Run Out on a Rail
Cap Metro Ditches Its Litigious Freight Rail Vendor
John Henry may have died with a hammer in his hand, but Longhorn Railway general manager Don Cheatham appears poised to expire -- figuratively speaking -- with a lawsuit in his fist. Or at least he will if Capital Metro has its way; after months of heated conflict between the transit authority and its freight rail vendor, Cap Met has officially fired Longhorn, found a replacement rail carrier, and given Cheatham two weeks to get out of the way. In a nutshell: Capital Metro has since 1998 owned outright -- and for years before that managed on behalf of the previous owner, the city of Austin -- 162 miles of rail line running from Llano to Giddings and through the central city in between. (In Cap Met's light rail plans, the Llano-Giddings is the "Red Line," from Leander to and through East Austin.) As the owner, Cap Met has a "common carrier obligation" to provide freight rail service to shippers along the line, and Longhorn has since 1996 been under contract to do so.
That contract was amended four times and finally "restated" last March, as it became clear that, for whatever reason, Cheatham was in trouble financially and unable to provide the level of service shippers needed -- and were entitled to under federal law. "For whatever reason" is a mild way of describing the incredibly bitter dispute between Longhorn and Cap Met, with Cheatham accusing the transit authority of conspiring to put him out of business, and with Capital Metro balking at Cheatham's demands for more and more money.
This all became a legal matter in October, when Cheatham filed both a lawsuit here, against Cap Met and others, and a complaint with federal regulators. At around the same time, Cap Met fired both its rail manager and its contract specialist overseeing the Longhorn contract (who, it turned out, had been renting a room in Cheatham's house), and notified Cheatham he was in default of his contract. Another letter in January added to the list of Cheatham's perceived transgressions, and after an unsuccessful attempt at mediation in mid-February, Cap Met lowered the boom on March 7.
Cheatham's offenses, according to Capital Metro, range from failing to pay his taxes and retirement benefits to failing to provide Cap Met with financial statements or to let them audit his books, to allowing brush and trash to pile up on the right of way. Some of these charges have gone unchallenged by Cheatham, who never -- neither in his lawyer's official March 7 response to Cap Met's notice, nor in his comments to the media -- has explicitly challenged Capital Metro's right to lawfully terminate his contract. (Cheatham was unavailable for comment for this story.)
What Cheatham does say is that Cap Metro has no authority to order Longhorn off the Llano-Giddings line by 5pm on March 22, since a rail carrier needs permission from the federal Surface Transportation Board to discontinue operations. This is a bureaucratic process that takes some time even when a carrier does it voluntarily, and Cheatham's lawyer Tom McFarland notes that Longhorn "has no intention of filing an application with the STB for authority to discontinue its rail operations."
This was no surprise to Capital Metro, which the next day filed a district court petition for an injunction to force Cheatham to cooperate, and is quickly moving ahead to file its own application with the STB. That's called an "adverse discontinuance," but the likelihood that the STB will refuse such a petition from Capital Metro seems small. For one thing, Cap Met has a good track record with the STB, having won on Cheatham's behalf -- but without his help -- a major concession from the mighty Union Pacific Railroad. For another, in cases similar to the dispute between Cap Met and Longhorn -- notably a 1998 battle between the city of Tacoma and its contract rail carrier -- the STB has given line owners their way even when their cases were not as strong as Capital Metro's.
Ironically, Cheatham's other rail operation, located in Nashville, got its contract because the STB granted an adverse discontinuance proceeding against its previous operator. (Cheatham has also run into trouble, via the courthouse, with local authorities and shippers in Tennessee, who level many of the same charges against him as those Cap Met is making now.) Cheatham's own STB filing against Capital Metro is still pending, after being delayed several times in recent months at Longhorn's request, and would presumably be dismissed if he were no longer running trains on the Llano-Giddings line.
And even if Cheatham were to triumph at the STB, it would seem, by Longhorn's own statements, that Cap Metro's support, financial and otherwise, is necessary for Longhorn to continue to serve customers on the Llano-Giddings, and without a contract, such support would not be forthcoming. Since, as long as the Feds deem it safe, nothing prevents Cap Met from having more than one carrier operating on the line -- an embarrassment of riches, in the STB's view -- it's possible that while Longhorn fumes and fights in court and at the STB, Cap Met's new chosen contractor, Trans Global Solutions of Houston, will quickly pick up all the business that Cheatham is fighting for the right to serve, as well as the Cap Met support Cheatham says he needs in order to serve it.
Throughout this saga, this contract dispute has been turned into a political cause célèbre by the transit authority's critics, whose blood pressure rises whenever they hear "Capital Metro" and "rail" in the same sentence. They charge, in concert with Cheatham, that Cap Met wants to do away with freight service on the Llano-Giddings line to make way for light rail. However, Cap Met doesn't need to engage in such skullduggery; the contract Cheatham signed with Cap Met required Longhorn to cooperate with the agency's light rail plans, which "were understood and agreed ... shall have highest priority for joint use of the Railroad Facility."
Another part of the Cheatham argument has been that he was the only operator who wanted to serve the Llano-Giddings, and that without Longhorn, Cap Met could not meet its obligations under federal law. The quick entry of Trans Global -- which holds a six-month "emergency contract" to replace Longhorn effective March 22 -- seems to prove this argument wrong. And Trans Global intends to bid on the full contract when it's procured this summer -- and both they and Capital Metro expect several other rail operators to compete for the contract.