The Ely City Council may have unknowingly painted itself into a corner in filing a lawsuit against S&S Shortline Leasing in 2015, and now they’re pinning their hopes of succeeding in the suit by possibly pursuing the annexation into the city of the strip of land the rail line runs on between Ruth and the far reaches of Elko County.
The council, at its Sept. 8 meeting, directed City Attorney Chuck Odgers to draw up a map of the city-owned rail lines in order that they may vote to annex the property into the city. Councilmember Pat Robison was the only one to vote against the plan.
The council ordered Odgers to draw the map because, according to city records, a previous council from 2010 had already voted to approve an annexation ordinance along the same railroad lines, an annexation attempt that Odgers said was done incorrectly.
Odgers said he had researched the previous annexation and found no evidence of either White Pine or Elko counties being notified of the city’s annexation intent, nor were any maps ever submitted, despite the ordinance identifying a map as an exhibit.
“There were problems with the annexation,” Odgers said.
The ordinance, which was proposed by then city councilmember Jerry Meyer on April 8, 2010, and signed by then Mayor Jon Hickman on May 13, 2010, was approved by a 4-0 vote of the then city council, with one member absent. No mention is made of which councilmember was absent but at the time, Shane Bybee, Meyers, Jimmy Northness, Rom DiCanno and Bobby Miller were the city’s elected officials.
The 2010 ordinance cited NRS 268 as the empowering statute that allows the city to annex the property, and NRS 268.670 in particular, allowing the city to enact an alternative method of annexation, seeing as the property was owned 100 percent by the city and the White Pine Historical Railroad Foundation, of which the city council served as the foundation’s board members and both entities were petitioning for the annexation. The ordinance also stated the city would be able to provide services to the annexed areas, which would “be to the benefit of the people of Ely.”
The ordinance describes the property as the rail line and the underlying property located from the city of Ely heading north into Elko County to the end of the rail line at Cobre Junction. It also includes property from the city limits west along the rail line to where the rail line ends next to the property and rail line owned by Robinson Nevada Mining Co. near Ruth. The city also attempted to annex the rail line spurs not located in Ely.
Odgers said part of his research would be to determine if any other cities in Nevada were incorporated in two counties. He said the city owns the rail line as joint tenants with Northern Nevada Railroad, with the actual land deeded to the city, and that the easements were granted to the city in fee simple.
“Essentially, the city owns the ground up and shares ownership of the rail on top,” Odgers said.
Odgers said he contacted White Pine County and they never received a letter regarding the original annexation.
“The very first step to annexation in NRS 268, is the drafting of the ordinance, including the map, and notification of the governing board of the affected county,” Odgers said. “That was never done.”
The city filed the suit against S&S Shortline Leasing on June 8, 2015, three hours before three new council members were elected, according to a Times story published on July 17, 2015. The lawsuit seeks relief from “damages” caused by “breach of written agreement, accounting and trespass” from the city’s rail-car storage agreement, which joined the city and S&S into a business relationship back in 2009.
In his letter, Bassett referenced a 2015 letter from Chicago attorney Thomas F. McFarland to Ms. Avory Beggs of S&S Shortline, that states Nevada statutes preclude the city from owning or leasing Northern Nevada Railway, except for the segment located within the city.
McFarland wrote, “In my legal opinion… the city of Ely does not have the legal authority to own the portion of the Nevada Northern Railway that is located beyond the city limits of Ely.”
McFarland wrote the absence of authority to own Nevada Northern Railroad beyond the Ely city limits can be raised in defense of any claim or legal action that the city may assert that involves that portion of the railroad.
McFarland also wrote he would recommend that anyone opposed to actual or potential city action involving the railroad beyond the city limits, consider filing a formal complaint in a Nevada state court to enforce NRS 710.290 by requiring the city to divest its ownership interest in the railroad beyond the city limits that is held in violation of the statute.
In his letter, Bassett, encourages the city to accept a $700,000 settlement offer made by S&S, and offers his opinion on what the city’s options are if they refuse.
Bassett said the lawsuit is a contractual dispute that involves the railroad, meaning S&S has options not available in a normal contract dispute; one on the state level, as previously cited, they’re not allowed to own a railroad outside of city limits, and then on the federal level, they can file an adverse possession request with the Surface Transportation Board (STB), which could result in their taking the railroad away from the city and foundation.
“We already went through this once with the V&S lawsuit, which did go to the Nevada State Supreme Court,” Bassett wrote. “It took years to resolve and cost hundreds of thousands of dollars. V&S did not have a notice of exemption to operate on our tracks. S&S does.”
Bassett said S&S also has three factors in its favor that the city of Ely does not have: knowledge of railroad law with legal expertise, time and money.
“To be candid, I think the City of Ely is trapped in a box of its own making,” he wrote. “The city has few options of getting out of the box.”
Bassett praised the credentials of attorney McFarland, stating S&S had “brought an army tank to a knife fight.”
He said if the city refused to settle with S&S, then S&S will sue based on the law that the city cannot own a railroad outside its jurisdiction.
“…then the current lawsuit will be put on hold until the new lawsuit is resolved,” Bassett wrote.
He suggested that lawsuit would take years and that S&S had the resources to appeal any negative decision against it to the state appeals court and, if needed, the state supreme court.
On the other hand, he wrote, if the city loses, then the city will have to concede the railroad outside of the city limits, and it will give S&S the option of suing the city for damages, an outcome that would come out of the coffers of the city of Ely and possibly the foundation.
“And the very worst nightmarish scenario is that S&S does both,” Bassett wrote. “…let’s be realistic here, they have the resources to do it.”
Bassett wrote that S&S was willing to make a $750,000 donation to the foundation to buy out the city’s interest in the railroad and that if the city declines the offer, then S&S can use those funds to go to court and the STB.
“This is the box the city is in,” he wrote. “As I see it, the city’s only option is to accept the offer and receive $700,000 that can be invested in city streets, water and sewer projects. If the city declines that offer, it will have to spend hundreds of thousands of dollars to defend itself in lawsuits and stands a very good chance of losing not only the lawsuits, but also the railroad.”
He said S&S was throwing the city a lifeline.
“The foundation retains control of the railroad and the city council can invest $700,000 into the needs of the city.”
In an Aug. 29 email to the city, Bassett further elaborated on his points, stating the last train to operate between Shafter, in Elko County, to Ely, was 1999, and that a conservative estimate to open the railroad line would be $15,000,000.
“If the City accepts the offer from S&S, then it’s $700,000 richer, a $400,000 debt is forgiven and the railroad stays in local control,” he wrote.