A federal judge narrowed a closely watched lawsuit accusing some of the world’s largest private equity firms of colluding to drive down prices on companies they sought to buy, costing shareholders of the acquired businesses billions of dollars.

Despite letting part of the main claim go forward, U.S. District Judge Edward Harrington in Boston dealt the plaintiffs a significant setback in finding they fell short of showing an “overarching” conspiracy to drive down prices on takeovers valued at roughly a quarter trillion dollars.

“The evidence of each specific transaction, including defendants’ communications with each other, for the most part, fails to connect to a ‘larger picture’ of an overarching conspiracy,” Harrington wrote.

“While some groups of transactions and defendants can be connected by ‘quid pro quo’ arrangements, correspondence, or prior working relationships, there is little evidence in the record suggesting that any single interaction was the result of a larger scheme,” he added.

The civil antitrust lawsuit was brought in 2007 against 11 defendants, including prominent private equity firms such as Bain Capital Partners LLC, Blackstone Group LP, Carlyle Group LP, Goldman Sachs Group Inc.’s private equity arm, KKR & Co and TPG Capital Management LP.

JPMorgan Chase & Co, which provided financing and advice on some transactions, was also a defendant, but Harrington dismissed the largest U.S. bank from the case.

“This makes what’s left of the plaintiffs’ case more of a steep, uphill climb,” Darren Bush, an antitrust law professor at the University of Houston, told Reuters.

“Jumping” Claim Allowed

The plaintiffs were shareholders in the once publicly traded companies that were bought by the private equity firms between 2003 and 2007.

They claimed to lose money because the firms allegedly conspired to deflate takeover prices, sometimes by 10 percent. Twenty-seven transactions were challenged, including 19 leveraged buyouts, six non-leveraged buyouts and two that were not completed.

Much of the case was built on emails between principals at the private equity firms that the shareholders said reflected an implicit understanding to keep prices low, or else cost the firms, as one email put it, “a lot of money.”

The transactions in the lawsuit concerned a wide variety of companies, such as Harrah’s, hospital chain HCA, pipeline operator Kinder Morgan, arts and
crafts retailer Michaels Stores, toy store chain Toys ‘R’ Us, power company TXU and Spanish language network Univision.

Harrington said the investors’ resistance to narrowing their lawsuit made the case “unnecessarily complex and nearly warranted its dismissal.”

But he said the investors may pursue a claim that the firms agreed not to outbid each other after transactions were announced, a practice known as “jumping.” The judge also gave the defendants a fresh chance to seek dismissal of this claim.

Harrington also allowed the investors to pursue a claim alleging a conspiracy to rig bids and not compete for HCA, the target of a $32.1 billion leveraged buyout in 2006 by Bain, KKR and others. Blackstone, Carlyle, Goldman and TPG are the remaining defendants against that claim, he said.

Claims against JPMorgan were dismissed because the evidence did not show that the bank bid on target companies or took part in a “narrowed overarching conspiracy,” Harrington wrote.

“It’s not a terrible defeat for the plaintiffs, but the judge wants them to provide something more concrete,” said Maurice Stucke, a University of Tennessee at Knoxville law professor and former U.S. Department of Justice antitrust lawyer.

“Now that the case is more narrowly defined, it might increase the likelihood that the parties try to negotiate a settlement,” he added.

Christopher Burke, a partner at Scott & Scott representing the plaintiffs, said the shareholders plan to pursue their remaining claims.

“From the plaintiffs’ perspective, this was a good day,” Burke said in a telephone interview. “This remains a multibillion dollar case, and that is going forward. What was written by some defendants in their papers, and by some of the press, that what we had was ‘thin gruel’ has been dispelled.”

Joseph Tringali, a partner at Simpson, Thacher & Bartlett who argued on behalf of the defendants, declined to comment.

In one example of the alleged collusion, after Blackstone topped KKR with an $18 billion bid for technology company Freescale Semiconductor, Blackstone President Hamilton “Tony” James emailed KKR co-founder George Roberts.

“We would much rather work with you guys than against you,” James wrote. “Together we can be unstoppable, but in opposition we can cost each other a lot of money.”

Mitt Romney, the 2012 Republican presidential candidate and a Bain founder, left that firm in 1999 before the transactions in question and was not a defendant.

The case is Dahl et al v. Bain Capital Partners LLC et al,U.S. District Court, District of Massachusetts, No. 07-12388.

(Reporting by Jonathan Stempel in New York; Editing by Grant McCool, Andrew Hay, Bernard Orr and Dan Grebler)