Sun Capital Partners III, LP v. New England Teamsters & Trucki, 1st Cir. (2013)

7/26/2019 Sun Capital Partners III, LP v. New England Teamsters & Trucki, 1st Cir. (2013)

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United States Court of AppealsFor the First Circuit

No. 12- 2312

SUN CAPI TAL PARTNERS I I I , LP; SUN CAPI TAL PARTNERS I I I QP, LP;SUN CAPI TAL PARTNERS I V, LP,

Pl ai nt i f f s , Appel l ees,

v.

NEW ENGLAND TEAMSTERS & TRUCKI NG I NDUSTRY PENSI ON FUND,

Def endant , Thi r d Par t y Pl ai nt i f f , Appel l ant ,

SCOTT BRASS HOLDI NG CORP. ; SUN SCOTT BRASS, LLC,

Thi r d Par t y Def endant s.

APPEAL FROM THE UNI TED STATES DI STRI CT COURTFOR THE DI STRI CT OF MASSACHUSETTS

[ Hon. Dougl as P. Woodl ock, U. S. Di st r i ct J udge]

Bef or e

Lynch, Chi ef J udge,Thompson and Kayat t a, Ci r cui t J udges.

Renee J . Bushey and Cat her i ne M. Campbel l , wi t h whom Mel i ssaA. Br ennan and Fei nberg, Campbel l & Zack, PC were on br i ef , f orappel l ant .

Er i c Fi el d, Assi st ant Chi ef Counsel , wi t h whom J udi t h R.St ar r , Gener al Counsel , I sr ael Gol dowi t z, Chi ef Counsel , Kar en L.Mor r i s, Deput y Chi ef Counsel , Cr ai g T. Fessenden, At t or ney, andBet h A. Banger t , At t or ney, wer e on br i ef , f or Pensi on Benef i tGuarant y Corporat i on, ami cus cur i ae.

Pat r i ck F. Phi l bi n, wi t h whom Theodor e J . Fol kman, P. C. ,Mur phy & Ki ng P. C. , J ohn F. Har t mann, P. C. , Mar l a Tun, J ef f r ey S.Qui nn, Kel l en S. Dwyer , J ohn S. Mor an, and Ki r kl and & El l i s LLPwer e on br i ef , f or appel l ees.


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J ul y 24, 2013


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LYNCH, Chief Judge. Thi s case pr esent s i mpor t ant i ssues

of f i r st i mpr essi on as t o wi t hdr awal l i abi l i t y f or t he pr o r at a

shar e of unf unded vest ed benef i t s t o a mul t i empl oyer pensi on f und

of a bankrupt company, her e, Scot t Br ass, I nc. ( SBI ) . See Empl oyee

Ret i r ement I ncome Secur i t y Act of 1974 ( ERI SA) , 29 U. S. C. 1001 et

seq. , as amended by t he Mul t i empl oyer Pensi on Pl an Amendment Act of

1980 ( MPPAA) , 29 U. S. C. 1381 et seq. Thi s l i t i gat i on consi der s

t he i mposi t i on of l i abi l i t y as t o t hr ee gr oups: t wo pr i vat e equi t y

f unds, whi ch asser t t hat t hey ar e mer e passi ve i nvest or s t hat had

i ndi r ect l y cont r ol l ed and t r i ed t o t ur n ar ound SBI , a st r uggl i ng

por t f ol i o company; t he New Engl and Teamst ers and Trucki ng I ndust r y

Pensi on Fund (TPF) , t o whi ch t he bankrupt company had wi t hdr awal

pensi on obl i gat i ons and whi ch seeks t o i mpose t hose obl i gat i ons on

t he equi t y f unds; and, ul t i mat el y, i f t he TPF becomes i nsol vent ,

t he f eder al Pensi on Benef i t Guarant y Cor por at i on (PBGC) , whi ch

i nsures mul t i empl oyer pensi on pl ans such as t he one i nvol ved her e.

I f t he TPF becomes i nsol vent , t hen t he benef i t s t o t he SBI wor ker s

are r educed t o a PBGC guarant eed l evel . See 29 U. S. C. 1322a,

1426, 1431. Accor di ng t o t he PBGC' s br i ef , at pr esent , t hat l evel

i s about $12, 870 f or empl oyees wi t h 30 years of ser vi ce.

The pl ai nt i f f s ar e t he t wo pr i vat e equi t y f unds, whi ch

sought a decl aratory j udgment agai nst t he TPF. The TPF, whi ch

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br ought i nt o t he sui t ot her ent i t i es r el at ed t o t he equi t y f unds, 1

has count er cl ai med and sought payment of t he wi t hdr awal l i abi l i t y

at i ssue. The TPF i s suppor t ed on appeal by t he PBGC, as ami cus. 2

We concl ude t hat at l east one of t he pr i vat e equi t y f unds

whi ch oper at ed SBI , t hr ough l ayer s of f und- r el at ed ent i t i es, was

not mer el y a "passi ve" i nvest or , but suf f i ci ent l y oper at ed,

1 Those r el at ed ent i t i es ar e not bef or e us i n t hi s appeal . Anent r y of def aul t was ent er ed agai nst t hose par t i es i n t he di st r i ctcour t , but j udgment was never ent er ed on the cl ai ms agai nst t hosepar t i es. However , i t i s appar ent f r om t he pr ocedur al hi st or y and

act i ons of t he TPF that t he TPF has abandoned t he cl ai ms agai nstt hose par t i es, and t her ef or e, we have appel l at e j ur i sdi ct i on under28 U. S. C. 1291. See, e. g. , Bal t . Or i ol es, I nc. v. Maj or LeagueBasebal l Pl ayer s Ass' n, 805 F. 2d 663, 667 ( 7t h Ci r . 1986) ( " [ A] nor der t hat ef f ect i vel y ends t he l i t i gat i on on t he mer i t s i s anappeal abl e f i nal j udgment even i f t he di st r i ct cour t di d notf ormal l y ent er j udgment on a cl ai mt hat one par t y has abandoned. " ) .

2 The aut hor i t y of t he PBGC t o pr omul gate r egul at i ons f or 1301( b) ( 1) i s set f or t h i n t he st at ut e. The PBGC i s a whol l yowned Uni t ed Stat es government corporat i on, whi ch i s model ed af t ert he FDI C and admi ni st er s and enf or ces Ti t l e I V of ERI SA. Pensi on

Benef i t Guar . Cor p. v. LTV Cor p. , 496 U. S. 633, 637 ( 1990) . ThePBGC al so act s as an i nsur er of mul t i empl oyer pl ans when a cover edpl an t er mi nat es wi t h i nsuf f i ci ent asset s t o sat i sf y i t s pensi onobl i gat i ons ( i . e. , i s i nsol vent ) . I d. at 637- 38. When amul t i empl oyer pl an becomes i nsol vent , benef i t s must be reduced t ot he PBGC- guarant eed l evel , and t he PBGC pr ovi des t he pl an wi t hf i nanci al assi st ance. See 29 U. S. C. 1322a, 1426, 1431. I n t hi scase, i t i s not cl ear whet her t he pl an wi l l become i nsol vent i f t hepr i vat e equi t y f unds ar e not det er mi ned t o have wi t hdr awall i abi l i t y, and as a r esul t , i t i s not cl ear whet her t he PBGC wi l li ncur any l osses.

The PBGC i nsur es about 1450 mul t i empl oyer pl ans cover i ng about

10. 3 mi l l i on par t i ci pant s. Pensi on Benef i t Guar ant y Cor por at i on,2012 PBGC Annual Repor t 33, avai l abl e atht t p: / / www. pgbc. gov/ document s/ 2012- annual - r epor t . pdf . I t pr ovi desabout $95 mi l l i on i n annual f i nanci al assi st ance t o 49 i nsol ventmul t i empl oyer pl ans cover i ng 51, 000 par t i ci pant s. I d. As of t heend of f i scal year 2012, t he PBGC' s mul t i empl oyer i nsurance f undhad a negat i ve net posi t i on of $5. 237 bi l l i on. I d.

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managed, and was advant aged by i t s r el at i onshi p wi t h i t s por t f ol i o

company, t he now bankr upt SBI . We al so concl ude t hat f ur t her

f actual devel opment i s necessary as t o t he other equi t y f und. We

deci de t hat t he di st r i ct cour t er r ed i n endi ng t he pot ent i al cl ai ms

agai nst t he equi t y f unds by ent er i ng summary j udgment f or t hem

under t he " t r ades or busi nesses" aspect of t he t wo- par t "cont r ol

gr oup" t est under 29 U. S. C. 1301( b) ( 1) . See Sun Capi t al Par t ner s

I I I , LP v. New Eng. Teamst er s & Trucki ng I ndus. Pensi on Fund, 903

F. Supp. 2d 107, 116- 18, 124 (D. Mass. 2012) .

As a resul t , we r emand f or f ur t her f actual devel opment

and f or f ur t her pr oceedi ngs under t he second par t of t he "cont r ol

gr oup" t est , t hat of "common cont r ol , " i n 29 U. S. C. 1301( b) ( 1) .

The di st r i ct cour t was, however , cor r ect t o enter summar y j udgment

i n f avor of t he pr i vat e equi t y f unds on t he TPF' s cl ai m of

l i abi l i t y on t he gr ound t hat t he f unds had engaged i n a t r ansact i on

t o evade or avoi d wi t hdr awal l i abi l i t y. See 29 U. S. C. 1392( c) ;

Sun Capi t al , 903 F. Supp. 2d at 123- 24.

I .

The mat er i al f act s ar e undi sput ed.

A. The Sun Funds

Sun Capi t al Advi sor s, I nc. ( "SCAI ") i s a pr i vat e equi t y

f i r m f ounded by i t s co- CEOs and sol e shar ehol der s, Mar c Leder and

Rodger Kr ouse. Sun Capi t al , 903 F. Supp. 2d at 109. I t i s not a

pl ai nt i f f or part y i n t hi s case. SCAI and i t s af f i l i at ed ent i t i es

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f i nd i nvest or s and creat e l i mi t ed par t ner shi ps i n whi ch i nvest or

money i s pool ed, as i n t he pr i vat e equi t y f unds her e. Mor eover ,

SCAI f i nds and r ecommends i nvest ment opport uni t i es f or t he equi t y

f unds, and negot i at es, st r uct ur es, and f i nal i zes i nvest ment deal s.

I d. SCAI al so pr ovi des management servi ces t o port f ol i o compani es,

and empl oys about 123 pr of ess i onal s t o pr ovi de t hese ser vi ces.

The pl ai nt i f f s here ar e t wo of SCAI ' s pr i vat e equi t y

f unds ( col l ect i vel y t he "Sun Funds") , Sun Capi t al Par t ner s I I I , LP

( "Sun Fund I I I ") 3 and Sun Capi t al Par t ner s I V, LP ( "Sun Fund I V" ) .

They ar e or gani zed as Del awar e l i mi t ed par t nershi ps. SBI i s one of

t hei r port f ol i o compani es, and t he t wo Sun Funds have other

port f ol i o compani es. The Sun Funds do not have any of f i ces or

empl oyees; nor do t hey make or sel l goods, or r epor t i ncome ot her

t han i nvest ment i ncome on t hei r t ax r et ur ns. 4 I d. at 117. The

3 Sun Fund I I I i s t echni cal l y t wo di f f er ent f unds, Sun Capi t alPar t ner s I I I , LP and Sun Capi t al Par t ner s I I I QP, LP. Li ke t hedi st r i ct cour t , we consi der t hem one f und f or pur poses of t hi sopi ni on because they ar e "par al l el f unds" r un by a si ngl e gener alpar t ner and general l y make the same i nvest ment s i n t he samepr opor t i ons. Sun Capi t al Par t ner s I I I , LP v. New Eng. Teamst er s &Tr ucki ng I ndus. Pensi on Fund, 903 F. Supp. 2d 107, 109 n. 1 ( D.Mass. 2012) .

