Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-12-01150/USCOURTS-caDC-12-01150-0/pdf.json

Parties Involved:
American Short Line and Regional Railroad Association
Amicus Curiae for Petitioner
Indiana Boxcar Corporation
Petitioner
Railroad Retirement Board
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 21, 2013 Decided April 9, 2013

No. 12-1150

INDIANA BOXCAR CORPORATION,

PETITIONER

v.

RAILROAD RETIREMENT BOARD,

RESPONDENT

On Petition for Review of a Decision

of the Railroad Retirement Board

John D. Heffner argued the cause and filed the briefs 

for petitioner. 

Ronald A. Lane argued the cause for amici curiae 

American Short Line and Regional Railroad Association in 

support of petitioner. With him on the brief was Keith T. 

Borman.

Kelli D. Johnson, General Attorney, Railroad 

Retirement Board, argued the cause for respondent. With her 

on the brief was Karl T. Blank, General Counsel. 

Before: BROWN and KAVANAUGH, Circuit Judges, and 

RANDOLPH, Senior Circuit Judge.

USCA Case #12-1150 Document #1429690 Filed: 04/09/2013 Page 1 of 6
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Opinion for the Court filed by Circuit Judge KAVANAUGH.

KAVANAUGH, Circuit Judge: Indiana Boxcar 

Corporation is a parent holding company that owns several 

railroad subsidiaries. Recently, the Railroad Retirement 

Board determined that Indiana Boxcar is an “employer” for 

purposes of the Railroad Retirement Act and the Railroad 

Unemployment Insurance Act, two statutes that protect retired 

and unemployed rail workers. The Board’s determination 

will subject Indiana Boxcar to additional tax liability. 

To be an employer under those two Acts, a company such 

as Indiana Boxcar – which is not itself a railroad – must be 

“under common control” with a railroad. 45 U.S.C. §§ 231, 

351. Before this case, the Board repeatedly held that parent

corporations like Indiana Boxcar are not under common 

control with their railroad subsidiaries. Under Board 

precedent, in other words, the term “common control” does 

not usually apply to two companies in a parent-subsidiary 

relationship. Here, however, the Board did not adhere to that 

precedent and did not reasonably explain and justify its 

deviation from its precedent. Therefore, the Board’s decision 

was arbitrary and capricious under the Administrative 

Procedure Act. We vacate and remand to the Board. 

I

Indiana Boxcar Corporation is a holding company that

owns several railroads. Although Indiana Boxcar is in the 

railroad business, Indiana Boxcar is not itself a railroad. 

Indiana Boxcar is owned by R. Powell Felix, who is also 

its president, and his wife, Sandra M. Felix. As of 2008, 

Indiana Boxcar had two employees: Mr. Felix and his 

daughter, Kesha Felix Lainhart. Between 1999 and 2008, 

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Indiana Boxcar owned four railroads outright and owned an 

interest in or managed other railroads. Felix is or has been the 

president of each railroad that Indiana Boxcar owns. 

In 2008, the Railroad Retirement Board determined that 

Indiana Boxcar is an “employer” for purposes of the Railroad 

Retirement Act and the Railroad Unemployment Insurance 

Act, two statutes designed to aid retired and unemployed rail 

workers. That finding means that Indiana Boxcar will have to 

pay additional taxes. 

Railroad carriers – that is, railroads themselves – are

employers under the Acts. Alternatively, a company is 

considered an employer if it (i) is “under common control” 

with a railroad and (ii) “performs any service . . . in 

connection with” railroad transportation. 45 U.S.C. §§ 231, 

351. Although Indiana Boxcar is not a railroad carrier, the 

Board found that Indiana Boxcar satisfied the alternative 

definition of an “employer” under the Acts. 

The Board found that both Indiana Boxcar and its

railroad subsidiaries were under the “common control” of 

Felix. Because Felix owned Indiana Boxcar and was 

president of both Indiana Boxcar and each of the railroads, 

Felix controlled all of the relevant entities. Hence, Indiana 

Boxcar and the railroads were under shared, or “common,” 

control. 

The Board also found that Indiana Boxcar satisfied the 

second prong of the alternative test. The Board concluded 

that Indiana Boxcar performed services “in connection with” 

railroad transportation, because Indiana Boxcar performed 

various management services for each of its railroad affiliates. 

Indiana Boxcar was thus deemed an employer under the Acts. 

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After the Board upheld those determinations in a decision 

on reconsideration, Indiana Boxcar petitioned for review in 

this Court. 

