Opinion

Alison Frankel

Bain, Goldman settlements in collusion case undercut shareholder releases

By Alison Frankel
June 12, 2014

As inevitably as thunder follows lightning, shareholder class actions follow deal announcements. Debate has been raging for years now about whether shareholders derive any real benefits from the resolution of these cases, with judges increasingly skeptical about awarding big fees to plaintiffs lawyers who win only enhanced disclosures in deal documents. For defendants, the upside of settlements is more obvious: They obtain global releases of shareholder claims related to the transactions.

Or do they? On Wednesday, Goldman Sachs and Bain Capital agreed to pay a combined $121 million ($54 million from Bain, $67 million from Goldman) to resolve antitrust class action claims that they and several other private equity defendants cheated shareholders in eight companies acquired in private equity LBOs by colluding to depress acquisition prices. According to Patrick Coughlin of Robbins Geller Rudman & Dowd, who is one of the lead lawyers in the antitrust case, the beneficiaries of the Bain and Goldman settlements will include shareholders who previously released claims against the private equity funds in shareholder M&A class action settlements.

Bain and Goldman, along with their fellow antitrust defendants — Blackstone, TCG, KKR, TPG and Silverlake — had argued in a motion in January that shareholder releases in the original M&A cases should preclude certification of a class of onetime shareholders injured by their supposed conspiracy to depress LBO prices. It was a pretty creative argument, based on a ruling in the collusion case that shareholders who sold stock in the various LBO deals could not introduce evidence from those transactions against defendants they released from liability in M&A settlements. That patchwork of evidence, the defendants contended, meant that the collusion case did not meet commonality and typicality standards for class actions.

Lawyers for the antitrust class countered in a brief last March that the defendants misread the evidentiary ruling and ignored the court’s previous holding that releases in the M&A cases do not cover claims of an overarching conspiracy. Class counsel Craig Wildfang of Robins, Kaplan, Miller & Ciresi told me Thursday that the defendants’ M&A releases argument against class certification was “a complete red herring” that “didn’t meet the laugh test.”

Both he and Coughlin said that defendants in antitrust conspiracies face joint and several liability for their misconduct, so it doesn’t really matter that certain class members released some unrelated claims against certain defendants. “This is a conspiracy,” said Coughlin. “Once there’s enough evidence you joined the conspiracy, (everything) is coming in.” Coughlin said that the settlements with Bain and Goldman are proof that the defendants don’t have much faith that their previous M&A releases will preclude class certification. “You’ve got two very sophisticated entities paying out more than $100 million,” he told me. “This isn’t like a $4- or $5-million settlement.”

True, but for defendants like Goldman and Bain, even $100 million probably isn’t material. They also faced unusual risk from the class certification ruling in this case: The judge who presided over the case for much of its six-year history, Edward Harrington, has already issued summary judgment decisions, so if the defendants lose on class certification, they’re headed for a trial of the plaintiffs’ multibillion-dollar claims, which can be trebled under antitrust law. Bain and Goldman probably figured that the price of a settlement would skyrocket if they lost on class certification.

The M&A release issue remains alive before U.S. District Judge William Young of Boston, who took over the case in December. All of the other defendants except for Silverlake have obtained releases from shareholders in M&A suits stemming from one or more of the eight deals at issue in the collusion litigation, so the releases could still be an impediment to class certification, Wildfang’s “laugh test” notwithstanding.

The case has a November 2014 trial date, which means the class certification decision will be coming soon (assuming that the rest of the defendants don’t settle). Then we’ll really know how much protection defendants can expect from shareholder releases in M&A class actions.

Goldman counsel Richard Pepperman of Sullivan & Cromwell declined to comment. Bain counsel Craig Primis of Kirkland & Ellis referred my call to a Bain representative who declined to comment.

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