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Court Finds Sun Funds Liable for Withdrawal Liability of Portfolio Company

On remand by the First Circuit Court of Appeals, the Federal District Court of Massachusetts found Sun Capital Partners III, LP (?Ç£Sun Fund III?Ç¥) and Sun Capital Partners IV, LP (?Ç£Sun Fund IV, and together with Sun Fund III, the ?Ç£Sun Funds?Ç¥) liable for the withdrawal liability of Scott Brass, Inc. (?Ç£SBI?Ç¥), a bankrupt portfolio company of the Sun Funds.?á In applying the First Circuit?ÇÖs ?Ç£investment plus?Ç¥ test, the district court found that the Sun Funds received a direct economic benefit and were therefore engaged in a ?Ç£trade or business?Ç¥ for purposes of shared liability under the Multiemployer Pension Plan Amendments Act.?á Even though Sun Fund III and Sun Fund IV held a 30% and 70% interest, respectively, in SBI (which each is under the 80% required for controlled group purposes), the district court found that the Sun Funds operated as a single ?Ç£partnership-in-fact?Ç¥ with no meaningful independence in their… Continue Reading

Unencumbered Assets Lead to Unique Litigation in E&P Bankruptcies

In a typical chapter 11 bankruptcy case, a secured lender will have a lien on significantly all of the debtor?ÇÖs assets.?á When the amount of the first lien debt exceeds the debtor?ÇÖs enterprise value, there isn?ÇÖt much left for unsecured creditors.?á While a creditors?ÇÖ committee or other parties may attempt to challenge the validity or priority of those liens, successful challenges are the exception, not the rule. But this typical scenario may not play out in E&P bankruptcies where reserve based lending is the norm.?á Experience tells us that given the thousands of individual assets in various jurisdictions in many E&P bankruptcies, a lender will not require (or at least not perfect) a lien on all of the debtors?ÇÖ assets.?á Instead, the loan documents typically require a pledge of at least 80-90% of the borrowers?ÇÖ proven oil and gas reserves, potentially leaving the remaining percentage of the debtor?ÇÖs proven reserves… Continue Reading

Another Court Holds that ERISA Benefit Denial Notices Must Disclose Limitations Period for Judicial Review

Consistent with recent decisions from the Third and Sixth U.S. Circuit Courts of Appeal, the First Circuit recently held that a notice of benefit denial under ERISA must include a statement of any time limits for filing a claim for judicial review in order for such limits to be enforceable. In Santana-Diaz v. Metropolitan Life Ins. Co., a participant in an employer-sponsored disability benefits plan subject to ERISA (the ?Ç£Plan?Ç¥) filed a civil action under ERISA Section 502 after he had exhausted the Plan?ÇÖs internal appeals process and received a final benefit denial letter which did not mention the Plan?ÇÖs three-year limitations period for filing a lawsuit. The district court dismissed the participant?ÇÖs lawsuit as being time-barred because it was filed beyond the Plan-imposed three-year limitations period (of which the participant had notice through the group policy booklet). In reversing, the First Circuit interpreted the ERISA claims regulations as requiring… Continue Reading

Three Practical Tips for Insurance Due Diligence in M&A Transactions

Virtually every merger or acquisition includes representations or requirements regarding insurance.?á Every corporate counsel knows that warranties regarding the adequacy of insurance coverage must be verified.?á Every sophisticated director and officer will require ongoing insurance coverage and indemnification after the closing of a merger.?á Many experienced counsel are savvy enough to watch out for basic insurance traps like anti-assignment provisions.[1]?á But beyond the basics, really good insurance due diligence in transactions?Çöthe kind that will avoid forfeiture of coverage and fulfill the parties?ÇÖ reasonable expectations?Çörequires understanding of how a transaction may affect current insurance coverage and compliance with contractual insurance requirements.?á To ensure that valuable insurance coverage is preserved, maximized and performs its intended purpose, here are three ?Ç£best practices?Ç¥ for insurance due diligence in M&A transactions. No. 1 – Compliance with Additional Insured Requirements The insurance coverage protecting the predecessor/target in a merger or acquisition agreement may only be partially… Continue Reading

Implementation Date for New SBC Template Announced

The DOL recently announced in a new Frequently Asked Questions (?Ç£FAQ?Ç¥) that health plans and insurers will be required to use a new Summary of Benefits and Coverage (?Ç£SBC?Ç¥) template for plan years beginning on or after April 1, 2017. The DOL, along with the U.S. Departments of Health and Human Services and the Treasury, intend to ?Ç£expeditiously?Ç¥ revise the new SBC template based on comments they receive concerning the proposed template that was published last month. Interested parties may submit comments regarding the proposed SBC template until March 28, 2016. The FAQ is available?áhere.

