YRC/Yellow Agrees To "Immaterial" $2.1M Settlement In Investor Suit Over DoD Overcharges Action

Yellow Corp. YELL, the former YRC Worldwide, has agreed to a settlement of $2.1 million — an amount the company earlier had referred to as "immaterial" — in an ongoing 2018 lawsuit on price overcharges brought by the Department of Defense.

The suit was brought by a group of investors, who already had lost in the district court. However, those investors were planning an appeal of that lower court decision, leading to settlement talks that resulted in a relatively small payout. 

Plaintiffs in the case included the city of Warwick, New York, where pension funds were an investor in YRC (the name of the company at the time of the lawsuit and in the court documents), and several individuals. The suit was filed in the northern district court of New York back on the first business day of 2019. 

Coming on the heels of the DoD's lawsuit against LTL carrier YRC filed just a month earlier, alleging the overcharging, the suit by the investors claimed they had suffered financial damages "caused by [YRC's] violations of the federal securities law."

Although the settlement was filed with the court this month, Yellow, in its 10-K filing with the Securities & Exchange Commission submitted in early February, said that at the time it had already reached a settlement agreement with the plaintiffs for what it described as an "immaterial amount." Arguments by defendants and plaintiffs in favor of the settlement were recently filed with the court.

The suit also was directed at several YRC executives.

According to the settlement document filed in the case, YRC had moved to dismiss the original complaint, and that request had been granted. "The court ruled that plaintiffs had not pled facts showing that defendants had made any material misstatements or omissions or had acted with the requisite scienter required [under law]." That's how YRC, in its document filed this month in support of the settlement, summed up earlier developments in the case brought by the investors. The definition of scienter is "knowledge of the nature of one's act or omission."

"Even though defendants are confident of their prospects on appeal, they are interested in putting this case behind them to avoid the further distractions and expenses of continued litigation," the company says in its filing.

Although the dismissal is a relatively minor footnote in the ongoing saga of YRC and the Department of Defense, there are still ongoing ironies in that relationship.

First, the lawsuit filed by the DoD against YRC in December 2018 is still pending. That suit grew out of an earlier whistleblower action on an allegation of overcharging, primarily through YRC and the later acquisition Roadway Express, that goes back to 2003. 

In that 10-K report, Yellow said of the ongoing litigation with the DoD that it had meritorious defenses against the remaining counts and intends to vigorously defend this action." However, it added that the company is "unable to estimate the possible loss, or range of possible loss, associated with these claims at this time."

A check of the activity in the case shows no filings in the case since December 2020, but it is not resolved.  

And yet, YRC received an injection of $700 million in funding from the federal government last July, with the government taking a 30% stake in the company as a result. One of the claims made in defense of the unusual action: The DoD needed the long-standing services that YRC provided to the military. 

The end result is that the U.S. government gave a large sum of money to YRC and took a stake in it even as it was pursuing a lawsuit against it for price manipulation. And even though that litigation is ongoing and has not been resolved, YRC has easily swatted away an investors' lawsuit against those alleged activities. 

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Image by Renee Gaudet from Pixabay