4 For ERI SA pur poses, t he Sun Funds ar e Vent ur e Capi t alOperat i ng Compani es ( VCOC) . Accor di ng t o t he Sun Funds' pr i vat epl acement memos t o pot ent i al i nvest or s, t hi s r equi r es t hat t he

par t ner shi ps:( i ) . . . ha[ ve] di rect cont ract ual r i ght s tosubst ant i al l y par t i ci pat e i n or subst ant i al l y i nf l uencet he management of operat i ng compani es compr i si ng at l east50% of i t s por t f ol i o ( measur ed at cost ) and ( i i ) i n t heor di nar y cour se of [ t hei r busi nesses] , act i vel yexer ci s[ e] such management r i ght s wi t h respect t o at

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st ated pur pose of t he Sun Funds i s t o i nvest i n under per f ormi ng but

mar ket - l eadi ng compani es at bel ow i nt r i nsi c val ue, wi t h t he ai mof

t ur ni ng t hem ar ound and sel l i ng t hem f or a pr of i t . As a r esul t ,

t he Sun Funds' cont r ol l i ng st akes i n por t f ol i o compani es are used

t o i mpl ement r est r uct ur i ng and oper at i onal pl ans, bui l d management

t eams, become i nt i mat el y i nvol ved i n company operat i ons, and

other wi se cause gr owt h i n t he port f ol i o compani es i n whi ch t he Sun

Funds i nvest . The i nt ent i on of t he Sun Funds i s t o t hen sel l t he

hopef ul l y successf ul por t f ol i o company wi t hi n t wo t o f i ve year s.

I n f act , t he Sun Funds have ear ned si gni f i cant pr of i t s f r om sal es

of var i ous por t f ol i o compani es. 5

These pr i vat e equi t y f unds engaged i n a par t i cul ar t ype

of i nvest ment appr oach, t o be di st i ngui shed f r ommer e st ock hol di ng

or mut ual f und i nvest ment s. See, e. g. , S. Rosent hal , Taxi ng

Pr i vat e Equi t y Funds as Cor por at e ' Devel oper s' , Tax Not es, J an. 21,

2013, at 361, 364 & n. 31 ( expl ai ni ng t hat pr i vat e equi t y f unds

di f f er f r om mut ual f unds and hedge f unds because t hey "assi st and

manage t he busi ness of t he compani es t hey i nvest i n" ) . As one

l east one of t he oper at i ng compani es i n whi ch [ t heyi nvest ] . An "oper at i ng company" i s an ent i t y engaged i nt he pr oduct i on or sal e of a pr oduct or ser vi ce, asdi st i ngui shed f r om a r ei nvest i ng ent i t y.

See al so 29 C. F. R. 2510. 3- 101( d) ( 1) , ( d) ( 3) . We do not adopt t heTPF' s ar gument t hat any i nvest ment f und cl assi f i ed as a VCOC i snecessar i l y a "t r ade or busi ness. "

5 For i nst ance, Sun Fund I V, t he l ar ger of t he Funds, r epor t edt otal i nvest ment i ncome of $17, 353, 533 i n 2007, $57, 072, 025 i n2008, and $70, 010, 235 i n 2009.

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comment at or put s i t , " [ i ] t i s one thi ng to manage one' s i nvest ment s

i n busi nesses. I t i s anot her t o manage t he busi nesses i n whi ch one

i nvest s. " C. Sanchi r i co, The Tax Advant age t o Payi ng Pr i vat e

Equi t y Fund Manager s wi t h Pr of i t Shar es: What I s I t ? Why I s I t

Bad?, 75 U. Chi . L. Rev. 1071, 1102 ( 2008) .

The Sun Funds ar e overseen by gener al par t ners, Sun

Capi t al Advi sor s I I I , LP and Sun Capi t al Advi sor s I V, LP. Leder

and Kr ouse are each l i mi t ed part ner s i n t he Sun Funds' gener al

par t ner s and, t oget her wi t h t hei r spouses, ar e ent i t l ed t o 64. 74%

of t he aggr egat e pr of i t s of Sun Capi t al Advi sor s I I I , LP and 61. 04%

of such pr of i t s f r om Sun Capi t al Advi sor s I V, LP. The Sun Funds'

l i mi t ed par t ner shi p agr eement s vest t hei r r espect i ve gener al

par t ner s wi t h excl usi ve aut hor i t y t o manage t he par t ner shi p. Par t

of t hi s aut hor i t y i s t he power t o car r y out al l t he obj ect i ves and

pur poses of t he par t ner shi ps, whi ch i ncl ude i nvest i ng i n

secur i t i es, managi ng and super vi si ng any i nvest ment s, and any ot her

i nci dent al act i vi t i es t he gener al par t ner deems necessary or

advi sabl e.

For t hese servi ces, each gener al par t ner r ecei ves an

annual f ee of t wo percent of t he tot al commi t ment s ( meani ng t he

aggr egate cash commi t t ed as capi t al t o t he part ner shi p6) t o t he Sun

Funds, pai d by t he l i mi t ed par t ner shi p, and a per cent age of t he Sun

6 The aggregat e capi t al commi t ment of Sun Fund I V was $1. 5bi l l i on, whi ch the TPF assert s means t he management f ee at t he 2%r at e was $30 mi l l i on.

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Funds' pr of i t s f r om i nvest ment s. The gener al par t ner s al so have a

l i mi t ed par t ner shi p agr eement , whi ch pr ovi des t hat f or each gener al

par t ner a l i mi t ed par t ner commi t t ee makes al l mat er i al par t ner shi p

deci si ons. Sun Capi t al , 903 F. Supp. 2d at 110- 11. Leder and

Kr ouse ar e t he sol e member s of t he l i mi t ed part ner commi t t ees. I d.

at 111. I ncl uded i n t he power s of t he l i mi t ed part ner commi t t ees

i s t he aut hor i t y to make deci si ons and det er mi nat i ons r el at i ng t o

"hi r i ng, t er mi nat i ng and est abl i shi ng t he compensat i on of empl oyees

and agent s of t he [ Sun] Fund or Por t f ol i o Compani es. " The gener al

par t ner s al so each have a subsi di ar y management company, Sun

Capi t al Par t ner s Management I I I , LLC and Sun Capi t al Par t ner s

Management I V, LLC, r espect i vel y. I d. These management compani es

cont r act wi t h t he hol di ng company t hat owns t he acqui r ed company t o

pr ovi de management servi ces f or a f ee, and cont r act wi t h SCAI t o

pr ovi de t he empl oyees and consul t ant s. See i d. When por t f ol i o

compani es pay f ees t o t he management compani es, t he Sun Funds

r ecei ve an of f set t o t he f ees owed t o t he gener al par t ner . 7

B. The Acqui si t i on of Scot t Br ass, I nc.

7 Thi s sor t of f ee arr angement i s common i n pr i vat e equi t yf unds. See S. Rosent hal , Taxi ng Pr i vat e Equi t y Funds as Cor por at e

' Devel oper s' , Tax Not es, J an. 21, 2013, at 361, 362 n. 6 ( expl ai ni ngt hat equi t y f unds usual l y pay t he f ees t o t hei r gener al par t ner s,whi ch of t en r edi r ect t he f ee t o a management ser vi ces company t hatr ender s t he management servi ces f or t he part ner shi p, and t hat t hegeneral par t ner or management company wi l l of t en r ecei ve f ees f r omt he por t f ol i o company, i n whi ch case t he par t ner shi p ( t he equi t yf und) r ecei ves a f ee of f set ) .

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I n 2006, t he Sun Funds began t o take st eps t o i nvest i n

SBI , t he acqui si t i on of whi ch was compl et ed i n ear l y 2007. Leder

and Kr ouse made t he deci si on t o i nvest i n SBI i n t hei r capaci t y as

members of t he l i mi t ed par t ner commi t t ees.

SBI , a Rhode I sl and corporat i on, was an ongoi ng t r ade or

busi ness, and was cl osel y hel d; i t s st ock was not publ i cl y t r aded.

SBI was a l eadi ng pr oducer of hi gh qual i t y br ass, copper , and ot her

met al s "used i n a var i et y of end mar ket s, i ncl udi ng el ect r oni cs,

aut omot i ve, har dwar e, f ast ener s, j ewel r y, and consumer pr oduct s. "

I n 2006, i t shi pped 40. 2 mi l l i on pounds of met al . SBI made

cont r i but i ons t o t he TPF on behal f of i t s empl oyees pur suant t o a

col l ect i ve bar gai ni ng agr eement .

On November 28, 2006, a Sun Capi t al af f i l i at ed ent i t y

sent a l et t er of i nt ent t o SBI ' s out si de f i nanci al advi sor t o

pur chase 100% of SBI . I n December 2006, t he Sun Funds f ormed Sun

Scot t Br ass, LLC ( SSB- LLC) as a vehi cl e t o i nvest i n SBI . Sun Fund

I I I made a 30% i nvest ment ( $900, 000) and Sun Fund I V a 70%

i nvest ment ( $2. 1 mi l l i on) f or a tot al equi t y i nvest ment of $3

mi l l i on. Thi s pur chase pr i ce r ef l ect ed a 25% di scount because of

SBI ' s known unf unded pensi on l i abi l i t y. 8 SSB- LLC, on December 15,

2006, f ormed a whol l y- owned subsi di ary, Scot t Br ass Hol di ng Corp.

8 The Sun Funds cont end t hat t hey r educed t he pur chase pr i cebased on t he expect at i on t hat a f ut ur e buyer woul d pay l ess f or acompany wi t h unf unded pensi on obl i gat i ons, not because of a concernt hat t hey wer e i ncur r i ng pot ent i al wi t hdr awal l i abi l i t y.

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( SBHC) . SSB- LLC t r ansf er r ed t he $3 mi l l i on t he Sun Funds i nvest ed

i n i t t o SBHC as $1 mi l l i on i n equi t y and $2 mi l l i on i n debt . I d.

at 111. SBHC t hen pur chased al l of SBI ' s st ock wi t h t he $3 mi l l i on

of cash on hand and $4. 8 mi l l i on i n addi t i onal bor r owed money. I d.

The st ock pur chase agreement t o acqui r e SBI ' s st ock was enter ed

i nt o on Febr uary 8, 2007. 9

On Februar y 9, 2007, SBHC si gned an agr eement wi t h t he

subsi di ar y of t he gener al par t ner of Sun Fund I V t o pr ovi de

management ser vi ces t o SBHC and i t s subsi di ar i es, i . e. , SBI . Si nce

2001, t hat gener al par t ner ' s subsi di ar y had cont r act ed wi t h SCAI t o

pr ovi de i t wi t h advi sor y ser vi ces. I n essence, as t he di st r i ct

cour t descr i bed, t he management company act ed as a mi ddl e- man,

pr ovi di ng SBI wi t h empl oyees and consul t ant s f r om SCAI . I d.

Numer ous i ndi vi dual s wi t h af f i l i at i ons t o var i ous Sun

Capi t al ent i t i es, i ncl udi ng Kr ouse and Leder , exer t ed subst ant i al

oper at i onal and manager i al cont r ol over SBI , whi ch at t he t i me of

t he acqui si t i on had 208 empl oyees and cont i nued as a t r ade or

busi ness manuf act ur i ng met al pr oduct s. For i nst ance, mi nut es of a

March 5, 2007 meet i ng show t hat seven i ndi vi dual s f r om "SCP"

at t ended a " J umpst ar t Meet i ng" at whi ch t he hi r i ng of t hr ee SBI

sal esmen was appr oved, as was t he hi r i ng of a consul t ant t o anal yze

9 The cover page of t he agr eement st at es t he agr eement i sdated Febr uary 8, 2007, but t he t ext of t he st ock pur chaseagr eement says i t i s dated Febr uary 9, 2007. The di scr epancy i snot of i mport ance her e.

