While negotiations progressed smoothly, the deal soon hit a snag otherwise completely unrelated to the pending sale. Far to the east, the Pittsburgh & Lake Erie Railroad was in the middle of a sale that would result in the elimination of roughly two-thirds of the railroad's workforce and its emergence as a non-union operations. The fourteen labor unions representing P&LE employees sued, claiming the sale would violate the Railway Labor Act. As the Intermountain Western deal was being worked out, the U.S. Third Circuit Court of Appeals issued a ruling prohibiting the sale of the P&LE until an agreement could be worked out with the labor unions; this decision had an immediate chilling effect on almost all shortline sales. Negotiations between UP and WII stalled out after the court's decision, and then broke off completely by the fall of 1988.

UP withdrew the "Boise Group" package after the sale fell through. Western Railroad Builders became seriously interested in pursuing the Burns branch as an individual sale, and struck a deal with UP by the end of 1988. Western Railroad Builders subsequently operated this line as the Oregon Eastern Division of its Wyoming/Colorado Railroad. UP deferred action on the remaining branchlines for several more years; it would not be until 1992 that the Idaho Northern, Payette, and New Meadows branches, together with the Joseph branch in northeastern Oregon, would be sold to the Idaho Northern & Pacific Railroad. INPR also operated a part of the Boise Cutoff for a while, then in 2009 UP conveyed it and the Wilder Branch to another new shortline, the Boise Valley Railroad. UP abandoned the Stoddard and Homedale branches.