Opinion ID: 1035024
Heading Depth: 2
Heading Rank: 2

Heading: Withdrawal Liability Under the MPPAA

Text: The MPPAA was enacted by Congress to protect the viability of defined pension benefit plans, to create a disincentive for employers to withdraw from multiemployer plans, and also to provide a means of recouping a fund's unfunded liabilities. Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 720-22 (1984). As such, the MPPAA requires employers withdrawing from a multiemployer plan to pay their proportionate -16- share of the pension fund's vested but unfunded benefits. See 29 U.S.C. §§ 1381, 1391; Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for S. Cal., 508 U.S. 602, 609 (1993); R.A. Gray, 467 U.S. at 725. An employer withdraws when it permanently ceases its obligation to contribute or permanently ceases covered operations under the plan. 29 U.S.C. § 1383(a). The MPPAA provides: For purposes of this subchapter, under regulations prescribed by the [PBGC], all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer and all such trades and businesses as a single employer. 29 U.S.C. § 1301(b)(1). So, [t]o impose withdrawal liability on an organization other than the one obligated to the [pension] Fund, two conditions must be satisfied: 1) the organization must be under 'common control' with the obligated organization, and 2) the organization must be a trade or business. McDougall v. Pioneer Ranch Ltd. P'ship, 494 F.3d 571, 577 (7th Cir. 2007). The Act's broad definition of employer extends beyond the business entity withdrawing from the pension fund, thus imposing liability on related entities within the definition, which, in effect, pierces the corporate veil and disregards formal business structures. See Cent. States, Se. & Sw. Areas Pension Fund v. Messina Prods., LLC, 706 F.3d 874, 877 (7th Cir. 2013) (When an employer participates in a multiemployer pension plan and then withdraws from the plan -17- with unpaid liabilities, federal law can pierce corporate veils and impose liability on owners and related businesses.). While Congress in § 1301(b)(1) authorizes the PBGC to prescribe regulations, those regulations shall be consistent and coextensive with regulations prescribed for similar purposes by the Secretary of the Treasury under [26 U.S.C. § 414(c)] of the Internal Revenue Code.11 29 U.S.C. § 1301(b)(1). The PBGC has adopted regulations pertaining to the meaning of common control, see 29 C.F.R. §§ 4001.2, 4001.3(a), but has not adopted regulations defining or explaining the meaning of trades or businesses.12 The phrase trades or businesses as used in § 1301(b)(1) is not defined in Treasury regulations and has not been given a definitive, uniform definition by the Supreme Court. See Comm'r of Internal Revenue v. Groetzinger, 480 U.S. 23, 27 (1987) (observing that despite the widespread use of the phrase in the Internal Revenue Code, the Code has never contained a definition of the words 'trade or business' for general application, and no regulation has been issued expounding its meaning for all 11 In turn, § 414(c) is concerned with seven further sections and sub-sections of the Code, which are themselves concerned with qualified pension plans, profit-sharing plans, stock bonus plans, and individual retirement accounts. See 26 U.S.C. § 414(c); see also id. §§ 401, 408(k), 408(p), 410, 411, 415, 416. 12 29 C.F.R. § 4001.3(a) references regulations issued by the Treasury under § 414(c) of the Code, but the Treasury regulations cross-referenced do not define trades or businesses either. See, e.g., 26 C.F.R. § 1.414(c)-2. -18- purposes). The Supreme Court has warned that when it interprets the phrase, it do[es] not purport to construe the phrase where it appears in other places, except those sections where it has previously interpreted the term. Id. at 27 n.8. The Court has not provided an interpretation of the phrase as used in § 1301(b)(1). C. Failing to Have Promulgated Regulations, the PBGC Nonetheless Offers Guidance on the Meaning of Trades or Businesses The only guidance we have from the PBGC is a 2007 appeals letter, defended in its amicus brief. In a September 2007 response to an appeal,13 the PBGC, in a letter, applied a two-prong test it purported to derive from Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23, to determine if the private equity fund was a trade or business for purposes of the first part of the § 1301(b)(1) requirement. The PBGC asked (1) whether the private equity fund was engaged in an activity with the primary purpose of income or profit and (2) whether it conducted that activity with continuity and regularity. See id. at 35 (We accept . . . that to be engaged in a trade or business, the