B.C.D. 02-32

EMPLOYER STATUS DETERMINATION

Delaware Otsego Corporation

APR 2 4 2002

This is the determination of the Railroad Retirement Board of 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).

Legal Opinion L-81-23, issued November 19, 1981, found that DOC was under

common control with rail carriers because it had five rail subsidiaries,1 but that it

was not an employer because it performed no services for its subsidiaries. An

audit of a separate company, the Toledo, Peoria and Western Railway Corporation 

(B.A. 2346), completed in November 2000, indicated that there had been

significant changes in the operations and ownership of DOC.

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 had a substantial interest in the Toledo, Peoria, and wholly owned

the New York, Susquehanna and Western Railway (B.A. No. 3251). DOC sold its

interest in the Toledo, Peoria to Rail America Services Corporation effective 

August 31, 1999.

The Toledo, Peoria and DOC entered into an “Administrative Services Agreement”

on January 31, 1996, under which 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. DOC’s services under that Agreement 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 persomiel as might be required for the proper operation and maintenance ofrail

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 ofrail * 3

1 The five rail subsidiaries were: (1) the New York, Susquehanna and Western

Railroad Corporation, (2) Cooperstown and Charlotte Valley Railway Corporation,

(3) the Fonda, Johnstown & Gloversville Railroad Company, (4) the Central New

York Railroad Corporation, and (5) the Lackawaxen and Stourbridge Railroad

Corporation.

BA# 9248
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Delaware Otsego Corporation

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. As of September 15, 1999,

DOC employed 94 individuals, of whom 26 perfonned services for the Toledo, 

Peoria.

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 perfomi 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, Susquehanna2 3;

three ofthe five officers of DOC are directors ofthe New York, Susquehanna3; and

one director of DOC is a director of the New York, Susquehanna4. Until the

October 4, 1997 transaction, Mr. Rich was the President and Chief Executive

Officer of DOC and the Toledo, Peoria, which also had a number of other officers 

in common.

Section 1(a)(1) ofthe KRA defines an “employer” to include:

(i) any carrier by railroad subject to the jurisdiction of

the Surface Transportation Board under part A of subtitle IV 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

2 Walter Rich, Joseph Senchyshyn, Nathan Fenno, and Tabetha Rathbone.

3 Walter Rich, Joseph Senchyshyn, and Nathan Fenno,

4 Walter Rich.
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Delaware Otsego Corporation

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.

[45 U.S.C. § 231 (a)(l)(i) and (ii)].

As mentioned above, on November 18, 1981, DOC was found to be under

common control with rail carriers, but was found not to be an employer because it

performed no services for its subsidiaries. However, three significant events

occurred after that date. First, DOC entered into the administrative services

agreement with the Toledo, Peoria in 1996. Second, Walter Rich purchased a

majority of shares of DOC in 1997. Third, the D.C. Circuit Court of Appeals 

issued its decision defining “under common control” in the Union Pacific case.

Union Pacific Corporation v. United States, 5 F.3d 523 (Fed Cir. 1993).

In examining the relationship between DOC and Toledo, Peoria, the record 

indicates that on January 31, 1996, these two companies entered an agreement 

under which DOC agreed to function as the agent of the Toledo, Peoria.

Essentially, the contract with the Toledo, Peoria provided for DOC to run its rail

operation. The Board concludes that DOC became a covered employer under the

Acts effective January 31, 1996 because as of that date, DOC took on the job of

running the Toledo, Peoria rail carrier operation.

DOC sold its interests and discontinued its administrative agreement with Toledo,

Peoria on August 31, 1999. Therefore, we need to examine the relationship

between DOC and its subsidiary New York, Susquehanna to determine if DOC

remains covered under the Acts.

The majority of the Board has previously held that a holding company will not be

under common control with its subsidiary based the Union Pacific case, a 1993

decision ofthe United States Court of Appeals for the Federal Circuit. The Court

held, regarding a claim for refund oftaxes 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 ofthe Act. Union Pacific,

5 F.3d 523 (Fed Cir. 1993). The Court wrote that, “The tenn ‘under common

control’ does not usually apply to two companies in a parent-subsidiary

relationship.” Union Pacific, 5 F.3d at 525.
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Delaware Otsego Corporation

Applying the Union Pacific decision, a majority of the Board would find DOC not

to be under common control with its subsidiary prior to October 4, 1997.

However, beginning on that date, eighty percent of DOC was purchased by Walter

G. Rich. Walter Rich controlled the parent corporation, DOC, and was also

President of the subsidiary railroad, New York, Susquehanna. Unlike the Union

Pacific case, the ownership of the DOC was not diversified, since a single

shareholder owned a majority ofthe shares ofthe parent corporation.

Section 202.5 ofthe 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 earner is

controlled. (20 CFR §202.5)

Section 202.4 ofthe 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 ofthe policies and business of such a company or

person. (20 CFR §202.4).

The Union Pacific decision 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)”. However, the Court was considering a

publicly traded entity with a very diversified share ownership. The instant case

presents different factual circumstances.
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DOC was a publicly held company until October 4, 1997. There is no evidence

that a majority of ownership was concentrated in anyone shareholder or entity.

However, after October 4, 1997, Walter G. Rich owned 80% of the shares of

DOC. The New York, Susquehanna, in turn, is wholly-owned by DOC.

Furthermore, Walter Rich was President and director of the subsidiary railroad,

New York, Susquehanna. Therefore the Board finds that DOC and New York

Susquehanna have been under common control within the meaning of that phrase

in the Board’s regulations since October 4, 1997.

The record in this case indicates that DOC provides substantial services for the

New York, Susquehanna. Accordingly, the Board finds that when DOC ceased to

operate the Toledo, Peoria at the time it sold its interest in that company on August 

31, 1999, DOC nevertheless remained an employer under the Acts because it was

under common control with a carrier for which it performed substantial services.

For the reasons explained above, the Board holds that DOC became an employer 

under the RRA and the RUIA effective January 31, 1996.

Delaware Otsego Corporation

Cherry! 1$.Thomas

V. M. Speakman, Jr.

(Jeror drome F. Kever