit said, "A defendant can hardly be heard to complain when the government's proof at trial establishes a scheme similar to put somewhat narrower in breadth and malignity than that charged in the indictment." Your Honor, we would -THE COURT: the scheme. MR. WILDFANG: Yes, right. I would submit That is a question of variance on
that that is essentially what Your Honor is asking by your questions. The variance doctrine which is recognized in the
criminal conspiracy cases, there is no reason why under the more liberal evidentiary standards in civil cases the same rationale should not apply. And it's just common sense, Your Honor, that if plaintiffs in an antitrust case, and where the Supreme Court has held repeatedly that one of the thing that sets antitrust cases apart is that all of the evidence is in the defendant's hands and the plaintiffs are handicapped, they have to extract that evidence through discovery. But if the standard is that the plaintiffs have to plead and prove with absolute specificity every defendant,
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every deal up front before we even get to trial -THE COURT: You have to admit though in this
case not only was it pled but through the entire process when motions to amend were sought and I was specifying or at least inquiring whether we were concerned with the individual transactions, it was clear on the part of the plaintiffs that the transactions were only manifestations of evidence that your claim was overreaching conspiracy. was clear from the very start. MR. WILDFANG: Absolutely, Your Honor. We are It
not running from that claim at all. My only point is that it is possible in any case that there will be some failure of proof on some small part of a case. THE COURT: But my question to you is on the
one hand if, if, for the sake of this question, that the proof is somewhat reasonable with regard to HCA, what happens? Does that in itself, if that is the only -- and I
am not saying it is -- does that constitute an overarching conspiracy as pled in this case? MR. WILDFANG: Your Honor, if Your Honor were
to conclude that only with respect to the HCA deal is there evidence of a conspiracy, then I would say then we are left with Count 2. I don't think that -THE COURT: I am not saying there is, I am not
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saying. Now, if you had six or seven or eight and you had, you know, who were involved in 17 or 20, that may present a different question but we have to understand that this case was not only pled but was developed under discovery and many motions to amend under the overarching conspiracy theses. MR. WILDFANG: Absolutely, Your Honor. And as
I said, we're not running away from that.
And I think when
Mr. Burke gets up and describes the facts, I think you will see that there is plenty of proof of the overarching conspiracy. My only point is that I don't think it would be
appropriate if Your Honor believes that there is some small part of the overarching conspiracy evidence that we've offered that doesn't get us over the line, that that means that the entire claim fails. Imagine if we were to survive summary judgment and we tried the case to the jury and the jury comes back with a verdict that finds ten of the defendants were conspirators and one wasn't. Does that mean that you grant a judgment to That's a ridiculous outcome, Your
all of the defendants? Honor.
The common sense answer is if there is evidence of an antitrust violation that some number of these defendants participated in, then that should go to the jury as well. Now, let me make one other point before I turn to
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the substantive standards for summary judgment and conspiracy. We would urge, Your Honor, that this is not the
stage of this proceeding to start trimming away either defendants or deals and the reason for that is -THE COURT: Say that again. I missed it.
MR. WILDFANG:
This is not the stage of the
proceedings for Your Honor to start trimming away either deals or defendants from what we've alleged. two reasons for that. One is under the summary judgment standard obviously all inferences are supposed to favor the plaintiffs as the nonmoving party. And, secondly, if Your Honor were to do that and we go to trial against some subset of the defendants and deals and Your Honor is later reversed by the First Circuit, we would have to have a second trial. Your Honor is going to And there are
be in a much better position later in these proceedings, either on the eve of trial or after the plaintiffs' case in chief is put in, to decide whether or not there is some trimming of the claims that should be done. Now, again, we don't believe any trimming is necessary; but certainly at this stage of this case in summary judgment it shouldn't be done. Let me turn to the summary judgment standard, Your Honor. And I was --
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THE COURT:
If this case ever went to trial,
there would be no room for a jury. (Laughter.) MR. WILDFANG: We would need to go to some
sports arena probably, Your Honor, to try the case. Let me turn to the summary judgment standard. I
was actually quite pleased that Mr. Tringali mentioned the Matsushita case two dozen times or something like that. Because in my experience oftentimes you get to an oral argument and your adversary runs away from something they put in their brief because they figured out that it's in error. Mr. Tringali did not do that even though Matsushita and the way they use it is absolutely erroneous. The
defendants argue that Matsushita stands for the proposition that as long as the defendants can hypothesis some possibility of an innocent motive or an independent act, that that gets them summary judgment. absolutely not the law, Your Honor. And it was interesting that the defendants in their brief did not cite the Kodak case which six years after Matsushita made it crystal clear that the defendants' interpretation of Matsushita is erroneous. Can you bring up slide 4, please. Your Honor, the slides are in the first tab of the And that is
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binder and I'm referring to slide No. 4. Here the Supreme Court made the point in response to the same argument by Kodak that the defendants make here that because there was some possibility that Kodak didn't violate the antitrust laws, that that meant that they get summary judgment. But the Court said in Matsushita, "The Court did not hold that if the moving party enunciates any economic theory supporting its behavior, it is entitled to summary judgment." In fact, they have stood the standard on its head. It's really if the plaintiffs can offer a reasonable inference of a collusive agreement as opposed to independent act. At summary judgment we're entitled to that favorable
inference. Your Honor, if you turn now to slide No. 32. is the very last slide, Your Honor. This
The Seventh Circuit has
had two occasions to have considered in recent years exactly this argument. And in the Toys "R" Us versus F.T.C. case the Court said, "The Matsushita test does not mean that a plaintiff must exclude all possibility that the defendants acted independently. That would amount to an absurd and legally
unfounded burden to prove to a 100 percent certainty that an antitrust violation occurred."
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Under the defendants' interpretation of Matsushita which has been rejected by the Seventh Circuit in the Toys "R" Us case and also in the High Fructose case which we cite in our materials there would never be a trial because either the defendants would be entitled to trial because they could come up with a possibility that their conduct was not collusive or the only inference is that it was collusive and so the defendant or the plaintiffs get summary judgment. That can't be the law, Your Honor. It's not true as
judge -- as Mr. Tringali said that in the case of a jump ball they win. the case. Because our evidence supports a reasonable inference of the overarching conspiracy, this Court should deny summary judgment. Now, let me turn to another area where the defendants just plainly mischaracterize the law and that is the law of conspiracy. slide six, please. Your Honor, this is the sixth slide in tab one of your book. This is where the defendants in their brief make And, George, if you would turn to In the case of a jump ball the jury tries
a series of outright misstatements about what the law of conspiracy requires. Under the defendants' view we have to
prove with absolute specificity what the precise agreement was. We have to show that they got in a room on a given day
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and all agreed on all 27 deals.
We have to accept the fact
that their witnesses denied the existence of a conspiracy. But that is not what the law is, Your Honor. Turn to slide No. 8. Your Honor, this is the slide which shows the pattern criminal jury instructions and, again, the higher standard, not applying to the civil case, but this is the First Circuit pattern criminal jury instruction. It says, The
"A conspiracy is an agreement, spoken or unspoken.
conspiracy does not have to be a formal agreement or plan in which everyone agreed on a given day." Conspiracies are flexible. They're dynamic. And
the object of this conspiracy which all of the defendants participated in was simply to restrain competition in the market for these large LBOs. Obviously they didn't know in
advance which deals would come up but they knew there were going to be some deals coming up. They knew that they
wanted to pay less for those deals than they would if they competed with each other. THE COURT: Under the terms of Count 1, I
don't think it is a conspiracy to restrain trade on the so-called LBOs that might come down the Pike but with respect to certain specified transactions as alleged in Count 1. MR. WILDFANG: But, Your Honor, that is only
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because we have the benefit of looking backwards.
We now
know what that conspiracy -- what deals that conspiracy affected. We don't rule out the possibility that there were
other deals that were affected on which we were unable to do discovery, for example. We don't have to allege every deal that was fixed, for example. That's not the plaintiffs' burden in an
antitrust case and -THE COURT: were. MR. WILDFANG: ones were. THE COURT: Those 27. Because we know with the And we have specified which But you have to say which ones
MR. WILDFANG:
benefit of hindsight, we can see evidence as to those 27. My only point is, Your Honor, what Mr. Tringali was suggesting was that at the very beginning of the conspiracy that because we couldn't -- we can't prove that they predicted what the 27 would be that our proof fails. that's not the way conspiracies work. In any garden variety price-fixing conspiracy the conspirators don't necessarily know who ultimately is going to buy their product but they hope to be able to charge a supercompetitive price for the product. My point, Your Honor, is that the law of But
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conspiracy, and we give examples of the jury instructions and case law, I encourage Your Honor to look at the jury instructions about the vitamins conspiracy and the opinion by Judge Hogan which is in your materials. The jury is
entitled to draw inferences from the conduct that is proven and the fact that we may not have a particular witness or a particular document that says there is an overarching conspiracy does not mean that our proof fails. In the vitamins case Judge Hogan was faced with a very similar question. And that is there was an allegation
that there was an all vitamins conspiracy and some of the defendants argued that they, if there was a conspiracy, they were a participant in a narrower conspiracy consisting of only a few vitamins. And that went to trial and the jury
found the all vitamins conspiracy and Judge Hogan upheld that and -(Whereupon, counsel conferred.) MR. WILDFANG: Slide No. 24, Your Honor, this He said,
is Judge Hogan affirming the jury verdict.
"Although mere knowledge of another similarly motivated conspiracy or an overlap in personnel do not prove one overall agreement, there may be an intent to join an overall conspiracy if the common purpose of a single enterprise motivates each participant and each act." And he goes on to note that the D.C. Circuit is
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among those circuits that recognize a fairly minimal standard for showing the interdependence. In the vitamins case there were some defendants who pled guilty to price fixing on vitamins that they didn't even make. In other words, it was part of an overall
conspiracy and part of that conspiracy was some vitamin makers who didn't make a particular vitamin bought from other vitamin makers but there was still an overall overarching conspiracy that the jury found. Similarly -THE COURT: Let me ask you this:
It is my understanding that in this type of LBO practice that it is the tradition of the marketplace that these large companies do work together. In other words, it
is normal for one, two or three to join together and pool their resources in order to come up with the financial wherewithal to purchase a company. So the fact that they
are working together seems to me from what I have learned during the course of this case is normal practice. So there
has to be something more than the so-called "working together." Is that so or isn't it? MR. WILDFANG: It is not so, Your Honor. In
fact, it was not traditional in this industry that companies banded together to submit joint bids. That was a phenomenon
actually that started around the time we claim the
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conspiracy started back in the '80s and '90s, back as far as the RJR Nabisco transaction in the late '80s. Just one of
these companies, KKR, took RJR Nabisco private for something like 25 billion dollars and they did it by themselves. THE COURT: Let me ask you, are you saying
that prior to 2003 no companies ever joined forces to purchase another company? MR. WILDFANG: happened. I am not saying it never
It was not common, Your Honor. THE COURT: It was not common. It was not common.
MR. WILDFANG:
And I think Mr. Burke can describe for you how it became common during the conspiracy period here and how it became less common after the Department of Justice announced their investigation in the practice. traditional. So it's not
It's not, it was not common before the
conspiracy started. And even if it were common, Your Honor, that does not mean that if it is anticompetitive that it is not a violation of the antitrust laws. I believe Your Honor and I had an exchange at the motion to dismiss hearing about my experience in the government working for the Antitrust Division. And I
handled a case against the NASDAQ market makers where the defendants in that case made the same argument here, that it
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is implausible that you could have hundreds or thousands of stocks the price of which was fixed by hundreds or at least dozens of traders. But in the end we got a consent judgment
from 33 market-making firms in the NASDAQ market covering several hundred stocks over many, many years. And what we found out because we were able to listen to tape-recorded transactions was that it was the same thing, it was just a gentlemen's agreement that you don't quote stocks in odd eights, that was it. And, Your Honor, we have similar conduct here. have a gentlemen's agreement, club etiquette. One of the jury instructions that Judge Hogan gave in the vitamins case cited a common instruction that says even a gentlemen's agreement or a wink and a nod is enough to find an agreement. So we have vastly more than that We
here, Your Honor; but the claim that this is implausible, just because there are large numbers of transactions and large numbers of defendants, is just not true. THE COURT: Department of Justice. Let me ask you, you mentioned the
If what occurred here was, as you
claim, an overarching conspiracy of some significance, why didn't the Department of Justice inquire into it? MR. WILDFANG: Honor. Well, we believe they did, Your
My best understanding is -- and the Department of
Justice is well known for keeping their cards close to their
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vest -- but my understanding -THE COURT: At least there has been no -There has been no public
MR. WILDFANG:
announcement of any prosecution. Your Honor may have noticed from reading the newspapers that there has been a lot of illegality in the financial sector and the Department of Justice has limited resources. Perhaps that is the explanation, or perhaps they
have concluded that this is not where they want to devote their resources. But whether or not the Department of Justice brings a case or not, under the antitrust laws it's clear that injured victims are appointed as private attorneys general to enforce the antitrust laws. That's why we have a treble
damage remedy, because the courts have recognized that the government can't solve all of these problems. why we have private plaintiffs, Your Honor. Your Honor, let me conclude and turn it over to Mr. Burke by just -THE COURT: Let me ask you, you are saying Mat- -And that's
that -- what is the name of the case? MR. WILDFANG: THE COURT:
Matsushita.
Specifically, it was my
understanding when I came in here that that case held the law, namely, it was up to the plaintiffs to exclude the
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possibility that it was not independent action or words to that effect. You say that that is not the law? MR. WILDFANG: THE COURT: was. MR. WILDFANG: good law. Your Honor, Matsushita is still Your Honor, the confusion --
I was under the impression that it
My point is the interpretation of that case And the
offered by the defendants is not good law.
confusion comes up because of a phrase used in Matsushita "tends to exclude." And what the defendants want you to
take from that phrase is must actually exclude in all cases, not tends to exclude. And what the Supreme Court made clear in the Kodak case is the "tends to exclude" language doesn't mean that any possibility of non-collusive conduct has to be ruled out. It is the case that, as the Toys "R" Us and the High
Fructose case from the Seventh Circuit say, that if the plaintiff's inference is reasonable, if a jury could look at all of the facts that you're going to hear Mr. Burke describe and reasonably conclude that there was an overarching conspiracy, then Your Honor must deny summary judgment and that is clearly what the law is. And we are
entitled to all reasonable and favorable inferences from the facts. Your Honor, let me ask Mr. Burke to stand up.
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MR. BURKE:
Thank you, Your Honor. We have some binders
Christopher Burke for the plaintiffs.
as well that would hopefully aid the Court in following the argument. (Whereupon, binders were handed to the Clerk, the Court and the Law Clerk.) MR. BURKE: And, Your Honor, my argument will
follow along the presentation entitled, "Dahl, et at versus Bain Capital Partners, Plaintiffs' Opposition to Defendants' Omnibus Motion" with my name on the front. And as I'm giving the argument I believe the slides will show up on the screen to my right. If I can just clear up a couple of factual points before I start. The defendants suggested that there was a
great deal of jumping deals, of competition on deals and, in fact, in not a single instance in this matter did the defendants jump an announced deal. A small point. Not once.
Mr. Tringali suggested that Cumulus It was, Cumulus was
was involved in the Clear Channel deal.
not Clear Channel, it was won by T.H. Lee and Bain. Another point, there are 19 LBOs in this deal for which we seek, 17 of which -THE COURT: MR. BURKE: Keep your voice up a little bit. Sure.
There are 19 LBOs in this deal, 17 for which we
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seek damages, two that we're not seeking damages for because of the indirect purchaser rule but they're also LBOs. two are PanAmSat and Texas Genco. Club deals were not the norm or traditional until right around 2002, 2003. And, in fact, the defendants had Those
the explain to their LPs why it was they were doing club deals. And they didn't need to do the club deals to take
these companies private. And, finally, the expert reports were not contested, our expert reports were not contested by the defendants' experts. They came in uncontroverted. That may be but, to be honest,
THE COURT:
they are not cemented to the facts as much as you would wish. They are somewhat opinions. I am not saying that
they haven't got some relevance and maybe some reliability but there is just, you know, maybe it is because you don't really need expert evidence in this case. I mean, the facts
are definitely complex but it can be understood maybe without the necessity of someone giving their opinion that it is, whatever they say. That is all I am saying, it is
just -- they are almost not needed because whether you have a conspiracy or not is, again, these cases -- this case is complex but it is something that all people can understand if there is sufficient evidence and clear testimony. MR. BURKE: Well, I'll address the expert
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reports a little bit later in the presentation. THE COURT: MR. BURKE: Okay. What is this case? This is an
antitrust case concerning an agreement by the country's most prominent private equity firms to restrain trade, restrain trade for buyouts of mega cap deals, of the biggest deals. They call them the "elephants" in their papers, in their communications with one another. And who are these defendants? on the right here. Well, they're listed
They are the name-brand private equity And they're controlled by a small
firms in this country. group of men.
For instance, Blackstone is controlled by
Steven Schwarzman and Tony James. KKR, Henry Kravis and George Roberts. Jonathan Coslet. this conspiracy. TPG by David Bonderman, Jim Coulter, and Those are the gentlemen who are executing It didn't take a great number of people.
A small number of firms controlled by a small number of people and the evidence bears this out. Now, it's often said that numbers don't lie -- next slide, please. one second. One thing I want to focus on and that's a quote from Jim Coulter. Bonderman. He's the founder of TPG along with David Can we go back to the first slide, please,
And this really in a nutshell describes the
conspiracy and he says, he's describing the SunGard deal
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where TPG decided not to compete.
And he says, "Remember
being overly aggressive here will make further enemies of Silver Lake and Bain." Well, Silver Lake and Bain are his competitors. He's concerned about, he's concerned about creating enemies among competitors. When he says being aggressive, he's
talking about competing. "Our goal is to get invited --" THE COURT: question: For most of these purchases could one, could one of these defendants or would it be feasible for one of these defendants to carry the entire burden without trying to share the risk? MR. BURKE: (indicating), please? That's a very good question, Your Honor; and the answer is in many cases they didn't need the club but they were clubbing in order to take competitors off the shelf so to speak. They were clubbing in order to reduce Can we go to this slide Let me let ask you this one
competition. We have a slide up here that says, "No need to club." I believe that's page 17 on the presentation. In
many of the deals in this matter defendants were willing and able to take these companies private but they chose to form
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clubs in order to reduce competition. So in Nalco Blackstone committed to all the equity in the deal. What they didn't tell the Suez firm that's
selling Nalco is they had done a private deal, they had rigged the bid with KKR, Goldman and Providence and as a result KKR, Providence and Goldman stopped the bidding. Blackstone won. They cut them in for an equal share but
Blackstone told Nalco that they could speak for the entire check. The same is true in Texas Genco. and TPG were very open about it. Blackstone, KKR
We could each write the
check and take this company private but why bid the price up. That's what the record says. We'll come together and
we'll take it for a lesser price. PanAmSat, KKR commits to all the equity. At he
same time they were rigging the bid with Providence and Goldman and Blackstone. In Lowes Carlyle committed to all the equity in the deal. They rigged the bid with Bain. Bain and Carlyle took
the company. In NXP Bain said it would, it told Philips it could commit to all the equity in NXP. What happened? Bain
rigged the bid with KKR and Silver Lake so that if one won, the other cut the other in. bidding. Bain actually drops out of the
Silver Lake and KKR win the deal for much less
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than Bain was willing to pay for it. they do a club deal.
Bain saves money and
In Freescale Blackstone committed to all the equity. They cut in Carlyle and TPG. In Equity Office Supplies during this time period Blackstone did a 36 billion dollar deal by itself. In First Data Resources KKR did a 29 billion dollar deal by itself. So to answer your question, Your Honor, no, it wasn't necessary to do a club deal. reduce competition. Go back, please. THE COURT: question. Is the fact that people do -- corporations do pool their resources, is that per se a restraint of trade? MR. BURKE: In and of itself forming a club is Well, let me then reverse the They did club deals to
not per se restraining trade but when you're forming the clubs to reduce competition and in the process rigging bids and then paying pack one another with opportunities in other deals, yes, that is per se restraint and that's what happened here. As I said -- go back, please. next one. The numbers don't lie. We have 17 or 19 LBOs. Second slide. The
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Mr. Primis has it confused.
We have 19 LBOs.
This slide
represents the amount of price increase that results in defendants competing with one another. negligible. It's extremely
Now, look what happens when you compare to what You had
happened when there was all-out competition in RJR. a 45.3 percent increase in price.
What lesson did the defendants take away from that? At all costs avoid RJR2. in all-out competition. As Tony James, one of the heads of Blackstone, told George Roberts, one of the heads of KKR, "Together we can be unstoppable but in opposition," meaning when we compete, "we can cost each other a lot of money." Next slide, please. And as I said, once there was an announced deal, Your Honor, there was no price competition. The price Once At all costs do not get involved
doesn't raise a single dime in none of the 19 LBOs. there was an announced deal, pens down, full stop, competition stops.
And that's because they made a pledge to
one another nobody jumps announced deals. We hear that from the testimony, sworn testimony from Mr. Roberts. Silver Lake. We see that from TPG. We see that from
They're very consistent.
Nobody jumps
announced deals. Now, the defendants -- next slide.
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The defendants recognize they had a real opportunity to fix the market for mega cap deals in the early 2000s. This is a presentation by David Bonderman,
he's the founder of TPG along with Mr. Coulter. Next slide, please. And a point he's making is if you have a mega fund, if you have a fund with several billion dollars like TPG does and KKR and Goldman, you can avoid competition because you don't have to compete with the middle market firms. And
as Mr. Bonderman points out, "The middle market is an open battlefield." That's where there is competition. There is
not competition in the mega cap deals so long as we join together. Next slide. Well, few firms can write checks Well, of course, in this case we
Why is that?
larger than 250 million.
have targets that are five billion, six billion, seven billion so the checks they're writing, maybe 500, 600, 700 up to a billion dollars, who can write those checks? Next slide, please. The defendants in this matter can write those checks -- next slide, please -- and here's why. During the
conspiratorial era, roughly 2003 to the end of 2006, start of 2007, the defendants in this case amassed what they call dry powder, an enormous amount of fuel, an enormous amount of money to spend. And they were chasing a finite number of
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elephants, a finite number of mega cap deals. So if you have an enormous amount of moneys, an enormous amount of capital chasing these deals, and we know at this time debt was historically cheap, you could get the banks to loan you money for very little interest. The prices should have been bid up on these elephant deals but it didn't happen. Next slide. It's not just Mr. Bonderman who had this insight. Mr. Schwarzman has this insight. is the founder of Blackstone. Mr. Schwarzman as I said
And he, as he points out,
with a fund of this size, I think he's talking about a 10 billion dollar or a 12 billion dollar fund at that time, With a fund of this size, we actually avoid competition because there are relatively few funds that he's going to be competing with. And he knows who these are. This is
Mr. Roberts and Mr. Kravis at KKR. TPG.
It's Mr. Bonderman at These are his They've made a
It's Mr. Rubenstein at Carlyle.
confreres. pledge:
They're not going to compete.
We will not jump each other's announced deals. Next slide. KKR says the same thing. Benefits of club deals, Reduce
especially in the large deals. competition. Next slide.
What's the benefit?
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Bain makes the same point. appealing to less competition.
Large deal environment
And Bain even identifies Michaels, NXP,
