B.C.D. 04-16

MAR 2 2 2004

EMPLOYER STATUS DETERMINATION

Mississippi Tennessee Railroad LLC

Mississippi Tennessee Holdings LLC

CGX, Incorporated

This is the determination of the Railroad Retirement Board concerning the status of

Mississippi Tennessee Railroad LLC (MsTn RR), Mississippi Tennessee Holdings LLC

(MsTn Holdings), and CGX, Incorporated, as employers under the Railroad Retirement

Act (45 U.S.C. 231 et seg.) and the Railroad Unemployment Insurance Act (45 U.S.C.

351 et seg.)- The status of these companies has not previously been considered by the

Board.

In Surface Transportation Board (STB) Finance Docket No. 34355, decided June 5,

2003, MsTn RR filed a verified notice of exemption to operate an approximately 87.7 

mile line of track between Houston, Mississippi and Middleton, Tennessee, formerly

owned and operated by Mississippi Tennessee Railnet, Inc., (Ms Tn Railnet) (B.A. No.

5570). The STB decision stated that MsTn RR intended to consummate the transaction 

on or after May 27, 2003. See: Mississippi Tennessee Holdings, LLC and Mississippi

Tennessee Railroad LLC-Acquisition and Operation Exemption—Rail Lines of

Mississippi Tennessee Railnet, Inc, Finance Docket No. 34355, 68 Fed. Rea 35255

June 12, 2003.

Additional information regarding MsTn RR and MsTn Holdings was provided by

Mr. Barry S. McClure, Assistant Secretary, Ironhorse Resources, Inc. Ironhorse 

Resources is a subsidiary of CGX, which Mr. McClure describes as the holding 

company for a series of asset holding companies, including MsTn Holdings.1

Mr. McClure states Ironhorse Resources owns MsTn RR. According to Mr. McClure, 

MsTn Holdings purchased the entire rail line of MsTn Railnet, and leases it to MsTn RR.

MsTn RR interchanges with the Burlington Northern Santa Fe Railroad at New Albany,

Mississippi; with the Norfolk Southern Railway at Middleton; and with the Kansas City 

Southern Railway at Corinth, Mississippi. MsTn RR hired 3 employees of the former

operator and began operating May 31,2003. MsTn Holdings has no employees, and

evidently exists solely to hold title to the rail line. A companion filing to Mississippi 

Tennessee Holdings, LLC, supra, further explained that CGX is a privately held

corporation, owned by Gregory and Connie Cundiff. See: Gregory B. Cundiff. Connie 

Cundiff, CGX, Inc., and Ironhorse Resources, Inc.—Continuance in Control

Exemption—Mississippi Tennessee Holdings. LLC and Mississippi Tennessee Railroad.

LLC, Finance Docket No. 34356, 68 Fed. Reg. 35254, June 12, 2003.

1 Ironhorse Resources itself owns Railroad Switching Service of Missouri, which operates St. Louis

Railroad (BA 4397); Southern Switching Company, which operates the Lone Star Railroad (BA 2868), Rio

Valley Switching Company, which operates the Rio Valley Railroad (BA 2869); and Border Transload &

Transfer, Inc., which operates Las Cruces New Mexico Transload. The status of Ironhorse Resources 

and Border Transload & Transfer has not been considered.

.2
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Section 1(a)(1) of the Railroad Retirement Act (45 U.S.C. § 231(1 )(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).

The evidence of record establishes that MsTn RR is a rail carrier operating in interstate 

commerce. The Board has previously determined that the status of Mississippi &

Tennessee Railnet, Inc. as a rail carrier employer under the Acts terminated June 30,

2003, the last date employees were compensated following sale of the rail assets to 

MsTn RR. See: B.C.D. 03-68, Mississippi & Tennessee Railnet, Inc. Accordingly, it is

determined that Mississippi Tennessee Railroad LLC became an employer within the

meaning of section 1(a)(1)(i) of the Railroad Retirement Act and its corresponding 

provision of the Railroad Unemployment Insurance Act effective May 31, 2003, the date 

as of which it began operations.

Neither CGX nor MsTn Holdings is a carrier by rail. However, CGX, the parent of MsTn

Holdings, is also parent company to Ironhorse Resources, which owns MsTn RR. CGX

thus controls both MsTn Holdings and, through ownership of Ironhorse Resources, the

MsTn RR. See regulations of the Board at 20 CFR 202.4. A decision of the United

States Court of Appeals for the Federal Circuit regarding a claim for refund of taxes

under the Railroad Retirement Tax Act held that a parent corporation which owns a rail

carrier subsidiary is not under common control with the subsidiary within the meaning of 

section 3231 of that Act. Union Pacific Corporation v. United States. 5 F.3d 523 (Fed

Cir. 1993). Though CGX is privately held by two individuals rather than publicly owned 

as the parent holding company was in Union Pacific Corporation, a majority of the 

Board believes the Union Pacific case is indistinguishable from the facts presented by

CGX. See B.C.D. 97-49 North American Railnet (privately held parent company not

under common control with subsidiary); and B.C.D. 94-40, CCP Holdings, Inc.

