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July 11, 2011 3:30 AM, EDT

Appeals Court OKs ABF Suit Against YRC-Teamsters Deal

By Rip Watson, Senior Reporter

This story appears in the July 11 print edition of Transport Topics. Click here to subscribe today.

A U.S. appeals court last week reversed a lower court’s ruling that blocked ABF Freight System from challenging three cost-cutting agreements between YRC Worldwide Inc. and the Teamsters union.



The appeals court’s July 6 decision did not rule on the underlying question of whether the YRC-Teamsters agreements should continue. It sent the case back to the district court, which had rejected ABF’s suit on the grounds that the carrier had no standing to sue.

ABF filed suit in November, charging that the agreements between competitor YRC and the Teamsters, including a 15% wage cut, violated the National Master Freight Agreement that covers both less-than-truckload companies and the union.

ABF, which is part of Arkansas Best Corp., Fort Smith, Ark., filed suit after union members rejected a 15% wage cut deal the company and union leaders had worked out.

In its suit, ABF sought a court order to have a grievance panel review the issue or an order to dissolve the company-union deals that included the 15% pay cut and pension concessions for YRC’s Teamsters employees. ABF also claimed $750 million in damages because it had to pay higher wages to its Teamsters workers than YRC did.

ABF in a statement said it was “very pleased with this decision and looks forward to further proceedings on its lawsuit seeking to level the playing field for all parties of the National Master Freight Agreement.”

“The union is currently analyzing its next course of action, including whether to seek a hearing before the full 8th Circuit” panel of justices, Teamsters spokesman Galen Munroe said.

YRC issued a statement saying the ABF claims “are without merit and we are confident we will prevail in district court. We believe the decision today will have no impact on our restructuring efforts and we continue to move forward toward completion as previously announced.”

In December, U.S. District Judge Susan Webber Wright ruled that ABF did not have standing to file its suit because it was not a party to the NMFA, which prompted ABF to file an appeal in January.

Last week’s decision rejected the district court’s conclusion that ABF didn’t have standing to bring its suit. The three-judge panel in the 8th Circuit Court of Appeals in St. Louis sent the case back to the U.S. District Court for the Western District of Arkansas.

Regarding the union, the appeals court said, “ABF clearly has constitutional standing. ABF has rights under the NMFA sufficient to show an injury-in-fact that is fairly traceable to the challenged acts of the union defendants [the YRC agreements] and is likely redressable in court.”

The court also said YRC failed to prove its allegation that ABF lacked standing because the cases cited by YRC did not adequately show that ABF had a separate NMFA agreement.

The appeals court decision came barely two weeks before YRC is scheduled to complete a financial overhaul. That process is to be completed on July 22 after several months of talks with creditors and lenders.

YRC is slated to receive as much as $240 million in cash, sign new loan arrangements with creditors and lower its debt obligations to lenders who would wind up owning as much as 97.5% of YRC’s stock.

“The near-term focal point turns to YRCW’s ability to continue to secure financing from its lenders given the overhang presented by this case,” Robert W. Baird analyst Jon Langenfeld said in an investor note.

During the lower-court proceedings, YRC said that ABF’s case would create uncertainty and harm its ability to work with creditors and reap the benefits of $590 million to $600 million in annual cost savings.

“It will be very difficult for YRC to reach the necessary deals with banks, creditors and investors and to avoid an out-of-court restructuring,” stated Sheila Taylor, YRC’s former chief financial officer, in a Nov. 16 court filing.

Langenfeld noted that the appeals court ruling helped to boost stocks of less-than-truckload carriers other than YRC because of concerns about the financial impact the court decision could eventually have on YRC.

The shares of ABF parent Arkansas Best Corp. rose 10% after the announcement, reaching $26.99 per share in New York Stock Exchange trading on July 6 after opening at $24.50 a share that day. YRC shares on that day fell 10% to $1.15.

“All this decision means is that ABF will be given a chance for a match” in wage reductions, said Satish Jindel, whose consulting firm’s customers include LTL carriers.

Jindel said he is sympathetic to ABF’s claim, but said he thinks the carrier’s management did an insufficient job in making its claim for equivalent labor concessions.

“While no decision has been made on the merits of the case, the mere specter of losing its substantial labor cost advantage and paying damages puts at risk the company’s already tenuous operating viability, in our view,” Stifel Nicolaus analyst David Ross wrote in an investor note.

Associate News Editor Jonathan Reiskin contributed to this report.