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a comput er syst em upgr ade pr oj ect at a cost of $25, 000. Ot her

i t ems di scussed i ncl uded possi bl e acqui si t i ons, capi t al

expendi t ur es, and t he management of SBI ' s worki ng capi t al .

Fur t her , Leder , Kr ouse, and St even Li f f , an SCAI empl oyee, wer e

i nvol ved i n emai l chai ns di scussi ng l i qui di t y, possi bl e mer ger s,

di vi dend payout s, and concer ns about how t o dr i ve r evenue gr owt h at

SBI . Leder , Kr ouse, and other empl oyees of SCAI r ecei ved weekl y

f l ash r epor t s f r om SBI t hat cont ai ned det ai l ed i nf or mat i on about

SBI ' s r evenue, key f i nanci al dat a, mar ket act i vi t y, sal es

oppor t uni t i es, meet i ng not es, and act i on i t ems. Accor di ng t o t he

Sun Funds, SBI cont i nued t o meet i t s pensi on obl i gat i ons t o t he TPF

f or mor e t han a year and a hal f af t er t he acqui si t i on.

C. SBI ' s Bankr upt cy and Thi s Li t i gat i on

I n t he f al l of 2008, decl i ni ng copper pr i ces r educed t he

val ue of SBI ' s i nvent or y, r esul t i ng i n a br each of i t s l oan

covenant s. Unabl e t o get i t s l ender t o wai ve t he vi ol at i on of t he

covenant s, SBI l ost i t s abi l i t y t o access cr edi t and was unabl e t o

pay i t s bi l l s . See i d.

I n Oct ober 2008, SBI st opped maki ng cont r i but i ons t o t he

TPF, and, i n so doi ng, became l i abl e f or i t s proport i onate share of

t he TPF' s unf unded vest ed benef i t s. See 29 U. S. C. 1381( a) ,

1383( a) ( 2) . I n November 2008, an i nvol unt ary Chapt er 11 bankr upt cy

pr oceedi ng was br ought agai nst SBI . The Sun Funds asser t t hat t hey

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l ost t he ent i r e val ue of t hei r i nvest ment i n SBI as a r esul t of t he

bankr upt cy.

On December 19, 2008, t he TPF sent a demand f or payment

of est i mat ed wi t hdr awal l i abi l i t y t o SBI . The TPF al so sent a

not i ce and demand t o t he Sun Funds demandi ng payment f r om t hem of

SBI ' s wi t hdr awal l i abi l i t y, ul t i mat el y cal cul at ed as $4, 516, 539.

Sun Capi t al , 903 F. Supp. 2d at 111. The TPF asser t ed t hat t he Sun

Funds had ent er ed i nt o a par t ner shi p or j oi nt vent ur e i n common

cont r ol wi t h SBI and wer e t her ef or e j oi nt l y and sever al l y l i abl e

f or SBI ' s wi t hdr awal l i abi l i t y under 29 U. S. C. 1301( b) ( 1) . I d.

On J une 4, 2010, t he Sun Funds f i l ed a decl ar at ory

j udgment act i on i n f eder al di st r i ct cour t i n Massachuset t s. The

Sun Funds sought a decl arat i on t hat t hey wer e not subj ect t o

wi t hdr awal l i abi l i t y under 1301( b) ( 1) because: ( 1) t he Sun Funds

wer e not par t of a j oi nt vent ur e or par t ner shi p and t her ef or e di d

not meet t he common cont r ol r equi r ement ; and ( 2) nei t her of t he

Funds was a " t r ade or busi ness. "

The TPF count er cl ai med t hat t he Sun Funds wer e j oi nt l y

and sever al l y l i abl e f or SBI ' s wi t hdr awal l i abi l i t y i n t he amount

of $4, 516, 539, and al so t hat t he Sun Funds had engaged i n a

t r ansact i on t o evade or avoi d l i abi l i t y under 29 U. S. C. 1392( c) .

The par t i es bot h f i l ed cr oss- mot i ons f or summar y j udgment i n

Sept ember 2011.

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The di st r i ct cour t i ssued a Memor andum and Or der on

Oct ober 18, 2012, grant i ng summary j udgment t o t he Sun Funds. I d.

at 109. The di st r i ct cour t di d not r each t he i ssue of common

cont r ol , i d. at 118, i nst ead basi ng i t s deci si on on t he "t r ade or

busi ness" por t i on of t he t wo- par t st at ut or y t est . I t al so deci ded

t he "evade or avoi d" l i abi l i t y i ssue. 10

On t he "t r ade or busi ness" i ssue, t he di st r i ct cour t

addressed t he l evel of def erence owed t o a Sept ember 2007 PBGC

appeal s l et t er t hat f ound a pr i vat e equi t y f und t o be a " t r ade or

busi ness" i n t he si ngl e empl oyer pensi on pl an cont ext . I d. at 114-

16. The appeal s l et t er f ound t he equi t y f und t o be a " t r ade or

busi ness" because i t s cont r ol l i ng st ake i n t he bankrupt company put

i t i n a posi t i on t o exer ci se cont r ol over t hat company t hr ough i t s

gener al par t ner , whi ch was compensat ed f or i t s ef f or t s.

The di st r i ct cour t hel d t hat t he appeal s l et t er was owed

def er ence onl y t o t he ext ent i t coul d per suade. I d. at 115. The

di st r i ct cour t f ound t he l et t er unper suasi ve f or t wo r easons: ( 1)

t he appeal s boar d pur por t edl y i ncor r ect l y at t r i but ed act i vi t y of

t he gener al par t ner t o t he i nvest ment f und; and ( 2) t he appeal s

boar d l et t er supposedl y conf l i ct ed wi t h gover ni ng Supr eme Cour t t ax

pr ecedent . I d. at 115- 16. Engagi ng i n i t s own anal ysi s, t he cour t

f ound t hat t he Sun Funds wer e not " t r ades or busi nesses, " r el yi ng

10 No par t y demanded a j ur y t r i al i n t he event t he di st r i ctcour t f ound t hat t he case shoul d pr oceed t o t r i al r at her t han ber esol ved at summar y j udgment .

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on t he f act t hat t he Sun Funds di d not have any of f i ces or

empl oyees, and di d not make or sel l goods or r epor t i ncome ot her

t han i nvest ment i ncome on t hei r t ax r et ur ns. I d. at 117.

Moreover , t he Sun Funds were not engaged i n t he general par t ner ' s

management act i vi t i es. I d.

As to i t s "evade or avoi d" l i abi l i t y anal ysi s, t he

di st r i ct cour t st at ed t hat 1392( c) was not meant t o appl y t o an

out si de i nvest or st r uct ur i ng a t r ansact i on t o avoi d assumi ng a

pot ent i al l i abi l i t y. I d. at 122. The l anguage of t he st at ut e

suggest ed t hat "i t i s ai med at sel l er s, not i nvest or s, " i d. , and

i mposi ng l i abi l i t y on i nvest or s f or t r yi ng t o avoi d assumpt i on of

such l i abi l i t y woul d di si ncent i vi ze i nvest i ng i n compani es subj ect

t o mul t i empl oyer pensi on pl an obl i gat i ons, t her eby under mi ni ng t he

ai m of t he MPPAA, i d. at 124.

The TPF has t i mel y appeal ed. I t ar gues t hat t he di st r i ct

cour t er r ed i n f i ndi ng t hat t he Sun Funds wer e not " t r ades or

busi nesses" and t hat t he Sun Funds shoul d be subj ect t o "evade or

avoi d" l i abi l i t y under 1392( c) . The PBGC has f i l ed an ami cus

br i ef on appeal i n suppor t of r ever sal of t he di st r i ct cour t ' s

" t r ades or busi nesses" deci si on, but has t aken no posi t i on on t he

1392( c) cl ai m.

I I .

A. St andar d of Revi ew

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We r evi ew a gr ant or deni al of summary j udgment , as wel l

as pur e i ssues of l aw, de novo. Rodr i guez v. Am. I nt ' l I ns. Co. of

P. R. , 402 F. 3d 45, 46- 47 ( 1st Ci r . 2005) . We may af f i r m t he

di st r i ct cour t on any i ndependent l y suf f i ci ent gr ound mani f est i n

t he r ecor d. OneBeacon Am. I ns. Co. v. Commerci al Uni on Assur ance

Co. of Can. , 684 F. 3d 237, 241 ( 1st Ci r . 2012) . The pr esence of

cr oss- mot i ons f or summary j udgment does not di st or t t he st andard of

r evi ew. Rather , we vi ew each mot i on separatel y i n t he l i ght most

f avorabl e t o t he non- movi ng part y and dr aw al l r easonabl e

i nf er ences i n f avor of t hat par t y. I d. We make a det er mi nat i on

"based on t he undi sput ed f act s whet her ei t her [ par t y] deserve[ s]

j udgment as a mat t er of l aw. " Har t f or d Fi r e I ns. Co. v. CNA I ns.

Co. ( Eur . ) Lt d. , 633 F. 3d 50, 53 ( 1st Ci r . 2011) . To pr evai l , t he

movi ng par t y must show " t hat t her e i s no genui ne di sput e as t o any

mat er i al f act , " and t hat i t "i s ent i t l ed t o j udgment as a mat t er of

l aw. " Fed. R. Ci v. P. 56( a) .

B. Wi t hdr awal Li abi l i t y Under t he MPPAA

The MPPAA was enact ed by Congr ess t o prot ect t he

vi abi l i t y of def i ned pensi on benef i t pl ans, t o creat e a

di si ncent i ve f or empl oyer s t o wi t hdr aw f r om mul t i empl oyer pl ans,

and al so t o pr ovi de a means of r ecoupi ng a f und' s unf unded

l i abi l i t i es. Pensi on Benef i t Guar . Cor p. v. R. A. Gr ay & Co. , 467

U. S. 717, 720- 22 ( 1984) . As such, t he MPPAA r equi r es empl oyers

wi t hdr awi ng f r om a mul t i empl oyer pl an t o pay t hei r pr opor t i onat e

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shar e of t he pensi on f und' s vest ed but unf unded benef i t s. See 29

U. S. C. 1381, 1391; Concr et e Pi pe & Pr ods. of Cal . , I nc. v.

Const r . Labor er s Pensi on Tr ust f or S. Cal . , 508 U. S. 602, 609

( 1993) ; R. A. Gr ay, 467 U. S. at 725. An empl oyer wi t hdr aws when i t

per manent l y ceases i t s obl i gat i on t o cont r i but e or per manent l y

ceases cover ed oper at i ons under t he pl an. 29 U. S. C. 1383( a) .

The MPPAA provi des: "For pur poses of t hi s subchapt er ,

under r egul at i ons prescr i bed by t he [ PBGC] , al l empl oyees of t r ades

or busi nesses ( whether or not i ncorporat ed) whi ch ar e under common

cont r ol shal l be t r eated as empl oyed by a si ngl e empl oyer and al l

such t r ades and busi nesses as a si ngl e empl oyer . " 29 U. S. C.

1301( b) ( 1) . So, " [ t ] o i mpose wi t hdr awal l i abi l i t y on an

or gani zat i on ot her t han t he one obl i gated t o t he [ pensi on] Fund,

t wo condi t i ons must be sat i sf i ed: 1) t he or gani zat i on must be under

' common cont r ol ' wi t h t he obl i gat ed or gani zat i on, and 2) t he

or gani zat i on must be a t r ade or busi ness. " McDougal l v. Pi oneer

Ranch Lt d. P' shi p, 494 F. 3d 571, 577 ( 7t h Ci r . 2007) . The Act ' s

br oad def i ni t i on of "empl oyer " extends beyond t he busi ness ent i t y

wi t hdr awi ng f r om t he pensi on f und, t hus i mposi ng l i abi l i t y on

r el at ed ent i t i es wi t hi n t he def i ni t i on, whi ch, i n ef f ect, pi er ces

t he cor por at e vei l and di sr egar ds f or mal busi ness st r uct ur es. See

Cent . St ates, Se. & Sw. Ar eas Pensi on Fund v. Messi na Prods. , LLC,

706 F. 3d 874, 877 (7t h Ci r . 2013) ( "When an empl oyer part i ci pates

i n a mul t i empl oyer pensi on pl an and t hen wi t hdr aws f r om t he pl an

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wi t h unpai d l i abi l i t i es, f eder al l aw can pi er ce cor por at e vei l s and

i mpose l i abi l i t y on owner s and r el at ed busi nesses. " ) .

