This is the determination
of the Railroad Retirement Board on reconsideration
of its decision dated April 24, 2002, regarding
the employer status of Delaware Otsego Corporation
(DOC) as an employer under the Railroad Retirement
Act (45 U.S.C. § 231 et seq.) (RRA) and
the Railroad Unemployment Insurance Act (45
U.S.C. § 351 et seq.) (RUIA).
Section 1(a)(1) of the Railroad Retirement
Act (45 U.S.C. § 231(a)(1)), insofar
as relevant here, defines a covered employer
as:
(i) any carrier by railroad subject to the
jurisdiction of the Surface Transportation
Board under Part A of subtitle IV of title
49, United States Code;
(ii) any company which is directly or indirectly
owned or controlled by, or under common control
with, one or more employers as defined in
paragraph (i) of this subdivision, and which
operates any equipment or facility or performs
any service (except trucking service, casual
service, and the casual operation of equipment
or facilities) in connection with the transportation
of passengers or property by railroad * *
*.
Sections 1(a) and 1(b) of the Railroad Unemployment
Insurance Act (45 U.S.C. §§ 351(a)
and (b)) contain substantially similar definitions,
as does section 3231 of the Railroad Retirement
Tax Act (26 U.S.C. § 3231).
BACKGROUND – BOARD COVERAGE DECISION
02-32
Board Coverage Decision (BCD) 02-32 held
that DOC became an employer under the RRA
and the RUIA effective January 31, 1996. That
decision concluded that DOC was a carrier
based on a contract it had entered to act
as the agent of the Toledo, Peoria and Western
Railway Corporation (B.A. 2346), in which
company it had a substantial interest, effective
as of that date. The Board concluded that
DOC was the operator of the Toledo, Peoria
and, accordingly, was a carrier-employer under
the Acts. DOC sold its interests and discontinued
its administrative agreement with Toledo,
Peoria on August 31, 1999.
DOC was a publicly held company until October
4, 1997, when Walter G. Rich purchased 80
percent of its common stock and the Norfolk
Southern Corporation and CSX Transportation
acquired ten percent each. At the time of
the stock purchase, DOC wholly owned the New
York, Susquehanna and Western Railway (B.A.
No. 3251), for which it provided services.
Accordingly, the Board concluded that DOC
was under common control with an employer
under the Acts for which it provided services
and was thus an affiliate employer effective
October 4, 1997.
REQUEST FOR RECONSIDERATION
In its request for reconsideration, DOC contends
that it was not the operator of the Toledo,
Peoria, and that it is not under common control
with the New York, Susquehanna, and that,
consequently, it should not be held to be
an employer under the Acts.
-I-
The “Administrative Services Agreement”
entered into on January 31, 1996 between the
Toledo, Peoria and DOC, provided that DOC
agreed to function as the agent of the Toledo,
Peoria to supervise and manage the operation
and maintenance of the Toledo, Peoria rail
properties. The services to be performed by
DOC under that Agreement are listed in the
Board’s decision dated April 24, 2002,
and included performance of the following
duties: the supervision of all railroad operations
on rail properties; the supervision of the
maintenance of rail properties; employment
of personnel as might be required for the
proper operation and maintenance of rail properties,
including payment of salaries, wages, payroll
taxes, premiums and charges for insurance,
etc., and including the discharge and other
disciplining of personnel; the incurring and
payment of all charges and operating expenses
of rail properties; the billing and collecting
of all charges for transportation services,
rents, fees, and other amounts due the Toledo,
Peoria; and the negotiation and execution
of leases and licenses and other agreements.
In its request for reconsideration, DOC states
that it did not manage the Toledo, Peoria
as stated in the Agreement. A re-examination
of the entire record shows that the audit
performed in connection with the Board’s
coverage determination described work performed
by DOC for the Toledo, Peoria which included
payroll, purchasing, accounting, legal services,
accounts payable and receivable management,
data processing, real estate management, and
administration. This description is not consistent
with the terms of the Agreement but is consistent
with DOC’s contention that it provided
administrative services for all of its subsidiaries
and did not operate any of them. Accordingly,
on re-examination of the evidence in the record,
the Board concurs with DOC that it did not
operate the Toledo, Peoria and was not an
employer under the Acts by reason of the services
provided to the Toledo, Peoria.
-II-
The issue remaining is whether, within the
meaning of that phrase in the definition of
an employer under the RRA and the RUIA, DOC
is under common control with the New York,
Susquehanna as of October 4, 1997. As mentioned
above, DOC was a publicly held company until
October 4, 1997, when Walter G. Rich purchased
80 percent of its common stock and the Norfolk
Southern Corporation and CSX Transportation
acquired ten percent each.
