Dahl v. Bain Capital Hearing Dec, 19, 2012
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Transcript of Dahl v. Bain Capital Hearing Dec, 19, 2012
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1 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS
2 * * * * * * * * * * * * * * *
3 KLEIN, et al * Plaintiffs, *
4 * vs. * CIVIL ACTION
5 * No. 07-12388-EFH BAIN CAPITAL PARTNERS, *
6 LLC, et al * Defendants. *
7 * * * * * * * * * * * * * * *
8 BEFORE THE HONORABLE EDWARD F. HARRINGTON UNITED STATES DISTRICT SENIOR JUDGE
9 DAY TWO MOTION HEARING
10 A P P E A R A N C E S
11 ROBINS, KAPLAN, MILLER & CIRESI LLP
12 2800 LaSalle Plaza 800 LaSalle Avenue
13 Minneapolis, Minnesota 55402-2015 for the plaintiffs,
14 By: K. Craig Wildfang, Esq. George D. Carroll, Esq.
15 Stacey P. Slaughter, Esq.
16
17 ROBBINS GELLER RUDMAN & DOWD LLP Post Montgomery Center
18 One Montgomery Street, Suite 1800 San Francisco, California 94104
19 for the plaintiffs By: Patrick J. Coughlin, Esq.
20
21 Courtroom No. 13
22 John J. Moakley Courthouse 1 Courthouse Way
23 Boston, Massachusetts 02210 December 19, 2012
24 10:00 a.m.
25
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1 APPEARANCES, CONTINUED
2
3 SCOTT & SCOTT LLP 707 Broadway, 10th Floor
4 San Diego, California 92101 for the plaintiffs
5 By: Christopher M. Burke, Esq. Walter W. Noss, Esq.
6
7 WAGSTAFF & CARTMELL LLP
8 4740 Grand Avenue, Suite 300 Kansas City, Missouri 64112
9 for the plaintiffs By: Tyler W. Hudson, Esq.
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11 KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W.
12 Washington, D.C. 20005 for the defendants
13 By: Craig S. Primis, Esq. David R. Dempsey, Esq.
14
15 SIMPSON THACHER & BARTLETT LLP 425 Lexington Avenue
16 New York, New York 10017-3954 for the defendants
17 By: Joseph F. Tringali, Esq. Ryan A. Kane, Esq.
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19 SIMPSON THACHER & BARTLETT LLP 1155 F Street, N.W.
20 Washington, D.C. 20004 for the defendants
21 By: Peter C. Thomas, Esq.
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1 APPEARANCES, CONTINUED
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3 SULLIVAN & CROMWELL LLP 125 Broad Street
4 New York, New York 10004-2498 for the defendants
5 By: Richard C. Pepperman, II, Esq.
6 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
7 One Beacon Street Boston, Massachusetts 02108
8 for the defendants By: James R. Carroll, Esq.
9
10 WEIL, GOTSHAL & MANGES LLP 1300 Eye Street NW, Suite 900
11 Washington, D.C. 20005-3314 for the defendants
12 By: Carrie M. Anderson, Esq.
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14 WILLKIE FARR & GALLAGHER LLP 787 Seventh Avenue
15 New York, New York 10019-6099 for the defendants
16 By: Wesley R. Powell, Esq.
17 LATHAM & WATKINS LLP
18 555 Eleventh street, N.W., Suite 1000 Washington, D.C. 20004-1304
19 for the defendants By: William R. Sherman, Esq.
20
21 WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue
22 New York, New York 10153-0019 for the defendants
23 By: James W. Quinn, Esq.
24
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1 APPEARANCES, CONTINUED
2
3 SUSMAN GODFREY LLP 1000 Louisiana Street, Suite 5100
4 Houston, Texas 77002 for the defendants
5 By: Mary Kathryn Sammons, Esq.
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22 CAROL LYNN SCOTT, CSR, RMR Official Court Reporter
23 One Courthouse Way, Suite 7204 Boston, Massachusetts 02210
24 (617) 330-1377
25
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1 P R O C E E D I N G S
2 THE CLERK: All rise.
3 Court is in session. Please be seated.
4 MR. WILDFANG: Your Honor, may I address the
5 Court before we get started this morning?
6 Just a suggestion, Your Honor absorbed a lot of
7 information yesterday and again today you are going to do
8 that. We'd like to have a few minutes at the end of the day
9 just to sort of sum up and tie things together.
10 MR. PRIMIS: Good morning, Your Honor. Craig
11 Primis from Kirkland & Ellis. I'm here on behalf of Bain
12 Capital today. And before I get started, Judge, the first
13 thing I want to do on behalf of all the defendants is to
14 thank you for all the time that you gave us yesterday to
15 present our argument. You were very generous with your time
16 and we appreciate it.
17 I also want to say that we have ten arguments
18 today, ten separate arguments, and each side is going --
19 THE COURT: They better be short.
20 MR. PRIMIS: Short, yes, and that's my point.
21 Each side had been given ten minutes for these. The
22 defendants have talked and we're going to do our level best
23 to stick to that ten minutes and abide by that. And we hope
24 our colleagues on the other side will do so as well, just so
25 we can get through all the material today.
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1 So with that in mind, and I hope I don't violate
2 the promise I just made by starting off first, but I'm here
3 for Bain Capital and I want to address our individual
4 motion.
5 As the defense group explained yesterday with
6 Mr. Tringali, there is no overarching conspiracy. There is
7 a complete failure of proof on that central allegation.
8 And --
9 THE COURT: Let me ask you this.
10 MR. PRIMIS: Yes.
11 THE COURT: Is the thrust of your argument
12 that there is no conspiracy or that you are not a member of
13 the conspiracy? I don't know whether there is a distinction
14 there but there might well be.
15 MR. PRIMIS: The argument is really, they're
16 the same argument from our perspective, Judge, because there
17 was no conspiracy. We couldn't have been part of a
18 conspiracy that didn't exist. And I'm not going to say that
19 the rest of these guys were in a conspiracy and we weren't
20 in it. There is no overarching conspiracy. That is our
21 position.
22 And what we wanted to do in our standalone motion
23 is just to underscore that Bain was not part of any
24 overarching conspiracy. And we have our own evidence from
25 our files and from our conduct that underscored the lack of
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1 any overarching conspiracy that we could have been a part of
2 so our motion is focused on Count 1, just like yesterday.
3 And we do not want to reargue all of the good, strong points
4 that Mr. Tringali made yesterday. Bain Capital is not going
5 to do that. The defendants are not going to do that. We
6 think the Court understood both sides' arguments yesterday.
7 What I want to do is just highlight a few pieces of
8 evidence specific to Bain that underscore that there is no
9 overarching conspiracy. And I am not going to walk through
10 every transaction Bain was involved in. Time doesn't permit
11 it and at the end of the day it's really not relevant to the
12 question that Your Honor posed to the plaintiffs which is
13 where is the proof of the overarching conspiracy and the
14 Court didn't get an answer to that. And I'm going to show
15 you some additional documents and just a few points from
16 Bain's files that show that we were not part of any
17 overarching conspiracy.
18 Before Your Honor came in I handed up a very short
19 slide deck, just four slides that says, "Bain Capital,
20 Individual Summary Judgment Motion."
21 And the first document I want to highlight for the
22 Court is one that the Court may have seen or focused on
23 before and it's on slide one. And it has come to be called
24 in this case the "Wow" email. And the "Wow" email, I just
25 want to give a little context.
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1 If there were an overarching conspiracy in this
2 case, this email written contemporaneously with the closing
3 or with the signing of the Neiman Marcus transaction, this
4 email could not exist. Mr. Bekenstein who wrote this email
5 is the managing director of Bain who handled the Neiman
6 Marcus transaction. He is the senior most level, at the
7 senior most level of Bain Capital.
8 THE COURT: I thought Romney was.
9 (Laughter.)
10 MR. PRIMIS: Judge, without wading into a
11 political debate, I think that Mr. Romney left the firm well
12 before the events in this case. At least that was his
13 position. I don't know if the electorate bought it.
14 But, in any event, Mr. Romney is gone.
15 Mr. Bekenstein is one of the handful of individuals who were
16 managing directors of Bain and he was in charge of this
17 Neiman Marcus transaction.
18 Now, if there were an overarching conspiracy, if
19 this deal, the Neiman Marcus deal had been allocated to TPG,
20 this document wouldn't exist and Mr. Bekenstein would have
21 had advance knowledge of who's going to win the Neiman
22 Marcus transaction and at what price.
23 So what does this document show? The bottom half
24 of the document shows that Mr. Bekenstein found out who won
25 at Neiman Marcus from the Wall Street Journal. He had no
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1 advance knowledge. He had no information that TPG was going
2 to win. And there was no overarching conspiracy that told
3 everybody how to bid, okay.
4 And when he gets it, what does he do? He sends it
5 to his partners who were on the deal and he writes, "Wow."
6 Now, he put it in the largest typesetting he could do on his
7 computer. He put it in bold. He put ten exclamation
8 points. And he said, "If we were going to lose, I am glad
9 it is by a lot."
10 What this document shows is he had no idea what the
11 winning bid was. He had no idea who was going to bid and
12 that Bain Capital was never prepared to bid as much as the
13 winner. There was no allocation of this deal to any
14 particular firm. There was a competitive auction and there
15 is no overarching conspiracy.
16 Now, what's equally significant about this
17 document, Judge, is that the plaintiffs have had this for
18 years. They had Mr. Bekenstein at his deposition. They
19 questioned him for eight hours. You would think they would
20 show him this document and ask how it fits into their theory
21 of the overarching conspiracy. The plaintiffs went eight
22 hours and never showed him this document. They never asked
23 him what does this mean, how is it consistent with the
24 overarching conspiracy.
25 But you know what? At the end of the deposition we
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1 did, because we got to ask questions too. So we showed
2 Mr. Bekenstein this document. And this is the testimony the
3 plaintiffs didn't want in the record. It's why they didn't
4 show it to him. It's on the next slide.
5 "QUESTION: Why would you put 'wow' in bold with
6 ten exclamation points in a huge font in this email?"
7 And his answer, "Because I was so totally and
8 completely shocked that someone would pay $100 when we
9 thought a very high-stretched price was 92."
10 That is evidence of competition, not collusion, and
11 it disproves the overarching conspiracy allegation.
12 The next document I want to show, Judge, and,
13 again, I am not going to go through every transaction, just
14 three.
15 The next one is on slide three. And this relates
16 to a deal where Bain didn't lose but Bain won and they
17 acquired Toys "R" Us which I'm sure Your Honor is familiar
18 with.
19 Now, Bain won that auction fair and square. And it
20 went into a bidding contest with another defendant, Goldman
21 Sachs. Now, Goldman Sachs found out that Bain had won the
22 auction and these are emails from Goldman Sachs' files.
23 In the top email Mr. Cornell says, "If, if, if this
24 is true." That's three ifs. He had no idea in advance what
25 Bain was going to bid on Toys "R" Us. He says, "If, if, if
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1 this is true, I feel better, but I'm also wondering what are
2 they thinking?" He can't believe the price that Bain paid
3 once he learns about it after the auction is closed.
4 And then the Goldman Sachs team, they were actually
5 mocking Bain for paying that much. If you look down at the
6 next email, Mr. Berlinski, another senior member of Goldman
7 Sachs, he writes just to pay for this deal, "Every Bain
8 partner will be obligated to buy $100,000 of toys annually
9 to support the cause."
10 Now, that's a lot of Barbie dolls, Your Honor; but
11 what he's saying is this is a crazy price. We had no
12 advance knowledge. We didn't even have current knowledge.
13 We found out after the auction was over and Bain won fair
14 and square at a very high price.
15 One more example and then I will stop with that is
16 the Michaels transaction. It's on the next slide. Michaels
17 is an arts and crafts department store and they go
18 throughout the country. Bain acquired the Michaels
19 department store chain through an auction. The auction was
20 competitive. It had three rounds of bidding.
21 Now, one of the companies that was competing
22 against Bain in the Michaels transaction was KKR. And on
23 slide 4 we have an internal email chain that says what KKR
24 was thinking about Michaels.
25 On the bottom email which is the first one from
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1 Mr. Calbert he had learned that Bain was in the competition
2 and he goes, "Bain is hot on our trail on Michaels."
3 Now, if this deal had been allocated to Bain
4 because Bain won, if that's the conspiracy, Mr. Calbert
5 should have said oh, well, we'll get the next one. But
6 that's not what they say.
7 KKR writes back, "Don't let them win." That line
8 could not exist in a contemporaneous email if there is an
9 overarching conspiracy. "Don't let them win." It doesn't
10 say let them win, we'll get the next one. It says, "Don't
11 let them win."
12 And Mr. Calbert goes back to say, "I'm giving it
13 everything I have (and more)." In other words, I'm
14 competing. "If they beat me, they have crossed over into
15 'stupid territory.'"
16 And, in fact, Bain did beat KKR and that was a
17 final price that KKR had concluded was too stupid to pay and
18 they were at that point happy to let Bain win it. So we
19 have three examples here where the competitors and three of
20 the auctions in this case have no advance knowledge, no clue
21 who is going to win. There is active competition. There is
22 surprise. And then there is actual mocking of the winner
23 for paying too much. That is not an overarching conspiracy.
24 Now, what do the plaintiffs do with this evidence?
25 Because we put it in our briefs, there's a lot of briefs, we
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1 put it in the omnibus brief and we put it in the Bain brief.
2 They ignore it. They never address these documents in their
3 briefing. And the plaintiffs never showed these documents
4 to the witnesses.
5 And the reason they didn't is they didn't want this
6 evidence in the record and they didn't want witnesses
7 telling the Court what really happened.
8 Now, in a case like this, and I'm not going to redo
9 the Matsushita standard, but we know that once there is
10 evidence of independent conduct, they need to find evidence
11 that tends to rebut it but they can't ignore it, which is
12 what they have done in this case.
13 Now, the plaintiffs deposed essentially every
14 senior manager at Bain. They never asked a single one of
15 them if they were aware of an overarching conspiracy, if
16 they participated in an overarching conspiracy, if they had
17 ever heard of an overarching conspiracy. But once again we
18 asked those questions because we get to do that at the end
19 and the Bain managing directors not only denied it
20 unequivocally, they didn't even know what the plaintiffs
21 were talking about. And that testimony is in the record and
22 it is unrebutted.
23 Now, before I sit down I just want to say what we
24 expect to hear from the plaintiffs today. They're going to
25 pluck out individual documents from individual deals, the
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1 same individual deals that they disclaimed yesterday were
2 individual conspiracies. And what they're going to do is
3 say, well, this deal doesn't look as competitive as it might
4 have been and we think they didn't compete in this deal; but
5 they're not going to be able to answer the question the
6 Court asked yesterday which is where is the proof of the
7 overarching agreement and where does it put Bain Capital in
8 an overarching agreement.
9 So I'll reserve the rest of my time for rebuttal
10 but our position is quite clear. As Mr. Tringali argued
11 yesterday, there is no overarching conspiracy and Bain
12 Capital never agreed to one.
13 MR. NOSS: Walter Noss, Scott & Scott, on
14 behalf of the plaintiffs.
15 Your Honor, I have a presentation. May I approach
16 the bench?
17 THE COURT: Yes.
18 (Whereupon, a slide deck presentation was given to
19 the Court, the Clerk and the Law Clerk.)
20 MR. NOSS: Your Honor, just as I begin and as
21 I began yesterday with Apollo, what the standard is here to
22 hold a defendant in, and I remind you that it is knowledge,
23 intent and interdependence.
24 There is a lot of evidence. You heard some
25 evidence from Mr. Primis. He gave you some examples of
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1 their defense, facts --
2 THE COURT: Keep your voice up a little.
3 MR. NOSS: Facts they would argue in defense
4 of this matter. I want to show you evidence of bid rigging
5 by Bain, of standing down. I want to show you evidence
6 about overarching conspiracy, evidence in the various deals,
7 the various acts that Bain took. The joining of clubs to
8 reduce competition. Again, never jumping announced deals.
9 that is, it's my deal. Remember, Your Honor, if it's my
10 deal, you stay out of it. If it's your deal, I'll stay out
11 of it. The manipulation of auctions, bid rigging in three
12 different cases. Monitor, reward and discipline.
13 And I'll move quickly here but Bain manipulated the
14 auctions in AMC and Loews and so -- and AMC was a Goldman
15 transaction that brought Bain in and Bain's responsibility
16 was the Loews end. What they did was in putting these two
17 companies together they manipulated the Loews auction.
18 Now, Bain agreed to bid separately. Bain was
19 bidding separately with Carlyle but before and during the
20 process of the bidding there was communications between
21 Carlyle and Bain and these are handwritten notes to reflect
22 this.
23 Mr. John Connaughton -- these are Carlyle's notes.
24 John Connaughton is a senior director at Bain. Those
25 numbers 1450, 1550, those are prices for the company. This
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1 is handwritten notes between competitors discussing prices,
2 discussing collapse at the 11th hour and discussing how
3 they're going to divide it up.
4 And what happens is Bain wins. And what we see is
5 Bain intends to officially invite us in at the point of
6 signing. In other words, they agreed, they agreed that no
7 matter who won -- and we'll see this again and again and
8 again -- they're both going to split the company.
9 Fundamentally, Your Honor, why would you ever
10 compete if you know that you're going to come in at the end?
11 You're not.
12 In these other deals Bain receives various
13 investment allocations, Nalco, Texas Genco, so when they say
14 they didn't, they aren't involved in these deals, they're
15 affiliates of parts of them afterwards.
16 But let's skip ahead to the Toys deal which we
17 heard about. Beginning as early as January Bain and KKR
18 wanted to partner, though they pursued the deal separately.
19 Eventually they came together. And the reason, desire to
20 effectively eliminate a competitor.
21 Let me give you another instance, and Your Honor
22 pointed yesterday about the HCA deal having powerful
23 evidence, that you thought it was powerful. The SunGard
24 deal, Your Honor. In SunGard you had Silver Lake, you had
25 Bain, KKR, Lee and Carlyle, one group. TPG and Blackstone
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1 were another group. These are the only people who competed
2 for this deal at this point. These are the big boys. This
3 is the big deal.
4 This document reflects conversations from Bain's
5 senior management director Mr. Pagliuca and Mr. Bonderman at
6 TPG. And what they're figuring out is we're both competing
7 for this. Are we going to compete or should we just come
8 together?
9 What did they decide? And this is reflected in an
10 email right here (indicating). And this email copies the
11 senior people, Tony and Jim. That's Tony James, the head of
12 Blackstone, Jim Coulter, cofounder of TPG.
13 "I wanted to confirm our conversations yesterday.
14 We agreed to bring your firms into the Solar Consortium
15 organized by Silver Lake on an equal basis."
16 Express evidence of an agreement to wipe out
17 competition. And Bain knows this is wrong because
18 Mr. Pagliuca writes, "The management, financing sources, and
19 board don't know this so for now need to remain confidential
20 as if it gets out will cause more problems."
21 In other words, they know the just wiped out
22 competition. They can't go right to the board and so they
23 actually ask Blackstone and TPG to just bow out and not
24 elaborate until they can get their story straight on why
25 this happens. And that's what TPG agrees to do.
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1 And we heard about contemporaneous documents and
2 what's said and how that's, what kind of -- there is weight
3 to that because that's what's being written at the time
4 before the lawsuit and for the deposition testimonies where
5 people denied things.
6 And SunGard -- this is a Blackstone memorandum.
7 They don't talk about the need for equity or
8 diversification, these arguments that you hear today and
9 you've seen in the papers. "As a result of the threat or
10 our competing offer, the Silver Lake consortium invited
11 Blackstone and TPG to join its group."
12 Not because they needed more equity, not to
13 diversify, as a result of competition they eliminated it.
14 EDMC is another example of a bid rig where you have
15 one group, Goldman/Providence on one hand, and you have Bain
16 and Carlyle on the other, and they make an agreement:
17 Whoever wins brings the losers in or gives the losers the
18 opportunity to come in.
19 And so these NDAs, which Your Honor asked about,
20 nondisclosure agreements, prohibit cross talk between
21 competitors. And they all signed it. You can't talk to
22 your competitors.
23 But what do they do? Here is an email from Carlyle
24 two or three days before the bids. Carlyle is emailing its
25 competitor on behalf of itself and on behalf of Bain, "Can
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1 you please call me on cell? New developments." And we say,
2 "Just tried you, when is a good time to reach you?"
3 And what happens is, as reported by email, they're
4 discussing the specifics of the bid. Now, the bidding on
5 EDMC happened just like this, Your Honor. There is
6 communications right before the bid with the defendants.
7 Providence and Goldman bid 42.50. Bain and Carlyle bid 42,
8 fifty cents less. There is another round. There is
9 communication. Carlyle or Providence and Goldman go up to
10 43. Bain and Carlyle go up fifty cents. That's it, it's
11 done, and they get the opportunity to come into the deal per
12 their agreement.
13 Again, just like Loews, I have an agreement with
14 you that we're going to split this up ahead of time. Why am
15 I going to bid? It makes no sense.
16 You heard about the Michaels deal, one of the
17 documents -- I'll address each of the documents here real
18 quickly -- but Michaels --
19 THE COURT: Let me ask you this:
20 Let's say that the market has the price, say $50.
21 Are LBOs required to make purchases at $60? Is that -- or
22 if they purchase it, say, for 51, what I am getting at is --
23 maybe I am not explaining it well but is there a requirement
24 that LBOs have to bid to raise the price artificially?
25 MR. NOSS: There is no requirement, we don't
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1 dispute that there is actually no requirement of
2 competition. But that's not what this case is about.
3 When you decide you are going to compete, you can't
4 agree with your competitors that you're not going to.
5 We submit from our economic expert reports that the
6 bids in these cases in a competitive market, that's what
7 Williams talk about in auction theory, that these prices
8 aren't right.
9 So our point is not that you have to pay if a
10 competitor's market value is 50 bucks, you have to pay $51,
11 no. What we are saying is it's below that. The reason is
12 because they're bid rigging. They're standing down on each
13 other's deals. And as a result the evidence shows it's less
14 than what a competitive market price should have been but
15 for this conspiracy.
16 THE COURT: Through the course of this, let's
17 assume that the stock market showed that it was 50. Are
18 there any or many of the transactions where the price paid
19 was less than 50?
20 MR. NOSS: So there is a stock price for the
21 company --
22 THE COURT: Say you look in the paper and it
23 says $50 a share.
24 MR. NOSS: Sure.
25 THE COURT: Of these 27 transactions, are
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1 there any where the price was 48?
2 MR. NOSS: These transactions occur above the
3 stock price but that's not --
4 THE COURT: No, I understand that. But my
5 question is are there any examples of these 27 transactions
6 where the price was lower than what was reported in the
7 paper at the time of the purchase?
8 MR. NOSS: No, Your Honor, and that's, but
9 that's not the measure.
10 THE COURT: I understand that. But in a way,
11 and I must say I don't know what the law is on that, but
12 what the plaintiffs might be requiring is that people in
13 this business, the LBOs, are required to make purchases far
14 in excess of the real worth of the stock.
15 MR. NOSS: That's not what we were suggesting
16 at all. And let me --
17 THE COURT: So here's my question, just so I
18 will get a sense of it. I don't know because I haven't seen
19 it in the multitudinous amount of paper I read. Is there
20 any example of these 27 transactions where the price was
21 less than 50, if 50 was the going price at the time of the
22 sale?
23 MR. NOSS: There is not, Your Honor, but,
24 again, the --
25 THE COURT: I know. I understand. I see the
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1 distinction but that's my question, is there --
2 MR. NOSS: No.
3 THE COURT: -- was there any time when it was
4 48 --
5 MR. NOSS: When it was less than --
6 THE COURT: -- or are you demanding these
7 people, who in a sense cut their own throat --
8 MR. NOSS: No, no, no, not at all, Your Honor.
9 Your Honor, these deals occur at what they call a premium
10 above the stock price because they're taking control of the
11 company so they have to pay a premium.
12 What we're saying is -- now, they say, look, we've
13 paid a premium above the stock price. Our argument is the
14 damages, the damage is that they should have paid more but
15 for their agreement.
16 THE COURT: I understand that. I understand
17 that.
18 (Whereupon, counsel conferred.)
19 THE COURT: I know that, that when there is a
20 sale of a company that you are going to pay more. I
21 understand that.
22 The question is how much more?
23 MR. NOSS: Well, that's what we contend, that
24 because of these agreements they didn't pay any competitive
25 price. Not that they didn't pay a premium to the going
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1 market price. They certainly did that. We don't contest
2 that. What we say is that but for these agreements, they
3 would have paid more.
4 THE COURT: Maybe, but is the real, is the
5 real value of the stock that much as you were requiring them
6 to pay?
7 MR. NOSS: Well, in this case -- let's go back
8 to yesterday. In this case we see valuations --
9 THE COURT: Let's take the Nabisco case where
10 supposedly it went up 40 percent higher. Is that what -- I
11 mean, do LBOs have to do that or do they have to pay 40
12 percent higher than it is worth?
13 MR. NOSS: There is no magic number of
14 percentage.
15 THE COURT: No, but 40 is --
16 MR. NOSS: We contend --
17 THE COURT: I mean, I mean, you can't require
18 corporations to at least engage in that type of competition.
19 MR. NOSS: Your Honor, actually my partner
20 Mr. Burke has corrected me. In PanAmSat the purchase price
21 was less than the stock price.
22 THE COURT: What transaction was that?
23 MR. NOSS: That's in the PanAmSat transaction.
24 But --
25 THE COURT: PanAm?
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1 MR. NOSS: PanAmSat, yes, Your Honor.
2 But to your point, we're not -- what we are saying
3 is they can't agree not to compete. And what we see in the
4 record is valuations such as --
5 THE COURT: I understand, I am not talking
6 strictly the law. I am talking somewhat practice, practice
7 that demanding -- I understand that a premium or a higher
8 price has to be paid in these circumstances. But when you
9 think of the Nabisco case, 40 percent higher? I mean, no
10 reasonable businessman would engage in that type of
11 purchasing.
12 MR. NOSS: But one of the defendants in this
13 case just did that so that's kind of our point, is that the
14 competitive market prices go up. Here they're depressed
15 because of the agreement.
16 THE COURT: Okay.
17 MR. NOSS: I know I've gone long so I just
18 want to highlight a couple of things really quickly.
19 So we see in EDMC, you know, again, the
20 suppression. The same thing in Philips. My partner
21 Mr. Burke will cover Silver Lake for you.
22 The Michaels deal they traded favors. So KKR who
23 we saw, you know, I'll take care of Michaels, well, KKR and
24 Apollo were offered a piece afterwards of that deal and Bain
25 was okay with it. You scratch our back, we scratch your
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1 back.
2 THE COURT: Let me ask you this:
3 Bain came in and they referred to three documents,
4 I think three or four.
5 MR. NOSS: Sure, I have them right here.
6 THE COURT: Relating to the overarching
7 conspiracy allegation, that is what we are here for.
8 MR. NOSS: Right.
9 THE COURT: How do you answer those?
10 MR. NOSS: Certainly I can answer those.
11 First of all, the "wow" email it's called, right.
12 It's not -- defendants have continually -- and I was making
13 this point yesterday -- have continually mischaracterized
14 what the overarching conspiracy is. And they do it so they
15 can fit it within the body of law and get rid of this case
16 today.
17 THE COURT: An overarching conspiracy is a
18 conspiracy of these 11 entities to engage in fixing the
19 price of approximately 27 or a substantial number of the 27
20 transactions. That is what is alleged.
21 MR. NOSS: Exactly, exactly right. But what
22 defendants characterize it as, well, this kind of pure
23 allocation strategy where everyone knows exactly what deal
24 they're going to get. They're going to get X number of
25 deals. They're going to make X amount of money. That's not
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1 the conspiracy, Your Honor. The conspiracy is I have a deal
2 and you stay away from it. We don't compete. That's the
3 gentlemen's agreement, the club etiquette. So when he says
4 if we're going to lose, oh, this is evidence because if they
5 knew it was preassigned, that's not the conspiracy we
6 alleged. And we don't need to allege and prove that
7 conspiracy to prove a violation of the antitrust laws.
8 THE COURT: Yes, but a conspiracy is a meeting
9 of minds.
10 MR. NOSS: That's right.
11 THE COURT: It seems to me, or at least there
12 is an interpretation that this fellow Bekenstein, his mind
13 hasn't met at least with respect to --
14 (Laughter.)
15 MR. NOSS: Your Honor, let me offer you the
16 plaintiffs' interpretation of this event.
17 THE COURT: All right.
18 MR. NOSS: All right. And this just really
19 comes down to a factual interpretation and who is going to
20 decide that. Well, Your Honor should let a jury decide
21 that.
22 If we are going to lose, that can be as
23 consistently read in the conspiracy. We're going to lose,
24 it's not our deal. Wow, I'm glad it's by a lot. It wasn't
25 my deal, I'm glad I didn't have to buy that one at that
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1 price. That's not inconsistent with the conspiracy. In
2 fact, Bain, if I can flip all the way back in my
3 presentation, Bain has a habit of telling people, their
4 parting line is when they lose they paid too much. It's in
5 their documents.
6 In fact, in the Freescale deal, you know, about HCA
7 and Freescale when they stood down and they, you know, they
8 upset their competitors and they had to stand down, that was
9 specifically mentioned -- can you go to the second to last
10 slide, please.
11 Specifically let's not do our usual party line of
12 paid too much. So that's an element. That's not
13 inconsistent with the conspiracy. The same thing with
14 Mr. Bekenstein's testimony here. That's just the same
15 thing. It wasn't their deal. I'm glad we didn't pay that
16 much.
17 There is nothing, there is nothing contradictory to
18 the conspiracy that we have alleged and we can prove that
19 competitors from time to time are upset, they don't get a
20 deal or that they think the other side paid too much for it.
21 That's not inconsistent with our overarching conspiracy
22 which is don't drive up the price.
23 So, again, we see evidence in the record that Bain
24 is bid rigging in Loews, EDMC and in Philips/NXP. We see
25 connections between Loews and AMC. We know EDMC is
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1 connected to Michaels because they owe paybacks. We see
2 Kinder Morgan is involved because Bain is tied to that
3 through paybacks. And then we see Bain standing down. And
4 that's consistent with conspiratorial conduct.
5 So, and this slide in evidence shows, Your Honor,
6 there is plenty of evidence, there is plenty of stand downs,
7 there's plenty of actions that are consistent with an
8 overarching conspiracy.
9 And with that I'll end my argument as I know I have
10 gone way past my allotted time.
11 THE COURT: All right. He has set forth a lot
12 of interaction between Bain and a lot of these alleged
13 co-conspirators with respect to certain transactions. What
14 do you say?
15 MR. PRIMIS: First, Judge, he did exactly what
16 I predicted, which is put up deals -- put up emails pulled
17 out of specific deals, characterize them in a certain way
18 and then we say we didn't compete.
19 What I would say to that is they're not probative
20 at all of the overarching conspiracy.
21 THE COURT: Why not?
22 MR. PRIMIS: Because they don't, nothing that
23 Mr. Noss showed you -- and he was moving very quickly and
24 saying a lot of things, and I think that's intentional.
25 None of them tied together the conduct in any sort of way.
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1 You pointed out Mr. Bekenstein had no meeting of
2 the minds whatsoever on that Neiman's transaction. There is
3 no meeting of the minds among these 11 defendants, Bain
4 Capital with them, across anything that he just showed you.
5 All that you have seen on these slides that he
6 shows are in the course of transactions companies that
7 sometimes partner with each other and companies that
8 sometimes compete --
9 THE COURT: Is your argument that there is
10 no -- there is 27 conspiracies but not one?
