The largest freight bankruptcy in history punched a $5 billion hole in the economy, cost 30,000 jobs, and left the taxpayer holding the bag for a COVID bailout (2024)

When Yellow abruptly shut down this summer and filed for bankruptcy protection, leaving Gomez and 30,000 more workers jobless, he said he didn’t get so much as a text. “It was a total shock,” he said. “You don’t think a multimillion dollar company is just going to one day close their doors.”

“Now I’m going to have to keep working for the rest of my life,” he said.

Gomez, who’s now living off unemployment pay, said he hasn’t come close to replacing his work at Yellow, despite widespread reports of a shortage of good truckers in the freight sector, the backbone of the American consumer economy. At Yellow, he was earning roughly $92,000 a year but the only thing he comes close to getting now is independent contractor status—essentially renting a truck from his employer, on the hook for high taxes and any liability incurred on the job.

There may be a savior, though, for at least some of the jobs that evaporated when Yellow filed for Chapter 11. The privately owned trucking firm Jack Cooper is making a long-shot bid to revive Yellow and potentially bring back thousands of jobs, according to reports from Reuters and FreightWaves which cited unnamed sources. But whether that comes through, and jobs like Gomez’s are restored, depends on the maddening intricacies of bankruptcy court, and there’s barely a week left on the court calendar.

Most maddening of all may be making the case that the deal is good value to Yellow’s largest creditor: you and me, the U.S. taxpayer.

30,000 workers on the hook

Jack Cooper’s dilemma has to do with the principles enshrined in the federal bankruptcy code, one of the world’s oldest examples of this kind of corporate law. Some of the greatest brands in American history have emerged out of bankruptcy to go on to bigger and better things, such as the erstwhile Hollywood juggernaut Marvel Studios, which sold to Disney for $4 billion less than a decade after emerging from insolvency proceedings. But the catch with bankruptcy court is that every debtholder gets a seat at the table and a voice in whether a rescue deal will be accepted.

In the case of Yellow, Jack Cooper needs to convince private equity funds, the U.S. Treasury and the Teamsters to take the deal. The alternative is that no jobs get restored, and Yellow essentially gets scrapped and sold off for parts. Some other great brands have gone this way recently, as with the case of Bed Bath & Beyond going extinct in all but name—which was sold to the former Overstock.com.

“Liquidations are always kind of miserable because you’re putting someone to bed—you’re burying them,” Joe Acosta, a partner at law firm Dorsey & Whitney with a focus on bankruptcy, told Fortune. “But in terms of success, in bankruptcy, success is paying back creditors.”

For his part, Gomez hopes the money men can work it out because his other interviews have been awful. One interview gave Gomez second thoughts after the representative for the company, which transported materials between military bases, told Gomez that the truck was equipped with a panic button if he had an emergency. “I’m like… am I in danger?” he recalled. On his drives around town he still sees the Yellow trucks, with their distinctive orange logo.

“When I pass the [Yellow] yard here in Albuquerque, the trucks are there still,” Gomez told Fortune. “It looks like if they called us back we’d still be able to work.”

Jack Cooper and the Teamsters declined to comment on the report.

The Teamsters and the Treasury

Yellow’s bankruptcy in July punched a $5 billion hole in the U.S. economy that won’t be easy to fill. Yellow, financially beleaguered for years, finally threw in the towel amid a public dispute with the Teamsters union, including personally blaming Teamsters president Sean O’Brien for its demise in its bankruptcy filing. “Mr. O’Brien and the Union knowingly and intentionally triggered a death spiral for Yellow,” Matthew Doheny, Yellow’s chief restructuring officer and a longtime board member, said in an affidavit.

O’Brien “used Yellow as a sacrificial lamb in an apparent attempt to gain leverage [with UPS],” Doheny claimed, because O’Brien “would rather see Yellow destroyed than be perceived as weak in negotiations, even if that meant the sacrifice of more than 22,000 of his own rank-and-file members’ jobs.” (For his part, O’Brien and the Teamsters have blamed Yellow’s demise on mismanagement, noting that the union agreed to lower pay and other concessions over a decade ago.)

Yellow’s largest creditor, though, is the U.S. taxpayer: The company received a $700 million loan in 2020 from the U.S. Treasury that has since been heavily criticized, with members of both parties in Congress calling it a mistake. The program under which the loan was made was intended for companies critical to national security, which Yellow was not, and its financial problems had already been well known before it took bailout funds, with Rep. French Hill of Arkansas recently calling it “an overleveraged, struggling company.”

The loan, just $500 of which has been repaid so far, comes due Sept. 2024. So far, the Treasury has not commented on whether it would extend the term of the loan to make it easier to buy Yellow out of bankruptcy, including to Fortune. But pressuring Secretary Janet Yellen are eight senators who wrote two separate letters this month to persuade the Treasury to change the loan as a job-saving measure.

“Yellow accounted for $5 billion in revenue last year, and 50,000 deliveries every day,” Sen. Roger Marshall (R-Kan.) wrote. “[I]f this loan were to go through bankruptcy, $700 million worth of taxpayer dollars would be essentially wasted. A going concern bid would provide an ample opportunity to have this loan repaid and the taxpayers made whole again.” In a separate letter, seven progressive senators including Sherrod Brown (D-Ohio) and Bernie Sanders (I-Vt.) called the bankruptcy “a crisis for 30,000 union American Teamsters truck drivers and dock workers who are feeling the sudden loss of income and benefits that comes with steady employment,” they wrote.

“Over the past two decades of ill-advised decisions, Yellow’s union workers granted the company billions in concessions in an effort to keep the company afloat,” they said. “If Treasury can protect taxpayers and undo the harm that Yellow did to its workers, it should act swiftly.”

Melissa Jacoby, a bankruptcy law professor at the University of North Carolina, told Fortune she believes the political pressure may sway the Treasury.

“The United States of America is involved in lots of cases as a tax creditor or a regulator, but it is a little different when they’ve got the money on the line,” Jacoby said.

“The government isn’t just sitting there, saying, ‘I’ll take whatever happens;’ they are an active participant,” she said.

A ticking clock

But if the Treasury—and Yellow’s other creditors—want to try to revive the company, they have a very short time left to do so. Last week, the court approved an auction-house sale of Yellow’s terminals, separate from its trucks, setting a Nov. 9 deadline for bids. Selling the trucks and terminals in different tranches would effectively kill off any hope of Yellow’s revival — already a long shot.

And buying the company’s fleet and real estate is only the first step; the new operator would need to revamp the equipment, re-hire workers and win back the former Yellow customers who fled in the wake of the company’s demise.

“I highly doubt that Yellow will come back,” said Kevin Day, president of less-than-truckload at shipping logistics company AFS logistics. “They would be starting with zero shipments — all those customers are in the process of finding a permanent home.”

He added, “It would definitely be a unicorn if it happened.”

Gomez, for his part, says he’s trying to move on from the ordeal. “I’m just trying to let that be the past,” he says. “Trying to fight it—it’s a losing battle. Whatever happened with the company, happened. Whoever did it, they’re on their own karma.”