taxpayer must be involved in the activity with 13 The PBGC's Appeals Board renders final agency decisions on various liability and benefit determinations in writing pursuant to 29 C.F.R. § 4003.59. According to the PBGC's website, only threemember decisions are made available on its website. The 2007 letter was a one-member decision and was apparently not published, or at least not made widely publicly available through its website. See Pension Benefit Guaranty Corporation, Appeals Board Decisions, http://www.pbgc.gov/prac/appeals-board-decisions.html. -19- continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit.). The PBGC found that the private equity fund involved in that matter met the profit motive requirement. It also determined that the size of the fund, the size of its profits, and the management fees paid to the general partner established continuity and regularity. The PBGC also observed that the fund's agent provided management and advisory services, and received fees for those services. Indeed, the Appeals Board noted that the equity fund's agent, N, received 20% of all net profits received in exchange for its services and that its acts were attributable to the fund as the fund's agent.14 In addition, the fund's controlling stake in the portfolio company put it in a position to exercise control through its general partner, consistent with its stated purpose. The approach taken by the PBGC has been dubbed an investment plus standard. See Bd. of Trs., Sheet Metal Workers' Nat'l Pension Fund v. Palladium Equity Partners, LLC, 722 F. Supp. 2d 854, 869 (E.D. Mich. 2010). The PBGC does not assert that its 2007 letter is entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). It does, however, claim entitlement to deference under Auer v. Robbins, 519 U.S. 452 14 The letter did not mention whether the equity fund received any offsets to the fees paid to N for fees N may have received from the portfolio company, i.e., the withdrawing employer. -20- (1997). We disagree. The PBGC's letter stating its position is owed no more than Skidmore deference. See Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). The letter was not the result of public notice and comment, and merely involved an informal adjudication resolving a dispute between a pension fund and the equity fund. Thus far, the letter has received no more deference than the power to persuade. See Sun Capital, 903 F. Supp. 2d at 115; Palladium, 772 F. Supp. 2d at 869. And rightly so. [I]nterpretations contained in formats such as opinion letters are 'entitled to respect' . . . only to the extent that those interpretations have the 'power to persuade.' Christensen v. Harris Cnty., 529 U.S. 576, 587 (2000) (quoting Skidmore, 323 U.S. at 140). The PBGC contends that, because it is interpreting a phrase that appears in its own regulations, see 29 C.F.R. §§ 4001.2, 4001.3, its interpretation is owed deference under Auer. Which is to say that the court must defer to that interpretation unless it is plainly erroneous or inconsistent with its own regulations. Auer, 519 U.S. at 461. The letter is not owed Auer deference in this case because such deference is inappropriate where significant monetary liability would be imposed on a party for conduct that took place at a time when that party lacked fair notice of the interpretation at issue. See Christopher v. SmithKline Beecham Corp., 132 S. Ct. -21- 2156, 2167 (2012). Christopher stressed that the agency in that case had taken decades before acting, during which time the industry practice at issue developed and continued.15 Id. at 2168 (But where, as here, an agency's announcement of its interpretation is preceded by a very lengthy period of conspicuous inaction, the potential for unfair surprise is acute.). In this case, the Sun Funds made their investment and operational arrangements in early 2007, while the PBGC did not issue its appeals letter until September 2007. Moreover, even if Christopher was not an impediment to Auer deference, the anti-parroting principle would be. Gonzales v. Oregon, 546 U.S. 243, 257 (2006) (Simply put, the existence of a parroting regulation does not change the fact that the question here is not the meaning of the regulation but the meaning of the statute. An agency does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language.). The PBGC regulations make no effort to 15 So too, here. Private equity funds date back to the nineteenth century, and have grown exponentially since around 1980. N. Jordan et al., Advising Private Funds: A Comprehensive Guide to Representing Hedge Funds, Private Equity Funds, and Their Advisers § 16:2 (2012) (observing that investor commitments were $10 billion in 