11 MR. PRIMIS: There is no -- to be clear, there
12 is no conspiracy. There is not one overarching one and
13 there is not 27. But even if the Court had some concern
14 that of the 27 there was some handful of them where there
15 might be factual disputes --
16 THE COURT: Let's say this.
17 MR. PRIMIS: Okay.
18 THE COURT: In HCA --
19 MR. PRIMIS: Yes.
20 THE COURT: -- although an argument was made
21 yesterday by the defendants that, you know, but at least
22 that one is fairly strong and with the sequence of stepping
23 down it would appear that it is a jury question. Why they
24 stepped down, the inference is that it might have been
25 because of the order of whoever issued it, I forget the
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1 gentleman's name; but the answer is that, as argued by the
2 defense counsel, namely, that they thought it was already in
3 the bag. But that is at least sufficient I would think on
4 first glance to get to the jury, and there may be others.
5 MR. PRIMIS: Judge, I can't do better than
6 Mr. Thomas did yesterday at setting forth the defendants'
7 position on why the HCA transaction --
8 THE COURT: He made an excellent argument.
9 MR. PRIMIS: And I don't want to redo that
10 here. All I would say is just a couple of points as it
11 relates to Bain Capital.
12 First off, Bain was one of the acquiring parties of
13 HCA. Bain was sued by shareholders who tried to hold up the
14 transaction and Bain and the other purchasers settled that
15 case and Bain's released from HCA, okay. So we're not even
16 in Count 2.
17 And you can't save Count 1 because Count 2 might
18 have validity, and I'm here arguing on Count 1 but in
19 particular on HCA since the Court raised it --
20 THE COURT: What I am saying is HCA is in
21 Count 1 --
22 MR. PRIMIS: It is.
23 THE COURT: -- as one of the transactions and
24 that is, compared to the others, fairly strong.
25 MR. PRIMIS: And Bain, as I said, the evidence
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1 relating to HCA can't be used against Bain because we have
2 been released from it.
3 THE COURT: No, I am not saying it is.
4 Suppose there were 27 transactions who had the sufficiency
5 of the evidence as set forth in HCA. Would you say that
6 although there is 27 conspiracies there is not one overall
7 overarching conspiracy?
8 MR. PRIMIS: I would say, yes, I would say --
9 THE COURT: It is a theoretical question I
10 suppose but what is your answer?
11 MR. PRIMIS: If there are separate
12 conspiracies, there is still no meeting of the minds. Under
13 the antitrust laws there has to be a conscious commitment to
14 a common scheme. And there is no common scheme if you have
15 all these different conspiracies just hypothetically.
16 So the first answer to the question is absolutely,
17 27 conspiracies or 20 or 15 or 3, that's not a global
18 overarching conspiracy. And we were all here yesterday and
19 we heard in court and it's on record that the plaintiffs are
20 not bringing the case that Your Honor just described and so
21 they shouldn't be allowed to proceed on a case they don't
22 even want to bring. That's the first answer.
23 The second answer is I only showed the Court
24 examples from three transactions so, and there was clearly
25 competition, a high price paid and unwitting losers in those
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1 deals and they have no answer for it, okay.
2 And you asked Mr. Noss, he can't explain it. When
3 you asked him how those fit in with the overarching
4 conspiracy, they keep changing what the conspiracy is just
5 to try and survive today. That's not the purpose of summary
6 judgment. We know what the conspiracy is and the evidence
7 doesn't line up with it.
8 And the only thing I would just conclude on,
9 because I know HCA is troubling the Court, there is one
10 piece of evidence that didn't come to the Court yesterday on
11 HCA. I just want to close by showing it to Your Honor, if I
12 could approach.
13 Here's one document --
14 THE COURT: I thought you weren't involved in
15 this case.
16 MR. PRIMIS: We're not but -- well, you
17 pointed out it's in Section -- I don't want to waive my
18 right to stand on that release but I think that is an
19 important document that the Court might want to see.
20 THE COURT: All right.
21 (Whereupon, a document was given to the Court and
22 the Law Clerk.)
23 MR. PRIMIS: And this will be brief.
24 Judge, this is an email from the HCA transaction.
25 It's out of Bain Capital's files. Mr. Pagliuca is a
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1 managing director at Bain. And if you look at the re: line
2 on the email, "It says Warburg, Apollo, BC," that's
3 Blackstone, "competing bid for HCA?"
4 And what is Mr. Pagliuca's response? "Bring it
5 on." Okay. This is not somebody who --
6 THE COURT: There are a lot of tough guys in
7 that industry.
8 (Laughter.)
9 MR. PRIMIS: There are. And he said, "Bring
10 it on." There was no fix. He was ready for the competition
11 and Bain Capital competes. We should be let out of Count 1
12 of the complaint.
13 Thank you, Your Honor.
14 MR. NOSS: I just need to address this
15 document, Your Honor, very quickly.
16 Mr. Primis is an excellent lawyer. Bring it on,
17 there is no evidence in the conspiracy.
18 If you look at our 56.1 Statement of Facts, I
19 deposed Mr. Pagliuca. He testified that the price they
20 paid, 51, that's all they had. That's all the gas they had
21 left in the tank. So the reason he's saying bring it on,
22 because they can't, according to his testimony, they
23 couldn't bid any higher.
24 The reason he's saying bring it on is because he
25 knows nobody is going to do it because I showed you
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1 yesterday Apollo wasn't going to topple the KKR deal.
2 Again, Your Honor, these are factual questions that
3 need to go to a jury.
4 Thank you.
5 THE COURT: Okay. Next -- I almost said "next
6 witness."
7 (Laughter.)
8 MR. WILDFANG: Your Honor, Craig Wildfang for
9 the plaintiffs. I want to make a suggestion to the Court
10 that I think might expedite things.
11 If Your Honor would just ask one question of every
12 defense counsel, do they have an example of where their
13 client jumped somebody else's deal after the deal was
14 announced and I think they will all have to state no, they
15 don't have an example of that.
16 The agreement, the overarching conspiracy here,
17 Your Honor, was once there is an announced deal, no one is
18 going to compete. So ask them if there is an example of
19 that.
20 (Pause in proceedings.)
21 THE COURT: Are you representing all four?
22 MR. THOMAS: No, for today I am representing
23 Blackstone Group, Your Honor. Peter Thomas on behalf of the
24 Blackstone Group.
25 THE COURT: And they are one of the four --
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1 MR. THOMAS: They are one of the HCA
2 defendants.
3 THE COURT: So what do you say, the other
4 three were involved?
5 MR. THOMAS: No.
6 (Laughter.)
7 MR. THOMAS: There was not a conspiracy on HCA
8 and there was -- I associate myself entirely with
9 Mr. Primis' arguments that -- the point of my argument here
10 is that there was no single overarching conspiracy as pled
11 in Count 1 and Blackstone didn't participate in any such
12 conspiracy.
13 Just as an addendum on HCA --
14 THE COURT: So you are doing Count 1 now.
15 MR. THOMAS: We're in Count 1.
16 THE COURT: Yes, that is right.
17 MR. THOMAS: Right. Just as an --
18 THE COURT: Yesterday you argued on Count 2.
19 MR. THOMAS: That's right. But I did want to,
20 Your Honor, just because HCA was raised at the end of that
21 last argument. Your Honor asked me yesterday at one point
22 about Tommy Frist. He is the cofounder of HCA that
23 handpicked Bain and KKR. And you asked me wouldn't he have
24 been happier if the price had been raised. You know,
25 wouldn't he have been happier if they got a bid for 55
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1 rather than 51.
2 And one additional point that I think it is very
3 important to make sure Your Honor understands is that,
4 again, Mr. Frist or Dr. Frist was a buyer, he was part of
5 the consortium that was buying the company and taking it
6 private. So like a lot of buyers, he had 800 million
7 dollars worth of equity. He wanted to buy low and sell high
8 later. So there is another reason why he wouldn't
9 necessarily have had any interest in a much higher price at
10 that time.
11 What I want, Your Honor, because I focused so much
12 on HCA yesterday, I want to talk to Your Honor briefly
13 today, I will try to keep myself within the time limits.
14 I have passed out a notebook. And behind this
15 notebook, what I really just want to show Your Honor are
16 some additional examples like what Mr. Tringali showed you
17 yesterday of evidence that is inconsistent with any
18 suggestion of the overarching conspiracy pled in Count 1.
19 And what's interesting and somewhat surprising,
20 Your Honor, is that the plaintiffs in this case, there is
21 not just contemporaneous emails that support what I just
22 said but the plaintiffs surprisingly in their 56.1 response
23 gave us many admissions, many admissions about there being
24 no single overarching conspiracy and nothing that Blackstone
25 was a part of it. So I am going to take Your Honor through
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1 some of that.
2 Behind tab one, I have provided just behind tab one
3 a table that lists all 27 deals. And in the first column I
4 have put a check next to each deal where there are
5 admissions by the plaintiffs in the record as to either
6 conduct of Blackstone that was inconsistent with a
7 conspiracy and/or admissions that Blackstone had independent
8 reasons for its conduct. And as you can see, a very large
9 number, almost all of them are checked.
10 And I have end notes at the end of this chart which
11 will take Your Honor to the portions of the record where
12 these admissions exist.
13 And then there are at least ten deals where on this
14 summary judgment record the plaintiffs have not even tried
15 to present any evidence against Blackstone.
16 Your Honor, let me take you to a few examples as I
17 just mentioned. Mr. Primis talked to you about Michael
18 Stores. I just want to tell you the rest of the story. If
19 you turn behind tab two, this is from plaintiffs 56.1
20 response to our 56.1 statement. And as you can see, we
21 said, "Bain, Blackstone's lone remaining partner in the
22 final round of bidding, wanted to bid only $43.75 per
23 share." In other words, you know, Bain didn't know what KKR
24 had been saying internally but it didn't want to go into
25 stupid territory. "But Blackstone, believing it needed to
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1 bid at least $44 per share to win, sought to convince Bain
2 to bid $44."
3 "Plaintiffs' response: Admitted."
4 So the plaintiffs have admitted in that third and
5 final round of competition, which shouldn't have even been
6 taking place because why would we still be bidding in the
7 third round? Why hadn't KKR and TPG, that we were bidding
8 against, why hadn't they gracefully bowed out by now? We're
9 in a third round of bidding. The third time bids are going
10 to go higher. And we, we're convincing our partner Bain to
11 come up higher. And the plaintiffs admit that that conduct
12 occurred.
13 If you go to the next tab, Your Honor, this is an
14 internal email written exactly at that time within
15 Blackstone's files. And the Blackstone deal team leader
16 writes to Mr. Schwarzman and Mr. James among others and he
17 says, "I think Bain Cap understands in this light 43.75 is
18 silly. Pushing them to do 44.00, and if they have more to
19 put it out there as any bit above 44.00 may help."
20 Now, why is Blackstone pushing Bain to even go
21 above 44.00 if that will get it done? This is evidence of
22 competition. This is not evidence of any kind of
23 conspiracy.
24 One other vignette, Your Honor. If I can take you
25 to tab 7 of this binder. And this relates to the Kinder
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1 Morgan management-led buyout by Rich Kinder. And this is a
2 deal where Blackstone has been released. We don't waive
3 that objection. We are only bringing this up in response to
4 the plaintiffs' attempt to rely on this deal.
5 But this is a really interesting story, Your Honor.
6 In this deal what happened was Blackstone was given the
7 opportunity to participate for a billion dollars, be one of
8 the participants. And you would have thought that if this
9 was low-priced merchandise, the result of some price
10 suppression conspiracy, that Blackstone would have leaped
11 for the spoils, right? Blackstone passed on the
12 opportunity. They thought the company, the private equity
13 side of the company thought it was too highly priced and
14 they didn't have enough time to do due diligence and they
15 passed, okay. So that's conduct inconsistent with the
16 conspiracy.
17 So what happened next? Well, Blackstone has a
18 financial advisory group, sort of an investment banking
19 side. And they advise companies on M&A transactions. So
20 what did they do? If you look at the -- this is again from
21 the plaintiffs' opposition to the 56.1 statement. I'm
22 looking at the bottom part.
23 "After receiving the buyout offer," so after it was
24 Goldman Sachs, along with Carlyle, along with management,
25 Rich Kinder, they submitted a buyout offer. And the board
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1 of Kinder Morgan had to consider it. It was for $100 per
2 share. What happened? Morgan, the financial advisor at
3 that point -- I'm sorry. The Kinder Morgan board
4 immediately established a special committee, a special
5 committee to consider the proposal.
6 And on June 12, 2006 the special committee retained
7 who? They retained Blackstone as one of the financial
8 advisers to the committee. Plaintiffs' response: Admitted.
9 And behind tab eight what happened? During the
10 course of the -- what the special committee then does is try
11 to negotiate the price up. They didn't want the $100 per
12 share. They weren't going to let the company be sold for
13 that. Advised by Blackstone, the special committee was able
14 to get the consortium that was attempting to take the
15 company private to bid up the price by $7.50 per share --
16 that is worth hundreds of millions of dollars. Hundreds of
17 millions of dollars for the public shareholders -- above the
18 price that the supposed co-conspirators were willing to pay
19 and had offered.
20 So here's Blackstone on the other side of the fence
21 extracting more value for the public shareholders. How is
22 that consistent with an overarching conspiracy? It doesn't
23 make any sense.
24 And behind tab nine, Your Honor, is an email from
25 Tony James and -- I have to get some water.
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1 Your Honor has heard his name in this courtroom as
2 the author of some interesting emails at times. But here's
3 Tony James writing internally at Blackstone, an internal
4 email, and he is referring to Oglesby. That is the lead
5 Blackstone investment banker. And he's saying, "Oglesby
6 figures it is a 10 to 14 percent IRR." That means internal
7 rate of return. A very low rate return, now that they've
8 got a very high price extracted, $107.50.
9 And James says, "Oglesby and the special committee
10 did an excellent job getting Goldman to make such a large
11 bump from their initial bid of $100 per share."
12 That's not consistent with conspiracy. You can't
13 look at this evidence, and it's not just about Blackstone.
14 There cannot be a single overarching conspiracy with this
15 kind of behavior going on.
16 And the final example I'll take Your Honor to, I
17 mentioned this yesterday briefly, but in connection with the
18 Philips/NXP deal, if you look behind tab 14, Your Honor.
19 During that very competitive auction that also went three
20 rounds and frenzied bidding, during the course of that
21 Blackstone got wind of the fact that KKR and Silver Lake
22 were attempting to use a special kind of financing structure
23 that was prohibited by the financial advisory group Target.
24 And you can see, this again comes from the
25 plaintiffs' admissions, you know, that we said, "Philips had
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1 prohibited the use of back leverage for the financing of
2 offers for its semiconductor business but the Blackstone
3 consortium believed that the KKR group's bid included back
4 leverage."
5 Plaintiffs' response: "Admitted."
6 And then we went on to assert that, "On July 30,
7 2006 Chip Schorr," he's with Blackstone, "noted that: 'Back
8 leverage is officially off the table for all parties.
9 KKR/SLP,'" that's Silver Lake, "'rumored to be furious.'"
10 Another email noted, "We killed this for KKR. They
11 are calling banks, on a witch hunt to discover who told. It
12 has to be hurting their financial models."
13 In other words, this is hard-nosed competition.
14 This is Blackstone and its partner TPG trying to get an edge
15 in this auction in the final round. And what do the
16 plaintiffs say in response to that assertion? "Admitted."
17 And on the last, if you look behind the last tab,
18 Your Honor, that's the internal email that I just referred
19 to. This is the internal email from Mr. Schorr to
20 Mr. James. And he's glorifying in the fact that, "We killed
21 this for KKR."
22 Your Honor, with evidence like this, there is no
23 single overarching conspiracy that purports to allocate and
24 pull together and connect 27 large transactions. It never
25 happened. This evidence absolutely refutes it.
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1 I respectfully request that Your Honor grant
2 summary judgment on behalf of the Blackstone Group.
3 (Pause in proceedings.)
4 MR. HUDSON: Your Honor, may I approach?
5 (Whereupon, a binder was handed to the Court, the
6 Clerk and the Law Clerk.)
7 MR. HUDSON: Your Honor, I'd just like to
8 start by giving you a little bit of background on
9 Blackstone. Blackstone is one of the industry leaders.
10 They're like the Niki or the Coca-Cola of private equity.
11 By any measure they're one of the top five largest funds and
12 they had mega funds or equity pools totaling 28 billion
13 dollars. So this is one of the industry titans.
14 As you're going to see from the specific evidence,
15 they lie at the heart of this conspiracy. And what you're
16 going to see throughout the evidence is that their leaders,
17 Steve Schwarzman, Tony James and Blackstone as a whole
18 repeatedly expressed a conscious commitment to a common
19 scheme designed to avoid price competition between private
20 equity firms and large LBOs.
21 One of the things Your Honor has asked is how does
22 this all tie together? How does -- why is this an
23 overarching conspiracy? And what I would submit to you is
24 that Blackstone is a great example as an industry leader.
25 And if you look at our chart that we've got here, this
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1 pullout that we gave you yesterday, and you go to Blackstone
2 and you go across and you look, you're going to see that
3 Blackstone is doing deals and interacting with every one of
4 the defendants.
5 And if I could just by way of example, and I
6 apologize, I'll try to do this fairly fast; but at the
7 very --
8 THE COURT: The fact that they are doing deals
9 is normal. If somebody started off by saying that the fact
10 that they jointly bid was indicia of illegality, that is a
11 start towards conspiracy. But my understanding and the
12 answers made here in the courtroom is that it is a common
13 practice.
14 MR. HUDSON: It became a common practice,
15 absolutely. And if it was just joint bidding, it might be a
16 different case but --
17 THE COURT: So it has to be more than people
18 joining together to make a purchase.
19 MR. HUDSON: Absolutely. And so forming a
20 club, that's one of the things they did. And we know that
21 they did that to eliminate competition from Mr. Burke's
22 presentation yesterday.
23 They're manipulating auctions. You heard Mr. Noss
24 talk about that, how they're going out and they're trying to
25 figure out a way to eliminate all the competition in these
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1 auctions.
2 They're agreeing not to jump a deal. And what that
3 means is yesterday in HCA you heard about the valuations
4 where you've got competitors that, they're running what are
5 called internal rates of return. How much money can they
6 make in a few years when they flip this investment.
7 Well, their valuations are showing the minimum that
8 they're making on these deals is 10 to 15 percent. That's
9 what they're projecting out that they're going to be able to
10 make. Not bad considering, you know, a money market you get
11 about one percent now. Their minimum that they're getting
12 is 10 to 15 percent. On a lot of these deals they're
13 projecting out 20, 25, 30 percent.
14 And what our experts did was they went and looked
15 at that data and they said, hey, are these guys acting
16 rationally. Are they choosing, are they choosing to jump in
17 and bid when they've got these valuations, they're showing
18 they can make billions of dollars on these deals if they go
19 and they bid at a higher price.
20 So when you talk about the stock market,
21 absolutely, are most of these higher than the stock prices,
22 they're a premium, yes. But the question is, the question
23 is is do these defendants know that they've got valuations
24 that show they could make a lot more money on these deals,
25 that the internal rate of return, that they could make 20
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1 percent, 15 percent, 25 percent, but they're choosing to
2 stand down and not bid because they know if they stand down
3 on this deal --
4 THE COURT: The thrust of your argument is not
5 the fact of joint bidding but that coupled with standing
6 down?
7 MR. HUDSON: Coupled with it, exactly, and
8 that's on this chart, you know. Formed a club, get rid of
9 auctions. We don't like auctions because you've got to, you
10 kind of have to bid in an auction. If the seller says, hey,
11 you can't work together, you can't form this club, now we
12 got an auction.
13 And then if we don't do that, the bottom line is no
14 matter what, once the merger agreement gets signed, we're
15 not jumping this deal and we are not competing with each
16 other.
17 And then we've got to monitor, reward and
18 discipline. So, you know, everybody, the emails that
19 they're showing, everybody still wants to act in their own
20 self-interests in the sense that they want to make as much
21 money as they can but within the constraints of the
22 conspiracy without upsetting anybody else.
23 And so I would submit to you that the evidence
24 where you see people upset or -- that's not the natural
25 reaction to competition. That's part of the monitor, reward
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1 and discipline.
2 And so for Blackstone, if you look at those things
3 and you look at the different examples. For example, I
4 mean, just in 2003 in Nalco they're doing business with KKR,
5 Apollo and Goldman Sachs where Blackstone goes and bids for
6 the deal. They get the deal signed up. They got the merger
7 agreement. And then all of a sudden KKR, Apollo and Goldman
8 Sachs get part of the deal.
9 Why if Blackstone is projecting a 20 percent rate
10 of return on this investment and they've spoken for the
11 entire deal, the whole check, why are they going out and
12 giving these guys part of the deal? That's economically
13 irrational. And that's where our experts come in, because
14 they went and looked at the data. And they didn't say this
15 just happened in Nalco or this just happened in HCA. They
16 said that happened across the board in 19 of 22 deals, you
17 know, or 17 of 22 deals.
18 These auctions were not happening efficiently, the
19 valuations that are in the files that show the potential for
20 great returns. And the reason why is because at the end of
21 the day if they all bid on all these deals during this
22 three- or four-year period, what happens? The price gets
23 bid up on everything.
24 So you've got examples of them working with Texas
25 and Nalco working with KKR, Apollo and Goldman Sachs. In
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1 that same time period in Texas Genco they were able to
2 eliminate competition and work with TPG and Blackstone.
3 In PanAmSat they were able to work with Providence,
4 Carlyle and again KKR.
5 THE COURT: In all these transactions that you
6 just referenced, were there step downs on all of them?
7 MR. HUDSON: There was -- and this is --
8 that's, I appreciate you getting there. If you could just
9 give me one second, Judge, I'll try to wrap it up --
10 THE COURT: The fact that they worked
11 together, there is only 10 or 11 of these LBOs in the
12 country and so they are going to either work together or be
13 in competition with each other on everything.
14 MR. HUDSON: Potentially, yeah. And what they
15 can't do is they can't get together and say we're going to
16 restrain trade. They can't have those direct
17 communications.
18 And so if you look at -- if we could go to the map,
19 the connections.
20 So if you just click, again, going back to this
21 map, just click Blackstone and you look at the deals they're
22 connected to. And then you click on Nalco. You click on
23 Texas Genco. You click on PanAmSat. You click on AMC and
24 you click on SunGard.
25 THE COURT: Again, the fact that they have
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1 some connection with these deals, that itself doesn't mean
2 that there is any illegality; does it?
3 MR. HUDSON: Well, so the point here of this
4 chart is it's all interconnected.
5 THE COURT: They had to be working --
6 MR. HUDSON: You have to be working towards a
7 common purpose, right, towards a common goal.
8 THE COURT: No, what I am saying is even if
9 there wasn't a common purpose, Blackstone would be involved
10 in all these deals; wouldn't it?
11 MR. HUDSON: But for the conspiracy --
12 THE COURT: So there has to be something --
13 no, say there is no conspiracy. Let's assume there is
14 absolutely no conspiracy for the sake of this question.
15 Wouldn't Blackstone be involved in all of these transactions
16 of which they were; wouldn't they?
17 MR. HUDSON: They were potentially interested
18 in these transactions, yes.
19 THE COURT: So the fact that there is a
20 connection with Blackstone in these transactions doesn't in
21 itself mean that there is an illegality. There has to be
22 something more.
23 MR. HUDSON: Right. And what this shows is
24 they're all working together, they all know each other --
25 THE COURT: But --
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1 MR. HUDSON: -- and now let's go to the --
2 THE COURT: -- that is the point. How are
3 they working together? What are they doing?
4 MR. HUDSON: They're buying companies.
5 They're jumping -- they're agreeing not to jump deals.
6 THE COURT: But they -- well, that is --
7 MR. HUDSON: They're standing down. They're
8 engaging --
9 THE COURT: How many of these deals -- so the
10 point is agreeing to stand down, is that the point?
11 MR. HUDSON: Yes.
12 THE COURT: It is not that they are working
13 together because nobody is contesting the fact that they can
14 work together. There has to be something more.
15 MR. HUDSON: There has to be something --
16 THE COURT: What is it?
17 MR. HUDSON: The "more" is is that in addition
18 to working together they're also standing down when they,
19 when there is not the ability to work together.
20 THE COURT: So there is 27, in these 27 deals
21 how many times did Blackstone stand down?
22 MR. HUDSON: How many times did Blackstone
23 stand down? They stood --
24 THE COURT: If that is an indicia of
25 illegality, and it appears to be.
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1 MR. HUDSON: Right. So in all of those deals,
2 one, two, three, four, five, six, seven, eight, nine, ten, I
3 mean, that's the -- there is the 19 deals and they purchased
4 5 of those 19 deals so the other 14, there's your
5 competition, Judge. I mean, that's -- and if you go to the
6 next slide, this is the competition --
7 THE COURT: So you are saying in 14 of them
8 they consciously stood down?
9 MR. HUDSON: There is no direct competition
10 between these two. I mean, when there is auctions --
11 THE COURT: No, but the fact is there is no
12 requirement to be in competition.
13 MR. HUDSON: Right.
14 THE COURT: With respect to those 14, you say
15 out of 19 deals they were successful in 5, meaning there is
16 14 others that they had some relationship with?
17 MR. HUDSON: Right.
18 THE COURT: With respect to those 14, how many
19 did they stand down, did they actually stand down and did it
20 for some type of quid pro quo?
21 MR. HUDSON: After the merger agreement was
22 signed, you see from this chart there was never any
23 competition at all. And that's what you see from this
24 chart --
25 THE COURT: I know, I know there is no
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1 competition; but the fact there is no competition, there is
2 no requirement for competition. The question is is there
3 evidence that they stepped down for a quid pro quo?
4 MR. HUDSON: Absolutely, there is evidence
5 that they stood down.
6 THE COURT: So with respect to these 14 deals,
7 what is the evidence?
8 MR. HUDSON: There were six, six deals that we
9 can point to the record specific evidence that they stood
10 down. There were three deals that were auctions where they
11 were able to manipulate or rig the auctions so that there
12 was, it eliminated the competition. And that is what ties
13 this all together, is the, it's the -- it's not just, like
14 you said, looking at one deal and saying, well, three people
15 worked together. It's, this is the industry leader.
16 You can look at, you can see their patterns of
17 conduct over this four-year period. They're specifically
18 choosing to stand down when they're not competing and
19 they're getting rewarded with quid pro quos. And the net
20 effect of that, what they have succeeded in doing was buying
21 all of these companies with no, virtually no competition
22 between each other and absolutely no competition at all
23 after a merger agreement was signed.
24 And what, again, they've got valuations in their
25 files. They're interested in buying these companies. It's
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1 just like in HCA like we talked about yesterday. The stand
2 down request comes in. You got a $51 purchase price. You
3 have got valuations in your files that show 55 or 59. Why
4 are you standing down? You've got the potential to make
5 billions of dollars.
6 So, and if we could just --
7 THE COURT: I am used to conspiracy cases on
8 the criminal side and invariably, if not one hundred percent
9 of the cases, in 99 percent of the cases, in order to be
10 able to prove a conspiracy case, there has to be the
11 so-called unindicted co-conspirator to tie it all together.
12 It is not required as a matter of law but as a matter of
13 practice, it is almost impossible in my experience on the
14 criminal side to try a conspiracy case without the
15 unindicted co-conspirator or somebody had a deal that has
16 been made with them.
17 The fact that you have no in a sense co-conspirator
18 who is testifying on your behalf, that hurts your case
19 practically; does it not?
20 MR. HUDSON: That we don't have a
21 co-conspirator that would testify?
22 THE COURT: Yes. I mean, it is very difficult
23 to get a conspiracy case without some insider testifying.
24 MR. HUDSON: I would say a couple things,
25 Judge.
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1 One is in civil antitrust cases like this, direct
2 evidence is very rare, okay. This is a conspiracy that's
3 illegal. And so they're not going to put down on paper
4 that, hey, we're are going to get together and we're going
5 to eliminate competition. That's why these --
6 THE COURT: I understand it is not going to be
7 on paper. But you haven't got an insider testifying.
8 MR. HUDSON: Well, in a sense--
9 THE COURT: So in a way, you have to admit it
10 makes your case weaker than going on, I mean, the case is a
11 lot stronger if you have an insider testifying.
12 MR. HUDSON: I can't dispute that, you're
13 right. The case would be at trial when we --
14 THE COURT: Most conspiracy cases are so
15 tried.
16 MR. HUDSON: Right. And when we go to trial
17 and we try this case and the jury has to make the fact
18 question, make the decision, is that can they infer from
19 this evidence from the lack of competition, from the
20 statements -- and if we can go back to the PowerPoint -- the
21 statements that these leaders, that's a few leaders of these
22 firms over and over and over, it's the repetitive nature of
23 their statements. It's the repetitive nature of their
24 conduct. It's our experts --
25 THE COURT: Let me give you how I am
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1 tentatively feeling. I don't want to be tied down to
2 specifics but in certain of these transactions, in certain
3 of the separate transactions you have some evidence of a
4 conspiracy. In others it may be unclear but I don't know
5 whether there is one, whether there is one or whether there
6 is several separate, it may be several separate, it may be
7 three, maybe five, maybe seven; but the problem is is there
8 one?
9 And even at the start my instinct was one
10 conspiracy, jeez, without a so-called testifying
11 co-conspirator, that is very difficult to prove.
12 MR. HUDSON: And I would say, Your Honor, that
13 what we've got is we've got, in terms of the evidence, and
14 you heard the HCA evidence yesterday. You heard Mr. Noss
15 say --
16 THE COURT: Yes, but that is the best you have
17 got?
18 MR. HUDSON: I would say that the evidence is
19 pretty good, is equal to that in the majority, overwhelming
20 majority of these deals.
21 THE COURT: I don't think so but it may be,
22 but I don't think so. But even HCA, which to me is the
23 strongest, defense counsel yesterday at least presented a
24 case that would give a jury some, some consideration, there
25 is no doubt about it. Whether he was strong enough to say
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1 the case wouldn't go to the jury, I don't know; but he made
2 some good points in my judgment. So far it is the best
3 conspiracy you have, by far.
4 MR. HUDSON: What I would say, Judge, is where
5 is the evidence of real direct head-to-head competition?
6 Where is -- when is a defendant going to stand up and say,
7 hey, they had this deal and we came in and we paid 5 or 10
8 or 20 percent more because that's what our valuation showed
9 and we can still make a good deal and we can still make
10 money head-to-head?
11 What you're going to see is you're going to see
12 little skirmishes where the price goes up two or three
13 percent. Where he talks about Kinder Morgan where
14 Blackstone is advising the special committee and the price
15 rises 7 1/2 percent.
16 THE COURT: There are two things though that
17 bother me.
18 One, they have a right to work together; and, two,
19 there is no requirement that they compete. Those two
20 factors make your unitary conspiracy more difficult to
21 prove, there is no doubt about it.
22 MR. HUDSON: It makes it more difficult to
23 prove, true, but it doesn't change the fact, Judge, that
24 they've got, we've got, our experts have analyzed the data.
25 They've looked at the market. They were acting against
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1 their own economic self-interest. That tends to exclude the
2 possibility that they're acting independently. And at
3 summary judgment today, that's what we have to do. We have
4 to tend to exclude the possibility that they're acting
5 independently. We have to put forth some evidence of
6 collusion.
7 I mean, the statements that you hear by them over
8 and over and over in deal after deal after deal, and it's
9 not just HCA and it's not just Nalco and it's not just
10 PanAmSat, they show up in deal after deal after deal. You
11 know, emails like this, that the question today is does that
12 tend to exclude the possibility that they're acting
13 independently? And it's the repeated patterns of conduct
14 and it's the repeated statements in deal after deal after
15 deal that for purposes of summary judgment is enough to get
16 to a jury.
17 All of the things you raised I completely agree
18 with. It's going to make our case to a jury much more
19 difficult but for them to tend --
20 THE COURT: Let me tell you, to try this case
21 with the so-called co-conspirator exception to the hearsay
22 rule is going to be a difficult matter.
