First Circuit Overturns Sun Capital Decision: First Circuit reversed District Court Ruling that Held Two Affiliated Private Equity Funds Jointly and Severally Liable for their Bankrupt Portfolio Company’s Pension Liabilities

Sullivan & Cromwell LLP - December 2, 2019

On November 22, 2019, the U.S. Court of Appeals for the First Circuit unanimously held that two affiliated funds did not form a deemed “partnership-in-fact” with respect to a bankrupt portfolio company in which each fund was a co-investor and, therefore, the funds did not have controlled group liability under ERISA for that portfolio company’s defined benefit pension liabilities.

In the latest development in the Sun Capital litigation, the First Circuit clarified factors that may result in affiliated private equity funds, which do not individually satisfy the 80-percent owner test for controlled group liability, becoming jointly and severally liable for their portfolio company’s pension liabilities.