A federal judge will hear evidence Tuesday on whether Luzerne County should be allowed to sell its railroad tracks to a freight railroad that offered less upfront cash than a competing offer.
R.J. Corman Railroad Co., which claims its cash offer was higher, sued the county, its related agencies' boards and their members and the Reading & Northern Railroad on Friday in federal court to permanently block the sale to the Reading & Northern. Corman also sought a preliminary injunction to temporarily block the sale until the lawsuit is decided.
In part, R.J. Corman contends the county unfairly rejected its higher bid and violated the state Open Meetings Law in the process; is trying to sell tracks the company owns; and can’t sell until the federal Surface Transportation Board approves a new track operator, according to the suit.
The suits says the county’s “blue-ribbon panel” that evaluated proposals “clandestinely chose the county’s pre-chosen” bidder, Reading & Northern.
Three Luzerne County-related entities are involved in the sale. The county, its redevelopment authority and the non-profit Luzerne County Rail Corp. The redevelopment authority owns about 60 miles of tracks with about 27 miles active, according to the suit.
The tracks' history
The redevelopment authority created the rail corporation more than 30 years ago to operate the tracks. The corporation holds the operating rights.
Since December 2020, the corporation has leased the tracks to R.J. Corman, which shuttles freight to and from customers. R.J. Corman owns separate tracks that serve the Grimes Industrial Park in the Pittston area. The company bought these tracks about the same time it began operating the county tracks.
The redevelopment authority bought the tracks in 1996 for $6.3 million from a company controlled by Dunmore businessman Louis DeNaples. The deal included a $3.17 million mortgage with a DeNaples company, but the authority later defaulted and the county bailed out the authority with a loan to pay off the mortgage.
The county never collected on the loan, but last year decided it wanted its money back and sued the authority. The authority and rail corporation claimed they didn’t owe any money on the loan, and the county just wanted to force a track sale.
As the suit unfolded, Reading & Northern offered $10 million to buy the tracks.
R.J. Corman claims that as evidence of the county’s intentions to force a sale.
Settlement leads to sale
The county and redevelopment authority agreed to settle the suit earlier this year, partly by agreeing to seek a buyer.
Three companies bid with R.J. Corman offering $8.2 million and Reading & Northern offering $7 million in cash and $3 million in system upgrades after the sale closed. The other bidder offered only to lease the tracks.
R.J. Corman claims the settlement gave the county veto power over the sale. The county appointed the blue-ribbon panel to evaluate proposals and the panel recommended Reading & Northern on Sept. 11.
Four days later, the authority picked R.J. Corman instead even as Reading & Northern's CEO said it would offer $10 million in cash instead of a combination of cash and upgrades.
The suit says R.J. Corman never had a chance to offer a counter. A week later, county council vetoed the authority’s sale deal.
“Council has never explained how rejecting the highest offer, which would have repaid the county loans in full, served the public interest,” the suit says.
On Sept. 30, faced with the veto of its earlier decision, the redevelopment authority voted to sell to Reading & Northern for $7 million.
The next day, the county council also approved the sale.
Suit says feds' OK a must
The suit says the sale closing is expected to happen by Friday, even though no one has asked the Surface Transportation Board for approval.
“The ouster will disrupt service to the shippers that depend on the (service),” the suit says. “Title to the Grimes Industrial track will be clouded, impairing R.J. Corman’s ability to use, finance or convey it.”
In seeking the injunction, R.J. Corman argues it’s likely to win the lawsuit and will “suffer irreparable harm” if the sale goes ahead.
The company will win the suit because federal regulators have the final say on who operates on tracks and “the public interest favors preserving the status quo.”
County manager Romilda Crocamo referred questions to the county lawyer handling the suit, attorney Jack Dean. Efforts to reach him were unsuccessful.
