CLIENT ALERT: New Developments in Sun Capital Offer Little Relief to Private Equity Funds Concerned with ERISA Liability for their Portfolio Companies
January 7, 2020 – On November 22, 2019, the U.S. Court of Appeals for the First Circuit held, in Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, that two Sun Capital funds were not liable for the multiemployer pension plan withdrawal liability of their bankrupt portfolio company. This decision reverses a 2016 district court ruling which, together with an earlier First Circuit ruling in the same case, caused significant waves in the private equity world.
However, as discussed in the attached Client Alert, the new reversal, while welcome, is narrow in scope and offers limited precedential value or relief for private equity funds and their counsel. Private equity funds should continue conducting thorough diligence and using the risk mitigation and reduction strategies developed in the wake of the prior Sun Capital decisions whenever they acquire portfolio companies with potential pension plan liabilities.