Opinion ID: 1035024
Heading Depth: 2
Heading Rank: 3

Heading: SBI's Bankruptcy and This Litigation

Text: In the fall of 2008, declining copper prices reduced the value of SBI's inventory, resulting in a breach of its loan covenants. Unable to get its lender to waive the violation of the covenants, SBI lost its ability to access credit and was unable to pay its bills. See id. In October 2008, SBI stopped making contributions to the TPF, and, in so doing, became liable for its proportionate share of the TPF's unfunded vested benefits. See 29 U.S.C. §§ 1381(a), 1383(a)(2). In November 2008, an involuntary Chapter 11 bankruptcy proceeding was brought against SBI. The Sun Funds assert that they -12- lost the entire value of their investment in SBI as a result of the bankruptcy. On December 19, 2008, the TPF sent a demand for payment of estimated withdrawal liability to SBI. The TPF also sent a notice and demand to the Sun Funds demanding payment from them of SBI's withdrawal liability, ultimately calculated as $4,516,539. Sun Capital, 903 F. Supp. 2d at 111. The TPF asserted that the Sun Funds had entered into a partnership or joint venture in common control with SBI and were therefore jointly and severally liable for SBI's withdrawal liability under 29 U.S.C. § 1301(b)(1). Id. On June 4, 2010, the Sun Funds filed a declaratory judgment action in federal district court in Massachusetts. The Sun Funds sought a declaration that they were not subject to withdrawal liability under § 1301(b)(1) because: (1) the Sun Funds were not part of a joint venture or partnership and therefore did not meet the common control requirement; and (2) neither of the Funds was a trade or business. The TPF counterclaimed that the Sun Funds were jointly and severally liable for SBI's withdrawal liability in the amount of $4,516,539, and also that the Sun Funds had engaged in a transaction to evade or avoid liability under 29 U.S.C. § 1392(c). The parties both filed cross-motions for summary judgment in September 2011. -13- The district court issued a Memorandum and Order on October 18, 2012, granting summary judgment to the Sun Funds. Id. at 109. The district court did not reach the issue of common control, id. at 118, instead basing its decision on the trade or business portion of the two-part statutory test. It also decided the evade or avoid liability issue.10 On the trade or business issue, the district court addressed the level of deference owed to a September 2007 PBGC appeals letter that found a private equity fund to be a trade or business in the single employer pension plan context. Id. at 11416. The appeals letter found the equity fund to be a trade or business because its controlling stake in the bankrupt company put it in a position to exercise control over that company through its general partner, which was compensated for its efforts. The district court held that the appeals letter was owed deference only to the extent it could persuade. Id. at 115. The district court found the letter unpersuasive for two reasons: (1) the appeals board purportedly incorrectly attributed activity of the general partner to the investment fund; and (2) the appeals board letter supposedly conflicted with governing Supreme Court tax precedent. Id. at 115-16. Engaging in its own analysis, the court found that the Sun Funds were not trades or businesses, relying 10 No party demanded a jury trial in the event the district court found that the case should proceed to trial rather than be resolved at summary judgment. -14- on the fact that the Sun Funds did not have any offices or employees, and did not make or sell goods or report income other than investment income on their tax returns. Id. at 117. Moreover, the Sun Funds were not engaged in the general partner's management activities. Id. As to its evade or avoid liability analysis, the district court stated that § 1392(c) was not meant to apply to an outside investor structuring a transaction to avoid assuming a potential liability. Id. at 122. The language of the statute suggested that it is aimed at sellers, not investors, id., and imposing liability on investors for trying to avoid assumption of such liability would disincentivize investing in companies subject to multiemployer pension plan obligations, thereby undermining the aim of the MPPAA, id. at 124. The TPF has timely appealed. It argues that the district court erred in finding that the Sun Funds were not trades or businesses and that the Sun Funds should be subject to evade or avoid liability under § 1392(c). The PBGC has filed an amicus brief on appeal in support of reversal of the district court's trades or businesses decision, but has taken no position on the § 1392(c) claim.