23 MR. HUDSON: It will be difficult and we'll be
24 prepared. And we're hoping that the defendants will be here
25 at the trial and testifies and we're going to get the
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1 opportunity to cross-examine them on that evidence. And,
2 you know, we're confident that the evidence between the
3 statements that we have, the lack of competition, the chart
4 that you see, it's not -- it's pled as one count because
5 it's like a snowball rolling down the hill. I mean, you say
6 is it one or is it 15 or is it 17 --
7 THE COURT: Big difference though, big
8 difference, I will tell you. That is the thing that has
9 caused me enormous problems.
10 I can analyze a lot easier 15 separate conspiracies
11 because then you look at the evidence and see if it is
12 sufficient to get to a jury. But when you claim one
13 conspiracy, it puts it in a different category. Why you did
14 it this way, I don't know. But I will tell you, it has
15 caused me a lot of problems.
16 MR. HUDSON: I understand that, Judge. We
17 simply went where the evidence was. And the evidence is in
18 that pullout and you see the patterns of conduct and so --
19 THE COURT: But the question is, and the thing
20 that we all have to grapple with is whether there is one
21 overarching conspiracy, whether there are several, there may
22 well be, but whether there is one overarching one definitely
23 has been giving me trouble from the very start.
24 All right, thank you.
25 MR. HUDSON: Thank you.
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1 THE COURT: Who is next?
2 MR. THOMAS: Just a brief --
3 THE COURT: Yes, brief, please.
4 MR. THOMAS: Your Honor, I just want to say
5 with respect to -- Your Honor is absolutely right that there
6 is nothing wrong with working together --
7 THE COURT: Everybody is saying I am right --
8 MR. THOMAS: Well --
9 (Laughter.)
10 THE COURT: Half the time I don't know what I
11 am saying.
12 (Laughter.)
13 MR. THOMAS: Well, when you say it's perfectly
14 legitimate for people to work together at times and compete
15 at other times, working together to pool capitals, spread
16 risk on larger deals, you're absolutely right.
17 The fact of a step down during the course of the
18 bidding process, there are, as I said yesterday, there are
19 tons of legitimate independent reasons why someone would
20 decide not to bid --
21 THE COURT: Counsel for the plaintiff asked,
22 how about these step downs, how do you explain them? I
23 don't think they occurred in all of the 27 but in some --
24 MR. THOMAS: Right, they didn't, Your Honor;
25 but the point is that in each of those situations there are
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1 a myriad of reasons why it would be in the defendants'
2 independent interest to decide not to bid higher because
3 maybe they've concluded that the target is overvalued or not
4 to bid at all because, again, maybe --
5 THE COURT: Well, they argued though, hey, if
6 they had bid a little higher, they would have got 30 percent
7 on their money or something.
8 MR. THOMAS: But the point is that, also that
9 by definition in any of these processes someone will step
10 down because at some point, I mean, even if there is no
11 conspiracy because at some point in the process the losing
12 bidders are going to conclude that they're just not willing
13 to pay an extra dime or an extra quarter or an extra $50 per
14 share. And that's completely consistent with their
15 independent interest.
16 You can't expect, as Your Honor said earlier this
17 morning, these defendants to pay higher and higher and
18 higher. They don't have an obligation to, you know, pay for
19 the moon. At some point they have a legitimate right to say
20 it's just not worth it to us anymore. Plus there could be,
21 those aren't the only reasons. There are non-price reasons
22 also why a defendant would legitimately step down.
23 The only other point I'd make, Your Honor, is, you
24 know, counsel got up and began by saying how big Blackstone
25 is and, you know, how we were involved or interested in
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1 every deal and so forth. Well, you know, the fact that we
2 only, only participated in five of the 19 public-to-private
3 deals that are the subject of this action, that ought to
4 tell you that it wasn't such a great conspiracy if there was
5 a conspiracy for Blackstone. You would expect that we would
6 get a few more spoils out of this thing.
7 We only had 7 of the 27 deals if you take it all
8 together. It doesn't make a lot of sense.
9 And I can take you, if I had the time, I could take
10 you through each of the 14 deals out of that 19 and I could
11 show you that in each case the plaintiffs have, again,
12 either admitted that we engaged in conduct inconsistent with
13 conspiracy or that we had independent reasons for our
14 bidding behavior.
15 And, I mean, just to give you just one example. On
16 the TXU deal which was a deal where KKR teamed with TPG and
17 they announced the deal, it was the largest, at that point,
18 it was early 2007, the largest LBO at that point, even
19 larger than HCA. And what did Blackstone do in response to
20 that? Well, first of all, notice Blackstone wasn't invited
21 by KKR to be part of that group so, again, no reward. We
22 didn't get anything for anything that happened back on HCA.
23 We weren't invited in.
24 Now, if we had a deal that we were just looking to
25 make any attempt to jump a deal, that we would have said to
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1 ourselves internally we're not interested in TXU because
2 it's pre-allocated or KKR has this one already. Well, we
3 didn't do that.
4 What the evidence shows, and it's admitted in the
5 record, is that we proceeded to form a rival consortium,
6 that we explored financing structures, that we presented
7 them to the financial advisor for TXU but we concluded
8 ultimately with the financial advisor for TXU that we just
9 couldn't get there on price. We just couldn't get or put
10 together a structure that would work on price.
11 Plus, and, Your Honor, in the notebook I gave you,
12 I can take you to tab 11, because this is important. The
13 plaintiffs -- price was the key reason why we couldn't do
14 it. But, again, notice, if we had an agreement that we'd
15 never jump someone else's deals, if that was the agreement,
16 why would we go to all the time and expense to work with a
17 financial advisor and develop an alternative structure,
18 present it to the advisor for the target? We wouldn't have
19 done that.
20 But in our 56.l statement we said, "On March 7,
21 2007 David Foley," he's of Blackstone, "wrote in an email:
22 'This deal is dead. Not enough IRR,'" that's not enough
23 internal rate of return, investment returns, "'no matter how
24 we sliced it.' David Foley also indicated that there just
25 isn't enough juice left in the deal KKR signed up to get
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1 excited about this."
2 So that's obviously a legitimate independent reason
3 for not proceeding. That's not an illegal step down.
4 That's a lawful, that's a lawful conduct.
5 The plaintiffs to our surprise, Your Honor, first
6 they admitted that. They admit that that's true. That's an
7 admission that we had an independent reason and then they
8 went on and added, they said not only did Mr. Foley say
9 those things, he went on to recount the political hurdles
10 that the deals faced -- the deal faced, the liability that
11 the TXU CEO had become, the reverse breakup fee, all of
12 which would create problems for any potential buyer.
13 So the plaintiffs in their admissions just added a
14 litany of additional independent reasons that Blackstone had
15 at that point for not proceeding.
16 Again, Your Honor, this deal also is not part of
17 any overarching conspiracy because that conspiracy never
18 existed.
19 MR. HUDSON: Judge, just real quickly.
20 I'm really glad he mentioned TXU because this shows
21 exactly the kind of evidence that we have in these 14 deals
22 where they stand down.
23 In TXU Blackstone internally, David Foley, the guy
24 who he's talking about, they want to contact the special
25 committee and get them to do an auction so that they might
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1 be able to get involved in the competition. I'm on page 6,
2 if you can't see the slide.
3 THE COURT: Go ahead.
4 MR. HUDSON: So here's what Blackstone says
5 internally about this. "Can accomplish the same goal with
6 oral communication and we do not establish a precedent of
7 submitting an admittedly (currently) non-actionable bid
8 against an announced deal." We are not going to break the
9 agreement.
10 Unclear if they're going to jump the deal.
11 Now Foley goes and talks to Tony James, and what's
12 Tony James say: Stand down. We are not going to compete.
13 They wanted in this deal. They wanted to try to
14 buy TXU but at the end of the day they weren't willing to
15 break the agreement.
16 And, again, Judge, as Mr. Wildfang said again,
17 where, where is the evidence that they, you know, where is
18 the defense counsel providing the Court with an example
19 where they're jumping a deal? It's just not there. They're
20 standing down and in return they're getting to buy deals
21 without competition and it permeates this entire area.
22 Thank you.
23 (Pause in proceedings.)
24 MR. PEPPERMAN: Good morning, Your Honor.
25 Richard Pepperman from Sullivan & Cromwell on behalf of
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1 Goldman Sachs. And, Your Honor, rather than repeating areas
2 that have already been covered, I am going to use my time
3 this morning to focus on the unique reasons why plaintiffs'
4 conspiracy claims fail as to Goldman Sachs.
5 And all of those reasons flow from one fact and
6 that is that the Goldman Sachs Group is not a private equity
7 firm. It is instead a diversified financial services
8 company that provides many different services to many
9 different clients. And the fact that Goldman Sachs' private
10 equity business is a small part of a larger overall business
11 affects Goldman Sachs' economic incentives. And Goldman
12 Sachs' economic incentives here are contrary to its
13 participation in any conspiracy to depress the price paid in
14 LBOs.
15 And I want to the focus my argument on two
16 different aspects of Goldman Sachs' business, because
17 Goldman Sachs has many businesses.
18 One aspect is that Goldman Sachs' Investment
19 Banking Division provides investment banking, financial
20 advisory and brokerage services to firms, many clients and
21 those clients include private equity firms such as the other
22 defendants here, where Goldman Sachs represents those
23 private equity firms as their financial advisor to assist
24 them in purchasing other companies, or alternatively Goldman
25 Sachs investment bankers might represent the selling company
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1 in selling its company as part of an LBO or other
2 transaction.
3 THE COURT: So Goldman Sachs does not engage
4 in any purchases themselves?
5 MR. PEPPERMAN: Oh, yes, they have, Your
6 Honor. Goldman Sachs also has a private equity arm. And to
7 set it up, just sort of schematically, the defendant here is
8 the Goldman Sachs Group. The Goldman Sachs Group has a
9 subsidiary called Goldman Sachs & Co. Goldman Sachs & Co.
10 has a division called the Merchant Banking Division. That
11 division has a group called the Principal Investment Area.
12 So Goldman Sachs does have a private equity business but it
13 is a small part of a much larger firm.
14 And why Goldman Sachs' economic incentives matter
15 for purposes of the overarching conspiracy claim here is
16 that in the 17 LBOs that the plaintiffs focus on, Goldman
17 Sachs was part of the winning consortium in 7 of those 17.
18 And if it doesn't make economic sense for Goldman Sachs the
19 corporation to participate in a conspiracy to depress LBO
20 prices, that blows a big hole also in plaintiffs'
21 overarching conspiracy claim against all of the defendants.
22 THE COURT: Let me ask you, why is it in their
23 interests to suppress the price?
24 MR. PEPPERMAN: Why is it not?
25 THE COURT: Yes.
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1 MR. PEPPERMAN: Let me go through -- I have
2 four reasons, I'll go through them one at time, four reasons
3 why Goldman Sachs' economic incentives are different.
4 Reasons two and three relate directly to Your
5 Honor's questions but I want to take them because I think
6 they flow more logically in this order.
7 Reason No. one why Goldman Sachs' economic
8 interests are different is that Goldman Sachs' private
9 equity arm decided on its own in 1991, 12 years before the
10 alleged conspiracy in this case, decided on its own to
11 pursue a business model of doing only joint private equity
12 deals. There is no dispute about that. Since 1991, since
13 when Goldman Sachs entered the business, it only did joint
14 deals.
15 Now, plaintiffs argued yesterday, Mr. Burke and
16 Mr. Wildfang, that the defendants changed their course of
17 conduct in 2003 and began predominantly pursuing joint bids
18 then. That's demonstrably not true for Goldman Sachs.
19 Goldman Sachs pursued joint, has been pursuing joint bids
20 for over 20 years going back to 1991.
21 And the reason why Goldman Sachs on its own adopted
22 this business model, the reason why it was in Goldman Sachs'
23 own independent interests are two reasons. One, many
24 private equity firms are Goldman Sachs' investment banking
25 clients. Goldman Sachs decided that it would be less
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1 disruptive to those investment banking relationships and
2 that Goldman Sachs would be able to better preserve them
3 going forward if Goldman Sachs bid with their clients as
4 part of joint bids as opposed to bidding all by themselves.
5 And, second, Goldman Sachs on its own made a
6 decision that it did not want alone to own a controlling
7 interest in a company because that company might compete
8 with one of Goldman Sachs' corporate investment banking
9 clients.
10 So, for example, Goldman Sachs wouldn't want to own
11 a controlling interest, a hundred percent interest or
12 otherwise, in a hospital company because Goldman Sachs has
13 investment banking clients that are hospital companies so
14 they prefer to join with other firms and end up with a
15 smaller, noncontrolling interest.
16 So the fact that Goldman Sachs' strategy and
17 conduct here have remained unchanged for over two decades
18 defeats any claim that Goldman Sachs altered its approach to
19 private equity investing in 2003 as part of some overarching
20 conspiracy.
21 Now, reason No. two, Goldman Sachs is often hired
22 by the selling company to serve as what's called as a
23 sell-side financial advisor. So it's hired by a company
24 that's seeking to sell itself, either through an LBO
25 transaction or through some other merger or sale. And, in
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1 fact, here Goldman Sachs acted as the sell-side advisor,
2 meaning it was representing the selling company in six of
3 the 17 LBO transactions at issue.
4 We heard a lot yesterday about the Freescale
5 transaction. Goldman Sachs there was representing
6 Freescale. It was Goldman Sachs' job to get the highest
7 possible price for Freescale.
8 Now, as an investment bank that's in the business
9 of getting the highest price for its clients, Goldman Sachs'
10 entire reputation as a sell-side financial advisor is
11 dependent on its ability successfully to obtain the highest
12 possible price for its clients. And not only is Goldman --
13 THE COURT: You are saying on six of these
14 transactions your division represented the seller?
15 MR. PEPPERMAN: Yes, sir, in six of the 17
16 LBOs Goldman Sachs' Investment Banking Division represented
17 the seller, meaning that --
18 THE COURT: Six of the transactions in this
19 Count 1?
20 MR. PEPPERMAN: Yes, yes. Six of the 17, and
21 that fact is not disputed. In six of the 17.
22 What I also want to focus on is not just Goldman
23 Sachs' reputation but also Goldman Sachs --
24 THE COURT: Who is the defendant in this case,
25 the division or the corporate parent?
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1 MR. PEPPERMAN: The named defendant in this
2 case is the overarching holding company, the Goldman Sachs
3 Group, Incorporated, the overarching holding company that
4 owns all of Goldman Sachs' varied business all around the
5 globe.
6 And from, one point that's in our papers, from the
7 beginning of this case we pointed out to the plaintiffs that
8 they've sued the wrong Goldman Sachs defendant, that the
9 holding company didn't engage in any of the conduct at issue
10 here but --
11 THE COURT: Maybe their theory is agency.
12 MR. PEPPERMAN: Well, their theory as it came
13 out in the summary judgment papers is that the Court should
14 pierce the corporate veil. But, of course, to pierce the
15 corporate veil the Court needs evidence. You can't just
16 rely on lawyers' arguments. And there's no evidence here.
17 But what I also wanted to point out about the
18 sell-side financial advisory engagements and what's critical
19 is Goldman Sachs' economic interest is on the line. When
20 Goldman Sachs represents the seller as it did in six of the
21 17 transactions, Goldman Sachs' fee is set as a percentage
22 of the purchase price.
23 So, in other words, the higher the purchase price,
24 the higher Goldman Sachs' fee. Much like when you sell your
25 house, the real estate broker's commission is a percentage
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1 of the purchase price. So this creates a powerful economic
2 incentive for Goldman Sachs to achieve the highest sales
3 price for its clients, which is totally and completely at
4 odds with the goals --
5 THE COURT: So why do you think you were
6 named?
7 MR. PEPPERMAN: Why do I think we're named?
8 THE COURT: Yes.
9 MR. PEPPERMAN: I think we're named why a lot
10 of defendants were named here, that is, the plaintiffs just
11 sort of gerrymandered together a number of transactions and
12 then just named all the firms that were involved.
13 You're going to hear shortly after me, I think
14 next, from J.P. Morgan. And the J.P. Morgan defendant here
15 wasn't a private equity investor in any of these
16 transactions. And this all just goes back to --
17 THE COURT: They must have had something to do
18 with it.
19 MR. PEPPERMAN: They worked as financial
20 advisor in some -- I'll let J.P. Morgan make its own
21 argument.
22 But the fact that this so-called overarching
23 conspiracy encompasses so many divergent different
24 defendants with different business models, different
25 economic interests, the fact that they're all roped
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1 together, roped together in this overarching conspiracy just
2 demonstrates the implausibility of it.
3 I said I had four reasons, I've gone through two.
4 Reason No. three: When Goldman Sachs investment
5 bankers are not acting as sell-side advisor, what its
6 investment bankers are doing is completely at odds with the
7 supposed conspiracy. What its investment bankers are doing
8 when a company announces a sale transaction, an LBO, and
9 Goldman Sachs investment bankers aren't hired to represent
10 the sellers, the bankers then go out and actively attempt to
11 convince the firm's private equity clients to submit a
12 competing bid. I mean, Goldman Sachs' bankers want to be
13 hired as financial advisers. They're not hired by the
14 sellers. So then they go out in the marketplace and they
15 try to convince potential purchasers to hire them as an
16 advisor and make a bid. They try to create competition
17 which, again, is totally a hundred percent at odds with a
18 participation in a conspiracy.
19 What I wanted to point out is this is exactly what
20 happened with Goldman Sachs and HCA. Goldman Sachs is named
21 as a defendant in the HCA count, it shouldn't be. But you
22 will see there is a Carlyle document which is Exhibit Q to
23 our motion and says that once HCA announced the transaction
24 with Bain and KKR the Goldman Sachs bankers were, quote, in
25 a frenzy trying to organize a competing consortium, conduct
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1 that is completely inconsistent with Goldman Sachs
2 participating in a conspiracy not to compete.
3 And the evidence shows that Goldman Sachs' bankers
4 were out there and contacted seven private equity firms
5 encouraging them to submit a bid during the go shop period.
6 So, again, the idea that Goldman Sachs, the
7 corporation, the Goldman Sachs Group entered into a
8 conspiracy to suppress competition is just contrary to the
9 facts. The Goldman Sachs investment bankers were going out
10 to their private equity clients --
11 THE COURT: Is Goldman Sachs named as one of
12 the defendants in Count 2?
13 MR. PEPPERMAN: Yes. We are one of the four.
14 We shouldn't be but we're one of the four.
15 And then, fourth, fourth, my last reason is that,
16 like all large firms, Goldman Sachs has a conflict of
17 interest policy. And that conflict of interest policy bars
18 its private equity arm from submitting a bid if Goldman
19 Sachs is representing the seller. It doesn't want to be on
20 the purchase side if it's been hired to represent the
21 seller. Potential conflict of interest.
22 And the evidence also shows that Goldman Sachs as a
23 firm, the corporation, strongly prefers the sell-side
24 financial advisory position in any transaction because then
25 Goldman Sachs is guaranteed to get paid no matter who wins
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1 the bid. No matter who buys the house or no matter who buys
2 the company, Goldman Sachs will get paid and will get paid a
3 percentage of the purchase price. That's its first choice.
4 So what this means is that the Goldman Sachs'
5 private equity arm is excluded from even considering
6 investing in many LBOs. Indeed, in six of the 17 LBOs here
7 Goldman Sachs was representing the seller. It couldn't bid.
8 It was barred because both of its conflicts policy and
9 because of its institutional preference to represent the
10 sellers.
11 So because Goldman Sachs would be barred from even
12 participating in many of the LBOs, it would be irrational
13 for Goldman Sachs to enter into an overarching conspiracy to
14 buy the market or allocate deals because its term would come
15 up. All right, Goldman Sachs, it's your turn, it's your
16 turn to be the winner. Goldman Sachs, well, I can't even
17 participate, we're representing the seller here.
18 It wouldn't make sense to forgo current business
19 opportunities for the promise of future business
20 opportunities when you would be barred from your own
21 conflicts policy perhaps in participating.
22 THE COURT: Let me ask you this:
23 Suppose they had named the appropriate defendant,
24 namely, the division. What is your response? In other
25 words, I understand your argument, it is a very strong
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1 argument with regard to the corporate and it is the
2 corporation or the holding company that is named and that is
3 who we are concerned with. But assume for the sake of this
4 question that it had been the division.
5 MR. PEPPERMAN: Well, Your Honor, it's a very
6 good question.
7 THE COURT: You said you were involved in,
8 what, five or seven?
9 MR. PEPPERMAN: We were involved in six as the
10 sell-side advisor and seven as an investor.
11 Now, Your Honor, the direct answer to your question
12 is that the plaintiffs can't do what you proposed and I'll
13 explain why. If they had not named the holding company, if
14 they had not named the Goldman Sachs Group, Incorporated,
15 then the argument that I think is Roman I of our brief that
16 they sued the wrong defendant, that would fall by the
17 wayside.
18 Okay. Now, what would be the relevant corporate
19 entity then would be Goldman Sachs & Co. which is the
20 holding company's principal operating affiliate or
21 subsidiary. Investment banking and private equity are both
22 units of that subsidiary so there is Goldman Sachs & Co. has
23 an investment banking division and part of that investment
24 banking division is the financial sponsors group which
25 represents private equity firms. And Goldman Sachs & Co.
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1 has a merchant banking division and part of that is the
2 private equity arm. But they're all part of one corporate
3 entity, Goldman Sachs & Co., which is managed based on its
4 overall economic interests.
5 You know, it's not possible obviously in litigation
6 to sue a division of a corporation. You know, a division is
7 not a legal entity that the law recognizes. You have to sue
8 the corporation. So if they had sued Goldman Sachs & Co.,
9 they would probably fix their wrong defendant issue because
10 they wouldn't be suing the holding company but they still
11 have the same problem that Goldman Sachs & Co. as Goldman
12 investment banking business and a private equity business
13 and its economic interests are different because it has
14 those two competing businesses. It doesn't do things in its
15 private equity business that would be foolish and destroy --
16 THE COURT: You are saying basically it is
17 contrary to the economic interests of Goldman Sachs to have
18 participated in a so-called overarching conspiracy?
19 MR. PEPPERMAN: Correct. Because to have
20 participated in the overarching conspiracy to lower or
21 depress the prices in LBOs would be very, very damaging to
22 its investment banking business which is out there telling
23 businesses hire us, we can get you the highest possible
24 price.
25 THE COURT: Let me ask the plaintiff, why are
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1 they in here, especially it would appear that, at least on
2 the basis of his argument, that at least the wrong entity
3 has been sued. But more than that, going to the substance
4 of his argument, it seems that it would be completely
5 unreasonable, at least if I accept his argument, for someone
6 who represents sellers to be involved at the same time and
7 seeking to depress the price.
8 MS. SLAUGHTER: Your Honor, I wouldn't be so
9 quick to accept his argument and give me a chance to go
10 through my argument --
11 THE COURT: I am just posing the issue.
12 MS. SLAUGHTER: I appreciate that.
13 THE COURT: But if he is correct, it means
14 that -- well, let me hear your argument but that argument is
15 pretty strong.
16 MS. SLAUGHTER: Your Honor, I submit it's
17 actually not that strong. And I'm going to go through this.
18 Can I approach?
19 THE COURT: Sure.
20 MS. SLAUGHTER: Thanks.
21 I think once you hear what I have to say you'll
22 agree with me that this argument is a house of cards that
23 will fall down.
24 Now, if you want me to go straight to why --
25 THE COURT: Before you start, are you saying
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1 that the named defendant is the one who participated in the
2 conspiracy or is it your position that it was really a
3 subsidiary and that the wrong defendant was named?
4 MS. SLAUGHTER: Yes, Your Honor, I don't think
5 (ph.) it is the wrong defendant's name and if there is any
6 confusion about that, it was created by Goldman Sachs. And
7 I'll tell you, we took a 30(b)(6) deposition of Goldman
8 Sachs Group, Inc., the man's name is Philip Grovit. It's at
9 Plaintiff's Exhibit 19. And he was asked --
10 THE COURT: Keep your voice up just a little.
11 MS. SLAUGHTER: Sure. He was asked if the
12 Private Equity Group was in, within, a business segment
13 within Goldman Sachs Group, Inc. He said yes, within the
14 Merchant Banking Division. And you just heard counsel say
15 you can't sue a division, okay. That's point No. one.
16 Point No. two, if you go to slide 19 which is the
17 very last slide in my presentation, Goldman Sachs Group,
18 Inc. is listed as a buyer in the Kinder Morgan deal, okay.
19 Two more points. Executives of Goldman Sachs
20 Group, Inc. were explicitly involved in meetings with other
21 private equity firms to discuss partnering on deals. We
22 will talk about that in a little minute, a little bit; but
23 the CEO of Goldman Sachs Group, Inc., Lloyd Blankfein, was
24 involved in these meetings and so was the head of the
25 Private Equity Group Mr. Friedman. And he said --
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1 THE COURT: Let's go to the heart of his
2 argument, no matter what entity is named. If as he
3 represents that Goldman Sachs, at least one of their
4 entities is involved as a, one of the many bases of their
5 business to serve as a financial advisor to a seller, why
6 would they be involved in a conspiracy to depress the price
7 of the stock?
8 MS. SLAUGHTER: Because that is ignoring the
9 other business that he just told you about, which is they
10 have a private equity group, an investment banking group and
11 the investment bank can provide debt financing for the
12 private equity LBOs as well as provides advising to buyers
13 of those companies.
14 And what Goldman Sachs representative Sanjeev Mehra
15 testified is when Goldman can get all three of those roles
16 in a deal, that's called a "triple play" for Goldman and
17 they make a lot of money for doing that.
18 And what the evidence also shows is if they aren't
19 advising the company, okay, or if they are advising the
20 company, then they're not going to be able to have that role
21 so it's a one or the other. But when they have that private
22 equity role or that investment banking role or they're
23 advising the buyers in the LBO, that's where you see, where
24 the rubber meets the road and you see some of the most
25 disturbing explicit agreements to not compete. And that's
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1 where I'd like to go with you on this.
2 And, by the way, Goldman Sachs never jumped a deal.
3 THE COURT: They what? I missed that.
4 MS. SLAUGHTER: Never jumped a deal.
5 Why don't we start, Your Honor, you're right, they
6 have a right to partner. What they don't have a right to do
7 is to agree to partner for the purpose of eliminating
8 competition. That's a per se violation of the Sherman Act.
9 And when you combine that with an agreement to not jump a
10 deal or an agreement to stand down when other private equity
11 defendants asked you to do, those are all indicia of an
12 overarching conspiracy, okay.
13 All right. You asked yesterday whether it was a
14 common practice to partner. You've heard counsel say it was
15 Goldman's common practice. I encourage you to take a look
16 at slide three of the presentation. This is an excerpt from
17 Exhibit 655 or Plaintiffs' Exhibit 15A, all right. It
18 describes Goldman Sachs' private equity --
19 THE COURT: Here is the question:
20 We have got an overarching, one, conspiracy, yet
21 within that one conspiracy, at least as represented by
22 counsel for Goldman Sachs, that in certain transactions
23 Goldman Sachs is with the sellers and with other
24 transactions Goldman Sachs is with the purchasers or the
25 potential purchasers. Those are inherently contradictory
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1 positions.
2 How can Goldman Sachs be involved in a unitary
3 conspiracy when they have two inherent contradictory
4 positions? It doesn't appear to be logical.
5 MS. SLAUGHTER: Well, I'll show you how they
6 do it and then you can decide whether the business
7 justification or the argument that it doesn't make logical
8 sense meets up with the evidence and whether a jury can say
9 you know what, they did this, they engaged in this conduct
10 so, yeah, I don't understand why.
11 THE COURT: They might have engaged in the
12 conduct but it militates against a unified conspiracy
13 because they are inconsistent positions.
14 MS. SLAUGHTER: The role --
15 THE COURT: It means that they are taking a
16 different tact on seven of the transactions contrary to what
17 they did on five or vice versa. They are inherently
18 contradictory positions. It is not logical.
19 MS. SLAUGHTER: I'm going to get to their role
20 and what they knew when they served as advisers to
21 companies, okay. And we'll get to that.
22 Let's focus for now on what they knew and what they
23 did when they were investing as a private equity division,
24 okay. If I could walk you through this and help you
25 understand this, I think --
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1 THE COURT: Let's assume they did all kinds of
2 conspiratorial activities in the private equity. That is
3 separate from their position on the other transactions when
4 they were advising the sellers.
5 MS. SLAUGHTER: Well, I --
6 THE COURT: Am I wrong there?
7 MS. SLAUGHTER: No, since you really want to
8 go there, I'll tell you.
9 THE COURT: Well, I have to. If there is a
10 unitary conspiracy, you can't be a partner in one conspiracy
11 and have inherently contradictory positions.
12 MS. SLAUGHTER: These aren't inherently
13 contradictory positions. That's the argument that they're
14 making, but they're not.
15 The advisers to the company, when they served as an
16 advisor --
17 THE COURT: Well, then answer this question:
18 Why is it not contradictory that if one part of
19 Goldman Sachs is depressing the sale which affects their
20 advice on, as sellers?
21 MS. SLAUGHTER: Because they are never in the
22 same deal doing those two roles. It's a conflict for them.
23 And they'll tell you this, they will never be an adviser to
24 the company at the same time that they're either advising
25 the buyers, that they're providing debt financing or they're
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1 providing private equity funds. It's never going to happen
2 in a single transaction. That's why they're not
3 contradictory.
4 Let's go back. I want to start, the idea that this
5 is a common practice for the group's partner that's been
6 longstanding, that Goldman Sachs has had this strategy since
7 1991, I'm going to show you a couple of pieces of evidence
8 that dispute this. This is a fact question for the jury.
9 All right. If you take a look at slide No. three,
10 this shows you that in 1998 Goldman Sachs only co-invested
11 with other private equity sponsors 22.5 percent of
12 co-investment funds. That's in 1998. It's inverse by 2004,
13 88 percent of the funds are co-invested. But I'm not just
14 relying on this alone.
15 Mr. Friedman, Rich Friedman, who was the head of
16 the Private Equity Group at Goldman Sachs in three separate
17 parts of his testimony at Plaintiffs' Exhibit 15A in
18 discussing the club deals from 2003 to 2007 testified the
19 following: That the mandate of most private equity firms is
20 to, quote, buy companies on their own, because I think
21 frankly that's how most of the firms like doing things
22 because, frankly, they would rather work on these deals than
23 own them themselves.
24 "But the preference of most of the firms is to sort
25 of do the deals on their own, it always has been."
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1 Another quote, "Most of the transactions that we're
2 financing now," because we also have a debt financing
3 business, "most of these firms are doing -- are just doing
4 deals on their own because they don't need to have any other
5 co-investment partners. And, frankly, they would prefer not
6 to because, frankly, they would rather work on their own."
7 How many times can you have Goldman Sachs, the head
8 of their Private Equity Group, say that firms would rather
9 work on their own, to know that this is not a longstanding
10 business tradition. And it's at least a fact question for
11 the jury.
12 THE COURT: It was unrefuted yesterday, there
13 is no -- the plaintiffs do not contest that the working
14 together constitutes any indicia of illegality.
15 MS. SLAUGHTER: You're right. That alone
16 isn't illegal but partnering for the specific purpose of
17 eliminating competition or reducing competition --
18 THE COURT: Oh, there is no doubt about it.
19 MS. SLAUGHTER: Yes, it's --
20 THE COURT: I agree. But there has to be
21 evidence of that.
22 MS. SLAUGHTER: And we're getting to it.
23 THE COURT: But the fact that they are working
24 together is -- nobody contests that.
25 MS. SLAUGHTER: You're right.
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1 Let's take a look at slide 4. You might find this
2 persuasive. I think a jury will, okay.
3 It's Exhibit 1491 from Plaintiffs' Exhibit 15B
4 describing the Goldman Sachs private equity transaction
5 overview. In this document Goldman Sachs recognized that
6 what financial buyers tried to do in order to minimize the
7 purchase price is avoid competition. This assumes that I
8 want to buy the company but I want to minimize the purchase
9 price. How am I going to do it?
