Private Equity Funds Liable for Pension Withdrawal Liabilities

We have been reporting on key developments in the restructuring and bankruptcy area for almost six years. When our reported case decisions involve a remand from the appellate courts, we follow them to conclusion. Three years ago we reported on Sun Capital Partners III v. New England Teamsters & Trucking Industry Pension Fund, an important decision by the U.S. Court of Appeals for the First Circuit. In that case, the court held that two private equity investment funds could be held liable for their bankrupt portfolio company’s withdrawal liability under the Employee Retirement Income Security Act of 1974 (ERISA) notwithstanding that no fund held more than 80 percent ownership in the portfolio company (the traditional trigger for ERISA liability), and the operative documents expressly disclaimed the creation of any partnership or joint venture between the two funds. At that time, the First Circuit remanded the case to the U.S. District Court for the District of Massachusetts to address the factual issues that could give rise to the funds being held liable. Today we report on a 43-page decision on remand issued by U.S. District Senior Judge Douglas P. Woodlock of the District of Massachusetts, dated March 28, granting the pension fund’s motion for summary judgment and entering judgment against the investment funds imposing pension ­withdrawal liability.

Background and Procedural History

Scott Brass Inc. (SBI) incurred withdrawal liability under the Multiemployer Pension Plan Amendments Act (MPPAA) after filing a Chapter 11 case and ceasing payments to the New England Teamsters and Trucking Industry Pension Fund. At that time the debtor was owned by Scott Brass Holding Corp., which in turn was owned by Sun Scott Brass LLC. Sun Fund III and Sun Fund IV (Sun Funds) owned 30 and 70 percent of the LLC. The Sun Funds were limited partnership investments funds whose general partners were Sun Capital Advisors III and Sun Capital Advisors IV, respectively. The partnerships had limited partner committees composed of individual principals Marc Leder and Rodger Krouse. According to the opinion, Leder and Krouse are also the co-CEOs of Sun Capital Advisors, which advises the Sun Funds, structures the Sun Funds’ deals, and provides management consulting and employees to the portfolio companies owned by the Sun Funds. This organizational structure is typical in the private equity industry.