Whi l e Congr ess i n 1301( b) ( 1) aut hor i zes t he PBGC t o

pr escr i be r egul at i ons, t hose r egul at i ons "shal l be consi st ent and

coext ensi ve wi t h r egul at i ons pr escr i bed f or si mi l ar pur poses by t he

Secr et ar y of t he Tr easur y under [ 26 U. S. C. 414( c) ] " of t he

I nternal Revenue Code. 11 29 U. S. C. 1301( b) ( 1) . The PBGC has

adopt ed r egul at i ons per t ai ni ng t o the meani ng of "common cont r ol , "

see 29 C. F. R. 4001. 2, 4001. 3( a) , but has not adopt ed r egul at i ons

def i ni ng or expl ai ni ng t he meani ng of " t r ades or busi nesses. " 12

The phr ase " t r ades or busi nesses" as used i n 1301( b) ( 1)

i s not def i ned i n Tr easur y regul at i ons and has not been gi ven a

def i ni t i ve, uni f or mdef i ni t i on by t he Supr eme Cour t . See Comm' r of

I nt er nal Revenue v. Gr oet zi nger , 480 U. S. 23, 27 ( 1987) ( observi ng

t hat despi t e t he wi despr ead use of t he phr ase i n t he I nt er nal

Revenue Code, " t he Code has never cont ai ned a def i ni t i on of t he

wor ds ' t r ade or busi ness' f or gener al appl i cat i on, and no

r egul at i on has been i ssued expoundi ng i t s meani ng f or al l

11 I n t ur n, 414( c) i s concer ned wi t h seven f ur t her sect i onsand sub- sect i ons of t he Code, whi ch are t hemsel ves concerned wi t hqual i f i ed pensi on pl ans, pr of i t - shar i ng pl ans, st ock bonus pl ans,

and i ndi vi dual r et i r ement account s. See 26 U. S. C. 414( c) ; seeal so i d. 401, 408( k) , 408( p) , 410, 411, 415, 416.

12 29 C. F. R. 4001. 3( a) r ef er ences r egul at i ons i ssued by theTr easur y under 414( c) of t he Code, but t he Tr easur y r egul at i onscr oss- r ef er enced do not def i ne " t r ades or busi nesses" ei t her . See,e. g. , 26 C. F. R. 1. 414( c) - 2.

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pur poses" ) . The Supr eme Cour t has warned t hat when i t i nt erpr et s

t he phr ase, i t "do[ es] not pur por t t o const r ue t he phr ase wher e i t

appears i n ot her pl aces, " except t hose sect i ons wher e i t has

pr evi ousl y i nt er pr et ed t he t er m. I d. at 27 n. 8. The Cour t has not

pr ovi ded an i nt er pr et at i on of t he phr ase as used i n 1301( b) ( 1) .

C. Fai l i ng to Have Promul gated Regul at i ons, the PBGCNonethel ess Of f ers Gui dance on t he Meani ng of "Trades orBusi nesses"

The onl y gui dance we have f r omt he PBGC i s a 2007 appeal s

l et t er , def ended i n i t s ami cus br i ef .

I n a Sept ember 2007 r esponse t o an appeal , 13 t he PBGC, i n

a l et t er , appl i ed a t wo- pr ong t est i t pur por t ed t o der i ve f r om

Commi ssi oner of I nt er nal Revenue v. Gr oet zi nger , 480 U. S. 23, t o

det er mi ne i f t he pr i vat e equi t y f und was a "t r ade or busi ness" f or

pur poses of t he f i r st par t of t he 1301( b) ( 1) r equi r ement . The

PBGC asked ( 1) whet her t he pr i vate equi t y f und was engaged i n an

act i vi t y wi t h t he pr i mar y pur pose of i ncome or pr of i t and ( 2)

whet her i t conduct ed t hat act i vi t y wi t h cont i nui t y and r egul ar i t y.

See i d. at 35 ( "We accept . . . t hat t o be engaged i n a t r ade or

busi ness, t he t axpayer must be i nvol ved i n t he act i vi t y wi t h

13 The PBGC' s Appeal s Boar d r ender s f i nal agency deci si ons on

var i ous l i abi l i t y and benef i t det er mi nat i ons i n wr i t i ng pur suant t o29 C. F. R. 4003. 59. Accor di ng t o t he PBGC' s websi t e, onl y t hr ee-member deci si ons ar e made avai l abl e on i t s websi t e. The 2007l et t er was a one- member deci si on and was apparent l y not publ i shed,or at l east not made wi del y publ i cl y avai l abl e t hr ough i t s websi t e.See Pensi on Benef i t Guarant y Corporat i on, Appeal s Boar d Deci si ons,ht t p: / / www. pbgc. gov/ pr ac/ appeal s- boar d- deci si ons. ht ml .

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cont i nui t y and r egul ar i t y and that t he taxpayer ' s pr i mar y pur pose

f or engagi ng i n t he act i vi t y must be f or i ncome or pr of i t . ") .

The PBGC f ound t hat t he pr i vat e equi t y f und i nvol ved i n

t hat mat t er met t he pr of i t mot i ve r equi r ement . I t al so det er mi ned

t hat t he si ze of t he f und, t he si ze of i t s pr of i t s, and t he

management f ees pai d t o t he general part ner est abl i shed cont i nui t y

and r egul ar i t y. The PBGC al so observed t hat t he f und' s agent

pr ovi ded management and advi sor y servi ces, and r ecei ved f ees f or

t hose servi ces. I ndeed, t he Appeal s Boar d not ed t hat t he equi t y

f und' s agent , "N, " r ecei ved 20% of al l net pr of i t s recei ved i n

exchange f or i t s ser vi ces and t hat i t s act s wer e at t r i but abl e t o

t he f und as t he f und' s agent . 14 I n addi t i on, t he f und' s cont r ol l i ng

st ake i n t he por t f ol i o company put i t i n a posi t i on t o exer ci se

cont r ol t hr ough i t s gener al par t ner , consi st ent wi t h i t s st at ed

pur pose. The appr oach t aken by t he PBGC has been dubbed an

" i nvest ment pl us" st andar d. See Bd. of Tr s. , Sheet Met al Wor ker s'

Nat ' l Pensi on Fund v. Pal l adi umEqui t y Par t ner s, LLC, 722 F. Supp.

2d 854, 869 ( E. D. Mi ch. 2010) .

The PBGC does not asser t t hat i t s 2007 l et t er i s ent i t l ed

t o def er ence under Chevron, U. S. A. , I nc. v. Nat ur al Resour ces

Def ense Counci l , 467 U. S. 837 ( 1984) . I t does, however , cl ai m

ent i t l ement t o def er ence under Auer v. Robbi ns, 519 U. S. 452

14 The l et t er di d not ment i on whet her t he equi t y f und recei vedany of f set s t o the f ees pai d t o "N" f or f ees " N" may have r ecei vedf r om t he por t f ol i o company, i . e. , t he wi t hdr awi ng empl oyer .

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( 1997) . We di sagr ee. The PBGC' s l et t er st at i ng i t s posi t i on i s

owed no more t han Ski dmore def erence. See Ski dmore v. Swi f t & Co. ,

323 U. S. 134, 140 ( 1944) .

The l et t er was not t he r esul t of publ i c not i ce and

comment , and mer el y i nvol ved an i nf ormal adj udi cat i on r esol vi ng a

di sput e bet ween a pensi on f und and t he equi t y f und. Thus f ar , t he

l et t er has r ecei ved no more def erence t han t he power t o persuade.

See Sun Capi t al , 903 F. Supp. 2d at 115; Pal l adi um, 772 F. Supp. 2d

at 869. And r i ght l y so. "[ I ] nt er pr et at i ons cont ai ned i n f or mat s

such as opi ni on l et t er s ar e ' ent i t l ed t o r espect' . . . onl y t o t he

ext ent t hat t hose i nt er pr et at i ons have t he ' power t o per suade. ' "

Chr i st ensen v. Har r i s Cnt y. , 529 U. S. 576, 587 ( 2000) ( quot i ng

Ski dmore, 323 U. S. at 140) .

The PBGC cont ends t hat , because i t i s i nt er pret i ng a

phr ase t hat appear s i n i t s own r egul at i ons, see 29 C. F. R.

4001. 2, 4001. 3, i t s i nt er pr et at i on i s owed def er ence under Auer .

Whi ch i s t o say t hat t he cour t must def er t o t hat i nt er pr et at i on

unl ess i t i s pl ai nl y er r oneous or i nconsi st ent wi t h i t s own

r egul at i ons. Auer , 519 U. S. at 461.

The l et t er i s not owed Auer def er ence i n t hi s case

because such def er ence i s i nappr opr i at e wher e si gni f i cant monet ar y

l i abi l i t y woul d be i mposed on a par t y f or conduct t hat t ook pl ace

at a t i me when t hat par t y l acked f ai r not i ce of t he i nt er pr et at i on

at i ssue. See Chr i st opher v. Smi t hKl i ne Beecham Cor p. , 132 S. Ct .

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2156, 2167 ( 2012) . Chr i st opher st r essed t hat t he agency i n t hat

case had t aken decades bef ore act i ng, dur i ng whi ch t i me t he

i ndust r y pr act i ce at i ssue devel oped and cont i nued. 15 I d. at 2168

( "But wher e, as her e, an agency' s announcement of i t s

i nt er pr et at i on i s pr eceded by a ver y l engt hy per i od of conspi cuous

i nact i on, t he pot ent i al f or unf ai r sur pr i se i s acut e. ") . I n t hi s

case, t he Sun Funds made t hei r i nvest ment and operat i onal

arr angement s i n ear l y 2007, whi l e t he PBGC di d not i ssue i t s

appeal s l et t er unt i l Sept ember 2007.

Moreover , even i f Chr i st opher was not an i mpedi ment t o

Auer def er ence, t he ant i - par r ot i ng pr i nci pl e woul d be. Gonzal es v.

Or egon, 546 U. S. 243, 257 ( 2006) ( "Si mpl y put , t he exi st ence of a

par r ot i ng r egul at i on does not change t he f act t hat t he quest i on

her e i s not t he meani ng of t he regul at i on but t he meani ng of t he

st at ut e. An agency does not acqui r e speci al aut hor i t y t o i nt er pr et

i t s own wor ds when, i nst ead of usi ng i t s exper t i se and exper i ence

t o f or mul at e a regul at i on, i t has el ect ed mer el y t o par aphr ase the

st at ut or y l anguage. " ) . The PBGC r egul at i ons make no ef f or t t o

15 So t oo, her e. Pr i vat e equi t y f unds dat e back t o t heni net eent h cent ur y, and have gr own exponent i al l y si nce ar ound 1980.N. J or dan et al . , Advi si ng Pr i vat e Funds: A Compr ehensi ve Gui de t oRepr esent i ng Hedge Funds, Pr i vat e Equi t y Funds, and Thei r Advi ser s

16: 2 ( 2012) ( observi ng t hat i nvest or commi t ment s wer e $10 bi l l i oni n 1991, $160 bi l l i on i n 2000, and $680 bi l l i on i n 2008) . And,bef ore t he PBGC' s appeal s l et t er , many f und manager s di d not t hi nkt hey wer e exposed t o wi t hdr awal l i abi l i t y f or por t f ol i o compani es.I d. 18: 5 ( expl ai ni ng al so t hat "t he pr i nci pl es set out by t hePBGC ar e l i kel y to appl y acr oss a wi de spect r um of pr i vat e equi t yf i r ms") .