10 I'm going to avoid competition. How am I going to
11 do that? I'm going to partner for the specific purpose of
12 eliminating my competition. I'm going to agree to not jump
13 anybody's deal and I'm going to agree to stand down when
14 other private firms ask me to.
15 THE COURT: There is no doubt. But the
16 question is not the law, the question is the evidence that
17 supports that. That is what we are concerned with. What is
18 the evidence? I am not saying it is not there but where is
19 the evidence as to a unitary conspiracy -- overarching
20 conspiracy? That is what I am looking for, not a recitation
21 of hornbook law but the evidence.
22 MS. SLAUGHTER: Okay. Let's talk about some
23 of the evidence.
24 To understand Goldman's role in this conspiracy we
25 should start in 2005. That's when they raised at the time
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1 the largest private equity fund of any of the other
2 defendants in this case, it was 8.5 billion dollars. KKR,
3 one of the defendants in this case, saw this fund as a
4 competitive threat. KKR's cofounder Henry Kravis was very
5 public about the fact that he saw this as a competitive
6 threat.
7 If you turn to slide 5, he's quoted as saying that
8 Goldman Sachs had never competed with them and that, "As
9 long as they continue to perform as partners as opposed to
10 competitors, we believe their private equity business will
11 continue to fit within Goldman Sachs."
12 You can't get any more public about the fact that
13 at least KKR and Goldman Sachs had an understanding that
14 Goldman Sachs wasn't going to compete in the private equity
15 business with KKR. This is evidence, the kind of evidence
16 that you're asking for. In fact, after Goldman Sachs raised
17 this historic amount of private equity funds, the CEO of
18 Goldman Sachs Group, Inc., Lloyd Blankfein, and Richard
19 Friedman, the head of Goldman Sachs Private Equity Division,
20 met with Henry Kravis at KKR's office to specifically
21 discuss the fact that they intended to continue to partner
22 on deals even though they had raised such a large amount of
23 money for investing. That's at Plaintiffs' Exhibit 15B,
24 Mr. Friedman's testimony 392 to four.
25 THE COURT: Let's take a 7-minute break at
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1 this time and then we will get back. We have got to pick up
2 the pace because we still, what do we have, seven more
3 today, so you have got to -- both sides are allocated to
4 approximately ten minutes. We have got to just hit on the
5 main points.
6 THE CLERK: All rise.
7 Court is in recess.
8
9 (Recess.)
10
11 THE CLERK: All rise.
12 Court is back in session. Please be seated.
13 THE COURT: For the sake of the plaintiffs,
14 what I am looking for from the plaintiffs is, so-called
15 under the terms of the cases, the so-called larger picture,
16 the tieing it together and it has to be more than joint
17 bidding and the failure to compete. There has to be this
18 overarching agreement that affects all or most of these
19 transactions. That is what was pled.
20 And going into the minutiae that may be in this
21 case, there might be a conspiracy as to that transaction is
22 going to be insufficient so, I am not going to tell you how
23 to argue your case but sometimes going into the minutiae is
24 not helpful on the overriding issue which is the overarching
25 agreement and that is what I am looking for.
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1 MR. WILDFANG: Your Honor, if I could jump in?
2 I plan to address at the end of the day how all
3 this fits together so I think we will give you answers to
4 the questions you have.
5 THE COURT: Okay.
6 MS. SLAUGHTER: And I --
7 THE COURT: We have got to move.
8 MS. SLAUGHTER: And I have two responses to
9 that. Bear with me.
10 If you take the evidence, the various evidence from
11 the different deals, you can infer the overarching
12 conspiracy. That's the case law. But maybe we should look
13 at this as like a drug, criminal drug conspiracy, okay.
14 Say we have a conspiracy to sell cocaine, all
15 right. That's the overarching conspiracy and then there are
16 episodes in that conspiracy. John Connor, our renowned
17 expert on the cartel theory, he talks about this in the
18 expert report, there are episodes. You might think of the
19 LBOs, the different leverage buyouts as episodes of this
20 conspiracy to restrain competition.
21 But let's keep with the drug conspiracy for a
22 minute. One episode in that conspiracy might be your
23 street-level drug dealer and his deal is successful. He
24 gets the money, he exchanges the drugs.
25 One other episode of that drug conspiracy might be
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1 that the drug dealer gets robbed so he's not successful in
2 completing that conspiracy.
3 Another one might be your street-level drug dealer
4 turns informant, okay.
5 So you have three different examples, one of which
6 you would say was affected to execute the goals of the
7 conspiracy. The other two not so effective. But that
8 doesn't mean that there is not a conspiracy to sell drugs.
9 THE COURT: No, but the difference is in that
10 case all of the participants have a meeting of minds and
11 they are tending towards the same object. There is some
12 evidence presented by the defendants that show that on
13 certain of these transactions there was not a meeting of
14 minds, or at least that is what is argued.
15 MS. SLAUGHTER: Right. The evidence is
16 disputed on that. So they argue in some instances they
17 didn't have a meeting of the minds. But actually I think
18 the evidence we've shown is they all have a common scheme, a
19 common understanding that they want to limit competition,
20 restrain competition on these deals.
21 THE COURT: But here are the two facts that
22 you have to get over or prove that there is something in
23 addition to these facts.
24 One fact is they have a right or at least it has
25 not been contested that they can work together.
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1 Two, there is no compulsion or obligation under the
2 law to compete. So, therefore, there has to be some type of
3 agreement between the 11 defendants that something in
4 addition, namely, we all agree that we are going to limit
5 competition by in every case where -- well, we are going to
6 stand down on every case, that is an agreement. Where is
7 that? Where is it that they entered into this agreement?
8 That is what I am looking for.
9 MS. SLAUGHTER: It's evidenced in each of the
10 deals that we've pointed out to you where this has happened.
11 THE COURT: Yes, but it didn't happen in all
12 of them.
13 MS. SLAUGHTER: In every single one --
14 THE COURT: It might have been the conspiracy.
15 There is evidence that there might be a conspiracy in
16 certain transactions. HCA is a clear example at least to my
17 way of thinking tentatively that maybe that matter should go
18 to the jury.
19 MS. SLAUGHTER: Kinder Morgan, SunGard, I'm
20 going to go through these --
21 THE COURT: Well, you haven't got enough time.
22 I have heard yesterday on that. But the point is where is
23 the agreement between all of them regarding 27 transactions?
24 MS. SLAUGHTER: That's not something that
25 we're required to prove under the law though. And
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1 defendants have set this up so that --
2 THE COURT: There has to be sufficient
3 evidence that there is one conspiracy. I didn't draft this
4 complaint.
5 MS. SLAUGHTER: So when you have a drug
6 conspiracy --
7 THE COURT: I understand the drug, I am asking
8 about this one. There is one overarching conspiracy
9 involving 27 transactions. In some of the transactions it
10 is obvious that there is no conspiracy.
11 MS. SLAUGHTER: Some of the transactions don't
12 achieve the goal of the conspiracy, maybe --
13 THE COURT: They shouldn't be in there then.
14 MS. SLAUGHTER: Well, if that's what you are
15 saying --
16 THE COURT: That is what has been alleged.
17 MS. SLAUGHTER: This is --
18 THE COURT: Why was it alleged this way?
19 MS. SLAUGHTER: This is something -- because
20 they're connected. They are connected in some way.
21 THE COURT: Well, that is the point. Show the
22 connection on all of them or most of them.
23 MS. SLAUGHTER: Okay. And I agree with you.
24 And if that's what you need, at the end of the hearing today
25 we are prepared to show that. Mr. Burke will run through
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1 every transaction with you and show how they're all
2 connected.
3 THE COURT: Maybe you will have to come back
4 next week. There is not going to be a chance to go through
5 every one today. We still have got seven other people that
6 have to talk. I mean, yesterday was the time for that. If
7 you want to come back next week or the week after, I am
8 available.
9 MS. SLAUGHTER: If it means that I can
10 represent my client and explain why this case shouldn't be
11 tossed, why it --
12 THE COURT: Tie them together. You had ten
13 minutes for this, let's do it.
14 MS. SLAUGHTER: All right. Here's the Kinder
15 Morgan deal, Your Honor. If you look at the Kinder Morgan
16 deal, go to page seven in your slides. This is the deal
17 that Goldman Sachs identified. They invited several other
18 defendant private equity firms to join a consortium to
19 invest in the deal. And they included Apollo, Bain,
20 Blackstone, KKR, TPG and Carlyle.
21 And Mr. Friedman believed that no one would compete
22 with Goldman on the deal because an agreement to not compete
23 was in place, an explicit agreement. And there was some
24 rumors that some of the defendants who decided not to
25 participate with Goldman were going to compete. And
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1 Mr. Friedman testified that that's not a possibility, "it
2 would be a franchise killer."
3 He calls the club of other private equity firms a
4 franchise. He said, "It was my belief at this time we had
5 agreements that they either would work with us or they would
6 not compete against us."
7 That's an explicit per se unlawful agreement to not
8 compete.
9 And if you need a document for that, look at page,
10 slide eight, all right. This is the specific provision of
11 the agreement which says that these defendants will either
12 work with Goldman or they won't compete against them.
13 Ken Pontarelli who was a managing director of
14 Goldman Sachs testified the defendants that we discussed,
15 Apollo, Blackstone, KKR, TPG, Carlyle, all signed this
16 agreement. That's at Plaintiffs' Exhibit 21, page 83.
17 THE COURT: Assume that this is sufficient
18 evidence as to a conspiracy as to that particular
19 transaction. Are these people involved in all the others?
20 MS. SLAUGHTER: They're involved in a lot of
21 the others.
22 THE COURT: No, but are they involved in --
23 did they agree that they were going to have some involvement
24 in all of these transactions or substantially all of them?
25 I mean, that is what is pled here. That is what is pled
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1 here: An agreement, an overarching agreement involving 11
2 people and a lot of co-conspirators involving 27
3 transactions. It is, I tell you, it is almost mind boggling
4 to get your mind around it.
5 MS. SLAUGHTER: What the agreement does is it
6 allows the defendants to participate if they want to, okay.
7 If they want to.
8 THE COURT: Here is my only point. I
9 indicated there may well be evidence of certain conspiracies
10 as to certain separate transactions. That is not what is
11 pled here. That is the problem. There is evidence that on
12 several of these transactions there was no conspiracy, at
13 least with many of the defendants, but they are all lumped
14 together.
15 MS. SLAUGHTER: Let me tie the Kinder Morgan
16 to the HCA because that's not something that has been done.
17 It may illuminate something for you, okay. I think this
18 will be very interesting.
19 You saw yesterday in the HCA deal it was announced
20 July 24, 2006. If you go to slide 12 you will see that
21 Goldman Sachs was trying to ask Bain Capital to get into the
22 deal. "This is the preferred path for us." In other words,
23 we want in this deal with you guys, KKR and Bain, we don't
24 want to compete. But then they also say they've reached out
25 to KKR.
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1 Take a look at slide 13.
2 THE COURT: 13?
3 MS. SLAUGHTER: 13, the very next one.
4 Remember, July 24 was when HCA was announced. You
5 have us Alison Mass of Goldman Sachs telling George Roberts
6 of KKR, "Wish we were with you here," okay, in this HCA
7 deal.
8 Look at his response: "Merrill played role GS
9 should have done in Kinder."
10 Do you know what he was telling Goldman Sachs here?
11 You should have acted like an investment bank instead of a
12 private equity firm doing a triple play in this Kinder
13 Morgan deal. That should have been something that we did.
14 We should have -- KKR should have done this Kinder Morgan
15 deal and you should have stayed in your role as an
16 investment bank.
17 Ms. Mass forwards this on to the head of Goldman
18 Sachs Private Equity Group Richard Friedman and he says, "I
19 suspect they will resist allowing us to join HCA to teach us
20 a lesson."
21 Okay. John Connor, one of the classic mechanisms
22 of conspiracy is reward, punishment and monitoring. This is
23 punishment, he is explicitly saying, so now you have a link
24 between Kinder Morgan and HCA.
25 Now, look at what Mr. Friedman says later. We
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1 should try to get in, as opposed to going after this, okay,
2 as opposed to competing. Can you imagine the fallout with
3 KKR and Bain if we teamed up with some other private equity
4 firms, okay.
5 The very next slide, two days later it's confirmed
6 that Goldman Sachs is not going to compete on this deal.
7 Even though they wanted in, they recognized they're being
8 punished for not giving KKR the kind of role KKR wanted in
9 Kinder Morgan, okay.
10 THE COURT: Okay. Try to, you know, bring --
11 you only have ten minutes for each of these.
12 MS. SLAUGHTER: I know.
13 THE COURT: Make your high points.
14 MS. SLAUGHTER: All right. Look, they didn't
15 jump the deal. They never jumped a deal. That's in the
16 testimony. That's in the record.
17 There is a genuine issue of material fact here
18 about how these deals are related, whether they're paybacks,
19 rewards, standing down, no jumping, that's something that
20 should go to the jury. It's not something that you have to
21 decide. It's a jury question. And we'd like the
22 opportunity to try this case in front of Your Honor and pull
23 out all the evidence we have, not just in ten minutes of the
24 individual arguments.
25 And I will step down now and --
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1 THE COURT: Well, you have got something
2 there. Judge Ford who used to sit on this court always
3 said, "I always denied motions for summary judgment. It
4 makes life a lot easier."
5 (Laughter.)
6 THE COURT: This is a hard one.
7 Go ahead, next one. Quick, just quick response.
8 MR. PEPPERMAN: Sure, Your Honor. I just want
9 to make two brief points.
10 First --
11 THE COURT: She said she was misled by your
12 client as to how to designate the defendant; and,
13 secondly --
14 MR. PEPPERMAN: Well, look --
15 THE COURT: -- both parts of your organization
16 do work different sides of the street depending on what the
17 transaction is.
18 MR. PEPPERMAN: Well, that's not correct, Your
19 Honor.
20 Just on the organizational issue, and I don't want
21 to belabor this, it is true, of course, that all parts of
22 Goldman Sachs ultimately flow up to the holding company.
23 That doesn't mean that it's the holding company that engaged
24 in the challenged conduct.
25 Both the Investment Banking Division and the
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1 Merchant Banking Division are all part of Goldman Sachs &
2 Co. which is managed as, not surprisingly, as an overall
3 entity.
4 My two points, Your Honor, are, first, there is no
5 dispute that Goldman Sachs represented the seller in six of
6 the 17 LBOs at issue: AMC, Clear Channel, Freescale,
7 Michaels, Neiman Marcus and Sabre. It, therefore, was not
8 in Goldman Sachs' economic interests to enter into --
9 THE COURT: So you are saying at least with
10 respect to those transactions, it is almost metaphysically
11 impossible for you to have been a co-conspirator?
12 MR. PEPPERMAN: Correct, because our fee is a
13 percentage of the sales price. We want to get the price as
14 high as possible.
15 But, Your Honor, the fact that we were the seller's
16 representative in over one-third of the LBOs of interest
17 here, it's also strong evidence that it's not in our
18 economic interests to participate in this overarching
19 conspiracy. More than one-third of them we're representing
20 the seller.
21 And just with respect to the HCA count, because we
22 have been thrown in there, I urge the Court to look at
23 Exhibit Q to our motion which describes what the Goldman
24 Sachs investment bankers were doing when the HCA LBO was
25 announced. And the Carlyle email reads, "Goldman Sachs,"
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1 the investment bankers, "is in a frenzy trying to organize a
2 competing consortium. They've reached out to us, TPG and
3 Blackstone as potential leads and have spoken to Warburg,
4 Goldman Sachs PIA, Apollo, Thomas Lee, and Madison Dearborn
5 as well."
6 Now, is that evidence of a corporation that has
7 agreed to stand down when it's in a frenzy trying to contact
8 people --
9 THE COURT: I got it. I got it. Next.
10 (Laughter.)
11 MR. COUGHLIN: Your Honor, Patrick Coughlin
12 for the plaintiffs, if I might just for a second. I am one
13 of the lead counsel and I had the benefit of actually maybe
14 not being here yesterday so --
15 THE COURT: You are lucky.
16 (Laughter.)
17 MR. COUGHLIN: I was lucky. I was in court
18 down in Atlanta. So I have a suggestion.
19 I heard what Your Honor is asking and the questions
20 about give me the overarching conspiracy, give me the
21 agreement, you know, about not jumping the deals, give me a
22 way away that everybody can be involved even if they're not
23 involved in these seven deals or that. So I have a
24 suggestion to try to answer that question, because time is
25 running short and we've spent a lot more time on each of
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1 these deals.
2 I would suggest that the defendants who want their
3 argument about each one of these deals, each one of the
4 deals that they're in, each defendant in the deals that
5 they're in, let them go ahead and conclude. Let them go
6 ahead and do their ten-minute argument right now, or 15 if
7 it takes 15 or 20. I'm not trying to limit their time.
8 Let us wait till the end to tie those deals
9 together. And we won't stand up in the middle, they can go
10 ahead and go --
11 THE COURT: If that is your suggestion, I
12 accept it.
13 MR. COUGHLIN: Okay. Thank you, Your Honor.
14 THE COURT: You are going --
15 MS. ANDERSON: I'm sorry, Your Honor, I'm
16 actually not sure that that's something that defendants
17 would agree with.
18 THE COURT: What is that?
19 MS. ANDERSON: We actually -- this is the
20 proposal that we had submitted to Your Honor as to how the
21 arguments would proceed, that we would be able to avoid
22 actually having to confront arguments by individual
23 defendants. We objected, you agreed to the schedule that
24 would force them to take --
25 THE COURT: Well, he doesn't have to --
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1 MR. COUGHLIN: No, that's right. I'm not
2 cutting off their right to argue. Go ahead.
3 MS. ANDERSON: So you are just not going to
4 address the issue.
5 MR. COUGHLIN: I will address the individual
6 arguments at the end.
7 THE COURT: He has a right to conduct his
8 argument the way he wishes.
9 MS. ANDERSON: Thank you, Your Honor.
10 THE COURT: Identify yourself for the record.
11 MS. ANDERSON: I'm sorry. Carrie Anderson on
12 behalf of Providence Equity Partners.
13 THE COURT: Okay. Because we are, you know,
14 running out of time, let's stay as close to ten minutes as
15 you can. And they are waiving their response at this time
16 and saving their argument until after all the defendants
17 have finished.
18 MR. CARROLL: Your Honor, my name is James
19 Carroll from Skadden Arps here in Boston. With me is Alisha
20 Nanda and I'm here on behalf of J.P. Morgan Chase & Company,
21 a defendant in Count 1 only.
22 I emphasize it is J.P. Morgan Chase & Company
23 because there used to be a defendant in the case called J.P.
24 Morgan Partners. They're out of the case and I'm going to
25 come back to them in a moment.
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1 THE COURT: Why are they out? I forgot.
2 MR. CARROLL: They're out because you
3 appropriately dismissed them because the only deals in which
4 they were involved had releases associated with them. They
5 have been out of the case for three years or so.
6 So J.P. Morgan Chase is a defendant in the case.
7 Mr. Pepperman set the table for this. The fundamental
8 reason, and I'll expand on it, why they don't belong in this
9 case now and why they never belonged in this case is because
10 they are not and have never been a private equity firm. All
11 this talk about standing down from bids is entirely
12 inapplicable. They don't bid. They've never been a winning
13 bidder. They've never been a losing bidder. They don't
14 bid. They're not in the private equity business and they
15 have never been in that business.
16 As nonsensical as this overarching theory is in
17 general, it particularly makes no sense for an entity that
18 is not even in the private equity business.
19 What does J.P. Morgan do here? It does a couple of
20 things. Much like Mr. Pepperman explained with respect to
21 Goldman, J.P. Morgan represents in some deals sellers. They
22 worked with the management of the company to help them sell
23 the company. That happened here in Michaels stores and I'll
24 come back to that. That's the first thing they do.
25 The second thing they do is work --
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1 THE COURT: Did you advise sellers? Out of
2 the 27 how many sellers did you advise?
3 MR. CARROLL: Michaels stores, Alltel are the
4 ones we were principally sellers helping to sell the
5 businesses.
6 In other deals, a number of the other deals, not
7 all of them but a bunch of them, what J.P. Morgan does is
8 provide financing and advice. The L in LBO, leverage, means
9 that these private equity firms who are buying it, they put
10 in a lot of their own money and do equity, they also need to
11 raise a lot of money. And J.P. Morgan helps them do that
12 and gives them advice as to how to do that as well so these
13 are the two things that we do.
14 As with Mr. Pepperman's client with respect to the
15 advisory business for sellers, we get paid more if the price
16 is higher. That's what we did in Michaels. There was a
17 competitive auction. The price went back and forth, it went
18 up. The public shareholders as a result of that option got
19 more than 200 million dollars more that they would have
20 gotten if the initial bid became the deal price. It wasn't,
21 it went up by more than 200 million dollars. J.P. Morgan
22 got a little piece of that, almost an extra million dollars
23 in fee.
24 Our interest in representing sellers is aligned
25 with the shareholders and is for the price to be higher. It
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1 is completely antithetical to the core theory that the
2 plaintiffs have that the point of the conspiracy was to
3 depress the price. It makes no sense as to us. It makes no
4 sense as to others as well but in particular when you think
5 about J.P. Morgan it makes no sense.
6 Think about, Your Honor, the other part of what it
7 is that J.P. Morgan does in these deals. It provides
8 financing so that these deals can be financed and advice in
9 that regard.
10 How does it get paid there? As a general matter in
11 terms of providing financing it gets paid for the work that
12 they do and they get paid more based upon the size of the
13 financing. If you arrange for greater financing, you are
14 able to charge a greater fee.
15 Yet again, our economic interest is --
16 THE COURT: Are you saying that if the price
17 of the share of stock is higher, it requires more financing
18 to pay for it and you get a bigger fee?
19 MR. CARROLL: Yes, it is that clear. If the
20 deal goes off at a lower price, less financing is needed and
21 there is a smaller opportunity to make financing fees.
22 THE COURT: So why are you, why do you believe
23 that you are in this case?
24 MR. CARROLL: Judge, I have been trying to get
25 your attention on that question for five years.
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1 (Laughter.)
2 THE COURT: I always said after --
3 MR. CARROLL: Well, in all seriousness --
4 THE COURT: -- I said, I knew you were in a
5 separate category and I didn't want to get into it until all
6 discovery was concluded.
7 MR. CARROLL: That's right. And we moved for
8 summary judgment --
9 THE COURT: But what is the rationale, and the
10 plaintiffs will tell me, but why do you believe?
11 MR. CARROLL: I believe that they put us in
12 this case because they try and mix us together and confuse
13 J.P. Morgan, the entity I'm here representing today, with
14 the business that J.P. Morgan used to but does not have
15 anymore, a private equity business called J.P. Morgan
16 Partners.
17 Let me address that directly. I want to come back
18 to your earlier point. This is, indeed, our second summary
19 judgment motion. As soon as that first phase of discovery
20 was over we moved immediately for summary judgment and Your
21 Honor said come back --
22 THE COURT: I recall.
23 MR. CARROLL: -- later.
24 THE COURT: We put it off.
25 MR. CARROLL: And no amount of discovery, one
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1 phase, two phases or three phases can turn us into a private
2 equity firm. We don't bid. The notion of us agreeing not
3 to bid and that being part of an agreement that's value to
4 anybody is nonsense. We always stand down. We are never
5 involved. It makes no sense.
6 So here's I think what the plaintiffs do. The
7 first thing is they confuse, they attempt to confuse J.P.
8 Morgan with a different business J.P. Morgan Partners. This
9 isn't as it was with Goldman where they just tried to sue a
10 division. They -- that's a separate legal entity that was a
11 defendant in this case and was dismissed years ago. We
12 don't have that business anymore.
13 The people who did that are off running a different
14 private equity firm competing away in the marketplace. That
15 is not us. That entity has been dismissed. There is no
16 basis in this record for us to be responsible for any of
17 those allegations as to that dismissed party. That's the
18 first thing they do.
19 And that big chart that the plaintiffs had up that
20 looks like somebody's quilt with boxes and different colors
21 on it, they used the term "J.P. Morgan" in there to refer to
22 activities of J.P. Morgan Partners. J.P. Morgan Partners
23 had been involved in the Aramark deal as a bidder. That's
24 not us. That's dismissed. That doesn't work.
25 The second thing, the second thing that the
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1 plaintiffs do is they pick a few snippets, minutiae out of
2 the few deals, and try and say that that is enough to weave
3 us in. I'll give you an example of just one. You heard
4 some reference to it yesterday, I'm sure you'll see it
5 again.
6 There is an email that deals with a SunGard
7 transaction. That was one that was led by Silver Lake.
8 Silver Lake was using J.P. Morgan for financing. And they
9 point to an email that suggests that Silver Lake put a call
10 into someone at J.P. Morgan to try and discourage somebody
11 else from bidding. That's the argument that they make.
12 What they don't tell you about that email is at the
13 time of that email Silver Lake already had a deal.
14 THE COURT: Had what?
15 MR. CARROLL: They had a deal. They had an
16 agreement with the board. This is a deal they cut
17 themselves, went to the board and then were in a position
18 that they had to go out and find people to partner up to do
19 the deal because they didn't have enough money to do it
20 themselves. They had to go out to other financial sponsors,
21 the Blackstones of the world, to say would you like to come
22 in and be part of our deal and contribute some equity.
23 So they'll show you an email on the face of it and
24 give you a nefarious spin but they don't give you the rest
25 of the story. It's a classic example of taking a little
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1 minutia out of context and trying to spin it into something
2 grand. And even if you take for a moment, accept how
3 they'll try and spin an email like that, two things about
4 it.
5 One, it only relates to one deal. One deal. There
6 is no nexus with this overarching or overreaching conspiracy
7 allegation, none at all.
8 Second, it talks about a request to make a phone
9 call. There is no evidence in the record that the phone
10 call was made. None at all.
11 So when you combine the legitimate business reason
12 why Silver Lake is in a position to have to go out and find
13 somebody, they need more money. They have got a deal cut
14 with the management. They need somebody else to come and
15 give them some equity.
16 You take that legitimate business reason, you take
17 the fact there is no evidence in the record of any
18 inappropriate conduct other than what the plaintiffs spin is
19 a request and you look at the immateriality which, of
20 course, is important for J.P. Morgan of such an inbound
21 phone call making a request with nothing more. It can't
22 possibly be material.
23 Judge, we --
24 THE COURT: Okay, I got it.
25 Next.
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1 MR. CARROLL: Thank you.
2 (Pause in proceedings.)
3 THE COURT: Ten minutes. I heard enough from
4 you yesterday.
5 (Laughter.)
6 MR. TRINGALI: Your Honor, I think you
7 probably heard enough from me yesterday.
8 THE COURT: Who do you represent?
9 MR. TRINGALI: KKR, Your Honor.
10 I apologize for us not being as glitzy as some of
11 the others with their presentations, Your Honor, but we are
12 trying to do this quickly.
13 Your Honor, fundamental to what you have been
14 talking about today is this overarching agreement to
15 allocate deals. One of the points that is being missed
16 today by the plaintiffs is the difference between auctions
17 and proprietary transactions which I raised with you
18 yesterday.
19 They say no one is topping deals, side deals. What
20 they're referring to are proprietary transactions. And
21 there are a number of reasons which we went through
22 yesterday as to why people do not jump a proprietary
23 transaction.
24 Remember one of the documents I showed you, I'll
25 just take it, the one that said we're going to be a day
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1 late, a dollar short and lose. What they're leaving out is
2 that 9 of the 17 LBOs that they're seeking damages for,
3 those were auctions, Your Honor. And in those auctions
4 defendants, including KKR, were bidding against each other,
5 in successive rounds of bidding and ultimately one or the
6 other was losing.
7 THE COURT: So out of the 17 or 19 you say
8 nine are auctions?
9 MR. TRINGALI: Absolutely --
10 THE COURT: And --
11 MR. TRINGALI: -- a bid war bidding against
12 each other.
13 THE COURT: Is it 17 or 19?
14 MR. TRINGALI: What it is, Your Honor, let me
15 explain that.
16 There are 19 transactions that they say are LBOs.
17 Two of them they're not seeking damages for. PanAmSat,
18 because Your Honor dismissed PanAmSat for damages purposes
19 because of the structure of PanAmSat, it was not an LBO.
20 There were no -- the shareholders, public shareholders were
21 not bought out by the defendants. Texas Genco is the other
22 one that has the same structure as PanAmSat. And as a
23 result, they don't have standing and they are not seeking
24 damages.
25 THE COURT: So we are talking about 17.
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1 MR. TRINGALI: 17 that they're seeking damages
2 for.
3 THE COURT: So out of those how many are
4 auctions?
5 MR. TRINGALI: Nine. So when they talk -- so,
6 Your Honor, that, quite frankly, that's the easiest thing
7 you have to deal with in terms of there not being a global
8 conspiracy as to the 27 transactions because nine --
9 THE COURT: What they are saying, that the
10 strongest evidence that they have of conspiracy or
11 conspiracies here is the stand down.
12 MR. TRINGALI: That's what they call it, yeah.
13 And what I'm saying --
14 THE COURT: You are saying that doesn't apply
15 to nine of the transactions?
16 MR. TRINGALI: I'm saying -- absolutely, Your
17 Honor. I'm not saying that it applies to the other
18 transactions --
19 THE COURT: No.
20 MR. TRINGALI: -- but what I'm telling you is
21 that in nine transactions you have active bidding among the
22 defendants against each other. They have got a few of them
23 where they say, oh, there was some rigging going on. But
24 what they always forget to tell you about is in one
25 situation they're going to say, oh, these two defendants
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1 communicated with each other or these three defendants. But
2 then they don't tell you that three other defendants were
3 competing against that group.
4 So how do you have -- even in that situation where
5 they have evidence of rigging in a particular deal, they
6 never tell you about the other defendants who are still
7 competing in the deal.
8 So in every one of those auction situations, Your
9 Honor, you have people bidding in successive rounds against
10 each other and the price continuing to go up.
11 THE COURT: So the stand down claim and maybe
12 evidence in certain instances relates to proprietary
13 purchases?
14 MR. TRINGALI: That's how they have -- yes,
15 Your Honor, because what that is, what they're saying there
16 is you have a proprietary deal, other defendants don't know
17 about it until it's announced publicly for the reasons I
18 went through yesterday. Some companies would prefer to be
19 kept quiet. But then there is what they call a "go shop"
20 period where someone can come in with a superior proposal
21 and what they're saying is no one comes in with a superior
22 proposal.
23 THE COURT: To take their argument, let me ask
24 you this, in those seven --
25 MR. TRINGALI: Yes.
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1 THE COURT: -- proprietary deals during the go
2 shop period is there evidence that there was a conspiracy in
3 at least those instances to stand down?
4 MR. TRINGALI: No, Your Honor, and the best
5 example is Freescale. In the Freescale transaction, you
6 will remember that KKR, Bain and Silver Lake came in at the
7 11th hour just as they were about to sign a proprietary deal
8 with Blackstone, TPG and -- I'm actually forgetting who else
9 it was -- and KKR and that group came in at the final hour.
10 And the plaintiffs say it was by mistake, that they didn't
11 know, okay. Because that's what KKR told you.
12 But if you turn to tab eight which is an internal
13 KKR document, you will see that the highlighted portion, KKR
14 knew exactly what they were doing. "We understand that the
15 company is in the final stages of a take private with
16 Blackstone and TPG, our primary competition in the
17 NXP/Philips transaction."
18 And if you look below that, it says, "Goldman
19 communicated our interests to the board," that's Goldman
20 Sachs, "who was advising Freescale who has asked us to
21 respond. Goldman confirmed that a process is being run with
22 a potential deal near completion."
23 And with that knowledge KKR and Silver Lake and
24 Bain submitted their indication of interest which caused the
25 Blackstone bidding group to pay almost an extra billion
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1 dollars. And you know what the reaction was of the group,
2 of the KKR group when someone says internally at KKR -- and
3 this is tab 11 -- "Sorry about Freescale."
