Sun Capital Partners gained support in its legal battle over potential pension liabilities from the Private Equity Growth Capital Council, which filed an amicus brief on Wednesday.
Sun Capital Partners has asked the 1st U.S. Circuit Court of Appeals in Boston to reconsider a July 24 ruling that two of its funds were actively engaged as a trade or business in a now-bankrupt portfolio company, Scott Brass Inc., which owes withdrawal liability to a Teamsters pension fund. The appellate court decision overturned a 2012 ruling from a U.S. District Court in Massachusetts that the funds were passive investors, not a trade or business, but the lower court still has to rule on ownership issues.
PEGCC, a Washington-based private equity advocacy group, said in its brief that being the first decision at the circuit court level, the case raises “a question of exceptional importance” that has “the potential to effect a major shift in liabilities” for private equity funds whose portfolio companies have pension shortfalls.
The PEGCC brief cites a Credit Suisse study of multiemployer pension plans estimating $369 billion in underfunding, and argues that opening the door to potential liability “is virtually guaranteed to sow confusion” among private equity funds and to discourage pension funds from investing in private equity or private equity from investing in struggling companies.