Lawsuits and drugs busts at Union Pacific …

July 26, 2010

It turns out working on the railroad is a lot more varied than we ever imagined as children. This we learn from the “legal proceedings” section of a 10-Q filed Friday afternoon by Union Pacific (UNP), the railroad giant.

That section can be dull and predictable, with tech companies describing endless patent disputes and big industrial companies detailing environmental litigation and contract disputes. But Union Pacific’s latest edition offers most of the elements of an early John Grisham novel.

First came the company’s Freedom of Information Act lawsuit against the Environmental Protection Agency — not something that usually rises to the level of disclosure in a Securities and Exchange Commission filing (though we understand that companies are the biggest users of the act, despite the attention given to news-media FOIA lawsuits).

Union Pacific says it sued the agency on June 23 as part of a dispute dating at least to 2005 over orders from the EPA to clean up lead contamination at some 9,000 residential yards in eastern Omaha, Nebraska.

The company says the contamination stems from two defunct led smelters or refineries, one of which leased land from the railroad six decades ago — and that Union Pacific shouldn’t have to pay for the $50-million cleanup. The EPA disagrees, thanks to liability rules that give it broad authority to recoup costs from land owners, contractors or other companies when the original polluter is defunct or can’t be found. But the railroad isn’t just seeking documents. It’s also

“asking the court to compel the EPA to respond fully to outstanding FOIA requests and to prevent the EPA from destroying records. This lawsuit was based on evidence of the EPA’s intentional destruction of requested documents.”

The railroad doesn’t give details, but it got a temporary injunction from a federal court in Omaha and is seeking a permanent one. Flouting the order could cost the company $37,500 a day plus three times the EPA’s cost to do the cleanup, the railroad said.

It turns out that Union Pacific has another long-running dispute, this one with the Justice Department since at least 2007, over penalties imposed on it after border authorities found drugs smuggled into the U.S. aboard railroad cars.

In 2008, Union Pacific asked a judge to declare the seizures and $61.4 million in penalties “invalid and unenforceable” and to block further penalties, arguing that the rail cars go from the Mexican railroads to the U.S. Customs & Border Protection agency before reaching Union Pacific, and that the U.S. railroad isn’t “a ‘person in charge’ or the ‘owner’ of trains carrying drugs…”

After settlement talks stalled, the Justice Department filed enforcement actions against the railroad in Texas, California and Arizona. They began duking it out in court in earnest. Then, on July 19, Customs & Border Protection

“notified the Railroad of additional penalties totaling approximately $101 million for drug discoveries in California from May 14, 2008, to June 4, 2010. … The Railroad was also informed that it would receive unspecified additional penalties for other drug discoveries. In aggregate, these penalties could become material at a future date.”

This July 13 article from the Associated Press describes what might be one of those unspecified future cases: Three men arrested after police found some 78 twenty-pound bundles of marijuana in an ostensibly empty tanker car in Commerce, California (appropriately enough). Police even detonated a “suspicious object” in the process.

We can’t wait to read more as the drama unfolds. But we’re pretty sure that for these two disputes, it’s going to be a while before Union Pacific shareholders hear that whistle blowing at the end.

Image source: richardmasoner via Flickr

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