1991, $160 billion in 2000, and $680 billion in 2008). And, before the PBGC's appeals letter, many fund managers did not think they were exposed to withdrawal liability for portfolio companies. Id. § 18:5 (explaining also that the principles set out by the PBGC are likely to apply across a wide spectrum of private equity firms). -22- define trades or businesses, 29 C.F.R. § 4001.3(a), and merely refer to Treasury regulations, which, as mentioned, also do not define the phrase. Nonetheless, the views the PBGC expressed in the letter are entitled to Skidmore deference. See Skidmore, 323 U.S. at 140 (observing that the weight of an agency's determination depend[s] upon the thoroughness evident in [the agency's] consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade). D. Sun Fund IV is a Trade or Business Under § 1301(b)(1), the PBGC's Investment Plus Approach is Persuasive, and the Same Approach Would Be Employed Even Without Deference The Sun Funds argue that the investment plus test is incompatible with Supreme Court tax precedent. Regardless, they argue, the Sun Funds cannot be held responsible for the activities of other entities in the management and operation of SBI. And even if the Sun Funds had engaged in those activities, they argue, that would not be enough. Where the MPPAA issue is one of whether there is mere passive investment to defeat pension withdrawal liability, we are persuaded that some form of an investment plus approach is appropriate when evaluating the trade or business prong of § 1301(b)(1), depending on what the plus is. Further, even if we were to ignore the PBGC's interpretation, we, like the Seventh -23- Circuit, would reach the same result through independent analysis. In Central States, Southeast & Southwest Areas Pension Fund v. Messina Products, LLC, 706 F.3d 874, the Seventh Circuit employed an investment plus-like analysis without reference to any PBGC interpretation. We agree with that approach. We see no need to set forth general guidelines for what the plus is, nor has the PBGC provided guidance on this. We go no further than to say that on the undisputed facts of this case, Sun Fund IV is a trade or business for purposes of § 1301(b)(1).16 In a very fact-specific approach, we take account of a number of factors, cautioning that none is dispositive in and of itself. The Sun Funds make investments in portfolio companies with the principal purpose of making a profit. Profits are made from the sale of stock at higher prices than the purchase price and through dividends. But a mere investment made to make a profit, without more, does not itself make an investor a trade or business. See Cent. States, Se. & Sw. Areas Pension Fund v. Fulkerson, 238 F.3d 891, 895-96 (7th Cir. 2001); Palladium, 722 F. Supp. 2d at 868. Here, however, the Sun Funds have also undertaken activities as to the SBI property. The Sun Funds' limited partnership agreements and private placement memos explain that the 16 We do not decide if Sun Fund III is a trade or business for reasons discussed later. -24- Funds are actively involved in the management and operation of the companies in which they invest. Pioneer Ranch, 494 F.3d at 577-78 (observing that an entity's own statements about its goals, purposes, and intentions are highly relevant, because [they] constitute . . . declaration[s] against interest. (quoting Connors v. Incoal, Inc., 955 F.2d 245, 254 (D.C. Cir. 1993)) (internal quotation mark omitted)). Each Sun Fund agreement states, for instance, that a principal purpose of the partnership is the manag[ement] and supervisi[on] of its investments. The agreements also give the general partner of each Sun Fund exclusive and wide-ranging management authority. In addition, the general partners are empowered through their own partnership agreements to make decisions about hiring, terminating, and compensating agents and employees of the Sun Funds and their portfolio companies. The general partners receive a percentage of total commitments to the Sun Funds and a percentage of profits as compensation -- just like the general partner of the equity fund in the PBGC appeals letter. It is the purpose of the Sun Funds to seek out potential portfolio companies that are in need of extensive intervention with respect to their management and operations, to provide such intervention, and then to sell the companies. The private -25- placement memos explain that [t]he Principals[17] typically work to reduce costs, improve margins, accelerate sales growth through new products and market opportunities, implement or modify management information systems and improve reporting and control functions. More specifically, those memos represent that restructuring