Yellow Corp. and its largest shareholder failed to convince an appeals court to overturn a bankruptcy court’s ruling that the insolvent less-than-truckload (LTL) firm was liable for billions in debt claims by its pension funds.
After Yellow Corp. shuttered operations and filed for bankruptcy in summer 2023, it withdrew from several pension plans that secured retirement benefits for the former trucking firm’s union workforce. During the Chapter 11 bankruptcy process, those funds came looking for what they believed they were owed, filing claims against the estate for Yellow’s “withdrawal liability”—the amount it must pay to the plans for its early exit.
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Eleven multi-employer pension plans filed 174 proofs of claim in the bankruptcy, seeking a combined $6.5 billion in withdrawal liability. Approximately $4.8 billion of the claims were held by Central States Pension Fund.
The trucking firm, alongside hedge fund MFN Partners, had issue with two Covid-era pension bailout regulations, claiming they inflated the amount of money Yellow owed upon withdrawing.
During the Covid-19 pandemic, Congress granted $41.1 billion in cash to struggling pension plans through the American Rescue Plan Act of 2021 (ARPA). But the money came with a catch—Congress charged a federal agency, the Pension Benefit Guaranty Corporation (PBGC), with regulating how the pension plans would account for and use that money.
Yellow had argued the regulations prevented the pension plans from immediately including the pandemic relief funds in their asset calculations, making the pensions appear to be in poorer financial shape than they actually were.
The rules the PBGC passed supported Congress’ intent to use the relief funds only to pay retirees or the costs of administering a pension plan, the court ruled. The funds were clearly meant to benefit retirees and not to “subsidize the liability of employers,” according to the decision.
A three-judge panel of the Philadelphia-based U.S. Court of Appeals for the Third Circuit affirmed the Delaware bankruptcy court’s order and ruled Yellow must honor a prior agreement to pay the higher withdrawal liability claims contracted for with the New York and Western Pennsylvania Teamsters Funds, Judge Thomas Ambro wrote in the opinion.
Lawyers for the pension groups contended that Yellow breached a deal made with both Teamsters funds in 2013. Under that collective bargaining agreement, the trucking company would lower its contributions to 25 percent of its old contribution rate in exchange for conditions that protected the funds. However, as part of that deal, Yellow would pay 100 percent if the company withdrew from the plans.
The Third Circuit panel held Yellow to that agreement with the ruling.
“Yellow offers no good reason why we should not enforce its own contract against it, instead pointing us to an array of cases in which a plan imposed, without consent, a higher contribution rate on a withdrawing employer’s liability calculation,” wrote Ambro in the judgment. “That is not the case here, where Yellow contracted for this result. We know no convincing statutory case against holding Yellow to its end of the bargain.”
Yellow could still take the case to the Supreme Court.
The case, one of many the company has been involved in since the 2003 bankruptcy, comes as the firm has had a dwindling money pile. As of July, Yellow’s estate had $623 million in cash.
Yellow sold assets including its terminals and rolling stock in bankruptcy, generating billions to pay its top lenders and reimburse the U.S. Treasury Department for a $700 million pandemic relief loan.
But other creditors, like the pension plans, are likely to get a fraction of what they are owed. Shareholders including MFN Partners could end up with no recovery.
According to a report submitted to the Delaware bankruptcy court, Yellow’s rolling stock generated $236.4 million over the past two years, with the estate executing 58,000 transactions for the sale of tractors, trailers, yard trucks and forklifts. Of that total, $60.7 million went to liquidators including Ritchie Brothers and Nations Capital.
The LTL’s estate has sold more than 200 terminals since the bankruptcy—many of them through auctions—for nearly $2.4 billion and terminated leases on several others. On Sept. 16, Yellow most recently offloaded a 54-door terminal in Baltimore for $4.7 million. A month earlier, the trucking company reached agreements to sell three terminals totaling $16 million, with the largest being a 42-door service center in Ontario, Canada.
With the sale of the Baltimore terminal, Yellow’s estate said in a filing it has 11 owned terminals.
Proceeds will not only be divvied up with the creditors, but also former workers who hold claims for paid time off (PTO), sick time and grievance pay.
