District Court finds affiliated funds acted in de facto partnership which controlled portfolio company; Decision may be significant in making private equity acquisition structuring choices.

On March 28, 2016, a Federal District Court judge in Massachusetts ruled that two private equity funds were jointly and severally responsible for a $4.5 million multiemployer pension plan withdrawal liability incurred by their co-owned portfolio company. The District Court’s ruling disregarded the private equity funds’ formal ownership structure and held that, for purposes of determining liability, the funds had formed a partnership-in-fact that was a trade or business under common control with the portfolio company, and thus that the funds were liable under the Employee Retirement Income Security Act of 1974 (ERISA) “controlled group” rules. If sustained in other courts, this ruling would require re-thinking one of the fundamental considerations private equity firms use in structuring their portfolio company investments.