Sun Capital found liable for pension costs in bankruptcy case

Sun Capital was set back in a legal fight over whether it’s liable for $4.5 million in pension costs related to the bankruptcy of Scott Brass Inc, even though its former portfolio company was owned by two separate funds.

U.S. District Court Judge Douglas Woodlock in Boston put Sun Capital on the hook to New England Teamsters and Trucking Industry Pension Fund for benefits stemming from the 2008 bankruptcy.

The case landed back in U.S. District Court after the U.S. Court of Appeals for the First Circuit asked the judge to reconsider issues regarding whether Sun Capital exerted common control over the company from Sun Capital Partners III, which owned 30 percent of the LLC for Scott Brass, and Sun Capital Partners IV, which owned the other 70 percent.

“It is clear beyond peradventure that a partnership-in-fact existed sufficient to aggregate [Fund III’s and Fund IV’s] interests and place them under common control with Scott Brass,” Woodlock said in his March 28 opinion.

In its defense, Sun Capital argued its “passive” private equity funds didn’t meet pension obligations under the Employee Retirement Income Security Act, or Erisa.

A private equity lawyer not directly involved in the case said he wasn’t aware of any other ruling that a private equity fund could be held for this type of liability.

“It’s a fairly significant decision,” said John Ventola, co-chair of the Finance & Restructuring Group at Choate, Hall & Stewart LLP. “Normally, pension liabilities would be paid by assets from the company in bankruptcy. They may have priority over other creditors.”

Ventola assumed Sun Capital would re-appeal the case up to the U.S. Court of Appeals, but he has no inside knowledge of the case.

“There’s a lot more to play out here unless the case settles,” he said.  “This is a classic case of a hunt for deep pockets.”

A spokesman for Sun Capital declined to comment. Kirkland & Ellis, a law firm that worked on the case for Sun Capital, declined to comment.

Catherine Campbell, a lawyer at Feinberg Campbell & Zack, which represented the New England Teamsters, did not return a phone call or an email. A spokesman for the Private Equity Growth Capital Council, declined to comment.

The Sun Capital case has been on the radar for the industry at least since 2013, when the U.S. Court of Appeals reached a mostly negative decision for Sun Capital.

The two Sun Capital funds purchased the Rhode Island-based copper and brass company in 2006.

Action Item: Read 2013 Buyouts story on the case: http://bit.ly/1Wiq9rH

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