Member Article

In the latest development in the Sun Capital litigation, following remand by the First Circuit Court of Appeals, on March 28, 2016, the Federal District Court of Massachusetts found Sun Capital Partners III, LP and Sun Capital Partners III QP, LP (collectively, “Sun Fund III”) and Sun Capital Partners IV, LP (“Sun Fund IV,” and together with Sun Fund III, the “Sun Funds”) liable for the withdrawal liability of Scott Brass Holding Corp. (“Scott Brass”), a bankrupt portfolio company of the Sun Funds.1 In applying the First Circuit’s “investment plus” test, the district court found that the Sun Funds received a direct economic benefit and were therefore engaged in a “trade or business” for purposes of shared liability. Even though Sun Fund III and Sun Fund IV held a 30 percent and 70 percent interest in Scott Brass, respectively (each under the 80 percent generally required for controlled group purposes), the district court found that the Sun Funds operated as a single “partnership-in-fact” with no meaningful independence in their co-investments. Based on these findings, the court held the Sun Funds liable for the withdrawal liability incurred by Scott Brass.

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