Yellow Corporation, 672 B.R. 219

Background

Yellow Corporation withdrew from multiple multiemployer pension plans and filed Chapter 11; the plans filed proofs of claim for ERISA withdrawal liability and the parties litigated allowance issues by summary judgment.
Central questions: whether withdrawal liability accelerated prepetition or by the bankruptcy filing; whether and how to present-value a 20-year stream of ERISA-mandated payments; and how ERISA adjustments (§§ 1399/1405) interact with Bankruptcy Code rules.
The plans’ ERISA calculations incorporate an actuarial interest/assumption used for minimum-funding; debtors argued the stream should be discounted for bankruptcy allowance (debtors’ expert proposed a 13–18% cost-of-debt discount).
Discrete additional disputes: order of applying the §1405(b) insolvency cap versus ERISA’s 20‑year cap; whether Central States and Local 641 improperly used post‑2014 rehabilitation-driven contribution-rate increases; and enforceability under Illinois law of a 2014 liquidated‑damages guarantee.
The Court issued preliminary observations (to guide settlement/confirmation) holding that bankruptcy accelerates the payment stream, ERISA interest is treated as unmatured interest under §502(b)(2), §1405(b) is applied after the 20‑year cap, certain contribution-rate increases were improperly included, and the 2014 liquidated‑damages clause is an unenforceable penalty.

Issues

Issue	Debtors' Argument	Plans' Argument	Held
Was withdrawal liability accelerated prepetition?	Debtors: no prepetition acceleration; no plan declared default before petition.	Plans: some plan documents authorized insecurity defaults tied to bankruptcy; liability therefore accelerated.	No prepetition acceleration proved; record shows plans did not accelerate before petition.
Does the bankruptcy filing itself accelerate the 20‑year stream?	Debtors: bankruptcy should accelerate to petition date and then present‑value obligations.	Plans: bankruptcy does not change the statutory ERISA structure or necessarily produce acceleration beyond plan action.	Filing accelerates claims to petition date under Sexton/Sexton principle; claim becomes lump‑sum allowed claim subject to valuation.
Does ERISA §1405(e) require present‑valuing (removing interest) of withdrawal liability?	Debtors (preserved in opposition): §1405(e) caps aggregate liability at present value and reallocates reductions among plans.	Plans: §1405(e) interpretation disputed; preservation and scope questioned.	§1405(e) likely limits aggregate liability to present value, but Court need not rely on §1405(e) because Bankruptcy Code (§502(b)(2)) produces the same result; Court declines to resolve allocation issues under §1405(e) here.
Under bankruptcy law, should the 20‑year stream be present‑valued and at what rate?	Debtors: present‑value using debtors’ cost of debt (13–18%).	Plans: no additional present discounting beyond ERISA schedule; some already removed interest.	§502(b)(2) disallows unmatured interest; where ERISA payments include implicit/explicit interest, disallowing that interest effects present valuation per Oakwood Homes; no separate further discounting.
Is §502(b)(2) limited to contractual interest, or does it disallow actuarial/implicit interest included under ERISA?	Debtors: §502(b)(2) should apply to any unmatured interest, including ERISA‑built interest.	Plans: §502(b)(2) only applies to bargained interest; implicit/statutory interest is different.	Court: substance over form—implicit actuarial interest is still interest and is disallowed under §502(b)(2); Oakwood Homes prevents double discounting.
When is the §1405(b) insolvency/liquidation cap applied relative to ERISA’s 20‑year cap?	Debtors: apply the 20‑year cap first, then apply §1405(b) reduction.	Plans: §1405(b) applies to ‘‘unfunded vested benefits allocable to the employer’’ (argued before the 20‑year cap); some invoke law‑of‑the‑case.	The statutory order §1381(b)(1) dictates sequence; apply de‑minimis and partial‑withdrawal rules, then 20‑year cap, and finally §1405 reductions — §1405(b) is applied after the 20‑year cap.
Did Central States and Local 641 improperly include post‑2014 rehabilitation contribution‑rate increases in calculating annual payment?	Debtors: post‑2014 increases made to satisfy rehabilitation plans should be excluded unless falls within statutory exception.	Central States/Local 641: increases were not rehabilitation‑required or were attributable to benefit accrual formula.	Court: increases tied to rehabilitation status are excluded under §1085(g)(3) unless they fit the narrow statutory exceptions; Central States and Local 641 did not comply with §1085(f)(1)(B) amendments/certifications and thus improperly included such increases.
Is the 2014 Guarantee of Continued Participation liquidated‑damages clause enforceable under Illinois law?	Central States: clause enforces agreed damages for early withdrawal.	Debtors: provision is punitive and not a reasonable pre‑estimate of damage.	Court: clause is primarily a penalty to secure participation and bears no reasonable relation to actual damages; unenforceable under Illinois law.

Key Cases Cited

Sexton v. Dreyfus, 219 U.S. 339 (1911) (bankruptcy petition date fixes measurement of claims).
Milwaukee Brewery Workers’ Pension Plan v. Joseph Schlitz Brewing Co., 513 U.S. 414 (1995) (ERISA withdrawal‑liability amortization involves an interest assumption tied to actuarial funding).
In re Oakwood Homes Corp., 449 F.3d 588 (3d Cir. 2006) (disallowing unmatured interest under §502(b)(2) effects present valuation; courts must avoid double discounting).
Till v. SCS Credit Corp., 541 U.S. 465 (2004) (time value of money and valuation principles in bankruptcy).
Pepper v. Litton, 308 U.S. 295 (1939) (bankruptcy courts look to substance over form in characterizing claims).
In re SubMicron Sys. Corp., 432 F.3d 448 (3d Cir. 2006) (recharacterization doctrine—economic substance governs treatment).
In re Pillowtex Corp., 349 F.3d 711 (3d Cir. 2003) (recharacterization and equitable treatment of claims).