4 Ann Clammer who headed the team says, "Don't be
5 sorry. I couldn't be more pleased with the outcome on many
6 levels. Sometimes losing is a good thing and this is one of
7 them. I like NXP at our price," that's the one we won a
8 month before, "much more than Freescale at $40. Between us
9 we cost those guys 1.3 billion dollars in purchase price,
10 all equity. Will be fun to watch them finance this thing."
11 Your Honor, that is the words of a competitor who
12 is thrilled what he has just done to his supposed
13 conspirator. And that is an example where we knew there was
14 a deal about to be signed, we knew it was a proprietary deal
15 and we stepped and in we tried to upset it.
16 And what we ended up doing instead is cause -- we
17 lost and we cost our competitors 1.3 billion in purchase
18 price and we were elated. That, Your Honor, is competition,
19 not conspiracy, and that goes to the proprietary
20 transactions.
21 But, Your Honor, you don't even need to get to that
22 because they have the fundamental problem --
23 THE COURT: Let me get it straight. According
24 to you, with respect to auctions --
25 MR. TRINGALI: Yes.
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1 THE COURT: -- is there any allegation or
2 evidence as to "stand down" during those proceedings?
3 MR. TRINGALI: What you find in the auction
4 situation time and time again, I went through this yesterday
5 and I mentioned a number of them to you, is people
6 continuing to bid against each other. And that's why you
7 find those documents that we went through yesterday and I'll
8 go through a few quickly today that say --
9 THE COURT: What you are saying then legally
10 is that there can't be an overarching conspiracy that
11 relates to nine auctions if the indicia of the illegality is
12 the stand down as it may or may not occur in some of the
13 proprietary transactions?
14 MR. TRINGALI: Absolutely, Your Honor. And
15 even in the, whether it's proprietary or auction, what you
16 find is people at some point say -- at some point lose, for
17 example, and they find out, you know, remember the "wow"
18 document. They were bidding until they got to that point
19 and then they find out that someone has beat them, okay.
20 THE COURT: How about during the evidence
21 there are -- I can't remember who said it -- but if there is
22 a deal, you know, we should all stand down or the practice
23 is to stand down, words to that effect?
24 MR. TRINGALI: Yes, there is a document, Your
25 Honor, and what it is is a document written by someone at
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1 another firm, okay, at Carlyle, after KKR puts in its
2 indication of interest in Freescale and disrupts the
3 Freescale bid. And someone at Carlyle who has never been
4 deposed by the plaintiffs writes, "And just to think KKR
5 told the industry to step down."
6 Plaintiffs never took that person's deposition. We
7 have no idea, and they have no idea and nothing is put
8 before you as to what was the source of that person's
9 information, whether he read it in the newspaper, whether he
10 talked to somebody at Carlyle and what specifically KKR told
11 them.
12 As Your Honor recognized, if KKR said to people
13 don't waste your time trying to disrupt HCA because we have
14 all these contractual protections and we have Tommy Frist
15 with us, the principal shareholder, so you're just going to,
16 you're going to, as many people recognized in their
17 documents, just waste time, effort and money and you're
18 going to end up with nothing, that is perfectly permissible.
19 But more importantly for Your Honor, it nowhere
20 gets you to the overarching agreement that you have been
21 looking for and that they pled.
22 Let me just go very quickly, Your Honor --
23 THE COURT: Very quickly.
24 MR. TRINGALI: What?
25 THE COURT: You have got three minutes.
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1 MR. TRINGALI: Okay. Then I'll be very quick.
2 I want to give you just a few examples of this
3 auction situation I told you about.
4 THE COURT: The what?
5 MR. TRINGALI: Auction situation. Because if
6 9 of the 17 don't even make it, I think you have a very easy
7 way of saying there is no global overarching conspiracy.
8 So if you look at tab 1, this is the Alltel
9 transaction which was an auction. And in Alltel what you
10 find is -- tab one, Your Honor.
11 In Alltel what you find is that the winning bidder
12 came in -- this is the dawn raid that Goldman Sachs pulled
13 off with TPG at $71.50. And you have Mr. Navab who headed
14 this transaction for KKR saying he's surprised and
15 disappointed. And what price was he at? 65 to 67.5.
16 Significantly below the 71.5.
17 So he writes, "As a result a price of 71.5 would
18 have been extremely challenging for us. While we are
19 disappointed by the process, we would not have been excited
20 or competitive at this price range."
21 That, Your Honor, is an example of an auction where
22 we attempted to bid against someone as opposed to divide up
23 the deals, as opposed to rig prices, and we couldn't get to
24 that price.
25 In Clear Channel, that's Exhibit 2, again, "We
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1 raised our bid," this is again the leader of the deal team,
2 "to 36.85 which we believe to be an absolute stretch.
3 However, T.H. Lee and Bain got up to 37.60 this morning,
4 quite a monumental jump. Obviously a very, very
5 disappointing outcome. I must say I'm at a bit of a loss
6 and can't explain their price and any rational basis.
7 Extremely disappointed but we did everything we could and
8 stretched very far."
9 THE COURT: Okay. I will go through the rest
10 of them.
11 MR. TRINGALI: Okay, Your Honor.
12 The simple point I was trying to make is every
13 auction situation has documents like that. And they cannot
14 be part of this stand down because, as you have said now
15 repeatedly, people have no obligation, under the antitrust
16 laws or otherwise, to continue to bid once they've gotten to
17 their maximum, what they think is a competitive -- first of
18 all, there is no obligation to bid period but there is
19 definitely no obligation to keep bidding after you've
20 reached your maximum.
21 Thank you.
22 THE COURT: Next argument. We will go till
23 1:30 and then we will take a half-hour break.
24 MS. ANDERSON: Good morning, Your Honor.
25 Carrie Anderson for Providence Equity.
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1 Providence is one of the defendants named only in
2 Count 1 so it's the overarching conspiracy claim. I'm not
3 going to repeat what everybody has already said. I have
4 four things I just want to tell you about Providence and why
5 the conspiracies particularly don't apply with respect to
6 Providence.
7 The first point is that Providence is not a
8 generalized private equity firm. They're a specialized
9 private equity firm.
10 THE COURT: It is not a what?
11 MS. ANDERSON: They are not a generalized
12 private equity firm. They're a specialty firm. They were
13 founded only to invest really in two industries, in media
14 and communications. They set up their fund agreements and
15 they solicit investors based on that specialization. As a
16 result of that focus Providence's participation in this
17 conspiracy is particularly implausible. They have no motive
18 to participate in the conspiracy --
19 THE COURT: You are saying you are a specialty
20 firm in what type of industry?
21 MS. ANDERSON: Media and communications. They
22 invest in companies in media and communications.
23 THE COURT: Like television?
24 MS. ANDERSON: Television, telephones, media,
25 they have invested in entertainment companies, anything in
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1 that space. What they won't invest in would be Neiman
2 Marcus, a department start. Wouldn't invest in Toys "R" Us.
3 Wouldn't invest in HCA, a hospital, Freescale, Philips,
4 Kinder Morgan, all of the transactions that were discussed
5 yesterday at length, Providence would have nothing to do
6 with those transactions. They're well outside of
7 Providence's area of specialization.
8 This matters because the Supreme Court has clearly
9 stated that a lack of motive bears on the range of
10 permissible conclusions that can be drawn from ambiguous
11 evidence. If Providence had no rational economic motive to
12 conspire and if their conduct is consistent with other
13 equally plausible explanations, the conduct cannot give rise
14 to an inference of conspiracy.
15 Now, there is undisputed testimony on the record by
16 a senior executive from Providence Equity Partners that
17 transactions outside of its specialization would be
18 completely off their radar screen. And if I may, Your
19 Honor, I will hand up some materials that I won't walk
20 through at length but there are a couple of quotations in
21 there to which I am referring.
22 THE COURT: You have approximately ten
23 minutes.
24 MS. ANDERSON: I have approximately three
25 more, Your Honor.
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1 Slide two, Your Honor, has the deposition testimony
2 from Providence Equity's chief operating officer where
3 plaintiffs' counsel actually elicited the testimony that any
4 transactions that are outside of Providence's specialization
5 be completely off their radar screen. And he asked, So a
6 transaction such as HCA would be completely out of your
7 realm? The answer is yes, Providence wouldn't consider it
8 even if HCA had approached them to bid.
9 In fact, half of the 27 transactions are well
10 outside of Providence's area of specialization.
11 An allocation, which is what the plaintiffs'
12 complaint alleges, means that each participant agrees to
13 refrain from bidding on certain transactions in order to be
14 rewarded with participation in other transactions. It makes
15 no sense for a specialized firm like Providence to
16 participate in this conspiracy. It couldn't gain from
17 participating in a conspiracy to allocate investments when
18 half of them are investments in which it wouldn't invest in
19 the first place.
20 Now, this is a common sense argument but there is
21 also a firm economic underpinning here. Providence was one
22 of the only, actually the only individual defendant to
23 retain and to submit an expert report from an expert
24 witness. Professor Kevin Murphy who is an expert from the
25 University of Chicago in economics testified in the report
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1 in economic terms why Providence's business model would not
2 be conducive to collusion under plaintiffs' theory and its
3 participation in the overarching conspiracy is implausible.
4 There is a quotation from the report in the deck
5 that I have handed you. The report is in the record. None
6 of plaintiffs' three experts disputed anything that
7 Mr. Murphy had to say on this point in our report.
8 Now, third, this isn't at this point in time a
9 theoretical exercise any longer. We don't actually have to
10 wonder what Providence may have done or what maybe they
11 didn't have an incentive to do. We know exactly what they
12 did. The record has been fully developed. They deposed
13 everybody that they wanted to depose from Providence.
14 Providence produced millions of pages of documents.
15 And what does the record reveal? It reveals that
16 Providence had no involvement in the vast majority of
17 plaintiffs' 27 transactions. Instead the record shows that
18 Providence competed on every transaction in its area of
19 expertise of which it was aware. That's it.
20 Providence won some transactions, they lost some
21 transactions, but it competed. And it acted in its own
22 independent interest at all times.
23 This is how you would expect Providence to behave
24 in the absence of a conspiracy. You shouldn't use that then
25 to infer a conspiracy.
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1 Now, I would be happy to walk through all the
2 transactions. I'm sure that the plaintiffs have a binder
3 and many slides about the transactions that Providence was
4 involved in but the briefing has been extensive. We've
5 addressed I believe in all of our papers the quotations that
6 they're likely to point out and show you. But the fact of
7 the matter is that as you have repeatedly pointed out, there
8 is nothing in the record that links all of these
9 transactions together with respect to any defendant. There
10 certainly isn't anything --
11 THE COURT: How many transactions did your
12 client participate in?
13 MS. ANDERSON: We bid, Your Honor, on 13, or
14 there were 13 transactions that were definitely outside of
15 our area. We bid and won on five I believe. I may have it
16 here.
17 We bid and won on five transactions. We bid and
18 lost on three transactions. And there are six transactions
19 that arguably could fall within our realm of expertise of
20 which we did not bid. And the record is very clear that in
21 the instances where we knew about it in advance, we had a
22 business rationale, a very clear business rationale not to
23 participate. But, in fact, most of these transactions of
24 the six in which we did not bid we didn't know about until
25 we read it in the paper.
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1 And there are contemporaneous emails produced by
2 Providence that show that repeatedly. We saw some of them
3 yesterday. Mr. Tringali used some examples of the evidence
4 that was inconsistent with conspiratorial conduct.
5 You have instances where, you know, the CEO, the
6 chairman of Providence Equity Partners, there is a
7 contemporaneous email that says how did I not know about
8 this deal.
9 So in addition to the conduct that is consistent
10 with independent conduct Providence actually has produced
11 quite a few documents demonstrating internal contemporaneous
12 emails showing that Providence was caught by surprise or was
13 outbid despite its best efforts. Documents that, as
14 Mr. Tringali said, evidenced conduct consistent with
15 competition, not with conspiracy.
16 So at the end of the day, Your Honor, plaintiffs
17 have had five years to prove this case against everybody,
18 against Providence as well. Today they can point to no
19 agreement, there is no conscious commitment by Providence or
20 anybody else to a common scheme to allocate these 27
21 transactions.
22 With respect to Providence its specialization makes
23 this particularly ridiculous. And for those reasons we
24 believe that summary judgment should be granted for
25 Providence.
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1 THE COURT: Okay. Next up.
2 MR. POWELL: Your Honor, I have a chart, just
3 one document that I will be showing you today.
4 (Whereupon, a chart was handed to the Court, the
5 Clerk and the Law Clerk.)
6 MR. POWELL: Good afternoon, Your Honor. My
7 name is Wesley Powell. I'm from Willkie Farr & Gallagher
8 and I represent Silver Lake.
9 And, Your Honor, we appreciate the opportunity to
10 argue to you why Silver Lake never should have been in this
11 case and our summary judgment motion should be granted now.
12 I'm going to focus on, Your Honor, what
13 distinguishes Silver Lake. It's going to sound somewhat
14 familiar because there is a similarity to the argument that
15 you heard from Providence.
16 Silver Lake is a technology only investor. It's
17 not a private equity firm that invests in a broad range of
18 industries. It invests in tech and tech only. That
19 limitation, Your Honor, is embodied in Silver Lake's
20 agreements with its investors in which it pledges to them
21 that it will invest in technology and technology-enabled
22 industries only. That's it. In the words of one of its
23 cofounders, "Silver Lake is and always has been all tech all
24 the time."
25 And there is -- plaintiffs have made no claim in
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1 their briefs and supporting papers that Silver Lake has ever
2 strayed from that investment mandate. And so, Your Honor,
3 that --
4 THE COURT: How many of these 27 transactions
5 were in that field?
6 MR. POWELL: Your Honor, if you look at the
7 chart that I offered up, on the left column, Your Honor,
8 those are the 27 deals in this case, the LBOs and the
9 related non-LBO transactions. The red strike-throughs, Your
10 Honor, show that there are 21 of these deals that are
11 outside of technology that Silver Lake never could have
12 invested in because it was barred from doing so by its
13 investment mandate. 27 deals in health care, that included
14 HCA, Your Honor, which is why Silver Lake is not in Count 2,
15 it could never have invested in HCA.
16 And it leaves six transactions, Your Honor, that
17 Silver Lake had any ability to invest in. Those are the six
18 transactions, Your Honor, that are in the middle column.
19 PanAmSat, Alltel, Freescale, SunGard, Philips/NXP and Sabre.
20 Those are the only six, Your Honor, that Silver Lake ever
21 could have invested in.
22 And if you look at this, Your Honor, as plaintiffs
23 have pled this case, the 27-deal conspiracy, ask yourself
24 how does it possibly make sense that Silver Lake committed
25 to a conspiracy to allocate all 27 of those deals? 21 of
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1 them it was contractually off the -- contractually off
2 limits to Silver Lake. Never could have looked at them.
3 Why would Silver Lake have any incentive to
4 participate in that conspiracy? It makes no sense at all.
5 As to the six deals, Your Honor, where the
6 plaintiffs no doubt will suggest and have suggested in their
7 briefs, well, Silver Lake could have simply agreed to a
8 little slice of the conspiracy. Just the six deals, Your
9 Honor. That doesn't make any sense either, Your Honor. If
10 there --
11 THE COURT: Why not?
12 MR. POWELL: If there were only six deals,
13 Your Honor, in a space of five years, Silver Lake has only
14 six of these large transactions that it has any ability to
15 invest in, why would it agree with a group of firms that had
16 the ability to invest in absolutely anything that it's going
17 to stand down from some of the six technology deals it could
18 participate in? Why would it agree to limit its investment
19 ability in that way?
20 And, in fact, Your Honor, the plaintiffs have
21 conceded that that didn't happen. At page 169 of their
22 opposition brief, Your Honor, plaintiffs make a key --
23 THE COURT: Just one thing, on the ones you
24 invested in, did you win any of them?
25 MR. POWELL: Your Honor, the last -- the third
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1 column, Your Honor, are the deals that Silver Lake took an
2 ownership interest in. That's SunGard, Philips/NXP and
3 Sabre. Philips/NXP, Your Honor, as you I think have heard,
4 is not an LBO. It was the purchase of a portion of a
5 company. These plaintiffs have no standing to claim injury
6 or damage as related to that deal, it's really off the
7 table.
8 Sabre, Your Honor, is a travel technology company.
9 Silver Lake is one of the buyers of that company. After
10 that deal was announced there was a shareholder strike suit
11 that Silver Lake settled and got a broad release and you
12 have dismissed Silver Lake from that claim. It just leaves
13 SunGard, Your Honor. And I'd like to touch on SunGard
14 briefly --
15 THE COURT: All right, get to that.
16 MR. POWELL: -- because you've heard something
17 about it. Before I do that, if I could make just one
18 additional point, Your Honor.
19 In plaintiffs' brief at page 169, they make an
20 important admission that I think really goes to how
21 implausible this conspiracy is with Silver Lake. They say
22 that, Moreover, the evidence shows that Silver Lake pursued
23 all six tech deals. They admitted six tech deals available
24 to Silver Lake. Silver Lake pursued all six of them.
25 If there was an overarching conspiracy let's say
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1 that Silver Lake participated in related to just six deals,
2 how is it consistent with that conspiracy that Silver Lake
3 pursued all of them, that it did not stand down from any of
4 those deals? If there were an overarching conspiracy,
5 Silver Lake would have agreed by definition I think that it
6 will get some of those deals and it will not get some of
7 those deals. Why they'd invest time, money and other
8 resources pursuing those deals and plaintiffs have -- I
9 haven't made that up. Plaintiffs admit that Silver Lake
10 pursued those deals, Your Honor.
11 So this theory --
12 THE COURT: Let me get you straight. You
13 pursued six or three?
14 MR. POWELL: So we pursued as in participated
15 in some aspect of the bidding or looked at the deal -- let
16 me just show you this briefly, Your Honor.
17 THE COURT: On six?
18 MR. POWELL: On all six. If you look at the
19 middle column, Your Honor, I'll just tick this off briefly.
20 In PanAmSat, Your Honor, Silver Lake briefly looked
21 at the deal, put in an initial indication of interest,
22 decided that it didn't make financial sense to pursue it.
23 It wasn't interested. Those facts are undisputed.
24 Alltel, Your Honor, Silver Lake was aware of the
25 Alltel, the Alltel deal, had looked at it, didn't
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1 participate in the bidding. After a deal was done, TPG and
2 Goldman, who were among the purchasers of Alltel, approached
3 Silver Lake, said would you like to come in as a co-investor
4 and take some of the equity.
5 Silver Lake did a little bit of diligence and in
6 the words of one of its cofounders at his deposition
7 concluded it was a bad deal and it went no further.
8 Freescale, Your Honor, you've heard a lot about
9 already. Silver Lake was the other firm along with KKR that
10 put in an indicative bid that caused its supposed
11 co-conspirator Blackstone to pay a billion dollars more.
12 I won't repeat that argument, Your Honor. But the
13 one thing that I note about that is that plaintiffs have
14 suggested that there was some type of quid pro quo
15 connection between Freescale and HCA. You've heard why the
16 evidence doesn't support that.
17 One thing you know for sure, Silver Lake couldn't
18 have been part of any sort of quid pro quo because it was
19 contractually barred from investing in HCA. It couldn't
20 participate in it. It's why it's not in the HCA count.
21 It's why it's not in any of the emails that the plaintiffs
22 have mentioned. So it by definition could not have been
23 part of any supposed quid pro quo which, again, the evidence
24 doesn't support.
25 So, Your Honor, that takes us to SunGard because I
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1 have explained why NXP and Sabre are really, you know, off
2 the table. Here's what you need to know about SunGard, Your
3 Honor. A few points.
4 You may have heard the plaintiffs say in a couple
5 of instances that Silver Lake was the ringleader of the
6 SunGard deal. Your Honor, the Board of Directors of SunGard
7 was the ringleader of the SunGard deal. The board of
8 directors controlled the entire process. It determined at
9 the outset it didn't want an option. It wanted a
10 proprietary transaction for a variety of reasons that are
11 SunGard's business. And it had established a relationship
12 with Silver Lake and it decided that it wanted to negotiate
13 with Silver Lake and do it as a proprietary transaction.
14 That's the first point.
15 So SunGard was never interested in entertaining
16 other bids. It had a variety of reasons that it wanted to
17 deal with Silver Lake alone.
18 As you heard J.P. Morgan's counsel say, Your Honor,
19 my second point on SunGard, Silver Lake agreed to pay what
20 the board demanded, $36 a share. There were rounds of
21 negotiations. The board said you don't give us $36 a share,
22 we're walking. Silver Lake agreed to pay $36 a share at
23 around the 1st week of February in 2005, before it had ever
24 spoken to another private equity firm. The price was set.
25 The SunGard board recognizing that Silver Lake is a
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1 very small firm and needed other investors allowed it to go
2 forward. And let me pause on that for a moment, Your Honor.
3 At the time of the SunGard transaction, Silver Lake
4 had a fund that it was investing from that had 3.5 billion
5 dollars in it. 3.5 billion dollars. The equity required
6 for SunGard was 3.6 billion dollars. Even if Silver Lake
7 wanted to engage in gross negligence to its shareholders and
8 plunk its entire 3.5 billion dollars into a deal, it
9 wouldn't have gotten them SunGard. By definition it had to
10 go to other private equity firms. It couldn't have done the
11 deal otherwise.
12 And, ultimately, based on its fund limits, it's
13 undisputed that Silver Lake concluded that it could only
14 contribute about 500 million dollars to that deal. Your
15 Honor, that is why you end up with seven private equity
16 firms invested in SunGard. Silver Lake had to go out and
17 get 500 million dollars more a piece from six other
18 investors. That's why they're seven participants in that
19 deal. It wasn't for the purpose of constraining the price,
20 Your Honor.
21 And their whole theory is that the reason these
22 firms partner is to constrain the price. The price had been
23 set, Your Honor, before Silver Lake ever went out to partner
24 with firms. It's undisputed.
25 THE COURT: Okay. Let's wrap it up.
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1 MR. POWELL: I think that may be it, Your
2 Honor.
3 There is one other point that I wanted to make,
4 Your Honor, and I'll end with this.
5 You have asked again and again for the plaintiffs
6 to show you some connection among these deals and the only
7 thing they've really shown you is that chart with all the
8 red lines that they say shows an intertwining of all of
9 these deals. And during their discussion of it yesterday
10 they mentioned that Silver Lake sort of started it all with
11 SunGard. And they showed lines coming out from Silver Lake
12 that it ended up being in all these other deals.
13 All that shows you, Your Honor, is this:
14 It shows you that firms having developed
15 relationships in one deal chose to partner with each other
16 in subsequent deals and so on and so forth and that's how
17 you see all of those lines.
18 There is nothing anticompetitive about that, Your
19 Honor.
20 And with all respect to my colleagues who represent
21 the plaintiffs, you can take a red pen and you could diagram
22 all of the instances in which these same lawyers and same
23 law firms for the plaintiffs have worked together on dozens
24 and dozens of class actions over the last ten years. They
25 didn't do that because there was a grand conspiracy to
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1 allocate class action litigation. They did it because they
2 developed relationships that worked for them that they were
3 prepared to repeat again and again. That's all it shows,
4 Your Honor, and that's all that you see here.
5 So that chart that they showed you in reference to
6 Silver Lake and others tells you nothing about the
7 overarching conspiracy.
8 THE COURT: All right, next. We will try to
9 get one more in before 1:30.
10 (Pause in proceedings.)
11 (Whereupon, a slide deck was handed to the Court,
12 the Clerk and to the Law Clerk.)
13 MR. SHERMAN: Your Honor, William Sherman from
14 Latham & Watkins for defendant TC Group III and TC Group IV
15 which I'll refer to as Carlyle.
16 And, Your Honor, in light of the short amount of
17 time left before lunch, I'm going to confine my remarks to
18 one issue which is obviously on your mind and that is the
19 question of the step down email. And just a couple of
20 points to clarify.
21 THE COURT: That seems to be -- if the
22 corporations can bid together, nobody contests that, and
23 there is no requirement to compete, and I don't believe
24 there is, then the stand down agreement, if any there be, is
25 the lynchpin that constitutes or is indicative of
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1 illegality.
2 MR. SHERMAN: And, Your Honor, the key to what
3 you just said is the "stand down agreement." And that's the
4 problem, because there is no agreement to stand down. And
5 that's why I'm going to go through for you now why -- the
6 evidence of the stand down memo does not get the case to a
7 jury.
8 THE COURT: Before you start --
9 MR. SHERMAN: Yes.
10 THE COURT: -- the so-called stand down
11 concept, does it only relate to proprietary investments?
12 MR. SHERMAN: Well --
13 THE COURT: Rather -- does it relate to
14 portions?
15 MR. SHERMAN: I believe in the plaintiffs'
16 theory as Mr. Tringali has said that the stand down concept
17 relates only to proprietary. But there is only one stand
18 down email in this case. So to the extent that there were
19 references to the stand down concept, that is simply
20 something made up by plaintiffs, whether it has to do --
21 THE COURT: Well, if it can be proved, that is
22 the piece of evidence which would warrant at least certain
23 of these separate conspiracies if they had been so charged
24 to go to the jury. That is what I am looking for --
25 MR. SHERMAN: Right, Your Honor, and what
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1 you --
2 THE COURT: -- some type of an agreement to
3 stand down.
4 MR. SHERMAN: Ah, exactly. Some type of an
5 agreement. And instead what you're getting is you've got a
6 single stand down email, I'm going to deal with that, but
7 the concept that because people don't top proprietary deals
8 once they're done, that does not constitute an agreement.
9 There is no difference between a private equity firm
10 deciding not to continue bidding up an auction and deciding
11 not to jump on a proprietary deal after it's already been
12 done --
13 THE COURT: But the argument has been made
14 that why wouldn't they compete because they could make a lot
15 of money even though they would raise the price?
16 MR. SHERMAN: But the answer is, Your Honor,
17 that in all the cases, the undisputed evidence, and now
18 speaking just for Carlyle so I'm talking about Carlyle's
19 evidence but I believe it's true in all proprietary deals,
20 the evidence shows the defendants looking at those deals,
21 looking at the proprietary deals and deciding for their own
22 independent reasons that it wasn't worth going in and trying
23 to top it. Usually it's because there was a break-up fee,
24 usually because management is already working with the group
25 that's got the proprietary deal. Usually there are a number
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1 of factors --
2 THE COURT: What is the break-up fee, what is
3 that?
4 MR. SHERMAN: The break-up fee means in order
5 for someone to come in and top it, there is going to be an
6 additional cost. The break-up fee is written into the
7 proprietary deal so it adds, you know, millions and millions
8 of dollars to someone, they're going to have to bid on
9 what's already been done for the proprietary deal.
10 So there are a number of reasons. And just as
11 there is no obligation for a firm to go in and continue to
12 bid in an auction, there is no obligation to go into a
13 proprietary deal.
14 What the plaintiffs need to show you, what you
15 asked them continually yesterday, what you asked them today
16 is show me the evidence of an agreement and you never got
17 it. You got them trying to tie things together. You got
18 them telling you over and over again that there was some
19 agreement --
20 THE COURT: Their argument is that it happened
21 at least on several occasions and that a jury should be
22 allowed to draw the inference that because of this pattern
23 of behavior, so argued, that a jury could find an agreement.
24 MR. SHERMAN: But it's not a pattern, Your
25 Honor, because each deal is different. And, in fact, I'm
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1 going to deal right now with the one case where there is a
2 step down email and explain to you why even that does not
3 get to the jury.
4 THE COURT: What case is that?
5 MR. SHERMAN: This is in the step down email
6 for HCA, all right. So what --
7 THE COURT: That to me, that is the strong
8 case.
9 MR. SHERMAN: You've said that, Your Honor.
10 THE COURT: That is a pretty strong case.
11 MR. SHERMAN: You've said that and that's why
12 I want to explain to you why it's not enough to get the case
13 to the jury.
14 THE COURT: Especially when three of the
15 corporations dropped out in about three days after they got
16 that harsh warning.
17 MR. SHERMAN: Ah, now, there, Your Honor,
18 you've gotten right to the heart of the problem. The heart
19 of the problem is, first of all, let's clarify what the step
20 down email was. It was not written -- it was written by
21 someone who worked at Carlyle, Mr. Akerson. It was not
22 written at the time of the HCA deal. It was written about
23 six weeks later. And it was written in the context, as
24 Mr. Tringali said, and Mr. Thomas said yesterday, in the
25 context of the Freescale deal where a consortium came in.
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1 The KKR people came in to a deal that was about to be done,
2 jumped in and cost the Freescale purchasers an extra 800
3 million dollars.
4 And Mr. Akerson wrote an email saying, "And just
5 think, KKR asked the industry to step down on HCA."
6 Now, yesterday the plaintiffs said to you, And
7 those defendants went and stepped down right after getting
8 that order. Well, first of all, the order, let's be clear,
9 was not from Mr. Akerson. He was describing what someone
10 had said KKR said. But that email doesn't identify any time
11 frame, where he heard the information or anything else about
12 it. So for plaintiffs to say, well, two days after they got
13 it they all stepped down, there is nothing in the record to
14 suggest that.
15 Now, you would think that if this is the lynchpin
16 of their supposed conspiracy, that they would want to have
17 Mr. Akerson under oath in a deposition to find out exactly
18 what he meant, who he heard it from and to establish the
19 basis, the foundation for making this admissible, because
20 there are a lot of admissibility issues about the document,
21 okay. Did they do it? No. No, they've never in the course
22 of the discovery in this case put Mr. Akerson on their
23 deposition list.
24 Why? Well, you found out yesterday, because it
25 allows them to speculate about exactly what that means. And
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1 to say things like within days everyone stepped down. There
2 is no basis for that.
3 Now, you asked a very important question yesterday
4 which the plaintiffs' counsel did not answer. You asked is
5 it illegal for competitors to decide not to bid to curry
6 favor even if they're requested to stand down.
7 The answer is no, it is not illegal. It is not.
8 The plaintiffs must produce evidence that the stepping down
9 was the product of an agreement. The fact that there was a
10 request, and, again, we don't have much information other
11 than Akerson's email to say whether there was actually a
12 request.
13 But let's assume for a second you would admit that
14 against Carlyle and it was a request. The request coupled
15 with the stepping down is not enough for the plaintiffs to
16 get the case to the jury. And there are cases which tell
17 you that. The Viasys (ph.) case which we cite in our brief
18 out of the Fifth Circuit. Let me just for a second give you
19 the background of the case.
20 Viasys (ph.) was an orthodontist who designed a
21 bracket that he claimed reduced the time that kids had to
22 wear braces. He entered into a contract with a company
23 called GAC to market and distribute it. But he alleged that
24 as a result of threats by the American Association of
25 Orthodontists GAC terminated the relationship. The court
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1 granted the judgment to the defendants, judgment after their
2 case in chief, J&L judgment. And he said, and the Fifth
3 Circuit affirmed it and said this: "Evidence that a
4 manufacturer took certain actions does not tend to exclude
5 the possibility," remember the Matsushita standard, "of
6 independent conduct if the actions were in the
7 manufacturer's independent self-interest. In other words,
8 even if Viasys (ph.) proved that the AAO or its regional
9 affiliates threatened GAC, he must also show that GAC
10 decided to end its relationship in response to those
11 threats. If GAC ignored the threats but ended the
12 relationship with Viasys (ph.) based on an independent
13 evaluation of its best interests, GAC acted independently
14 and there was no conspiracy."
15 And it cites some cases and finishes, "Viasys (ph.)
16 failed to demonstrate that GAC's decision to alter its
17 relationship was contrary to its own interests."
18 THE COURT: The difference here might be that
19 there was a 50-day go shop period and the stepping down was
20 within I believe three days or approximately three days.
