Binational railroad continues up steep grade

Ties between railroad investors and executives with the troubled binational railroad are now splitting apart.

On August 26 Pacific Imperial Railroad's one-time largest shareholder, Dwight Jory, filed a civil action against the company in hopes of recovering $1.8 million owed to his company Locati Global Holdings. The lawsuit is an indication that the group of shareholders from Las Vegas that has a long and storied past together is now on the skids.

First, a quick history lesson on the line: The railroad was built in 1919 by John D. Spreckels. During construction, the line was dubbed the "Impossible Railroad" because of the dangerous terrain and natural disasters that beset it during and after construction. In the end, Spreckels's vision for a eastern route into the U.S. from San Diego and Mexico was never realized. During the following decades, the line fell into disrepair. Bridges collapsed. Miles of track and ties rusted.

Fast-forward to 2004, when a group of businessmen led by Gary Sweetwood reopened the line under the name Carrizo Gorge Railway. From 2004 to 2007 the line was used to carry sand to San Diego County from Plaster City. And while profitable, the sand loads weren't sustainable. Sweetwood and others looked to outside investors to infuse the company with cash needed to pay for repairs on the line, hoping to eventually connect the railroad south of the border.

Enter Dwight Jory, Charles McHaffie, and Donald Stoecklein. The Las Vegas land speculators had been working with one another for a number of years. Jory owned dozens of companies, all based out of Henderson, Nevada. The companies, which appeared to be shell companies, were registered by then–Securities and Exchange Commission specialist attorney Donald Stoecklein — as reported by the Reader the commission has since banned him from securities-related law. In 2007, Jory with the help of McHaffie bought out Sweetwood and became majority shareholders of Carrizo Gorge Railway — the takeover has been the subject of a five-year-long legal battle.

And while Sweetwood and other railroad executives accused Jory and McHaffie of a hostile takeover, the pair was also busy fighting lawsuits across California and Nevada over business deals gone bad. As reported by the Reader, Jory and McHaffie had been involved in dozens of cases in San Diego County as well as a number of bankruptcy proceedings.

Despite their poor track record, McHaffie, Jory, and fellow investors Daren Barone, McHaffie's then-girlfriend Sheila LeMire, with help from attorney Stoecklein decided to take a new tack. In 2011 the group renamed the company to Pacific Imperial Railroad and shortly thereafter negotiated a lease with Metropolitan Transit System, the agency that owns the 70-mile stretch of railroad track stretching from Tecate to Plaster City in Imperial County, for $1 million a year.

Since entering into the lease the allegations of fraud and mismanagement have only increased. Former executives Ernie Dahlman and David Rohal, who were hired to run the line in 2012, were ousted after blowing the whistle on the crew after they found funds being transferred to several Nevada-based entities owned by Dwight Jory.

The lawsuits continued to pour in. Disgruntled investors Gina Seau (wife of former and now deceased NFL player Junior Seau), land developer Corky McMillin, Qualcomm's Gary Jacobs, and others sued Pacific Imperial Railroad for running off with their investments. More recently, former president Stoecklein was slapped with a number of lawsuits as well, including one from a former legal secretary who said Stoecklein refused to pay her wages for an entire year. Then, in June of this year, as mentioned above, the Securities and Exchange Commission accused Stoecklein of running Nevada-based NuGold Resources despite not being registered as its agent.

Through it all, Dwight Jory, the longtime majority shareholder remained, out of sight...that is, until now.

According to Jory's lawsuit, the newly hired president of Pacific Imperial Railroad, Arturo Alemany, failed to pay back the $1.8 million that was allegedly owed to Jory and his company Locati Global Holdings.

Alemany took over railroad operations last year and not without some level of controversy. With Alemany in control the company took a different route. Earlier this year Alemany and Pacific Imperial Railroad agreed to sign over control of the lease to Mexico-owned-company Baja Rail. The agreement was seen as a step forward by MTS executives.

According to Jory's lawsuit, not all were impressed. As part of the deal, says the lawsuit, Baja Rail gave Pacific Imperial money to pay the lease as well as some extra to pay back any lingering debt, which, according to Jory, included his $1.8 million.

"The president and CEO of Pacific Imperial Railroad, Arturo Alemany, knew of the default on the note when he entered into negotiations with Baja Rail knowing that the payments were due...President and CEO of Pacific Imperial Railroad, Arturo Alemany, defrauded Baja Rail with its request for the investment(s), knowing that Pacific Imperial Railroad would not use the funds as required to pay back the defaulted note. Plaintiff(s) are informed and believe that the President and CEO of Pacific Imperial Railroad, Arturo Alemany, has redirected the investment from Baja Rail to better his personal financial position and not pay the debts of Pacific Imperial Railroad, specifically, to the Plaintiff(s) in this action."

Jory is seeking $5 million in damages in addition to the $1.8 million owed.

MTS has yet to respond to a May public records request for emails to and from Pacific Imperial executives and Charles McHaffie.