The First Circuit’s recent decision in Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund[1] has provoked strong reactions among private equity professionals. The prospect of fund assets being exposed to portfolio company liabilities is disquieting. Piercing the corporate veil is a problem that calls for perspective: when concerns arise in this area, they arise from the magnitude side of the frequency versus magnitude risk equation. Limited owner liability is a concept that courts (and legislatures) rarely consider. When they do, however, the potential damages involved tend to be significant, and private equity funds represent a classic deep pocket. (The Sun Capital funds are in a sense fortunate that the size of the liabilities involved in this case, while not insignificant, are not far larger.) Moreover, the nature of the private equity business model and the structure of private equity funds both tend to increase the risk of alter ego and owner liability, at least at a conceptual level.Set out below are, first, a brief overview of the Sun Capital case and, second, a few key observations, including some that have been lost in the general post-decision noise and chatter.OverviewSun Capital Partners III and IV are two… Read full this story
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