Erie Railway: 1861–1878[edit]
In August 1859, the company went into receivership due to inability to make payments on the debts incurred for the large costs of building, and, on June 25, 1861, it was reorganized as the Erie Railway. This was the first bankruptcy of a major trunk line in the U.S.
In the Erie War of the 1860s, four well-known financiers struggled for control of the company; Cornelius Vanderbilt versus Daniel Drew, James Fisk and Jay Gould. Gould ultimately triumphed in this struggle, but was forced to relinquish control in 1872–73 due to unfavorable public opinion following his involvement in the 1869 gold-rigging scandal and to his loss of $1 million of Erie Railroad stock to the British con-man Lord Gordon-Gordon.
In 1869, the railroad moved its main shop facilities from Dunkirk to Buffalo. Rather than demolishing the shops in Dunkirk, the facility was leased to Horatio G. Brooks, the former chief engineer of the NY&E who was at the controls of the first train into Dunkirk in 1851. Horatio Brooks used the facilities to begin Brooks Locomotive Works, which remained in independent business until 1901 when it was merged with seven other locomotive manufacturing firms to create ALCO. ALCO continued new locomotive production at this facility until 1934, then closed the plant completely in 1962.
The cost of breaking bulk cargo in order to interchange with standard gauge lines led the Erie to introduce a line of cars designed to operate on either broad or standard gauge trucks.[4] Starting in 1871, this allowed interchange traffic by means of truck exchange, including through passenger and freight connections to Saint Louis, Missouri using a Nutter car hoist in Urbana, Ohio.[5][6][7]
Beginning in 1876, the Erie began plans to convert its line to standard gauge, as it became clear that the cost of changing from one gauge to another was not justified by the added stability brought by the wider gauge. By the time of its reorganization in 1878, the Erie had built a third rail along the entire mainline from Buffalo to Jersey City. This project all but brought the railroad to bankruptcy.[8]