ICYMI: Federal Judge Dismisses FTC Antitrust Lawsuit Against Private Equity Firm

“Axios – The bottom line: The FTC took a big swing against private equity. And missed.”

Yesterday, the U.S. District Court for the Southern District of Texas dismissed claims brought by the Federal Trade Commission against Welsh Carson Anderson & Stowe (WCAS) in the matter involving U.S. Anesthesia Partners, a portfolio company in Texas. In November 2023, the AIC submitted an amicus brief in support of Welsh Carson’s Motion to Dismiss and specifically noted: 

  • “Private equity investors have the same obligations as any market actors to abide by the antitrust laws, but they are entitled to the equal application of those laws. Enforcement of those laws should be aimed at supporting competition, not at generalized and unfounded concerns about a business model. While it is not, of course, the role of courts to adjust a government agency’s enforcement priorities, when those priorities are enforced through lawsuits based on novel liability theories without a sound basis—as is the case here…—courts should not allow such cases to proceed.”

Today, Axios published a story about the Court’s decision – which represents another defeat for the FTC in a string of high-profile court cases over the past year.

Read the full Axios story below:

Axios Pro Rata
By Dan Primack
May 14, 2024

Private equity is breathing easier this morning, after a federal judge in Texas dismissed what could have been a landmark antitrust lawsuit against Welsh Carson Anderson & Stowe.

Catch up quick: The Federal Trade Commission last year sued both WCAS and one of its portfolio companies for suppressing competition and driving up prices of anesthesiology services in Texas.

  • WCAS in 2012 had formed U.S. Anesthesia Partners (USAP), a platform to acquire anesthesia services groups.
  • The FTC claimed that WCAS and USAP bought up “nearly every large anesthesia practice in Texas,” in order to form a dominant provider, and then forged price-setting agreements with providers that had remained independent.
  • WCAS currently holds just a 23% stake in USAP, but the FTC argued that the private equity firm remained in effective control of an ongoing antitrust violation.

Why it matters: This was the FTC’s first direct swing at private equity, and an effort to shove a dagger through the corporate veil.

  • Had it succeeded, private equity firms could have feared liability for the actions of portfolio companies. Moreover, it could have been a death knell for the industry’s popular roll-up strategies.

The latest: Judge Kenneth Hoyt dismissed WCAS as a defendant, although allowed the case to proceed against USAP.

  • Hoyt reasoned that the FTC didn’t “cite any authority for the proposition that receiving profits from an entity that may be violating antitrust laws is itself a violation of antitrust laws.”
  • He added that the FTC didn’t meet its burden in proving that WCAS continues to be in control of USAP, given its minority equity stake a minority representation on the USAP board, no matter how “hands-on” WCAS may be. That does seem to provide FTC with some wiggle room if it brings a future case against a control investor, but not here.
  • Finally, Hoyt determined that the FTC’s more appropriate antitrust attack against WCAS was on its initial acquisition of an anesthesiology practice in Texas, rather than in the subsequent purchases that were technically done by USAP. Again, a lesson for future FTC litigation.

What WCAS is saying: “We are gratified that the court dismissed the FTC’s case against Welsh Carson in its entirety. As we have said from the beginning, this case was without factual or legal basis.”

The bottom line: The FTC took a big swing against private equity. And missed.