and operating plans are developed for a target portfolio company even before it is acquired and a management team is built specifically for the purchased company, with [s]ignificant changes . . . typically made to portfolio companies in the first three to six months. The strategic plan developed initially is consistently monitored and modified as necessary. Involvement can encompass even small details, including signing of all checks for its new portfolio companies and the holding of frequent meetings with senior staff to discuss operations, competition, new products and personnel. Such actions are taken with the ultimate goal of selling the portfolio company for a profit. On this point, the placement memos explain that after implementing significant operating improvements . . . during the first two years[,] . . . the Principals expect to exit investments in two to five years (or sooner under appropriate circumstances). 17 Principals are defined in the private placement memos as individuals who work for the general partner of the Fund. -26- Further, the Sun Funds' controlling stake in SBI placed them and their affiliated entities in a position where they were intimately involved in the management and operation of the company. See Harrell v. Eller Maritime Co., No. 8:09-CV-1400-T-27AEP, 2010 WL 3835150, at  (M.D. Fla. Sept. 30, 2010) (the involvement in decisionmaking at management level goes well beyond that of a passive shareholder and supports a conclusion that an organization is a trade or business). Through a series of appointments, the Sun Funds were able to place SCAI employees in two of the three director positions at SBI, resulting in SCAI employees controlling the SBI board.18 Through a series of service agreements described earlier, SCAI provided personnel to SBI for management and consulting services. Thereafter, individuals from those entities were immersed in details involving the management and operation of SBI, as discussed. Moreover, the Sun Funds' active involvement in management under the agreements provided a direct economic benefit to at least Sun Fund IV that an ordinary, passive investor would not derive: an offset against the management fees it otherwise would have paid its 18 The Vice President of SSB-LLC, formed by the Sun Funds, selected the board of SBHC. Two of those three board members were employees of SCAI. On February 9, 2007, those same two SCAI employees were named directors of SBI, along with the CEO, Barry Golden, who had been retained after the purchase. -27- general partner for managing the investment in SBI.19 Here, SBI made payments of more than $186,368.44 to Sun Fund IV's general partner, which were offset against the fees Sun Fund IV had to pay to its general partner.20 This offset was not from an ordinary investment activity, which in the Sun Funds' words results solely in investment returns. See also United States v. Clark, 358 F.2d 892, 895 (1st Cir. 1966) (holding that taxpayer not engaged in a trade or business in part because no evidence he received compensation different from that flowing to an investor). In our view, the sum of all of these factors satisfy the plus in the investment plus test. The conclusion we reach is consistent with the conclusions of other appellate court decisions, though none has addressed this precise question. In Messina, where the Seventh Circuit employed an investment plus-like analysis on its own, the pension fund was seeking to impose withdrawal liability on a limited liability company (LLC) that owned rental 19 Specifically, the general partner of each private equity fund is entitled to an annual fee of 2% of the aggregate commitments to the fund, but fees the general partner and/or its wholly-owned subsidiary or their officers, partners, or employees receive from other sources are offset against the management fees owed by the Sun Funds to the general partner. 20 We do not determine if Sun Fund III is a trade or business because we cannot tell from the record before us if the Fund received an economic benefit from the offset. Therefore, we leave that factual issue and the ultimate trade or business conclusion about Sun Fund III for the district court to resolve on remand. -28- property.21 706 F.3d at 877. The Seventh Circuit rejected the LLC's argument that it was a passive investment vehicle. Id. at 885-86. The Seventh Circuit looked to the stated intent in the creation of the enterprise, as well as to the enterprise's legal form and how it was treated for tax purposes.22 Id. at 885. The company's operating agreement, which explained that it had developed a business plan to produce, sell, and market gravel, was highly relevant to the court's trade or business inquiry.23 Id. at 886 (stating that [i]t was entirely appropriate for the district court to take these documents at face value). The court also found it relevant that the activity was conducted under the auspices of a formal, for-profit organization, id., as are the Sun Funds. 