Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund
903 F. Supp. 2d 107
D. Mass.2012Background
- Withdrawal liability sought by Pension Fund from Scott Brass, Inc. and the five-year ERISA/MPPAA framework governs such liability.
- Sun Funds III/IV are passive investment vehicles managed by Sun Capital Advisors; their general partners control investments.
- Investment in Sun Scott Brass, LLC split 70%/30% between Sun Fund IV and Sun Fund III, via Scott Brass Holding Corp., and Scott Brass, Inc. ultimately went bankrupt.
- Pension Fund alleged common control and that the Sun Funds’ split was to evade withdrawal liability; private equity activity was at issue for §1301.
- Court previously determined the legal question of whether the Sun Funds were “employers” would be decided by the court; proceeding on cross-motions for summary judgment.
- Court granted Sun Funds’ summary judgment on liability; Pension Fund’s theories were rejected.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Sun Funds trades or businesses under §1301(b)(1)? | Sun Funds argue passive investment; not a trade or business. | Pension Fund argues funds’ active management crosses Groetzinger into business. | No; Sun Funds are not trades or businesses. |
| Are Sun Funds under common control with Scott Brass, Inc.? | Not decided due to lack of trade/business issue. | Common control could render Sun Funds liable. | Not reached; liability resolved on §1301 grounds. |
| Does §1392(c) apply to evade or avoid liability by investors? | Investors’ split was to diversify risk, not to evade liability. | Split was to minimize exposure to potential liability. | Not evaded; court found no principal purpose to evade liability. |
| Can Sun Funds be liable as partners in Sun Scott Brass, LLC? | Sun Funds could be treated as partners for withdrawal liability. | LLC treated as partnership for federal tax purposes only; state law governs liability. | No; liability cannot be imposed as partners. |
Key Cases Cited
- Higgins v. Commissioner, 312 U.S. 212 (1941) (investing is not a trade or business; investments are not businesses themselves)
- Whipple v. Commissioner, 373 U.S. 193 (1963) (investing not a trade or business absent active management)
- Groetzinger v. Commissioner, 480 U.S. 23 (1987) (two-prong test: primary purpose and continuity/regularity)
- ConCrete Pipe & Prods. v. Constr. Laborers Pension Trust for S. Cal., 508 U.S. 602 (1993) (ERISA withdrawal liability framework; unfunded liabilities)
- Central States, Southeast & Southwest Areas Pension Fund v. Fulkerson, 238 F.3d 891 (7th Cir. 2001) (defines Groetzinger test application to investments vs. trades or businesses)
- Dorn’s Transp., Inc. v. Teamsters Pension Trust Fund of Philadelphia, 787 F.2d 897 (3d Cir. 1986) (context of withdrawal liability and evasion concepts)
- SUPERVALU, Inc. v. Bd. of Trs. of Sw. Pa. and W. Md. Area Teamsters and Employers Pension Fund, 500 F.3d 334 (3d Cir. 2007) (principal purpose to evade or avoid withdrawal liability distinguishes pre-arranged settlements)
- Pension Benefit Guaranty Corp. v. East Dayton Tool & Die Co., 14 F.3d 1122 (6th Cir. 1994) (ERISA liability and partnership considerations under state law)