Judge awards Yolo County rail company an additional $13.1 million

The Sierra Railroad Co. operates several excursion trains, including the Sacramento River Train.
The Sierra Railroad Co. operates several excursion trains, including the Sacramento River Train. Sierra Railroad

A Sacramento federal judge has found the conduct of a railroad firm so bad in its acquisition of a contract with McClellan Business Park that it should be punished even beyond a jury’s resounding verdicts earlier this year.

U.S. District Judge Troy L. Nunley has ordered an additional $13.1 million in exemplary damages added to the $39.6 million in compensatory and punitive damages the jury decided Patriot Rail Corp. of Jacksonville, Fla., must pay Sierra Railroad Co. of Yolo County.

On March 28, the jury awarded Sierra compensatory damages of $22.2 million for Patriot’s breach of a non-disclosure agreement that Patriot used to get the business park’s rail services contract that had been held by Sierra. On May 1, the same jury assessed an additional $17.4 million in punitive damages against Patriot and an affiliate in order to punish Patriot and deter similar business practices.

Nunley’s Thursday order brings the total awarded to Sierra to $52.7 million.

A privately held short-line operator, Sierra lost 8.43 miles of track and millions in revenue when it lost the McClellan contract in 2008. The contract accounted for 40 percent of Sierra’s business, and its loss pushed the Yolo company to the brink of extinction.

The company operates hauling, switching and car storage on approximately 80 miles of track in several California industrial areas. It also operates a number of tourist trains, including the Sacramento River Train that rolls between Sacramento and Woodland, a three-hour excursion that combines food, entertainment and scenery. Another of its holdings is the Skunk Train on California’s North Coast with a route that crisscrosses the Noyo River, winds through coastal mountains and drops down through towering redwood forests.

Patriot operates multiple short lines throughout the country.

It opposed Sierra’s request for exemplary damages, contending that the conduct Sierra sought to punish under California’s trade secrets law had already been punished by the jury’s punitive damages award.

But Nunley ruled that they are not the same. While both punish, each type of damages applies to different elements of Patriot’s conduct, the judge said.

“Patriot was well aware of Sierra’s financial vulnerability due to its negotiations to acquire Sierra,” Nunley pointed out. The negotiations began in 2007 because Sierra needed financial backing to renegotiate a long-term contract with McClellan, he wrote in a 13-page order.

After Sierra rejected Patriot’s “low-ball” offer, Patriot repeatedly misled Sierra and continually breached the companies’ non-disclosure agreement by using Sierra’s confidential information – including Sierra’s bid as well as performance and financial records – to formulate a bid that would undercut Sierra, the judge wrote.

California courts, according to Nunley, have found that an exemplary damage award of 17.5 percent of an offending company’s value is sufficient to punish “extremely reprehensible conduct.”

That accurately describes what Patriot did, so he used that percentage to calculate the exemplary damages, Nunley said.

Everything considered, he said, an additional $13.1 million in exemplary damages is called in order to make an example of Patriot for “its misappropriation of trade secrets.”

The award “reflects the willful and malicious nature of Patriot’s conduct ... is appropriate in relation to the compensatory damages awarded, and ... suffices to punish Patriot without financially destroying it,” the judge concluded.

Call The Bee’s Denny Walsh, (916) 321-1189.