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def i ne " t r ades or busi nesses, " 29 C. F. R. 4001. 3( a) , and mer el y

r ef er t o Tr easur y regul at i ons, whi ch, as ment i oned, al so do not

def i ne t he phr ase.

Nonet hel ess, t he vi ews t he PBGC expr essed i n t he l et t er

are ent i t l ed t o Ski dmore def er ence. See Ski dmore, 323 U. S. at 140

( observi ng t hat t he "wei ght " of an agency' s det er mi nat i on

"depend[ s] upon t he thoroughness evi dent i n [ t he agency' s]

consi der at i on, t he val i di t y of i t s r easoni ng, i t s consi st ency wi t h

ear l i er and l at er pr onouncement s, and al l t hose f act or s whi ch gi ve

i t power t o per suade") .

D. Sun Fund I V i s a " Tr ade or Busi ness" Under 1301( b) ( 1) , t he PBGC' s " I nvest ment Pl us" Appr oach i sPersuasi ve, and t he Same Approach Woul d Be Empl oyed EvenWi t hout Def erence

The Sun Funds ar gue t hat t he " i nvest ment pl us" t est i s

i ncompat i bl e wi t h Supr eme Cour t t ax pr ecedent . Regardl ess, t hey

ar gue, t he Sun Funds cannot be hel d r esponsi bl e f or t he act i vi t i es

of other ent i t i es i n t he management and oper at i on of SBI . And even

i f t he Sun Funds had engaged i n t hose act i vi t i es, t hey ar gue, t hat

woul d not be enough.

Wher e t he MPPAA i ssue i s one of whet her t her e i s mere

passi ve i nvest ment t o def eat pensi on wi t hdr awal l i abi l i t y, we ar e

per suaded that some f or m of an "i nvest ment pl us" appr oach i s

appr opr i at e when eval uat i ng t he " t r ade or busi ness" pr ong of

1301( b) ( 1) , dependi ng on what t he "pl us" i s. Fur t her , even i f we

wer e to i gnor e the PBGC' s i nt er pr et at i on, we, l i ke t he Sevent h

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Ci r cui t , woul d r each t he same r esul t t hr ough i ndependent anal ysi s.

I n Cent r al St ates, Sout heast & Sout hwest Ar eas Pensi on Fund v.

Messi na Pr oduct s, LLC, 706 F. 3d 874, t he Sevent h Ci r cui t empl oyed

an " i nvest ment pl us" - l i ke anal ysi s wi t hout r ef er ence t o any PBGC

i nt er pr et at i on. We agr ee wi t h t hat appr oach. We see no need t o

set f or t h gener al gui del i nes f or what t he "pl us" i s, nor has t he

PBGC pr ovi ded gui dance on t hi s. We go no f ur t her t han t o say t hat

on t he undi sput ed f act s of t hi s case, Sun Fund I V i s a " t r ade or

busi ness" f or pur poses of 1301( b) ( 1) . 16

I n a ver y f act - speci f i c appr oach, we t ake account of a

number of f act or s, caut i oni ng t hat none i s di sposi t i ve i n and of

i t sel f . The Sun Funds make i nvest ment s i n por t f ol i o compani es wi t h

t he pr i nci pal pur pose of maki ng a pr of i t . Pr of i t s ar e made f r om

t he sal e of st ock at hi gher pr i ces t han t he pur chase pr i ce and

t hrough di vi dends. But a mere i nvest ment made t o make a pr of i t ,

wi t hout mor e, does not i t sel f make an i nvest or a t r ade or busi ness.

See Cent . St ates, Se. & Sw. Ar eas Pensi on Fund v. Ful ker son, 238

F. 3d 891, 895- 96 ( 7t h Ci r . 2001) ; Pal l adi um, 722 F. Supp. 2d at

868.

Here, however , t he Sun Funds have al so under t aken

act i vi t i es as t o t he SBI pr oper t y. The Sun Funds' l i mi t ed

par t nershi p agreement s and pr i vat e pl acement memos expl ai n t hat t he

16 We do not deci de i f Sun Fund I I I i s a "t r ade or busi ness"f or r easons di scussed l at er .

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Funds ar e act i vel y i nvol ved i n t he management and operat i on of t he

compani es i n whi ch t hey i nvest . Pi oneer Ranch, 494 F. 3d at 577- 78

( obser vi ng t hat an ent i t y' s own st at ement s about i t s goal s,

pur poses, and i nt ent i ons are "hi ghl y rel evant , because [ t hey]

const i t ut e . . . decl ar at i on[ s] agai nst i nt er est . " ( quot i ng Connor s

v. I ncoal , I nc. , 955 F. 2d 245, 254 ( D. C. Ci r . 1993) ) ( i nt er nal

quotat i on mark omi t t ed) ) . Each Sun Fund agr eement st ates, f or

i nst ance, t hat a "pr i nci pal pur pose" of t he par t ner shi p i s t he

"manag[ ement ] and super vi si [ on] " of i t s i nvest ment s. The

agr eement s al so gi ve t he gener al part ner of each Sun Fund excl usi ve

and wi de- r angi ng management aut hor i t y.

I n addi t i on, t he gener al part ner s ar e empower ed t hr ough

t hei r own part ner shi p agr eement s t o make deci si ons about hi r i ng,

t ermi nat i ng, and compensat i ng agent s and empl oyees of t he Sun Funds

and t hei r por t f ol i o compani es. The gener al par t ner s recei ve a

per cent age of t ot al commi t ment s t o t he Sun Funds and a per cent age

of pr of i t s as compensat i on - - j ust l i ke t he gener al par t ner of t he

equi t y f und i n t he PBGC appeal s l et t er .

I t i s t he pur pose of t he Sun Funds t o seek out pot ent i al

por t f ol i o compani es t hat ar e i n need of ext ensi ve i nt er vent i on wi t h

r espect t o t hei r management and oper at i ons, t o pr ovi de such

i nt er vent i on, and t hen t o sel l t he compani es. The pr i vat e

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pl acement memos expl ai n t hat " [ t ] he Pr i nci pal s[ 17] t ypi cal l y wor k

t o reduce cost s, i mpr ove mar gi ns, accel er at e sal es growt h thr ough

new pr oduct s and market oppor t uni t i es, i mpl ement or modi f y

management i nf ormat i on syst ems and i mprove r epor t i ng and cont r ol

f unct i ons. " Mor e speci f i cal l y, t hose memos r epr esent t hat

r est r uct ur i ng and oper at i ng pl ans ar e devel oped f or a t ar get

por t f ol i o company even bef ore i t i s acqui r ed and a management t eam

i s bui l t speci f i cal l y f or t he pur chased company, wi t h

"[ s] i gni f i cant changes . . . t ypi cal l y made t o por t f ol i o compani es

i n t he f i r st t hr ee t o si x mont hs. " The st r at egi c pl an devel oped

i ni t i al l y i s "consi st ent l y moni t or ed and modi f i ed as necessar y. "

I nvol vement can encompass even smal l det ai l s, i ncl udi ng si gni ng of

al l checks f or i t s new por t f ol i o compani es and t he hol di ng of

f r equent meet i ngs wi t h seni or st af f t o di scuss oper at i ons,

compet i t i on, new pr oduct s and personnel .

Such act i ons ar e t aken wi t h t he ul t i mat e goal of sel l i ng

t he por t f ol i o company f or a pr of i t . On t hi s poi nt , t he pl acement

memos expl ai n t hat af t er i mpl ement i ng "si gni f i cant oper at i ng

i mpr ovement s . . . dur i ng t he f i r st t wo year s[ , ] . . . t he

Pr i nci pal s expect t o exi t i nvest ment s i n t wo t o f i ve year s ( or

sooner under appr opr i at e ci r cumst ances) . "

17 "Pr i nci pal s" are def i ned i n t he pr i vat e pl acement memos asi ndi vi dual s who wor k f or t he gener al par t ner of t he Fund.

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Fur t her , t he Sun Funds' cont r ol l i ng st ake i n SBI pl aced

t hem and t hei r af f i l i at ed ent i t i es i n a posi t i on wher e t hey wer e

i nt i mat el y i nvol ved i n the management and operat i on of t he company.

See Har r el l v. El l er Mar i t i me Co. , No. 8: 09- CV- 1400- T- 27AEP, 2010

WL 3835150, at *4 ( M. D. Fl a. Sept . 30, 2010) ( t he i nvol vement i n

deci si onmaki ng at management l evel goes "wel l beyond t hat of a

passi ve shar ehol der " and suppor t s a concl usi on t hat an or gani zat i on

i s a " t r ade or busi ness" ) . Thr ough a ser i es of appoi nt ment s, t he

Sun Funds were abl e t o pl ace SCAI empl oyees i n t wo of t he t hr ee

di r ect or posi t i ons at SBI , r esul t i ng i n SCAI empl oyees cont r ol l i ng

t he SBI board. 18

Through a ser i es of ser vi ce agreements descr i bed ear l i er ,

SCAI provi ded personnel t o SBI f or management and consul t i ng

ser vi ces. Ther eaf t er , i ndi vi dual s f r om t hose ent i t i es wer e

i mmersed i n detai l s i nvol vi ng t he management and operat i on of SBI ,

as di scussed.

Moreover , t he Sun Funds' act i ve i nvol vement i n management

under t he agr eement s provi ded a di r ect economi c benef i t t o at l east

Sun Fund I V t hat an or di nar y, passi ve i nvest or woul d not der i ve: an

of f set agai nst t he management f ees i t otherwi se woul d have pai d i t s

18 The Vi ce Pr esi dent of SSB- LLC, f ormed by t he Sun Funds,sel ect ed t he boar d of SBHC. Two of t hose t hree boar d member s wereempl oyees of SCAI . On Febr uar y 9, 2007, t hose same t wo SCAIempl oyees were named di r ect ors of SBI , al ong wi t h t he CEO, Bar r yGol den, who had been retai ned af t er t he pur chase.

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general part ner f or managi ng t he i nvest ment i n SBI . 19 Here, SBI

made payment s of mor e t han $186, 368. 44 t o Sun Fund I V' s gener al

part ner , whi ch wer e of f set agai nst t he f ees Sun Fund I V had t o pay

t o i t s gener al par t ner . 20 Thi s of f set was not f r om an or di nar y

i nvest ment act i vi t y, whi ch i n t he Sun Funds' wor ds " r esul t s sol el y

i n i nvest ment r et ur ns. " See al so Uni t ed St at es v. Cl ar k, 358 F. 2d

892, 895 ( 1st Ci r . 1966) ( hol di ng t hat t axpayer not engaged i n a

" t r ade or busi ness" i n part because no evi dence he r ecei ved

compensat i on "di f f er ent f r om t hat f l owi ng t o an i nvest or ") .

I n our vi ew, t he sum of al l of t hese f actor s sat i sf y t he

"pl us" i n t he " i nvest ment pl us" t est . The concl usi on we r each i s

consi st ent wi t h t he concl usi ons of ot her appel l at e cour t deci si ons,

t hough none has addr essed t hi s pr eci se quest i on. I n Messi na, wher e

t he Sevent h Ci r cui t empl oyed an " i nvest ment pl us" - l i ke anal ysi s on

i t s own, t he pensi on f und was seeki ng to i mpose wi t hdr awal

l i abi l i t y on a l i mi t ed l i abi l i t y company ( LLC) t hat owned r ent al

19 Speci f i cal l y, t he gener al par t ner of each pr i vat e equi t yf und i s ent i t l ed t o an annual f ee of 2% of t he aggr egat ecommi t ment s t o t he f und, but f ees t he gener al part ner and/ or i t swhol l y- owned subsi di ar y or t hei r of f i cer s, par t ner s, or empl oyeesr ecei ve f r om other sour ces are of f set agai nst t he management f ees

owed by t he Sun Funds t o t he general par t ner .

