Alert Update: First Circuit Reversal Frees Sun Capital From Pension Obligations of Portfolio Company
This Alert summarizes the latest ruling in the Sun Capital pension litigation in which a union pension plan had sought to impose ERISA “controlled group” liability on two separate-but-related private equity funds managed by Sun Capital Partners for pension obligations of an insolvent portfolio company. On November 22, 2019, the U.S. Court of Appeals for the First Circuit ruled that the two funds did not constitute a “partnership-in-fact” for purposes of establishing 80% or more ownership of the portfolio company, and therefore neither fund is subject to ERISA “controlled group” liability. This latest decision is a reversal of a controversial 2016 decision that held that the two funds should be viewed as a “partnership-in-fact” for purposes of establishing “controlled group” liability. This is a welcome development for the private equity fund industry, particularly in light of recent scrutiny of the industry from some members of Congress.