Some Less Egregious Aggregation? – First Circuit Reverses the District Court in Sun Capital Partners

The recent decision by the U.S. Court of Appeals for the First Circuit in the Sun Capital Partners case¹ may allay some of the concerns that private equity and other investment funds that acquire or invest in portfolio companies with significant ERISA liabilities may have had in the wake of the most recent decision by the District Court in that case. The District Court had generally held that certain funds in the same fund family could be jointly and severally responsible for the ERISA liabilities of their jointly-owned portfolio companies, even where neither fund individually owns 80% of the applicable portfolio company. However, fund sponsors should be aware that the recent First Circuit decision does not reverse the First Circuit's earlier Sun Capital Partners decision,² under which a fund sponsor could be deemed to be engaging in a “trade or business” and therefore be potentially liable for certain ERISA liabilities of its portfolio companies under certain structures.

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