EMPLOYER STATUS DETERMINATION

Itel Rail Corporation

This is the determination of the Railroad Retirement Board

concerning the status of Itel Rail Corporation (Itel Rail) as an 

employer under the Railroad Retirement Act (45 U.S.C. §231 et sea. )

(RRA) and the Railroad Unemployment Insurance Act (45 U.S.C. §351

et sec.) (RUIA).

COURSE OF PROCEEDINGS

On July 17, 1991, the Bureau of Law sent a proposed coverage

determination to the Board recommending that Itel Rail Corporation

and related affiliates be found not to be employers under the Acts.

On November 29, 1993, a majority of the Board determined that

further investigation of the company was warranted. Information

was obtained by the Board's Division of Audit and Compliance, which

conducted a coverage audit of Itel Rail in July and August 1994 and

issued a Coverage Audit Report (BFO/ACD 94-10) in October 1994.

STATEMENT OF FACTS

According to the evidence of record, including the Coverage Audit

Report, Itel Rail was originally organized in February 1972, under

the name Environmental Leasystems Corporation. Some sixteen years

later, in 1988, while operating under the name Pullman Leasing

Company, it was acquired by Itel Corporation. During 1989, Itel 

Corporation reorganized its various subsidiaries in several steps

to consolidate its railcar leasing business, maintenance

facilities, and all railroads it owned under the direct ownership

of one company. As part of the restructuring, in August 1989, Itel

Railcar Corporation1 was merged into Itel Rail Corporation, and the 

resulting entity was then merged into Pullman Leasing Company.

Pullman Leasing Company then changed its name to Itel Rail

Corporation, which is the company now under consideration. For the 

period of the audit, 1989-1992, Itel Rail, which discontinued its

business operations effective July 15, 1994, engaged in the 

business activities of leasing railroad freight cars, operating

railcar maintenance facilities, and ownership of shortline

railroads.

According to Consolidated Financial Statements for 1989 through

1991 (Exhibits 10 - 12 of the Coverage Audit Report) , Itel Rail

owned a varying number of shortline railroads at different times (7

for the year ended on December 31, 1989 and 6 for the years ended

on December 31, 1990 and 1991). Four of its shortline railroads

are identified in Exhibit 9 of the Coverage Audit Report: (1)

1Itel Railcar Corporation was the subsidiary of Itel

Corporation which was created to acquire the rail assets of Evans

Transportation Company. See Request for Reconsideration of

Coverage Audit, dated March 17, 1994.

BCD 1995-42
EMPLOYER STATUS DETERMINATION

Itel Rail Corporation

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Ferdinand and Huntingburg Railroad Company (BA No.2350), which was

sold on September 26, 1990 to The Ferdinand Corporation; (2)

FRVR/GBW/The Ahnapee & Western (BA No.2601), which was sold on

August 28, 1993, to Fox Valley & Western, Ltd. (BA No.5622); (3)

Hartford & Slocomb Railroad (BA No.3585), which was sold to H & S

Railroad Company, Inc. (BA No.5548) on July 1, 1992 ; and (4)

McCloud River Railroad Company (former BA No.2711), which was sold

on February 1, 1992 to 4 Rails, Inc.

In 1989, Itel Rail reported consolidated revenues of $379,200,000

derived from its leasing, shortline railroad, and maintenance

facilities/other operations. Consolidated revenues for years 1990

and 1991 totaled $387,051,000 and $406,602,000, respectively, and

in 1992, consolidated revenues totaled $309,740,000.

Itel Rail owned approximately 70,000 railcars which were leased to

third parties, including Itel-affiliated railroads. The Coverage

Audit Report stated that a total of 5,967 railcars, or 8.5% of the 

total railcar fleet, was leased to or bore the reporting markings

of Itel- affiliated railroads in 1990 and 6,877 railcars, or 9.8% of

the total number of railcars, in 1991.

Maintenance shop revenue derived from the repair of railcars owned

by Itel Rail and leased to third parties (intercompany billings)

was $17,300,000, or 61.3%, of total maintenance shop revenue of

$28,200,000 in 1989. In 1990, intercompany billings were

$23,411,000, or 57.2%, of total maintenance revenue of $40,959,000.

Intercompany billings were $15,140,000, or 42.1%, of total

maintenance revenue of $35,948,000 earned in 1991. Through June

1992, intercompany billings totaled $7,291,000, or 27.9% of total

1992 maintenance revenue of $26,179,000. *

Revenue from maintenance of railcars owned by Itel Rail and leased

to Itel-affiliated shortline railroads is included in intercompany

billings. In 1989, revenue of $1,854,619, or 6.67%, was derived

from Itel-affiliated railroads. During 1990, $1,064,855, or 2.60%, 

applied to Itel-affiliated railroads. Revenue from Itel-affiliated

railroads in 1991 and 1992 was $879,978, or 2.45%, and $747,082, or

2.85%, respectively. Maintenance shop revenue from Itel-affiliated

railroads totaled $4,546,534, or 3.47%, of the total maintenance

revenue of $130,909,679 for the years 1989 through 1992.

