Pacific Imperial railroaded me

Investor in Desert Line sues, says executives were aware of problems

(from pacificimperialrailroad.com)
  • (from pacificimperialrailroad.com)

An investor in the binational railroad last month filed a lawsuit against Pacific Imperial Railroad and two former executives for taking $300,000 and leaving him high and dry.

The lawsuit, filed on August 26, 2015, by Christopher Larocca, accuses the company and former management of taking his money at a time when Pacific Imperial’s top executive had accused shareholders and board members of illegal payments and money laundering.

Larocca claims that after taking his money, Pacific Imperial failed to notify him of shareholder meetings.

High Hopes

Larocca made the first of three investments in November 2013, less than one year after transit chief Paul Jablonski of Metropolitan Transit System, which owns a long stretch of the track on the U.S. side, agreed to enter into a 99-year lease with Pacific Imperial Railroad to rehabilitate the 100-year-old Desert Line.

The agreement was a win-win for MTS. Pacific Imperial would pay to repair bridges, trestles, and miles of deteriorated track and at the same time pay one million dollars a year to MTS for the line's use. Local officials, including then-mayor Jerry Sanders, celebrated the lease and the potential for the Desert Line to import thousands of cars and other items from Mexican factories directly into the U.S. on railroad cars instead of semis. Opening the line would also bypass the need to transport the cars and merchandise to Los Angeles, onto railroad cars, eastward.

Not Fast, Not So Easy

During the previous decade, the former Carrizo Gorge Railway made most of its revenue hauling sand to and from the border and Plaster City, where the Desert Line ends. Then, in 2007, new management assumed control of the company — some former shareholders are still fighting the takeover in court — and the line fell into disrepair. As reported by the Reader, the company was fined for environmental violations, and after 200 pounds of marijuana was found stowed away on a car returning from Mexico. But fines were the least of the company's problems. The condition of the track worsened. Lines buckled. Railroad cars were abandoned on the tracks and stripped of parts.

In 2012, things appeared to improve. Late that year, Pacific Imperial's shareholders hired New York investment banker Ernie Dahlman to come in and raise capital. In late 2013 Dahlman hired longtime railroad executive David Rohal to run day-to-day operations.

It was in November 2013 when Larocca met with Dahlman. According to the lawsuit, Dahlman showed Larocca the lease agreement and told Larocca that he was close to signing several large investors, including one who was planning on investing tens of millions of dollars into the line.

Are We Not All in Jeopardy?

But Larocca wasn't getting the full story. And while investors were close to agreeing to give money, internal fighting and accusations of missing cash had been swirling inside Pacific Imperial's office.

According to emails obtained by the Reader, Dahlman began to notice peculiar transfers to companies owned by Pacific Imperial's top shareholder, Dwight Jory, a Las Vegas speculator as well as to lead counsel Donald Stoecklein's law firm.

“I’d like to see the financial statements as well as a detailed expense ledger as I ask for in my previous email, as I asked for in the board meeting, and as I’ve been asking for from the beginning,” Dahlman wrote in an August 6, 2013, to Stoecklein and shareholders Sheila LeMire and Daren Barone.

“Should I start sending requests by certified mail so I have a record of it? Why should we all not have equal access to the information? We have one signatory, that person [Stoecklein] is in charge of our financials, which I haven’t seen, and that person is able to pay himself and his firm with checks from Pacific Imperial himself, as well as anyone else for anything he may decide unilaterally. Doesn’t everyone see that this puts us all in jeopardy? I’m not accusing anyone of any wrongdoing because I have no way of knowing — how could I? How is this even a conversation? If we want to be a real business, which we all are working very hard to be, and which everyone seems to believe we can be, then why don’t we start acting like one....?”

Despite the internal discord, Pacific Imperial and its executives accepted Larocca's investments.

Voice of Reason Worthy of Scrutiny

To make matters worse, according to the lawsuit, at the same time that Dahlman was accusing shareholders of inside deals, he was paying Rohal and himself hefty wages and entering into expensive office leases. And, despite investing $300,000, Larocca was never given any copies of the shares or notified of shareholder meetings.

Reads the lawsuit: "On December 31, 2013 — just one month after his new employment agreement was signed —Rohal was reimbursed $22,911.83 for travel, meals, January rent and a security deposit on a house and office space in Oceanside. [Larocca] is informed and believes and on that basis alleges that Rohal's reimbursement far exceeded any previous reimbursement to an officer or director in [Pacific Imperial's] history, and was Rohal's first instance of usurping [Pacific Imperial's] funds for his own use. [Larocca] is informed and believes and on the basis alleges that Rohal also used [company] funds to pay family members….”

"Despite the pending shareholder meeting regarding liquidation, on January 22, 2014, Dahlman, Rohal, and others, executed new Employment Agreements amongst themselves with [Pacific Imperial]. These agreements totaled $1,000,000 in annual salaries and over $4,000,000 in severance payments to be paid should they be fired or removed from their respective positions."

At the time of his last investment, according to Larocca's complaint, an attorney for Pacific Imperial advised against accepting the last payment.

"Ernie, in light of everything going on, I advise that the companv not accept this investment. Please advise how you want to handle," read a January 27, 2014, email from attorney Tom Zeigler to Dahlman.

Everyone Might Be a Victim

In statements to the Reader Dahlman and Rohal have denied any wrongdoing and have stated they also lost hundreds of thousands of dollars by investing in the railroad and in time spent working without pay. Rohal did hire his father, a longtime railroad executive, to assess the condition of the trains, as well as his son, to do public relations, but says they, too, went largely underpaid.

The internal fighting increased. Soon, Dahlman and Rohal were out. They took to the press and to MTS to try and convince them of the fraud and to transfer the lease to them. MTS refused to budge, sticking with Pacific Imperial Railroad.

"[Pacific Imperial] accepted each investment without any notice to Mr. Larocca that management was alerted to any fraud, misrepresentation, or other materially flawed aspects of the shareholder agreement...or the company's stock offering. But, in fact, such information did exist and should have been disclosed to Mr. Larocca. Yet, Defendants willfully failed to disclose and actively concealed each and every negative circumstance from him as those circumstances came to light. Had Mr. Larocca been advised of these facts and circumstances, he would not have invested any money into [Pacific Imperial Railroad]."

Give It Back, Plus Interest

Larocca, according to the lawsuit, has spent much of the past year and a half trying to get his money. He says that shareholders and executives were well aware of the problems and should have notified him of them before taking his money. Since that time, not only has Pacific Imperial declined to do so, but they have not informed him of shareholder meetings and did not receive any word that 55 percent of the company has recently been purchased and new management has been brought in.

"This pattern of conduct indicates [the railroad management’s] continued refusal to acknowledge Mr. Larocca as a shareholder while the company continues to possess and use his $300,000 investment for unknown purposes…. In reliance on [Pacific Imperial's] false representations —and without knowledge of the material facts [Pacific Imperial] concealed from him — Mr. Larocca has suffered economic damages in the amount of his investment, plus interest to date, the exact sum or sums to be proven at trial, including all compensatory damages. In doing the acts herein alleged, [company executives] have acted with oppression, fraud, malice, and in conscious disregard of [Mr. Larocca's] rights and [he] is therefore entitled to punitive damages according to proof at the time of trial."

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The Pacific Imperial Railroad was a scam from the very beginning. Anyone with more than a single digit IQ could see that the railroad would never be functional except for maybe a tourist attraction. The railroad was defunct because there is very little long distance shipping out of San Diego. It is cheaper to ship to LA (train or truck) and go east from there than to go east from here. Jablonski and his crew all belong in jail.

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