II

The Administrative Procedure Act requires that agency 

decisionmaking be both reasonable and reasonably explained. 

See Motor Vehicle Manufacturers Assn. v. State Farm Mutual 

Auto. Insurance Co., 463 U.S. 29, 57 (1983); 5 U.S.C. 

§ 706(2)(A). An agency acts unreasonably for purposes of 

the APA when, for example, it departs from its past precedent

without reasonably explaining and justifying the departure. 

See FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515

(2009). 

In this case, the Railroad Retirement Board determined 

that Indiana Boxcar – a parent company that owned several 

railroad subsidiaries – was an “employer” under the Railroad 

Retirement Act and the Railroad Unemployment Insurance 

Act. To satisfy the definition of an “employer” under those 

Acts, the Board initially determined that Indiana Boxcar was

“under common control” with its railroad subsidiaries. 45 

U.S.C. §§ 231, 351. 

Indiana Boxcar argues that the Board’s “under common 

control” determination conflicts with Board precedent. We 

agree with Indiana Boxcar. Until now, the Board used the 

definition of “common control” found in Union Pacific, a 

Federal Circuit case. Union Pacific Corp. v. United States, 5 

F.3d 523 (Fed. Cir. 1993); see, e.g., Mississippi Tennessee 

Railroad, LLC, B.C.D. 04-16 (2004) (adopting and applying 

the holding of Union Pacific); Delaware Otsego Corp., 

B.C.D. 03-84 (2003) (same); North American Railnet, Inc., 

B.C.D. 97-49 (1997) (same). In Union Pacific, the court held 

that the term “‘under common control’ does not usually apply 

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to two companies in a parent-subsidiary relationship.” Union 

Pacific Corp., 5 F.3d at 525. Rather, the term most naturally 

applies to companies “occupying parallel positions as 

subsidiaries” – or siblings – “controlled by a common parent.” 

Id. at 526. The court added that “shared leaders” alone “do 

not subject” two “corporate entities to ‘common control,’”

because officers ultimately owe their allegiance to 

shareholders or corporate owners. Id. at 526-27. 

Since Union Pacific, the Board has consistently applied 

that case’s reasoning in determining who qualifies as an 

“employer” under the Railroad Retirement Act and the 

Railroad Unemployment Insurance Act. The Board has 

applied Union Pacific both to public companies like Union 

Pacific, where ownership and control are diffuse, and to 

privately held companies, where control is more concentrated. 

For example, in Delaware Otsego, the Board found that a 

privately owned holding company and its subsidiary were not

under common control even though control over the parent 

and the subsidiary was concentrated in one person. There, 

one individual was majority owner of the holding company, 

the holding company owned a railroad subsidiary, and the 

majority owner of the holding company was president of the 

subsidiary. See Delaware Otsego Corp., B.C.D. 03-84, at 5. 

In Mississippi Tennessee Railroad, the Board reaffirmed that

Union Pacific applies and precludes a finding of “common 

control” even when a parent company is “privately held by 

two individuals rather than publicly owned.” Mississippi 

Tennessee Railroad, LLC, B.C.D. 04-16, at 2.

There is no legally significant distinction between 

Indiana Boxcar and the companies at issue in previous Board 

decisions. As in Delaware Otsego, one person both owns the 

parent company and serves as president of each railroad

subsidiary. As in Mississippi Tennessee Railroad, Indiana 

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Boxcar is a privately owned, closely held company. But here,

the Board nonetheless held that the parent company and the 

railroad subsidiaries were under common control. 

The Board attempted to account for its shift by explaining 

that Union Pacific applies primarily to publicly traded 

companies where ownership is “diffuse.” Indiana Boxcar 

Corp., B.C.D. 12-3, at 6 (2012). By contrast, according to the 

Board, Union Pacific does not apply to “closely held 

corporate structures where control of the parent company and 

subsidiary carrier(s) is clearly concentrated in a few 

individuals.” Id. (parentheses in original). But both 

Delaware Otsego and Mississippi Tennessee Railroad

involved closely held private corporations. And in each case,

control was “clearly concentrated in a few individuals.” So 

the distinction between publicly traded and privately held 

companies does not justify the Board’s failure to follow 

precedent. 

Because the Board departed from its precedent and did 

not offer sufficient explanation and justification for doing so, 

its decision was arbitrary and capricious under the 

Administrative Procedure Act. We therefore vacate and

remand to the Board.

So ordered. 

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