21 That is unusual I would think.
22 MR. SHERMAN: Your Honor, I'm glad you raised
23 that because it isn't in this circumstance. It's perfectly
24 consistent with Carlyle's self-interests. And I'd like to
25 ask you to look at the slides that I just passed up to you.
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1 You have seen some of these before, Your Honor, and
2 I'll go through them very quickly but this is --
3 THE COURT: Go ahead, five minutes and then we
4 are out of here.
5 MR. SHERMAN: I'll be done in five minutes,
6 Your Honor.
7 These slides have to do with what it was that led
8 Carlyle to decide to step down, to tell KKR they weren't
9 going to pursue HCA.
10 The first one, you have seen the major issue is
11 price.
12 The second one, you have also seen, "My sense is
13 that a competing consortium is a losing proposition. Tommy
14 Frist is rolling over 800 million and is teamed up with KKR
15 and Bain. I don't think they will lose and the likely
16 outcome is forcing them to pay one billion more and souring
17 two relationships."
18 Now, this one you haven't seen, at the bottom, "On
19 a promising note, or promising front, Will Johnston --"
20 THE COURT: Where are you now?
21 MR. SHERMAN: I'm sorry?
22 THE COURT: Which one are you on now?
23 MR. SHERMAN: I'm still on No. two, I'm sorry.
24 THE COURT: Okay.
25 MR. SHERMAN: "Is relatively close with Tommy
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1 Frist with whom we spoke yesterday. Will approached Tommy
2 about joining the KKR/Bain Group."
3 The next one, the internal one to Carlyle, "After
4 looking at the HCA information and reviewing the other
5 hospital companies that might be interesting, I think we
6 should have the health care team look at CHS, and not waste
7 too much energy on HCA unless Frist decides to let us in his
8 deal."
9 And she goes on to say why she thinks CHS is a
10 better company.
11 The next one, Rubenstein to Akerson and Holt. "I
12 think HCA is probably a long shot now and Community Health
13 would be a much better deal -- particularly if we can be the
14 lead," okay.
15 And, finally, the last one is the one you have seen
16 before which is Mr. Attwood's email two days later to KKR
17 saying, "We are not forming a competing group, we are not
18 signing an NDA. We would, of course, love to join you if
19 you need any more equity."
20 Now, Your Honor, this explains exactly why Carlyle
21 would inform KKR early in the go shop period that they were
22 not forming another group. They'd like to get in the deal.
23 They know their only chance of getting in the deal is
24 getting in with KKR and Tommy Frist.
25 There is no reason for them to wait two months to
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1 tell them. In fact, it makes much more sense to tell them
2 right up front and to try to work the avenues they had to
3 get into the deal that way.
4 So what you have here on HCA for Carlyle is you've
5 got, No. one, the reasons, and the undisputed
6 contemporaneous evidence why they're not interested, unless
7 they can get in through KKR, because they know KKR is going
8 to win. They're looking at CHS. They think that's a better
9 avenue to get in. So that's undisputed evidence that that's
10 what motivated them, okay.
11 Then you have the evidence we talked about
12 yesterday. If it was pursuant to some agreement, what did
13 Carlyle get? They got no reward at all.
14 Now, yesterday when you asked plaintiffs about
15 this, they stood up and they were sort of scattered and they
16 said, well, they got Alltel. Well, Your Honor, Carlyle
17 didn't win Alltel. Carlyle lost Alltel. So if the
18 conspiracy had some plan that that was Carlyle's reward,
19 that's not a reward. They didn't get that.
20 And then the plaintiffs said, well, what about
21 PanAmSat, that was the reward. PanAmSat is the reward.
22 Well, Your Honor, there are a couple of problems with that.
23 Even putting aside the fact that you have taken
24 PanAmSat out of the case for purposes of the damages, No.
25 one, plaintiffs allege that the reward in PanAmSat was in
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1 PanAmSat, that Carlyle's reward from coming together at the
2 back end was the reward. But the real problem is PanAmSat
3 was two and a half years before HCA. How could the reward
4 for standing down in HCA have happened two and a half years
5 earlier? It makes no sense. And it makes no sense because
6 Carlyle acted in its own self-interest in deciding not to
7 form a rival consortium. It is not enough that there was a
8 stand down request and Carlyle informing KKR that they
9 weren't going to pursue it. And in the presence of
10 undisputed contemporaneous evidence that Carlyle had their
11 own reasons for doing it, that there was no quid pro quo
12 and, frankly, that this whole notion of a request to stand
13 down is consistent with the overarching conspiracy.
14 If there was an overarching conspiracy, there would
15 be no reason for that request. The plaintiffs don't have
16 the evidence. They don't have the agreement.
17 THE COURT: All right. A quarter past two.
18 MR. SHERMAN: Thank you, Your Honor.
19 THE CLERK: All rise.
20 Court is in recess.
21
22 (Luncheon recess.)
23
24
25
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1 AFTERNOON PROCEEDINGS
2 THE CLERK: All rise.
3 Court is back in session. Please be seated.
4 MR. QUINN: Good afternoon, Your Honor. Jim
5 Quinn on behalf of THL, the Thomas H. Lee Partners right
6 here in Boston, with whatever hometown advantage we can
7 get --
8 THE COURT: I was going to say. Do you think
9 you've got the edge?
10 (Laughter.)
11 MR. QUINN: Well, I hope so.
12 Let me just start out by saying I was sitting
13 yesterday in the jury box and was listening hard to all of
14 the supposed evidence that was going back and forth. Having
15 done that, I'm convinced this case should not go to a jury
16 because there is simply no evidence to support an
17 overarching conspiracy with regard to any of these
18 defendants and certainly not with regard to T.H. Lee. And
19 I'm going to take you through, I have the obligatory
20 booklet.
21 THE COURT: Can you do it in ten minutes?
22 MR. QUINN: I can march through it in ten
23 minutes.
24 (Whereupon, the booklet was handed to the Court,
25 the Clerk and the Law Clerk.)
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1 MR. QUINN: I tried to make the print big so I
2 could read it and hopefully you could too.
3 Your Honor, you indicated, and I think hopefully a
4 little jokingly, that it might be just easier to send this
5 all to the jury because it is complicated and it is
6 difficult.
7 THE COURT: Well, I mean, you are never wrong
8 if you deny motions for summary judgment, throw the case to
9 the jury and let them worry about it.
10 MR. QUINN: And that may be true in some
11 instances but the standard here is higher. It's higher
12 because of the Matsushita case and because of the White case
13 here in the First Circuit. And that's what they said. Your
14 job is a little tougher, I'm sorry, we're making it tougher
15 on you, but you have to actually find in order to let this
16 case go to the jury that each of these defendants, each of
17 these defendants made a commitment to be involved in an
18 overarching conspiracy. And you heard from some of them
19 already where it makes no sense. And it also makes no sense
20 for T.H. Lee.
21 THE COURT: Because what it seems, that,
22 again, I can be persuaded, I haven't read all this material,
23 but it seems to be the law, even if there were 27 separate
24 individual conspiracies, there has to be something more to
25 link them all together to an overarching conspiracy.
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1 MR. QUINN: There is no question that that is
2 what the law is. That's what they pled and that's what they
3 have to here at the summary judgment stage come forth with
4 real evidence of a real agreement.
5 THE COURT: And there has to be an
6 interlinking. And that is, I hope -- not that I hope but I
7 am sure the plaintiffs are going to try to show that
8 interlinking with all of the defendants.
9 MR. QUINN: I think what they're going to try
10 to do, Your Honor, is they're going to put that ball of yarn
11 up there that --
12 THE COURT: Oh, I tell you, when I saw that,
13 that stunned me.
14 MR. QUINN: But as you, Your Honor, have
15 already pointed out, alls that really shows is that each of
16 these companies from time to time worked with each other.
17 That's all it shows. It shows nothing. There is no
18 evidence, no written evidence -- they took 50 depositions,
19 50 depositions and were unable to come up with even snippets
20 from depositions.
21 Now, in a real case, in a real conspiracy you're
22 going to find something out there. They have tens of
23 millions of documents. Other than the couple of handful of
24 documents that might show some going back and forth with
25 regard to a particular transaction, they haven't shown
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1 anything. Where is that unindicted co-conspirator?
2 There are hundreds and hundreds of people who are
3 involved in all these deals. Do you think maybe one could
4 come forward? They didn't even bother with regard to T.H.
5 Lee or anybody else to go out to third parties and depose
6 people --
7 THE COURT: They should have made a deal with
8 your client and let them out of the case and let them
9 testify.
10 (Laughter.)
11 MR. QUINN: Well, because they, you know
12 something, they did testify, Judge, and that's what's under
13 the first tab. They did testify. They took the depositions
14 of the leaders of T.H.L. And what did the leaders say?
15 Now, they didn't ask them any direct questions about this.
16 We had to ask them questions. But the leaders under oath
17 with their hands up said no agreement, no way, no how. They
18 don't -- they have to come forward with some evidence to
19 refute that. They can't point to experts. Experts aren't
20 evidence at the summary judgment stage. That's what the
21 White court says and we can give you a bunch of other cases
22 that find you can't refute, you can't defeat summary
23 judgment by coming in with some expert opinions. You have
24 to have evidence. You have to have facts. You have to have
25 something that refutes sworn testimony by 40 or 50 people,
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1 in this case all the leaders of T.H.L. who say they never
2 agreed to any kind of a conspiracy, overarching,
3 under-arching, middle arching, nothing. As one said, nada,
4 never. It didn't happen.
5 And T.H.L. only ended up in three deals, right.
6 Two of them were auctions in which they were bid up, prices
7 were bid up. And, in fact, I'll show you in a minute, in
8 fact, we did jump the deal, the biggest deal we've ever
9 done, Clear Channel --
10 THE COURT: You say you won three or you were
11 involved in three?
12 MR. QUINN: No, we won three and we were
13 involved in I think three plus -- we were involved in eight.
14 We dropped out because of price with regard to four of them
15 and the other one we lost and we lost big even though we
16 were bidding. That was the Neiman Marcus situation.
17 So the bottom line is with regard to the three we
18 did win, two were auctions where there were multiple rounds
19 of bidding. Lots of competition.
20 The other one was a proprietary deal, the Aramark
21 deal. We were released on that. There is no basis for
22 T.H.L., no basis for any of these defendants to be sitting
23 here having to deal with Count 1. We had nothing to do with
24 Count 2.
25 I was persuaded by Mr. Thomas yesterday that that
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1 case should also not go to the jury for the reasons that he
2 said because it was no quid pro quo. And if there is no
3 quid pro quo, what's the point? There is no point.
4 And what you will see here from the testimony of
5 our folks as well, this is the testimony of Scott Sperling,
6 this is on No. two. It talks about with regard to the
7 overarching conspiracy and any involvement by T.H.L.
8 "It would be impossible to agree in any way on
9 allocating transactions because you don't know what
10 transactions occur, you don't know which ones are going to
11 work, which ones are going to work. It's a very competitive
12 business. It's certainly true that when we have to, we
13 cooperate on specific transactions because of the need to
14 create a competitive bidder through a consortium approach."
15 Create a competitive bidder. It's pro competitive
16 when they're actually bidding because it means that somebody
17 more, you have more people to actually bid, not
18 anticompetitive.
19 And then he says, "But the idea that we would let
20 anybody win when we want to win a company is ridiculous."
21 And it is, Your Honor. And that's what the
22 evidence shows. It shows it as to T.H.L. and it shows it as
23 to all of the defendants.
24 Now, looking at the, look at the contemporaneous
25 evidence, the emails that were written at the time that
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1 these deals were done and that's in No. three, Your Honor.
2 Okay. First, T.H.L. talking about SunGard. They
3 wanted to be different. From a tactical perspective we
4 could get more recognition from not doing this deal. And
5 then they say, this is another one of the leaders of T.H.L.,
6 "We walk to a different drum beat," which is why they didn't
7 get involved in SunGard.
8 Similarly with regard to Freescale, "I prefer where
9 everybody else isn't." That's what the actual writing, what
10 people are writing back and forth at the time, that shows
11 that they want not to march to everybody else's drummer,
12 they are going to compete on their own. And they only do a
13 club deal or a joint bid when they need to do it to create
14 competition, not to get rid of competition.
15 With regard to being cut in, I have no -- this is
16 on the Neiman Marcus deal which they make a lot of. "I have
17 no interest in this deal, none, nada, zero, nada."
18 Contemporary emails written at the time by the
19 people in charge.
20 And with regard to the Clear Channel deal, the one
21 that we did win, He ignored how intense the auction was and
22 how it squeezed every last penny from us.
23 Now, that's the deal, Your Honor, that I said, they
24 wanted to ask, well, did they ever jump any deals? We
25 jumped that deal. What happened was with regard to Clear
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1 Channel, it came out on the news that they were about to do
2 a proprietary deal with KKR and Providence and Blackstone I
3 think it was.
4 So what did we do? We went in and jumped the deal.
5 We caused it to move from a proprietary deal to an auction.
6 And there were three rounds of bidding. We ended up winning
7 but it squeezed every penny out of us. That was what the
8 contemporaneous evidence showed at the time, squeezed every
9 penny. We did jump the deal, big time. And, you know,
10 there is some, if they look back in that deal right now,
11 we'd say maybe we overpaid for the deal. That's a whole
12 other issue. The reality is some deals you do well on, some
13 deals you don't.
14 Now, let's talk about the etiquette, the club
15 etiquette and how it applies to T.H.L because, first of all,
16 these rules are nonsense. It's stuff they made up. That's
17 the bottom line. I've tried a lot of antitrust cases, Your
18 Honor, and this rule of etiquette is all junk.
19 But T.H.L., first of all, this is in No. 4, T.H.L.
20 preferred not to partner. This is DiNovi, one of our
21 leader's testimony. "All things being equal, our preference
22 would not be to partner with other firms."
23 And the reason for that is they would rather, and
24 often do, just bid on their own. But where they don't have
25 the wherewithal, where they want to be able to actually
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1 create a bid, they will partner up.
2 And one of the things that was said the other day,
3 yesterday, was that, well, all this partnering up didn't
4 really start until 2003. That's not true. T.H.L. was doing
5 joint bids back in the '90s. We counted them up, a dozen
6 before 2003. That's what the actual record is. There was
7 nothing that -- the only thing that happened in 2003 is some
8 of the deals got bigger so there were probably more, a
9 bigger effort to put people together because that was the
10 only way the deals were going to get done. That's how this
11 business works.
12 And what the plaintiffs have done is they've just
13 contorted it, they picked a particular period of time and
14 said let's just pick 27 deals. How about all the other
15 deals that were out there, where there was an enormous
16 amount of competition by all, all of these defendants.
17 Looking at the same slide, testimony from Scott
18 Sperling: But the idea that there were any, and this goes
19 to this whole stand down issue, let anybody win a deal would
20 be ridiculous. We never stood down. We did not cut anyone
21 else, other private equity firms into our deals and we never
22 got cut into any of their deals.
23 The bottom line is there was no quid pro quo with
24 regard to any of the things that THL was involved in. So
25 why in the world would we have committed to an overarching
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1 conspiracy involving supposedly all 11 defendants and 27
2 deals when we got nothing out of it? Nothing. Except
3 perhaps overbidding for Clear Channel.
4 And at some point they made up something about
5 score cards. We asked both Mr. DiNovi and Mr. Sperling
6 about it and their testimony is it was nonsense, it didn't
7 happen.
8 Now, let me just point to you the next slide which
9 is a slide which shows an email, interoffice email relating
10 to the Clear Channel deal. And this is the deal where we
11 jumped a bid. And here is what Mr. Bressler is telling
12 Mr. DiNovi right after we won the bid. "Want to give you
13 something to warm your heart on CCU," Clear Channel. "We
14 took out Jimmy Lee, J.P. Morgan, Jonathan Nelson,
15 Providence, Alex Navab, KKR and Steve Schwarzman,
16 Blackstone, all in one deal."
17 That's competition, Your Honor, that's not
18 collusion. They are gloating about it. That's what people
19 do. It's a tough business. As Your Honor said, these are
20 some pretty tough guys but they like to compete with each
21 other. And that's what happened. That's what T.H.L. has
22 always been devoted to.
23 In the very, I guess the next to last, here is the
24 evidence with regard to T.H.L. We broke all the so-called
25 rules. We didn't stand down. We jumped deals. We didn't
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1 cut others in. We competed. We didn't collude. There was
2 no quid and no quo. That's the facts.
3 And whenever they get up here at the end, it's
4 interesting, the last day and a half you haven't heard much
5 about T.H.L. because they weren't that involved but, for
6 sure, they were always, they always wanted to march to their
7 own drummer. That's how T.H.L. worked.
8 And you see all the other defendants. There are
9 eight million stories in the Naked City, there is no
10 question about it, but the reason why this overarching
11 conspiracy makes no sense is precisely because there are all
12 these different reasons why it makes no sense and they still
13 haven't come up with anything.
14 I agree with plaintiffs' counsel, no way they're
15 going to have some writing, they're not going to have a
16 constitution that shows everybody trying to allocate deals.
17 That's not the real world. But they don't have any evidence
18 of anything else that shows any commitment by all 11 of
19 these folks to allocate the 27 deals and that is what their
20 allegation is.
21 And at summary judgment, I always remember the
22 court, I think it was in New York, typically would be in New
23 York, where the judge said summary judgment time is put up
24 or shut up time. Now, they have not put up any evidence to
25 show, in fact, that there was an overarching conspiracy.
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1 The last slide which I'm not going to go through is
2 simply setting forth -- and this one is difficult to read --
3 the reasons why with regard to nine of them we had no
4 interest from a business standpoint or lots of different
5 good business reasons, not one of which is being refuted by
6 the plaintiffs here, and, in addition, the reasons why they
7 dropped out of four deals because in each instance we
8 thought the price was too high, it just wasn't worth it. We
9 lost.
10 And I think this quote is the one internal memo
11 when they lost the Neiman Marcus bid, this is one of our
12 internal folks saying, "We lost. Think TPG won but don't
13 know. Very depressing. Don't know price either. Will read
14 it tomorrow."
15 Your Honor, does that sound like a conspiracy?
16 They had no idea who won, for sure who won and at what
17 price. It makes no sense.
18 Thank you, Your Honor.
19 THE COURT: You made a reference to a movie,
20 did you? Was that Naked City?
21 MR. QUINN: No, it was the television show.
22 Yes, it was Naked City and --
23 THE COURT: But there was a movie in 1948.
24 MR. QUINN: Yeah, that's true, they later made
25 it into a movie. And it definitely proves our point, Your
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1 Honor.
2 (Laughter.)
3 MS. SAMMONS: Your Honor, I'm Katie Sammons
4 and I'm here today talking for TPG, the last of the 11
5 defendants.
6 You have heard a lot testimony over the last two
7 days from all the lawyers and I don't want to go back over
8 stuff that has been talked about before. You will not be
9 surprised to know that there was no overarching conspiracy
10 and that my client TPG was not a member of any overarching
11 conspiracy.
12 And our brief sets out 27 transactions in detail.
13 It tells you which ones we bid on, which ones we didn't, why
14 we didn't bid on them, and I'm not going to go through all
15 27. I want to focus on two things that this Court has
16 expressed interest in. One is evidence of competition. And
17 then the second is whether or not people stepped down. And
18 I want to talk about it for TPG, my client.
19 Let's look at evidence of competition. There were
20 two deals I want to talk about real briefly that we
21 participated in that are evidence of competition. Both of
22 them were auctions. One of them we lost and one of them we
23 won.
24 In the Neiman Marcus transaction, which is an
25 amazing transaction that you should get to know if you're
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1 looking at whether or not there could be an overarching
2 conspiracy here, that is a transaction in which Goldman
3 Sachs represented the seller Neiman Marcus, okay. They
4 represented the seller and they ran the strictest auction
5 you could ever see. They told people who they could pair
6 with. They told people they could only pair with two
7 people. It had to be teams of two and they were absolutely
8 strict about every aspect of the process.
9 My client preferred to -- my client has a specialty
10 in department stores and they really wanted this asset and
11 they preferred to team with somebody that they knew,
12 somebody they worked with before, like KKR or Bain. That's
13 not who we got. That's not who Goldman gave us. They gave
14 us Warburg. Warburg is not a defendant.
15 We teamed with Warburg in that case and we fought
16 hard, as hard as we possibly could to make sure that we won
17 that deal. And you know what, we did win that deal. Even
18 though it was with a partner we've never worked with before,
19 we wanted it really bad. We had no idea what anybody else
20 was going to bid and so we came in with a bid of $100 per
21 share. That is over $5 more than the next closest bid, $5
22 more than the next closest bid.
23 That wasn't a result of us knowing what anybody
24 else's bid was or a result of us bidding as low as we
25 possibly could to think so that we could keep the price
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1 down, it was $100 per share. It was the amount that all of
2 these other people who bid on Neiman Marcus said "wow" and
3 "oh, my goodness," and "they overpaid." That's what we did
4 and that was competition.
5 The other transaction we participated in where we
6 didn't win but we did compete was Michaels. In the Michaels
7 transaction there were three different rounds of bidding.
8 We also won --
9 THE COURT: Was that an auction?
10 MS. SAMMONS: It was an auction. It
11 absolutely was an auction.
12 There were three different rounds of bidding and we
13 worked very hard in each round to try and force our price up
14 just a little bit further, just a little bit further. We
15 had to keep going back, working hard on it. We would get to
16 a different point and then we found out that somebody else
17 topped us. So we would go back to the drawing board, start
18 over and try to get our dollars up.
19 We lost that transaction ultimately by 50 cents a
20 share. And to show that it was competition, not only does
21 TPG have evidence in the record that says, oh, gosh, we are
22 so disappointed that we lost, by people like Jonathan Coslet
23 who is one of the big three of the company, who put his
24 heart and soul into that transaction, not only did we do
25 that but we did something which I think we haven't even
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1 heard anybody else talk about today and will be the sole
2 piece of evidence that I can show you in this argument, we
3 actually conducted a postmortem after that.
4 May I approach the bench?
5 (Whereupon, a document was handed to the Court, the
6 Clerk and the Law Clerk.)
7 MS. SAMMONS: After we lost the transaction,
8 the Michaels transaction, after we put in all that work and
9 did all those bids we sat down and conducted a postmortem to
10 see why was it that we lost.
11 And you can see from looking at this document that
12 the postmortem includes things like revenue, due diligence,
13 deep dive lacking, which I think means they didn't go do
14 their due diligence thoroughly enough because they had
15 limited management availability and three weeks of full data
16 room access. That's a reason, that's a reason we were
17 thinking.
18 THE COURT: Where is that?
19 MS. SAMMONS: I'm sorry? It's under the one
20 that says the Bain/Blackstone consortium may have agreed to
21 partner with the Wiley family, it's in yellow. It's on
22 the -- there is only one page; right?
23 THE COURT: Project Mustang?
24 MS. SAMMONS: Yes. It says, The Bain -- the
25 Project Mustang, that is this transaction, see how it says
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1 "postmortem."
2 THE COURT: Yes.
3 MS. SAMMONS: Then it says, "The winning bid
4 Bain/Blackstone was $44 per share versus TPG's final bid of
5 43.50."
6 And then it says, "Since the deal was announced, we
7 have heard the following with regard to the winning
8 consortium's bid." So they're telling what they heard.
9 And, in fact, if you look at the third bullet,
10 they're actually speculating. They're saying, "The
11 Bain/Blackstone consortium," that's the one who won, "may
12 have agreed to partner with the Wiley family." Those were
13 some of the biggest shareholders. That was our speculation.
14 We didn't know but we thought that might be a reason that we
15 lost.
16 Right below that is the one that I was talking
17 about where it says, Revenue due diligence, deep dive
18 lacking. It says in the context of limited management
19 availability and three weeks of full data room access.
20 What's important here is that we were sitting down,
21 all of the players who made these bids, including the big
22 guys in our firm, we were sitting down and we were trying to
23 figure out why we lost so that we wouldn't lose the last
24 time. You do not do that if you are part of an overarching
25 conspiracy. That is evidence of competition.
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1 I want to turn real quickly to this question of
2 step down. I looked at the chart that the plaintiffs put
3 together. Remember they had that chart where you've got all
4 the defendants up here and the defendants here (indicating).
5 And I looked at what they have for TPG. And I really hope
6 that you look at that chart carefully before just accepting
7 what's on it.
8 According to that chart there are three instances
9 in which TPG stepped down according to the plaintiffs.
10 That's what they have down there. TPG stepped down three
11 different times.
12 Interestingly, one of those times is a transaction
13 called Aramark. They don't even have any allegations in
14 their complaint about TPG with respect to Aramark. TPG
15 never even considered Aramark. It is not a situation where
16 TPG stood down. It is a situation where TPG was never
17 interested in competing in the first place. It wasn't an
18 industry we cared about.
19 The second transaction that they have listed as one
20 we stepped down from is AMC, the theater transaction. We
21 didn't step down from AMC theater either. In fact, we were
22 offered, we were offered a co-invest in AMC and we didn't
23 take it. If we had wanted to be in the deal and we thought
24 it was a good deal, we could take it. We didn't step down
25 from anything.
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1 The reason we didn't do AMC, the record is clear,
2 is we don't like movie theaters. We don't want to be in
3 movie theaters. That was a movie theater chain and so we're
4 out. Those are not step downs. Those are unilateral
5 decisions not to compete, which is perfectly legal.
6 The third instance of step down that they give us
7 is HCA. And I want to talk about HCA for a minute because
8 we are one of the losers who is still a defendant in the
9 second count of HCA.
10 HCA was a very difficult transaction for us because
11 TPG has experience in health care. We heard rumblings, and
12 the evidence is clear on this, we heard rumblings of a deal
13 and we did everything we could do, calling people, calling
14 people who we thought were our friends to try and see if
15 there was a deal being done and nobody returned our calls.
16 Then the deal was announced. And we took a couple
17 of days to look at the deal. And one thing you have to
18 remember is that when a deal is announced, you have to sign
19 a noncompete agreement or a confidentiality agreement that
20 says you can get nonpublic information and you can use that
21 nonpublic information. That's what we did.
22 What did we find out when we got that nonpublic
23 information? We found out that under the agreement that the
24 winning consortium had done with HCA, under the existing
25 agreement we had no chance of winning. And the reason we
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1 had no chance of winning was not just because the Frist
2 family had chosen Merrill Lynch, Bain and KKR to be the
3 winners and had worked with them from the very beginning,
4 not only that, but the document had been written, the deal
5 document was written in such a way that it gave match
6 rights, extremely onerous match rights to that team.
7 And what that meant was TPG had the option, we
8 could go out, we could go do weeks and weeks of due
9 diligence, go through all of their documents and try and
10 figure out what we thought the value of that company was
11 based on nonpublic information, the true value of the
12 company, we could do that and we could spend millions of
13 dollars doing that.
14 Under the contract's matching rights, if we bid a
15 dollar more than the existing consortium, the existing
16 consortium got the right to just match our dollar, to just
17 say, okay, we agree, we will pay that extra dollar. And we
18 lost. And we knew that the Frist brothers wanted that
19 consortium and that consortium wanted the deal.
20 So we had to make a decision do we spend millions
21 trying to look at this and then lose or do we just say we're
22 not going to do it. We decided not to do it.
23 Now, when we decided not to do it, we did like the
24 deal --
25 THE COURT: Is that a jury question?
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1 MS. SAMMONS: No, because there is no
2 undisputed -- the undisputed evidence, the only evidence in
3 the record is that there is a reason we didn't do it and the
4 reason we didn't do it was because of the matching
5 provision. There is no other contrary evidence in the
6 record.
7 THE COURT: The only other thing is the
8 decision not to involve your corporation in that transaction
9 occurred in a very, it would appear at least from my view,
10 in a very limited amount of time.
11 MS. SAMMONS: Yes. And if we had made that
12 decision because we thought it wasn't worth the price it was
13 paid, I could see how it would take a long time for us to go
14 through all the data and figure that out.
15 The reason it didn't take a long time here was
16 because there was a deal document and that we got access to
17 that deal document by signing the non-confidentiality or the
18 confidentiality agreement.
19 So we looked at the deal document and it had the
20 matching rights spelled out in it. So once we saw the
21 matching rights, we had lots of discussions internally and
22 then we decided it's not worth it. It's not worth putting
23 the money in when they didn't bring us in in the first
24 place, they have a different preferred team, and they get to
25 match whatever we do. That's what the evidence is, okay.
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1 The evidence is also though that we called, we did
2 call the winners after we made the decision not to compete.
3 And we did that for a very clear unilateral reason. We
4 called them to tell them we were not going to compete not
5 because they asked us not to compete, there is no evidence
6 anybody asked us not to compete, we just decided we weren't
7 going to compete. And then we called them and told them
8 because we wanted in on the deal.
9 And the record is full of evidence that shows how
10 badly we wanted in on the deal. We called KKR. We called
11 Bain, both of which under the plaintiffs' theory are our
12 conspirator friends. Neither one of them would let us into
13 the deal.
14 We ended up going to Merrill Lynch and begging and
15 cajoling and pleading saying please let us in this deal.
16 And you know what? Nobody said yes. We wanted in this
17 deal. We took a calculated risk. We said we're not going
18 to win, let's try and curry favor, let's go ahead and
19 approach them, tell them we're not going to win, and they'll
20 let us into the deal. Exactly the conduct that according to
21 the plaintiffs is how this whole thing worked. We did it
22 and nobody let us in.
23 That is not evidence of an overarching conspiracy
24 and it is not evidence that we are part of any overarching
25 conspiracy.
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1 Thank you.
2 THE COURT: I will hear from the plaintiffs.
3 MR. COUGHLIN: Your Honor, Patrick Coughlin
4 for the plaintiffs. I'm going to talk hopefully briefly
5 about the facts and then my co-counsel Craig Wildfang will
6 deal with some of the law that applies here.
7 If I might just hand out these slides. They're not
8 quite in order because I was going to do KKR with
9 Mr. Tringali.
10 (Whereupon, a binder was handed to the Court, the
11 Clerk and the Law Clerk.)
12 MR. COUGHLIN: When we decided to address it
13 in an overarching manner.
14 Your Honor, I would like to deal with four things.
15 I would like to deal with the issue of the unindicted
16 co-conspirator that's not here to kind of put meat on the
17 bones and tie it all together.
18 I'd like to deal with the, I don't know if it's the
19 accusations or the statements that there is no evidence of
20 this overarching conspiracy.
21 I'd like to deal with the questions that just came
22 up about auctions being proprietary deals.
23 And I'd like to deal with companies with a
24 particular focus.
25 But I can't help myself as I'm about to deal with
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1 those four things not to address just the last couple of
2 statements of the person who just got up and talked about
3 TPG. She got up here and said, well, we wanted to get in
4 that deal. We wanted to do this. We wanted to do that. We
5 didn't, you know. The internal email from TPG says that
6 they didn't bid because they didn't want to crash somebody's
7 party. That's what they said. And then, of course, they
8 called and said they weren't going to bid.
9 They also, if they wanted in so bad as she just
10 spent five minutes talking about getting in that deal, we
11 asked, we begged, we pleaded, why didn't they bid during the
12 50-day go shop period? Why didn't they? Because that's not
13 what was happening during this time with these people who
14 had agreed not to jump a single bid. And I'll get to how
15 auctions and proprietary transactions kind of meld together
16 in this deal and how the agreement stays consistent
17 throughout.
18 THE COURT: What transaction are you referring
19 to?
20 MR. COUGHLIN: I was referring to HCA and
21 TPG --
22 THE COURT: All right.
23 MR. COUGHLIN: -- wanting to get in that so
24 badly.
25 How about a bid, you know, why did they just keep
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1 asking to do a combination? They could have bid during the
2 go shop period. They said they called immediately within
3 three days as Your Honor noted and said they're not going to
4 bid. But let me deal with the unindicted co-conspirator.
5 Wouldn't it be great if we were still -- I was with
6 the government nearly a decade time trying conspiracy cases.