21 The LLC was owned by a couple who also owned the withdrawing employer (a trucking company), establishing common control. See Cent. States, Se. & Sw. Areas Pension Fund v. Messina Prods., LLC, 706 F.3d 874, 877 (7th Cir. 2013). The pension fund also sought to impose liability on the couple for owning and renting a separate property to the withdrawing employer. Id. at 879-80. 22 Admittedly, here, the Sun Funds did not list trade or business income on their Form 1065, which cuts in favor of the Sun Funds' argument. 23 As to the couple, the court looked to actions of the couple's agents to impose withdrawal liability on the couple. Messina, 706 F.3d at 884. However, to the extent the Seventh Circuit imposed liability because the purpose of the couple's separate rental business was to fractionalize assets of the withdrawing employer, see id. at 883, we do not adopt a rule that in order to impose withdrawal liability the purpose of having a separate trade or business must be to fractionalize assets. -29- Likewise, in an earlier case, the Seventh Circuit rejected an argument that a limited liability company that owned rental property was merely a personal investment.24 Cent. States, Se. & Sw. Areas Pension Fund v. SCOFBP, LLC, 668 F.3d 873, 879 (7th Cir. 2011). It noted that the company was a for-profit LLC, earned rental income, paid business management fees, and contracted with professionals to provide legal, management, and accounting services. Id. Hence, the company was a formal business organization, engaged in regular and continuous activity for the purpose of generating income or profit and thus is . . . a 'trade or business' for purposes of the MPPAA. Id. The Sun Funds, however, argue that they cannot be trades or businesses because that would be inconsistent with two Supreme Court decisions -- Higgins v. Commissioner of Internal Revenue, 312 U.S. 212 (1941), and Whipple v. Commissioner of Internal Revenue, 373 U.S. 193 (1963) -- which interpret that phrase. The Sun Funds 24 The court defined personal investments as: [T]hings like holding shares of stock or bonds in publicly traded corporations. Ownership of this type of property without more is the hallmark of an investment. Owning property can be considered a personal investment, at least where the owner spends a negligible amount of time managing the leases, although a more substantial investment of time may be considered regular and continuous enough to rise to the level of a trade or business. Cent. States, Se. & Sw. Areas Pension Fund v. SCOFBP, LLC, 668 F.3d 873, 878-79 (7th Cir. 2011) (citations omitted) (quoting Cent. States, Se. & Sw. Areas Pension Fund v. Fulkerson, 238 F.3d 891, 895 (7th Cir. 2001)). -30- argue that cases interpreting the phrase trade or business as used anywhere in the Internal Revenue Code are binding because Congress intended for that phrase to be a term of art with a consistent meaning across uses. Also, the Sun Funds essentially argue that, by relying on Groetzinger, which stated that it was not cutting back on Higgins, the PBGC's investment plus test must be interpreted in a way consistent with Higgins and its progeny. Under Higgins, the Funds contend, they cannot be trades or businesses. As to the first argument, we reject the proposition that, apart from the provisions covered by 26 U.S.C. § 414(c), interpretations of other provisions of the Internal Revenue Code are determinative of the issue of whether an entity is a trade or business under § 1301(b)(1). Accord United Steelworkers of Am., AFL-CIO & Its Local 4805 v. Harris & Sons Steel Co., 706 F.2d 1289, 1299 (3d Cir. 1983) (explaining that a term used for tax purposes does not have to have the same meaning for purposes of pension fund plan termination insurance). We are particularly convinced this is the case because the Supreme Court has been hesitant to express a uniform definition even within the Code itself. See Groetzinger, 480 U.S. at 27 n.8; see also Carpenters Pension Trust Fund for N. Cal. v. Lundquist, 491 F. App'x 830, 831 (9th Cir. 2012) (rejecting argument that Groetzinger test must be used in interpreting § 1301(b)(1)); Bd. of Trs. of the W. Conference of Teamsters -31- Pension Trust Fund v. Lafrenz, 837 F.2d 892 (9th Cir. 1988) (deciding § 1301(b)(1) case without discussing Groetzinger). Moreover, § 1301(b)(1)'s statement that it must be construed consistently with only certain uses of the phrase in