Further Reflections on Sun Capital Partners III, LP et al. v. New England Teamsters & Trucking Industry Pension Fund, D. Ma. 2016

On March 28, 2016, the U.S. District Court for the District of Massachusetts held that multiple private equity funds (Sun Capital Partners III [“Sun III”] and Sun Capital Partners IV [“Sun IV”]) managed by Sun Capital were engaged in a “trade or business” and constituted a “partnership-in-fact” jointly and severally liable for the multiemployer pension plan withdrawal liability of a bankrupt portfolio company, Scott Brass, Inc., even though neither fund owned at least 80% of the portfolio company. While there has been significant commentary on the Sun Capital District Court and prior First Circuit court decisions, this article suggests strategies that may reduce the risk of a private equity buyer incurring successor liability as a result of the Sun Capital District Court ruling. However, given the highly fact-intensive analysis of the existence of a “trade or business” and the lack in clarity as to how the District Court determined the existence of a “partnership-in-fact,” caution must be taken in how to structure future co-investments in portfolio companies having potential pension withdrawal liabilities until such time as the First Circuit may provide more definitive guidance and views as to the partnership-in-fact analysis. We provide a brief background of the District Court decision below followed by some thoughts and observations.

Read full article here.