A representative of DOC advised that DOC
employees also perform administrative services
for the New York, Susquehanna. Approximately
94 percent of DOC’s operating revenue
derived from Toledo, Peoria and New York,
Susquehanna. Services which DOC employees
perform for the New York, Susquehanna include
accounting, payroll, legal and other services.
Four of the five officers of DOC are also
officers of the New York, Susquehanna1;
three of the five officers of DOC are directors
of the New York, Susquehanna2;
and one director of DOC is a director of the
New York, Susquehanna3.
As pointed out in the Board’s April
24, 2002, decision, a majority of the Board
has previously held that a holding company
will not be under common control with its
subsidiary based on the decision in Union
Pacific Corporation v. United States, 5 F.3d
523 (Fed Cir. 1993). The Court held, regarding
a claim for refund of taxes under the Railroad
Retirement Tax Act, that a parent corporation
which owns a rail carrier subsidiary is not
under common control with the subsidiary within
the meaning of § 3231 of the Act. The
Court wrote that, “The term ‘under
common control’ does not usually apply
to two companies in a parent-subsidiary relationship.”
Union Pacific, 5 F.3d at 525.
Consistent with the Board’s decisions
that have followed the Union Pacific decision,
DOC would not be under common control with
its subsidiary prior to October 4, 1997.
Section 202.5 of the Board’s regulations
defines “common control” as follows:
A company or person is under common control
with a carrier, whenever the control (as the
term is used in §202.4) of such company
or person is in the same person, persons,
or company as that by which such carrier is
controlled. (20 CFR §202.5)
Section 202.4 of the Board regulations defines
control as follows:
A company or person is controlled by one
or more carriers, whenever there exists in
one or more such carriers the right or power
by any means, method or circumstance, irrespective
of stock ownership to direct, either directly
or indirectly, the policies and business of
such a company or person and in any case in
which a carrier is in fact exercising direction
of the policies and business of such a company
or person. (20 CFR §202.4).
DOC was a publicly held company until October
4, 1997. There is no evidence that a majority
of ownership was concentrated in any one shareholder
or entity prior to that date. However, after
October 4, 1997, Walter G. Rich owned 80%
of the shares of DOC, which in turn owned
the New York, Susquehanna. Furthermore, Walter
Rich was also President and director of the
subsidiary railroad, New York, Susquehanna.
As DOC states in its request:
DOC, as sole shareholder, elects directors
of NYSW, who appoint the officers. As is typical
in such situations, DOC and NYSW share certain
directors and officers. DOC has seven directors,
one of whom is also a director of the subsidiary.
DOC has five officers, three of whom are directors
of the subsidiary. Four of DOC’s five
officers are also officers of the subsidiary.
Notably, a majority of the subsidiary’s
officers, including the Vice Presidents of
Engineering, Transportation, Marketing &
Sales, and Mechanical, hold no position at
DOC at all. These are the officers who run
the railroad, who are compensated by the railroad
and who pay railroad taxes on their earnings.
DOC contends that the Board is bound by Union
Pacific, which held that the existence of
common officers or directors between the parent
and subsidiary would not render the parent
to be under common control with the subsidiary.
See, Union Pacific at P.526. The Court noted
that officers and directors serve “the
shareholders of the corporate entity or as
authorized by the corporate charter”.
The Court concluded, “the shared individuals
within the leadership of these separate corporations
do not make the Corporation an employer under
Section 3231 (a).”
DOC also contends that the Board is acting
inconsistently with certain previous decisions
of the Board: OmniTRAX, Inc., North American
Railnet, Inc., Beard Land and Investment Company,
and The Broe Companies, Inc. Although it is
stated in the Board decisions regarding these
companies that close corporations were involved,
and the Board did rely on Union Pacific in
those decisions, there was no evidence cited
in the Board decisions regarding the composition
of the ownership of those companies, nor of
the degree of actual control through a common
directorate or common officers. To the extent
that those decisions imply that the Board
would apply Union Pacific to any case involving
a parent with a subsidiary employer without
examining the existence of control, the Board
rejects that implication.
Nevertheless, the Board recognizes the impact
of the Union Pacific decision and the Board’s
application of the Union Pacific decision
in other coverage determinations. Given the
history of the Board’s consideration
of the covered status of this company and
the intervening decision in Union Pacific,
the Board has determined to reverse its finding
in the initial decision and find DOC not to
be covered.
In addition, the Board finds any officer
of NYSW that is also an employee or officer
of DOC should report their compensation and/or
service as reportable under the RRA and RUIA
for NYSW. Further, NYSW should report, as
its employee for reporting purposes, any employee
of DOC who is involved in the day-to-day operations
of NYSW rather than the administrative responsibilities
of a parent holding company.
Accordingly, the Board modifies it decision
of April 24, 2002, to find that DOC is not
a covered employer under the RRA and RUIA.
However, certain employees of DOC may ultimately
be found to be employees of NYSW as a result
of their work for the railroad.