the Code undercuts the Sun Funds' assertion that the phrase must be uniformly interpreted. As to the second argument, we see no inconsistency with Higgins or Whipple. Those cases were concerned with different issues and did not purport to provide per se rules, much less rules determinative of withdrawal liability under the MPPAA. The premise of the Sun Funds' argument is that Higgins and Whipple mean that entities that make investments, manage those investments, and earn only investment returns cannot be trades or businesses for any purpose. That argument is too blunt an instrument. In Higgins, the issue was whether certain claimed expenses were eligible for the deduction the taxpayer sought. The taxpayer, who had extensive investments in real estate, bonds, and stocks, spent a considerable amount of effort and time administratively overseeing his interests. 312 U.S. at 213. The taxpayer hired others to assist him and also rented offices to oversee his investments. Id. He claimed those expenses were deductible under Section 23(a) of the Revenue Act of 1932 as ordinary and necessary expenses paid or incurred in carrying on a trade or business. Id. at 213-14. The Supreme Court held that those expenses were not incurred while -32- carrying on a trade or business and were therefore not deductible. Id. at 217-18. The Supreme Court reasoned that this was true because [t]he petitioner merely kept records and collected interest and dividends from his securities, through managerial attention for his investments. Id. at 218. The Court held that, no matter the size of the estate or the continuous nature of the work required to keep a watchful eye on investments, that by itself could not constitute a trade or business. Id. Significantly, the Court noted that the taxpayer did not participate directly or indirectly in the management of the corporations in which he held stock or bonds. Id. at 214. The facts of this case are easily distinguishable from those of Higgins. See id. at 217 (To determine whether the activities of a taxpayer are 'carrying on a business' requires an examination of the facts in each case.). First, the taxpayer in Higgins was trying to claim a deduction to avoid paying taxes. Second and more important, unlike the investor in Higgins, the Sun Funds did participate in the management of SBI, albeit through affiliated entities.25 25 Higgins stated that the size of the portfolio and the amount of time making investment decisions and taking care of administrative matters does not transform an investor into a trade or business; we do not rely on those factors in our analysis. -33- Whipple is also distinguishable: The taxpayer there sought to deduct a worthless loan made to a business he controlled as a bad business debt incurred in the taxpayer's trade or business. 373 U.S. at 194-97. The taxpayer claimed that, because he furnished regular services, namely his time and energy to the affairs of the corporation, he was engaged in a trade or business. Id. at 201-02. The Supreme Court rejected the argument, stating: Devoting one's time and energies to the affairs of a corporation is not of itself, and without more, a trade or business of the person so engaged. Though such activities may produce income, profit or gain in the form of dividends or enhancement in the value of an investment, this return is distinctive to the process of investing and is generated by the successful operation of the corporation's business as distinguished from the trade or business of the taxpayer himself. When the only return is that of an investor, the taxpayer has not satisfied his burden of demonstrating that he is engaged in a trade or business since investing is not a trade or business and the return to the taxpayer, though substantially the product of his services, legally arises not from his own trade or business but from that of the corporation. Id. at 202 (emphasis added). The Sun Funds say that, because they earned no income other than dividends and capital gains, they are not trades or businesses. But the Sun Funds did not simply devote time and energy to SBI, without more. Rather, they were able to funnel management and consulting fees to Sun Fund IV's general partner and its subsidiary. Most significantly, Sun Fund -34- IV received a direct economic benefit in the form of offsets against the fees it would otherwise have paid its general partner. It is difficult to see why the Whipple without more formulation is inconsistent with an MPPAA investment plus test. The investment plus test as we have construed it in this opinion is thus consistent with the Groetzinger, Higgins, and Whipple line of cases.26 Cf. SCOFBP, 668 F.3d at 878 ([I]t seems highly