Yellow’s $7.8 Billion Pension Feud to Proceed in Bankruptcy

Yellow Corp.'s fight over $7.8 billion in pension fund withdrawal liability claims will be handled in the course of the trucking company’s Chapter 11 case, not in arbitration, a Delaware bankruptcy judge ruled.

The dispute that stakeholders have called the most important issue in Yellow’s insolvency proceedings will be decided through a bankruptcy court trial to begin in early August, Judge Craig T. Goldblatt of the US Bankruptcy Court for the District of Delaware ruled Wednesday. The outcome of the claims dispute will determine the amount that hedge fund MFN Partners LP and other Yellow shareholders may reap in recoveries from the less-than-truckload carrier’s bankruptcy.

In a 40-page opinion, Goldblatt overruled efforts by Central States Pension Fund and 10 other pension funds to let an arbitrator decide the company’s liability for shuttering its business and withdrawing from the multiemployer worker benefit funds.

The question “is a close one and the arguments in favor of arbitration are serious,” said Goldblatt. He noted a significant conflict over judicial venues prescribed for resolving claim disputes in bankruptcy and withdrawal liability under the Multiemployer Pension Plan Amendments Act.

But the arguments in favor of sending the dispute to arbitration are “outweighed by several factors” in this case, including the participation of other interested parties, the central importance of the claim dispute in Yellow’s Chapter 11 case, “and the uncertainties about how long an arbitration process might take,” the judge said.

The decision is influenced by a parallel dispute involving the government’s Pension Benefit Guaranty Corp., which covers shortfalls between the benefits a plan owes and the benefits an insolvent plan can pay.

Yellow has called into question the pension funds’ use of a regulation established by the PBGC as part of the American Rescue Act to calculate the company’s withdrawal liability. Under the 2021 bailout legislation, the federal government provided billions to distressed multiemployer funds.

If the court sends the liability dispute to arbitration, “complex parallel proceedings” might be required to resolve the PBGC regulation challenge, the judge said in Wednesday’s decision.

It’s premature for the bankruptcy court to decide whether it has authority to hear the regulatory dispute or whether it should be heard by a federal district court judge, Goldblatt said. But, based on a preliminary review, it appears that the bankruptcy claims allowance process provides an applicable setting to resolve the issue, he said.

The PBGC and MFN Partners are welcome to participate in the bankruptcy claim litigation, said Goldblatt.

Yellow filed for Chapter 11 in August with plans to liquidate after failing to win concessions from its unionized drivers.

Yellow is represented by Kirkland & Ellis LLP and Pachulski Stang Ziehl & Jones LLP.

The Central States Pension Fund is represented by Sullivan Hazeltine Allinson LLC. The group of 10 pension funds is represented by Groom Law Group.

MFN is represented by Potter Anderson & Corroon LLP and Quinn Emanuel Urquhart & Sullivan LLP.

The case is In re Yellow Corp., Bankr. D. Del., No. 23-11069, opinion 3/27/24.