Appeals Court Keeps Yellow on the Hook for Retiree Billions
Yellow Cash Reserves at End of August Total $615.9 Million
Key Takeaways:
- An appeals court upheld a $6.5 billion pension fund liability against Yellow Corp.'s bankruptcy estate, rejecting arguments that federal assistance to the funds should reduce the carrier's withdrawal obligations.
- Yellow had negotiated reduced pension contributions in 2013 in exchange for promising to pay full withdrawal liability if it later exited the plans, a contract the court said must be enforced.
- Yellow's estate holds about $616 million in cash and has generated more than $2 billion from real estate sales but faces the massive pension liability that far exceeds available funds.
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An appeals court sided with pension funds on the amount of money the estate of bankrupt less-than-truckload carrier Yellow Corp. potentially owes them.
The U.S. Court of Appeals for the Third Circuit affirmed a September 2024 decision by U.S. Bankruptcy Judge Craig Goldblatt that left Yellow on the hook for $6.5 billion in claims by the pension plans.
When Yellow sought bankruptcy protection in August 2023, the Nashville, Tenn.-based company withdrew from plans that secured retirement benefits for the then-No. 3-ranked LTL carrier’s unionized employees.
The funds objected, arguing Yellow must pay a “withdrawal liability” for stopping its payments into the retirement plans.
They were backed by the Pension Benefit Guaranty Corp., a retirement fund regulator, which expected other companies would be encouraged to cancel their own plans if Yellow won because the cost would be much lower.
Yellow’s administrators — and MFN Partners, the company’s largest shareholder — argued that because the funds received billions of dollars in Special Financial Assistance under the American Rescue Plan Act, the liability assessments should be much lower.
In addition, MFN was more likely to receive a return on its investment in Yellow if the pension plans didn’t get their $6.5 billion. MFN Partners bought up more than 40% of the carrier’s shares for less than $23 million in the run-up to Yellow shutting its doors.
Opinion Hammers ‘Scattershot’ Challenge
After a series of earlier court dates, judges Thomas Ambro, Patty Shwartz and Tamika Montgomery-Reeves heard arguments in the Third Circuit appeal June 25.
The appeal sought to challenge two regulations created by the PBGC to steward “reasonable conditions” on how the plans used the funds:
- The Phase-In Regulation, which prohibits multiemployer pension plans (MEPPs) from fully counting Special Financial Assistance funds as plan assets all at once.
- The No-Receivables Regulation restricts MEPPs from recognizing as an asset any awarded Special Financial Assistance before the funds are paid to the plan.
MFN and Yellow argued the regulations flouted how withdrawal liability calculations are typically drawn up, substantially boosting the funds owed to the plans.
Goldblatt ruled the regulations were valid exercises of the PBGC’s statutory authority and were not otherwise arbitrary and capricious.
Judge Ambro filed the court opinion Sept. 16, finding in favor of the pension plans and lambasting MFN and Yellow’s approach.
As a result, Yellow can be held accountable for 100% of its withdrawal liability.
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The Yellow estate, Ambro wrote, “lobs a slew of challenges at the regulations … each fails.”
“As part of its scattershot challenge to the regulations, Yellow faults them as arbitrary or capricious. We disagree. An agency action is arbitrary or capricious if it is not reasonable and reasonably explained,” he added.
“[The appeal] offers no good reason why we should not enforce [Yellow’s] own contract against it,” he wrote, later adding: “Seeking to reenter these pension plans, it bargained for a discount on its contributions by offering to pay full freight on its withdrawal liability if the time came. It is here.”
Yellow recommitted to paying into the New York Teamsters Fund and the Western Pennsylvania Teamsters Fund in 2013. Yellow was allowed to pay reduced contributions, at around 25% of what would normally be required, but promised to pay 100% of its withdrawal liabilities should there be a repeat farewell.
In February, however, Goldblatt decided Yellow was not on the hook for as much as $244 million in claims sought by the International Brotherhood of Teamsters related to an inability to meet employee protection regulations.
Two other groups of former employees tentatively settled in January with Yellow’s administrators over their own Worker Adjustment and Retraining Notification Act claims shortly before a trial started.
Funds Available Nudge Toward $600 Million
Yellow Corp. had a cash balance of $615.9 million at the end of August, according to a Sept. 22 monthly operating report filed with the U.S. Bankruptcy Court for the District of Delaware. It started August with $623.2 million in the coffers.
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The estate received net proceeds of $175.74 million from the monthslong sale of rolling stock carried out by Ritchie Bros. that generated gross proceeds of $236.42 million, according to an Aug. 29 filing detailing 57,662 transactions.
Some 11 of the 325 terminals Yellow owned or leased when filing for bankruptcy, meanwhile, remain unsold following two auction rounds and a series of private sales, a Sept. 15 filing shows.
Yellow’s estate wants to engage commercial real estate marketplaces LoopNet and Crexi to sell the remaining facilities through Nov. 5. Earlier real estate sales generated more than $2 billion in revenue.
