Pacific Imperial Railroad, the leaseholder of the publicly owned 70-mile stretch of railroad from Campo to Plaster City known as the Desert Line, has filed for Chapter 11 bankruptcy.
As reported by the Reader on several occasions, the railroad company that entered into a $1-million-per-year lease with Metropolitan Transit System in 2011 has faced many obstacles.
Pacific Imperial Railroad and its shareholders have a much longer history with the line.
In 2007, shareholders Charles McHaffie, Dwight Jory, and Sheila LeMire seized control of the company. Before doing so, former owner Gary Sweetwood and others had been busy rebuilding the deteriorated line and managed to begin hauling sand from Campo to Plaster City. However, after the takeover, trains stopped running. Since then, numerous lawsuits have been filed from former investors claiming they were scammed out of their money by McHaffie and others.
In 2011, federal officials seized 202 pounds of marijuana on a railcar managed by then–Carrizo Gorge Railway. At the same time, county health inspectors discovered several environmental hazards at one of the train depots.
During the course of the past nine years, allegations of investor fraud have dominated discussions of the historic rail line. Despite announcing new management and a change in majority shareholders in 2015, the troubles have remained.
Since that time, former president–turned–"director of compliance" Donald Stoecklein, who has partnered with McHaffie and Jory since the 1990s, has been fined by the Securities and Exchange Commission and has been sued by his former legal secretary for not paying her wages.
The bankruptcy petition was filed on October 10 in U.S. federal court. According to the petition, the company owes investors more than $7 million in unsecured debt. The company has only $1.6 million in the bank, much of which was paid to them by Baja Rail, which entered into an agreement with Pacific Imperial earlier this year to sublease the line in order to connect the track in Mexico.
Despite the news, as well as a lack of progress on the line, transit officials have announced that the public agency is sticking with the company.
"The San Diego Metropolitan Transit System believes this gives [Pacific Imperial Railroad] a path forward to resolve creditor and shareholder disputes while continuing to make progress on improvements to the Desert Line," reads an October 14 statement.
Transit officials point to the recent sublease with Baja Rail as the reason the current lease will remain intact. The Mexican company, according to the statement, has plans to purchase the master lease from Pacific Imperial Railroad.
"...[Baja Rail] can begin work on the track, bridges, and tunnels in the U.S. This bankruptcy filing has no impact on those reconstruction efforts.
"This would ensure that the Desert Line remains in capable, responsible hands and that reconstruction progress would continue without disruption. [Metropolitan Transit System] retains the right to evaluate any proposed assignment of the [Pacific Imperial Railroad] master lease based on its best interests. All provisions of the lease are still in effect."