A settlement between PAM Transport and drivers of a class action lawsuit related to wages revealed that the company described its financial position to the court in a way that the presiding judge described as “precarious.”
Judge Timothy Brooks of the U.S. District Court for the Western District of Arkansas approved the settlement late last month. Truckload carrier PAM is headquartered in Tontitown, Arkansas.
Allen West, the PAM CFO, suggested in a phone interview with FreightWaves that the judge’s use of that term was his alone and that PAM had not said anything that dire in any of its filings. Brooks had cited a PAM affidavit in his statement.
“The judge took it on himself to make the assumption based on what we had filed,” West said.
What PAM did say in the filing was that if the defendants in the case had prevailed on all of the complaints and for all of the money requested — or as West put it, “if they had their best day in court” — a verdict of $90 million would have been facing the truckload carrier, which has a market capitalization of about $180 million.
“If that happens and we have to post cash bond for the whole $90 million, that could cause some of our lenders to get nervous and they could call in some other debt,” West said.
The settlement eliminates that concern. Roughly 16,000 drivers will be eligible to receive payments from the $16.5 million settlement. Of that, one-third, or $5.5 million, will go to the attorneys who represented the class action, first filed in December 2016. The New Jersey firm of Swartz Swidler represented the first three “named” defendants, with the class action being certified later to include the wide swath of drivers who drove for PAM.
The settlement was agreed to in February, soon after the court granted approval to turn the initial lawsuit into a class action.
Brooks’ ruling spells out the reasons why he approved the settlement “on the eve of trial after extensive discovery, dozens of depositions, expert reports and a ruling on a motion for summary judgment.” (That motion was mostly denied.)
But one of the reasons he gives for approving the settlement was the financial state of PAM. “The Court also notes that PAM submitted an affidavit attesting to its precarious financial position, which suggested that Plaintiffs likely would not have been able to secure any more relief than this Agreement awards them,” Brooks writes.
The possibility that a larger award would put PAM into bankruptcy also was noted back in February, when the plaintiffs in the case, in a document asking the court to approve the settlement, said a bigger award might result in the truckload carrier taking that action.
Source of the dispute: driver pay and minimum wage
The lawsuit was over an issue that has been a frequent subject of litigation between drivers and their employers: whether the drivers’ over-the-road pay meets minimum wage standards based on hours worked, with the hours-worked definition impacted by whether time spent in the sleeper berth can be considered on duty for determining pay.
Had the plaintiffs prevailed on that, their lawyers said, they “would have obtained a verdict of more than $25 million, with the potential for liquidated damages. However, PAM claimed that it would likely seek bankruptcy protection if Plaintiffs prevailed to such degree.”
In a deposition from Feb. 18, the issue of bankruptcy came up again. Justin Swidler, the lead attorney for the plaintiffs, said that if the drivers had won full damages from PAM if all their claims on hours and minimum wage prevailed, “PAM was facing a verdict in excess of $50 million. We understood if they got that, they would be going into bankruptcy protection.” And in the subsequent sentence, before being cut off by Brooks, Swidler said “we have taken their financial condition … .”
Brooks a few minutes later said of PAM’s financial condition that he “understand(s) … there’s an affidavit attached from a PAM executive who talked about what it would mean for the company if the plaintiffs were fully successful on their damages, so I understand all of that part.” That appears to be the same affidavit the judge referred to earlier when he described the company’s financial status as “precarious.”
For the quarter ended June 30, PAM saw its revenue fall 30% to $92.97 million. It posted an operating loss of just over $2 million and a net loss of $823,000.
Liquidity is called “ample”
In a prepared statement released with the quarterly earnings, the company said it did not have a liquidity issue. West was quoted in that statement as saying the company had “ample liquidity through the second quarter” and is continuing with its capital expenditure plans for new trucks.
Liquidity proved to be substantial enough that the company bought back 9,175 of its shares in the first half of the year. It also bought a former Celadon terminal in Laredo, Texas, for roughly $20 million. PAM does not pay a dividend.
In the PAM 10-K for the first quarter, the company was said that “based on our recent operating results, current cash position, anticipated future cash flows, and sources of financing that we expect will be available to us, we do not expect that we will experience any significant liquidity constraints in the foreseeable future.”
With PAM 68% owned by interests of Matthew Moroun, who died recently, it isn’t a stock that gets a lot of analyst coverage. It doesn’t hold a call with analysts when it releases its earnings.
But in April, the SeekingAlpha website had a critique of PAM’s finances from Jeremy Blum, one of the many SeekingAlpha contributors who write about various stocks. Blum was decidedly bearish and his commentary came in a section called Short Ideas, about companies that the authors believe are ripe for short sales.
His primary concerns were debt maturities of $67 million due by the end of this year (confirmed in PAM’s 10-K statement form last year) and whether a debt covenant of a permissible debt to earnings before interest, taxes, depreciation and amortization ratio of four would be breached later this year.
In an earlier email to FreightWaves, West said internal projections at PAM “show we will not breach the covenant at any time this year.” He added that the $16.5 million settlement is an “unusual or extraordinary event,” which would be excluded in any sort of calculation of adherence to a covenant.
West also said the Celadon terminal acquisition is a sign of a company that isn’t concerned by liquidity or covenant concerns. He also said that at a recently completed board of directors meeting for the company, the $16.5 million settlement was considered in the rearview mirror and that it would be paid out the week of Aug. 10.
Under the terms of the settlement, the three named plaintiffs in the case each get $40,000, knocked down by the court from the originally proposed $50,000. There are 38 “opt-in” plaintiffs who will get either $2,500 or $1,000, depending upon their role. And then there are more than 16,000 class action plaintiffs who will receive a minimum of $150 plus a prorated amount based on tenure with the company.
The settlement also involves PAM not admitting any wrongdoing in its payment practices.