Legal Brief

Not long after the Department of Justice’s antitrust division opened its sotto voce investigation into buyout club deals, the plaintiff’s bar took it upon itself to launch a similar case.

Over the summer, however, that class-action antitrust case, which alleged collusion in some 40 take-private deals, puttered out. The plaintiffs in Murphy vs. Kohlberg Kravis Roberts & Co., as the case is known, dropped their case. They did so “without prejudice,” which means they can pick it up again if the DOJ turns up something potentially incriminating, according to law firm Debevoise & Plimpton, which was not involved in the litigation but recently issued a briefing on the matter.

The Murphy case, filed in November 2006, about a month after word of the DOJ inquiry seeped out, pointed a finger at 13 buyout shops. The suit alleges that stockholders in more than 40 of their going-private deals done from July 2003 and December 2006 ended up shortchanged because LBO firms depressed prices by joining up rather than competing head-to-head.

Some aren’t surprised by the withdrawal given the lack of hard evidence in the case. The plaintiffs in the Murphy case relied almost exclusively on press reports and the DOJ investigation to build their argument, according to Debevoise & Plimpton. The plaintiffs, for example, said that the defendants “reportedly agreed” not to submit competing bids after initial offers were made.

By mutual consent, both sides agreed in early 2007 to put the Murphy case on hold until after the U.S. Supreme Court ruled in Bell Atlantic Corp. vs. Twombly, a case that dealt with the pleading standard needed to pursue antitrust conspiracy suits. That decision, published in May, upheld previous Supreme Court rulings holding that “parallel conduct”—say, two firms raising their prices at about the same time—isn’t enough to violate antitrust law, according to Debevoise & Plimpton. Instead, plaintiffs must present “enough factual matter” to prove that the supposedly colluding parties had proactively reached some kind of agreement, according to the Supreme Court decision.

With that, the writing was on the wall for the Murphy plaintiffs. In June, they yanked their case from the court, at least for now.