7 Wouldn't it be great if I had the power in the grand jury to
8 threaten somebody with getting indicted, have them come in
9 here and explain what it is. But that's not who we are. We
10 are civil lawyers and we don't have that power.
11 THE COURT: My only point was that in almost
12 every criminal conspiracy case of any magnitude you have the
13 unindicted co-conspirator who could put it together.
14 Without it there is no case.
15 MR. COUGHLIN: And I want to address that
16 because I think that's an important point.
17 That's right. When I was with the government, I
18 could threaten the little people on the line whether it was
19 the T.H. Lee, you know, who you made a comment about, you
20 know, well, they might have offered you a deal, you know,
21 the Naked City comment, and he would have put them on the
22 stand and you would have said, okay, you're not going to get
23 here, now tell us how this all operated and how it worked.
24 Of course, we don't have, you know, that power to do that.
25 And that's -- but that's fine, that's where we are.
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1 There wasn't a single unindicted co-conspirator
2 that I ever put on the stand in the nearly decade that I was
3 trying those cases that I didn't call a liar. First of all,
4 that person was in the conspiracy. I would tell the jury
5 that you couldn't believe a word that person said. You
6 couldn't because he lied to get there and he was probably
7 lying on the stand.
8 It helps you form the road map but I'll tell you
9 what, you better have independent evidence of what that
10 conspiracy was, what that agreement was to join that
11 conspiracy, especially if it deals with companies that are
12 in legitimate businesses.
13 If there is a conspiracy, you better have
14 independent evidence of it to show an agreement to come
15 together to suppress competition. And I suggest, I would
16 say here we have that in every one of these deals. But the
17 question you have been asking, I mean, there are emails that
18 are damning in every one of these deals. Call Joe, see what
19 he'll say there. What about Bob, did we get ahold of him?
20 Let's not submit this bid here. Let's see what they're
21 going to bid. We'll put in a soft bid. Can we come in
22 later --
23 THE COURT: My point is this:
24 Assuming that you have that type of evidence but 27
25 deals, what is the interconnection?
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1 MR. COUGHLIN: What's the glue?
2 THE COURT: Yes.
3 MR. COUGHLIN: The glue that keeps those deals
4 together is because the agreement is the stand down
5 agreement, the agreement is to not go above the bid.
6 Can you put up the first.
7 I think you've already seen this chart here
8 yesterday and I don't have a slide of it today, Your Honor,
9 but -- no, the first one.
10 These are the deals, these are the deals that are
11 at issue here. There is not a single deal, not a single
12 deal that once it was announced that that was -- that it was
13 overbid or jumped. You know, they got up here and said, oh,
14 we jumped this, we did this. The agreement is not to have
15 jumped an announced deal, okay. That didn't occur in a
16 single one of these transactions, not a one. That's
17 evidence.
18 THE COURT: How many are there?
19 MR. COUGHLIN: 19. Those are the 19 deals
20 we're talking about. Two of them don't have damages for
21 various reasons as we've talked about. So there is 17
22 damage deals but there is 19 deals.
23 Not a single deal was jumped, okay. If we go to
24 the next slide --
25 THE COURT: But it was argued by one of the
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1 counsel that nine of them were auctions so --
2 MR. COUGHLIN: That's right.
3 THE COURT: -- we are talking about seven.
4 MR. COUGHLIN: Absolutely not, okay. Because
5 with the conduct that occurred in the proprietary deals,
6 once it was signed, everybody agreed not to bid and HCA, you
7 had the blatant example where everybody told them, told
8 their competitor they wouldn't bid during the first three
9 days of the go shop period, okay. The auctions, of course,
10 happened differently, okay, because now the company says,
11 oh, we're going to put it out for auctions so you have
12 people initially, competition occurs, right.
13 THE COURT: Yes.
14 MR. COUGHLIN: But once, but during that
15 competition a number of things happened among these
16 co-conspirators that make that conduct and the stand down
17 agreement exactly the same as in the proprietary deals,
18 okay.
19 If you flip to the next chart, you'll see, Your
20 Honor, when the auctions start, okay, you do get some
21 competition, okay. You get competition -- the auctions are
22 the last nine deals. The first seven deals are the
23 agreement, okay, the proprietary deals.
24 THE COURT: Yes.
25 MR. COUGHLIN: Okay. And the last nine deals
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1 are, quote, where there is competition, it's supposedly
2 broken out right there bidding against each other. That
3 bidding process, okay, our experts have said that these bids
4 are between 10 and 15 percent below what the market should
5 pay for these. So even though sometimes it got up to nearly
6 six percent, okay, in some of these initial things, it never
7 got higher. Why? Because once all the players saw who was
8 bidding, a number of things happened.
9 And I'm going to take you through a transaction
10 that I think is exactly what happened basically in the nine
11 but just to show you that we have documents in evidence
12 because I won't go through all nine to establish what
13 happened in this, quote, bidding process.
14 It wasn't fair. It wasn't competitive. It became
15 anticompetitive because these competitors came in and bid.
16 They wanted this company, right, and then a number of things
17 happened. They combined so they wouldn't bid higher. They
18 agreed to put in a soft bid so the bid wouldn't get higher.
19 They agreed to combine in later deals. So the agreement,
20 the overarching agreement stays the same in the seven
21 proprietary deals as in the nine later auctions. That's why
22 this case has the glue where you don't have a single, not a
23 single jumped bid. You have other activity that is illegal
24 like bid rigging and other things like that but that's not
25 the agreement.
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1 The agreement is not to jump a signed deal or a
2 deal that hit a certain level in an action and they had
3 reached an agreement not to jump that because that would
4 cost everybody money and that would cost everybody money in
5 the next deals. And that agreement was consistent. You
6 know, they said whether it was the companies that just had a
7 smaller focus or companies that were in all the deals.
8 I'd like to take a look at the next chart. The
9 next one.
10 THE COURT: So your position so far that in 19
11 or 17 of the transactions there was a stand down on all of
12 them?
13 MR. COUGHLIN: This stand down occurred across
14 the board in all of these transactions, okay, in one form or
15 another, but the agreement remained in tact, okay. Either
16 the bidding stopped and there was a combination that
17 restricted the competition or once a signed deal happened,
18 you know, that was it. I think the Freescale --
19 THE COURT: What is your term, "signed deal"?
20 MR. COUGHLIN: A signed deal, a signed deal,
21 proprietary signed deal. In other words, I'm equating the
22 auctions with a, I call it a signed deal, a proprietary
23 deal, so we keep the language the same.
24 Let's talk -- the next slide. Let's talk about
25 the -- I think this is the Freescale transaction, okay. I
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1 think somebody got up here earlier from the Carlyle Group
2 and said, well, there is one email that talks about, you
3 know, not jumping, not getting in or not bidding as a
4 result. There are literally hundreds of these emails that
5 talk -- that go down like this. This is Freescale. Henry
6 Kravis, okay, called Blackstone president Tony James to
7 assure him as he had before that KKR was standing down and
8 that KKR -- this is this whole thing about throwing in this
9 $800 (sic) bid above in Freescale, would not have jumped a
10 signed deal, okay.
11 That language comes from the internal emails of the
12 top guys at the time. In other words, it was very
13 interesting the way they phrased that. We wouldn't have
14 done that, I mean, if we were real competition because we
15 bid 800, you know, we cost them $800 million dollars, the
16 actual documents show that they knew it wasn't a signed deal
17 yet, that it wasn't a proprietary deal yet, okay, and there
18 was competition to get the deal, to get the proprietary
19 deal. The agreement was not to raise the price after
20 somebody got the deal, okay. And that worked in different
21 ways, in the auctions in a number of different ways.
22 But in the proprietary deals there is not a single
23 instance of somebody during the 50-day go shop period of
24 jumping that deal. When KKR locked that bid in that cost
25 Blackstone another 800 million dollars, okay, there still
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1 was not a signed deal and KKR knew about it and that's a
2 real distinction, okay.
3 Days later competition, the three separate deals
4 involving six defendants, they all benefited. "We would
5 much rather work with you guys than against you. Together
6 we can be unstoppable. In opposition we cost each other a
7 lot of money." Roberts responded, "Agreed."
8 That's a co-conspirator agreeing with the statement
9 of the conspiracy not to compete, okay. That's the type of
10 evidence that we have throughout this deal. But the
11 evidence that pulls it all together is that all of these
12 people, all of the main players were involved in the 27
13 transactions in one way or another. In other words, the
14 top --
15 THE COURT: I always felt from being involved
16 in this case so long and preparing for these hearings over
17 the last couple months that HCA and -- what was the name you
18 just mentioned?
19 MR. COUGHLIN: Freescale.
20 THE COURT: Freescale and Philips were, there
21 was some evidence that there might well have been some type
22 of conspiracy with respect to those particular participants.
23 But my problem has been how do you use those stronger
24 transactions to connect with the whole? That is my problem.
25 MR. COUGHLIN: I understand that. And I think
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1 any time when you have conspiracy and you have different
2 transactions that are coming together and there are big
3 cases where, that were actually a lot bigger than this, and
4 in some of the deals with stronger, whether it was NASDAQ or
5 something else, but any time when you have a disparate
6 number of deals and you're relying on the evidence of the
7 internal documents, you're going to have better evidence,
8 you're going to have better evidence of the conspiracy in
9 some deals than the other.
10 And, let's be frank about it. In some deals the
11 activity or the illegal activity to suppress competition was
12 much stronger, okay. There is no doubt about that. You
13 know, so I'm sure that actually some of the other deals you
14 were thinking about, maybe Kinder Morgan, Texas Genco, TXU,
15 SunGard, HCA, PanAmSat, Freescale, Clear Channel and Toys
16 "R" Us, yes, there is a hierarchy of deals where the
17 evidence is better. And does that work the same way with
18 the defendants?
19 If we can go to the next one. Next slide.
20 I'm going back to the connection slide. If we look
21 at the connecting slide, it works the same way with the
22 defendants. There are people that are involved, KKR, Bain,
23 TPG, Blackstone, Goldman Sachs, there are players -- and
24 Carlyle -- there are players that are much bigger, that's
25 right. That J.P. Morgan, you know, presentation today, you
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1 say, hey, what are they still doing here? We believe they
2 were connected and even the lowest member, in the conspiracy
3 law even the lowest member is liable for the whole thing.
4 A jury could easily or Your Honor even in summary
5 judgment could say, hey, I look at J.P. Morgan and I don't
6 see enough to keep them in. No doubt. I take a look at
7 Apollo. They weren't in enough deals or influenced enough
8 to keep them in, okay.
9 Now, we get into a different territory when we talk
10 about Providence and Silver Lake. They said they only
11 focused on a certain, on certain industries. Why would it
12 benefit them? Well, the reality is they had to be part of
13 this boy's group, big boy's group to get into those deals,
14 okay, that they had an interest in because they had a
15 smaller focus, okay. So they were very much restrained, you
16 know, by the conspiracy and involved in it.
17 You know, Silver Lake, the main example is the
18 SunGard case, okay, where they got all kinds of benefits,
19 okay, for orchestrating that and keeping that the way that
20 it -- and there is good evidence of the combination there.
21 And then the favor that flowed from some of that.
22 Now, the favors that flow about getting in the
23 other deals and combining, you know, those favors, that is
24 not the overarching agreement but that's what you get for
25 following in and being a part of the overall agreement. But
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1 that's right, if you just take a look at the big six, TPG,
2 Bain, KKR, Blackstone, Goldman and Carlyle, you get all the
3 deals, because it happened in all those deals, proprietary
4 or auction, okay, and you connect everybody up and these are
5 the bigger funds. And so the bigger funds, the money, you
6 know, for the most part controlled the auction versus the
7 smaller funds or maybe a focused fund like Providence or
8 Silver Lake.
9 So you do have different levels and different
10 players, okay. But it doesn't mean that that wasn't part of
11 the agreement and affected by it. Even if the evidence,
12 even if a jury could let that deal out or that defendant,
13 you could do that, you know, on summary judgment and say I
14 see that as to these six, you know, there is plenty of
15 evidence, it's a little less here as to these three, it's
16 not so good at all as to these two, as to the final five.
17 We think we have presented enough evidence that we
18 should get to the jury on all 11, on all of the deals and
19 all of the damage deals, the 17 damage deals, okay. We
20 think we have provided evidence, we certainly provided
21 evidence of the agreement that had the impact to not have a
22 single bid jumped, okay. And so that should get us there at
23 least for the big six and for at least those ten deals that
24 I mentioned earlier. Without a doubt those are I believe
25 jury questions.
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1 And I think that's what you struggled with here.
2 You say where is the evidence in a Neiman Marcus deal that
3 was an auction deal that the internal evidence that I have
4 seen so far where people say that was fully bagged (ph.) and
5 I don't really, I wouldn't have really bid for that.
6 Well, that's right and you kind of -- how does that
7 fit? Well, why didn't the deal ever change from the $100
8 price tag? The reason, because the conspiracy was in effect
9 so to every one of these deals that we mentioned and to each
10 one of these defendants we at least have evidence of their
11 involvement in it. And they may not be the big guy. Some
12 of them are the smaller people. And some of those
13 decisions, you know, may be made.
14 We want to present a complete picture about the
15 overall conspiracy, you know, to the jury. And that's why
16 we have all the players that were involved in it listed here
17 and we have got evidence as to each one and their
18 involvement, you know.
19 They like to dismiss the case, that it might have
20 been released for another reason that didn't have damages
21 because of the ownership like PanAmSat, you know, but they
22 don't want to deal with the evidence in there like about the
23 combination.
24 And let's take a look at PanAmSat for a second.
25 Let's do this first. This is the HCA. Your Honor, this is
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1 the one they were talking about them, you know, standing
2 down within in days and the calls come in, boom, boom, boom
3 at HCA, you know. TPG and Goldman Sachs all told us we're
4 not going to compete. Kravis receives a call from Tony
5 James today. Blackstone not going to bid on HCA.
6 Let's go down to here (indicating). Let's go down
7 here, KKR later returned the favor and agreed not to jump
8 TPG's Freescale deal. TPG's managing director John Marren
9 stated, "KKR has agreed not to jump our deal since no one in
10 private equity ever jumps an announced deal."
11 We have an explicit statement about the agreement
12 in the evidence here and it's linking up to deals in the
13 past and a deal coming forward. And that's what he says,
14 you know, in those emails. That's pretty strong evidence of
15 an overarching conspiracy connecting the various deals.
16 Is there better evidence for some versus others?
17 Absolutely, Your Honor. And that's why I thought if
18 everybody, I made the suggestion if we finished off with the
19 individual defendants and they made their points, and some
20 of them had good points. Did we name the right, you know,
21 person, Goldman Sachs? We think we did. We named the
22 holding company. We couldn't sue a division. That's what
23 we thought we should do. Goldman Sachs is a big player.
24 You know, J.P. Morgan, yeah, they have a better
25 argument about whether they should be in or not. And I
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1 understand the Court's grappling with that.
2 But to get an overall picture of those that were
3 involved in this conspiracy, you know, we named the people
4 that we had evidence to and we presented that evidence to
5 the Court and I will let my colleague --
6 THE COURT: One of the thrusts of your
7 argument is the so-called, as you phrased it, an agreement
8 not to jump a signed deal; is that the phrase?
9 MR. COUGHLIN: Absolutely. It's a signed deal
10 and it takes -- and, of course, I showed it takes a little
11 variance when you do the auctions about how the side deals
12 come about.
13 THE COURT: And you represented that that
14 occurred in the seven key transactions or at least in the
15 seven proprietary transactions.
16 MR. COUGHLIN: Well, absolutely without doubt
17 occurred in the seven. And the way that it occurred in the
18 auctions is as follows:
19 There would be competition, I showed you how the
20 price rose almost six percent, there would be competition.
21 But along the way there were deals being made to suppress
22 competition there and then once the final agreement was made
23 about who would get it and how they would get it, you know,
24 and who would stand down and who would come in the
25 combinations, which essentially is an agreement --
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1 THE COURT: I will say that is the strongest
2 argument for the connection.
3 What I'd like is, now that we have got at least an
4 argument that there is a connection, I would like someone on
5 the defendants' side, I don't know who it would be, to
6 contest --
7 MR. COUGHLIN: And let me show you what I mean
8 on the auctions so we get it right so when Mr. Tringali
9 comes up and challenges me here, like he's going to do in a
10 second --
11 THE COURT: Is he the one who is going to?
12 MR. COUGHLIN: I'm sure he is.
13 (Laughter.)
14 MR. COUGHLIN: I'm sure he is in a second.
15 THE COURT: Is that right?
16 (Laughter.)
17 MR. COUGHLIN: If we could go to PanAmSat.
18 THE COURT: Well, I know what it means to be
19 proprietary --
20 MR. COUGHLIN: Right. We are going to go to
21 an auction.
22 THE COURT: Yes, go to an auction. I kind of
23 understand it but it is somewhat unclear.
24 MR. COUGHLIN: Now I don't see it.
25 THE COURT: But just explain it as you did
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1 before. I have got it but --
2 MR. COUGHLIN: Here's how -- so there is an
3 auction starts, a company wants to, let's say PanAmSat wants
4 to sell off a division, okay. So that's why it's not in the
5 damage section. And so they say, okay, we are going to put
6 it up for auction, okay. Then we have a couple of the
7 defendants here that are going to bid for it, okay. And, in
8 fact, KKR is bidding for it and they say -- and they find
9 out that three of the other defendants are also interested
10 and I can't -- I think they're Carlyle, Silver Lake and
11 Blackstone, and I probably misspoke as to one and they're
12 going to sue me in a minute.
13 But, so three other defendants are interested in
14 the deal. And they're actually talking about combining and
15 coming together against KKR. KKR learns about that. They
16 start talking about what their -- first of all, a bid goes
17 in, okay. Good. I'll come back -- it's Carlyle and
18 Providence. And Blackstone was going to drop out.
19 So they start talking about what they're going to
20 bid in the next round, okay. And they agree over here
21 (indicating) that they would both bid and then come together
22 later, okay. The consortium would like a second option, it
23 promised Blackstone it would submit a soft bid allowing KKR
24 to win, okay. That's how this came about. KKR then wins
25 the bid and cuts in Carlyle and Providence into the deal as
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1 limited partners, okay. That's how that operated in that
2 context. So literally three defendants stood down, you
3 know, said that they would put in a soft bid if that's what
4 they wanted them to do.
5 And then they did put in a soft bid, two of the
6 defendants got together, Carlyle and Providence, put in the
7 soft bid which made KKR's bid look all that more attractive
8 to PanAmSat, you know, for PanAmSat. They get the deal and
9 KKR tells management we can do this deal all alone. You
10 know, all this stuff you hear about we need to pool
11 resources to able to do these deals. No, KKR tells
12 management we can do this deal completely by ourselves.
13 The whole time they're talking, and we have the
14 emails to support all this evidence, the whole time they're
15 talking in the background about we're going let you in, you
16 know, we can do a four-way deal, you can put in a soft bid,
17 different ways to stand down, okay.
18 Sure enough, within, well, less than a month later
19 KKR cuts in losing bidder Carlyle and Providence, they cut
20 them in before even telling the seller that they're cutting
21 them in. And they cut them in the deal and they get the
22 same amount of profits per their percentage investment as
23 KKR who orchestrated the deal. And this was a very, very
24 profitable deal.
25 That's the way it worked in auctions. The
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1 defendants who have a stand down agreement, that was easily
2 set for proprietary deals, in auctions they stood down in
3 various ways but the competition was suppressed in the same
4 way and the agreement remained the same. At some point you
5 would stand down, okay. In the auctions it took a little
6 while and you saw a little bump up in the competition but
7 there's the overarching agreement that ties all of those
8 together.
9 THE COURT: So the thrust of the
10 interconnection as argued by the plaintiffs is the agreement
11 to stand down?
12 MR. COUGHLIN: Yes.
13 THE COURT: All right. What do you say?
14 MR. TRINGALI: They're wrong.
15 THE COURT: He made a fairly strong argument;
16 did he not?
17 MR. TRINGALI: No, he didn't, Your Honor,
18 because --
19 (Laughter.)
20 MR. TRINGALI: And I will tell you why.
21 You know, he said, he used the PanAmSat example.
22 Let's take that as the first example. You know what he
23 didn't tell you about is there were three bidding groups.
24 And you know what? After Carlyle and Blackstone and
25 Providence dropped out and then came in later on the KKR
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1 bid, guess what? KKR was bidding against T.H. Lee and Bain,
2 two of the other defendants here.
3 There was another round of bidding and KKR was
4 bidding against them. And it was only when KKR then outbid
5 those two other bidders that Mr. Coughlin conveniently
6 omitted did KKR then invite Providence, Blackstone and
7 Carlyle into the deal and Blackstone declined because it
8 thought KKR had paid too much. That's what he forgot to
9 tell you. And that's his best example in the auction
10 situation, Your Honor.
11 His best example in an auction situation is where
12 he has forget to tell you about the final bid where the
13 defendants are bidding against each other.
14 THE COURT: Well, let me ask you this. Let's
15 stay away from the auction because that is somewhat
16 amorphous; but with respect to the proprietary, he made a
17 strong argument that there was -- that in every proprietary
18 deal that there was an agreement to step down and the
19 agreement can be inferred by the fact that everybody did
20 stand down.
21 MR. TRINGALI: The problem --
22 THE COURT: My question is is that so and if
23 it is, should at least Count 1 go to the jury with respect
24 to at least the seven proprietary transactions?
25 MR. TRINGALI: Well, first of all, Your Honor,
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1 it shouldn't because of the discussion we had yesterday
2 about, you know, Mr. Coughlin wasn't here yesterday so he
3 didn't hear his co-counsel say that --
4 THE COURT: He is lucky.
5 (Laughter.)
6 MR. TRINGALI: Luckily he wasn't here
7 yesterday but unfortunately he didn't hear his counsel say
8 that they were sticking with the 27-deal conspiracy.
9 THE COURT: Well, that is true. But for
10 fairness, could I cut something out or could they dismiss
11 all the other transactions and just go with the seven?
12 MR. TRINGALI: And they can't for all the
13 reasons that Mr. Primis explained to you yesterday, Your
14 Honor. They can't. And the, so the problem they have now
15 is --
16 THE COURT: Well, let's get to the
17 substance --
18 MR. TRINGALI: Okay, let's get to the
19 substance.
20 THE COURT: -- on those seven proprietary.
21 MR. TRINGALI: Absolutely, Your Honor.
22 First of all, we have the Freescale situation where
23 we did come in at the last minute knowing they were about to
24 sign the transaction. The reason why you try to do it then
25 is because you're not then caught up with what Ms. Sammons
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1 told you about having to deal with all the contractual
2 protections that one gets once one signs a deal. So you
3 don't have to then deal with the fact that somebody's got
4 matching rights so they can match your offer and you don't
5 have to pay a breakup fee, as well as the fact that they've
6 already aligned with management.
7 And the other problem, practical problem, Your
8 Honor, that we haven't even mentioned to you today, the
9 reason why people don't want to mess with the time and money
10 and effort in signed deals is because the person who made
11 the signed deal, they have been doing diligence on that
12 company for months, months, and now you're asking somebody
13 to jump the deal, okay, to put in a new signed deal in a
14 limited period of time having limited ability for diligence,
15 knowing full well that whatever price they put in there are
16 these contractual protections that allow the winning bidder
17 to match and get the deal.
18 And they say why didn't Ms. Sammons' client bid
19 higher than $51 and they like to point out how KKR and Bain
20 were saying that $51 was as high as they were willing to go.
21 Well, what they forget to tell you is that KKR and Bain
22 didn't tell the other defendants that that was as high as
23 they were going to go. KKR and Bain said that internally
24 and to the board of HCA which thought that was a fair price.
25 And I might add the board moved up the price. The price
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1 started I think $48 and the board kept negotiating with Bain
2 and Merrill, not a defendant here, and KKR until it got to
3 $51 and then it accepted the price.
4 But the other bidders, the other potential bidders
5 who stepped down, they knew that KKR was committed to the
6 deal and you see what their documents say. What is in their
7 mind, in their independent interest under the Matsushita
8 test, Your Honor, which the plaintiffs conveniently forget
9 about, they're thinking that Kravis would never let this
10 happen, he's going to match any offer. They don't know what
11 they're saying in their own internal documents.
12 And then furthermore on these, on this whole issue,
13 Your Honor, of not jumping a signed deal, remember I read to
14 you yesterday and I showed you some documents as to why
15 people decided not to jump a signed deal. Apollo, for
16 example -- and this was tab 22 of the binder I gave you
17 yesterday on Aramark -- saying, "We'd probably spend money
18 and time and piss off friends and they'd pay a few bucks
19 more and we get nothing."
20 THE COURT: Let me ask you this question:
21 With respect to the seven proprietary transactions,
22 if there is evidence that there was a step down, is that
23 sufficient to at least let it go to the jury if, if, again,
24 I am not going into the pleading aspects of this case, but
25 assume there was only seven transactions which were the
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1 object of this overarching conspiracy.
2 And if we had evidence relating to a lack -- not a
3 lack -- a step down in these transactions, would that be
4 sufficient at least at this stage in the proceedings to
5 allow the case to go to a jury?
6 MR. TRINGALI: If all those things happened,
7 Your Honor, that you posited, the problem is, you know,
8 first of all, that's not the conspiracy obviously and I
9 think the --
10 THE COURT: No --
11 MR. TRINGALI: -- the fact that I brought
12 up --
13 THE COURT: -- from the so-called procedural
14 problem --
15 (Whereupon, counsel is talking simultaneously with
16 the Court.)
17 MR. TRINGALI: But the other problem Your
18 Honor has is that there is no such agreement and they
19 haven't shown you an agreement.
20 THE COURT: But couldn't the jury draw --
21 MR. TRINGALI: The jury needs --
22 THE COURT: -- from the facts?
23 MR. TRINGALI: No, Your Honor, because it
24 doesn't meet the Matsushita test which is a test for you
25 under summary judgment, for summary judgment as the First
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1 Circuit said under those special rules.
2 And in each of these transactions, each of those
3 proprietary transactions, defendants here have independent
4 reasons that they have documented contemporaneously as to
5 why they're not pursuing a signed deal. In some cases, for
6 example, AMC is a proprietary transaction. It's a movie
7 theater chain. You heard Ms. Sammons say her client had no
8 interest in movie theaters. My client KKR bought a movie
9 theater chain Regal. You know what happened? It went into
10 bankruptcy. Do you think they didn't want to do another
11 movie theater deal? No, so they didn't bid on it.
12 Kinder Morgan is another proprietary transaction.
13 You know what happened there? Four defendants were asked if
14 they would want to participate in the Kinder Morgan
15 transaction. They were invited to join that transaction.
16 They didn't have to jump any deal. They were invited in by
17 Goldman Sachs and they declined.
18 Why is that stepping down? They had an invitation
19 to come in at the price Goldman Sachs was coming in. And
20 you know what happened in that situation, Your Honor? The
21 price continued to get bid up because the board of Kinder
22 Morgan didn't like the price that was being offered so they
23 had to continue to bid up the price, I think it went from
24 something like close to $100 to $107 until Mr. Kinder
25 actually had to, in order to let the deal happen because his
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1 partners didn't want to pay that money, he had to for his
2 share, his stock, he had to -- he agreed to accept a lower
3 price.
4 So that's what happening on these proprietary
5 deals. Aramark is the same situation. So just because
6 something is a proprietary deal, Harrah's, another example,
7 a gambling casino. Do you know how many defendants, because
8 gambling casinos make you go through state gambling
9 commissions and you have to put in lots of regulatory
10 information so they don't want to do it. That's
11 uncontested. It's uncontested that defendants chose not to
12 do that.
13 So the idea that people step down, the example that
14 the plaintiffs say there is no examples of people coming in
15 after a signed deal, you have to evaluate that under the
16 Matsushita test and they simply have a failure of proof
17 there.
18 But the most important thing for Your Honor is
19 they've now made up after two days, after being here for two
20 days, they have now made up what the -- it took someone who
21 wasn't here yesterday to come up with something to give Your
22 Honor to wrap your arms around it and say it's an agreement
23 to stand down. And I'm going to throw the auctions in even
24 though Your Honor saw how many documents over the last two
25 days, both the documents I showed you in the omnibus motion
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1 and the individual documents of the defendants where they're
2 involved in an auction situation and they say I gave it my
3 best shot, is was an absolute stretch. I can't go any
4 higher. I don't know what they're thinking.
5 And the plaintiffs say we've agreed not to bid up
6 the price. We've agreed to stand down. Your Honor's
7 recognized that we have no obligation to continue to bid
8 when we think it doesn't fit our -- when we think the price
9 has gone too high. And how do you possibly, how do you
10 possibly, Your Honor, look at that evidence and then say
11 Mr. Coughlin is correct when he says, oh, it spanned all
12 these deals, proprietary and auction?
13 He gives you the one example, PanAmSat, and he
14 leaves out the end of the story. And he doesn't even go
15 into the rest of them, like Neiman Marcus where Bain says --
16 sorry.
17 THE COURT: Let me ask you this and then I
18 will get back to the plaintiff.
19 Suppose they were to dismiss at this stage, I am
20 not saying they can or should or what, but suppose they did
21 and just got down to what the plaintiffs characterize as the
22 six major players and they relate to ten. Would that cut
23 the conspiracy?
24 MR. TRINGALI: Your Honor, we go back to
25 yesterday's question and the whole response you got
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1 yesterday and what the law is, that you can't change at
2 summary judgment, to defeat a summary judgment motion. You
3 have made your strategic choice like Judge Breyer said,
4 you're stuck with that. A strategic choice that they have
5 known about, they've known your scepticism but they kept it.
6 And yesterday they said they were keeping it and they
7 weren't trying to limit it either by defendant or deals.
8 It's only today that Mr. Coughlin tells you we'll limit it
9 to some deals, maybe we can limit it to some. Maybe some
10 deals aren't so good. Maybe some defendants aren't so good
11 because they have read your comments.
12 But, Your Honor, there is law here, there is law
13 here that they cannot just for strategic reasons to try to
14 defeat a summary judgment motion suddenly change their case
15 and come up with a new conspiracy.
16 And the conspiracy, as Mr. Primis explained to you
17 yesterday, is going to change dramatically. It's now going
18 to be a different conspiracy because if you have only six
19 defendants, then the question is what about the other five
20 who they were saying until now were essential to the
21 conspiracy and part of the conspiracy and part of the
22 allegation, those people could be bidding.
23 If you are dealing now with only six deals or seven
24 deals, how does that change the dynamic of the conspiracy?
25 So it becomes an entirely new case, a new pleading, a new
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1 complaint. Do we have a sixth amended complaint, Your
2 Honor, after six years or how many years we've been here?
3 I think the law is very clear the answer is no. I
4 think the plaintiffs told you yesterday the answer should be
5 no, that that's not what they're interested in. And I think
6 now to come up with a theory that it's proprietary deals
7 which actually doesn't even meet, their evidence doesn't
8 even meet the Matsushita test because of the independent
9 reasons people had, and, A, procedurally it's incorrect and,
10 B, substantively it's incorrect because they don't even have
11 the evidence as to those transactions.
12 THE COURT: All right. Any response?
13 MR. COUGHLIN: Just quickly and then we'll hit
14 the law. Absolutely I'm not cutting down the case. What
15 I'm acknowledging is that there is better evidence as to
16 certain defendants and as to certain deals, okay.
17 And actually there's nine proprietary deals as I
18 just counted them up: Freescale, HCA, SunGard, Harrah's,
19 AMC, TXU, Aramark, Texas Genco and Kinder Morgan. So there
20 is no question that those nine deals that the conspiracy was
21 in effect, a jury could say, okay, I'm going to look at the
22 auctions and they might come to a different conclusion.
23 We think it's very strong as to the auctions too
24 and you saw that they came together, they put in a soft bid,
25 they rigged that bid. That was in essence a stand down
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1 agreement. They talked about the bid as it went in. You
2 know, this idea that this other group was a serious bidder
3 was not the case. That was the one deal that was below
4 market price.
