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Despite the limited liability and organizational protections of a limited partnership structure, private equity firms are routinely sued for acts and omissions committed by its portfolio companies. Mitigating that risk can mean the difference between a company making a profit or experiencing a loss, and, as such, affects a private equity firm’s ability to generate a return on its investment in that company.
There have been a number of cases[1] where private equity firms have been included as defendants in lawsuits, for having its managers or directors serve on a portfolio company’s board, playing a role in the selection of portfolio company management, and implementing policy—all tasks routinely engaged in by private equity firms.
Zhemian Ventures can assist your firm and its portfolio companies to develop strategies and management structures minimizing the risk of liability through our Litigation Risk Assessment. Through this assessment, Zhemian Ventures will do a deep dive into each one of the areas below, provide a detailed written analysis to your firm, and make recommendations to minimize and mitigate your firm and portfolio company’s exposure to liability.
We examine the following areas of your portfolio companies:
Labor and Employment—reviewing harassment policy, compliance with state and federal labor regulations (FLSA, ADA, ADEA, FMLA, ERISA, etc.), employer social media policy, employer drug policy, and independent contractor vs. employee classification;
State and Federal Regulatory Compliance—FCPA, data privacy law (GDPR, HIPAA, COPPA, etc.), trade regulations, and, if applicable, FDA and EPA compliance;
Intellectual Property—patents and trademarks, goodwill, domain registrations, social media sites (Facebook, LinkedIn, Instagram, Twitter, etc.), works for hire;
Vendor Relationships—contract administration and compliance and billing and collection practices;
Insurance Coverage—review portfolio company’s general commercial liability, errors and omissions, and other insurance coverages; and
Board Governance—review ethics, executive compensation, talent retention, and level of private equity firm’s involvement in day-to-day operations.
Please email us at m.a.brown@zhemian.com for more information.
[1]See, e.g. In re: Heparin Product Liability Litigation (MDL Docket No. 1953) (Maryland-based private equity firm sued as a co-defendant in action for negligence, strict liability/manufacturing defect, breach of implied and expressed warranty, statutory wrongful death and statutory survival against firm’s pharmaceutical portfolio company), Ex rel Medrano Diabetic Care RX, LLC, No. 15 Civ. 62617 (S.D. Fla.) (Department of Justice intervenes in a civil suit in order to include a California-based private equity firm as a defendant on False Claims Act violation), Guippone v. BH S&B Holds., LLC, 737 F.3d 221 (2d Cir. 2013) (allowing claim to proceed against parent holding company for closely held subsidiary’s alleged violations of WARN Act); and Sun Capital Partners III, LP v. N.E. Teamsters & Trucking Indus. Pension Fund, 724 F.3d 129 (1st Cir. 2013) (discussing potential “trade or business” status of private equity firm for ERISA purposes).
