As expected, Sun Capital Partners III LP, a private equity fund operated by Sun Capital Advisors, Inc., along with two other private equity funds operated by Sun Capital Advisors, has filed a petition for a writ of certiorari with the United States Supreme Court. The writ requests the Supreme Court to review the recent First Circuit Court of Appeals decision in Sun Capital Partners III LP v. New England Teamsters & Trucking Industry Pension Fund, 724 F.3d 129 (1st Cir. 2013).
The recent First Circuit decision, the subject of several of my recent blogs and Alerts, held that the direct and indirect activities of the private equity fund’s manager caused it to be engaged in a “trade or business” for purposes of applying the ERISA “controlled group of corporation” rules. The result of the holding is that the private equity fund, Sun Capital Advisors, Inc., and, potentially, one or more of the other private equity funds operated by Sun Capital Advisors, are jointly and severally liable for the unfunded pension obligations owed by a portfolio company of the private equity fund. For more information about the case, see my previous blog: Private Equity Funds beware, recent First Circuit Court of Appeals Private Equity Fund ruling could have additional ramifications
While the specific facts supporting the First Circuit’s holding were unique, many of the factors cited by the First Circuit court that caused it to reach its holding are commonly used by other private equity funds. In addition, if the Supreme Court does not accept the appeal or eventually upholds the reasoning of the First Circuit, the conclusion will likely have additional potential impact on a number of other tax and employee benefit issues faced by private equity firms, and their funds and portfolio investments.
Therefore, private equity funds will be paying close attention to whether, and, if so, how the Supreme Court elects to deal with the request for it to review the First Circuit court holding. I can assure you, so will we.