The TC Palm: Analysis: Indian River County sees hope, challenge in access to All Aboard Florida documents

Lisa Broadt

Indian River County has called All Aboard Florida’s bluff. Now it needs to prove the passenger-rail project couldn’t possibly have a winning hand.

A federal judge July 7 granted the county access to an array of financial documents and communications from the private company, as well as the ability to gather new information through written requests and depositions.

It’s a second chance for the county to prove that All Aboard Florida needs $1.75 billion of tax-exempt bonds to build its $3 billion railroad — despite the company’s recent statements to the contrary — and to possibly block the financing.

“This case hasn’t been thrown out,” said Dylan Reingold, Indian River County attorney. “We’re making progress.”

But the county’s effort to derail All Aboard Florida by blocking tax-exempt financing wouldn’t stop the project; it only would increase the costs, according to court documents filed in May by All Aboard Florida and the U.S. Department of Transportation. Borrowing that money through traditional bonds — All Aboard Florida’s stated alternative — would increase costs by an $277 million to $394 million, according to the court documents.

All Aboard Florida does not comment on litigation, according to a statement from the company Thursday.

COUNTY ATTEMPTS

County attorneys made their first attempt to derail the bonds at a May 29 court hearing in Washington, D.C., but two weeks later were shot down by District Court Judge Christopher Cooper.

The county “stumbled at the threshold of standing” — the legal standard that must be met before the judge could rule on other aspects of the case — when it failed to prove that blocking the bonds would “significantly increase the likelihood that AAF would abandon (Phase II of) the project,” and thus stop what the county describes a catastrophic project, Cooper said in his ruling.

Because All Aboard Florida’s parent company, Florida East Coast Industries, is backed by the multibillion-dollar global investment firm Fortress Investment Group, All Aboard Florida’s claim to alternative funding sources has significant credibility, Cooper said at the time, though — happily for the county — the judge apparently was willing to reconsider his position.

But the county now faces a challenge just as daunting, or perhaps even more so, than its day in court. In requiring the county to use the documents to prove a negative — that alternate funding does not exist — Cooper has set an extremely high bar, according to Stanley I. Langbein, a law professor at the University of Miami School of Law.

“The court is being tough on them, and their loss (on May 29) could be the death of the project,” Langbein said about the particular challenges of building a case through discovery. “The court has set a high and questionable threshold of standing by saying the counties need to show the funds are indispensable.”

All Aboard Florida’s request for tax-free funding shows the financing is important to the company, and that alone should be enough to establish standing, he said.

And yet, that Cooper granted expedited discovery at all should give the county at least a glimmer of hope, according to Langbein.

“It’s a pretty big victory for the county,” Langbein said.

If the county obtains its requested documents — All Aboard Florida likely will ask the court to block certain propriety records — it will examine the company’s most recent claims of having access to alternative funding and work its way back to a declaration from railroad President Michael Reininger that tax-exempt bonds are the “linchpin” of financing the project.

“We’re peeling back the declarations made by Reininger to get into the heart of the issue and the documents behind his allegations and declarations,” said Reingold said.

Prior to the judge’s ruling, All Aboard Florida, in court documents, said discovery should be limited to current information and exclude “any documents that existed years or even months ago.” Some documents filed during All Aboard Florida’s financing application process outline the importance of the bonds to the project, information contrary to the company’s current stance, according to the applications.

But, according to All Aboard Florida, many of the older documents now have “no relevance to … the company’s prospects.”

Indian River County’s 20-point list of requested documents and communications could reveal information redacted from All Aboard Florida’s loan and bond applications, including communications with bond underwriters and members of Congress and financial documents outlining cash flow, projected bond interest rates and detailed information about how much money already has been spent on the project, according to court documents.

“We’ll be able get a sense of what All Aboard Florida’s plan for this project is,” Reingold said. “It’s something they have not been fully honest about with the Treasure Coast.”

Records obtained by the county will not necessarily be available to the public. Cooper could seal certain records to ensure that proprietary information is available only for Indian River County’s intended use, not for general public knowledge.

Still, Tuesday’s victory could provide a morale boost to Indian River and Martin counties, which together have dedicated more than $4 million to the legal battle but have yet to see a significant win in court.

If the county can prove standing, it then has the opportunity to present to the court the heart of its argument against the project: That the bonds legally may not be issued until federal environmental review is complete.

The first phase of the project — Miami to West Palm Beach — already is under construction and is to begin service in early 2017. The second phase — West Palm Beach and nonstop through the Treasure Coast to Orlando International Airport — is to begin running 16 daily round trips in late 2017.