Washington District of Columbia USA - The Surface Transportation Board (STB America) ruled Friday that Canadian Pacific Railway Company lived up to its promise to invest US$300 million in road and rail facility upgrades in South Dakota after its 2008 acquisition of a regional railroad, shooting down a petition from the state saying otherwise.
 
The STB denied the South Dakota Department of Transportation's (DOT) petition to enforce Canadian Pacific's representations that it would commit a total US$300 million to upgrade road and rail facilities in the three years immediately following the railroad's 2008 acquisition of a regional railroad, shooting down a petition from the state saying otherwise.
 
The STB denied the South Dakota Department of Transportation's petition to enforce Canadian Pacific's representations that it would commit a total US$300 million to upgrade road and rail facilities in the three years immediately following the railroad's 2008 acquisition of Dakota Minnesota & Eastern Railroad Corporation (DME) and DME's wholly owned rail subsidiary, Iowa Chicago & Eastern Railroad Corporation (ICE).
 
The STB said the record shows that by 2012, Canadian Pacific had made more than US$310 million in DME capital investments, according to the decision.
 
Although it took the company four years to meet the US$300 million commitment instead of three years like it initially promised, Canadian Pacific reasonably explained that the additional year was because it deferred part of its capital spending in 2009 because of the economic downturn that resulted in a substantial reduction in rail traffic that year, according to the decision.
 
"The record shows that CP has presented a reasonable explanation for the timing of its capital investments and that it has largely adhered to its representation made in the course of the acquisition proceeding that it would make available to DME US$300 million of capital to repair and upgrade DME track, bridges, and other rail facilities," the STB said.
 
The South Dakota DOT filed its petition with the STB in 2013 asking the regulatory body to step in and enforce three representations allegedly made by Canadian Pacific concerning capital investments.
 
First, the state claimed Canadian Pacific represented that it would invest US$300 million (including previously budgeted DME monies) in the first three post-acquisition years 2009 through 2011 in DME and allocate a certain percentage to each of these railroads, specifically, 40 percent to ICE and 60 percent to DME, according to the decision.
 
The STB concluded that Canadian Pacific made the investments it intended to make and nowhere was it documented that Canadian Pacific would allocate a certain percentage of those investments on DME's system like the state had claimed.
 
The STB also nixed South Dakota's second claim that Canadian Pacific had indicated that the US$300 million figure would not include US$172.9 million that was previously budgeted by DME, meaning that the railroad intended to commit a total US$472.9 million in funds to be invested in DME in the first few years following the acquisition.
 
"The record does not support the claim that CP represented it would invest beyond this amount, despite the two contradictory descriptions of CP's planned capital investments," the STB said.
 
The STB also shot down South Dakota's claim that Canadian Pacific promised to upgrade all the DME track to the Federal Railroad Administration's Class 3 standards, saying the claim is moot.
 
The STB said the FRA sent a letter in September 2013 correcting an earlier 2008 letter in which the FRA mistakenly said Canadian Pacific promised to upgrade the tracks to Class 3 standards.
 
A spokesman for Canadian Pacific said Friday that the company was pleased with the board's decision.
 
Representatives for South Dakota DOT were not immediately available for comment Friday.
 
South Dakota is represented by Karla L. Engle, chief legal counsel of the South Dakota Department of Transportation, John H. LeSeur, and Daniel M. Jaffe of Slover & Loftus LLP.
 
Canadian Pacific Railway is represented by Terence M. Hynes, Matthew J. Warren, and Hanna M. Chouest of Sidley Austin LLP.
 
The case is Canadian Pacific Railway Company et al.-Control-Dakota, Minnesota & Eastern Railroad Corp. et. al., docket number FD_35081_2, before the Surface Transportation Board.
 
Linda Chiem.