(incorporating representations by three shareholders of privately held parent company

to the former Interstate Commerce Commission in Donald R, Wood, Jr,, CCP Holdings.

Inc., Chicago, Central & Pacific Railroad Co. and Cedar River Railroad Company—

Corporate Family Exemption, Finance Docket No. 32373, 58 Fed. Reg. 59277,

November 8, 1993.) Accordingly, a majority of the Board determines that CGX is not
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under common control with its rail carrier subsidiaries, and CGX is not a covered

employer under the Acts.

However, MsTn Holdings is owned by CGX, which also, through ownership of Ironhorse

Resources, owns MsTn RR. Accordingly, as control of both MsTn Holdings and MsTn

RR ultimately lies with CGX, the Board finds that MsTn Holdings is under common 

control with MsTn RR. See regulations of the Board at 20 CFR 202.5 and Utah Copper 

Co. v. Railroad Retirement Board, 129 F. 2d 358 (10th Cir., 1942). If MsTn Holdings

performs a service in connection with the transportation of property by rail, it is a rail

carrier affiliate employer under section 1(a)(1)(ii) of the RRA and 1(a) of the RUIA.

The evidence is that CGX utilized MsTn Holdings to acquire the rail line to be used by 

MsTn RR in its rail carrier business. Early in the administration of the Railroad

Retirement Act of 1937, the Board considered the status of the Rock Island

Improvement Company. See Board Order 39-766, adopting the opinion of the General 

Counsel in Legal Opinion L-39-822. The operation of the Improvement Company was

stated in that opinion as follows:

One of the chief purposes of the Improvement Company was to permit 

acquisition of property, such as land, railway terminals and equipment, in

such manner that the title would be in the Improvement Company but the 

use thereof be made by the [affiliated] Railway Company. * * *

The Improvement Company has not engaged in any outside commercial 

business. In fact, it has not engaged in business activity of any sort 

except that for a few years it operated certain railroad owned coal

properties in Oklahoma, the entire output of which was taken and used by

the Railway Company for company fuel. Its principal, if not sole, function. 

has been to take title to and hold various properties for and on behalf of

the Railway Company. Practically all of these items of property are used

for common carrier purposes by the Railroad Company, (emphasis in

original).

There is no evidence that MsTn Holdings engages in any outside commercial business. 

Rather, the record shows “the principal, if not sole function” is to hold title to the rail line

used by MsTn RR. Accordingly, the Board finds MsTn Holdings, by owning the rail line

of the affiliated rail carrier MsTn RR, performs a service in connection with the

transportation of property by rail. See regulations of the Board at 20 CFR 202.7., and

Southern Development Co. v. Railroad Retirement Board, 243F. 2d 351 (8th Cir., 1957).

As it is under common control with MsTn RR, and performs a service in connection with

railroad transportation, MsTn Holdings is a covered employer under the Acts, effective

May 31, 2003, the date the rail carrier began operations.
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It should be noted that any officer of CGX who is also an officer of CGX covered

subsidiaries may be considered an employee of the subsidiary for any work done for the

subsidiary. Similarly, any employee of CGX that is performing day to day work for any

carrier or affiliate covered under the Acts may be considered an employee of the carrier

or affiliate.

i

Michael S. Schwartz

V. M. Speakman, Jr.'

(Dissenting in part in

separate opinion)
DISSENTING OPINION OF

V. M. SPEAKMAN, JR.

EMPLOYER STATUS DETERMINATION

MISSISSIPPI TENNESSEE RAILROAD LLC

MISSISSIPPI TENNESSEE HOLDINGS LLC

CGX, INC.

While I agree any officer of the parent company CGX, Inc. who is also an officer of one

its covered subsidiaries, and employees of CGX, Inc. who are involved in the day-to-day 

operations of the subsidiaries should be considered employees of the carrier, I would 

also find that CGX, Inc. is under common control with Mississippi Tennessee Railroad 

LLC, its subsidiary carrier.

The majority found that CGX was not under common control with its subsidiary carrier

based upon the decision in Union Pacific v. United States, 5 F.3d 523 (Fed. Cir. 1993.

In Union Pacific the court held that for purposes of administration of the Railroad

Retirement Tax Act, a parent company cannot be said to be under common control with

its parent company. I will not take the time here to debate the merits of that decision, 

but only point out that, even if one assumes that Union Pacific was correctly decided, 

there are limits to its application in light of the Board’s own regulations. Specifically, 

where the parent and subsidiary are owned by a small number of shareholders, in the

case of CGX, two, in my view Union Pacific is not applicable and the parent and

subsidiary may be said to be under common control. In such a case the common 

control exists because the shareholders of the parent also directly control the 

subsidiary. The parent and subsidiary are essentially one economic enterprise. This is

not necessarily true in the case of a publicly held corporation where ownership is

generally too diffuse to allow control of the organization to be directly vested in the

shareholders. Consequently, I would find that section 202.5 of our regulations controls. 

That section provides that a carrier and non-carrier are under common control when the

power to direct the business of these companies is vested in the same person or

persons. Thus, CGX, Inc. is under common control with its subsidiary carrier and to the 

extent CGX performs services in connection with railroad transportation would be a

covered employer.

A'A, . V. Speakman, Jr ^

Date