Recent Decision of the U.S. Court of Appeals for the First Circuit May Have Significant Implications for Private Equity Funds

Recent Decision of the U.S. Court of Appeals for the First Circuit May Have Significant Implications for Private Equity Funds

Oct 07, 2013

Client Alert

Brownstein Client Alert, October 7, 2013

In late July of this year, the U.S. Court of Appeals for the First Circuit reversed a Massachusetts District Court, and in a decision of first impression, held that one of Sun Capital Partner’s private equity funds was liable for an unfunded pension liability generated by its bankrupt portfolio company, Scott Brass, Inc. While this case arose under the Employment Income Security Act of 1974, as amended (“ERISA”), in reaching its decision, the First Circuit held that: (i) the general partner of the private equity fund was engaged in the “trade or business” of managing the fund (and its portfolio companies); and (ii) that such trade or business could be attributed to the fund itself in order to support imposition of the unfunded pension plan liability.

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