unlikely that a formal for-profit business organization would not qualify as a 'trade or business' under the Groetzinger test.); Rosenthal, Taxing Private Equity Funds as Corporate 'Developers', at 365 ([P]rivate equity funds are active enough to be in a trade or business.). The Sun Funds make an additional argument: that because none of the relevant activities by agents and different business entities can be attributed to the Sun Funds themselves, withdrawal liability cannot be imposed upon them. We reject this argument as well. Without resolving the issue of the extent to which Congress 26 Very late in this case the TPF, for the first time, argued that a series of tax cases from the tax court supported its view that the Sun Funds are trades or businesses because they are engaged in the development, promotion, and sale of companies. The TPF cites Deely v. Commissioner of Internal Revenue, 73 T.C. 1081 (1980), Farrar v. Commissioner of Internal Revenue, 55 T.C.M. (CCH) 1628 (1988), and Dagres v. Commissioner of Internal Revenue, 136 T.C. 263 (2011). The argument was presented too late. The developing business enterprises for resale theory was not presented to the district court nor in the opening briefs to us. Whatever the merit of the theory, our decision does not engage in an analysis of it. -35- intended in this area to honor corporate formalities, as have the parties, we look to the Restatement of Agency. Cf. Vance v. Ball State Univ., 133 S. Ct. 2434, 2441 (2013) (looking to Restatement of Agency to decide when Title VII vicarious liability appropriate). And, because the Sun Funds are Delaware limited partnerships, we also look to Delaware law. Under Delaware law, a partner is an agent of the partnership for the purpose of its business, purposes or activities, and an act of a partner for apparently carrying on in the ordinary course of the partnership's business, purposes or activities or business, purposes or activities of the kind carried on by the partnership binds the partnership. Del. Code Ann. tit. 6, § 15-301(1); see also Comm'r of Internal Revenue v. Boeing, 106 F.2d 305, 309 (9th Cir. 1939) (One may conduct a business through others, his agents, representatives, or employees.). To determine what is carrying on in the ordinary course of the partnership's business, we may consider the partnership's stated purpose. Rudnitsky v. Rudnitsky, No. 17446, 2010 WL 1724234, at  (Del. Ch. Nov. 14, 2000). Here, the limited partnership agreements gave the Sun Funds' general partners the exclusive authority to act on behalf of the limited partnerships to effectuate their purposes.27 These 27 The Sun Funds try to divert our attention from the Sun Funds' limited partnership agreements and instead focus on the purposes of the general partners as provided in their partnership -36- purposes included managing and supervising investments in portfolio companies, as well as other such activity incidental or ancillary thereto as deemed advisable by the general partner. So, under Delaware law, it is clear that the general partner of Sun Fund IV, in providing management services to SBI, was acting as an agent of the Fund. Moreover, even absent Delaware partnership law, the partnership agreements themselves grant actual authority for the general partner to provide management services to portfolio companies like SBI. See Restatement (Third) of Agency §§ 2.01, 3.01; cf. id. § 7.04 (principal incurs tort liability vicariously where agent acts with actual authority). And the general partners' own partnership agreements giving power to the limited partner committee to make determinations about hiring, terminating, and compensating agents and employees of the Sun Funds and their portfolio companies show the existence of such authority. Hence, the general partner was acting within the scope of its authority. Even so, the Sun Funds argue that the general partner entered the management service contract with SBI on its own accord, not as an agent of the Sun Funds.28 The Sun Funds' own agreements. But it is the principal's purposes, i.e., the Sun Funds' purposes, that are relevant. 