Litigation filed over Luzerne County rail sale

Litigation was filed in federal court Friday evening over the sale of Luzerne County’s rail line, documents show.

R.J. Corman Railroad Co., which submitted a purchase offer that was not ultimately selected, filed the sweeping litigation, which makes strong allegations about the fairness and legality of the entire process to sell the line.

It asks the court to declare the sale award to Reading and Northern Railroad and any county rail sale agreement to that company as invalid and void due to an asserted violation of state competitive bidding law.

The litigation is filed against the following: the county; the county Redevelopment Authority that owns the line; the authority-affiliated Rail Corp. that has a rail operator agreement with R.J. Corman; the 11 County Council members in their official capacity; citizen members of a county administration-authorized panel that made a recommendation on which company it would select (also named as defendants in their official capacity); and Reading and Northern Railroad.

For background, the county, authority and Rail Corp. agreed to sell the line in a settlement agreement tied to litigation the county filed over $3.28 million it is owed by the authority. This agreement gave the council power over which entity acquires the line.

The council had unanimously vetoed the original authority/Rail Corp. decision to sell the line to R.J. Corman for $8.2 million, which prompted the second choice of Reading and Northern recommended by the authority and Rail Corp. and accepted by a council majority this week.

Reading and Northern offered a $10 million package — $7 million cash at closing plus $3 million for track-related rehabilitation services to be spent during the first three years — in addition to a commitment to make upgrades to provide recreational passenger-train excursions from a depot in Wilkes-Barre.

Before the initial recommendation of R.J. Corman, a citizen panel reviewed the proposals and recommended Reading and Northern.

Following this week’s council acceptance, the council authorized the county manager to negotiate a sale agreement and related documents. The county is set to immediately take possession of all rail property if a sale doesn’t close by Oct. 9, the settlement agreement said.

R.J. Corman’s filing asserts the defendants’ conduct violates Pennsylvania competitive bidding law and argues the sale could attempt to include or negatively impact track that R.J. Corman — not the authority — owns in the Grimes Industrial Park in Pittston Township that connects shippers to the county line and carries approximately 37% of all carload traffic on the county line.

Filed through Harrisburg attorney Joshua D. Bonn and Philadelphia attorney Dylan LaMorte, the filing seeks an expedited hearing on a motion requesting a preliminary injunction barring any involved parties from:

• Closing on the sale of the line or its associated freight rail operating rights to Reading and Northern

• Executing any deed or conveyance of interest in the line to Reading and Northern

• Entering upon or taking possession of the line

• Transferring, assigning, or purporting to terminate the freight rail operating rights on the line

• Taking any action involving the Grimes Industrial track

County Manager Romilda Crocamo said the county’s outside legal counsel received notice of the litigation Friday night, and she cannot comment on pending litigation.

The county had previously addressed some of the issues raised. In response to the Grimes Industrial Park matter, for example, county officials said the request for purchase offers made it clear that only property owned by the authority is being sold, which would leave it up to any buyer to perform their due diligence.

R.J. Corman’s filing said the outcome it is challenging in the litigation “was not the product of a neutral public sale.”

“It was the culmination of a collusive, fraudulent, anti-transparent, and unlawful effort by the county to force a sale” of the line and “deliver it to” Reading and Northern,” it said.

It cites case law indicating a public body “must treat all bidders by a common standard” when it solicits competitive proposals. Common standards were not applied when the county rejected the highest return of funds to the county,” it argues.

Every entity involved in the RFP “answered to the county,” it said, citing the council’s appointment of authority board members and the county’s appointment of a citizen evaluation panel with members that “had no experience in railroad transportation and no representation of shipper interests.”

It asserts the county and council’s “effort to force the sale” to Reading and Northern began when the council authorized litigation against the authority and Rail Corp. on loans “it had made nearly three decades earlier and had never once demanded repayment.”

The filing characterizes this county action as “frivolous” and an “abuse of process” for the “true purpose of forcing the sale” to Reading and Northern.

It alleges the citizen evaluation committee did not “use fair, consistent, and objective standards” to evaluate the proposals and “clandestinely chose the county’s pre-chosen respondent,” Reading and Northern.

The filing cites Reading and Northern’s offer to the authority to purchase the line for $10 million two months after the county litigation was filed. It said the county manager forwarded that offer to the council and warned that redevelopment authority board members who rejected the county’s demand to sell the line to Reading and Northern “could face removal for alleged ‘violations of their fiduciary duties.’”

It maintains the council’s Sept. 22 vote to veto the sale to R.J. Corman was a violation of the state Sunshine Act because the council did not publicly deliberate or explain “how rejecting the highest offer, which would have repaid the county’s loans in full, served the public interest.”

“Based on lack of public deliberation or rational explanation for selecting a low bidder, it is believed and therefore averred that a quorum of council deliberated on and decided the outcome of the September 22 vote before the public meeting, outside of any meeting open to the public, including through private meetings or communications,” it maintained.

For clarity, the council vote was conducted at a public meeting after accepting public comment.

R.J. Corman has served as the rail operator since December 2020. It cannot stop providing freight rail service on the line unless the federal Surface Transportation Board authorizes it to discontinue that service, which has not occurred, the filing said.

Regarding the Grimes Industrial track, it alleges the county knew the track was not owned by the authority but “pressured” the authority to move forward with the sale “despite uncertain title because marketable title is trivial to the county’s desire to sell” the line to Reading and Northern in its “desired time frame.”

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