20 We do not det er mi ne i f Sun Fund I I I i s a "t r ade or busi ness"because we cannot t el l f r om t he r ecor d bef or e us i f t he Fundr ecei ved an economi c benef i t f r om t he of f set . Ther ef or e, we l eavet hat f act ual i ssue and t he ul t i mat e "t r ade or busi ness" concl usi onabout Sun Fund I I I f or t he di st r i ct cour t t o r esol ve on r emand.

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pr oper t y. 21 706 F. 3d at 877. The Sevent h Ci r cui t r ej ect ed t he

LLC' s ar gument t hat i t was a passi ve i nvest ment vehi cl e. I d. at

885- 86.

The Sevent h Ci r cui t l ooked t o t he st at ed i nt ent i n t he

creat i on of t he ent er pr i se, as wel l as t o t he ent er pr i se' s l egal

f or m and how i t was t r eat ed f or t ax pur poses. 22 I d. at 885. The

company' s oper at i ng agr eement , whi ch expl ai ned t hat i t had

devel oped a busi ness pl an t o pr oduce, sel l , and market gr avel , was

hi ghl y r el evant t o t he cour t ' s t r ade or busi ness i nqui r y. 23 I d. at

886 ( st at i ng t hat "[ i ] t was ent i r el y appr opr i at e f or t he di st r i ct

cour t t o t ake t hese document s at f ace val ue" ) . The cour t al so

f ound i t r el evant t hat t he act i vi t y was conduct ed "under t he

auspi ces of a f or mal , f or - pr of i t or gani zat i on, " i d. , as ar e t he Sun

Funds.

21 The LLC was owned by a coupl e who al so owned t he wi t hdr awi ngempl oyer ( a t r ucki ng company) , est abl i shi ng common cont r ol . SeeCent . St ates, Se. & Sw. Ar eas Pensi on Fund v. Messi na Prods. , LLC,706 F. 3d 874, 877 ( 7t h Ci r . 2013) . The pensi on f und al so sought t oi mpose l i abi l i t y on t he coupl e f or owni ng and r ent i ng a separ at epr oper t y t o t he wi t hdr awi ng empl oyer . I d. at 879- 80.

22 Admi t t edl y, her e, t he Sun Funds di d not l i st t r ade orbusi ness i ncome on t hei r For m 1065, whi ch cut s i n f avor of t he SunFunds' ar gument .

23 As t o t he coupl e, t he cour t l ooked t o act i ons of t he

coupl e' s agent s t o i mpose wi t hdr awal l i abi l i t y on t he coupl e.Messi na, 706 F. 3d at 884. However , t o t he ext ent t he Sevent hCi r cui t i mposed l i abi l i t y because the pur pose of t he coupl e' ssepar at e r ent al busi ness was t o f r act i onal i ze asset s of t hewi t hdr awi ng empl oyer , see i d. at 883, we do not adopt a rul e thati n or der t o i mpose wi t hdr awal l i abi l i t y t he pur pose of havi ng asepar at e " t r ade or busi ness" must be t o f r act i onal i ze asset s.

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Li kewi se, i n an ear l i er case, t he Sevent h Ci r cui t

r ej ect ed an ar gument t hat a l i mi t ed l i abi l i t y company t hat owned

r ent al pr oper t y was mer el y a "per sonal i nvest ment . " 24 Cent . St at es,

Se. & Sw. Ar eas Pensi on Fund v. SCOFBP, LLC, 668 F. 3d 873, 879 ( 7t h

Ci r . 2011) . I t not ed t hat t he company was a f or - pr of i t LLC, ear ned

r ent al i ncome, pai d busi ness management f ees, and cont r act ed wi t h

pr of essi onal s t o pr ovi de l egal , management , and account i ng

servi ces. I d. Hence, t he company was "a f ormal busi ness

or gani zat i on, engaged i n r egul ar and cont i nuous act i vi t y f or t he

pur pose of gener at i ng i ncome or pr of i t and t hus i s . . . a ' t r ade

or busi ness' f or pur poses of t he MPPAA. " I d.

The Sun Funds, however , ar gue t hat t hey cannot be " t r ades

or busi nesses" because t hat woul d be i nconsi st ent wi t h t wo Supr eme

Cour t deci si ons - - Hi ggi ns v. Commi ssi oner of I nt er nal Revenue, 312

U. S. 212 ( 1941) , and Whi ppl e v. Commi ssi oner of I nt ernal Revenue,

373 U. S. 193 ( 1963) - - whi ch i nt er pr et t hat phr ase. The Sun Funds

24 The cour t def i ned "per sonal i nvest ment s" as:[ T] hi ngs l i ke hol di ng shar es of st ock or bonds i npubl i cl y t r aded cor por at i ons. Owner shi p of t hi s t ype ofpr oper t y "wi t hout mor e i s t he hal l mar k of an i nvest ment . "Owni ng pr opert y can be consi der ed a personal i nvest ment ,at l east where the owner spends a negl i gi bl e amount oft i me managi ng t he l eases, al t hough a more subst ant i al

i nvest ment of t i me may be consi dered r egul ar andcont i nuous enough t o r i se to the l evel of a "t r ade orbusi ness. "

Cent . St at es, Se. & Sw. Ar eas Pensi on Fund v. SCOFBP, LLC, 668 F. 3d873, 878- 79 ( 7t h Ci r . 2011) ( ci t at i ons omi t t ed) ( quot i ng Cent .St ates, Se. & Sw. Ar eas Pensi on Fund v. Ful ker son, 238 F. 3d 891,895 ( 7t h Ci r . 2001) ) .

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ar gue that cases i nt er pr et i ng t he phr ase "t r ade or busi ness" as

used anywher e i n t he I nternal Revenue Code are bi ndi ng because

Congr ess i nt ended f or t hat phr ase t o be a t er m of ar t wi t h a

consi st ent meani ng acr oss uses. Al so, t he Sun Funds essent i al l y

ar gue that , by rel yi ng on Gr oet zi nger , whi ch st at ed t hat i t was not

cut t i ng back on Hi ggi ns, t he PBGC' s " i nvest ment pl us" t est must be

i nt er pr et ed i n a way consi st ent wi t h Hi ggi ns and i t s pr ogeny.

Under Hi ggi ns, t he Funds cont end, t hey cannot be "t r ades or

busi nesses. "

As t o the f i r st ar gument , we r ej ect t he pr oposi t i on t hat ,

apar t f r om t he pr ovi si ons cover ed by 26 U. S. C. 414( c) ,

i nt er pr et at i ons of ot her pr ovi si ons of t he I nt er nal Revenue Code

ar e det er mi nat i ve of t he i ssue of whet her an ent i t y i s a "t r ade or

busi ness" under 1301( b) ( 1) . Accord Uni t ed St eel worker s of Am. ,

AFL- CI O & I t s Local 4805 v. Harr i s & Sons St eel Co. , 706 F. 2d 1289,

1299 ( 3d Ci r . 1983) ( expl ai ni ng t hat a t er m used f or t ax pur poses

does not have to have t he same meani ng f or pur poses of pensi on f und

pl an t er mi nat i on i nsur ance) . We ar e par t i cul ar l y convi nced t hi s i s

t he case because t he Supreme Cour t has been hesi t ant t o expr ess a

uni f or m def i ni t i on even wi t hi n t he Code i t sel f . See Gr oet zi nger ,

480 U. S. at 27 n. 8; see al so Carpent er s Pensi on Trust Fund f or N.

Cal . v. Lundqui st , 491 F. App' x 830, 831 ( 9t h Ci r . 2012) ( r ej ect i ng

ar gument t hat Gr oet zi nger t est must be used i n i nt er pr et i ng

1301( b) ( 1) ) ; Bd. of Tr s. of t he W. Conf er ence of Teamst er s

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Pensi on Tr ust Fund v. Laf r enz, 837 F. 2d 892 ( 9t h Ci r . 1988)

( deci di ng 1301( b) ( 1) case wi t hout di scussi ng Gr oet zi nger ) .

Mor eover , 1301( b) ( 1) ' s st at ement t hat i t must be const r ued

consi st ent l y wi t h onl y cer t ai n uses of t he phr ase i n t he Code

under cut s t he Sun Funds' asser t i on t hat t he phr ase must be

uni f or ml y i nt er pr et ed.

As t o t he second ar gument , we see no i nconsi st ency wi t h

Hi ggi ns or Whi ppl e. Those cases wer e concer ned wi t h di f f er ent

i ssues and di d not pur por t t o pr ovi de per se r ul es, much l ess r ul es

det er mi nat i ve of wi t hdr awal l i abi l i t y under t he MPPAA. The pr emi se

of t he Sun Funds' argument i s t hat Hi ggi ns and Whi ppl e mean t hat

ent i t i es t hat make i nvest ment s, manage t hose i nvest ment s, and ear n

onl y i nvest ment r et ur ns cannot be " t r ades or busi nesses" f or any

pur pose. That ar gument i s t oo bl unt an i nst r ument . I n Hi ggi ns,

t he i ssue was whet her cert ai n cl ai med expenses were el i gi bl e f or

t he deduct i on t he t axpayer sought . The t axpayer , who had ext ensi ve

i nvest ment s i n r eal est at e, bonds, and st ocks, spent a consi der abl e

amount of ef f or t and t i me admi ni st r at i vel y over seei ng hi s

i nt er est s. 312 U. S. at 213. The t axpayer hi r ed ot her s t o assi st

hi m and al so r ent ed of f i ces t o over see hi s i nvest ment s. I d. He

cl ai med t hose expenses wer e deduct i bl e under Sect i on 23( a) of t he

Revenue Act of 1932 as ordi nar y and necessar y expenses pai d or

i ncur r ed i n car r yi ng on a "t r ade or busi ness. " I d. at 213- 14. The

Supr eme Cour t hel d that t hose expenses were not i ncurr ed whi l e

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carr yi ng on a " t r ade or busi ness" and wer e t her ef ore not

deduct i bl e. I d. at 217- 18.

The Supreme Cour t r easoned t hat t hi s was t r ue because

"[ t ] he pet i t i oner mer el y kept r ecor ds and col l ect ed i nt er est and

di vi dends f r omhi s secur i t i es, t hr ough manager i al at t ent i on f or hi s

i nvest ment s. " I d. at 218. The Cour t hel d t hat , no mat t er t he si ze

of t he est at e or t he cont i nuous nat ur e of t he wor k r equi r ed t o keep

a wat chf ul eye on i nvest ment s, t hat by i t sel f coul d not const i t ut e

a "t r ade or busi ness. " I d. Si gni f i cant l y, t he Cour t not ed t hat

t he t axpayer "di d not par t i ci pat e di r ectl y or i ndi r ectl y i n t he

management of t he cor porat i ons i n whi ch he hel d st ock or bonds. "

I d. at 214.

The f act s of t hi s case ar e easi l y di st i ngui shabl e f r om

t hose of Hi ggi ns. See i d. at 217 ( "To det er mi ne whet her t he

act i vi t i es of a t axpayer ar e ' car r yi ng on a busi ness' r equi r es an

exami nat i on of t he f act s i n each case. ") . Fi r st , t he t axpayer i n

Hi ggi ns was t r yi ng t o cl ai m a deduct i on t o avoi d payi ng t axes.

Second and mor e i mpor t ant , unl i ke t he i nvest or i n Hi ggi ns, t he Sun

Funds di d par t i ci pat e i n t he management of SBI , al bei t t hr ough

af f i l i ated ent i t i es. 25

25Hi ggi ns st at ed t hat t he si ze of t he por t f ol i o and t he amountof t i me maki ng i nvest ment deci si ons and taki ng car e ofadmi ni st r at i ve mat t er s does not t r ansf or man i nvest or i nt o a " t r adeor busi ness" ; we do not r el y on t hose f act or s i n our anal ysi s.

