• District court finds minority investors in companies accused of antitrust violations are not liable solely by virtue of holding a minority ownership stake.
• To obtain injunctive relief, the FTC must allege specific facts demonstrating that minority investors are engaging—or are about to engage—in a continuing violation of antitrust laws beyond solely holding shares in a company accused of antitrust violations.
• Minority investors are not immune for their specific actions and should seek antitrust guidance to ensure compliance with all antitrust laws.

On May 13, 2024, the United States District Court for the Southern District of Texas dismissed private equity firm Welsh Carson from a case brought by the Federal Trade Commission (“FTC”) against U.S. Anesthesia Partners, Inc. (“USAP”) under Section 13(b) of the FTC Act for the alleged monopolization of Texas’ hospital anesthesia market. The case centers on the FTC’s allegation that USAP illegally became an indispensable provider of anesthesiologists that left insurers and patients with no choice but to pay higher rates for USAP’s services. The court’s ruling is a clear win for private equity sponsors with minority investments in companies alleged to be violating the antitrust laws but should be viewed cautiously in a broader context.

While Welsh Carson initially held a controlling stake in USAP when USAP was formed in 2012, Welsh Carson’s ownership fell to 23 percent in 2017, well before the FTC began investigating USAP for monopolization in 2021. In dismissing Welsh Carson, the court found that Welsh Carson’s minority ownership of USAP was dispositive when coupled with the lack of allegations concerning Welsh Carson’s recent anticompetitive conduct.

Rather than allege any direct conduct by Welsh Carson that was an ongoing antitrust violation, the FTC alleged that the act of holding a minority, noncontrolling stake in a company that was engaged in continuing violations of the antitrust laws was itself a continuing antitrust violation by Welsh Carson. The court found this insufficient to constitute a continuing violation of the FTC Act by Welsh Carson, and accordingly dismissed Welsh Carson from the case. As the court explained: “The FTC has not cited a case in which a minority, noncontrolling investor—however hands-on—is liable under Section 13(b) because the company it partially owned made anticompetitive acquisitions.” It then added: “This Court will not adopt this novel interpretation.”

This limitation of the FTC’s Section 13(b) power to directly pursue minority investors for past acts or potential anticompetitive conduct of their portfolio companies should be welcome relief to investors seeking certainty in the current enforcement environment, but this ruling is unlikely to reduce substantially the FTC’s scrutiny of past and future private equity roll-up transactions, especially in health care markets. First, for past acquisitions in particular, it is crucial to note that the court’s ruling only applies to Section 13(b), which allows the FTC to seek an injunction for forward-looking conduct. By contrast, the court recognized that the FTC can still investigate past violations of the antitrust laws under Section 5(b) of the FTC Act.

Second, private equity sponsors should take note that the court’s ruling was heavily tied to the lack of allegations offered by the FTC about Welsh Carson’s conduct. While the court found that the mere act of holding a minority interest was not enough to support a Section 13(b) action, it suggested that the FTC may be able to “return with a new lawsuit under Section 13(b) if and when Welsh Carlson signals—beyond mere speculation and conjecture—that it is actually about to violate the law.” The opinion suggests that more detailed pleading of current or recent actions by a private equity sponsor could support a claim under Section 13(b).

Finally, it is important to remember that the USAP monopolization case was only dismissed as to Welsh Carson. The case against USAP survived its motion to dismiss, and depending on the ultimate outcome, investors may feel the effect of any adverse outcome. Any such outcome could have implications for investors setting up new companies that engage in conduct similar to USAP, especially if they seek or hold controlling stakes in those companies.

Private equity investors may be able to breathe a sigh of relief after this ruling, which lays out some limits on the FTC’s Section 13(b) authority to hold minority investors accountable for the actions of their portfolio companies. That said, given the overall antitrust climate, it is important that private equity sponsors and their portfolio companies seek antitrust guidance when making investment decisions and other strategic plans. As the USAP case makes clear, the U.S. antitrust agencies continue to monitor private equity-sponsored transactions, especially in the health care space, and the FTC may target private equity sponsors for enforcement where it believes such investors contribute to anticompetitive harm.