Yellow wins battle to keep pension dispute in bankruptcy court, loses Teamsters suit

The judge overseeing the Yellow Corp. Chapter 11 bankruptcy decided he—and not an arbitrator—will oversee the contentious, high-dollar pension liability dispute at the heart of the case.

Yellow, which was the third-largest U.S. less-than-truckload carrier in the weeks before it filed for protection from its creditors last July, has been battling with a hatful of retirement plans representing many of its former employees as well as the federal Pension Benefit Guaranty Corp. about what the company might still owe the pension plans. The plans, led by Central States Pension Fund, submitted claims that Yellow should pony up $7.8 billion to cover its so-called withdrawal liabilities for pulling out the plans when it closed its doors last summer. Yellow’s attorneys have countered that the pension plans can’t call on the company for that money because the federal government’s bailout early last year covered all of their funding needs.

In addition to that core financial dispute, the sides debated how and where to resolve this thorny question. The retirement plans called on Judge Craig Goldblatt to refer the matter to an arbitrator, saying that such a move is required by the Multiemployer Pension Plan Amendments Act of 1980. Yellow argued that Goldblatt and the U.S. Bankruptcy Court for the District of Delaware should address the dispute as part of the Chapter 11 proceeding.

The PBGC’s involvement, meanwhile, stems from the agency’s regulation used by the pension funds to estimate Yellow’s remaining pension liability. PBGC attorneys have argued that Yellow’s challenge to that regulation can only be heard via a direct lawsuit against the PGBC in a federal court, not inside a bankruptcy case.

In an opinion published March 27, Goldblatt—who earlier this year scheduled the withdrawal liability dispute to go to trial in his court in early August—said there is “no occasion for a court to direct” Yellow, essentially the defendant in this dispute, to initiate an arbitration. The Multiemployer Pension Plan Amendments Act says either party “may” launch the arbitration process but does not outline how a court order can force an employer to do so.

Goldblatt acknowledged that he is threading a needle between competing legal arguments from the MPPAA and the Federal Arbitration Act. Each approach, he said, has merit but clashes where they point participants in cases such as these. He also acknowledged that some might see home cooking in his opinion, noting that he “is acutely aware of the fact that in engaging this analysis, there is a risk that this Court, as a bankruptcy court, may place too much weight on the sound operation of the bankruptcy process.”

The judge’s reasons for keeping the dispute in bankruptcy court

He added that the 1980 Pension Plan Act typically steers parties toward arbitration. But, he said: “this presumption is overcome” by these factors:

The dollar amounts at stake in the dispute make it the most important element of the Chapter 11 case, something both sides agree on. (Yellow has raised roughly $2 billion from a series of real estate sales, which has let it pay down its most senior debts. The company’s attorneys have suggested that future property and equipment auctions could raise millions more to pay back various other creditors.)

Relatedly, Goldblatt has allowed MFN Partners, a hedge fund that is Yellow’s largest equity owner, to become part of the withdrawal liability discussion because of the impact any decision will have on the potential payout for it and other shareholders. An arbitrator, Goldblatt wrote, might exclude MFN from a more conventional arbitration process.

The certainty of the trial already scheduled outweighs the risk of delays from finding and approving an arbitrator. Goldblatt wrote that it “counsels strongly in favor” of not granting the funds’ request to go to arbitration.

Goldblatt punted for now on the PBGC’s challenges, saying the agency’s objections—rooted in the Administrative Procedure Act—can be addressed down the road. He noted that another reason he isn’t referring the pension liabilities dispute to an arbitrator is that it would strengthen the PBGC’s case and allow it to run a parallel proceeding. There is a case to be made, he said, that the bankruptcy court being a unit of a federal district court satisfies the APA’s requirement for challenging a PBGC regulation.

In trying to find a middle ground between the competing statutes, Goldblatt said he relied on “the imperative to harmonize” the laws and “respect congressional policy choices rather than leave courts the option of adopting the judge’s preferred policy.” To that end, liquidating Yellow’s withdrawal liability claims in bankruptcy court is the most straightforward option.

“Even the possibility that obtaining the resolution of the claims dispute through an MPPAA arbitration might require a cumbersome separate APA action filed in district court counsels in favor of proceeding with the claims allowance process in this court,” he wrote.

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Not in Kansas anymore

A union logjam, then a Chapter 11 filing

The first red flag about Yellow's future came nearly 14 months ago. By early summer, the company's fight with the Teamsters had escalated and gone public. About five weeks later, Yellow's leaders shut down the company.

Feb. 13, 2023: Yellow tanks on Q4 report, delay in realignment work

June 28, 2023: Yellow sues Teamsters over contract, analyst sees company in ‘precarious’ position

July 19, 2023: More bad blood between Yellow and its union as Teamsters vow to strike

July 24, 2023: Union calls off strike against Yellow after benefits concession

July 31, 2023: 100-year-old Yellow shuts down, heads to bankruptcy

Aug. 7, 2023: Yellow files for Chapter 11, blasts union

Aug. 7, 2023: ‘Yellow’s customers are gone’: Inside the LTL giant’s bankruptcy filings

While Yellow executives and their attorneys can claim a win—for now—in Goldblatt’s ruling, they have received a bloody nose in U.S. District Court in Kansas. This week, Judge Julie Robinson dismissed the company’s lawsuit against the International Brotherhood of Teamsters.

Yellow last June—about a month before it eventually closed its doors—accused the Teamsters of unlawfully blocking the second phase of its restructuring plan. The company said the union was sabotaging Yellow’s business plan and breaching the parties’ labor contract. Yellow claimed $137 million in direct damages (in the form of lost profits) and at least $1.5 billion in lost value because of the inability to reform its operations further.

Robinson swatted away those claims this week by saying Yellow had been too quick to file a suit. The company, she said, did not properly follow the grievance processes outlined in its master contract with the Teamsters and thus can’t claim damages.

Shares of Yellow (Ticker: YELLQ), which are at this point bets on bankruptcy case recoveries, fell more than 5% to $6.20 March 28. They are, however, still up more than fourfold from six months ago thanks primarily to the bumper real estate auctions from late last year. The market value of Yellow’s equity is now about $420 million.