A recent decision by a Massachusetts federal court judge could expand liability for co-investing private funds.  On remand from the First Circuit, the District Court in Sun Capital Partners III, LP v. New England Teamsters and Trucking Industry Pension Fund held that co-investing funds were part of a portfolio company’s “controlled group” and therefore potentially liable for the portfolio company’s multiemployer plan withdrawal liability.

In doing so, the District Court (1) essentially substituted the statutory 80% ownership threshold for controlled group liability with a “facts-and-circumstances” analysis that could impose liability on separate independent entities with ownership interests below 80% in a common subsidiary, and (2) took an expansive view of what constitutes an “economic benefit” that will satisfy the “investment plus” test articulated by the First Circuit for whether a private investment fund is a “trade or business.”

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