A private equity firm and its investment advisor are facing trial over claims they participated in a price-fixing conspiracy for canned tuna carried out at their portfolio company, Bumble Bee tuna. The judge overseeing the long-running multidistrict litigation denied their motion for summary judgment, even though the firm and advisor were not competitors in the canned tuna market, finding they could be held liable for participating in the price-fixing conspiracy along with Bumble Bee, because there was sufficient evidence of their knowledge of the conspiracy and participation in it. The summary judgment decision and the history of the case offer several points of warning for private equity firms, not the least of which is that the decision did not rely on a single piece of "smoking gun" evidence linking the private equity firm to the conspiracy. The decision highlights the importance of antitrust compliance programs, consultation with antitrust counsel early in the due diligence process, and involving antitrust counsel when meeting with competitors or the owners of competing portfolio companies.

• Typical due diligence and post-acquisition management will not insulate private equity from liability. The court rejected the defendants' arguments that they should be insulated from liability because they "followed normal procedures for private equity fund managers [and] investment advisors," including due diligence and post-acquisition management that was "typical of the private equity industry." In fact, the court appeared to hold against the defendants their "exhaustive" due diligence and investment philosophy of "partnering" with management teams. For example, to support defendants' alleged knowledge of the conspiracy, the court pointed to "numerous" post-acquisition communications the deal team received from Bumble Bee management, "suggesting that Bumble Bee knew of its competitors' future price increases which were not publicly known."
• Meetings with competitors carry risk. Plaintiffs offered evidence that a member of the private equity deal team met with the owner of a competitor tuna company as part of due diligence and again post-acquisition. Despite documentary evidence stating that pricing would not be discussed, and "vigorous" denials that pricing was not discussed, plaintiffs pointed to contrary evidence that pricing was discussed, and antitrust counsel did not attend either meeting. The court found this sufficient to create a triable fact on the deal team's participation in the price-fixing conspiracy.
• Non-credible whistleblowers carry risk. Plaintiffs also offered evidence that an anonymous Bumble Bee employee sent a whistleblower letter to the private equity firm. The letter included several disparate allegations against Bumble Bee management, but one touched on potential collusion with competitors, which the court found put the firm on notice. Bumble Bee's internal policies also required all such allegations to be forwarded to the general counsel for investigation. The fact the letter was dismissed out of hand as not credible was accepted by the court as evidence of "turning a blind eye to Bumble Bee's collusion [that] enabled the conspiracy to continue."
• Private equity economic incentives will be used against it. The court also rejected the defendants' argument that their participation in the conspiracy would "make no economic sense" because neither the private equity firm nor the investment advisor had a direct financial interest in Bumble Bee. The court noted that the investment strategy—as with many private equity investments—was to resell Bumble Bee for a profit by raising EBITDA, which was directly impacted by the price for canned tuna. Moreover, in the deal team's final report recommending the investment, the court highlighted as evidence of knowledge of the conspiracy the observation that a competitor had become "more predictable" under new ownership and that the competitors "respected" each other's core businesses.
• HSR review brings collateral risk. The case began, in a cruel twist of fate, when the private equity firm attempted to exit the investment in Bumble Bee and submitted the deal to the Antitrust Division of the Department of Justice pursuant to the Hart-Scott-Rodino Act for premerger review. Not only was the deal rejected by DOJ, but the subsequent criminal investigation led to guilty pleas by Bumble Bee, StarKist, and three individuals, followed by a guilty verdict for Bumble Bee's former president and CEO, which resulted in a 40-month prison sentence. The private equity firm ultimately exited Bumble Bee through bankruptcy, with the fund losing its entire remaining investment of $108 million.
• Follow-on civil antitrust litigation is lengthy and costly. After 44 separate civil actions were filed in 2015 against the tuna company conspirators, the cases were consolidated in multidistrict litigation in the Southern District of California. The private equity firm was initially served a non-party subpoena in 2017 and was later added as a defendant along with its investment advisor in 2018. Since then, class certification was granted by the district court in 2019, decertified by a Ninth Circuit panel in 2021, and then recertified by the entire Ninth Circuit in 2022. The first trial appears set for 2024 after nearly a decade of litigation.

The decision reinforces the need for private equity firms to be on the lookout for antitrust issues in their deals and to bring in experienced antitrust counsel to assist with compliance, due diligence, and competitor meetings, including competing portfolio companies.