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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… Continue Reading

First Circuit Reverses Lower Court Ruling that Private Equity Funds are Liable for a Portfolio Company?ÇÖs Pension Liability

On November 22, 2019, the U.S. First Circuit Court of Appeals reversed a district court?ÇÖs finding that Sun Capital Partners III and Sun Capital Partners IV (collectively, the ?Ç£Funds?Ç¥) formed a ?Ç£partnership-in-fact?Ç¥ in connection with the Funds?ÇÖ investment in a bankrupt portfolio company (Scott Brass) that incurred pension plan withdrawal liability. Our prior review of the district court?ÇÖs ruling is available on our blog here. ERISA imposes joint and several liability on each member of a controlled group for certain liabilities, including pension plan withdrawal liabilities. A ?Ç£controlled group?Ç¥ includes trades or businesses that are under common control, which typically means 80% common ownership. Notwithstanding the fact that Sun Capital Partners III and Sun Capital Partners IV owned 30% and 70% of Scott Brass, respectively, the district court previously determined that by the Funds?ÇÖ co-investment in the portfolio company, the two formed a ?Ç£partnership-in-fact?Ç¥ that owned 100% of Scott Brass… Continue Reading

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

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