KMK Law Management Rights Blog

The First Circuit unanimously found that two Sun Capital private equity funds could not be held jointly and severally liable for multiemployer defined benefit pension plan withdrawal liability incurred by a bankrupt portfolio company. The lower court based its liability ruling on its finding that the funds were partners in an implied partnership-in-fact which was engaged in a “trade or business.” However, on appeal the First Circuit disagreed and found that several factors rebutting the partnership-in-fact formation were too greatly discounted by the lower court. The First Circuit also voiced reluctance to impose withdrawal liability on the private investors absent “a firm indication of congressional intent to do so and any further formal guidance from PBGC.” The Court concluded its decision by acknowledging the tension between ERISA and MPPAA’s principal aims – ensuring pension fund viability and encouraging private sector investment in struggling companies with pension plans. Overall, the case is considered a win for investment funds, but there are still open questions because the holding is not binding outside of the First Circuit and the decision hinged on a facts-and-circumstances analysis. Moreover, the Court did not address the lower court’s “trade or business” determination, so ambiguity remains with respect to private equity fund liability for portfolio pension funding.