SDNY Allows Rejection of Midstream Agreements in Sabine Bankruptcy Case

In a highly anticipated ruling in the Sabine Oil & Gas bankruptcy case pending in the Bankruptcy Court for the Southern District of New York, Judge Shelley Chapman granted Sabine?ÇÖs motion to reject certain gathering, transportation, and processing agreements with Nordheim Eagle Ford Gathering and HPIP Gonzales Holdings. In reaching this conclusion, the court focused on Sabine?ÇÖs business judgment in rejecting the economically burdensome agreements. Sabine successfully argued that the agreements were unnecessarily burdensome and not financially viable. However, the court declined to address substantive legal issues regarding the scope of the rejections, holding simply that rejection ?Ç£relieves [Sabine] of those terms that are subject to rejection.?Ç¥ The court declined to decide whether certain payment obligations within the agreements were ?Ç£covenants running with the land,?Ç¥ or subject to rejection. Therefore, whether Sabine will be bound by such covenants within the existing agreements will be determined in future proceedings, unless the… Continue Reading

Workforce Restructuring to Avoid ACA Penalties may be ERISA Violation

Dave and Busters, Inc. (?Ç£D&B?Ç¥) began restructuring its workforce in 2013 to reduce the number of employees who were considered full-time under the Affordable Care Act (the ?Ç£ACA?Ç¥), thus minimizing D&B?ÇÖs potential exposure to the employer shared responsibility payments under the ACA. Part of this well-documented reduction strategy included shifting many employees who had previously worked full-time schedules into part-time positions, which also resulted in a loss of eligibility under D&B?ÇÖs group medical plans. In a class action filed against D&B, the plaintiffs maintain that D&B violated ERISA Section 510 because it engaged in unlawful discrimination against a participant or beneficiary for exercising any right to which he or she is entitled under the provisions of an employee benefit plan subject to ERISA. The defendant countered that future ineligibility for coverage alone was not enough to sustain a violation under ERISA Section 510. The U.S. District Court (S.D.N.Y.) noted that… Continue Reading

Supreme Court: ERISA Pre-empts State Statute Requiring Self-funded Group Health Plans to Report Plan Data to State Agency

A number of states have enacted statutes within the past couple of years requiring group health plans to report plan data (including costs, cost sharing, claims, enrollment, utilization, and other information) to one or more state agencies for the purpose of creating a transparent and accessible database for use by both the state and residents to compare costs, patient outcomes, and available resources within the state. ?áIn many instances, including the Vermont statute addressed in Gobeille v. Liberty Mutual Insurance Co., data collection is required by insurers as well as by sponsors and third-party administrators of self-funded ERISA plans. ?áLiberty Mutual argued that states should not be permitted to subject self-funded ERISA plans and their vendors to a potential patchwork system of state reporting requirements and that this is the precise kind of activity for which ERISA pre-emption of state laws exists. ?áThe U.S. Supreme Court agreed with Liberty Mutual… Continue Reading

Oil Patch Bankruptcy Monitor

Dozens of North American oil and gas producers commenced Chapter 7, Chapter 11 and Canadian bankruptcy cases in 2015 involving over $17.3 billion in cumulative secured and unsecured debt. As of February 7, 2016, six producers have filed bankruptcy so far this year. Industry and economic indicators suggest more producer bankruptcy filings will occur during 2016. With the slump in commodity prices persisting, the lawyers of Haynes and Boone?ÇÖs Energy and Bankruptcy Practice Groups are closely following recent industry developments. To download the report – Oil Patch Bankruptcy Monitor – Feb 7, 2016

Plan Sponsors Should NOT Answer New Compliance Questions on 2015 Forms 5500

Certain compliance questions were recently added to the Form 5500/5500-SF and related schedules. The IRS previously announced that these new compliance questions were optional for the 2015 plan year, although the IRS strongly encouraged plan sponsors to complete them. On February 17, 2016, the IRS reversed course and announced that plan sponsors should not answer the compliance questions on their 2015 plan year Form 5500/5500-SF or on Schedules H, I, or R, because the forms and schedules were not approved by the federal Office of Management and Budget before they were published. The IRS announcement is available?áhere.

March 2016
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