5 But every one of these auctions has that same type
6 of activity going on so we have the overarching conspiracy.
7 Just because we have that, and that's the way we pled it,
8 that's right, that doesn't mean Your Honor or a jury
9 couldn't throw out certain deals. That doesn't affect our
10 pleadings. That doesn't affect our conspiracy or how we
11 pled it. Somebody could find, yeah, I don't think that, I
12 don't think that J.P. Morgan was really a part of this
13 conspiracy. They certainly weren't a controlling part so
14 I'm not going to hold them in as a co-conspirator. They're
15 not going to be liable.
16 That happens every day in conspiracy trials. That
17 doesn't mean the indictment is somehow flawed or if you lose
18 one co-conspirator, then does the whole case go out against
19 the other five? No way. Countless cases get tried, you
20 know, I can't remember how many --
21 THE COURT: But defendants' argument is even
22 if your complaint involved only five or six of the
23 defendants on seven or eight or nine transactions, that they
24 are at most individual conspiracies and there is no
25 overarching agreement.
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1 MR. COUGHLIN: You could have brought this,
2 you could have brought this case maybe that way too and just
3 done it individually; but the way this agreement worked is
4 why it was overarching. In other words, it was a stand down
5 agreement so that you could do the next deal and know
6 somebody wouldn't jump yours. That was the agreement. That
7 suppressed the process. That protected you. That was the
8 main benefit that each of these defendants got, okay.
9 So we could have pled it smaller and, in fact, the
10 government all the time charges, has unindicted
11 co-conspirators that aren't cooperating, don't come in, they
12 were just part of the conspiracy and evidence is put on to
13 them as to their involvement. You could have done with the
14 lower five here. We could have said they're, you know,
15 we're not charging them, we're, you know, we're not naming
16 them in our complaint but they participated in this
17 conspiracy but they were at such a level that we didn't.
18 That doesn't undermine our pleadings.
19 What we did in this case, we named all the
20 conspirators and we named the deals that were involved. And
21 there is a uniform system that goes into place here. And we
22 can show it on any given deal. And if she wants to go
23 through every one of those PanAmSat docs, I'll do it, I'll
24 do it right now about that competition and we'll show you
25 that there was talk between those competitors as they put in
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1 those bids and they came together later. And that satisfied
2 what the agreement was to stand down, to move away, to come
3 back in later. And that happened in both the proprietary
4 deals and the auction deals.
5 And so the fact that we pled this way, you know,
6 even if we lose a few of the people, it doesn't mean they
7 weren't conspirators. It doesn't mean they still don't have
8 a role. They don't even need to be named, okay. So they're
9 wrong about that.
10 You're right, I wasn't here for yesterday's
11 argument and I wish I was now that I heard what they're
12 arguing today but --
13 THE COURT: It was a long day.
14 (Laughter.)
15 MR. COUGHLIN: I had a long day too. But,
16 Your Honor, I think that our pleading stands. Whether we
17 lose a few deals or lose a few defendants, I'm not saying
18 that we should, I'm saying that it is a jury question of
19 whether we should or not.
20 What I was acknowledging is what Your Honor was
21 struggling with as you tried to say I can see that in
22 Freescale you have some, I can see that in HCA, I see what
23 is happening in, you know, SunGard and TXU. I can see that
24 and that makes sense to me. And I see that these four or
25 five people were involved in each of those deals, you know.
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1 And then you have a tougher time with some of the smaller
2 players or some of the smaller deals, okay.
3 We think those are jury questions. We think we
4 have sent enough in to do that. The fact that I acknowledge
5 that we have weaknesses, that's just what I should be doing,
6 you know, and Mr. Tringali knows that, you know. I want to
7 be candid and say, yeah, that's right, some deals we have
8 unbelievable stunning evidence like just an admission about
9 what the whole conspiracy is about like that last document.
10 But I'll sit down, Your Honor, and have my
11 colleague argue the law just for a minute.
12 MR. WILDFANG: Good afternoon, Your Honor.
13 Again, I echo the defendants' words earlier, you have been
14 very patient with us and I'm going to take a little bit more
15 of your time here but I hope it will be productive time.
16 Let me start by -- may I approach?
17 (Whereupon, some documents were handed to the
18 Court, the Clerk and the Law Clerk.)
19 MR. WILDFANG: Your Honor, yesterday I made
20 mention of the fact that there was a case that I had the
21 privilege to work on when I was at the Department of
22 Justice. It's commonly referred to as the NASDAQ case. I
23 have handed you a copy of the complaint and the competitive
24 impact statement in that case. I didn't get this from any
25 inside information. It's on their website.
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1 But I want to take you through some parts of this
2 because there are important features of the NASDAQ case that
3 we find here and I think it will give Your Honor some
4 comfort about how to look at these multi party, multi deal
5 kinds of conspiracies. So --
6 THE COURT: What is the name of this case?
7 MR. WILDFANG: Well, the caption is United
8 States of America versus Alex Brown & Sons.
9 THE COURT: Right.
10 MR. WILDFANG: These are all NASDAQ market
11 makers so it's commonly referred to as the "NASDAQ case."
12 NASDAQ is an electronic trading market like the New York
13 Stock Exchange only it's electronic.
14 And the allegation in this case, which was I think
15 ultimately proven, was that there was a, what's called a
16 quoting convention agreed to pay all 33 of these big firms.
17 You will notice Goldman Sachs is there. J.P. Morgan
18 Securities was a defendant in that case.
19 They entered into a consent judgment to stop the
20 quoting convention but what's interesting is the defendants
21 in the NASDAQ case made the same arguments you hear here,
22 that it's implausible, how could you possibly maintain this
23 conspiracy over so many deals and so many stocks. We did.
24 It was proven that there was this agreement.
25 And if you look at paragraph 40 on page eight where
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1 the government alleges that --
2 THE COURT: Of the complaint?
3 MR. WILDFANG: Of the complaint, yes. I'm
4 sorry, Your Honor.
5 Beginning at least as early as 1989 and continuing
6 to the date of this complaint a common understanding arose
7 among the defendants and other NASDAQ market makers
8 concerning, among other things, the manner in which bids and
9 asks would be displayed on the NASDAQ and that was the
10 quoting convention. It's described in greater detail in the
11 next two pages.
12 If you turn to page 10, paragraph G, you will note
13 that the government alleged that when widespread news
14 reports and a Justice Department investigation came to be
15 known to the defendants, they abruptly changed their
16 behavior. That's what happened in this case, shortly after
17 the Department of Justice made known that there was an
18 investigation of these defendants.
19 If you look at the competitive impact statement,
20 Your Honor, at page 22. One of the sources of evidence for
21 the government in that case was a document obtained from the
22 defendants where, it's the small blocked indented quote on
23 page 22. It says, "There was a typographical in the
24 newsletter STANY, which was an industry organization. We're
25 certain you'll realize it was misquoted. As you're all
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1 aware, it is clearly unethical to make a Chinese market or
2 to run ahead of an order."
3 This is the equivalent of the statement that you
4 see on the slide that KKR has agreed that no one in private
5 equity ever jumps an announced deal. They're legally
6 equivalent. They are an admission of an overarching
7 agreement followed consistently by these defendants. And
8 you recall, Your Honor, this morning I got up and I asked,
9 you know, were there any examples of jumped deals.
10 THE COURT: Who said that? That statement you
11 just made?
12 MR. WILDFANG: John Marren of TPG. John
13 Marren of TPG.
14 THE COURT: And with respect to what
15 transaction, HCA?
16 MR. WILDFANG: Well, I think it relates to all
17 the transactions because what he says is KKR has agreed not
18 to jump our deal in this deal but they say no one in private
19 equity ever jumps an announced deal. That's the conspiracy.
20 That's the common understanding that we have alleged. Very
21 similar to the common understanding that was alleged in the
22 government's case against the NASDAQ market makers.
23 Your Honor, let me --
24 THE COURT: Let me ask you this:
25 Assume that is admissible against the person who,
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1 now that we are talking about it, the admissibility of
2 evidence; but if that is the heart of the conspiracy, it is
3 admissible against the person who wrote it. How is that
4 admissible against the co-defendants?
5 MR. WILDFANG: Well, statements of
6 co-conspirators, Your Honor, can come in under the
7 co-conspirator exception.
8 THE COURT: Yes, but only if there is evidence
9 to show prior thereto the existence of a conspiracy.
10 MR. WILDFANG: Exactly. And we think we have
11 plenty of evidence. You know, let me bring out the chart
12 that you saw yesterday. You know, at trial we will be
13 prepared to put into evidence all of this information
14 announced as to all of these deals and all of these
15 interrelationships. And then it will be a jury question for
16 the jury to find is there sufficient evidence -- we know
17 there is an agreement. They've admitted the agreement.
18 Then the question is is there sufficient evidence to tie
19 each defendant into that agreement.
20 And let me turn, Your Honor, to some jury
21 instructions that I think are relevant here. Jury
22 instructions that were given by Judge Hogan in the vitamins
23 case. They are -- do you have the binder that I gave you
24 yesterday?
25 (Laughter.)
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1 THE COURT: I am sure I have it. You can read
2 me his instructions. What did he say?
3 MR. WILDFANG: So at tab 4 are some of the
4 jury instructions that Judge Hogan gave in that case. And
5 in particular, instruction No. 31 which is on numbered page
6 36, which is I think indisputably what the law is with
7 respect to antitrust conspiracies, so I won't read it all
8 but let me hit some of the high points.
9 At the bottom of page 36, the last paragraph, Judge
10 Hogan instructs the jury, "To prove a conspiracy the
11 evidence does not have to show that the defendant entered
12 into an express detailed written agreement."
13 The defendants have argued that we have to do that.
14 He goes on to say, "Price-fixing agreements rarely
15 are proven by explicit agreements. Often such agreements
16 are proven not by direct evidence but by inferences from
17 what the defendant and others said and did."
18 THE COURT: This is hornbook law.
19 MR. WILDFANG: Right, but the point is, Your
20 Honor, these instructions, you will probably give the jury
21 in our case very similar instructions. And then the
22 question is for the jury whether or not there is sufficient
23 evidence.
24 But the one I really wanted to point Your Honor to
25 is the second paragraph on numbered page 37. "The evidence
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1 does not have to show that all of the means or methods
2 alleged by the plaintiffs were agreed on by every member of
3 the conspiracy to carry out the alleged conspiracy, nor that
4 all of the means or methods that were agreed on were
5 actually used; nor that all persons alleged to be members of
6 the conspiracy actually were members."
7 That is hornbook law, Your Honor, and that --
8 THE COURT: No doubt. But they have -- that
9 is true but prior -- and I am not saying you haven't reached
10 it -- but this means after there is evidence of an
11 agreement.
12 MR. WILDFANG: Well, Your Honor --
13 THE COURT: After there is evidence of an
14 agreement, the participation of each of the alleged
15 co-conspirators is different. That is some, you know, in a
16 criminal case some drive a car, some carry the gun, but
17 there is an agreement first. That is fundamental.
18 MR. WILDFANG: Absolutely, Your Honor, and
19 that's why I read the last paragraph on page 36, because
20 that is hornbook law. And especially in antitrust
21 conspiracies you rarely find explicit written or summarized
22 agreements.
23 The slide I showed you, that Mr. Coughlin showed
24 you --
25 THE COURT: But that is true in any
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1 conspiracy, even a criminal conspiracy has less
2 documentation.
3 MR. WILDFANG: But my point, Your Honor, is
4 that that statement is -- that's direct evidence of a
5 conspiracy. It says there is an agreement. So we are, we
6 are past having to prove that there was an agreement. And
7 there is plenty of other evidence besides that. I don't
8 want to focus only on that. But all of those emails that
9 say no one jumps deals, I won't jump your deal, I'll stand
10 down on this one, all of that is circumstantial evidence,
11 persuasive circumstantial evidence of an agreement.
12 Your Honor, let me turn to one of the cases that I
13 mentioned yesterday that I think actually is quite
14 instructive. It's the decision in the In Re High Fructose
15 Corn Syrup Antitrust Litigation and it's found at tab eight
16 of my binder.
17 And this is case is important for a couple of
18 reasons. One, it's written by Judge Posner who is widely
19 regarded as one of the premium antitrust scholars in the
20 country. And if you turn to page 655 of this opinion, in
21 the second paragraph in the left-hand column.
22 This is a case where Judge Posner reversed a grant
23 of summary judgment in an antitrust conspiracy case. And
24 what he is describing here is that the defendants cleverly,
25 he says cleverly laid the track for the trial judge by
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1 enticing the judge to do some things that they shouldn't do.
2 So first he says, It's not the judge's job to weigh the
3 conflicting evidence. He says, "The second trap to be
4 avoided in evaluating evidence of an antitrust conspiracy
5 for purposes of a summary judgment motion is to suppose that
6 if no single item of evidence presented by the plaintiff
7 points unequivocally to conspiracy, the evidence as a whole
8 cannot defeat summary judgment."
9 He goes on to say, "It is true that zero plus zero
10 equals zero. But evidence can be susceptible of different
11 interpretations, only one of which supports the party
12 sponsoring it, without being wholly devoid of probative
13 value. Otherwise what need would there be for a trial?"
14 And then the third, on the next page, the third
15 trap he says is "failing to distinguish between the
16 existence of a conspiracy and its efficacy."
17 In other words, it may be that there is an
18 agreement and it didn't have the impact that we claim it did
19 but that doesn't mean there is not an agreement.
20 Now, also, going back to the jury instruction, the
21 fact that not every defendant acted in conformity with the
22 agreement on every occasion doesn't disprove the agreement.
23 It may create a jury question but the fact that on some
24 occasion -- go back to the drug conspiracy analogy. If one
25 of the conspirators doesn't show up to drive the car on a
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1 given day, you know, is that evidence that maybe he was
2 acting not in furtherance of the conspiracy? Maybe. But
3 what if he shows up the next day to drive the car?
4 What Judge Posner is saying here is it is the
5 judge's job at summary judgment in the district court to
6 look at all of the evidence, not to parse it, to look at all
7 of it.
8 And, Your Honor, one last point, on page 656 in the
9 middle of the right-hand column, Judge Posner discusses the
10 plaintiffs' economic expert and he says --
11 THE COURT: What page is this now?
12 MR. WILDFANG: Page 656, the middle of the
13 right-hand column, the last paragraph.
14 THE COURT: Yes.
15 MR. WILDFANG: He says, "The plaintiffs'
16 economic expert opined in his report and the defendants
17 pretty much concede that the structure of the HFCS market,"
18 high fructose corn syrup, "far from being inimical to secret
19 price fixing, is favorable to it."
20 And he credited that testimony. We have exactly
21 that testimony from our expert in our case, that you can
22 look at the economic evidence and see circumstantial
23 evidence of an agreement because you would expect to find
24 certain things in markets that are behaving competitively.
25 In contrast you might expect to find other things, things
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1 that we find in this market when the market is behaving
2 uncompetitively.
3 Your Honor, let me -- two last points.
4 THE COURT: I would like, after you are
5 finished with the law, I would like the defendants to
6 comment on the plaintiffs' reference to that statement as
7 being indicative of an agreement. And, you know, that
8 statement is one of those that is some strong evidence and
9 that is why it makes that HCA case somewhat stronger at
10 least than a lot of the others but I would like a response
11 on that.
12 MR. WILDFANG: Your Honor, I will try to be
13 brief.
14 In tab one of the binder that I have given you,
15 there are slides I made reference to yesterday. If you
16 could turn to slide 21.
17 THE COURT: Which one is this now?
18 MR. WILDFANG: It is the first tab of the
19 binder and it's slide 21, with blue on the top. It says
20 American Tobacco Company versus United States.
21 THE COURT: Yes, I have it.
22 MR. WILDFANG: The point here, Your Honor, is,
23 what the court says, which again I think is black letter
24 law, "It is not of importance whether the means used to
25 accomplish the unlawful objective are in themselves lawful
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1 or unlawful. Acts done to give effect to the conspiracy may
2 be in themselves wholly innocent acts."
3 Your Honor, the fact that we conceived that a
4 single benign joint bid is not necessarily a violation of
5 the antitrust laws doesn't mean that the joint bidding here
6 is not probative of an agreement, especially when you see
7 that there was very little club bidding before 2003, very
8 little club bidding after the DOJ announced their
9 investigation. That change of behavior is indicative of a
10 conspiracy.
11 Oh, Your Honor, last point. The defendants gave
12 you a booklet yesterday with cases on your questions. I had
13 just a few minutes last night, I had a chance to take a look
14 at them. They are completely inapposite but we would like
15 an opportunity to address them. But I do have three cases
16 for Your Honor --
17 THE COURT: The most important case to me,
18 well, I am sure there are others, but the ones that I am
19 familiar with and have read fairly thoroughly is Mat- --
20 MR. WILDFANG: Matsushita.
21 THE COURT: -- Matsushita and I think the case
22 called White in the First Circuit. Those seem to me to
23 cover the law in this area.
24 MR. WILDFANG: Your Honor, I think both
25 Matsushita and White are accurate statements of the law.
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1 The problem is the defendants have not accurately
2 characterized the import of what the words on the page
3 meant. And that's why, Your Honor, I really encourage you
4 to read the Kodak case and read Judge Posner's opinions in
5 High Fructose that specifically discusses the application,
6 the correct application of the Matsushita case.
7 I'm going to hand up three copies, three different
8 decisions, Your Honor. I'm not going to go through them.
9 They are -- they simply stand for the proposition that you
10 can dismiss out pieces of a case without the whole
11 conspiracy collapsing. I think that's what they stand for.
12 But I want to finish by calling the Court's
13 attention to tab nine in our binder.
14 MR. TRINGALI: Counsel, do you have copies of
15 those cases?
16 MR. WILDFANG: Yes.
17 Tab 9 is Judge Hogan's opinion denying summary
18 judgment largely but granting in part in the vitamins case.
19 It actually is important for Your Honor to read this case as
20 well because it is relevant for a couple of reasons.
21 One, Judge Hogan ended up granting --
22 THE COURT: I want to be sure, what are you
23 referring to? What --
24 MR. WILDFANG: Tab nine in the binder that I
25 gave you, which is a decision In Re: Vitamins Antitrust
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1 Litigation.
2 THE COURT: I have so many binders here, I am
3 not quite sure -- oh, I think I have got it.
4 No, on nine there is nothing.
5 MR. WILDFANG: Someone stole tab nine. Let me
6 hand you my copy, Your Honor.
7 (Laughter.)
8 MR. WILDFANG: Again, Your Honor, this is the
9 case which we really encourage Your Honor to read and read
10 carefully before deciding these motions.
11 Judge Hogan was faced with a part of the vitamins
12 conspiracy that related to a single vitamin called choline
13 chloride or Vitamin B4. And there were I believe five
14 defendants left in the case at that point and they were
15 going to trial. And they brought a summary judgment motion.
16 And the question that he addresses in his opinion is is
17 there sufficient evidence to go to trial against all five
18 defendants. Each of the five defendants made at least some
19 of the arguments the defendants here have made about there
20 are legitimate business reasons for why we did what we did,
21 there is not enough evidence to hold us in to a conspiracy.
22 Very similar arguments.
23 And what Judge Hogan did is he looked at all of the
24 evidence and he concluded that only one of the five
25 defendants was entitled to summary judgment because there
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1 was insufficient evidence. The other four went to trial.
2 Now, he didn't rule that that means the conspiracy
3 didn't exist and, therefore, no one goes to trial. He went
4 to trial with the four remaining.
5 And the other import of the vitamins decision, Your
6 Honor, is that Judge Hogan had the benefit of the Matsushita
7 opinion as well as Judge Posner's High Fructose opinion.
8 And Judge Hogan, as Judge Posner did, correctly applied the
9 Matsushita case, not incorrectly as the defendants have
10 invited you to do, Your Honor.
11 Your Honor, we would like an opportunity to submit
12 something in writing on the cases that were submitted to
13 you.
14 THE COURT: I will give you this back. You
15 have referred to that case on many occasions so I am aware
16 of it.
17 MR. WILDFANG: Thank you.
18 THE COURT: He claims that that reference of
19 standing down -- excuse me -- that it never happens, or it
20 always happens I guess, is evidence of the overarching
21 conspiracy that binds as it were or interconnects all these
22 defendants, and it is a strong statement. Why doesn't it?
23 MR. TRINGALI: Well, two reasons, Your Honor.
24 First of all, where they're talking about never
25 jumping a signed deal, that refers to proprietary, not
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1 auction. So despite the distinction they try to give you,
2 that is referring to an announced deal. That's No. one.
3 No. two, that just talks about --
4 THE COURT: What is the difference between an
5 announced deal and a signed deal?
6 MR. TRINGALI: They're the same. That's what
7 I'm saying. That's a reference to proprietary.
8 The other problem with that in terms -- so you have
9 already eliminated their conspiracy, the conspiracy that
10 they have alleged from day one, the 27-deal conspiracy,
11 okay. That's No. one. So it's not an agreement as to that
12 conspiracy.
13 No. two, it is not an agreement, what they say,
14 what he is saying --
15 THE COURT: Is it an agreement --
16 MR. TRINGALI: Let me -- go ahead, I'm sorry.
17 THE COURT: Is it an agreement as to the seven
18 or nine proprietary?
19 MR. TRINGALI: No, Your Honor. And the reason
20 for that is, No. one, let me, first of all, point out to
21 you --
22 THE COURT: Go ahead.
23 MR. TRINGALI: -- that Mr. Marren who is
24 quoted there, he like several others who wrote emails that
25 they like wasn't deposed by the plaintiffs. So he was never
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1 asked to explain what he was referring to in that email. He
2 wasn't asked whether no one in private equity doesn't jump
3 the deal is because they agreed not to or because as I have
4 now showed you and others have showed you in numerous
5 documents, they made an independent decision not to do so
6 because they're going to lose.
7 Again, I come back to the document I showed you
8 yesterday from Carlyle, I believe it was on TXU where they
9 said they would be a day late, a dollar short and lose.
10 THE COURT: But --
11 MR. TRINGALI: That's completely --
12 THE COURT: I agree, that is a strong argument
13 but is it a jury question?
14 MR. TRINGALI: No, Your Honor, and the reason
15 why, it's Matsushita. Matsushita is a summary judgment
16 case. And Matsushita says -- and I know I have been accused
17 now several times of distorting it. All I have been doing
18 is reading it but --
19 (Laughter.)
20 MR. TRINGALI: It says, "Antitrust laws limits
21 the range of permissible inferences from ambiguous evidence
22 in a Section 1 case. Conduct that is consistent with
23 permissible competition as with illegal conspiracy does not
24 standing alone support an inference of antitrust conspiracy.
25 A plaintiff seeking damages for a violation of Section 1 to
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1 survive a motion for summary judgment," not anything to do
2 with trial, "must present evidence that tends to exclude the
3 possibility that the alleged conspirators acted
4 independently."
5 This is summary judgment, Your Honor, in order to
6 survive a motion for summary judgment and when you have
7 document after document of the defendants saying that I am
8 not jumping a signed deal because I am going to waste my
9 time, my effort, my money and I'm going to lose anyway, that
10 has got to be an independent decision. That has got to
11 satisfy the Matsushita standard.
12 And I also remind Your Honor, the cases I mentioned
13 yesterday about the jump ball, if you even think we're in
14 that realm, that the courts have held that it is equally, if
15 it is equally plausible that defendants acted in their own
16 self-independent -- own self-interests independent of one
17 another, then the district court properly grants summary
18 judgment.
19 And as the other case I cited to you which was
20 affirmed by the First Circuit said, "Only when a theory of
21 rational independent action is less attractive than that of
22 concerted action." That's the DM Research case that I
23 mentioned to you yesterday.
24 Those are summary judgment standards, Your Honor.
25 They're not trial issues. Nothing to do with what the jury,
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1 whether it survives a jury verdict or not. It has to do
2 with whether you even let it get to the jury.
3 And I submit to Your Honor that even under this now
4 much smaller conspiracy --
5 THE COURT: This may be my last question,
6 hopefully.
7 MR. TRINGALI: Okay. Does that mean it's
8 going to be my last thing I'm going to be able to say to
9 you?
10 THE COURT: Assume that Count 1 charged the
11 seven or nine proprietary transactions and only those
12 defendants who were named therein and used evidence such as
13 that and several other references to standing down. There
14 might well be a dispute over the interpretation of some
15 remark like that but might it not be a jury question?
16 MR. TRINGALI: No, Your Honor.
17 THE COURT: Why?
18 MR. TRINGALI: Because of Matsushita, the
19 Matsushita standard and the other cases interpreting
20 Matsushita. That the inference has to be, they have to
21 have, it can't be even in equipoise, okay, but we have
22 legitimate, contemporaneous, independent documents talking
23 about independent decision making, independent actions, why
24 things are in our independent interests, the day late,
25 dollar short, we're going to lose anyway, that doesn't get
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1 to a jury under Matsushita and the cases interpreting
2 Matsushita.
3 And that's --
4 THE COURT: There is no doubt if that type of
5 allegation had been made, you are going to analyze the case
6 a lot better. This is a giant case and there are so many
7 different facts. I have never seen anything like it. I
8 have been involved in some patent cases which have gone on
9 for six or seven weeks and five years of discovery but I
10 have never seen anything like this.
11 Although it is not entering into my thinking, the
12 plaintiffs have to realize that if this case were to go to
13 trial, it would be a circus. I mean, it is just almost too
14 gigantic to get your arms around it.
15 MR. TRINGALI: Your Honor, the case has many
16 issues, many problems. And just to address the issue you
17 raised, the added problem in addition to the co-conspirator
18 issue and everything else, you also have the release issue
19 where evidence as to transactions where a defendant has a
20 release isn't admissible against that defendant. So are you
21 going to have 25 juries or are you going to have limiting
22 instructions that are going to actually potentially --
23 THE COURT: Well, we are not going to get into
24 the trial; but there is no doubt a trial would be --
25 MR. TRINGALI: A nightmare.
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1 THE COURT: And it would take a long, long
2 time.
3 MR. TRINGALI: It would take a long time.
4 But, Your Honor, and that's why Matsushita says we
5 have, and the First Circuit has said we have special rules
6 for antitrust conspiracy cases because they are large cases.
7 They are complex cases. And there is also concern in the
8 case law that to let a case like this go to the jury, if it
9 doesn't pass the Matsushita test of excluding, tending to
10 exclude the possibility of independent action, of showing
11 that the inference of independent action is less plausible
12 than the inference of conspiracy, that that chills
13 competitive conduct, and the Supreme Court has recognized
14 that, and other courts have recognized that, Your Honor.
15 And that is why they have this rule for the antitrust cases
16 so that normal competition, the things that Your Honor
17 mentioned today during the course of the argument that you
18 said were completely legitimate like the club bidding --
19 and, by the way, Your Honor, you know that great map that
20 they put on and then Mr. Coughlin did as well where all the
21 lines, you know, cross. Let me tell you --
22 THE COURT: That is tough to contend with. I
23 mean, that is persuasive; is it not?
24 MR. TRINGALI: It is not persuasive, because
25 you know what it represents, Your Honor?
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1 THE COURT: It has great impact.
2 MR. TRINGALI: It has visual impact but it is
3 meaningless because you know what it shows? They'll draw a
4 line from KKR to a transaction that KKR considered. It
5 could be a transaction that KKR won. It could be a
6 transaction that KKR decided that, from the documents you
7 have seen, gave it its absolute best shot and lost.
8 There is no -- those lines don't satisfy, don't
9 attempt to satisfy the Matsushita test. They're not telling
10 you what the conduct is that gets there, that gets to those
11 lines. They're just drawing a line if they can in some way
12 and say so and so considered a transaction, so they can say
13 that defendant A considered AMC. Defendant A could have
14 legitimately decided not to pursue it. They still get that
15 line.
16 THE COURT: Okay.
17 MR. TRINGALI: So you have a chart that is
18 meaningless.
19 THE COURT: I will let the plaintiffs --
20 MR. TRINGALI: What you don't have in that
21 whole, all those interconnections is the agreement that you
22 have been looking for. What you don't have is a line that
23 links every defendant to every transaction as to an
24 agreement.
25 The agreement that they tried to give you today for
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1 the first time is an agreement not to compete, although they
2 have a real problem trying to figure out how they get that
3 to the auction. So what they do is say, well, maybe some
4 deals are aren't so good.
5 If Your Honor looks at our 56.1 statement, you will
6 see multiple instances in auction situations of multiple
7 rounds of bidding. Look at Clear Channel. Look at
8 Michaels. Look at Neiman. Look at Sabre. Look at
9 Susquehanna. Look at Texas Genco. Look at Toys "R" Us.
10 THE COURT: Okay.
11 MR. TRINGALI: There is plenty, that is my
12 point, that is my point, because they made it sound to you
13 as if it is all rigged.
14 THE COURT: All right.
15 MR. TRINGALI: And it is not.
16 THE COURT: Just a quick response.
17 MR. COUGHLIN: Your Honor, I won't go more
18 than two minutes.
19 One, they talked about the agreement not to go
20 over, that kind of statement doesn't spill over to the
21 auctions. In Clear Channel it says Alex from KKR, Alex
22 Navab, he says, "Clearly we would be viewed as bust up of a
23 current deal with T.H. Lee and Bain along with the family
24 and that will have implication for all our deals going
25 forward."
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1 Not just the proprietary deals, this is an auction
2 deal that he's talking about. And if they lobbed in a bid,
3 it would not only have an impact on the auction deal but all
4 their deals.
5 So we think it covers both the auctions and
6 proprietary deals.
7 Two things. One, the Supreme Court case deals with
8 indirect evidence, not direct evidence like that we had up
9 on the board.
10 Finally, if they say something is tough, if they
11 say something is tough and that's why we shouldn't go to
12 trial because it's going to be so complicated and big,
13 that's no reason. I try big cases --
14 THE COURT: I am not saying it is but the case
15 has got to be streamlined for trial.
16 MR. COUGHLIN: It does, Your Honor. And I
17 tried a big case against the tobacco companies --
18 THE COURT: You have got to admit, this is
19 massive, massive, it has gone on for five years. We have
20 how many documents, how many depositions?
21 MR. COUGHLIN: A lot of trees.
22 THE COURT: It is overwhelming.
23 MR. COUGHLIN: A lot of trees have died. But
24 I think that we can, you know, bring it down into a
25 manageable way to present it to a jury so a jury can
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1 understand it.
2 And as far as all those lines on that chart, all of
3 those lines deal with our statements in our 56.1 statement
4 and they all have backing in the papers we've submitted.
5 We think this should not, we think that summary
6 judgment should be denied, Your Honor.
7 Thank you.
8 THE COURT: Okay. I want to thank the
9 parties, the attorneys. I was just noting to my law clerk
10 that this has been a complex case, a very interesting case,
11 but at least as far as the Court is concerned, it has been
12 handled by the attorneys in a very professional manner. It
13 really has. You would think a case of this magnitude and
14 the amount of money that is involved, that the Court would
15 have had more problems with administering the case.
16 It has been very, let me say wonderful dealing with
17 everybody, very professional. The only time it seemed that
18 we might have been thrown off kilter was when the New York
19 Times got involved.
20 (Laughter.)
21 THE COURT: But other than that, I have been
22 very happy working with everybody.
23 I have got a lot of stuff to read and so it is
24 going to take me some time. I have indicated, at least
25 preliminarily, how I felt when I came in here but I am going
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1 to reconsider everything.
2 I am sure that the decision will not be made within
3 a month. I am hopeful that it will be finished in 60 days,
4 that is at least what I am hoping, but there is a lot of
5 stuff to go through. But the arguments have been very
6 elucidating and I have been well educated.
7 Thank you very much.
8 VOICES: Thank you, Your Honor.
9 THE CLERK: All rise.
10 Court is adjourned.
11
12 (WHEREUPON, the proceedings were recessed at 4:10
13 p.m.)
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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
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