Is the First Circuit Egregiously Aggregating? Sun Capital Partners Case Holds That a Private Equity Fund Could Have ERISA Liabilities of Its Portfolio Company

August 09, 2013

The recent decision by the U.S. Court of Appeals for the First Circuit in the Sun Capital Partners case may be of concern to private equity funds and other investment funds that acquire or invest in portfolio companies with significant ERISA liabilities. Under Sun Capital Partners, an investment fund that owns 80% or more of a portfolio company could effectively be aggregated with the portfolio company for ERISA purposes and share its ERISA liabilities, depending on the fund's compensation arrangements and other relevant facts and circumstances. The decision could have implications for other employee-benefits purposes as well. Sponsors of funds that could be affected may wish to review whether their funds and their funds' investment activities are similar to those at issue in Sun Capital Partners, and whether there are any additional structuring opportunities worth considering in light of the First Circuit's decision.

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