some of the deals in our case, Your Honor: HCA, Clear Channel.
So how was it that the defendants executed this conspiracy? We hear, we've heard their able counsel tell
you that it was impossible and implausible that they could have fixed 27 deals over this time period. And they also
say they didn't know when these targets were going to come up. They didn't know which deals were going to be available
to buy. Well, we have testimony from Mr. Davidson who says we knew one hundred percent of the tech deals that were coming up. And we have in Bain's files oddly enough a
presentation by TPG that identifies all the targets worth 15 to 30 billion dollars. They had a pretty good idea of what
targets were coming up and they were talking to one another all the time about what they would be willing to bid on. So as these targets come up, how do they execute the conspiracy? up? THE COURT: Where is the evidence of an Where is it? How do they keep competition from breaking
agreement to restrain trade? MR. BURKE: 27 deals, Your Honor.
It's in their conduct across these
And I'd like to walk the Court
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through, I think I can satisfy you. THE COURT: MR. BURKE: THE COURT: conduct? MR. BURKE: It's an inference based on conduct But -The defendants use four -So it is an inference based on
and also based on some very clear statements such as "we will not compete" or "we will rig this bid." clear. I mean, this isn't just inference based on conduct. This is inference based on admissions by the defendants. THE COURT: that. Let's assume some person said Everybody? It's that
Who is that admitted against? MR. BURKE:
As an evidentiary matter, Your
Honor? THE COURT: MR. BURKE: Pardon? We're pleading a conspiracy and
the co-conspirators' admissions are going to go in against the other co-conspirators as long as we can lay the foundation. THE COURT: Well, but prior to it being
admissible against everybody, you have to with other evidence show that there is a conspiracy. MR. BURKE: Right. And this, and the legal
analysis that you consider the evidence as a whole, that's
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Continental Ore.
You consider the evidence as a whole and Then the next question
ask yourself is there a conspiracy.
is is there enough evidence to tie in individual defendants? You don't slice and dice the admissions, slice and dice the conduct defendant by defendant. THE COURT: law? MR. BURKE: The standard in the antitrust, the So it is different than criminal
civil antitrust cases is you consider the evidence as a whole. That's Continental Ore. THE COURT: a whole"? MR. BURKE: It means that you don't consider You consider the What does that mean, "evidence as
the evidence of the deals in isolation.
cumulative effect of the defendant's conduct in determining whether or not there is a reasonable inference of the conspiracy. THE COURT: My question is more this:
Assume there is conduct on the part of one executive or one defendant and there is a statement. that bind the other nine defendants or doesn't it? MR. BURKE: Right. And then, I think what I'm Does
trying to say, Your Honor, is you just don't look at that statement, you look at the other two dozen or three dozen statements that we see in the other deals by the other
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defendants' executives and ask yourself is there a pattern and practice of restraining competition. THE COURT: that has no statements. All right. Suppose there is some
Is there any -- does every
executive have a statement? MR. BURKE: We think that we can show that
every defendant either through statements or conduct is tied to this conspiracy, yes. THE COURT: MR. BURKE: All right. The defendants execute their Forming clubs,
conspiracy through a fairly simple playbook:
and that's through reduce competition, you take out competition by doing that. You don't jump announced deals
where you have an auction process -THE COURT: MR. BURKE: THE COURT: MR. BURKE: What number is this? 14. Okay. You don't -- you manipulate
auctions, where there are auctions, you rig the bidding in other words. And then you use a system of quid pro quos to
monitor behavior, keeping a list of who is abiding by the rules and who is not. You reward those who are abiding by
the rules and discipline those who are cheating. Next slide, please. We just have some examples from the record, Your
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Honor, of forming clubs to eliminate competition.
And
perhaps the most egregious example is the SunGard case. That's where Silver Lake was the ringleader. Silver Lake
managed to bring in or involved in one way or another every single defendant in this case save Apollo. defendants were open about what happened. As you can see on this slide, the third from the bottom, Max Strasburg, THL, says -- T.H. Lee -- "The author leaves out the fact that there was no competition for this asset as the large PE universe was all working together." Adam Clammer says much the same thing. deal for our investors. the aim. And there is a, the second box down is a reference to James Lee. He's known as Jimmy Lee or the Wall Street It's a good That was And the
There was no competition.
Journal calls him "The Trillion Dollar Man." In SunGard there was a potential threat of competition. the deal. Blackstone and TPG were thinking about jumping
Glen Hutchins of Silver Lake went to his banker
Mr. Lee and said would you please talk to Blackstone and TPG, calm them down. Let them know we'll invite them in.
As a result TPG and Blackstone informed Credit Suisse who was the advisor to SunGard that they're no longer going to be competing. Without the SunGard's board's permission,
they were cut into the deal.
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At the bottom here of this slide there is a reference to Texas Genco. "Better for everyone to join
forces and have a much higher chance of winning the deal and not drive the price up." That was an example where TPG, Any of the But in
Blackstone and KKR bought a company together.
three of them could have bought it by themselves.
order to avoid getting the price up, they got together and agreed we're going to work together. Next slide, please. In Toys "R" Us KKR invites in Bain to remove a competitor. KKR and Bain take that deal. They rigged the bid.
We see in EDMC Providence and Goldman, Carlyle and Bain working together to reduce competition and rig the bid. Next slide, please. And as we see, there is no need to club really for these firms. They were well capitalized and they could have
done these deals by themselves, or in many cases could have done the deals by themselves. Now, the next slide, please. The cardinal rule of the conspiracy is you don't jump announced deals. What's that mean? Once you have a
deal with the company that you're purchasing, everybody else out there, even if they think it's a great deal, even if they think as in the case of HCA it was highway robbery, it's pens down, you don't compete.
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THE COURT: MR. BURKE:
What is an "NDA"? Nondisclosure agreement.
So in this slide we see several executives telling KKR that we're not going to form a competing group. And NDA is important, Your Honor, because once you sign an NDA, then you could get additional information about the company that was a predicate to bidding. So what
Carlyle is telling HCA is or what Carlyle is telling KKR is don't worry, we're not going to compete on HCA, we're not going to sign the NDA. It's a little bit of inside baseball
but, as you said, it's a complex case. Next slide, please. The defendants actually were very adamant that -THE COURT: Let me ask you a question. If
this case, again, just for the sake of the question, if this case were to go to trial, assume that one of the defendants is in on one transaction and made insignificant amount of money. Would he have to pay as much money in damages as
someone else? MR. BURKE: THE COURT: Well, it s -How are damages going to be
allocated in a case of this enormity? MR. BURKE: We are here on a conspiracy case
where there is joint and several liability. THE COURT: So you are saying yes.
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MR. BURKE: right, Your Honor. THE COURT: MR. BURKE: THE COURT: (Laughter.) THE COURT:
They are on the hook, that's
Is that fair? It's the law. But that wasn't the question.
In a criminal case if someone is
part of a conspiracy, they may say I am going to do one act, and he may get probation where somebody else gets 20 years. What is the rule here? MR. BURKE: Well, the rule here is that each
conspirator is joint and severally liable for the conduct of their co-conspirators. It's pretty simple, pretty clear.
So even if one defendant is not as involved as another defendant, and to use a criminal analogy, even if one defendant is the getaway driver and everybody else is in the bank with guns, the getaway driver is on the hook for the whole thing even though they weren't in the bank with the guns. So here we have, just to continue on, Your Honor, additional statements about not jumping deals and this is examples from Freescale where Blackstone was very close to a deal with Freescale. At the 11th hour KKR threw in an
indication of interest along with Silver Lake and Bain which caused quite a dust up. And once KKR realized that
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Blackstone had a signed deal, they withdrew.
And as the
slides indicate, the understanding was that nobody jumps an announced deal. Here's Tony James referring to a conversation he had with Henry Kravis of KKR. "Henry Kravis just called to
say congratulations and that they were not standing down because he had told me before they would not jump a signed deal of ours." John Marren, an executive of TPG who leads their tech initiative says, "KKR has agreed not to jump our deal since no one in private equity ever jumps an announced deal." Jim Davidson was adamant in telling both people internally and his LPs we don't jump deals. Next slide, please. We see that it becomes somewhat of a touchstone quote here from Mr. James: you guys than against you. "We would much rather work with Together we can be unstoppable
but in opposition we can cost each other a lot of money." That's in reference to Mr. James deciding not to jump KKR's HCA deal or NXP deal as a result of KKR then backing down on Freescale. Another example, in the Harrah's case, Your Honor, that was a case whereby Apollo and TPG won that. Leon Black
had invited in David Bonderman and Blackstone was very
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interested in that as was Goldman Sachs.
And Blackstone was
approached by a strategic to bid against it, to jump the deal. What did Blackstone say? "I told the Lehman banker
that I didn't think we would want to play like that." Again we see the same conduct occurring in TXU, in Clear Channel and Aramark and in SunGard. THE COURT: Let me ask you this:
Suppose someone, just using that phrase "independent action," the thing is it would be good politics not to get involved. There is no obligation to get involved
in every transaction; is there? MR. BURKE: isn't. THE COURT: So if somebody says, well, I don't There certainly isn't. Certainly
want to interfere with their deal and maybe they will cut me in in something down the line, is there something wrong with that? MR. BURKE: Here we don't have just an
isolated incidence of I'm not going to interfere with the deal, they're going to cut me in down the line. Here we
have an agreement that if I don't interfere with your deal, you have an obligation and we have an expectation, you have an obligation to cut me in down the line. And we have
defendants recognizing they have obligations to cut each other in down the line in return --
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THE COURT: MR. BURKE:
But not on all 27 transactions. We can show how all 27
transactions are linked, Your Honor. THE COURT: MR. BURKE: How what? That the conduct affects all 27
transactions, that's right. THE COURT: MR. BURKE: THE COURT: Of these 11 defendants? Yes. Suppose, again, assuming for the
sake of this question, that there is 27 separate conspiracies and each one was entered into with certain defendants. Does that constitute what was pled here? MR. BURKE: With the hypothetical that Your We pled an overarching And it's
Honor posed, we didn't plead that.
conspiracy, an interconnection among the deals.
the quid pro quos among the deals that form the tissue that hold together the conspirators. THE COURT: MR. BURKE: THE COURT: Is that a tough thing to prove? An overarching conspiracy? Yes, with an interconnection with
all these defendants on 27 transactions, is it tough to prove? MR. BURKE: Well, I have never been accused of
making life easy for myself, Your Honor, especially in this case, but that's what the evidence shows. And we pled what
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the evidence showed. The next rule is simply -THE COURT: MR. BURKE: THE COURT: Let me stay on this. Yes. You are saying then that at some
point these 11 people said or these 11 corporations that we are going to engage in restraint of trade with regard to any of these mega deals that come down the line, or is that different than when something came down the line certain defendants might or might not have engaged in a conspiracy to restrain trade? concepts. MR. BURKE: I'm not sure that they're There is a difference between those two
necessarily -- I don't -- I'm not sure they're necessarily exclusive, Your Honor. Certainly there was an agreement to On any one particular
not compete on the mega cap deals.
mega cap deal it may or may not have been something a particular defendant was interested in competing upon because they may have had the resources allocated in other directions. They may not have had a quid pro quo that they
thought was going to pay off on that deal. THE COURT: involved. MR. BURKE: They certainly were involved in It So that means they weren't
the overarching conspiracy which touched all 27 deals.
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didn't mean -- and we don't have to prove that each defendant was involved in every single deal. THE COURT: Let me ask you this:
Why -- if you can tell me -- why did you plead an overarching conspiracy if you had you say evidence that you had a conspiracy involving at least some of these defendants with respect to individual transactions? have 27 counts rather than one? MR. BURKE: Well, we did have a separate HCA Why didn't you
count at one point and a separate -THE COURT: I understand, but the problem with My
this case is that procedurally it is very difficult.
question is why, if you had a strong conspiracy case with three defendants with respect to one transaction, that wasn't pled, and then the next one, Count 2, Count 3, Count 4, Count 27, with various defendants. Here it is like, it
is very difficult for a judge or for a jury to get around it. MR. BURKE: Well, there certainly were various
instances where the defendants outright rigged the bids of particular companies such as Nalco, PanAmSat -THE COURT: MR. BURKE: Why wasn't that pled separately? It was pled in the case as part of
the overarching conspiracy. THE COURT: Well, that doesn't answer my
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question.
My question is why wasn't each conspiracy pled
separately? MR. BURKE: We felt that the best way to
posture the case was as a single overarching conspiracy with a separate HCA claim. It is a decision we made as the
attorneys for the plaintiffs. Your Honor, would it help if I showed -THE COURT: Because I was thinking of the
criminal law where you are always dealing with conspiracies and it always raises the issue of multiplicity or duplicity, whether it is one conspiracy or whether it is more than one. In the criminal law if you charge one conspiracy and it turns out that there is more than one, then it is susceptible to a motion to dismiss because then it would be multiplicity. If you charge one and it is -- no, if you charge one and there is more than one conspiracy in one count, it is duplicitous. In the criminal law people are very exact
on how they charge conspiracies. My problem here is assume I take everything you say and you have 27 conspiracies. it one overarching conspiracy? Is that 27 conspiracies or is And if it is 27
conspiracies, was that what is pled? I don't know, has there ever been another antitrust case that has been pled this way?
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MR. WILDFANG:
Your Honor, the NASDAQ case
which was prosecuted by the Department of Justice as a civil antitrust case also spawned a private case and that case involved several hundred stocks and 33 market makers. And
the conspiracy was to fix what was called the "spread" which was essentially the profit that the market makers got on all of those stocks. And what the evidence showed, and that's why that case is similar to this case, what the evidence showed is there was a common practice, a common set of understandings among all of the market makers as to how they would compete with each other. THE COURT: Well, they charged one conspiracy? They did, yes. Your Honor, I
MR. WILDFANG:
would be happy to provide documentation of that if you want. THE COURT: Well, you got -- I am no expert on
antitrust law but my studying of this case and my knowledge of the law in general, there may have been another case that has been referenced but I will tell you it doesn't happen too often. And if you have got a conspiracy regarding a
particular transaction, that is how it is pled. This pleading is, at least is rare. And I have to
be honest with you, it is causing me an awful lot of problems as how to intellectually grasp it. almost overwhelming. It is just Is
Because it comes down to this:
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there one overarching conspiracy or is it less than one and, namely, maybe even multiple? And if it is multiple, is that
covered by the allegations set forth in Count 1? That is a tough question. Go ahead. I think you
have got to prove what you charged, that it is an overarching conspiracy involving at least most of these defendants and most of the transactions. That is what was
charged but the precedent is, there is not much precedent on that particular issue, but go ahead. MR. WILDFANG: Your Honor, just one thing. At
tab nine of the binder that I gave Your Honor is Judge Hogan's opinion in the vitamins case which again is an overarching conspiracy analogous to this case. THE COURT: MR. BURKE: Okay. Go ahead.
Your Honor, if I might, to satisfy
your concerns about the overarching conspiracy and whether the evidence does fit, in fact, what we charged -THE COURT: MR. BURKE: Sure. -- there should be a pullout in It looks like
the binder that we gave you, a large pullout. this (indicating). THE COURT: MR. BURKE: Oh, yes.
This is entitled, "Overarching
Conspiracy" and what it -- I will let Your Honor catch up for a second.
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This is in essence a key based on the evidence before Your Honor of the overarching conspiracy tying the defendants to the 27 deals firm by firm, deal by deal. And
I'd like to take Your Honor through a cell just to explain how it works. May I, Your Honor, may I approach the board? THE COURT: MR. BURKE: Sure, go ahead. Thank you.
So we have on the vertical axis the names of the defendants and on the horizontal axis also the names of the defendants. And so you start with Bain and you want to see You go down Likewise,
what type of conduct that they had with Apollo. to Bain and you go across until you find Apollo.
if you wanted to see what conduct Bain had in common with Blackstone, you go to Bain (indicating) and find Blackstone. So let's go ahead and go down here (indicating) to KKR, a well-known firm, and we'll go to, down to the bottom right here (indicating). Blackstone with KKR. It's the cell that intersects
And this describes the facts in issue
that connect Bain -- I'm sorry -- Blackstone and KKR to the conspiracy in a number of deals they worked out together and where the conduct restrained trade. So the first is in 2003, that's the Nalco deal. And in Nalco Blackstone won that auction. auction by rigging the bid. They won that
They worked with KKR, Goldman
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Sachs and Providence, had an agreement whereby KKR, Goldman Sachs and Providence would stand down from the bidding. And
unbeknownst to the Suez company that was selling the entity, Blackstone would cut the others in. They gave KKR a look.
KKR referred to Blackstone as a man of their word and Goldman and Providence get cut in. It's shortly thereafter in Texas Genco KKR formed a club with TPG. Blackstone was considering competing but
instead of competing, they collapse into the KKR club in order to avoid bidding up the price as we've seen already. Shortly after that KKR and Blackstone were both involved in rigging the PanAmSat deal. was in one bidding, it bid by itself. And in PanAmSat KKR Blackstone was teamed
up with Providence and Carlyle, Goldman -- Goldman Sachs and Providence rather. And the understanding was that
Providence and Goldman Sachs would submit a sham bid and KKR would win and cut them in afterward, which is exactly what happened. In SunGard Blackstone and KKR were part of the club that was formed to eliminate all competition for the asset. Later down in 2005 the Toys "R" Us deal and in Toys "R" Us KKR and Bain won that. Blackstone agreed to stand down.
In Biomet TPG, Goldman Sachs, Blackstone and KKR formed a consortium to limit competition, to eliminate competition.
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In Philips/NXP they originally were all in a grand club together, Blackstone and KKR. clubs. They split into separate
And we know that KKR and Silver Lake made a secret And Blackstone steps And
agreement with Bain to rig the bid.
down after they win and they don't contest the price.
we know that Blackstone stepped down and did not bid at the behest of KKR. In Freescale it was KKR's turn to stand down and at the request of Tony James and Steven Schwarzman, Henry Kravis and George Roberts agreed to stand down. In partial return, a quid pro quo, Blackstone is considered for a partnership in Vivendi. deal they were in the same club. in the same club. In the Univision
In Clear Channel they were
In Michaels Blackstone wins that with
Bain and KKR, even though apparently Mr. Tringali asserts that KKR thought it was a ridiculous price, KKR is offered and gets an investment in the deal along with Apollo. And we have TXU, that was a deal done with TPG, KKR and Goldman Sachs. Blackstone thought it was a very
attractive asset but in adherence to the rules of the conspiracy, they stand down. And you can do that with each one of these cells and it links the defendants to one another. Now, Your Honor, you can take the raw data here, the factual record that's before the Court and actually draw
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a map of the overarching conspiracy and we have done that. I'd like to show that to you, if I could. THE COURT: MR. BURKE: Honor. THE COURT: MR. BURKE: to clear things? THE COURT: MR. BURKE: Yes. Thank you. All right. And may I approach the screen just What page? This is just on the screen, Your
What you will see are in the center these represent the defendants and on the outer ring are the 27 deals that were subject to the defendants' anticompetitive conduct. And, Michael, can you just go ahead and throw up on the screen what happens when you tie together all the deals and all the defendants. Every single one of the deals and every single one of the defendants has multiple links to another deal or another defendant because they're interlinked through a series of quid pro quos. Each one of these red lines is
supported by evidence in front of Your Honor in that foldout or otherwise in our 56.1 statement. these lines. But let me take you through an example of how there is interconnection. Let's start with SunGard. We know Every single one of
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SunGard affects every single defendant except Apollo.
And
as a result of the SunGard deal, Silver Lake accrued a lot of quid pro quos and understood that they would be working on tech deals with a number of the other defendants. THE COURT: MR. BURKE: SunGard. Who? I missed it.
Silver Lake was the ringleader in
They accrued a lot of quid pro quos with, well, So they did two tech deals shortly
everybody but Apollo. after SunGard:
NXP/Philips and Freescale.
Originally in NXP/Philips and in Freescale they were working with Blackstone, TPG and KKR, Bain comes in later. Now, as Your Honor knows from the case, there was competition that almost broke out in Freescale and as a result of that Blackstone went to KKR and said if you don't back off of Freescale, we're going to bid on HCA. says fine, we're backing off of Freescale. And KKR
Blackstone steps
down and HCA and Blackstone also had threatened to compete on NXP and they don't compete on that as well. So let's light up HCA well. Okay. Now, this all relates back to SunGard. As
payback, as payback to Silver Lake, TPG teams with Silver Lake and Apollo on Sabre. And in the Alltel deal, that was Goldman Sachs and TPG who did that, they invite in Silver Lake and Bain to
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invest in return for past considerations.
So just looking
at these five deals you can see how many -- they touch all the defendants as well as a number of other deals through future quid pro quos. Let's go back and just take a look at what happens when -- clear that. The evidence also will show what
happens in terms of, graphically at least, what happens when you consider what conduct does Blackstone, KKR -- keep Blackstone up, please -- and Goldman. Just those three
defendants manage to tie together all 27 deals. And this is, this map we're not pulling out of thin air. Each one of these red lines is supported by evidence
that's been presented to Your Honor in the 56.1 statement and 95 percent of it is in the foldout that we included in your binder. This isn't, this isn't an overarching conspiracy that's not been substantiated by the evidence. It's been so
substantiated by the evidence we can actually draw a map of it now. It took us a long while, and you're right, it is a We can tie
complex case, but we can now map the conspiracy. all the defendants together. together.
We can tie the 27 deals It may very well
Did it affect additional deals?
have but we don't have discovery on those. So, Your Honor, I would submit that this map provides a picture of the common scheme of what we've
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charged.
At summary judgment it's incumbent upon the Court
to view the evidence in the light most favorable to the plaintiffs. We're the nonmoving party. Our expert reports
which considered the conduct as a whole come in uncontroverted. reports. We have in our 56.1 statement and in the presentation you've heard today evidence that ties the 27 deals together and the 11 defendants together. There may Their experts didn't contest our expert
very well have been, and maybe we should have pled individual counts for fixing some of the deals. For
instance, we should, maybe we should have pled a separate count for EDMC or Sabre. We pled an overarching conspiracy.
And we would submit that given the evidence that's before Your Honor you can't grant summary judgment. not exclude all possibility of unilateral conduct. tends to exclude. It's It's
We've got a mountain of evidence at this
point, a mountain of evidence, that not only is suggestive of collusion, that documents the collusion time and time again across the defendants from 2003 to 2007. You can take that down, please. Your Honor, if you have any questions for me -THE COURT: No, we will break at this time.
And prior, before we go into Count 2 that was scheduled for this afternoon, since Count 1 is the one that has been
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giving me more trouble than Count 2, I would like to return to the defendants to rebut what has been presented by the plaintiffs. MR. BURKE: THE COURT: THE CLERK: Thank you, Your Honor. I will see you at two o'clock. All rise. Court is in recess.
(Luncheon recess.)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 together. brief.
AFTERNOON PROCEEDINGS THE CLERK: All rise. Please be seated.
Court is in session. MR. TRINGALI:
Your Honor, I'll try to be
THE COURT:
Here is one question before you What is the history
start, is the question on club bidding. of that? MR. TRINGALI: THE COURT:
There were deals --
That is an indicia of working
Assume, and -- I don't know the history and in
reading all the briefs I don't know if it was there -- but assume prior to 2003 these mega deals were entered into by one firm and then in 2003 the mega deals were entered into by three firms using so called "club bidding." Now, per se there is nothing wrong with club biding in itself. However, if there was a change in the practice
or tradition in this industry, at least that is a first step manifesting working together. And so the evidence that has
been presented by the plaintiffs, the palpable evidence that you can see is not based primarily on motive or opportunity because there is only a certain amount of corporations who have the financial resources as the defendants in this case have but it is the club bidding or club etiquette, is that something new? And if it is, it is an indicia, is it not,
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of at least not an illegal combination but at least an association? MR. TRINGALI: not anything new. Your Honor, first of all, it's
And I can just give you examples for my They
client, individual client in this case which is KKR.
did the Hicks, Muse deal and the Metcalfe deal with partners prior to 2003. People were partnering, and I think Hicks,
Muse and Wells Cargson (ph.) are also financial buyers but they're not defendants in this case. deals before that. What it is, Your Honor, is a function of financing, the ability of financing and the amount of the funds and the diversification of the funds. And there is numerous People were doing club
