Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund
724 F.3d 129
1st Cir.2013Background
- Sun Capital funds invested in SBI, acquiring a controlling stake via SBHC and SSB-LLC, and structured management arrangements through affiliated entities.
- SBI contributed to the New England Teamsters and Trucking Industry Pension Fund and later defaulted, triggering withdrawal liability.
- Plaintiffs Sun Fund III and Sun Fund IV seek declaratory relief that they are not liable under §1301(b)(1) as trade or business or common control under the MPPAA.
- TPF and PBGC contest the Sun Funds’ status, arguing they are liable as part of a common control group or as traders or businesses.
- District court granted summary judgment for Sun Funds on the trade/business issue, but the court did not resolve common control; liability under §1392(c) was also at issue.
- On appeal, the First Circuit held Sun Fund IV is a trade or business under §1301(b)(1), reversed in part, remanded for common control and for Sun Fund III trade/business determination, and affirmed denial of §1392(c) liability against the Sun Funds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Sun Fund IV a 'trade or business' under §1301(b)(1)? | Sun Fund IV is passive investor; not a trade or business. | Sun Fund IV actively manages SBI; constitutes a trade or business. | Yes, Sun Fund IV is a trade or business. |
| Is Sun Fund III a 'trade or business' under §1301(b)(1)? | Sun Fund III is not a trade or business. | Sun Fund III participates sufficiently to be a trade or business. | Remanded for factual development to resolve trade/business status. |
| Are common control and the two-part control group test satisfied to impose withdrawal liability on the Sun Funds? | Common control links Sun Funds to SBI for liability. | Need further factual development on common control; summary judgment inappropriate for §1301(b)(1). | Remanded for common control determination; partial reversal on trade/business. |
| Does §1392(c) create withdrawal liability against the Sun Funds by disregarding the 70/30 ownership split to avoid liability? | Disregard the transaction to impose liability. | Disregarding the split would not yield relief; cannot create a fictitious transaction. | Not liable under §1392(c); district court’s §1392(c) ruling affirmed. |
Key Cases Cited
- Groetzinger, 480 U.S. 23 (U.S. 1987) (defines 'trade or business' conceptually for tax purposes, non-uniform across Code)
- Higgins v. Commissioner, 312 U.S. 212 (U.S. 1941) (investor activities alone do not constitute a trade or business)
- Whipple v. Commissioner, 373 U.S. 193 (U.S. 1963) (investment-only returns do not prove a trade or business absent active management)
- Messina Prods., LLC, 706 F.3d 874 (7th Cir. 2013) (investment-plus analysis supports trade or business finding in some structures)
- SCOFBP, LLC v. Cent. States Pension Fund, 668 F.3d 873 (7th Cir. 2011) (for-profit organization engaged in regular activity can be a trade or business)
- United States v. Clark, 358 F.2d 892 (1st Cir. 1966) (agency principles used to attribute actions to principal for liability)