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Whi ppl e i s al so di st i ngui shabl e: The t axpayer t her e

sought t o deduct a wort hl ess l oan made t o a busi ness he cont r ol l ed

as a bad busi ness debt i ncur r ed i n t he t axpayer ' s " t r ade or

busi ness. " 373 U. S. at 194- 97. The t axpayer cl ai med t hat , because

he f ur ni shed r egul ar servi ces, namel y hi s t i me and ener gy t o the

af f ai r s of t he cor por at i on, he was engaged i n a " t r ade or

busi ness. " I d. at 201- 02. The Supr eme Cour t r ej ect ed t he

ar gument , st at i ng:

Devot i ng one' s t i me and ener gi es t o theaf f ai r s of a cor por at i on i s not of i t sel f , andwi t hout mor e, a t r ade or busi ness of t heperson so engaged. Though such act i vi t i es maypr oduce i ncome, pr of i t or gai n i n t he f or m ofdi vi dends or enhancement i n t he val ue of ani nvest ment , t hi s r et ur n i s di st i ncti ve t o t hepr ocess of i nvest i ng and i s gener at ed by t hesuccessf ul oper at i on of t he cor por at i on' sbusi ness as di st i ngui shed f r om t he t r ade orbusi ness of t he t axpayer hi msel f . When t heonl y r et ur n i s t hat of an i nvest or , t het axpayer has not sat i sf i ed hi s bur den ofdemonst r at i ng t hat he i s engaged i n a t r ade orbusi ness si nce i nvest i ng i s not a t r ade orbusi ness and t he r et ur n t o t he t axpayer ,t hough subst ant i al l y t he pr oduct of hi sser vi ces, l egal l y ar i ses not f r om hi s ownt r ade or busi ness but f r om t hat of t hecor por at i on.

I d. at 202 ( emphasi s added) . The Sun Funds say t hat , because they

earned no i ncome other t han di vi dends and capi t al gai ns, t hey ar e

not " t r ades or busi nesses. " But t he Sun Funds di d not si mpl y

devot e t i me and ener gy t o SBI , "wi t hout more. " Rather , t hey wer e

abl e to f unnel management and consul t i ng f ees t o Sun Fund I V' s

gener al par t ner and i t s subsi di ar y. Most si gni f i cant l y, Sun Fund

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I V r ecei ved a di r ect economi c benef i t i n t he f or m of of f set s

agai nst t he f ees i t woul d ot her wi se have pai d i t s gener al par t ner .

I t i s di f f i cul t t o see why the Whi ppl e "wi t hout mor e" f or mul at i on

i s i nconsi st ent wi t h an MPPAA " i nvest ment pl us" t est .

The " i nvest ment pl us" t est as we have const r ued i t i n

t hi s opi ni on i s t hus consi st ent wi t h t he Gr oet zi nger , Hi ggi ns, and

Whi ppl e l i ne of cases. 26 Cf . SCOFBP, 668 F. 3d at 878 ( " [ I ] t seems

hi ghl y unl i kel y t hat a f or mal f or - pr of i t busi ness or gani zat i on

woul d not qual i f y as a ' t r ade or busi ness' under t he Gr oet zi nger

t est . ") ; Rosent hal , Taxi ng Pr i vat e Equi t y Funds as Cor por at e

' Devel oper s' , at 365 ( " [ P] r i vat e equi t y f unds ar e act i ve enough t o

be i n a t r ade or busi ness. ") .

The Sun Funds make an addi t i onal ar gument : t hat because

none of t he r el evant act i vi t i es by agent s and di f f er ent busi ness

ent i t i es can be at t r i but ed to t he Sun Funds t hemsel ves, wi t hdr awal

l i abi l i t y cannot be i mposed upon t hem. We r ej ect t hi s argument as

wel l . Wi t hout r esol vi ng t he i ssue of t he extent t o whi ch Congr ess

26 Ver y l at e i n t hi s case t he TPF, f or t he f i r st t i me, ar guedt hat a ser i es of t ax cases f r om t he t ax cour t suppor t ed i t s vi ewt hat t he Sun Funds ar e "t r ades or busi nesses" because t hey ar eengaged i n t he devel opment , pr omot i on, and sal e of compani es. TheTPF ci t es Deel y v. Commi ssi oner of I nt er nal Revenue, 73 T. C. 1081

( 1980) , Far r ar v. Commi ssi oner of I nt er nal Revenue, 55 T. C. M. ( CCH)1628 (1988) , and Dagr es v. Commi ssi oner of I nt ernal Revenue, 136T. C. 263 ( 2011) . The ar gument was present ed t oo l at e. The"devel opi ng busi ness ent er pr i ses f or r esal e" t heor y was notpr esent ed t o t he di st r i ct cour t nor i n t he openi ng br i ef s t o us.Whatever t he mer i t of t he t heor y, our deci si on does not engage i nan anal ysi s of i t .

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i nt ended i n t hi s ar ea t o honor cor por at e f or mal i t i es, as have t he

par t i es, we l ook t o t he Rest atement of Agency. Cf . Vance v. Bal l

St ate Uni v. , 133 S. Ct . 2434, 2441 ( 2013) ( l ooki ng t o Rest atement

of Agency t o deci de when Ti t l e VI I vi car i ous l i abi l i t y

appr opr i at e) . And, because t he Sun Funds ar e Del aware l i mi t ed

par t ner shi ps, we al so l ook t o Del awar e l aw.

Under Del aware l aw, a part ner " i s an agent of t he

par t ner shi p f or t he pur pose of i t s busi ness, pur poses or

act i vi t i es, " and an act of a par t ner "f or appar ent l y car r yi ng on i n

t he or di nar y cour se of t he par t ner shi p' s busi ness, pur poses or

acti vi t i es or busi ness, pur poses or acti vi t i es of t he ki nd car r i ed

on by t he par t ner shi p bi nds t he par t ner shi p. " Del . Code Ann. t i t .

6, 15- 301( 1) ; see al so Comm' r of I nt er nal Revenue v. Boei ng, 106

F. 2d 305, 309 ( 9t h Ci r . 1939) ( "One may conduct a busi ness t hr ough

ot her s, hi s agent s, r epr esent at i ves, or empl oyees. " ) . To det er mi ne

what i s " car r yi ng on i n t he or di nar y cour se" of t he par t ner shi p' s

busi ness, we may consi der t he par t ner shi p' s s t at ed pur pose.

Rudni t sky v. Rudni t sky, No. 17446, 2010 WL 1724234, at *6 (Del . Ch.

Nov. 14, 2000) .

Her e, t he l i mi t ed part ner shi p agr eement s gave t he Sun

Funds' gener al par t ner s t he excl usi ve aut hor i t y to act on behal f of

t he l i mi t ed par t ner shi ps t o ef f ect uat e t hei r pur poses. 27 These

27 The Sun Funds t r y t o di ver t our at t ent i on f r om t he SunFunds' l i mi t ed part ner shi p agr eement s and i nst ead f ocus on t hepur poses of t he gener al par t ner s as pr ovi ded i n t hei r par t ner shi p

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pur poses i ncl uded managi ng and super vi si ng i nvest ment s i n por t f ol i o

compani es, as wel l as "ot her such act i vi t y i nci dent al or anci l l ar y

t her et o" as deemed advi sabl e by t he gener al part ner . So, under

Del awar e l aw, i t i s cl ear t hat t he gener al par t ner of Sun Fund I V,

i n pr ovi di ng management ser vi ces t o SBI , was act i ng as an agent of

t he Fund.

Moreover , even absent Del aware part ner shi p l aw, t he

par t ner shi p agr eement s t hemsel ves grant act ual aut hor i t y f or t he

gener al par t ner t o pr ovi de management servi ces t o por t f ol i o

compani es l i ke SBI . See Rest atement ( Thi r d) of Agency 2. 01,

3. 01; cf . i d. 7. 04 ( pr i nci pal i ncurs t or t l i abi l i t y vi car i ous l y

wher e agent act s wi t h act ual aut hor i t y) . And t he gener al par t ner s'

own part ner shi p agr eement s gi vi ng power t o t he l i mi t ed part ner

commi t t ee t o make det er mi nat i ons about hi r i ng, t er mi nat i ng, and

compensat i ng agent s and empl oyees of t he Sun Funds and t hei r

por t f ol i o compani es show t he exi st ence of such aut hor i t y. Hence,

t he gener al par t ner was act i ng wi t hi n t he scope of i t s aut hor i t y.

Even so, t he Sun Funds ar gue t hat t he general par t ner

ent ered t he management ser vi ce cont r act wi t h SBI on i t s own accor d,

not as an agent of t he Sun Funds. 28 The Sun Funds' own

agr eement s. But i t i s t he pr i nci pal ' s pur poses, i . e. , t he SunFunds' pur poses, t hat ar e r el evant .

28 The Sun Funds' ci t at i on of t he Rest at ement ( Thi r d) ofAgency' s comment t hat " [ a] n agent may ent er i nt o a cont r act onbehal f of a di scl osed pr i nci pal and, addi t i onal l y, ent er i nt o aseparate cont r act on t he agent ' s own behal f wi t h t he same t hi r d

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char acter i zat i on i s not di sposi t i ve. 29 Cf . Rest atement ( Thi r d) of

Agency 1. 02 cmt . a ( st at i ng "how t he par t i es t o any gi ven

rel at i onshi p l abel i t i s not di sposi t i ve") .

The ar gument i s unpersuasi ve f or at l east t wo r easons.

Fi r st , i t was wi t hi n t he gener al par t ner ' s scope of aut hor i t y t o

provi de management servi ces t o SBI . Second, provi di ng management

servi ces was done on behal f of and f or t he benef i t of t he Sun

Funds. Cf . Messi na, 706 F. 3d at 884 ( i ndi vi dual s act i ng f or

benef i t of mar r i ed coupl e ar e agent s whose act s ar e at t r i but abl e to

t he coupl e) . The i nvest ment st r ategy of t he Sun Funds coul d onl y

be achi eved by act i ve management t hrough an agent , si nce t he Sun

Funds t hemsel ves had no empl oyees. I ndeed, t he management servi ces

agr eement was ent er ed i nt o j ust one day af t er t he execut i on of t he

st ock pur chase agr eement . I n addi t i on, Sun Fund I V r ecei ved an

of f set i n t he f ees i t owed t o i t s gener al par t ner because of

payment s made f r om SBI t o t hat gener al part ner . That provi ded a

par t y, " i s unper suasi ve. Rest at ement ( Thi r d) of Agency 6. 01 cmt .b. I n t hat comment , t he Rest atement i s expl ai ni ng t hat an agentmay ent er i nt o a cont r act t hat bi nds t he agent and not t hepr i nci pal even wher e t her e i s a separate cont r act whi ch t he agentent er ed i nt o on behal f of t he pr i nci pal . That i s not t he case her ewher e ther e i s j ust one cont r act t o pr ovi de management servi ces t oSBI . Addi t i onal l y, i n t he i l l ustr at i on t hat f ol l ows, t he agentper mi ssi bl y ent er s i nt o a second cont r act wi t h t he same t hi r d par t y

i n an ar ea out si de t he scope of hi s agency. Agai n, t hat i s not t hecase her e wher e i t was wi t hi n t he scope of aut hor i t y f or t hegeneral par t ner of Sun Fund I V t o manage the i nvest ment i n SBI .

29 Li kewi se, t he f act t hat t he gener al par t ner di d not si gn t hemanagement servi ces agr eement wi t h SBI expl i ci t l y on behal f of SunFund I I I or Sun Fund I V i s not det er mi nat i ve.

