Luzerne County files suit against redevelopment authority over rail line debt

Luzerne County filed a civil suit against the county Redevelopment Authority Wednesday over an outstanding debt related to the authority’s rail line — an action that had been authorized by Luzerne County Council in May, court records show.

The county wants the authority to turn over its railroad so it can be sold to recoup $3.28 million the authority still owes the county for the original acquisition of the line, according to its communications.

While a delinquent loan has been stated as a reason, it appears to be part of a broader push to put the track into private ownership, with the hope that it could retain commercial use but also add passenger rail service. The authority’s rail holdings include the active track running near the former downtown Wilkes-Barre train station the county has purchased, which houses the county tourism office.

The authority still owes $1.475 million to the county community development business loan fund and $1.8 million to the county from a 2001 loan issued to prevent the authority from losing rail infrastructure servicing businesses.

Reading & Northern Railroad, which operates passenger rail excursions to Jim Thorpe and other locations in the region, is interested in purchasing the authority-owned rail line, according to a past release. The county would have to publicly seek proposals from all interested entities if it claims title to the property and wants to sell it.

A separate entity governed by a five-citizen, council-appointed board, the redevelopment authority has not acted on the county’s request to turn over the line and has encouraged county officials to reconsider a switch from public to private ownership.

New filing

Wednesday’s lengthy filing in the county Court of Common Pleas names the redevelopment authority and county Rail Corp. as defendants.

The redevelopment authority owns the rail line, and its affiliated nonprofit Rail Corp. maintains a lease agreement with the rail operator — a structure set up for liability purposes, officials have said.

According to the complaint prepared by Elliott Greenleaf & Dean in Wilkes-Barre, which cites breach of contract:

The defendants are seeking to sell parts of the property without the county’s contractually and legally required prior written consent “in breach of the relevant mortgage(s), promissory note and loan agreement.” This property serves as the county’s security and collateral for the more than $3 million owed.

The defendants also seek to lease property without required county consent and plan to remove and strip improvements and structures on miles of the former Pocono Northeast Railroad property, it said.

It specifically notes the pending sale of an approximately 80-acre rail property known as the Ashley Rail Yards, which is located behind the tract where the Huber Breaker once stood in Ashley.

The defendants seek to sell Ashley Rail Yards to an authority “insider” who formerly served on the authority board for a “fraction of the listing price” in “defiance of a prior state ethics opinion” without a public bid, the filing said.

This action jeopardizes the “marketability and value of the remaining property and real estate thereby leaving the county grossly under-secured and insecure under the mortgage on a debt defendants admit they have been and remain financially unable to repay,” it said.

The county is seeking the appointment of a receiver agreeable to the county to preside over the mortgaged property and real estate, an order staying any sale or lease of rail property without the county’s prior written consent and an award of attorney’s fees and court costs, it said.

Another option would be a declaration that the more than $3 million is immediately due and/or that the loan agreement is terminated, it said.

For background on the Ashley Rail Yards property, the authority had entered into a tentative agreement in 2019 to sell the more than 70-acre site to Ashley Complex LLC.

Prior authority board member Carol Keup, who is affiliated with Ashley Complex, has said a state ethics ruling indicated the sale was allowable if she stepped down from the board, which she did.

Authority Executive Director Margaret Thomas has said the property was extensively marketed before Ashley Complex submitted its proposal.

Plans to sell the site to Ashley Complex were largely delayed for years due to a deed issue with one of the parcels that was only recently resolved, Thomas has said.

The county’s complaint cites a series of disagreements over the authority’s handling of the proposed sale of Ashley Yards to date, including ethical issues, a lack of a public bidding and the proposed purchase price.

It said the defendants advised the county in June that a finalized version of a sales agreement for Ashley Yards was “being pursued without the county’s necessary prior written consent.”

The sale of Ashley Yards would “destroy the marketability and value” of the rail line in general for potential future purchasers, the complaint said.

Authority Board Chairman Scott Linde said Wednesday he has not yet received a copy of the complaint and had hoped the matter could be resolved without litigation.

Stressing he has only one of five votes on the authority board, Linde said he does not advocate contesting the matter in court because the county ultimately has authority to foreclose on the property due to the outstanding debt.

Linde said the authority has been honoring the county’s demand to hold off on any sales or leases to date, including a solicitation seeking proposals from rail operators. R.J. Corman Railroad Group currently serves as operator of the county line.