reasons, you know, the plaintiffs showed, you know, from their selected quotations, you know, why people do club deals and they kept showing you reduce competition, reduce competition but they didn't show you the other reasons. And importantly under Matsushita you have to consider -- and I'm going to get to Matsushita by the way because we have not distorted it. What Your Honor thought
was the correct legal standard is the correct legal standard. And the First Circuit in 2011 made it abundantly
clear which I will read to you from the White case. But the answer to your question is it's an indicia of nothing. First of all, there was club bidding. People
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were partnering to do deals and people decide whether to partner or not to partner based on what they think is best for them. Do they think it's best for them in terms of I gave you the
opportunity, in terms of diversification?
example before, Your Honor, if you were to put all your retirement savings in one stock versus a mutual fund. Well,
it is no different for the investors in these private equity funds and that's exactly what you have here, investors, people who put their money -THE COURT: But it has been at least argued
that some of these firms had the financial capacity to make the purchase by themselves. MR. TRINGALI: But, Your Honor, first of all,
they have, most of these firms, and it's in our papers, actually have limitations on how much you can invest in any one fund. So, in fact, sometimes they were prohibited to go
above a certain amount to do -- even though a fund may have had X amount of dollars, they're limited with their, the people who invest in their funds that they're not going to put more than 15 percent or some percentage of those funds in any one deal. So issue No. one, they actually, despite the size of the funds, the funds are often, are actually always limited in terms of how much they can invest in any one transaction because the limited, the investors want
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diversification just like if you invest in a mutual fund rather than an individual stock. So that's No. one.
No. two, there is absolutely nothing in the law that says that just because you can purchase it by yourself you should -- you must purchase it by yourself. There is
absolutely nothing wrong with you partnering with somebody else to jointly bid on an asset even if you could pay for it yourself. What makes it wrong for you and a neighbor of
yours to both decide to buy a summer house together and split it? Absolutely nothing.
There is nothing that requires someone to buy it alone even if they have the money to buy it alone. And,
more importantly, Your Honor, it's in their independent interest, they have independent reasons for doing so. And I want to, let me cite to you, this is Plaintiffs' Exhibit 100 which was page 12 of the presentation they gave you. It was a KKR document and they
highlighted to you the portion where it said club deals allow private equity firms to reduce competition in auctions but they left out for you the other reasons that KKR gave to its investors as to why club deals were good. Complete larger transactions. Leverage relationships. Share expertise. Maintain a prudent
Minimize costs.
diversification of funds. Those are all completely consistent, Your Honor,
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with Matsushita and when you have an independent reason that is in your independent -- an independent justification for you acting the way you are acting as opposed to a conspiratorial agreement. The other, and a very important point, Your Honor, to make about club bidding, not the least of which is that they themselves say they don't challenge it, is that it's got to link up to the overarching agreement here. The
overarching agreement here is that we allocated all these transactions. And the point I tried to make before to Your Honor is that the allegation of club bidding has nothing to do with allocating transactions because in deal after deal where you had club bidding you had let's say a group of three here and two or three or four other groups of three, and they competed against each other and they bid up the price. So how is that consistent with an overarching market
allocation? The fact that we may have -- first of all, what you're probably doing is allowing certain firms to bid for a company who wouldn't have been able to because they're small firms. A lot of these firms are smaller firms who joined
larger firms and yet they can piece together, with the limits they have in their fund size, they can piece together a joint bid so they can actually bid for the company so you
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actually have, you potentially have more.
But the fact that Clear Channel,
you have, let's say, I'll give you examples.
Michaels, Neiman's, Sabre, Susquehanna -- and, by the way, Mr. Burke corrected me that Cumulus didn't acquire Clear Channel. He's absolutely right. What he didn't tell you is
they acquired Susquehanna so I was wrong in which one I mentioned but Cumulus, a strategic buyer, bought somebody. Texas Genco, Toys "R" Us, all situations, Your Honor, where you have club bidding, joint bids made. And
what you have is joint bids made by multiple people bidding against each other. That's not their allegation. Their
conspiracy, which again is the key to Your Honor's questions today, is they have to link the evidence to their conspiracy. And just by saying that we now make club bids
even though sometimes we don't make club bids, sometimes we do make club bids, sometimes we make them with each other, sometimes we make them with nondefendants, sometimes we make them with nondefendant private equity firms, sometimes we make them with nondefendant strategic firms, none of that means we divided up the market. THE COURT: Here is tough question for me. Okay. With that intro.
MR. TRINGALI: THE COURT: figure -MR. TRINGALI:
Just assume, and I am picking a
Okay.
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THE COURT: conspiracies and not one.
-- there is 15, 10 to 15 I don't know whether there is or
isn't but there is evidence on certain ones that may or may not be connected. But just for the sake of the question
there is 15 separate conspiracies to restrain trade with regard to 15 transactions. MR. TRINGALI: THE COURT: What am I going to do with that? Toss Count 1.
Technically you may be right, that But we are assuming
wasn't pled, and legally you are right. that there is 15 conspiracies.
Am I going to throw out
Count 1 on a legal, you know, I am using just the word, a "procedure" or should I duck the question when there is complex facts and inferences that can be drawn? Should I
not say, "Hey, motion denied," let it be settled or let a jury figure it out? MR. TRINGALI: THE COURT: (Laughter.) MR. TRINGALI: It might, Your Honor, be easier No, Your Honor --
It would be a lot easier for me.
for you but I think it would be unfair, A, to the defendants, and more importantly to a jury because -THE COURT: But even if there is 15, the
supposition is there is 15 conspiracies. MR. TRINGALI: THE COURT: And that is something that --
Can I say, well, jeez --
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MR. TRINGALI:
Your Honor, the question before
you, as you understand, and I think as you said today, is you have a Count 1 -- and Mr. Primis explained this and I'm sure he can go through it again -- you have a Count 1 -THE COURT: I understand. -- that they have pled --
I am talking as a practical
matter, jeez, do I throw it out on a pleading, on a pleading? MR. TRINGALI: procedural technicality. Your Honor, it's not a mere
It's a conscious decision over
five or how many years this case has been pending to plead the overarching conspiracy because Your Honor recognized on day one, the first time we had an argument, how could you bring all these transactions together in one case. THE COURT: I had never seen it before. No, but also Your Honor was
MR. TRINGALI:
correct under misjoinder, under, I think it's Rule 21 or 22, I'm forgetting, but whatever, under that rule under the Federal Rules you can't bring separate conspiracies together. They have to be brought, if they have an HCA If they have a Texas Genco They decided they
claim, they bring an HCA case.
case, they bring a Texas Genco case. didn't want to do that.
They decided they wanted to have
maximum, you know, value to this case by being able to, as I
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said before, swing by the fences and try to bring in as many deals as they can and each time as this case has proceeded through phases of discovery add some more deals so now we have 250 billion dollars of transactions. That's their And for the
decision that that's what they wanted to plead.
named plaintiffs that they represent they're bound by that, Your Honor. And it's not a procedural technicality. It's a
question of that's the claim and the cases Mr. Primis showed to you on summary judgment show -THE COURT: My next question is counsel for
the plaintiff put up on the board this document (indicating) showing all the connections. that? What am I going to do with How am I going to
I mean, it is somewhat persuasive.
get into the minutiae of all these relationships? MR. TRINGALI: Your Honor, I suggest to you
that what they provided to you was minutiae that is irrelevant. Let me first of all quote to you from something they said to you back in June of this year and they said this to you in opposition to the HCA defendants' motion to strike the HCA claim. They said to you that any deal
specific evidence they claim to have, quote, stands separate and apart from the proof needed for plaintiffs' overarching conspiracy. That's what they said to you when the HCA
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defendants said that the HCA claim is just redundant of the overarching conspiracy. They said it's separate and apart.
And now they come before you and they say, here, take this evidence from this deal, take this evidence from this deal, take that evidence from that deal and see if we have somebody who is in that deal who is also in this deal and we've satisfied the burden. Your Honor. THE COURT: what I am going on. My question is with all this evidence, is it difficult to determine whether that constitutes overarching or not? MR. TRINGALI: this reason: No, it's not, Your Honor, for They pled overarching, that is They've satisfied no burden,
They gave you a map that they said, you know,
they collected all those lines. THE COURT: Yes. I submit to Your Honor that
MR. TRINGALI:
that is a map to nowhere because all those lines show are if a defendant considered a transaction, won a transaction, declined to bid on a transaction, was offered an opportunity to invest in a transaction, having nothing to do with linking that to any other transaction. The fact that we are in multiple transactions is because there are these 27 transactions and defendants
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appear in more than one of them.
That doesn't create a
conspiracy, an overarching conspiracy. Their claim is that we allocated them all. So
putting up a chart and showing all these lines, you can have as many lines as you want but if they don't add up to anything, if you need a line that says defendant A agreed that they would allocate all these transactions in some manner, because the plaintiffs have never been able to tell you what that manner is, over this 5-year period, and defendant B agreed to that same thing, they can't just say to you, look, defendant A was in this transaction and that transaction and that transaction, I'll draw all these lines together and I have now linked them up. What have they linked up? were in multiple deals? conspiracy. The issue for Your Honor is whether they have evidence, whether they have created a material and a genuine issue of material fact as to the existence of an overarching agreement to divide up these transactions and to rig the prices of the transactions. I presented to Your Honor this morning various documents showing the defendants competing against each other for these transactions. They put up a map that shows The fact that people
That doesn't create an overarching
all these lines crossing each other without explaining what
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conspiratorial action is connecting one versus the other. You have to evaluate everything that is on that map under the Matsushita standards which they didn't attempt to do. So the fact that I bid on a transaction says nothing.
The fact that I decided not to continue bidding says nothing. Your Honor yourself said in response to questions
to the plaintiffs, there is no reason, no obligation any of the defendants have to keep bidding. And I showed you documents where people said it's a dollar short and a day late. No one had a reason, people
could decide that they're paying -- that the price had gotten too high. So just drawing a line because someone What
decides that the price went too high doesn't do it. you need is something, some evidence, whether it's a
document, whether it's deposition testimony, something that says that there was some agreement to allocate transactions, not that in a particular transaction defendant A said to defendant B I let you in, I gave you this opportunity that you didn't know about in one transaction so you should let me into this next transaction. that. That's completely -THE COURT: How do you define "allocate"? I'm sorry? There is nothing wrong with
Allocate -"Allocate" means divide, Your
MR. TRINGALI:
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Honor.
It means for me to say a market allocation, it's I'll explain both market
something under the antitrust law. allocation and bid rigging.
"Market allocation" just means that we divide up things. In other words, the two of us both had You would agree that you would have And you
supermarkets, okay.
Boston and I would agree that I had New York.
wouldn't open a grocery store in New York and I wouldn't open a grocery store in Boston. okay. So they have agreed that for these 27 transactions that came up, we all agreed who was going to win it, who was going to lose it and that all this evidence that we have before Your Honor that shows people giving it their absolute best shot, people saying they can't stretch any more, that has to all be -- you have to say that's all made up. No That's market allocation,
evidence but you have to say that because otherwise it makes absolutely no sense for defendants to say I have given it my absolute best shot and I lost, that I'm disappointed, that I don't understand the price they paid if we supposedly allocated these transactions. And that's the fundamental
problem that plaintiffs have here. THE COURT: The evidence -It's a failure of proof -- I'm
MR. TRINGALI: sorry.
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THE COURT:
The evidence that you presented
during your first appearance was strong to show that there was no -- that there was some competition but, I haven't counted, but how many transactions did those statements relate to out of the 27? Ten? Your Honor, we could do that
MR. TRINGALI:
probably for every transaction but I don't think you want to be -- you are here already long enough on this argument. don't think you want to be here longer. The fact of the matter is though that their claim is that we allocated all those transactions. So if I gave I
you three examples or if I gave you ten examples or if I gave you 27 examples, it still defeats the idea that there was an overarching market allocation because if there was an overarching market allocation, you would not have seen on those 27 transactions, which is the claim they've made before you consistently, then you would not have seen any of those examples, whether it was six transactions, ten transactions or 27 transactions, because we would have divided up those transactions. We would know who got which
transaction and we wouldn't be expressing surprise or disappointment. We would know each other's price because we We
supposedly rigged the price on all those transactions.
wouldn't be saying that someone way overpaid, that we could never get to that price. We wouldn't decline invitations to
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join a transaction when we're asked because supposedly we agreed to rig the bid so the price would stay low so that we would then be able to enter in at the end and we don't. Their own economist says that 15 of the 25 transactions nobody comes in. Nobody comes in. So they
make a big deal to you about the quid pro quos and they say they link up everything. But then they tell you that 15 of
the 25, and I can tell Your Honor that they've completely overcounted even those transactions, but even accept that number, 15 of the 25 transactions they say no one came in at the back end. No one accepted an offer to come in after we Then why are
supposedly divided this up, agreed to it.
people inviting people to come in and people are saying no, I don't want to, the price is too high or I have no interest? How is that at all consistent with us having
agreed to divide up all these transactions and fix the prices? I submit to Your Honor it's not. And I want, Your Honor, to go to the Matsushita standard because they -THE COURT: I think the plaintiffs agree that
that is still the standard but I think they contested your interpretation. MR. TRINGALI: Well, I want to show you, Your
Honor, that my interpretation is not "my" interpretation, it's the Court's.
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First of all, the White case.
This is White versus
R.M. Packer, 635 F.3d 571, decided February 2011 in the First Circuit where they cite the Matsushita standard and say -- and this gets to the issue that Mr. Wildfang said to you that they get all inferences. That's not what
Matsushita says, Your Honor, and that's not what the First Circuit says. What it says is that conduct as consistent with permissible competition as with illegal conspiracy does not standing alone support an inference of antitrust conspiracy that allows plaintiffs' evidence to reach a jury. That's the First Circuit citing Matsushita. THE COURT: Say that again. It says, "The Supreme Court,"
MR. TRINGALI:
this is the First Circuit and it -- if I can read this better I would tell you but, in any event, it's in that opinion. It says, "In addition the Supreme Court has
'limited the range of permissible inferences from ambiguous evidence in a Section 1 case' holding that at summary judgment 'conduct as consistent with permissible competition as with illegal conspiracy does not standing alone support an inference of antitrust conspiracy' that allows plaintiff's evidence to reach a jury. In order to survive
summary judgment plaintiffs must produce direct or circumstantial evidence that is not only consistent with
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conspiracy but 'tends to exclude the possibility of independent action.'" And the court, the First Circuit goes on to say, "These special rules apply to claims of horizontal conspiracies," which is what you have here, "such as this claim of price fixing." The First Circuit also writes, "The sum total of this evidence simply does not rise to the level Matsushita requires. Plaintiff's ambiguous evidence is entirely
consistent with permissible conscious parallelism. Plaintiffs have failed to produce evidence that tends to exclude the possibility of independent action." So the idea that favorable inferences that you have under the standard for summary judgment typically is very different under what the First Circuit has called the special rules for deciding a Section 1 conspiracy claim. And they said about the jump ball that I just made that up. Your Honor, I tried to go fast when I went through
the slides with you so I didn't go through in tab 8, in the binder I gave you, I didn't go through two of the slides. The second slide is a quote from the Second Circuit where the second -- this is tab 8 where the Second Circuit writes, "The district court properly granted summary judgment to defendants after concluding that, quote, it is equally plausible that defendants acted in their own much
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self-independent -- self-interest independent of one another." That's U.S. Information Systems versus
International Brotherhood, 366 Fed. 290, 292 (2d Cir. 2010). Also District Court of Rhode Island wrote, this is DM Research, Your Honor, versus College of American Pathologists, 2 F.Supp. 2d 226. It's also behind tab eight.
"The existence of a conspiracy may be inferred from the actions of the alleged conspirators. However, such an
inference must be reasonable and 'is warranted only when a theory of rational, independent action is less attractive than that of concerted action.'" So I didn't make up the jump ball. law in the Second Circuit. Supreme Court. It's the case
It's the case law from the
It's the case law in the District of Rhode They need to show less, not tied. And
Island, Your Honor.
when there is ambiguous evidence, we don't have to -- they don't have to exclude every possibility, I didn't say they did, but it has to be more reasonable, more reasonable that it was conspiratorial, not acting in our own independent interests. And if you look at the things they talk about, club bidding, we have shown you many examples and I just cited you additional examples of the independent reasons people have for making joint bids. For the no jumping, you yourself mentioned to the
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plaintiffs that there is no obligation on the part of any of the defendants to keep bidding up the price if they have decided the price is too high. There is no obligation on
them to try to jump a signed deal when they can turn their attention elsewhere rather than being a day late, a dollar short, I'm going to lose, in the words of one of the defendants that I showed you this morning. And in terms of the quid pro quos, again, that is completely independent interest for you to refer business to people -- business opportunities to people who may have either given you opportunities in the past or who you think can give you opportunities in the future. completely consistent. And also the other thing I would ask about the quid pro quos, Your Honor, is I gave you a number of examples this morning, things that made their chart for an overarching conspiracy where the quid pro quo was I'll invite you into a transaction and we'll both lose together or I'll invite you into a transaction and that transaction will never take place or I'll invite you into a transaction and you'll drop out because you think the price is too high. Those all got lines today. meaningless, Your Honor. So unless Your Honor has any other questions -THE COURT: No. Those lines are All of that is
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MR. TRINGALI:
-- the fundamental question you
asked them during their argument was where is the agreement as to the overarching conspiracy, the overarching agreement to divide up among ourselves, among the 11 defendants all 27 transactions and to fix the prices? a map. That map shows you nothing. They told you they have They told you they have
the quid pro quos. they do.
The quid pro quos, I showed you what
They do nothing. They have to meet the Matsushita standard, the
special rules in the words of the First Circuit, and they haven't done that. They have not been able to tell you how
this conspiracy that they told you they deliberately pled where they have evidence of it. They haven't told you when
it happened, where it happened, how it happened, when it was implemented, how it could be implemented and who implemented it. Nowhere have you heard answers to those fundamental
questions, Your Honor. And I -- and recognizing the questions you have, those are fundamental questions that you need answers to you and you have not gotten answers to them today and on that basis, Your Honor, I submit summary judgment should be granted as to Count 1. Thank you for your time. THE COURT: Quick response. Yes, Your Honor.
MR. WILDFANG:
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MR. PRIMIS:
Judge, I also wanted to address
the procedural questions from the Court's order. THE COURT: MR. PRIMIS: All right, very quickly. Okay. Thank you, Your Honor.
Judge, in some of your questions to Mr. Tringali it seemed as though the Court was searching for what the Court should do in the procedural posture we have here where there may be questions about -THE COURT: Well, I was assuming that there
are separate conspiracies, you know, why get involved with something like that, you know, let a jury handle it. always the easiest thing to do is just deny it. MR. PRIMIS: Well, Your Honor, that's why I It is
did want to get up and just take two more minutes on that particular issue because the Court deserves an answer. And the answer is decisively in the defendants' favor and requires that the Court grant summary judgment on the only count that has ever been pled, which is the overarching conspiracy. Now, the Court entered its order almost two months ago asking those two questions. The defendants provided a
booklet of a dozen cases that address the situation of what happens when you get very late in the case and plaintiffs have not just discovered new evidence, that's not what they're claiming, the plaintiffs have admitted in this case
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that they made the strategic decision to proceed on a very specific type of conspiracy. THE COURT: allegation. MR. PRIMIS: Understood. What I want to There is no doubt, that is the
underscore is that in the booklet that we provided to the Court -- and we understand the Court hasn't had a chance to read that yet and it hasn't been briefed yet -- but we provide a dozen cases not from around the country but from the First Circuit and from the District of Massachusetts that address that situation when you get this late in the case, strategic decisions have been made, millions of dollars have been spent, summary judgment has been briefed, all these people come here to argue this, in that situation district courts in this circuit repeatedly hold the plaintiffs to the decision that they have made, and the First Circuit affirms them, including by Justice Breyer 30 years ago and the First Circuit as recently as 2008 and 2012. And so the Court is not left without legal direction from the First Circuit about how to proceed here. Moreover, the factual predicate is set to apply those cases that we've handed to Your Honor, the factual predicate is set because the Court asked Mr. Burke as clearly as you could have why didn't you plead these separate conspiracies,
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the 15 conspiracies or the 27. question.
He didn't answer the And
He just said we just chose not to, okay.
there are reasons that they didn't do it. released.
Some of them are
Some of them can't possibly show a conspiracy.
Some of them -- none of them could be joined together in a single case. That's why they proceeded the way they did and
they should be held to that. THE COURT: Let me ask you this:
You are surmising, let's say there were three conspiracies or four or five, why weren't they pled separately? MR. PRIMIS: THE COURT: MR. PRIMIS: their -THE COURT: MR. PRIMIS: What is your speculation? Our speculation is, first, they Again, Judge, that's -It is not --- I can only speculate as to
wanted to bring in all of these defendants and all of these transactions to maximize settlement leverage and to maximize potential damage exposure. It's under Rule 20. They also had joinder problems.
Cases can -- these transactions,
normally you just have a securities fraud say, it's just one company, one acquisition. Here they're trying to bring in They
what would be like 27 different securities cases.
would never be able to do that if they didn't have one
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global overarching conspiracy. didn't do it.
That's another reason they
And then some of the conspiracies' allocations just completely fall apart when you look at the specific transaction. We pointed to a few. Freescale would be an
example where the bidding went up by a billion dollars. So there is all kinds of reasons they didn't do it. But importantly a lot of the cases that we provided to the Court, they're amendment cases. And plaintiffs come in at
the summary judgment phase and they say, oh, we got it wrong, the Court has rejected our -THE COURT: think -MR. PRIMIS: THE COURT: No, I -I think they are sticking, as they I don't think they said. I
have to, with overarching. MR. PRIMIS: THE COURT: I completely agree. That is the law of the case,
whatever way it is ruled on. MR. PRIMIS: doubled down on it. other one. My only point is that if the First Circuit is affirming decisions denying amendment where the plaintiffs actually ask it, ask for it, here they are not even asking Mr. Burke confirmed it and he
That's our case, we didn't plead the
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for the conspiracies that the Court is positing so rather than throw our hands up and let 15 potential undefined conspiracies go forward, which would create a real morass because we have a 200-page, 217-page, 599-paragraph complaint, we don't even know what those conspiracies would be, if they're not asking for it. And the rules, and the last point I want to make on this is the Federal Rules of Civil Procedure, they're pretty clear. It says a party has to set forth its claims. A
party has to set forth its defenses. amend.
A party can move to
That's under Rule 8, Rule 10, Rule 15 and Rule 16. The party hasn't done that here. And so we would
ask the Court not to rewrite the complaint for the plaintiffs, which is dangerous in any case, we would specifically ask the Court not to do it here where the plaintiffs aren't even requesting that relief. THE COURT: do it. MR. PRIMIS: I'm not suggesting the Court was I didn't indicate I was going to
