[co-author: Stephanie Kozol]*
Private equity firms can breathe a sigh of relief after a federal judge dismissed claims that threatened to establish a precedent for holding private equity firms liable for certain actions by their portfolio companies.
The Antitrust Lawsuit
On September 21, 2023, the Federal Trade Commission (FTC) filed suit against U.S. Anesthesia Partners (USAP) and Welsh, Carson, Anderson & Stowe (WCAS), a private equity firm that held a minority interest in USAP. The lawsuit centered on alleged antitrust violations based on USAP’s “roll-up” acquisition strategy—acquiring numerous anesthesia services groups across Texas. The FTC alleged that WCAS and USAP were involved in a “multi-year anticompetitive scheme” that would drive up the price of anesthesia services in Texas.
WCAS formed USAP in 2012. It currently holds a 23% stake in the company. Despite the minority ownership, the FTC nevertheless argued that WCAS should be held liable for the ongoing antitrust violations based on its equity ownership in USAP.
Dismissal of Claims Against WCAS
On May 13, 2024, a judge in the U.S. District Court for the Southern District of Texas rejected the FTC’s arguments and dismissed the claims as to WCAS. The court noted an utter lack of support for “the proposition that receiving profits from an entity that may be violating antitrust laws is itself a violation of antitrust laws.” The court further emphasized that the FTC failed to cite any case “in which a minority, noncontrolling investor—however hands-on—is liable . . . because the company it partially owned made anticompetitive acquisitions.”
Implications
State and federal regulators inside and outside of the FTC have recently pushed to expand their authority by advancing novel theories that would allow claims not only against consumer-facing businesses, but also the companies that own or invest in them. The USAP decision is a big victory for private equity firms, as they will be able to use the holding to push back against regulators who attempt to drag them into costly litigation, continue to pursue investments in serial acquirers without fear of direct liability for their actions.
*Senior Government Relations Manager
