Mismangement

The tortured history of TriMet's Westside Express Service commuter rail system took another twist when a federal judge ruled this week that Portland's transit agency will have to return more than $3.1 million it had taken after the maker of the railcars allegedly defaulted on its contract.

U.S. Magistrate Judge Paul Papak granted an investment company's request for summary judgment on breach of warranty claims it had filed against TriMet. That means TriMet must give back the money it collected after Colorado Railcar Manufacturing LLC wasn't able to deliver the diesel-powered cars for TriMet's suburban line.

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TriMet on Friday promised to fight on. "We are disappointed by the ruling and will appeal it," said agency spokeswoman Mary Fetsch.

The agency has been embroiled in difficulty since shortly after it entered into a $17.8 million deal with Colorado Railcar in November 2005 to manufacture three railcars and a trailer. The Fort Lupton, Colo., company was small and untested, boasting a chief executive who had been involved in an earlier failed railcar manufacturing agreement.

TriMet officials were aware of the company's issues but were undeterred, according to court documents.

To protect itself, TriMet insisted that Colorado Railcar put up a $3 million letter of credit as a type of performance bond. Letters of credit are common in business, particularly in international trade, as a way to protect parties to a contract. In this case, TriMet could access the money if Colorado Railcar defaulted on the contract.

The case is complex, in large part because Colorado Railcar didn't itself pay for the letter of credit. The money, instead, came from an independent investment company, CRM Collateral II, which agreed to provide the letter of credit in exchange for a fee.

CRM didn't pay anything to KeyBank for the letter of credit. But its investors personally guaranteed to repay the bank should TriMet draw down the letter of credit.

Colorado Railcar quickly ran into problems, forcing TriMet to speed payments. At one point, TriMet executives were tipped off by an insider that Colorado Railcar was using its money for things unrelated to the WES railcars.

Wanting badly to avoid any delays that would postpone the debut of WES, TriMet in January 2008 entered into a Project Monitoring Agreement with Colorado Railcar. The new deal essentially put TriMet in charge of Colorado Railcar.
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The company eventually completed the WES railcars, but not before TriMet spent about $5.5 million above and beyond the $17 million contract price.

The agency partially recovered those unexpected payments with the $3 million from the letter of credit. KeyBank handed over the $3 million to TriMet and then turned to the CRM investors to get reimbursed.

CRM hired Tim DeJong and Keith Ketterling, of the Stoll Berne law firm in Portland.

They argued that TriMet defrauded CRM when it failed to disclose that it had altered the terms of its contract with Colorado Railcar. DeJong points out that in April 2008, TriMet and CRM negotiated an extension to the letter of credit. TriMet officials kept to themselves during those negotiations that four months earlier, the agency had entered into the Project Monitoring Agreement that made wholesale changes to the Colorado Railcar contract, DeJong claims.

The $161 million WES project, Oregon's only commuter rail line, launched its Wilsonville-to-Beaverton service in February 2009. Ridership averaged just over 1,000 passengers a day in its first year, but performance has improved in 2010. WES averaged 1,440 passengers a day in September, the most recent monthly data available.

-- Jeff Manning