but we are dealing with the hypotheticals and the possibilities. If one potential outcome is that the Court might say there are some number of smaller conspiracies here, I can't -- it is too complex, I can't make heads or tails of it so these few transactions can proceed on this current
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complaint, there is no basis in the rules that require the parties to set forth their claims and defenses for the Court to do that and it's a very different conspiracy than what's been pled. And I do want to just emphasize, there is going to be different defendants, different plaintiffs, different legal defenses, different factual defenses and we're going to have to do all this over again. And that's why Justice Breyer, he didn't just say it's the rule, he set down a policy. that. THE COURT: You don't have to go -- the issue He said we don't do
is is there sufficient evidence under, whatever the -MR. PRIMIS: THE COURT: conspiracy. Matsushita. -- cases are as an overarching
That is what has been pled here and that is how
it will be ruled on. MR. PRIMIS: And that's the way, we believe And any
that's the way it should proceed, Your Honor.
effort to change it, whether judicially or by the plaintiffs, is untimely, it's just too late time. Thank you, Your Honor. MR. WILDFANG: the plaintiffs. I would like to try to be brief but these are Your Honor, Fred Wildfang for
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important questions and we certainly want to provide the Court with the best answers. I cited earlier Judge Hogan's opinion in the vitamins case which is found at tab nine of the binder that I gave Your Honor. We also have in the binder at tab four
jury instructions that were given by Judge Hogan in that case. And I must correct what I said earlier. The
opinion that is in the binder is not the post trial opinion, it is the summary judgment opinion. And I encourage Your
Honor to read it carefully because Judge Hogan faced exactly the same situation, exactly the same argument that these defendants make here. In the vitamins case there were 12 or 15 different vitamins made by various defendants. made every vitamin. single vitamin. Not every defendant
In fact, a few defendants made only a
And the opinion that is in the binder is an
opinion granting in part and denying in part a motion for summary judgment by the defendants who made a particular vitamin called choline chloride. And what Judge Hogan did, and what I think Your Honor should do in this case, is evaluate all of the evidence because, as Mr. Burke said, that's the requirement under the Continental Ore case and lots of other cases that you can't parse the evidence. You have to look at the
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entire, all of the evidence. And what Judge Hogan did is -- let me step back. The choline chloride manufacturers claimed that they were entitled to summary judgment on account of that complaint against them that charged them with participating in what was called the "All Vitamins conspiracy." And they made They
exactly the same arguments the defendants make here.
said, well, wait a minute, we have legitimate business relationships with some of these other vitamin manufacturers because we buy product that we don't make from them and they buy product they don't make from us. So they said there are
legitimate business relationships here and so we're entitled to summary judgment. What Judge Hogan did is he looked at all of the evidence and he concluded that as to all but one of the choline chloride defendants there was sufficient evidence to get to a jury. As to one of those defendants he said he
didn't think that plaintiffs had gotten to the goal line, that there was not sufficient evidence for the class plaintiffs in that case to get their case against that particular defendant to the jury. But the fact that Judge Hogan found that one defendant was able to persuade him that the plaintiffs had insufficient evidence as to that defendant, did that mean that Judge Hogan had to dismiss the case against the other
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four defendants?
No, that's not what he did.
That case
went to trial and there was a verdict in favor of the plaintiffs against the four. Now, it's, this, Your Honor is correct, this is a complicated case and we pled it the way we pled it because that's the way the facts line up. lawyers representing our clients. We, you know, we're We have to do the best we And the fact is There was a
can to get the evidence that is available.
that these weren't 27 separate conspiracies. single conspiracy.
There were 27 episodes or manifestations
of a conspiracy and not every defendant participated in every episode. But just like in the vitamins case -Let me ask you this:
THE COURT:
In a normal conspiracy you don't have the co-conspirators in conflict with each other as at least during this conspiracy, alleged conspiracy, the defendants have shown that there is some competition and some regret that they didn't win or that, you know, so -MR. WILDFANG: THE COURT: Your Honor --
-- if there is a conspiracy, there
is some lack of meeting of minds with respect to all the transactions; are there not? MR. WILDFANG: there is not. Your Honor, respectfully, no,
And let me call the Court's attention to in
tab 4 of my binder are excerpts from the instructions given
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the jury in the vitamins case by Judge Hogan.
And I would
be happy to supply the entire set of jury instructions if you would like. But at instruction No. 31 which is -THE COURT: facts of this case. No, but I am talking about the
Conspiracy is a meeting of minds to
conduct -- to meet some type of object in this case with respect to restrain trade in 27 transactions and yet the defendants have shown at least in some instances some of the alleged co-conspirators at odds with each other. MR. WILDFANG: Your Honor, first of all, that
is, what the defendants are inviting the Court to do is what Judge Posner in the High Fructose opinion counseled against. And, again, that is in our materials. read that case. Judge Posner is probably the most respected antitrust scholar on the federal bench. And he describes in We encourage you to
his opinion the three traps that defendants try to lay for trial judges on summary judgment motions. And one of those And
traps is trying to get the Court to weigh the evidence.
that's what these defendants are wanting Your Honor to do. Now -THE COURT: weight. Well, not weighing if there is no
If somebody is opposed who makes a statement that
the resolution of the bidding transaction was contrary to
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his interests, that is not weighing the evidence.
It is
just, it seems to be, it appears to be contradictory to the other alleged co-conspirator. MR. WILDFANG: Your Honor, the reason I was
directing Your Honor's attention to the jury instructions in the vitamins case is that one of the instructions in that case -- and this is a standard instruction in the antitrust cases -- is that the jury, just because there may have been some instances of competition or that the defendants didn't eliminate all of the competition between them, that is not a defense. The question is was there an agreement and did any
particular defendant participate in that agreement knowingly. And even if that participation was slight or,
you know, just driving the getaway car, they're still liable for that. And what I am trying to get Your Honor to look at is Your Honor has to look at the entire record and ask that question. You can't look at one or two or however many
documents Mr. Tringali showed you that may on its face look like, well, this is one employee at one of these firms said something that looks like they wanted to compete. not the question. conspiracy. And respectfully, Your Honor, I submit that a fair-minded juror and a fair-minded jurist would look at the That's
The question is was there an overarching
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entire record here and say there is certainly sufficient evidence to get to trial on that claim. THE COURT: Well, would you say that is an
important factor though if someone in a high executive position expressed displeasure at the outcome of one of the bids? MR. WILDFANG: That is certainly a fact --
first of all, assuming it is true, it is a fact the defendants may argue to the jury negates all of the other evidence that shows that that firm was an active participant in the conspiracy. But, again, those are jury questions.
Those are not questions that the Court should resolve at summary judgment. Your Honor's instincts are right. This, even
though this is a big, complicated case, it is really no different than a smaller, simpler case. questions. There are jury
The juries are there to answer those questions.
Experts provide helpful opinion evidence to a jury. And I would note that our experts are un-rebutted by the defendants. their fields. They're all well respected scholars in
Professor Connor is probably the leading
authority in the United States on cartels and their opinions are helpful and it should go to the jury. And they, all of that evidence, including the expert evidence, supports the inference that we allege is
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true and that is that there was a single overarching conspiracy. That's all I have. THE COURT: here? MR. TRINGALI: motion is next. THE COURT: All right. So we will clear off here so Your Honor, I believe the HCA All right. Where do we go from
MR. TRINGALI: that they can come up here. THE COURT:
All right. Your Honor, on the schedule
MR. TRINGALI:
today is the HCA motion, Count 2, and then it is followed by the Apollo individual motion and that's it for today. THE COURT: Okay.
(Pause in proceedings.) MR. THOMAS: Your Honor, with your permission
I am going to burden you with another notebook. THE COURT: MR. THOMAS: What is that? I am going to burden you with one
more notebook, if that is all right. THE COURT: Okay.
(Whereupon, a notebook was given to the Court, the Clerk and the Law Clerk.) MR. THOMAS: Your Honor, my name is Peter
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Thomas.
I am appearing here on behalf of the four HCA
defendants in support of their motion for summary judgment on Count 2. THE COURT: MR. THOMAS: Four? I thought there was six.
Well, technically there are six.
KKR and Bain though, Your Honor will recall, have been released from any liability on the HCA claims due to releases. So one of the oddities here is that this claim is
brought solely against the losers, the four losing players which are my clients Blackstone, Carlyle, TPG and Goldman Sachs. So on behalf of the losers I'll proceed. (Laughter.) THE COURT: or -MR. THOMAS: THE COURT: released. Bain and KKR. KKR. I forgot that they had been That is Bain and what is it, KKR
I was thinking that there were six defendants. MR. THOMAS: You're correct, you're correct as
a technical matter but two of them have been dismissed essentially and released from any liability. Your Honor, when the HCA LBO was announced -THE COURT: So if they have been released,
that doesn't look too good for you. MR. THOMAS: standing. Well, we're the only ones left
But I'm going to try to persuade you that this
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count should be, that summary judgment should be granted on it as well. And I believe there are very strong reasons for
that, beginning with this fact, that the Matsushita standard -THE COURT: Would you say this, that in my
review of all the evidence -- and, you know, I have been living with this case as you have for a long time, what is it, four years or five years -- the HCA acquisition to my way of evaluating the evidence is the strongest. I mean, if
we had 27 conspiracies like that, this would be an easy case I would think. Is it not the strongest evidence? Not at all, Your Honor, and let
MR. THOMAS: me explain why.
The plaintiffs in this alleged conspiracy
have to meet the same Matsushita standard that has been described at length this morning. And so Your Honor knows
that based on that case and the White case that Mr. Tringali described to you just a few moments ago, to survive summary they have to produce evidence that is not only consistent with conspiracy but tends to exclude the possibility of independent action. And the first point I want to make about that, Your Honor, is that there is contemporaneous -THE COURT: what is that? MR. THOMAS: KKR. Let me ask you, if Bain and --
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THE COURT: you are; would they? MR. THOMAS:
KKR, they wouldn't be arguing as
Absolutely.
Absolutely, because
there is evidence, there is cotemporaneous evidence in emails and documents at the time that the HCA LBO was considered by these four defendants that they had legitimate independent reasons for not attempting to top that deal with a rival consortium bid. And I want to walk Your Honor
through the evidence that supports that. In other words, we are not just showing you some hypothetical of independent action or some, just a theory of independent action. There is actual evidence in the record
that shows that each of the HCA defendants did have legitimate independent reasons for deciding not to bid. Your Honor made a good point -THE COURT: MR. THOMAS: But they did back off. They decided not to make a bid.
And Your Honor's referring I think in part to the email relied upon by the plaintiffs from Carlyle's files and I will talk about that. I definitely will talk about that.
But I just do want to take you through a few key points. THE COURT: MR. THOMAS: Go ahead. As Your Honor said, there is no
obligation to compete during the period after this deal was announced. It is only an opportunity to compete. And there
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are many good lawful reasons why these four defendants would have considered and, in fact, did consider not competing and made the decision not to compete on lawful grounds. So, for example, and there has been a lot of talk this morning, one of the features here is that people, that trying to jump a signed deal or top a signed deal is very rarely tried and even more rarely successful. Why is that?
Because the odds of the second group unseating the first group are very, very low, especially doing that at an attractive price, a price that won't be overpaying for the target. There is a much greater likelihood that the second group will end up wasting a lot of money and time not to mention the lost opportunity cost of not pursuing some other alternative transaction during the same time period. Now, why are the odds low? Why are the odds low?
Well, there's a lot of reasons but one of the reasons is that some of these deals are management-led buyouts where management participates or key shareholders participate and they handpick their preferred partners. And once they pick
those preferred partners, the second group faces a big challenge because you're going to have to effectively do a hostile transaction on that management who wants to work with a particular set of players. You are not going to get
the same level of information adequately doing due diligence
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that the first group got in order to do a good evaluation of the target and ultimately you have to work well with management if you were to prevail. So there is a lot reasons why the handpicking puts that first group in the pull position, in the pull position. Another thing that happens is that the first group, Your Honor, the first group of bidders such as KKR and Bain, they will negotiate for themselves deal protections and especially something called matching rights. So they will
negotiate the right that if a rival consortium comes in, a rival club, and makes a bid, all they have to do is match it. They don't have to bid a penny higher. They match it,
they win. So the second group knows that they could spend a month or two on diligence and lawyers and financial advisers, all sorts of expenses, and at the end of the day they could be matched and they'll lose. Those are just two And
of the reasons why the odds of prevailing are very low. these are not, again, theoretical. documents of the HCA transaction.
These are right in the
If I could ask Your Honor, here in the HCA deal, Dr. Thomas Frist, I think he is the largest shareholder of HCA, he went out and he handpicked KKR and Bain and a nondefendant Merrill Lynch, those were his preferred partners. He brought them in, HCA management, and they put
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together this deal that was announced. Now, that became, for each of these HCA defendants, after the deal was announced, they saw that as a huge obstacle to overcome if they were going to mount a rival bid. Now, I'll just show you a couple of examples. If
you turn to tab two of the binder that I have put in front of you, you will see there, this is an internal email at Carlyle so it's a purely internal email. And the Carlyle
executive is stating, "My sense is that a competing consortium is a losing proposition. Tommy Frist is rolling
over 800 million dollars," that's his own money, "and he's teamed up with KKR and Bain. lose." So Carlyle, one of its major considerations here is it's going to waste a lot of time and effort. are already partnered up. These guys I don't think that he will
And if you look behind tab three,
you will see an internal Blackstone document just a little bit later and Blackstone actually understood that Tommy Frist not only had picked Bain and KKR but he didn't like Blackstone. That was the perception within Blackstone, that
he did not want to do a deal with Blackstone. And here's a contemporaneous email where Mr. Simpkins of Blackstone says, "We knew Tommy Frist didn't want us in the deal." That's one of the reasons, that's a
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legitimate independent reason. And there is no allegation that these are sham documents, that we just sort of made up these documents in order to have the pretext of independent reasons. actual independent reasons. Now, let me ask, talk to you also about matching rights, matching rights that KKR and Bain negotiated, they had the right to match. And this was, again, a big These are
challenge for the HCA defendants. If you look behind tab four, I'm showing you an email by one of the founders of TPG Mr. Bonderman. And this
is after he and TPG have already decided to pass on HCA. They had communicated that and they actually -- this is, he is reporting on a call he had with Merrill Lynch. And he
says, "I also said that if the committee," he's referring to the special committee to the HCA board, "was so interested in receiving a competitive offer, they should never have agreed to a right to match which would probably ensure that there would be no competitive offer." And if you look behind that at tab five you will see that, again, an internal Blackstone email. And here you
have Mr. Simpkins again saying, "We felt we just wouldn't win in the end because Henry," and that's a reference to Henry Kravis of KKR, "Henry would never let that happen." In other words, KKR and Bain would match any
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competing offer we made.
That's a perfectly lawful,
legitimate, independent reason for not pursuing the HCA transaction. I want to mention one other thing. One of the
things the plaintiffs point out or argue is that in the immediate aftermath of the deal announcement that the HCA defendants, they did sort of back-of-the-envelope valuations of HCA. And it looked like, you know, maybe, you know, the
deal that KKR and Bain had was $51 per share and some of the model (ph.) of possible deal at $55 a share. And the
returns looked kind of attractive, maybe that would be a deal worth doing. Well, what the plaintiffs don't understand or haven't made clear is that that ties directly back into the matching rights. In other words, if based on public
information the back-of-the-envelope valuations turned out to be correct, that there were attractive returns at $55 per share, that guaranteed, Your Honor, guaranteed that Bain and KKR would match any offer at $55 per share, because why wouldn't they. They would want the same attractive returns.
The alternative was that, in fact, the nonpublic information about HCA would show that the $51 was a fair price and I'll come back to that because that's actually what it did show. But my point here is simply that matching
rights are very powerful and that there was contemporaneous
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consideration of that as reasons why each of these HCA defendants did not proceed. Now, let me just answer one other point. I said
earlier that the odds of prevailing if you were to make a jump in and make a second offer or bid are so low and I meant especially to say especially at an attractive price. The worry is you're going to overpay for the asset. And
there is nothing in the antitrust laws that says that my clients have to overpay for something and deliver subpar investment returns to their investors. So it's a legitimate
independent reason not to want to overpay. And if I can ask you to turn behind tab 6, this is an issue identified by Carlyle. email. It's an internal Carlyle
It says, Ms. Beckle said the major issue is price. A concern about, a concern about
The major issue is price.
the possibility of overpaying. Now, Your Honor, I think you may recall or maybe not from this morning's presentation by the plaintiffs, at one point they emphasized the reference which also comes up in connection with the Blackstone consideration of HCA. you turn back to tab five, Your Honor, in the same email where Blackstone says internally that they felt they just couldn't win in the end because Henry Kravis would never let that happen, they also say the reason we didn't go forward was basically a decision on not jumping someone else's deal If
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and creating RJR2, that's RJR Nabisco 2, with us as KKR, i.e., doing a hostile on management. So let's just unpack that. All of that is, are The first
legitimate independent concerns of Blackstone.
thing is Your Honor pointed out that it's, you know, the fact that someone might decide that you're not going to participate, not jump someone else's deal, well, the legitimate reason for that is it could be good politics. It
could be you're saying to yourself I'm going to pass up this opportunity, maybe in the future, because this is, this is an industry where there is lawful collaboration, the ability to work together and actually sometimes bid for companies together as well as compete with each other. It's not
inappropriate to think about or think about good politics. It's perfectly appropriate. And the idea of creating RJR2 with us as KKR, that's just saying we know that KKR massively overpaid and we don't want to get into a certain -- into an auction process where ultimately even if we prevail we're going to wildly overpay and deliver very poor returns to our investors. That's a legitimate independent reason.
And the doing a hostile on management, that is again a reference to the fact that Tommy Frist has picked his preferred partners and any attempt to come in now would be viewed as a hostile situation on management.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 collude.
So all of that is consistent with independent action, independent consideration of these deals. Now, Your Honor, I think this is all summed up well by, if you turn to tab seven, you will find another internal Carlyle email where Ms. Horbach, you know, sort of sums it up from Carlyle's perspective. "I think we should have the
health care team look at CHS," that's Community Health Systems, "an alternative hospital investment and not waste too much energy on HCA unless Frist decides to let us in on his deal." Again, a perfectly legitimate determination that the chances of prevailing were very low and it would waste a lot of time and money to go after this. Now, let me turn to the plaintiffs' theory here and my second point really which is the plaintiffs essentially try to pin this whole story about HCA on this one email from a, now a former Carlyle executive, in which he makes reference to a request from KKR to the industry to step down on HCA. And the theory is, well, that's sort of an offer to And since the four defendants all didn't mount a
rival bid, they must have accepted the offer and that's a conspiracy. Well, I've just shown you that, in fact, it's
not -- I've just shown you all of the independent reasons that those HCA defendants were considering at the time and
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that were part of their reasons for not deciding to go ahead. But beyond that, let's think about what "step down" means in this context. I mean, even if that were uttered,
even if that had been uttered and even if it were admissible, and I'm not going to, there is not enough time to talk about those issues in this short presentation, but I would respectfully submit that a demand to step down is not on its face an offer to collude. It's a demand to back off.
And believe it or not, you know, in the real world competitors from time to time tell other competitors to back off. It's actually no-holds barred, you know, competition. And so even on its face
It's bare-knuckle type competition.
I would submit that it is not a reasonable inference to simply say, well, that was an offer to collude. But what's the best evidence of that? What's the
best evidence that it's not reasonable to infer from step down that that was an invitation to collude? And I would
respectfully submit the answer to that lies or the reason for that lies in the following question: What exactly, what exactly were the HCA defendants promised by KKR and what exactly did they get from KKR and Bain for this supposed conspiracy? The answer, the They got
undisputed answer, Your Honor, is nothing. nothing.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. you.
So if you turn to tab -THE COURT: You are saying that the four
people who "stepped down" received no benefit? MR. THOMAS: 8 and illustrate this. THE COURT: Maybe they received, they were Zero. And I'll take you to slide
allowed in on some other transaction. MR. THOMAS: That didn't happen. I will show
If you turn to tab eight.
The first and most
obvious possibility would be that -THE COURT: Well, is it that -- isn't it
alleged in Count 2 that -- no, I guess what was alleged, that your activity of stepping down caused damages. MR. THOMAS: Right. This is very key, Your
If you look at slide eight, the first and most obvious possibility here might be that in return for stepping down the HCA defendants would promise that they would be able to share in some of the equity of HCA itself, all right. That would be at least one possible theory. Well, three of the HCA defendants
What happened?
after they made their decision not to mount a competing bid did inquire of KKR and Bain whether they, because it was a huge equity investment, more than five billion dollars, they
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inquired whether there would be the possibility for them to participate at some level. They were rejected. KKR and Bain said no, We're not going to give Blackstone didn't So that's
The record is undisputed. you're not coming in on this deal. you any of it. ask.
And they got none of it.
The three others did.
They got rebuffed.
the facts on HCA.
It's not controverted.
On what's -- you might then say what is the very next LBO, the next immediately succeeding LBO where maybe there was a, could be a quid pro quo for stepping down on HCA? That's Philips/NXP. That's Philips spinning off that
semiconductor business NXP, literally -- the chronology here is July 24th the HCA deal gets announced. At the end of the month, early -- late July, early August, they're in the final third frenzied round of bidding in the NXP competition so that the auction is going on for NXP. And who is bidding? Well, on the one hand you have
Blackstone is teamed up with TPG so two of the HCA defendants are teamed up together. against? And who are they bidding
KKR with Silver Lake and then Bain is also bidding So they're bidding against the winners in HCA
separately.
within a week after supposedly agreeing to step down in return for some benefit. What happens? bidding. There is, there are three rounds of During the
The prices go up in every round.
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process -- and I'll show you more of this tomorrow in my Blackstone specific argument -- but Blackstone sabotaged the attempt by KKR and Bain to use a special -- I'm sorry -- by KKR and Silver Lake to use a special financing structure. They squealed on it, when they got wind of it, they squealed on it to the financial advisor, to Philips, and they chilled the idea which they thought would hurt the ability of KKR and Silver Lake to be competitive on their transaction. They sabotaged it. They talked about it in their documents.
So at the end of the day who wins this competition after three rounds of bidding? KKR.
And I think it was pointed out Bain did not participate in the final round. They didn't participate
because they were thrown out of the competition by the financial adviser. out. So what happens after KKR loses? THE COURT: So you are representing that the They didn't stand down, they were thrown
four remaining corporations in the so-called HCA matter received nothing at all? MR. THOMAS: Nothing, Your Honor. In fact,
KKR winning that competition on Philips, they, KKR, won it. Who did they bring in? Who did they bring in?
You would have thought if there was a deal on HCA, they would have turned quietly to Blackstone and TPG and
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said do you want to share in this. in.
They didn't bring them
They brought in Bain, the party that they partnered
with on HCA. So we've lost HCA. Now we've lost Philips. And
