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Sun Capital Advisors Wins Battle Over Teamsters Pension Fund

Nov. 22, 2019, 10:41 PM

A Teamsters pension plan lost a long-running battle to hold two private equity funds liable for $4.5 million in pension debts Nov. 22, when the First Circuit ruled for the funds.

The Sun Capital Advisors Inc. funds weren’t under “common control” with their portfolio company Scott Brass Inc., a copper and brass company, the appeals court said, and so they weren’t responsible for the withdrawal liability that Scott Brass was charged with when it left the Teamsters pension plan and filed for bankruptcy in 2008.

The dispute attracted attention in the private equity community, because it had the potential to expand private equity funds’ exposure to liability when they invest in companies with unionized workforces that receive retirement benefits from multiemployer pension funds.

The issue before the First Circuit was whether the Sun Capital funds were under “common control” with Scott Brass, which is a necessary component of holding the funds liable for the company’s withdrawal liability. The district judge found that common control existed because the Sun Capital funds were in an “implied general partnership” that together owned a 100% stake in Scott Brass.

The First Circuit looked to a multi-factor test to determine whether the funds formed a partnership-in-fact. If they had, and if they had also engaged in a trade or business, “then under the common control regulations they are jointly and severally liable for the debts of the partnership,” including the pension withdrawal liability, Judge Sandra L. Lynch said for the U.S. Court of Appeals for the First Circuit.

But most of the factors pointed away from a partnership and common control, the court said, including that the funds expressly disclaimed a partnership and were organized as limited liability companies.

Judges Norman H. Stahl and Kermit V. Lipez also served on the panel.

Kirkland & Ellis LLP and Pierce Bainbridge Beck Price & Hecht LLP represented the Sun Capital funds.

Feinberg, Campbell & Zack PC represented the The New England Teamsters & Trucking Industry Pension Fund.

The case is Sun Capital Partners III, LP v. New England Teamsters & Trucking Ind. Pension Fund, 1st Cir., No. 16-1376, 11/22/19.

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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