U.S. Supreme Court Denies Cert in Sun Capital Appeal; Leaves Door Open for Private Equity Fund Liability for Portfolio Company Pension Liabilities
In the latest development in the Sun Capital line of cases, on October 5, 2020, the U.S. Supreme Court denied certiorari review of New England Teamsters & Trucking Industry Pension Fund v. Sun Capital Partners. The Sun Capital cases center around the issue of whether affiliated private equity funds, Sun Capital Partners III and Sun Capital Partners IV (collectively, the ?Ç£Funds?Ç¥), can be held liable for the pension fund withdrawal liability of a portfolio company, Scott Brass Inc. (?Ç£SBI?Ç¥), which went into bankruptcy while owned by the Funds.
In 2013, the First Circuit held that multiple private equity funds could be jointly and severally liable under ERISA for the withdrawal liability of a portfolio company if such funds were (i) a trade or business and (ii) in the company?ÇÖs controlled group (see our prior blog post on that court decision here). On remand by the First Circuit in 2016, the district court held that the Funds were liable for the withdrawal liability of SBI, finding that the Funds were a trade or business and that the Funds had a ?Ç£partnership-in-fact?Ç¥, and that they were, therefore, in SBI?ÇÖs controlled group (see our prior blog post on that court decision here). In 2019, the First Circuit reversed the decision of the district court, finding that the Funds did not have a partnership-in-fact under a multifactor test and were, therefore, not liable for SBI?ÇÖs withdrawal liability (see our prior blog post on that court decision here).
With the Supreme Court?ÇÖs denial of certiorari and the First Circuit?ÇÖs 2019 decision left standing, there are still unanswered questions. Notably, the First Circuit did not address whether the Funds were a trade or business. Further, under different circumstances, a court could find multiple private equity funds jointly and severally liable under the multifactor test for determining controlled group status. Thus, while this denial of certiorari may be a win for the Funds for now, it leaves open the door for future liability by private equity funds for the pension liabilities of their portfolio companies.