then you say to yourself, Your Honor, what's the very next deal, the next LBO where maybe, maybe the quid pro quo will happen? It's Freescale. It's at the end of August, early Just timing wise. And
part of September.
It's Freescale.
I'm only bringing up Freescale just to make it clear, all four of the HCA defendants are released from any liability relating to Freescale. They have releases on Freescale.
And the only reason I'm raising Freescale is because the plaintiffs did in their papers. clear. I just want to make that
Those releases have been enforced. Now, what happened on Freescale? And, Your Honor,
I won't bore you with the details again but at the very last moment just before Blackstone's group, which was Blackstone, TPG and Carlyle, okay, the three of the HCA defendants, they're within minutes of signing up a deal with the Freescale board at $38 per share. And at the very last
moment the HCA winners, Bain and KKR and also the NXP winners Bain and Carlyle, they show up and lob in a last-minute indicative bid of $40 to $42. indicative bid. Just an
They hadn't done any diligence but enough
to get the attention of the company.
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And what happened in response to that? Blackstone's group a few days later submitted an increased offer from $38 to $40 which added more than 800 million dollars of value. So in order to prevail in Freescale, the
winning group had to bid almost a billion dollars more to win that competition. So this is the trilogy that we have here. We have
lose, lose and win only if you paid almost a billion dollars more, okay. That's the record. That's the uncontroverted
record in terms of what happened here, in terms of why there was no benefit. down. Now, finally, Your Honor, I just want to, the plaintiffs have suggested -THE COURT: why were you released? MR. THOMAS: Because there was a shareholder When you say you were released, There was no reward for supposedly stepping
litigation that followed the announcement of the Freescale deal. And in the settlement of that shareholder litigation
the Freescale shareholders released Blackstone, Carlyle and TPG and Goldman Sachs from any liability. has enforced that release in this case. So the final suggestion the plaintiffs make is that maybe nothing happened back in July, okay, but they suggested that maybe there was a deal cut during the week of And Your Honor
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September 10th, the final week of frenzied bidding on Freescale, a deal by which we suddenly agreed to allocate HCA back to KKR and Bain, in other words, not go after it, and the KKR group backed out of Freescale so that there is a suggestion that maybe during that week an allocation deal was cut. And the problem with that theory which they sort of gloss over is that it's refuted by the undisputed sequence of events that week. And I can illustrate this for you,
Your Honor, if you turn to tab 10. THE COURT: What is the status of KKR and Bain
in this -- they have been released? MR. THOMAS: released with Freescale. THE COURT: MR. THOMAS: THE COURT: MR. THOMAS: All right. No, I mean on HCA. On HCA they've been released. They have been released. Bain and KKR have been released. No, KKR and Bain were not
Just to be clear, just on the HCA
transaction KKR and Bain have been released in prior litigation by the HCA shareholders. And in the Freescale transaction Blackstone, Carlyle, TPG and Goldman Sachs have been released by the Freescale shareholders in prior litigation. has enforced both of those releases. And Your Honor
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor.
So what this chronology shows behind tab 10 is on Sunday, September 10th KKR and Bain, the winners in HCA, the winners in Philips, come in with this last-minute bid. obviously this evidence disproves the overarching conspiracy. Why is this happening? I mean, this isn't Now,
behavior that would -- it's totally inconsistent with some conspiracy. But, anyway, they come in -THE COURT: So you are saying that not only is
this, or your argument is, indicative that you are not a co-conspirator in Count 2 but it is illustrative of a lack of an overarching conspiracy as alleged in Count 1? MR. THOMAS: Right, because, Your Honor, if
there were a single overarching conspiracy and Freescale had already been allocated to Blackstone and Carlyle and TPG, then KKR and Bain would have known that and no way would they have come in at the last moment with an indicative bid that drove the price almost a billion dollars higher. THE COURT: Why in my review of the evidence
over the course of the years and primarily over the last two or three months did I think HCA was the strong acquisition as far as the plaintiffs were concerned? that? MR. THOMAS: Well, I won't speak for Your Why did I feel
I think some of the reasons why I think we're here
still after four years is that, you know, these are informal
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emails that people write internally and sometimes there is some, you know, interesting statements that are made in emails and you can make them colorful. So you take a
snippet like "step down" and then you combine that with the behavior of four defendants deciding not to mount a bid and you leave out the part in between which is the contemporaneous evidence of their independent reasons for not mounting that bid and -THE COURT: received no recompense. MR. THOMAS: Nothing, Your Honor, nothing. Well, I must have missed that they
The only thing we received was the right, the opportunity to pay an extra billion dollars to win the Freescale transaction. Now, what happened here is KKR lobs in this last-minute bid, okay. Now, Blackstone and its group were Blackstone had
understandably frustrated by the situation.
been working on a proprietary deal with Freescale for, I mean, the better part of six to nine months. And if you're
in a deal for that long and you've committed all this time and money and resources to it, at the last moment to suddenly have this deal possibly be upset, yeah, it's frustrating. And what did Blackstone decide to do with its partners? They decided to compete as aggressively as
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possible to win Freescale.
And one of the things they
thought about doing was to apply as much pressure to KKR and Bain as they could. And that included, that included now
that the competitive dynamics were changed by this last-minute bid, that included looking back at HCA. You
know, for the first time Blackstone did sign, as you see on the chronology, on September 11th, they signed an NDA, a confidentiality agreement with HCA for the first time to look at the nonpublic information. You know, were they
right or were they wrong when they thought when they did those back-of-the-envelope calculations on valuation back in July. You know, let's see what they showed. That's sort of
the thing here. And if you look behind tab 12, Your Honor, you will see that Mr. Simpkins is writing to Mr. James. September 11th. This is on
And he says, this is in reference to
looking at HCA briefly, he says, "We need to submit a superior proposal by midnight Tuesday night." And why does he say that? Because the go shop
period was only for 50 days and it was going to expire at midnight on September 12th, which is also in my chronology. So you had a very short window now to reconsider the possibility of coming after HCA. And he is also saying
to Mr. James, look, we're going to look at this information to see whether $55 as opposed to the $51 for the announced
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deal, whether it's going to make sense, that's what we're going to look at. And if you look behind the next tab, at tab 13, after signing that confidentiality agreement, Blackstone receives from Credit Suisse on the night of the 11th an LBO model. That's a model that projects the investment returns
from the transaction. And if you look behind tab 14, you will see that what that model showed, a little bit to the surprise of Blackstone, were that based on -- and this model is done on nonpublic data, nonpublic information. this before. Nobody had access to
It shows subpar returns, literally -- it's a
little hard to read -- but the returns can be as low as 8.1 percent, at their most aggressive, the most aggressive assumptions they would barely top 15 percent. And these are
well below what Blackstone and its partners would have found attractive. These private equity firms are typically
looking for returns that are much closer to 20 percent or even more than 20 percent on these transactions. So Blackstone quickly cooled on this possibility, although they wanted to be as aggressive as possible in HCA, if it was worth it, and on Freescale, they got cold feet looking at these numbers. And if you look at tab 15, Your Honor, I just have some deposition testimony there from a Blackstone witness
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who testified of his recollection that in looking at this information that the Neil Simpkins team had received, the internal numbers, that the internal information he says, quote, actually caused us to take our case down, that's their business case, down to the point where we thought that the KKR bid, that's at $51, was fairly priced. So it turned out that the nonpublic information and the nonpublic LBO model projected a much less rosy prediction as to what the investment returns would be. So what happens? And this is the key thing about The go shop It's over.
the chronology if you go back to tab ten.
period expires on September 12th at midnight.
And so any real opportunity to pursue HCA is over and Blackstone has passed on it. Now, if there was a conspiracy to allocate HCA and Freescale, what should have happened? some agreement like that. Let's say there was
Well, what would have happened is
at the moment that we let the go shop period expire you would have expected KKR and Bain to gracefully withdraw from doing any further diligence. They were down in Texas with They were in the trenches
the Freescale management team.
that week learning about the company and trying to gather more information. You would have expected them to pack their bags and leave gracefully. They didn't do that. They didn't do that
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because they were trying to win Freescale.
They stayed down
in Texas and they continued their diligence throughout the balance of the week. And what did we do? We, I mean, we -- not only
should they have gracefully bowed out but if there were an allocation, we wouldn't have had to increase our offer. But
it's not until Thursday, so two days after the HCA go shop period expires, this is an undisputed chronology, we then lob in an exploding offer for $40 per share, an exploding offer -- we see it explodes because we basically told the Freescale board we're not prepared to stick around beyond Friday unless you accept this bid. hand. It's your bird in the
You can either take our bird in the hand or you can,
you know, waste your time for another two months having diligence done on your company and risk to your company, so it's an exploding offer. And what happens? bid, accepts the offer. The Freescale board accepts the
We sign an agreement and the
Freescale board shuts KKR down and Bain, they shut them out. They make them leave. They shut down any diligence. And
there is a lot of reasons why they would do that but basically they had accepted our offer. They knew that KKR They
and Bain owned a competing semiconductor business.
weren't going to let them stick around and learn more about our semiconductor business but Freescale is in the
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semiconductor business. THE COURT: Is there an implication or not
that that was your payoff? MR. THOMAS: No, because they were shut out by There was, they, again, There was the
the board, by the Freescale board. the payoff was there was no payoff.
opportunity that we had to pay, we had to pay the almost million dollars more to get the Freescale board to agree -THE COURT: But is there any way that the
plaintiffs would say that your opportunity at least to spend that type of money was afforded by Bain and KKR in repayment for what happened at HCA? effect? MR. THOMAS: With respect, Your Honor, I think Is there any allegation to that
no, because what should have happened -THE COURT: paid? MR. THOMAS: What should have happened is they It was the amount of money you
would have never barged in in the first place, and forced us to spend the extra billion dollars. The payoff would have That would have
been letting us alone on this transaction. been a more plausible theory.
It's not plausible to suggest
that they would come in, raise our costs by almost a billion dollars -THE COURT: So let me get it again. You are
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saying that the four corporations that, what is the term, stood down? MR. THOMAS: THE COURT: MR. THOMAS: THE COURT: Right. In HCA. That's right. The most you can say is that they
had to spend, well, how much more money? MR. THOMAS: more. More than 800 million dollars
And they got nothing out of HCA and nothing out of
Philips. I mean, Your Honor, because of these undisputed facts and independent action, of these facts that are inconsistent with conspiracy, of the zero benefit for allegedly standing down on HCA, that any -THE COURT: That is amazing because I came in
really, you know, not having made up my mind, but with a tentative inclination that this was a very, very strong case at least to go to the jury. but -MR. THOMAS: Your Honor, you don't have to I didn't weigh the evidence
weigh the evidence to see that there was no benefit or reward. It can't be controverted. And for all these reasons we'd respectfully request that you grant summary judgment on Count 2. THE COURT: I will hear from the plaintiff.
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MR. MITCHELL:
Good afternoon, Your Honor.
David Mitchell from Robbins, Skeller, Rudman and Dowd on behalf of -THE COURT: As I indicated, I thought that the
HCA Count 2 was one of the strong, plaintiffs' so-called alleged conspiracy to constrain trade in one of these individual transactions, I didn't realize that, or I overlooked it, that there was no, at least no benefit. that so? MR. MITCHELL: Your Honor, it's not so. If I Is
may, may I approach and hand the Court a binder? THE COURT: Yes.
(Whereupon, a binder was handed to the Court, the Clerk and the Law Clerk.) MR. MITCHELL: Your Honor, I am going to begin
by addressing that argument straight away. (Whereupon, a cell phone was ringing in the courtroom.) THE COURT: All right, go ahead. Thank you, Your Honor.
MR. MITCHELL:
If your Honor can go to page 13 of the handout that I just passed forward. THE COURT: What page? Page 13, Your Honor.
MR. MITCHELL: THE COURT:
All right.
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MR. MITCHELL:
Slide 13, Your Honor, addresses
the first point in response to defendants' question and the Court's question about what the others got out of the HCA transaction by standing down. This is an email from Jonathan Coslet, a managing director and one of the senior most executives at TPG to Philippe Costeletos, one of the managing directors. The two
are discussing the decision made by TPG to stand down on HCA. At the bottom of the page Mr. Coslet emails the
investment group at TPG saying, "I spoke to both Nicholson who is at KKR and Pagliuca at Bain and told them we decided to pass on the HCA situation." Mr. Costeletos responds, "Probably the right decision even though I hate to see a good deal get away." And Mr. Coslet responds, "Yep, all we can do is do unto others as we want them to do unto us. It will pay off
in the long run even though it feels bad in the short run." He is not saying we hope it will pay off, he is saying it will pay off, Your Honor. THE COURT: But it didn't. It did, Your Honor.
MR. MITCHELL: (Laughter.) MR. MITCHELL:
It certainly paid off for KKR
and Bain, Your Honor, as they made billions from the deal. But KKR specifically worked with --
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 something.
THE COURT:
Why were they released? KKR and Bain --
KKR and Bain. -- as the sponsors, they were
MR. MITCHELL:
released because there was an earlier shareholder lawsuit that was filed against the purchasers of HCA and as part of a resolution of that case KKR and Bain were released. The defendants in this count, Your Honor, are those who did not purchase HCA although they very much so wanted to bid for the company, Carlyle Group, TPG, Goldman Sachs and Blackstone. Your Honor -THE COURT: But the fact that they got
nothing, what did they -- what is the basis of their involving themselves in the conspiracy? MR. MITCHELL: Well, Your Honor, they did get
KKR worked with TPG on a TXU transaction which KKR worked with Goldman Sachs on the
occurred after HCA.
TXU transaction which occurred after HCA. Prior to this, Your Honor -- this is a fluid conspiracy. Prior to this, Your Honor, KKR in the PanAmSat
transaction won the deal by itself and then on its own sold over half of its interest to Carlyle and another private equity firm. KKR worked with Carlyle, Goldman Sachs and TPG KKR worked with Carlyle in
in the SunGard transaction.
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Alltel.
They worked with Carlyle in Michaels.
They worked
with Carlyle in Univision. of KKR -THE COURT:
KKR and Blackstone at the time
Well, was that a quid pro quo
because of what happened at HCA or was it that they just entered into an attempt to acquire the company? MR. MITCHELL: pro quo, Your Honor. Well, it's both. It's a quid
And those are our allegations.
As to the HCA transaction itself we have specific direct compelling evidence that the defendants communicated directly and decided to compete for noneconomic, nonindependent reasons. THE COURT: And if I may, Your Honor? Sure, go ahead. Just to take a brief step back,
MR. MITCHELL:
Your Honor, the transaction itself closed in late July of 2004 for $51 per share, 32 billion dollar transaction, at the time the largest LBO in history. Pursuant to the process that the HCA board undertook, its financial advisor at the time the deal was signed with KKR and Bain was obligated to embark upon a go shop period which was to last 50 days. During that time the
special advisor was to, was required to seek and obtain additional bids for HCA. Immediately there was interest
amongst these four defendants in HCA. The signing of the deal in the beginning of the go
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shop period set off a flurry of activity and over the next three days after July 24, 2006 there were many calls between and amongst the four defendants in KKR and Bain. All of the
defendants expressed significant interest in HCA but KKR asked the industry to stand down. Slide two of the presentation that Your Honor has before you is an email from Mr. Abramson of Carlyle Group, a senior executive, in which he recounts, "And just think, KKR asked the industry to step down on HCA." colleagues at Carlyle -THE COURT: What image is that on? This is slide two, Your Honor. He's emailing his
Two? Yes, sir.
MR. MITCHELL:
There is another email below that, Your Honor, from Apollo which corroborates the fact they KKR was asking companies to stand down. The email from Larry Berg to Mark Be careful of the KKR
Rowan at Apollo indicates, "P.S. call."
And then the other highlighting says, "I'm sure they offered TPG a piece to stand down." The next page, Your Honor, slide three, starts to recount the direct communications amongst the defendants between July 24 and July 26, 2006. communications concerning HCA. They were in direct
Bain and Goldman discussed a
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stand down on July 24th.
Steve Pagliuca sends an email to
Richard Friedman regarding HCA in which he says, "We'll call you today." Steve Pagliuca is the senior most executive at Bain Capital. Mr. Friedman responds, "Let's chat later. As you
can imagine, email traffic on this is high and we've reached out to KKR as well." So Goldman Sachs has called KKR. Slide 4, Your Honor, direct communications continue. KKR calls TPG the day the HCA deal was announced Mr. Coslet at TPG tells his senior most
on July 24th.
colleagues at TPG regarding HCA, "Michaelson called me today." Slide five, Your Honor, is an email from Mr. David Rubenstein, the senior most executive at Carlyle Group, to Mr. Abramson and Mr. Holt, two other senior executives, dated July 25, one day after the deal was signed, in which Mr. Rubenstein says, "I talked to Steve Pagliuca of Bain this afternoon." And the additional highlighting says,
"Pagliuca said to keep our head down and maybe something would break in our favor." What he's saying is don't bid, keep your head down, something might break in your favor. Now, why are these executives discussing the deal?
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Why are they hoping something will break in their favor?
In
slide six, Your Honor, the valuations of HCA prove that the company was a steal. Slide 6 is a Goldman Sachs valuation.
Despite what Mr. Thomas suggested, this is hardly a back-of-the-envelope valuation. in our 56.1 statement. It is over 40 pages. It's
But what you will notice, Your
Honor, is that Goldman sent this valuation to each of the HCA defendant colleagues. They sent it to the Blackstone And
group, they sent it to TPG and they sent it to Carlyle. the exhibits that are in our 56.1 statement are listed there. The executive summary that Goldman Sachs put
together indicates, quote, our preliminary analysis shows that a take private for HCA or with a purchase price into the high fifties per share. The deal went public -- went private at $51 per share, Your Honor. Now, the timing is also telling in this case, Your Honor. July 24, 2006 you have the deal signed between KKR, That sets off a 50-day go shop period, Your
Bain and HCA.
Honor, and that's set forth on slide seven. On slide eight the day after the deal was signed there is a TPG email recounting where Mr. Coslet says, "I spoke to Michaelson at KKR and Pagliuca at Bain and told them we decided to pass on HCA."
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Slide nine, Your Honor, the next day, KKR's Jim Momtazee sends an email indicating that, "The only new information on HCA is that TPG and Goldman Sachs have both told us they will not compete. Conversations with
Blackstone and Carlyle indicate they are still deciding what to do". Also on July 26 Henry Kravis, the cofounder of KKR, emails his senior most executive colleagues, including cofounder George Roberts saying, "I received a call from Tony James today. He called to tell me that Blackstone was He's happy to give you additional
not going to bid on HCA.
color if you want, Henry." And, finally, on July 27, still only three days into this go shop period which postdates the signing of the dealt, James Attwood, a managing director at Carlyle Group, emails Alex Navab, the co-head of North American Private Equity at KKR, "Subject matter: left you a voice mail. HCA." He writes, "Alex, I
We are not forming a competing group We are not signing
(although we have received many calls). an NDA," a nondisclosure agreement. THE COURT:
Isn't there some evidence that the
owner of HCA had a preference for Bain and KKR and that some of these so-called step down defendants thought that they, you know, that they were in a disadvantageous position? MR. MITCHELL: Well, Your Honor, in a
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proprietary transaction, the beauty of that, of the 50-day go shop period gives these other potential bidders an opportunity to bid and so there is no, nothing preventing any other bidder in this particular deal from making a bid for HCA once the go shop period starts, whether they're favored by management or not. If they're going to bid more per share for the company, then -THE COURT: There is some evidence that that
was the reason why at least some, if not all, of these four defendants believed that they were not a favored bidder. MR. MITCHELL: Well, Your Honor, the fact that
they may or may not have been a favored bidder did not prevent them in any way from making a bid for the company once the go shop period started. THE COURT: There is no requirement to do so. Well, Your Honor, there may be
MR. MITCHELL:
no requirement to not bid if you don't do all of the things that these defendants did. Express interest in the company. Talk about it amongst Send a
He specifically asked not to bid. yourselves.
Value the deal amongst yourselves. Contemplate bidding.
valuation around.
And then actually
tell the people who asked you not to bid that you're not going to bid and that's exactly what happened here. THE COURT: Let me ask you this, I think you
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put your finger on it. If somebody who was in a preferred position -- I forgot his name -- the one who put out the order that everybody should step down or words to that effect -- is it illegal for other potential competitors to say, well, he has got an in with the owner of HCA and, you know, maybe we can curry favor down the line? that? MR. MITCHELL: The question is whether it's Is there anything wrong with
illegal to consider the fact that potential bidders are friendly with management is not on its face illegal, Your Honor. THE COURT: No, but the fact that coupled with
the desire to curry favor with Bain and KKR, that they may be cut in on future deals, is that illegal? MR. MITCHELL: Well, Your Honor, that's not -That's not
that in and of itself may or may not be illegal. what happened here though, Your Honor.
You had companies
that wanted to bid, that were interested, that spent the money to valuate the company, Goldman Sachs spent money obviously on this 43-page valuation, were asked not to bid, thought about bidding, decided not to and all told KKR within three days of KKR signing the deal that they were not going to bid, we submit that that is anticompetitive conduct, Your Honor.
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THE COURT:
The argument is made that it was
an independent decision based on the closeness between the owner of HCA and Bain and KKR. MR. MITCHELL: Your Honor, we submit that --
if I can show you slide 13 again. TPG is recognizing to themselves in the middle email on page 13, "Probably the right decision not to bid even though I hate to see a good deal get away." Of course, they had the Goldman Sachs valuation. THE COURT: I will agree with you that the
statement made by -- who was it -- the statement to tell the industry, you know, you better step down? MR. MITCHELL: THE COURT: Right, Dan Akerson, Your Honor.
Who was it? Dan Akerson.
That is one of the strongest
statements in the entire litigation and yet there is some reason why at least these four defendants might step down. MR. MITCHELL: We submit, Your Honor, that the
reasoning is not due to independent economic considerations or analyzing the potential bid. In fact, if you look at the
timeline on page 12, Your Honor, within three days of the go shop period starting, all of these defendants had specifically and directly told KKR and Bain that they were not going to bid for HCA.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Count 2? they?
THE COURT:
Why? Because -Why did
What is the evidence?
What do you say is the reason? MR. MITCHELL: Your Honor, it's simply, it's This is
part of our overarching allegations, Your Honor. part of the quid pro quo -THE COURT:
I am talking about, this is
Yes, sir.
What is the reason that they did? They did because, as I said in
MR. MITCHELL:
slide 13, Mr. Coslet at TPG says all we can do is do unto others as we want them to do unto us. This move is going to
pay off in the long run even though it feels bad in the short run. THE COURT: Wouldn't it be a stronger case if
you had some document that said we are stepping down on this one but we are going to be allowed to enter into the next deal? MR. MITCHELL: Your Honor, they got the next TPG got in
deal and I went through those, at least in part. TXU. Goldman Sachs got into TXU.
Carlyle got into, was
working with KKR in Alltel. But I want to point out one other thing about this
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timeline, if I might.
With 47 days remaining, if these
defendants really were acting independently in analyzing the deal on their own, one would expect that one defendant may call KKR at day 10 and say we're not bidding. call at day 40 and say we are not bidding. Another may
Another may wait
until day 49 of this go shop period and wait to the very end and say, well, maybe something else about HCA will come out that makes it more lucrative or more, a better investment for us and tell KKR they are not bidding. They did, they all did it within three days. There
is no reason not to bid or at least explore a bid, Your Honor -THE COURT: evidence as to why. Yes, but there is no, there is no
I agree that in this the stepping down But the record seems to
was done fairly fast, three days.
be bare as to the reason except one of the individuals saying maybe we will get some preference in the future. MR. MITCHELL: THE COURT: Your Honor --
But why? Your Honor, if I can point you
MR. MITCHELL: to slide 14 as well. THE COURT:
Okay. This is the Blackstone email The bottom email
MR. MITCHELL:
among senior executives at Blackstone.
says, "The reason we didn't go forward was basically a
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decision on not jumping someone else's deal and creating RJR2 with us as KKR." The response at the top of that page is, "I think deal represents good value." Sachs valuation. Again, they had the Goldman
"And it's a shame we let KKR get away with There may be
highway robbery but understand decision.
something else at play with Henry and Steve." Your Honor, I think I have utilized part, most of my time. I'm going to give Mr. Hudson, one of my
colleagues, the remainder of my time, if I could. THE COURT: Okay. Thank you. Tyler
MR. MITCHELL: MR. HUDSON:
Thank you, Your Honor.
