Midland Railway’s legal woes grow with Douglas County, Colorado filings seeking nearly $1 million

photo by: Elvyn Jones

New passenger cars are lined up Jan. 4, 2020, near the old Santa Fe depot in Baldwin City. The cars are among the seven that the Midland Railway wholly owned for-profit subsidiary Baldwin City & Southern Railroad purchased in the last two months after receiving a community development block grant.

Legal woes continue to mount for Baldwin City’s nonprofit Midland Railway and its two for-profit subsidiaries as recent lawsuits in Douglas County and Colorado seek recovery of nearly $1 million.

The Baldwin City government filed suit Nov. 30 against Midland, a tourist railroad, and its subsidiaries Baldwin City & Southern Railroad and Leavenworth, Lawrence & Galveston Railroad, seeking to recover $321,059 in community development block grant funds that the city secured in December 2019 for the railroad through the Kansas Department of Commerce.

Rail Events Inc., of Durango, Colo., filed three other lawsuits in August and September in La Plata County District Court in Colorado, seeking to recover a total of $660,000 plus interest from Midland’s alleged failure to pay royalties and other fees associated with “Polar Express” rides in 2018 and 2019 and “Peanuts” train events in 2019 and 2020.

The new legal filings create questions about the future viability of the longtime excursion train operation, which has brought thousands of tourists to Baldwin City for special events and other outings.

A.J. Stevens, executive director of BC&S, did not respond to phone calls or texts requesting comment on the lawsuits. The Journal-World also, unsuccessfully, sought comment from Tim DeMott, chairman of Midland Railway’s board of directors. Tom Hayes, whom Stevens has identified as Midland’s “general counsel” and to whom he referred questions in the past, replied in a text message regarding the city’s filing that “we are reviewing the recently filed complaint and are investigating our client, LL&G’s (Leavenworth, Lawrence & Galveston Railroad) options.”

The city seeks to collect the $321,059 loaned from a promissory note that BC&S signed in conjunction with the December 2019 CDBG loan agreement. The promissory note is secured by collateral of the railroad’s real property, railroad cars and equipment, the filing states.

The city’s lawsuit states that the city has first claim to the railroad’s collateral assets and also names as defendants the state of Kansas and Douglas County as a way of ensuring the city’s claim receives priority over any tax liabilities the railroad may owe either jurisdiction.

The city’s filing reveals the city and the Commerce Department started expressing concerns about BC&S’ failure to submit canceled checks, invoices and the documentation revealing how it used the grant money just days after Jan. 24, 2020, the date when $321,059 in grant loan proceeds were released to the railroad. On Jan. 28, the city made its first request for that documentation, and the Commerce Department joined the city in that effort on Feb. 11.

The city filing cites a Feb. 14 Commerce Department letter to the city, stating that check amounts from BC&S did not match the $321,059 disbursed and gave the railroad a deadline of March 14 (later extended to March 31) to provide proper documentation.

After the railroad missed the deadline, the city gave BC&S written notice on April 21 demanding either immediate repayment of the loan or documentation that the $321,059 was spent properly. In response, BC&S’ legal counsel wrote the city a letter on May 13 stating that the railroad was unable to “secure” the documentation the city and Commerce Department demanded to verify that the proceeds — in the words of the city’s filing — “had been lawfully expended under the CDBG program.” The railroad’s attorney also wrote that the railroad was attempting to secure a bank loan to repay the CDBG loan. In response, the city asked to be updated on the progress of the loan and said that the city was terminating its partnership with the railroad on the loan.

Baldwin City Administrator Glenn Rodden said Friday that since May, the city had unsuccessfully sought information about repayment of the CDBG loan and the railroad’s attempt to secure a bank loan. The railroad’s failure to respond prompted the city to file its lawsuit, he said.

Meanwhile, Rail Events Inc., of Durango, Colo., filed the three lawsuits seeking to recover $660,000 plus interest and legal fees from Midland. The filings allege unpaid royalties due on tickets sold for the “Polar Express” rides Midland offered in the 2018 and 2019 Christmas holiday seasons and various ride events in 2019 and 2020 associated with the “Peanuts” syndicated cartoon.

Al Harper, CEO and owner of the Durango, Colo.-based American Heritage Railways and its subsidiary Rail Events, said Rail Events has exclusive franchise agreements with Warner Brothers and “Peanuts” to license railroad-related special events in the U.S., Canada and the United Kingdom. Harper said his company has 54 licensing agreements with local hosts to use the Warner Brothers copyrighted materials for “Polar Express” rides. The arrangements require local hosts to pay set royalty fees to Rail Events on tickets sold.

Harper said Midland Railway contracted to host a “Polar Express” ride, based on the movie of the same name, out of Baldwin City during the 2018 holiday season. Midland failed, however, to make any royalty payments, despite selling 25,000 tickets for the event, Harper said.

Harper said that he assumed Midland had first-year cash flow problems, and Rail Events again entered into an agreement with Midland to host the “Polar Express” rides for the 2019 holiday season under the condition that Midland agree to sign a promissory note obligating the railway to pay $286,838, which was the amount of the 2018 royalties owed. Midland agreed to pay off the note through three equal installments starting in January 2019.

“I figured they had a tough year, and I’d give them another chance,” Harper said. “Fool me once … I’m out the money. The studio (Warner Brothers) has to be paid.”

A lawsuit that Rail Events filed on Aug. 19 alleges Midland failed to make any of the scheduled payments as agreed in the promissory note. Rail Events asks the court to order Midland to repay the $286,838 promissory note, interest at the rate of 18% starting from January 2020, as well as attorney fees, legal costs and other collection costs.

In the second Rail Events lawsuit filed Aug. 19, the company seeks to recover money from Midland’s failure to pay $341,756 in royalty fees due on tickets sold for the 2019 “Polar Express” rides, $195.36 of interest per day starting Jan. 14, 2020, and $25,211 for licensed products. The filing alleges Midland failed to make any of the scheduled payments or provide records of the event as its contract required.

The lawsuit also alleges that Midland profited from the unjustified use of the “Polar Express” copyright and asks the court to award relief that it deems fair.

Rail Events’ third lawsuit, filed Sept. 3, seeks to recover $6,192 plus court costs and “applicable” interest for Midland’s alleged failure to pay royalty fees due on “Peanuts” events the railroad hosted in 2019 and early 2020.

The Journal-World reported in September that five lawsuits had been filed in Douglas County District Court in 2020 seeking to recover about $70,000 from Midland. One of those, filed by the Lawrence branch of United Rentals seeking recovery of $16,897, has been dismissed with prejudice, while Missouri Tie LLC was awarded a default judgment of $12,343 in September.

Still pending is a Kansas Department of Revenue tax warrant filed Aug. 21 that seeks to collect $5,939 in unpaid sales taxes from September, November and December of 2019, and a Santa Fe Trail Association lawsuit asking that Midland be evicted from the depot that it subleases from the association and pay $6,457 in past-due lease payments.

Finally, Musselman & Hall Contractors LLC, of Kansas City, Mo., made a filing for judgment seeking $33,105 from a default judgment it was awarded in a Missouri court.


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