As the old saying goes, “the wheels of justice turn slowly.” We return today to Sun Capital private equity funds’ multiyear litigation defending against unfunded pension liability related to one if its portfolio companies. We first reported on this controversy in an article in the Legal Intelligencer in 2013. At that time, the U.S. Court of Appeals for the First Circuit held the Sun Capital funds could be engaged in a “trade or business,” one of the requirements for pension withdrawal liability under the Multiemployer Pension Plan Amendments Act of 1980 (the MPPAA), and remanded the case to the U.S. District Court for the District of Massachusetts for additional proceedings. In 2016, the district court held that the Sun Capital funds were liable because the funds were engaged in trade or business and had formed a partnership-in-fact, thereby meeting the “common control test” under MPPAA law. In a decision dated Nov. 22, the First Circuit found the funds did not constitute an implied partnership-in-fact, reversed the decision of the district court, and held withdrawal liability could not be imposed. The opinion appears as Sun Capital Partners III v. New England Teamsters & Trucking Industry Pension Fund, Case No. 16-1376 (1st Cir. Nov. 22, 2019).

The Organization of the Funds

Once again, the court noted in its opinion, the two funds at issue, Sun Capital Partners III and Sun Capital IV, the funds) were each distinct Delaware business entities with primarily different investors and investments, but controlled by the same two men, Marc Leder and Rodger Krouse. The funds had no employees, did not make or sell goods, and reported only investment income to the IRS. The opinion notes, “The funds expressly disclaimed in their respective limited partnership agreements any partnership or joint venture with each other.” They maintained separate books and records, bank accounts, and filed distinct tax returns.

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