28 The Sun Funds' citation of the Restatement (Third) of Agency's comment that [a]n agent may enter into a contract on behalf of a disclosed principal and, additionally, enter into a separate contract on the agent's own behalf with the same third -37- characterization is not dispositive.29 Cf. Restatement (Third) of Agency § 1.02 cmt. a (stating how the parties to any given relationship label it is not dispositive). The argument is unpersuasive for at least two reasons. First, it was within the general partner's scope of authority to provide management services to SBI. Second, providing management services was done on behalf of and for the benefit of the Sun Funds. Cf. Messina, 706 F.3d at 884 (individuals acting for benefit of married couple are agents whose acts are attributable to the couple). The investment strategy of the Sun Funds could only be achieved by active management through an agent, since the Sun Funds themselves had no employees. Indeed, the management services agreement was entered into just one day after the execution of the stock purchase agreement. In addition, Sun Fund IV received an offset in the fees it owed to its general partner because of payments made from SBI to that general partner. That provided a party, is unpersuasive. Restatement (Third) of Agency § 6.01 cmt. b. In that comment, the Restatement is explaining that an agent may enter into a contract that binds the agent and not the principal even where there is a separate contract which the agent entered into on behalf of the principal. That is not the case here where there is just one contract to provide management services to SBI. Additionally, in the illustration that follows, the agent permissibly enters into a second contract with the same third party in an area outside the scope of his agency. Again, that is not the case here where it was within the scope of authority for the general partner of Sun Fund IV to manage the investment in SBI. 29 Likewise, the fact that the general partner did not sign the management services agreement with SBI explicitly on behalf of Sun Fund III or Sun Fund IV is not determinative. -38- benefit by reducing its expenses. The services paid for by SBI were the same services that the Sun Funds would otherwise have paid for themselves to implement and oversee an operating strategy at SBI.30 The Sun Funds also make a policy argument that Congress never intended such a result in its § 1301(b)(1) control group provision. They argue that the purpose of the provision is to prevent an employer from circumventing ERISA obligations by divvying up its business operations into separate entities. It is not, they say, intended to reach owners of a business so as to require them to dig into their own pockets to pay withdrawal liability for a company they own. See Messina, 706 F.3d at 878. These are fine lines. The various arrangements and entities meant precisely to shield the Sun Funds from liability may be viewed as an attempt to divvy up operations to avoid ERISA obligations. We recognize that Congress may wish to encourage investment in distressed companies by curtailing the risk to investors in such employers of acquiring ERISA withdrawal liability. If so, Congress has not been explicit, and it may 30 Contrary to the Sun Funds' argument, attributing activities of an agent to a principal to determine if the principal is engaged in a trade or business does not result in the principal assuming the status of the agent. That is too simplistic of a way to view the inquiry. Instead, the court must attribute the activities of an agent that is acting on behalf of a principal to the principal, to determine whether there are sufficient activities of the principal to constitute a trade or business. Rosenthal, Taxing Private Equity Funds as Corporate 'Developers', at 365 n.43. -39- prefer instead to rely on the usual pricing mechanism in the private market for assumption of risk. We express our dismay that the PBGC has not given more and earlier guidance on this trade or business investment plus theory to the many parties affected. The PBGC has not engaged in notice and comment rulemaking or even issued guidance of any kind which was subject to prior public notice and comment. See C. Sunstein, Simpler 216 (2013) ([G]overnment officials learn from public comments on proposed rules. . . . It is not merely sensible to provide people with an opportunity to comment on rules before they are finalized; it is indispensable, a crucial safeguard against error.). Moreover, its appeals letter that provides for the investment plus test leaves open many questions about exactly where the line should be drawn between a mere passive investor and one engaged in a trade or business. Because to be an employer under § 1301(b)(1) the entity must both be a trade or business and be under common control, we reverse entry of summary judgment on the § 1301(b)(1) claim in favor of Sun Fund IV and vacate the judgment in favor of Sun Fund III. We remand the § 1301(b)(1) claim of liability to the district court to resolve whether Sun Fund III received any benefit from an offset from fees paid by SBI and for the district court to decide the issue of common control. We determine only that the trade or business requirement has been satisfied as to Sun Fund IV. -40-