Hudson from Wagstaff & Cartmell. If I could just continue on that point, I think that email and the email before answer your question which is you have got to understand in 2006 these competitors/partners are in the process of taking 250 billion dollar companies private. doing deals every month. And here they are, in HCA you've got KKR and you've got Bain and they were approached by the management, by Mr. Frist. And he says, hey, you guys are the chosen ones, The special committee is And they get a 250 billion. They're
we're going to take HCA private.
going to negotiate with us exclusively.
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great deal and they get it at $51 a share. And at that point in time other large private equity firms in the market are looking at that deal, evaluating that deal and their valuation show it to be $59 a share. They're saying the valuation is very clearly -THE COURT: MR. HUDSON: 55 or 59? Well, some say 55, some say 59. That's Goldman Sachs,
The deal works in the high fifties. okay. They do a valuation.
The deal that day is announced. It's a 25-, 30-page
And it's not some back-of-the-envelope. detailed valuation of this company. company.
They understand this
They've been looking at this company for weeks and Everybody
now the deal comes up and they're in a frenzy.
wants this company and everybody really wants it at $51 a share but they give the company a 55 or 59 because even that's a great deal. getting returns. Because at that point they're still
They're going to take five billion dollars
of equity and they're going to get 15 to 20 to 25 percent return on their money. LBO in history. And what happens the day the deal is announced? You heard it from Mr. Mitchell. KKR calls and asked the We know the calls A great deal. This is the largest
industry to stand down, and we know that. were made. You have seen the evidence. THE COURT:
I tell you, that is the strongest
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evidence in the entire case. MR. HUDSON: Absolutely. And what was
completely missing from the presentation by the defendants is any explanation of the law. And that is really where the
rubber meets the road here because your question -THE COURT: He argued I thought that the four,
as he claimed, "losers" exercised independent judgment. MR. HUDSON: He has asserted that. And we can
go through each one of those things and I can explain to you why each one of those is pretextural. THE COURT: MR. HUDSON: THE COURT: the reason? MR. HUDSON: Internally they're saying they So why did they step down? They stepped down because -I mean, what is the evidence for
stepped down because the next time this happens, when they get their great deal, when they get their deal at $51 a share when everybody else thinks it's 59, do they want -THE COURT: judgment? MR. HUDSON: Absolutely it's illegal because But is that illegal to make that
the antitrust laws, they prevent any agreement that restrains trade. Is there any doubt that a jury -THE COURT: There is no doubt that there is
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the agreement. MR. HUDSON: THE COURT: Right. But where is the agreement? It
might have been these, these four corporations might have made that judgment, hey, we are not going to get this deal, we are going to step down. MR. HUDSON: Right, and on summary judgment
the question is could a reasonable jury, right, infer from the evidence that they had an agreement, that they had a, you know, a commitment to a common scheme. THE COURT: And --
But if it was so good a deal, why
wouldn't there be somebody else going in? MR. HUDSON: Because they all -- it's sort of
like, to use their analogy of a house of cards, the first time somebody goes in and starts competing on that deal, what's going to happen on the next deal. I mean, take Freescale for example. That's their
example where they say they had to bid a billion dollars more. It's 800 million. They had to bid 800 million
dollars more.
KKR comes in and puts in an unsolicited
letter of interest before the deal is ever announced and that causes Blackstone to increase their price. nearly sets off a war between everybody. competitive practice. And it
That's not normal
That's not -- why is it such an
aberration that somebody who is supposedly your competitor
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comes in and bids? What they got in exchange was an understanding that when their deal came up, like Harrah's that happened in 2007, I mean, you look at his chart, tab eight, it's got three deals. I mean, that's the next month but what happens
in the years out? For example, in Harrah's, for example, that's a deal where there is evidence in the record in our Rule 51 statement on the omnibus brief where Bain stood down and that was TPG's deal. So you've got another example where
Bain who wins the deal in HCA is now not bidding on Harrah's when there is evidence that they liked that deal. I mean,
the point is is these guys are buyers and they've got an exclusive deal with management. If they can buy with no
competition, their returns go way up. If these guys were really competitors, then you would be dying to jump in and bid. I mean, it wouldn't
matter that Tommy Frist didn't like you. THE COURT: Let me ask you this:
Why did it -- I forgot what corporation, but it had to pay 800 million more? MR. HUDSON: THE COURT: And then you see what happens -Does that show that there it is a
joint enterprise or that they are in competition? MR. HUDSON: It shows that, it shows kind of
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to your question of, you know, it shows that they didn't make as good a deal as they thought they had made. I mean,
it doesn't show that there isn't an agreement because, the thing is is when you look at the reaction, that's what you have to look to. People in conspiracies are going to do
things that are always, they want to do what's in their best interests, No. one. And, No. two, they want to adhere to the conspiracy. They're going to push the bounds.
And in Freescale when that bid got made and it caused the other side to increase the bid, look at the reaction from the other side. Did they say, gosh, they
fought us really hard, that's just what we do here, we fight against each other? war. No, they said it's a declaration of This is -- and Henry
They said this is outrageous.
Kravis who was the one who put that letter in, he sent an email saying, I'm sorry, I apologize, I didn't realize you were that close to getting the deal. I mean, that's their
big explanation of these supposed hostile acts, this competition. So in this, getting back though to this particular deal on HCA, the real question is was there an understanding and was there a conscious commitment. And you have seen
from the evidence, I mean, they're letting -THE COURT: Is the best evidence the fact that
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the stand down occurred within three days rather than 48 days? MR. HUDSON: Oh, absolutely. I mean, that's I
the best evidence that they're not acting independently. mean, miraculously four different companies, I mean four
different firms who are the largest private equity firms in the world, they all decided in the same 24-hour, 48-hour period to send an email to KKR? Why, if you're just not
going to bid, why are you telling your competitor you're not going to bid? Why would you need to say anything? Why
would there be an expectation that you would or you wouldn't? The reason why is because the day the deal is announced, they're calling. I mean, we know the emails, we We don't know what's
know the emails, part of what's said.
on that phone, you know, we don't know what they said on the phone call. Is it reasonable for a jury to infer that when
Mike Michaelson of KKR is calling his, you know, the HCA defendants the day the deal is announced, is it reasonable to infer that he might be saying, hey, this is our deal, we'd really like you to not bid on this and you're going to get the next one? And, I mean, that kind of goes, the defendants kind of want it both ways. THE COURT: But he claims that they didn't get
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the next one. MR. HUDSON: Well, even, let's say even if
that is true, and I think -THE COURT: That was his argument that he got
nothing out of any deal, any conspiracy that he had entered into. MR. HUDSON: It was his argument that the
three -- he showed a slide that in Philips and Freescale they didn't get anything. THE COURT: If he can stand up here and -And either the fourth one or the
third one cost them 800 million. MR. HUDSON: Well, Freescale, Freescale he's
saying it ended up costing him more money because -- but even that alone, it cost him 800 million dollars, it somehow starts to sound like you're not supposed to compete at all; doesn't it? I mean, that's the exception? I mean, that
should be the rule.
Why are they not bidding with -- when
you have valuations in your files that show this deal is worth $59 a share, and you'll hear from Blackstone tomorrow, they've got models and they modeled it out and they can be very precise. And if it's 20 percent or close to 20 That's their mantra,
percent, they're going to be bidding.
that's why they say -- and yet here it's 25 percent according to the publicly available information. (Whereupon, the Court and the Court Reporter
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 made. so.
conferred.) THE COURT: We will go till 4:30. There is
still one other argument; is that true? MR. HUDSON: THE COURT: (Laughter.) MR. HUDSON: THE COURT: I can keep on going. I know there is one other argument You want me to go till 4:30? No.
MR. HUDSON:
Okay.
If I could just, two
minutes to just deal with the independent actions because I have a feeling he's going to mention those. THE COURT: That is the point that counsel
MR. HUDSON:
Yes.
So the matching rights, the
fact that KKR and Bain and Mr. Frist, that bid, the fact they can match the bid, that wouldn't mean you wouldn't bid up to the point where you thought you were getting the returns that you wanted. That would, it would only mean
that you would, you wouldn't go beyond where you thought you were getting an adequate return, right? I mean, in other words, if I know -- somebody can always match my bid. at all. point. That wouldn't be a reason not to bid
It would only be a reason to stop bidding at some
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So that -- and, by the way, KKR and Bain, the evidence is very clear they said they would not have paid a penny more. So the idea that they were going to match in
this case, that's not an issue. Again, the valuations show that it was a much higher price. The fact that Mr. Frist liked Bain, that just Two of the
means that that's the management deal.
defendants, Blackstone and TPG, they own large hospital groups. Blackstone owned Vanguard. TPG owned IASIS. So
the idea that they weren't going to be able to work with management wouldn't really be an issue for them. In fact,
it would be a benefit to a company like Blackstone because they would have synergies. They would have the ability to
potentially bring those two companies together, reduce the, you know, eliminate the redundancy and have an even more valuable company. Which brings us to the next point about
price and the idea they said that the price may be too high. Well, first of all, the only document they showed to support that was from July 20. This deal didn't get
announced until July 24th so I don't know how they could have known the price four days before and two days before the price got set. Plus, if you, again, if you look at
their internal valuations, they show that this deal worked at much higher prices. Finally, the fact that they just didn't think they
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could win.
Again, this would have been, if they were true
competitors, it would have been a perfect opportunity to have engaged in competition. I mean, the worst thing they
could do is increase the price and force their competitors to pay more which reduces their competitor's returns and makes them look better. THE COURT: Would you say in your estimation
that the HCA transaction as an "individual conspiracy" is the strongest conspiracy that you have? MR. HUDSON: It is the best example of an
explicit agreement not to compete. On July 24, 25 and 26 KKR and Bain called these large private equity firms that were the most likely people, the most likely firms to bid for this asset and they asked them to step down. And within two days all four of them That's an explicit
across the board said yes, we agree. agreement.
That's what's, I mean, it does not get more
clear than that. And so we would say, and I didn't get a chance to talk as much about the law as I wanted to, but as you will see from the slides, we would say that under, you know, any reasonable summary judgment standard, here where you've got this kind of direct evidence of an explicit agreement -THE COURT: Oh, there is no doubt that the But what causes
direct statement is the strongest evidence.
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me pause, that HCA has the strongest evidence and yet the defendants have some, at least they can set forth some reasons, maybe not sufficient, but if in the strongest case there is, it is not clearcut, what does that mean for the rest of the so-called conspiracy or the overarching conspiracy? MR. HUDSON: THE COURT: Sure. This case, this one here, I came
in thinking it was a slam dunk to at least go to the jury. But I think we have to admit, I don't know whether defense counsels' arguments are sufficient to preclude Count 2 going to the jury but at least he has made some strong arguments. MR. HUDSON: right. He has made arguments, you're
I would say if it's not a slam dunk, it's a layup,
perhaps a free throw. What I would say though about the overarching case is that this case, HCA, Count 2, what's unique about it is it's direct evidence of an explicit agreement not to compete, not to compete for a deal. And, admittedly, I I
mean, these are very large, sophisticated companies.
mean, the fact that he can come up with some reasons why they may not bid -THE COURT: My point is this:
Even in this case, which is the strongest case, in my view, at least before I reconsidered it, but it seems to
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me the strongest case and yet it might well go to the jury; but what does it mean as a part of -- since he has some strong arguments, how does that affect the overall, you know, so-called overreaching conspiracy if even on this one your strongest case has at least, there are some disputes? MR. HUDSON: Right. And I would say as to
Count 1, the overarching conspiracy, you are talking about more types of conduct, you're talking about quid pro quos. You're talking about partnering on deals. it's a market-wide commitment -THE COURT: as this case. But the evidence is not as strong It's more of,
Each of the individual transactions doesn't
have the quality of evidence as HCA has. MR. HUDSON: I mean, on those deals perhaps I
they were more careful about what they said over email. mean, I think if you -THE COURT: about: evidence. MR. HUDSON: Honor. But that is what I am talking
Correct, I absolutely agree, Your
But I think if you look at the expert reports and
you look at what our experts say about Count 1 and about how the market operated, they might say HCA is a really good deal but they would say that all the other deals were really good too. The reasons why, because we're finding indicia in
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deal after deal after deal after deal of these defendants making decisions that are contrary to their own self-interests. They're not acting independently. And
that's what, expert reports are supplemental to the evidence and are based upon the evidence. But, I mean, from an
expert's standpoint, from an economic standpoint, when you look at the market, HCA may not necessarily be the best deal. There may be others deals where there are more
indicia -THE COURT: I am not saying it is the best
deal but it is the strongest evidence. MR. HUDSON: Absolutely. The emails are so
good and the evidence is so clear because we know exactly when they made the agreement. made. We know when the request was We know why they
We know when they accepted it.
accepted it. robbery.
We know that they're saying that it is highway
I will admit that in some of the other deals we don't have quite that strong evidence but I would say the totality of the evidence in those other deals is equally strong because we've got lots of evidence of them acting against their own economic self-interest or acting against their own self-interest and so, therefore, they weren't acting independently and so a reasonable jury could infer that there was collusion going on in the market.
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So for those reasons we'd ask that you grant -- or deny the motion for summary judgment on Count 1 and Count 2. Thank you. THE COURT: MR. THOMAS: quick points. First -THE COURT: And the most persuasive part of Quick response. Your Honor, just a couple of very
his argument is the fact after that, in a central order, step down, the response was fairly spontaneous, three days. MR. THOMAS: Your Honor, the -THE COURT: MR. THOMAS: Who is this guy? Here's what the losers thought. And here's my answer to that,
The contemporaneous emails, what I showed you in my presentation show that the key considerations for many of these HCA defendants were that Tommy Frist had picked his preferred partners and Blackstone knew that Tommy Frist didn't want Blackstone in the deal. It didn't take more than, it probably didn't take 24 hours to -THE COURT: like that; wouldn't he? MR. THOMAS: THE COURT: Well, we didn't model at 59. Well, 55. But if you are at $59, he would
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MR. THOMAS:
Right, 55.
Not necessarily
because, again, that brings in the other question, the other main consideration, which is the matching rights. If, in
fact, the returns are very attractive for Tommy Frist and for KKR and Bain at 55, as they would be for us, all they have to do is match and then we would have wasted a month or two months in diligence spending millions of dollars on a company that we would never win because they would simply match us. And it doesn't take three days to figure out that
they're, in all likelihood they're going to exercise those matching rights. But, again, you have to assume or believe that the contemporaneous emails that I showed you on these facts were sham documents, were pretextural. indicate that. THE COURT: Wouldn't you say that the There is nothing to
statement, you know, to stand down, that is strong evidence. Doesn't that at least raise a jury question? MR. THOMAS: Not by itself. Not when there is
evidence that each of these cases -THE COURT: I mean, it seemed that the
gentleman arrogated to himself the power to tell the industry, "I am in charge here, don't horse around with my deal." MR. THOMAS: Again, the standard is
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Matsushita.
And there is evidence in the record that shows
that each of these defendants had acted independently, that they had independent legitimate reasons for their decision not to bid. And even if you were to say that the step down, if that was uttered, you know, even if you were to accept that for the sake of argument, you could argue, well, that's consistent with conspiracy, but it doesn't tend to exclude the possibility of independent action. In fact, I submit
respectfully that we've shown you through our contemporaneous documents not just the possibility but the fact of independent action. The other point I want to make is three days is not quite correct. It's true that the deal was announced on
July 24 but counsel who just argued pointed out that one of the documents that I referred to in my argument was from July 20th. Well, I could show you that Blackstone, there
were rumors on the street, Your Honor, about HCA possibly happening. of July. So Blackstone, I could show you emails from July 4th where they were beginning to think and model about these issues. any event. The last point I want to make, Your Honor, is all And so it really wasn't just three days in They were on the street all throughout the month
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this emphasis and reliance that they place on these internal emails where people say, you know, well, "do unto others as you would have them do unto me," again, that goes back to good politics. And it's not unlawful, it's not unlawful for
a competitor to decide on a particular deal I'm not going to compete because maybe in the long run, in the hope, in the hope that maybe because this is an industry where from time to time we -- it's entirely legitimate for us to work together and other times we compete. But in the future down
the road I might be brought in to do a deal and have a smooth working relationship. Taking into account the
potential reactions of your competitors in making your individual decision is lawful. It's not an unlawful And that's just not me
agreement under the Sherman Act. saying that.
That's the First Circuit in the Clamp-All case Justice Breyer decided that case. He
which is from 1988.
affirmed a grant of summary judgment for the defendants in that case. And he made it very clear that, and I'll just This is, he says, "Courts have noted
read you his language.
that the Sherman Act prohibits agreements and they have almost uniformly held, at least in the price scenario, that such individual pricing decisions even when each firm rests its own decision upon its belief that competitors will do the same taking into account what your competitors will do, how they will react, do not constitute an unlawful agreement
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
under Section 1 of the Sherman Act." So all of the evidence of internal emails where people expressed that hope, it gets them nowhere in terms of proving an agreement or raising an inference of a conspiracy. Again, Your Honor, the very last point. When you I
ask them, you know, what did they get, what did they get? think they've conceded they got -- we got nothing on HCA. We got nothing on Philips. We had to pay more than 800
million dollars to prevail on Freescale and all you got from them were references to deals 6, 9, 12 months out. And what you didn't hear was any attempt to show Your Honor any evidence that those much later deals were in any way linked to HCA. They didn't show you an email where
people said, well, we're bringing you in Harrah's or we're bringing you in on TXU because you were so nice to us on HCA. There is nothing in the record like that. THE COURT: phone call. (Laughter.) MR. THOMAS: speculation. Well, now we're into pure What he said was it was done by
That is not evidence.
Thank you, Your Honor. THE COURT: There is one other motion, Apollo. Apollo, Yes, Your Honor.
MR. ROSENBERG:
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(Pause in proceedings.) THE COURT: I thought we were going to do the
individual arguments tomorrow. MR. ROSENBERG: Just this one individual I appreciate your
argument, Your Honor, and I apologize.
accommodating my schedule to hear this argument this afternoon. I know it has been a long day. THE COURT: You are in Count 1? That's correct, Your Honor,
MR. ROSENBERG: not Count 2. THE COURT:
So you know the rules of
conspiracy, you are in as they say, if you utter a word, you are in for the whole deal; aren't you? So even though you
are going to say you were only in a couple of transactions, two I believe, you may have to take the whole thing. MR. ROSENBERG: Well, it doesn't work that way
for plaintiffs, Your Honor, because they don't have sufficient evidence showing that Apollo knew about and participated in a 17-LBO, four-year overarching conspiracy. THE COURT: I think they say it is 19. Well, yes, sometimes --
MR. ROSENBERG: THE COURT:
I get a little mixed up myself. I get mixed up. I think it's
MR. ROSENBERG:
19 LBOs, Your Honor, but for two of them they are agreeing that they don't have any evidence of loss so it's 17 or 19.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor, is -best.
THE COURT REPORTER: counsel identify himself, please? THE COURT:
Judge, I am sorry.
Can
Identify yourself. Yes, Your Honor. Jonathan
MR. ROSENBERG:
Rosenberg from O'Melveny & Myers for Apollo Global Management. They don't have admissible evidence. have admissible evidence -THE COURT: One of the best, she is one of the They don't
You are lucky to have her. MR. ROSENBERG: She is, Your Honor.
They don't have admissible evidence tending to exclude the possibility of Apollo's independent conduct. And that's a standard that I heard Mr. Wildfang and Mr. Burke agree was the correct standard under Matsushita. Two main things distinguish Apollo, Your Honor. And we're going to show you a couple of charts. to refer to one of them in my argument. May I approach, Your Honor? THE COURT: Yes. I'm going
(Whereupon, a binder was given to the Court, the Clerk and the Law Clerk.) MR. ROSENBERG: Now, the first chart, Your
THE COURT:
I am just thinking, I should have
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retired a year ago. (Laughter.) MR. ROSENBERG: I now need reading glasses.
This is one of the charts that Mr. Tringali showed you during his argument. It's tab 20 for that. And it's a
list of the acquiring defendants in all of the LBOs, the relevant market LBOs at issue. And you can see that under That's AMC
Apollo there are only two As for acquisitions. and Harrah's but we've crossed those out -THE COURT:
What are they, AMC and? AMC and Harrah's. AMC all the
MR. ROSENBERG:
way at the top, Harrah's all the way at the bottom. THE COURT: What is P -- oh, P means
proprietary; is that right? MR. ROSENBERG: Honor, P means proprietary. THE COURT: Yes, okay. Go ahead. On this chart, yes, Your
MR. ROSENBERG:
We put Xs on those As, Your
Honor, because in each of those transactions Apollo has been released. And that's pursuant to Your Honor's November 2008
and July 2012 orders where Your Honor said with respect to those transactions in which Apollo was released no evidence arising from or related to those deals can be admitted against Apollo. So putting aside the fact, Your Honor, that, as
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Mr. Tringali said, these Apollo acquisitions in the relevant LBOs are separated by three years, putting aside the fact that there's nothing to tie those two, putting aside the fact that plaintiffs admitted in their own complaint in paragraph 575 that the premiums on these acquisitions were above market and, therefore, contrary to their entire theory of a conspiracy. The bottom line is that you have a market allocation conspiracy where plaintiffs have no evidence that Apollo was allocated any transactions in the relevant LBO market. And for that reason alone, Your Honor, Apollo
should be granted summary judgment. Now, what -THE COURT: If your argument is valid, why
haven't you been dismissed? MR. ROSENBERG: Well, Your Honor, I believe we
should have been dismissed but plaintiffs are trying, first of all, plaintiffs say that the releases aren't operative. Your Honor has disagreed with that. Plaintiffs have an
argument that we've waived somehow our argument with respect to the releases. That argument we show in our papers We haven't waived anything. And you're
doesn't hold water.
allowed to argue in the alternative anyway. The other thing that plaintiffs do, Your Honor, is they say, okay, even if there is no evidence or we won't be
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able to submit any evidence to a jury that Apollo wasn't an acquirer in any of the relevant market transactions, we'll try to sustain our burden by focusing on those transactions in which Apollo didn't bid at all. But as Your Honor has already indicated during this hearing, there is no obligation to bid on every transaction that you become aware of. And for many of the transactions
which we point out on page seven of our brief there is no evidence that Apollo was even aware of those transactions at all. And for those transactions in which Apollo was aware
of, the record reflects Apollo's independent judgment in declining to bid, either because the price was too high in relation to Apollo's internal valuations which are part of the evidentiary record in this case, Neiman Marcus is an example. Apollo's internal valuations were 90. The Wall
Street Journal said the bidders were up to 95 and ultimately the deal was 100. reasons. Apollo declined to bid, independent
Or Apollo didn't like the company's management or Kinder Morgan is an example
other features of the company.
where there is an email where somebody at Apollo says very frankly, very candidly the company management sucks. THE COURT: You are saying that their theory
of liability is your failure to bid? MR. ROSENBERG: Your Honor. That's what it boils down to,
And they have no evidence that excludes the
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possibility of Apollo's independent conduct in declining to bid. Another example is where Apollo wasn't able to find the necessary bidding partner or just determined that a competing bid would be unlikely to succeed. And I want to put this in the context, Your Honor, of the other main thing that distinguishes Apollo and that's the statute of limitations defense. Because plaintiffs
didn't join Apollo as a defendant in this case until September 17, 2010 and, therefore, under the Sherman Act's four-year statute of limitations they're obligated to submit admissible evidence showing an Apollo overt act causing harm to the class after September 17, 2006, four years before they joined Apollo as a defendant. And that brings me to our second chart, Your Honor, which is a timeline. And this timeline, Your Honor, and all
the entries are supported by exhibits in reference to the 51.6 statements and we have a binder, Your Honor, that we can what hand up to show you the support for all of these. But what plaintiffs have to do because Apollo wasn't joined until September 17, 2010 is have admissible evidence of an overt act causing harm to the class on the right side of the chart, after September 17, 2006. And
