The Ely Times

The settlement offer to the City of Ely from S&S Short Line Leasing had several members from the Nevada Northern Railroad Foundation in attendance at last week’s City council meeting.  

Chairman of the NNRY foundation John Gianoli was the first to step up to the podium. “Haste makes waste, in 2009 we entered into an agreement, drafted by S&S it’s the crux of the problems we have here today. This latest offering is also very ambiguous.  I would refer you to Section 2 where it talks about the leasing of quote the Nevada Northern Railway unquote. What does that mean? If you transfer your lease to rights under that definition that includes the historic part of the line, I would think that’s something you really don’t want to entertain.  

“My strong suggestion would be any activity that you get involved in regarding the railroad, that you entertain hiring an SDB attorney, if we’ve learned nothing else this is an extraordinary part of the law, if you don’t have someone who knows what they are doing, you’re in trouble.  

Gianoli went on to note Nevada Revised Statute Chapter 268 and the violation the city could be in if the agreement was approved. “This offer is very simple, lease and sale of real property to a private for profit entity. Now there are exceptions under 268 such as if you are a public utility, S&S is not, or you are using it for a public purpose, they will not. Therefore you have to comply with 268. 

“Going out to bid, there is obviously interest in the northern line, when we did the 2009 agreement, that was put out for bid, we have the Thayer Group here today that has shown interest in the line.”

Gianoli noted to the council that it would be very remiss in their duties if they did not entering various offers by going out for bid.  

“Selling or leasing of assets that you don’t fully own, I’m confused about exactly how under this agreement you can transfer clear title when you don’t own, the assets entirely, they are jointly owned, you require the foundations involvement. If you go down this road, you can rest assured there will be additional suits, both for bad faith settlement and for violations of 268.” 

Ian Thayer with Edgar Investments explained to the council that he was present to oppose the items regarding the S&S offer. “We don’t want to get into any legal aspects, but we fully intend to present an offer to the city for their portion of the rail. 

“We feel it would be much better than what’s being offered currently and we would be further along in this process but we did not know we had a time frame. We’ll expedite when we can and where we can.”

A letter from Edgar Investments, LLC’s  David Steffensen was read to the council by City Clerk Jennifer Lee. The letter explained that Edgar Investments had a much better offer than S&S’s proposed offer, and if accepted they would maintain and expand the operations of the railroad as a key strategic component of its long-term business plans in Nevada. The letter also explained their financial resources, business experience and acumen they possessed to  profitably operate the railroad.  

Mark Bassett, executive director of the NNRY, spoke during public comment as well. Bassett described being stunned when he received emails first thing Monday morning. The first email was cancelling the joint prosecution agreement that the city and the foundation had entered into on the S&S lawsuit, without any warning.  

The second was the letter from the law firm McDonald Carano, dated Sunday, May 19. “The foundation thinks that the S&S offer is a bad offer. The offer from S&S has many problems, first the proposal for sale or lease of the assets, will violate chapter 268 of the Nevada revised statute. The city is selling assets and entering into a long term lease with a private, for profit entity without following the required procedures. This is just not my opinion, this is an opinion from four different attornies. If you vote yes on item one, you’re throwing the foundation under the bus, in the proposal the city assign’s S&S all of its rights, so now S&S is not only a member of the agreement but they’re also a tenant on the track, that puts the foundation at a severe disadvantage in any negotiations.”

Bassett went on to say he was puzzled in how or why the city wants to go out to bid now, referring back to a city council meeting held on May 9, where the council discussed putting all leases out for competitive bid. 

“The S&S lease has not yet expired,” Bassett said. “The S&S proposal again, is asking the city to sell the lease assets that did not fully belong to them. Essentially the city is selling one rail that’s 128 miles long because the foundation owns the other rail, and we’re not interested in selling. This process will only invite further litigation because the city again can’t deliver full title and full possession to S&S. Our calculation on the worth of the track, the track is 3,986,065,  the city’s share is 1,993,032.65, if the city accepts this offer from S&S they’re receiving 26 cents on the dollar, you are leaving $1.4 million on the table.”

Rory Kay with McDonald and Carano was present at the meeting. Kay addressed the council and let them know if they had any questions, he would help answer them.  

Kay said, “ I want to address a couple of things I’ve heard in comments tonight from Mr. Gianoli and Mr. Bassett, I did hear Mr. Gianoli categorize this possible settlement as haste making waste and I can assume that’s only because he wants to steer this council away from approving the settlement. The framework for this settlement goes all the way back to October 2017.

“It’s not something that was struck up at the midnight hour, it has been heavily negotiated for several years now. I also want to address the contention with the foundation from the initial lawsuit because it’s a bad faith settlement, I would say from whom? If the foundation doesn’t like this, they have a method to challenge it.”  

It was reiterated to the council that if the settlement was approved, a motion would be made, filed in court and Judge Steve Dobrescu would have to review it for determination of good faith settlement. 

“You shouldn’t be scared away that this is somehow illegal,  the final point I want to make is that the city would get an almost $700,000 injection of funds immediately. It also gets the complete elimination of $250,000 accounts receivable, a 99-year joint development agreement, with $50,000 per year, including cost of living throughout those 99 years, is just under $5 million.” 

Discussion between the council and mayor on whether parties that were interested in moving freight on the railroad would still be able to do that, the answer was yes.  

City Attorney Chuck Odgers said, “If there is a contract to move freight, he has to move that freight, he can’t say no. He is a common carrier based on SBD’s ruling in July 2009.”

 “And by law he has to take freight,” Councilman Sam Hanson said.  

Kay said, “Instead of an asset sitting generating nothing, this will get you capital up front and guaranteed capital over 99 year period, and of course the idea my client is to get this thing up and running. If that happens then your sharing in revenue.”  

Hanson reminded the council that this has been an ongoing battle. 

“We have been hemorrhaging money, we have not gained anything, and could have in October 2017 when we came to the agreement,” he said.  

Hanson spoke of concerns on whether the acceptance of the offer would inhibit a company such as Edgar Investments and how he didn’t want to harm the foundation, but noted that the foundation has options available to them. 

“At the end of the day, we need to put this thing to bed and move forward, and the next council coming in is going to have to approve the documents.” Hanson said. 

Councilman  Carson, agreed. He said, “There are a lot of exciting things to be done, but there is no way in god’s green earth we can go out to competitive bid with S&S tying up this railroad line.”

Odgers said, “We can’t do anything for 20 years.” 

Carson said, “I just don’t see anyway around it.” 

Motion was made to approve it, the item was approved 3-1, with Carson opposing.