Appeals Court Decision Raises Controlled Group Pension Liability Concerns for the Private Equity Industry

In a decision with significant implications for private equity funds and their investors, the First Circuit Court of Appeals held in Sun Capital that a Sun Capital Advisors private equity fund was a "trade or business" for purposes of ERISA's Title IV controlled group rules. Under the court's rationale, private equity funds would be exposed to joint and several liability for unpaid pension liabilities under Title IV of ERISA that apply on a controlled group basis where a sufficient ownership link exists between the fund and the portfolio company. Moreover, the rationale would expose one portfolio company to another portfolio company's controlled group liabilities where sufficient common ownership is present.