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benef i t by r educi ng i t s expenses. The servi ces pai d f or by SBI

were the same servi ces t hat t he Sun Funds woul d ot her wi se have pai d

f or t hemsel ves t o i mpl ement and oversee an operat i ng st r at egy at

SBI . 30

The Sun Funds al so make a pol i cy ar gument t hat Congr ess

never i nt ended such a r esul t i n i t s 1301( b) ( 1) cont r ol gr oup

pr ovi si on. They ar gue t hat t he pur pose of t he pr ovi si on i s t o

pr event an empl oyer " f r om ci r cumvent i ng ERI SA obl i gat i ons by

di vvyi ng up i t s busi ness oper at i ons i nt o separ at e ent i t i es. " I t i s

not , t hey say, i nt ended t o reach owner s of a busi ness so as t o

r equi r e t hem t o "di g i nt o thei r own pocket s" t o pay wi t hdr awal

l i abi l i t y f or a company t hey own. See Messi na, 706 F. 3d at 878.

These ar e f i ne l i nes. The var i ous ar r angements and

ent i t i es meant pr eci sel y t o shi el d t he Sun Funds f r oml i abi l i t y may

be vi ewed as an at t empt t o di vvy up operat i ons t o avoi d ERI SA

obl i gat i ons. We r ecogni ze t hat Congr ess may wi sh t o encour age

i nvest ment i n di st r essed compani es by cur t ai l i ng t he r i sk t o

i nvest ors i n such empl oyer s of acqui r i ng ERI SA wi t hdr awal

l i abi l i t y. I f so, Congr ess has not been expl i ci t , and i t may

30 Cont r ar y t o the Sun Funds' ar gument , at t r i but i ng act i vi t i esof an agent t o a pr i nci pal t o det er mi ne i f t he pr i nci pal i s engaged

i n a " t r ade or busi ness" does not r esul t i n t he pr i nci pal assumi ngt he st at us of t he agent . That i s t oo si mpl i st i c of a way t o vi ewt he i nqui r y. I nst ead, "t he cour t must at t r i but e t he act i vi t i es ofan agent t hat i s act i ng on behal f of a pr i nci pal t o t he pr i nci pal ,t o det er mi ne whet her t her e ar e suf f i ci ent act i vi t i es of t hepr i nci pal t o const i t ut e a t r ade or busi ness. " Rosent hal , Taxi ngPr i vat e Equi t y Funds as Cor porat e ' Devel oper s' , at 365 n. 43.

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pr ef er i nst ead t o r el y on t he usual pr i ci ng mechani sm i n t he

pr i vat e mar ket f or assumpt i on of r i sk.

We expr ess our di smay t hat t he PBGC has not gi ven mor e

and ear l i er gui dance on t hi s " t r ade or busi ness" " i nvest ment pl us"

t heor y t o t he many par t i es af f ect ed. The PBGC has not engaged i n

not i ce and comment r ul emaki ng or even i ssued gui dance of any ki nd

whi ch was subj ect t o pr i or publ i c not i ce and comment . See C.

Sunst ei n, Si mpl er 216 ( 2013) ( " [ G] over nment of f i ci al s l ear n f r om

publ i c comment s on pr oposed r ul es. . . . I t i s not mer el y sensi bl e

t o pr ovi de peopl e wi t h an opport uni t y t o comment on r ul es bef ore

t hey ar e f i nal i zed; i t i s i ndi spensabl e, a cruci al saf eguar d

agai nst er r or . ") . Mor eover , i t s appeal s l et t er t hat pr ovi des f or

t he "i nvest ment pl us" t est l eaves open many quest i ons about exact l y

wher e t he l i ne shoul d be drawn bet ween a mere passi ve i nvest or and

one engaged i n a "t r ade or busi ness. "

Because t o be an "empl oyer " under 1301( b) ( 1) t he ent i t y

must bot h be a "t r ade or busi ness" and be under common cont r ol , we

r ever se ent r y of summary j udgment on t he 1301( b) ( 1) cl ai m i n

f avor of Sun Fund I V and vacat e the j udgment i n f avor of Sun Fund

I I I . We r emand t he 1301( b) ( 1) cl ai mof l i abi l i t y t o t he di st r i ct

cour t t o r esol ve whet her Sun Fund I I I r ecei ved any benef i t f r om an

of f set f r om f ees pai d by SBI and f or t he di st r i ct cour t t o deci de

t he i ssue of common cont r ol . We determi ne onl y t hat t he " t r ade or

busi ness" r equi r ement has been sat i sf i ed as t o Sun Fund I V.

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I I I .

We deny, f or di f f er ent r easons t han t he di st r i ct cour t ,

t he TPF' s appeal f r om ent r y of summar y j udgment agai nst i t s cl ai m

under 29 U. S. C. 1392( c) . That pr ovi si on of t he MPPAA st at es

"[ i ] f a pr i nci pal pur pose of any t r ansact i on i s t o evade or avoi d

l i abi l i t y under t hi s par t , t hi s par t shal l be appl i ed ( and

l i abi l i t y shal l be det er mi ned and col l ect ed) wi t hout r egar d t o such

t r ansact i on. " 29 U. S. C. 1392( c) ( emphasi s added) .

The TPF ar gues t hat 1392( c) appl i es because t he Sun

Funds, dur i ng t he acqui si t i on, pur posef ul l y di vi ded owner shi p of

SSB- LLC i nt o 70%/ 30% shar es i n or der t o avoi d t he 80% par ent -

subsi di ary common cont r ol r equi r ement of 1301( b) ( 1) . Under

Tr easur y r egul at i ons, t o be i n a parent - subsi di ar y group under

common cont r ol , t he parent must have an 80% i nt er est i n t he

subsi di ar y. 26 C. F. R. 1. 414( c) - 2( b) ( 2) ( i ) . The TPF asser t s

t hat , because a Sun Fund r epr esent at i ve t est i f i ed t hat a pr i nci pal

pur pose of t he 70%/ 30% di vi si on was t o avoi d unf unded pensi on

l i abi l i t y and because an emai l st at es t hat a reason owner shi p was

di vi ded was "due t o [ t he] unf unded pensi on l i abi l i t y, " l i abi l i t y

can be i mposed on t he Sun Funds under 1392( c) . 31

31 The cl ai m r ai ses a number of i ssues t hat we need notaddr ess . We do not deci de whether an agreement between Sun FundI I I and Sun Fund I V can be consi der ed a " t r ansact i on. " Nor do wedeci de whet her , as t he di st r i ct cour t f ound, 1392( c) can ser ve asan i ndependent basi s f or l i abi l i t y even i f none wer e t o exi st under 1301( b) ( 1) ( t hat i s, t hat t he Sun Funds need not f i r st be " t r adesor busi nesses" ) . We al so need not r esol ve whet her an out si de

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We hol d t hat 1392( c) cannot ser ve as a basi s t o i mpose

l i abi l i t y on t he Sun Funds because, by appl yi ng t he r emedy

speci f i ed by t he st at ut e, t he TPF woul d st i l l not be ent i t l ed t o

any payment s f r omt he Sun Funds f or wi t hdr awal l i abi l i t y. We begi n

( and ul t i mat el y end) our anal ysi s by r evi ewi ng t he pl ai n l anguage

of 1392( c) . See Uni t ed St at es v. Kel l y, 661 F. 3d 682, 687 ( 1st

Ci r . 2011) ( "We begi n our anal ysi s by r evi ewi ng t he pl ai n l anguage

of t he [ stat ut e] . " ) .

The l anguage of 1392( c) i nst r uct s cour t s t o appl y

wi t hdr awal l i abi l i t y "wi t hout r egar d" t o any t r ansact i on t he

pr i nci pal pur pose of whi ch i s to evade or avoi d such l i abi l i t y. 29

U. S. C. 1392( c) . The i nst r uct i on r equi r es cour t s t o put t he

par t i es i n t he same si t uat i on as i f t he of f endi ng t r ansact i on never

occur r ed; t hat i s, t o er ase t hat t r ansact i on. I t does not , by

cont r ast , i nst r uct or per mi t a cour t t o t ake t he af f i r mat i ve st ep

of wr i t i ng i n new t er ms t o a t r ansact i on or t o cr eat e a t r ansact i on

t hat never exi st ed. I n order f or t he TPF t o succeed, we woul d have

t o ( i mpr oper l y) do t he l at t er because si mpl y doi ng the f or mer woul d

not gi ve t he TPF any rel i ef , but woul d onl y sever any t i es bet ween

t he Sun Funds and SBI .

Di sr egardi ng t he agr eement t o di vi de SSB- LLC 70%/ 30%

woul d not r esul t i n Sun Fund I V bei ng t he 100% owner of SBI . At

i nvest or who st r uct ur es an i nvest ment i n a manner t o avoi d assumi ngunf unded pensi on l i abi l i t i es can ever be hel d t o be evadi ng oravoi di ng wi t hdr awal l i abi l i t y.

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t he moment SSB- LLC was di vi ded 70%/ 30%, t he t r ansact i on to purchase

SBI had not been compl eted. There i s no way of knowi ng t hat t he

acqui si t i on woul d have happened anyway i f Sun Fund I V were t o be a

100%owner , but i t i s doubt f ul . SSB- LLC was f ormed on December 15,

2006, at whi ch poi nt t he 70%/ 30%di vi si on became of f i ci al . SBI di d

not ent er i nt o a st ock pur chase agr eement t o be acqui r ed unt i l

Febr uary 8, 2007. I n essence, t he TPF r equest s t hat we cr eate a

t r ansact i on t hat never occur r ed - - a pur chase by Sun Fund I V of a

100% st ake i n SBI . But as st at ed, t hat we cannot do. Cf .

Teamst er s Pensi on Tr ust Fund of Phi l a. & Vi ci ni t y v. Cent . Mi ch.

Tr ucki ng, I nc. , 857 F. 2d 1107, 1109 ( 6t h Ci r . 1988) ( "Ther e i s no

congr essi onal mandat e t o engage i n l egal gymnast i cs i n order t o

guar ant ee pensi on pl ans at al l cost s[ , ] . . . or t o appl y t he

st at ut e i n a nonsensi cal f ashi on i n or der t o assur e f ul l payment of

wi t hdr awal l i abi l i t y. ") . Mor eover , t he TPF does not pr ovi de a

si ngl e case i n whi ch a cour t creat ed a f i ct i t i ous t r ansact i on i n

or der t o i mpose 1392( c) l i abi l i t y.

The TPF ar gues t hat because Sun Fund I V had al r eady

si gned a l et t er of i nt ent t o pur chase 100% of SBI bef or e t he

deci si on was made t o di vi de owner shi p bet ween t he Sun Funds, we can

r el y on t he l et t er of i nt ent . The TPF cl ai ms that t he deci si on t o

spl i t owner shi p t o avoi d t he aut omat i c assumpt i on of wi t hdr awal

l i abi l i t y at 80%owner shi p was made af t er a bi ndi ng t r ansact i on was

ent er ed i nt o t hr ough t he l et t er of i nt ent . That i s not t r ue. The

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l et t er of i nt ent was so named because i t was not a bi ndi ng cont r act

or any sor t of pur chase agr eement . Rat her , t he l et t er expl i ci t l y

cont ai ned a cl ause st at i ng t hat :

The f i r st f i ve capt i oned paragraphs of t hi sl et t er ( ' Pur chase Pr i ce' , ' Pur chase Agr eementTerms' , ' Fi nanci ng' , ' Ti mi ng & Pr ocess' , and' Due Di l i gence' ) r epr esent onl y the i nt ent oft he par t i es, do not const i t ut e a cont r act oragr eement , ar e not bi ndi ng, and shal l not beenf orceabl e agai nst t he Sel l er s, t he Company,or Sun Capi t al . . . . [ N] ei t her par t y shal lhave any l egal l y bi ndi ng obl i gat i on t o theot her unl ess and unt i l a def i ni t i ve pur chaseagr

Sun Capital Partners III, LP v. New England Teamsters & Trucki, 1st Cir. (2013)

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Transcript of Sun Capital Partners III, LP v. New England Teamsters & Trucki, 1st Cir. (2013)