Philip Morris Capital Corp. and HNB Investment Corp. have sued Amtrak in New York federal court in an attempt to recover $92.9 million for what they claim is a breach of contract for long-retired electric locomotives used on the Northeast Corridor.
The case is Philip Morris Capital Corporation et al. v. National Railroad Passenger Corp., case number 1:19-cv-10378, in the U.S. District Court for the Southern District of New York. Law360 broke the story on Nov. 8. It is reproduced here with clarifications (in brackets) and minor edits. Background information follows; the entire 62-page complaint can downloaded below.
“Philip Morris Capital Corp. (PMCC) alleged in New York federal court [Nov. 7] that Amtrak owes $92.9 million for breaching a $250 million contract for a fleet of [equipment] used on the Northeast Corridor from Washington to Boston, claiming the company took them out of commission and stripped them for parts.
“PMCC and HNB Investment Corp. alleged that … Amtrak leased eight [HHP-8 electric] locomotives and [six Acela Express high-speed trainsets]. Amtrak ultimately claimed the [HHP-8 locomotives were] unreliable, but inspectors found [they] had been ‘cannibalized’ for parts. The complaint alleges that Amtrak has denied any default and has urged guarantor Export Development Canada (EDC) to reject claims made by PMCC and HNB.
“‘We value our business partners and worked hard to find a business solution to this dispute, but Amtrak refused. Amtrak’s conduct left us no choice but to sue to enforce our contracts and seek relief from Amtrak’s business practices,’ PMCC spokesperson Steve Callahan told Law360 on Nov. 8.
“According to the complaint, PMCC and HNB bought $250 million of equipment from Canadian manufacturer Bombardier and French engineering company Alstom, and Amtrak agreed to lease [it] through at least 2022.
“Amtrak [leased] the equipment on the condition of ‘as-is, where is, with all faults,’ according to the filing.
“The agreement called for guarantor EDC to pay for the equipment if Amtrak breached the contract.
“The plaintiffs allege that, at some point in 2015, Amtrak deemed the [HHP-8s] unreliable and sought to replace [them], but PMCC and HNB claim they found this out from news reports and reached out for clarification in May 2016.
“According to the complaint, Amtrak made a series of misleading statements, in which the [it] indicated that it had made no decision on the equipment, but PMCC and HNB discovered later that year that Amtrak had retired the [HHP-8s]. Amtrak’s assessment of the [HHP-8s] concluded that it wasn’t economical to repair a part of [their propulsion] system, according to the complaint, but Amtrak failed to perform required maintenance procedures in the years leading up to the claim that [the HHP-8s were] unreliable.
“PMCC and HNB claim they issued a letter in November 2016 seeking all amounts due on the lease, and Amtrak responded that it would propose a buyout in order to resolve the claims on the lease.
“According to the complaint, Amtrak performed a ‘bait and switch’ regarding its proposal, reversing course in April 2017 and instead asked for a buyout proposal from the equipment owners after months of conversations regarding when the offer would come.
“As a result of the request, PMCC and HNB allege they inspected the equipment to ensure that [it was] out of service only to find [it] ‘in a total disassembled state’ and ‘cannibalized for parts.’
“In addition to the disassembled state discovered in June 2017, the inspection confirmed that all eight [HHP8] locomotives were ‘retired’ by early 2015, noting that four were ‘being stored in a[n] unusual condition.’
“The companies allege that Amtrak’s own financials indicate that it was in no position to make a buyout proposal and instead was a tactic to ‘stonewall’ Philip Morris and HNB.
“In addition to the misleading statements, the complaint alleges that Amtrak denied any event of default in December 2017 and urged EDC to deny payment on the guarantee.
“As a result of the outstanding balance on the contract and the rejected claims, PMCC and HNB are seeking $92.9 million plus attorney fees.”
In 1996, Amtrak ordered 15 HHP-8s and 20 Acela Express trainsets from a Bombardier/Alstom consortium. The equipment was financed through leases with various financial institutions. PMCC and HNB hold the leases on 8 of the 15 HHP-8s and 6 of the 20 Acela Express trainsets .
The HHP-8s, which utilized the same propulsion system as the Acela Express power cars, were designated to haul Amfleet equipment on the Northeast Corridor.
In conjunction with the Amtrak order, MARC acquired six HHP-8s for Penn Line service along the Northeast Corridor.
Amtrak’s HHP-8s did suffer from poor reliability. As a result, after only ten years in service, their replacement was considered, concurrent with the replacement of the older AEM-7 locomotive fleet. In October 2010, Amtrak ordered 70 Siemens ACS-64 locomotives to replace both the HHP-8 and the older AEM-7 locomotives, with deliveries beginning in early 2013. Amtrak retired its last HHP-8 on Nov. 7, 2014. All 15 units are now stored.
In 2016, MARC indicated that it planned to retire its HHP-8s and replace them with Siemens SC-44 Charger diesel-electric locomotives. MARC instead started an HHP-8 refurbishment program in 2017. Equipment cooling, propulsion control and software problems are being addressed; recent reports indicate that at least two units have been returned to service and are not having reliability problems. MARC will most likely rebuild its remaining 6 HHP-8s.
Amtrak’s current Acela Express equipment, dubbed the “Fast Pig” due to its heavy axle loads, has also suffered from reliability problems as well as several mechanical failures (cracking yaw damper brackets and inboard brake rotors, premature wheel wear, etc.). These trainsets, all 20 of which are still in service, will be replaced with 28 new, lighter-weight, higher-capacity articulated trainsets from Alstom beginning in 2021.