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By Bill Hetherman
The Los Angeles Metropolitan Transportation Authority is asking a judge to issue a preliminary injunction directing train manufacturer Talgo Inc. to allow the return of 10 Metro subway cars the transportation agency alleges are being wrongfully held in Talgo’s Milwaukee repair yard after Metro canceled its contract with the business.
“Talgo has been … holding Metro’s passenger trains and other property hostage in Milwaukee, Wisconsin for a year,” LA Metro’s attorneys state in court papers filed Tuesday with Los Angeles Superior Court Judge Maurice A. Leiter. “Talgo’s conduct is causing Metro and the public it serves irreparable harm and will continue to do so absent court intervention.”
For nine months, Talgo refused to return the vehicles to Metro, then in February said that Metro could come to Milwaukee to get them, according to Metro’s attorneys’ court papers.
However, Talgo soon thereafter “unilaterally imposed unreasonable conditions” to Talgo’s release of the cars, including the payment of millions of dollars of disputed Talgo invoices, the imposition of unreasonable waivers and attorneys’ fees and the prepayment for Talgo’s preparation of the vehicles for transport, according to the Metro lawyers’ court papers.
A hearing on Metro’s motion for a preliminary injunction is scheduled May 19.
The litigation began Sept. 15 when Metro sued Talgo, calling the company a “defaulted train overhaul contractor” that breached its contract with Metro and was terminated for default. The suit alleges Talgo is holding the cars in order to create leverage against Metro for its demand that the transportation agency pay Talgo about $60 million.
According to Metro’s suit, the agency and Talgo in October 2016 entered into the “Heavy Rail Vehicle Overhaul and Critical Component Replacement Program” contract.
Metro operates the Metro B Line and D Line with its subway fleet consisting of 104 Z650 heavy rail vehicles, and Talgo’s primary responsibility was to overhaul and replace critical components on 74 cars, transporting the vehicles to its Milwaukee repair facility and subsequently returning them, all at an initial cost of $54.7 million, the Metro suit states.
Amendments later brought the total price to $90.5 million, the suit states. To date, Metro has paid Talgo about $41 million, according to the Metro suit.
However, Talgo failed to perform the work as required, which came to a head in 2020 when Metro representatives told their Talgo counterparts that the company’s work schedule reflected “an untimely completion of the project,” the suit states. The suit alleges that the company caused repeated and unexcused delays to the project, thus significantly breaching the contract in multiple ways.
Metro cited Talgo’s alleged testing failures, propulsion software issues, delays and staffing problems, the suit states. Metro gave Talgo multiple chances to comply with the contract before terminating it last May 6, the suit states.
Metro’s search for a replacement contractor to complete Talgo’s work is “significantly frustrated pending the return of Metro’s property,” the suit states.
But on Oct. 21, Talgo filed its own breach-of-contract countersuit, seeking $48.8 million.
In its court papers, Talgo maintains that Metro, “knowing that it owed Talgo significant money for work Talgo did at great expense to Talgo,” nonetheless sued the company “in hopes that the false, unsupported allegations therein could shield it from paying Talgo what it is rightfully owed.”
Leiter previously granted Metro’s motion to dismiss the company’s claims for breach of the covenant of good faith and fair dealing, quantum meruit and promissory estoppel. Talgo’s claims for breach of contract and declaratory relief were not challenged by Metro’s motion.
According to the countersuit, the beginning of the coronavirus pandemic in March 2020 caused “widescale interference with rail transportation needs as well as massive disruption for the public, manufacturers, suppliers and vendors” worldwide.
“During these difficult times, Talgo, at all times, cooperated as a willing partner to work with Metro to adjust the project schedule and delivery requirements in light of the crippling effects of supply-chain and staff interruptions caused by shutdowns,” the countersuit states.
In May 2020, Metro faced a significant ridership and revenue loss because of the pandemic and sent Talgo a letter suggesting that work be suspended or that the contract be terminated “for convenience” at a reduced price, but did not express any dissatisfaction with Talgo’s work, according to the countersuit.
Metro then dropped the termination “for convenience” option and instead engineered a deceleration of Talgo’s performance and related payments by, among other things, slowing down dynamic testing and the approval of vendor changes requested by Talgo and delaying some payments, according to the countersuit.
Together with its alleged slackening of the contract, Metro “initiated a campaign to manufacture the illusion that Talgo was failing to perform” and was in danger of breaching the contract, the countersuit alleges.