we've reproduced on this chart on the right side, Your Honor, the two things that they've set forth in their brief
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in addition to the Harrah's LBO which they can't use because of the Apollo release. The first thing they say is that in September of 2006 an Apollo representative had lunch with Goldman Sachs folks and asked for a business referral, a, quote, "special opportunity." Well, there is nothing illegal about asking Plaintiffs have admitted that
for a business referral.
during these proceedings, Your Honor has acknowledged that, and it's set forth in the United States versus Morgan case from the Southern District of New York, there is nothing illegal about asking for a business referral. Indeed, there is nothing in the record that suggests that Goldman Sachs ever gave Apollo a business referral after this lunch meeting and certainly nothing that any transaction ever occurred as a result of that lunch that caused harm to the class or that caused harm to the class as a result of anything. So that's the one thing they rely on.
And the second thing is the Clear Channel transaction. There, Your Honor, again, the record reflects
Apollo's independent conduct because it originally teamed up with Carlyle to make a bid on Clear Channel and after they made their initial bid Carlyle dropped out. And it dropped
out because it didn't feel it had enough time for due diligence. It didn't like aspects of the company's
management and thought the price was too high.
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And Apollo tried to hang in there after Carlyle dropped out and made another bid at a slightly lower price because of diminished resources but they eventually dropped out themselves. But plaintiffs have no testimony, no
witness, nothing to dispute that the reason Apollo stood down on Clear Channel was because it lost its bidding partner. So for this reason as well, Your Honor, plaintiffs have no evidence within the limitations period of an Apollo overt act in furtherance of the conspiracy. Now, we also set forth some of the things that are at issue with respect to the transactions prior to the statute of limitations cutoff and time constraints prevent me from going through all of them but I just want to point out two of those for illustrative purposes, Your Honor. The first is Michaels. That's on the bottom right And there we set
before the statute of limitations cutoff.
forth the evidence that what Apollo as their "key edge," that was the word that was used in their internal memos, their "key edge" in this transaction was that they would have the Michaels CEO Michael Roleau, he would be the one who would leave the company after it went private after the LBO. But the problem was Apollo wasn't able to get its bidding partners TPG and KKR to commit to Mr. Roleau. And
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for that reason and also because Apollo didn't think the company was worth as much as its bidding partners thought it was worth, Apollo dropped out. Clear independent conduct,
evidence that is undisputed in the record of Apollo dropping out for independent reasons. And, finally, Your Honor, with respect to HCA which is the bubble right above Michaels, there, contrary to the portrayal that plaintiffs are trying to make, Apollo tried to mount a competing bid. And it's noteworthy that Apollo Well, if you look at some of
isn't a defendant in Count 2.
the evidence, you will see the reasons because Apollo -THE COURT: defendant -MR. ROSENBERG: Not as a defendant in Count 2, You are not named as a
which is reflective of how it wasn't a participant in the alleged overarching conspiracy in Count 1. Because Apollo
was trying to mount a competing bid and, in fact, one of the emails, it's exhibit, Defense Exhibit 578, an Apollo employee tells another firm, BC Partners, not a defendant in this case but another private equity firm, "I'm still waiting for my lead horse, a big sponsor with lots of hospital experience." Then he says later in the same email, "It's a big equity check and we need partners if we go forward." So, in other words, what Apollo is saying to
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another private equity firm that it's trying to get to help it mount a competing bid is it is a lot of money, a 33 billion dollar deal. We can't do it by ourselves. We don't
just want a partner, we need multiple partners and we need partners with hospital experience because we, Apollo, don't have that kind of experience. Again, clear evidence of independent conduct by Apollo. And, indeed, this is August 1st so it's after the
late July agreement quote/unquote that plaintiffs say the industry had to, quote/unquote, stand down on HCA. So for all these reasons, Your Honor, plaintiffs don't have any evidence that Apollo was allocated any of the deals in the relevant market. They don't have any evidence
of an overt act within the limitations period and they don't have any evidence against Apollo that tends to exclude the possibility of Apollo's independent conduct. Thank you, Your Honor. THE COURT: dismiss Apollo? (Laughter.) MR. NOSS: Your Honor, Walter Noss from Scott If I may approach, we What do you say? Do you want to
& Scott on behalf of the plaintiffs. have yet more paper to pile upon you.
(Whereupon, a binder was given to the Court, the Clerk and the Law Clerk.)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 deals. though. Honor. conspiracy?
THE COURT:
Why are you part of this
MR. NOSS:
Well, that is a good question, Your
Let's take a look at what the -- slide two, if you
would, the second page of this presentation. Let's take a look at the elements to join a conspiracy. This case has alleged an overarching
conspiracy, one to restrain trade in these large LBOs. Now, there are three elements to join in a conspiracy. One is knowledge of the conspiracy. And that
does not require a detailed knowledge of every detail of the conspiracy, it requires an understanding of the general scope. Here don't compete on these large LBOs. THE COURT: They were only in on two deals
MR. NOSS:
They're actually, they win two
They're involved in multiple other deals. If you actually flip to the next page, you will see
here Apollo appears, although they win only, they actually win three deals but they're in multiple deals so they're actually across many deals. If we actually go back to just the standards, one, it's knowledge of the conspiracy. the conspiracy. Two, an intent to join That is
And then, three, interdependence.
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that their actions facilitate the endeavors of the other alleged conspiracies, of the ventures in whole. Another important point, like knowledge, all parties aren't required to share an identical equal role throughout this conspiracy. I think that's one thing
defendants have confused throughout today's argument and Apollo does the same thing. Not every defendant needed
every, an equal piece of every deal or had a conspiracy to make money, all the same amounts. In other words, you win three deals, I win three deals, you win three deals. The idea is more simple. You stay out. The
idea is I have a deal, it's my deal. the same for you.
I do
And let's look at some of the overt acts by Apollo that are in furtherance of the conspiracy that show knowledge, that show interdependence and show intent to join this conspiracy, overarching conspiracy to restrain trade, large LBOs. And in our papers we point out there are four kind of primary strategies or rules. These are evidenced by the
conduct and by the statements of senior executives of all the defendants and also by Apollo. Forming the clause, we talked about that. reduces competition. Not jumping deals. That
And this is one of
the key and most important rules and this is what you just
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were talking about in HCA.
You don't jump somebody else's And that was an Throughout the
deal and they don't jump yours.
understanding that all defendants had. conspiracy you see it play out. any competition. can. It's my deal.
That's why you don't see If I want to let you in, I Your deal, the same
If I don't, that's my deal.
thing. Then we see they manipulated auctions in Nalco, one of their earliest deals in this conspiracy, they flat out rigged the bid with Blackstone and Goldman Sachs. And then
we see there is reward and monitoring of co-conspirators. Those are traditional things you see in conspiracy. This is
the idea that, you know, this is my deal, this is your deal. We're making sure that people are complying with our agreement. If you go to the next slide, this is the Nalco deal, 2003, one of the first transactions in the conspiracy. And it's important because it shows right away that the defendants and particularly Apollo were willing to engage in the flatout Section 1 violations of the Sherman Act in large deals. So what happens in Nalco? Well, Apollo, Goldman And what we see in
and Blackstone, they rig the bidding.
this slide from the internal Goldman email is they had a Goldman's private equity arm saying -- and this is a couple
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days before the final bids are due -- you know, "If B wins," that's if Blackstone wins, "we'll likely get an opportunity to join. Key point here, we don't want to be played off
against them." And that means they don't want to get forced by the company to bid the price up up and up because that benefits the shareholders, not the defendants. If we go to the next slide, again, this is at the time of bidding. The only people left in this deal, the
only people competing at this point in time because of the agreement with KKR is Blackstone, Goldman and Apollo. And
so now what we see in these communications right as the bidding is supposed to be happening, "Josh is trying to reach you and Leon." Josh is a reference to Mr. Harris, "You" again is And
Josh Harris, a cofounder of Apollo.
Mr. Friedman, the head of Goldman's private equity arm. Leon is Leon Black who is a cofounder of Apollo.
These, they said they're working with Blackstone. They're admitting here at this point in time rather than bidding they're working with their supposed competitor. And then here again we see the reason. "Josh
concerned," Josh Harris, Mr. Harris, cofounder, "concerned that said a bump may incite a bump from Blackstone as well." They realized they're about to get into a bidding war. is RJR. They don't want this. This
And so what they do is they
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agree that they're just going to let Blackstone win the company and then they come in. And that's what we see on the next slide, slide six. "Just talked to Josh," Mr. Harris. "They were up all
night with Blackstone."
The next highlighted part is, "If
Steve asks," that's Steve Schwarzman, he's the head of Blackstone. Again, this is a conspiracy, as my partner
Mr. Burke pointed out, that was done with the highest levels of these companies. It didn't take much, it just took the
top two or three people to make these agreements. "And if Steve Schwarzman lives up to his word with Leon," that's Mr. Black again, "We and Apollo have an option." That option is to come in and take part of the And we submit that that
company and that's what happened.
is evidence of traditional bid rigging. Now, to further show Apollo's understanding of the conspiracy there is the AMC deal. Now, we can, I can
argue -- I am short of time -- but there was argument made by defense counsel about the releases. I think it's pretty Your Honor's
clear in our paper our position on those.
first order did not prohibit us from using evidence from AMC against or evidence of any of those released deals against any of the released defendants. order is consistent with that. There are contractual due process reasons why you We think Your Honor's last
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can't bind people who aren't parties to releases which is what the defendants are really trying to do here. We also believe there is subject matter waiver but we'll just leave that in our briefing, we think it's pretty clear, and just talk about the overt acts and talk about the facts here. So AMC, this is a deal orchestrated by Apollo. They bring in basically all potential private equity firms and say, look, because Apollo had a part of AMC, and they said we're going to do this deal, we're going to take AMC private and we're going to merge it with a competitor named Loews and we're going to do this to our benefit and not to the benefit of the public shareholders. And showing that it was the deal they expected everyone to pay them back with co-investment opportunities and so you see an internal email, this is to Thomas Lee, he was told this. If we go to the next slide. You'll see this at the He's writing to He
bottom, Mr. Berg is a senior executive.
Mr. Coslet -- Mr. Berg is a senior executive at Apollo.
writes to Mr. Coslet, a senior executive at TPG, "And, you know, what we want to do is bring you in and we're looking for co-investors." And this is part of the, this is actually part of the reason why they do club deals. One, not only does it
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eliminate competitors but it makes it easier to pay people back. And so AMC, they take the company private in a bunch of groups and that's just further evidence here of the conspiracy. Now, in Kinder Morgan you will see that Goldman tries to pay Apollo back, and this is to Apollo's benefit. Apollo now, "Leon is too proud," that's Mr. Black, "too proud to mention it to you by he clearly feels that Kinder although appreciative was not an attractive deal." This is an effort to pay them back for Nalco. Apollo's complaint here is they don't think it's enough. Not that this isn't evidence that they're making paybacks as part of the conspiracy, just that we should get more. Interestingly on the next slide, although Leon was telling Goldman he didn't think it was enough, what we see here are handwritten notes in a Blackstone document of a meeting. worked. This is, this again shows how this conspiracy This is a high-level meeting. That's Henry Kravis,
he's the second K in KKR. of TPG.
That's Mr. Bonderman, the founder
SAS is Steven A. Schwarzman, the head of And Black is Leon Black. So these are the
Blackstone.
heads in a room talking about the Kinder Morgan deal. And now Apollo's counsel has said that they didn't view Kinder Morgan. There is evidence in the record they
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didn't like Kinder Morgan.
This evidence reflects Mr. Black That's similar to the Mr. Black is Yet they say,
described it is as a "Rolls-Royce."
highway robbery evidence you see in HCA.
repeatedly describing it as "Rolls-Royce." well, they didn't like the company.
But what's really interesting here is the second line. And what happens is in Kinder Goldman invites in KKR, They decide they
Blackstone, TPG and Apollo to take a look.
don't want to deal with Goldman but consistent with that notion in this conspiracy that because it was Goldman's deal, no one else could jump it, what we see is Mr. Black say, "We want to be partners with you." to KKR, TPG and Blackstone. That's a reference
"If you're out, we are."
In other words, if you're not going to jump this deal, we're not going to jump this deal because that's the rule of the conspiracy. That shows knowledge of and a
conscious commitment to this conspiracy not to jump each other's deals. If you flip to the next page, Apollo actually does get accommodated in some form or fashion in Kinder by Goldman. They certainly would accommodate them because he's
one of their key co-conspirators. Let's take a look at Aramark. In the Aramark case,
just like Kinder Morgan, it will show how Apollo didn't jump its competitor's deal. And when I get to the other
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presentation, you will see that their competitors didn't jump Apollo's deal. So here's Aramark, another deal that was a Goldman deal. Here Apollo looks at this deal. Mr. Berg, he's a And he says,
senior executive.
Mr. Rowan is a cofounder.
"We probably spent time and money, piss off friends, they pay a few bucks more, we would get nothing, good company though." We would submit that this email is, is that they liked this company but they don't want to "piss off" friends. That means they don't want to upset their This is their
competitors because this isn't their deal. competitor's deal.
And pursuant to that overarching And that's exactly what
agreement, they have to stand down.
they do in Aramark, even though it's a good company. HCA, again, Apollo looks at the company, and this is really important here, because they understand how this conspiracy operates. a KKR deal. Doesn't know if Apollo wants to topple
Remember it was KKR who called everybody up and
said stand down. Now, KKR is one of the biggest private equity firms, bigger than Apollo. They're not going to topple the
KKR deal because that would breach the conspiracy to not jump each other's proprietary deals and so they even confirm they're going to stand down. Let's not agree to stand down
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too quickly and meekly. So we're not going to compete for HCA. loves this company. Everyone
Everyone in the industry thinks it's
terrible or -- it's a steal for Bain and KKR but what we see again is another competitor complying with the conspiracy not to jump on each other's deals and standing down. Now, these deals, the Rolls Royce Kinder Morgan, the good company Aramark, highway robbery HCA, these all occurred, Your Honor, within three or four months of each other in 2006. 2006 is a hotbed of activity.
So what happens in 2006 when it's Apollo's turn to take a deal? Well, that's the Harrah's deal. And so what
we see in Harrah's is that Harrah's -- Apollo finds its proprietary deal Harrah's, brings in TPG, and even though the company becomes subject to some of the public competition, none of its competitors go after it because just like Apollo had stood down in Kinder and Aramark and HCA in the preceding months, all its competitors said we're going to stay out of your deal. So competitors such as Blackstone who people tried to pair up with a strategic named Penn National, Blackstone, there is an email that says we're not going to play that way. We're not going to compete against our fellow And, in fact, Apollo
co-conspirator's proprietary deal.
rewards Blackstone for that by giving them a co-investment.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2006.
There is evidence that, you know, Bain Capital was interested, made a lot of calls to David Bonderman, the CEO of Harrah's. They didn't jump. There is evidence in the
record just as Apollo didn't jump its competitor's deals, its competitors didn't jump their deals and that's the nature of this conspiracy. THE COURT: MR. NOSS: couple more. invited in. So, the point is that by the bid rigging early on and through these repeated acts of looking at what they thought were good companies, Apollo stood down and was rewarded and benefited because when it was their turn, their co-conspirators stood down. THE COURT: MR. NOSS: So those -All right. Try to sum up.
Summing up, summing up, there's a They get
Clear Channel, they stand down.
What did they get? They got the Harrah's company in
They got Nalco in '03. So, again, this is a conspiracy, not to equally
divide the market, you get one-third, I get one-third, it's just we're not going to compete against each other on large LBOs. Your deal, I don't compete against you, even though I My deal, you don't compete against me
think it's great.
even if you think it's great. So those are the factual acts and there is more in
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the record but these kind of highlight it I think for Your Honor to show knowledge, intent and interdependence, acts in furtherance of the conspiracy. If I can have just two minutes on the statute of limitations. I think the biggest point I'd like to make is
Apollo makes an argument -- next slide, please. Apollo makes an argument that the statute of limitations runs from their last overt act. That's not the law. That's wrong.
In fact, that would turn the law of As Your Honor well
co-conspirator liability on its head.
know, a co-conspirator is liable for the acts of his co-conspirators that occur before and after he joins the conspiracy until he affirmatively withdraws. No different from the statute of limitations. cite one case, Kader Corp. v. Milbury. the case is not accurate. They
Their description of
It doesn't hold that a statute of
limitations only runs from the defendant's last overt act. What it said was if there's overt acts for this defendant outside of the limitations period, then within the limitations period there is no overt acts for any defendant so they couldn't hold anybody in. What the standard is as enunciated by U.S. v. Reed, the 11th Circuit, the statute of limitations does not begin to run on a co-conspirator until the final act in furtherance of the conspiracy has occurred. Not Apollo's,
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the final act of a co-conspirator. In Re Corrugated Container Antitrust case out of the D.C. Circuit, Judge Mikva was on the panel. "Before the
statute of limitations runs out, the individual remains liable for his own criminal acts and also for those acts of his co-conspirators, including those acts occurring after the individual's last overt act." Now, why is Apollo so insistent on, and be held, the statute runs its last overt act -- if we can go to the next slide. Well, the PanAmSat, as Your Honor remembers, we had a claim for the PanAmSat deal and there was two arguments made. One was on standing and one was on the statute of In those briefings the defendants tell you,
limitations.
and it's very, I totally agree with them, the last overt act, and particularly in any transaction, is when the transaction closes, because what happens at that point? that point the plaintiff tenders his shares to the defendants and receives the unlawfully depressed price. It's the last overt act that cases harm. In each one of these transactions we see from NXP down to Clear Channel are overt acts that occur after September 17, 2006. So final overt acts that clearly occur At
within the limitations period are enough to bring Apollo back into this case.
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THE COURT:
Okay. Very briefly.
Just very briefly. Yes.
I think he is right on the statute
of limitations; is he not, namely, the overt act of someone who it has been established is a co-conspirator? MR. ROSENBERG: Your Honor, first of all, none
of those cases that they cite in their briefs in this case, and those cases are criminal cases, the standard is different for a civil conspiracy. We set forth, for
example, the D.J. Manufacturing case in our papers which says that you have to pin the overt act to harm caused to the class. And that's why they have to show an overt act by
the defendant in furtherance of the conspiracy causing harm to the class because otherwise the statute of limitations would be -THE COURT: You are saying the law as to overt
act is different in civil cases than a conspiracy case? MR. ROSENBERG: THE COURT: Yes, in the --
Than a criminal case. Yes. In this context, Your And frankly I
MR. ROSENBERG:
Honor, they have to show a harm to the class. haven't read those cases and I'm sure they're
distinguishable on some basis and we can submit a
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supplemental briefing on it, Your Honor.
But we did set
forth the law showing the need to tie the overt act to harm to the class and that's something that they don't do in any period but they certainly don't do it within four years of them bringing the case. And it makes sense that that would
be the case because otherwise they could bring a case in 2010, rely on an overt act in 2003, have nothing after that and then turn the four-year statute of limitations into a seven-year statute of limitations. way, Your Honor. Now, with respect to Nalco, that's the third transaction that he claimed that Apollo was in. Of course, It It doesn't work that
as Your Honor knows, Nalco was a private transaction.
was owned by a foreign investor Suez that sold that private company in 2003. It's not in the relevant LBO market. It
doesn't cause any harm to the class.
And more -- and it's But more
certainly barred by the statute of limitations.
importantly, there is no connection between that transaction and any other deal in this case. Their only basis for
trying to tie that transaction to something else is that Apollo asked Goldman for another deal saying, hey, we brought you in to Nalco and Cablecom so for that, now three years later, we'd like a referral from you. Well, they didn't say because we did an illegal act back in 2003 because we rigged the bid, we want a favor from
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you.
It was just that they brought them into the deal.
And
they brought them into the deal in early July 2003. in paragraph 36 of our 56.1 statement.
That's
And that's a month,
that's almost two months before plaintiffs claim that that Nalco deal was rigged. So all they were seeking reciprocity There is nothing
for was bringing them into the deal.
illegal about, you know, referring deals to one entity that you -- that has referred deals to you. In addition, Your Honor, all the evidence he is talking about is not evidence. It's emails, they have no
testimony, and this goes for every transaction -THE COURT: Well, the emails are evidence. But it's hearsay as to Apollo
MR. ROSENBERG:
and they have no testimony explaining -THE COURT: Well, I suppose they are going to
get it against Apollo were the case to go to trial on these so-called co-conspirator exceptions. MR. ROSENBERG: No testimony as to what those
ambiguous emails mean from anybody at Apollo, from Blackstone or Goldman and so it would be insufficient in any event. But even if Your Honor deemed it sufficient, it's not enough to tie Apollo to the conspiracy because for the relevant LBO market there is -- Apollo received nothing. Now, he mentioned the Kinder Morgan transaction and
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
I want to just hand up to Your Honor the binder of documents that underlie our timeline chart and the evidence that is cited in that chart. I want to focus Your Honor on one of those exhibits with respect to the Kinder Morgan transaction and that's Exhibit 621 I believe. Yes, Defendants' Exhibit 621.
And this is, we highlighted for Your Honor, this is one of the Apollo deal team members talking to Mr. Harris who plaintiffs' counsel mentioned in his argument. And he
says, "Bottom line is that everyone believes that base case return is unexciting, management package isn't structured well for us and the governant (ph.) sucks." And he goes on with other reasons why Apollo didn't feel the Kinder Morgan deal was attractive. And, indeed, in
their own evidence, Your Honor, when they're talking about the internal Goldman emails about Apollo asking for a referral in 2006, the Goldman people relate that Apollo didn't feel that the opportunity to bargain on Kinder Morgan was an attractive opportunity. So their own evidence proves
that Apollo didn't feel that Kinder Morgan was worth bidding on. Again, they don't have anything that tends to exclude
the possibility of Apollo's independent conduct. With respect to AMC, not only do we have the release, Your Honor, but there was nothing in the evidence he referred to that referenced anything about Loews when he
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
was talking about that exhibit regarding AMC.
Apollo was a
50 percent owner of AMC and so that puts it in a completely different situation from these other transactions that we're talking about where none of the private equity bids had an ownership -- none of the private equity firms had an ownership interest in the target. And looking, there is a snippet about looking to trade co-invests. Again, that is just words on a page, There is no evidence that any co-invest
amounts to nothing.
was ever traded with anybody. THE COURT: Okay. Try to sum up. Finally, Your Honor,
MR. ROSENBERG:
Okay.
with respect to Aramark, that is the transaction in which there is an email exchange that "we'll spend more money and time and piss off friends and get nothing." response was, "I agree. And the
Unless Aramark contractually does
not allow a re-bid from the current bidding group, even then it is difficult." This is the paradigm, Your Honor, of independent conduct that they're trying to torture as some kind of evidence of a conspiracy. All it says is we're not going to Because
spend a lot of money and get nothing in the end.
these guys were already there at the inside track, they've teamed up with Neubauer who is management there, and we'll get nothing, oh, and by the way, we'll alienate people who
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
we want to do joint bids with in the future, who we want business referrals at some point in the future. That's not
smart business, Your Honor, and that has nothing to do with any evidence of participation in an overarching conspiracy. THE COURT: (Laughter.) THE COURT: VOICES: Tomorrow at ten o'clock. Okay. That is it for the day.
Thank you, Your Honor. All rise. Court is adjourned.
THE CLERK:
(WHEREUPON, the proceedings were recessed at 4:50 p.m.)
C E R T I F I C A T E
I, Carol Lynn Scott, Official Court Reporter for the United States District Court for the District of Massachusetts, do hereby certify that the foregoing pages are a true and accurate transcription of my shorthand notes taken in the aforementioned matter to the best of my skill and ability.
/S/CAROL LYNN SCOTT
_________________________________________ CAROL LYNN SCOTT Official Court Reporter John J. Moakley Courthouse 1 Courthouse Way, Suite 7204 Boston, Massachusetts 02210 (617) 330-1377
DATE: January 4, 2013

