ABF files brief in $750 million action against YRC

“The judgment of the district court should be reversed.”

So reads the complete and simple conclusion in an appeal brief filed Mar. 21 with the Eighth U.S. Court of Appeals in St. Louis by attorneys for Arkansas Best Corp. in its pursuit of a $750 million judgment against competitor YRC and the International Brotherhood of Teamsters.

On Nov. 1, Arkansas Best Corp. — the parent company of ABF — filed a lawsuit seeking the $750 million in financial damages from alleged violations of a National Master Freight Agreement (NMFA) by the International Brotherhood of Teamsters and others.

YRC Worldwide, the largest less-than-truckload carrier in the U.S., received three rounds of wage and benefit concessions from the Teamsters, with the most recent announced Nov. 1 that includes up to $350 million annually through 2013. Previously, the Teamsters voted to approve a 15% pay cut among unionized YRC drivers. ABF has been unable to receive similar concessions from the union.

On Dec. 16, U.S. District Court Judge Susan Webber Wright (Eastern District of Arkansas) dismissed the suit for lack of subject matter jurisdiction.

The Teamsters said Wright’s ruling was the “best possible outcome” for the 25,000 union drivers at YRC and the 7,000 at ABF.

Arkansas Best says oral arguments before the Appeals Court are scheduled for April 12.

In the brief, attorneys for ABF say the right to enforce a contract is not secondary to subject matter jurisdiction.

“Accordingly, the Supreme Court, this Court, and other circuits have held that disputes over a litigant’s right to enforce a contract go to the merits — not to jurisdiction or Article III standing,” noted the brief. “That well-established principle requires reversal here, because the district court erroneously considered material outside the pleadings and decided disputed factual issues, thereby denying ABF’s discovery rights and usurping the role of the jury.”

The brief also noted that economic difficulties have been faced by all companies in the trucking sector, and YRC should not receive favorable treatment for its particular problems.

“YRC points to the global economic recession of 2007-2009 as justification for extracting exclusive concessions in violation of the NMFA and causing ABF $750 million in damages. The recession, however, had a severe impact on the entire freight trucking industry, ABF included. Like millions of U.S. businesses, ABF made adjustments and weathered the economic downturn without receiving special treatment. YRC’s claims of hardship do not excuse its breach of the NMFA or justify the district court’s error in dismissing this case,” ABF noted in the 45-page filing.

YRC has more troubles than just the lawsuit.

Overland Park, Kan.-based YRC narrowly avoided bankruptcy in January 2010 through a complex bond swap agreement with creditors. The less-than-truckload company had piled up a mountain of debt with the $1.07 billion acquisition of Roadway Corp. in 2003 and the $1.23 billion acquisition of USF Corp. in 2005.

YRC recently reached an agreement with its creditors and the International Brotherhood of Teamsters that essentially provide the lenders with equity share and convertible debt provisions that place regular shareholders at the back of the line in the event of a bankruptcy.

Fitch Ratings, which has said success by ABF in its lawsuit against YRC would certainly bankrupt YRC, has said it may soon downgrade the company’s outstanding debt to a highly speculative and junk category.

Chicago-based Zacks Investment Research said YRC has been able to “regain many of its clients” lost during the recession. However, Zacks is not optimistic about the near-term improvement YRC may need to survive.

“On the other side, we believe near-term possibility of bankruptcy still persist for YRC Worldwide. The company’s viability depends on its ability to become profitable but unfortunately we do not expect the company to reach that stage any time soon,” Zacks noted.