The FTC’s enforcement efforts against private equity hit a significant roadblock on May 13 when a federal judge granted Welsh, Carson, Anderson & Stowe’s (Welsh Carson) motion to dismiss the agency’s complaint against the private equity firm.1 While the court denied U.S. Anesthesia Partners, Inc.’s (USAP) motion to dismiss, the court held that the FTC did not “adequately allege” that Welsh Carson is currently violating, or about to violate, the antitrust laws.2 The FTC could still appeal the decision, but the court’s ruling is a win for private equity firms and other minority investors.
We initially covered the FTC’s lawsuit against Welsh Carson and USAP in this September 2023 client alert. In its accompanying press release, the FTC alleged the parties violated Section 13(b) of the FTC Act based on a “multi-year anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients, and boost their own profits.”3 As noted in the prior alert, the FTC’s enforcement action followed its prior rhetoric regarding alleged competitive harms created through private equity roll-up acquisitions, particularly in the healthcare space. According to the FTC, private equity firms conduct roll-up acquisitions to avoid antitrust scrutiny (given each individual acquisition is often not HSR reportable) in an effort to reduce competition, gain market power, and raise prices.4
The FTC’s case against Welsh Carson largely hinged on Welsh Carson continuing to own a stake in and receive profits from USAP. The FTC also alleged that USAP raised prices as a result of the leverage it gained from its illegal acquisitions of anesthesia practices, and that Welsh Carson took a “hands-on approach” and spearheaded the anticompetitive strategy.5 In dismissing the FTC’s case against Welsh Carson, the district court noted that the FTC failed to cite a single case where a minority, noncontrolling investor was held liable for anticompetitive conduct of the company it partially owned.6 The court further raised an issue with timing—while Welsh Carson created USAP and guided its initial strategy to acquire anesthesia groups in Texas, Welsh Carson and its funds sold off their controlling stake in USAP in 2017. The remaining minority ownership stake of 23% in USAP led the judge to find there was no ongoing or likely future antitrust violation by Welsh Carson, including subsequent roll-up acquisitions by USAP. Therefore, the judge found that there was no authority for the FTC to seek an injunction against Welsh Carson itself. The court held that this “novel interpretation” of Section 7 of the Clayton Act and Section 13(b) of the FTC Act would “expand the FTC’s reach further than any court has yet seen fit.”7
The court’s opinion also rejected the FTC’s arguments that prospective injunctive relief was appropriate where Welsh Carson allegedly planned to consolidate other healthcare markets in a similar fashion to USAP without more concrete evidence beyond “comments from Welsh Carson executives” and a “lack of contrition” from the firm, which the court deemed “mere speculation and conjecture.”8 The court further held the FTC failed to “articulate why it cannot return with a new lawsuit under Section 13(b) if and when Welsh Carson signals [] that it is actually about to violate the law.”9
While Welsh Carson achieved a significant victory in its dismissal from the case, this was not a complete loss for the FTC, as the court found that there were enough factual questions and plausible allegations to allow the case against USAP—the entity that allegedly actually engaged in anticompetitive conduct—to proceed to discovery. Welsh Carson’s minority investment will thus still likely go through a burdensome litigation process absent a settlement with the FTC. Because the court’s reasoning for dismissing Welsh Carson centered on its position as a minority owner, the decision unsurprisingly would not shield majority owners from similar antitrust enforcement actions. As a result, firms engaging in small roll-up acquisitions that fall below the HSR threshold must still remain vigilant for potential antitrust risks.
[1] Memorandum Opinion and Order, Federal Trade Commission v. U.S. Anesthesia Partners, Inc. et al, 4:23-cv-03560 (S.D. Tex. May 13, 2024) (hereinafter Opinion), available at https://www.law360.com/dockets/download/66427f3c4028c703f0b28663?doc_url=https%3A%2F%2Fecf.txsd.uscourts.gov%2Fdoc1%2F179144846177&label=Case+Filing.
[2] See Opinion at 9-16.
[3] FTC Challenges Private Equity Firm’s Scheme to Suppress Competition in Anesthesiology Practices Across Texas, FTC (Sept. 21, 2023) (hereinafter FTC Press Release), available at https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-challenges-private-equity-firms-scheme-suppress-competition-anesthesiology-practices-across.
[4] See FTC Press Release.
[5] Opinion at 5, 12.
[6] Id. at 12-13.
[7] Id.
[8] Id. at 15-16.
[9] Id. at 16.
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