GNP Railway, a short-line rail operator that has clashed with local governments over its attempts to run excursion and freight trains into the heart of Redmond, has undergone a management breakup and been hauled into bankruptcy court.

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GNP Railway, a short-line rail operator that has clashed with local governments over its attempts to run excursion and freight trains into the heart of Redmond, has undergone a management breakup and been hauled into bankruptcy court.

Freight trains are continuing to operate between Woodinville and Snohomish following a petition filed by three creditors Wednesday in U.S. Bankruptcy Court for an involuntary reorganization of GNP.

If approved by the court, the petition would require GNP to develop a reorganization plan acceptable to creditors.

The creditors, who include a business partner who operates a twice-weekly freight train, say GNP owes them a combined total of $174,466.

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“We didn’t know this was coming, and we just learned of it, and we’re trying to learn the implications,” said Sung Yang, intergovernmental-relations director for King County.

County officials, who are negotiating to buy most of the rail corridor for trail use and future high-capacity passenger rail, have worried GNP’s expansion plans could undermine those efforts.

GNP’s partner, Ballard Terminal Railroad, took over freight operations from BNSF Railway in January 2010, when the Port of Seattle bought the 42-mile Renton-to-Snohomish rail corridor from BNSF.

The small company’s agreement with the Port also allows it to operate a tourist-oriented excursion train from Woodinville to Snohomish, but start-up of that service has been stalled by financing difficulties and possibly by GNP’s disputes with local governments over its desire to extend the southern terminus to Redmond.

Ballard Terminal Railroad, one of the creditors who went to court, hasn’t received any payment from GNP since Ballard began hauling freight on the former BNSF line 13 months ago, General Manager Byron Cole said.

“We want what’s going on with GNP right now to be successful,” Cole said Thursday. “It needs to be reorganized. It needs to have one person in particular step aside. We ran the freight train today, and we’re running it two days next week. We’re just keeping on running the thing.”

But Cole and others said GNP, run by its president, former Canadian railroad engineer and independent railway operator Tom Payne, needs more revenue than its four customers and 277 annual carloads generate.

The second-in-command, former Chief Financial Officer Doug Engle, said he is no longer with the company and is owed money by GNP, but he has not joined the bankruptcy petition.

Engle and Payne declined to discuss the railway’s financial problems.

Redmond Mayor John Marchione, who has resisted GNP’s efforts to bring an excursion train and then a freight train into the city’s downtown area, said he wasn’t surprised by the bankruptcy filing.

“The last time we spoke was early September, and part of our request for information from GNP was to show they had the financial wherewithal. We didn’t feel satisfied,” Marchione said.

Seeking a more favorable deal for the excursion train to Snohomish, GNP unsuccessfully lobbied the Port, King County and Redmond to let it make Redmond, rather than Woodinville, the southern terminus.

If Redmond were to authorize an excursion train, Marchione said, “We would want to open a process for all bidders to submit proposals. We don’t want to show favoritism to one group or another.”

Redmond, which bought a portion of the rail line last year for $10 million, is studying the feasibility of an excursion trolley to Woodinville.

Last August, GNP angered bike-trail advocates and Redmond and King County officials when it asked the federal Surface Transportation Board to let it resume freight rail service to several Willows Road businesses — even though the railway doesn’t own the track.

Because the line has been “railbanked” for possible future rail use, GNP contends federal law requires it be allowed to restore service. Redmond, King County, the Port and Sound Transit disagree.

The Surface Transportation Board has not made a ruling, but documents filed in the case show GNP has suffered a series of setbacks in its attempts to expand passenger and freight-rail operations:

• GNP’s Payne told the Port of Seattle in December 2009 the Port’s refusal to let it run an excursion train from Bellevue to Snohomish would reduce its revenue by 80 percent. He said the company could make a profit nevertheless.

• Last July, Payne asked the Port to lengthen the term of its contract with GNP from 10 years, with a renewal option, to the “industry standard” of 35 years. The Federal Railroad Administration wasn’t inclined to lend money for a long-term investment based on a 10-year contract, Payne said. The Port refused to lengthen the contract.

• In August, Payne told county officials the railway would seek federal authorization to resume rail service between Woodinville and Redmond “with or without the county,” according to a statement by county negotiator Pam Bissonnette.

Keith Ervin: 206-464-2105 or kervin@seattletimes.com