Dahl V Bain Capital, Hearing Transcript Dec. 18, 2012

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Case 1:07-cv-12388-EFH Document 757 Filed 01/07/13 Page 1 of 234

CIVIL ACTION No. 07-12388-EFH

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P R O C E E D I N G S THE CLERK: All rise. Please be seated.

Craig Primis from Kirkland &

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It has been provided to the

There are certain exhibits that I will be

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That's the massive scope of the 250 billion dollars worth of

conspiracy they've alleged.

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It's because it didn't And discovery over

happen and it could not have happened.

pages of documents produced by the defendants. more than 50 depositions.

And in none of that evidence,

Case 1:07-cv-12388-EFH Document 757 Filed 01/07/13 Page 7 of 234

evidence or circumstantial. have neither.

Let's assume that there is a

they have a separate HCA claim.

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billion dollars' worth of LBOs over a 5-year period.

MR. TRINGALI: THE COURT: what? MR. TRINGALI:

You said the plaintiffs will argue

I'm sure they're going to argue

That the test will be not

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conspiracy to allocate the deals, okay.

Look, Your Honor,

The conspirators under their

and then expressing disappointment when they lose.

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This is the reaction of What's the And what's

"If, if, if this is

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MR. TRINGALI: THE COURT:

Assume for the sake of the

overarching conspiracy? MR. TRINGALI: Your Honor, it would -- again,

this is going to be -- these are the questions --

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If, in fact, there were. I know these are the questions

It's all LBOs were

Now they say the LBOs in this case.

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You don't And

How do you trade

People win once, twice.

People win 12 percent of the deals. There is zero

Somebody else wins 50 percent of the deals. pattern.

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the financial wherewithal? MR. TRINGALI: Absolutely, Your Honor. We're

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MR. TRINGALI: that, Your Honor.

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Everybody else is not bidding.

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MR. TRINGALI: give you that. THE COURT:

All right. Let me address, Your Honor, in And I want to set up

a moment the circumstantial evidence.

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by giving you the legal standard. nine.