On November 22, 2019, the U.S. Court of Appeals for the First Circuit (the “First Circuit”) reversed the 2016 decision of the U.S. District Court for the District of Massachusetts (the “District Court”) in Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, 943 F.3d 49 (1st Cir. 2019) holding that two Sun Capital Partners private equity funds (Sun Capital Partners III and Sun Capital Partners IV, together, the “Funds”) had not formed a deemed “partnership in fact,” and therefore were not jointly and severally liable for the $4.5 million multiemployer plan withdrawal liability owed by Scott Brass Holding Corp. (“Scott Brass”), in which the Funds had invested through a limited liability company.

The First Circuit’s recent ruling, which used the existing multi-factor test set forth in federal tax court precedent to determine whether the Funds had formed a deemed “partnership in fact,” should serve to help calm fears that the District Court's 2016 Sun Capital decision, 172 F. Supp. 3d 447 (D. Mass. 2018), heralded a more expansive view of ERISA’s “controlled group” rules. However, private equity funds should be aware that the First Circuit’s recent decision did not overturn the First Circuit’s separate conclusion in its 2013 decision, 724 F.3d 129 (1st Cir. 2013), that a private equity fund may, under certain circumstances, be considered to be engaged in a “trade or business” and therefore may be deemed to be in the same “controlled group” as a portfolio company in which it invests (depending on its ownership percentage), nor does the First Circuit’s 2019 decision preclude the possibility that in the future, a court might find that two co-investing funds might be deemed a “partnership in fact” under different facts.