The Coverage Audit Report also stated that verification of Itel

Rail's listing of employees to the RRB Employment Data Management

system did not identify individuals as being removed from railroad

service when under an employment arrangement with Itel Rail or one

of its subsidiary companies.
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EMPLOYER STATUS DETERMINATION

Itel Rail Corporation

As indicated earlier in this discussion, Itel Rail discontinued its

business operations effective July 15, 1994. In June 1992, Itel

completed a series of transactions in which Itel Rail transferred

substantially all of its railcars to a subsidiary of General

Electric Capital Corporation through a trust and partnership

arrangement. Effective August 1993, Itel Rail no longer owned any

operating railroads in the United States. The last operating

maintenance facility was sold in September 1993 . Most employees of

Itel Rail were terminated in 1992 and 1993, and those remaining

were terminated in 1994.

LEGAL ANALYSIS

Section 1(a)(1) of the RRA defines an "employer" to include:

(i) any express company, sleeping car company, and

carrier by railroad, subject to subchapter I of chapter

105 of Title 49;

(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, or the receipt,

delivery, elevation, transfer in transit, refrigeration

or icing, storage, or handling of property transported by

railroad.

Section 1 of the RUIA contains essentially the same definition.

Section 202.5 of the Board's regulations (20 CFR 202.5) defines a

company under common control with a carrier as one controlled by

the same person or persons which control a rail carrier. Section

202.7 of the regulations (20 CFR 202.7) defines a service as being

in connection with railroad transportation if it is reasonably

directly related, functionally or economically, to the performance

of rail carrier obligations.

Since prior to the time that it ceased business operations in July

1994, Itel Rail was not itself a rail carrier, it would have had to

fall within the definition of "employer" in subparagraph (ii) of

section 1(a) (1) of the RRA in order to be a covered employer.
EMPLOYER STATUS DETERMINATION

Itel Rail Corporation

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Looking first to whether Itel Rail performed service in connection

with railroad transportation, the facts regarding the services

performed by Itel Rail are similar to the facts in the case of Itel

Corporation v. U.S. Railroad Retirement Board. 710 F.2d 1243 (7th

Cir. 1983) . In that case, the Seventh Circuit Court of Appeals

held that the Rail Division of Itel Corporation was not a covered

employer under section 1(a)(1)(ii) of the RRA where only about 12

percent of the railcars owned by the Rail Division were leased to

affiliated railroads. The Rail Division was also responsible in

some cases for the repair and maintenance of its railcars. The

Court concluded that the facts failed to show that the "Rail

Division exists primarily or even substantially to serve the rail

carrier subsidiaries, or that Itel's actions removed previouslycovered workers from the Acts." 710 F.2d at 1248.

In 1990, only 8.5% of Itel Rail's total railcar fleet was leased to

or bore the reporting markings of Itel-affiliated railroads; and in

1991, the percentage was 9.8%. Similarly, Itel Rail's maintenance

shop revenue from its affiliated railroads equaled only 3.47% of

its total maintenance revenue for the years 1989 through 1992 . The

Coverage Audit Report includes no evidence which would tend to show

that Itel Rail existed primarily or even substantially to serve its

rail carrier subsidiaries. Moreover, the matching of Itel Rail

employees to the RRB Employment Data Maintenance system showed no

evidence of employees' being removed from compensated railroad

service when under an employment arrangement with Itel Rail or one

of its subsidiary companies.

In both the 1983 Itel case and this case, we are dealing with the

same parent corporation, i.e., Itel Corporation. In 1983, the U.S.

Court of Appeals for the Seventh Circuit held that the rail leasing

business of Itel Corporation was not a covered employer under the

RRA and the RUIA. Although the entity considered by the Seventh

Circuit was the Rail Division of Itel Corporation, and the business

under consideration in this case is a separate corporation, the

type of business is virtually identical, i.e.. the leasing and

maintenance of rail cars. Moreover, since Itel Rail Corporation is

owned by the same parent corporation as was Itel Rail Division,

what is essentially at issue here is whether the rail leasing

activities and railcar maintenance activities of Itel Corporation

are covered by the RRA and the RUIA. The Seventh Circuit held in

1983 that those activities were not covered. The facts with

respect to the level of service provided to affiliated railroads

and the other issues considered by the Seventh Circuit are not

significantly different from those litigated in Itel Corporation.

Despite the change in corporate structure, the Board finds that
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EMPLOYER STATUS DETERMINATION

Itel Rail Corporation

insofar as Itel Corporation is concerned, the Board is bound by the 

Seventh Circuit's 1983 decision.

CONCLUSION

For the reasons explained above, a majority of the Board finds that

Itel Rail Corporation was never an employer under the RRA and the

RUIA.

Glen L. Bower

V. M. Sp'eakman, JrV-"'(Dissenting

opinion attached)