BCD 1996-70

EMPLOYER STATUS DETERMINATION

WCL Railcars, Inc.

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

of WCL Railcars, Inc. (WCLR) 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 sea.) (RUIA).

Information about Railcars was obtained in conjunction with an audit of

Wisconsin Central Ltd. (BA No. 2633) (WCL) and Fox Valley & Western Ltd. 

(BA No. 5622) (FV&W). WCL, WCLR, and FV&W- are wholly-owned

subsidiaries of Wisconsin Central Transportation Corporation (Wisconsin

Central), a holding company which operates through its six wholly owned

subsidiaries. In addition to WCL, WCLR, and FV&W, those subsidiaries include:

Wisconsin International, Inc. (which owns a 27.7% interest in New Zealand Rail

Limited), Sault Ste. Marie Bridge Company (BA No. 4271), and Algoma Central 

Corporation (a Canadian operation).

The officers and directors of WCLR are also officers and directors of Wisconsin

Central and WCL. Specifically, the following individuals are officers and/or

directors of all three companies: Edward A. Burkhardt (President of WCLR),

Thomas F. Power, Jr. (Executive Vice President of WCLR), Thomas W. Rissman

(director of WCLR), and Robert H. Wheeler (director of WCLR). In addition,

Mr. Burkhardt and Mr. Power are employees of WCL.

WCLR was incorporated on August 27, 1987 and began operations on October

11,1 987. The business of WCLR consists of owning and leasing locomotives,

various types of freight cars and other miscellaneous work equipment. WCLR's

sole customers are its affiliated subsidiaries, WCL, FV&W, and Algoma Central 

Railways, Inc. (ACRI). The most recent formal lease agreement is between

WCLR and WCL and is dated November 23, 1 992. That lease states that it will

expire on December 31,2001, subject to such extensions as the Lessor (WCLR)

and Lessee (WCL) may agree upon in writing. When FV&W and ACRI were

acquired in 1993 and 1995, respectively, the formalized agreement between

WCLR and WCL was not revised. Accounting for the payments of lease

charges from WCLR to WCL are re-allocated by WCL's accounting department

to include FV&W and ACRI in the charges, since these companies benefit from

the equipment leased from WCLR.

All lease agreements between WCLR and WCL, FV&W, and ACRI are negotiated

by two WCL employees, Thomas F. Powers, Jr. (Chief Financial Officer of WCL)

and Susan H. Norton (Treasurer of WCL). The accounting for

BCD 1996-70 BA # 9011
WCL Railcars, Inc.

the business functions of WCLR, including the tracking of the intercompany

leases, payables and receivables, is performed by members/employees of the

WCL general accounting department.

Section 1 of the RRA defines the term "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, 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, 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)(1 )(i) and

(ii)].

Section 1 of the RUIA contains essentially the same definitions.

The Board finds that WCLR is under common control with WCL and FV&W, two

covered rail carrier employers under the RRA and the RUIA. All three companies 

are wholly-owned subsidiaries of the same parent company, Wisconsin Central. 

In addition, Wisconsin Central, WCL, and WCLR share officers and directors.

Turning to the second part of the statutory definition in section 1 (a)(1 )(ii), the

Board notes that WCLR's entire business consists of owning and leasing

locomotives, various types of freight cars, and miscellaneous work equipment.

Further, WCLR only leases those items to its affiliated rail carriers. Those

carriers could not operate without locomotives and freight railroad cars. CL

Livingston Rebuild Center, Inc, v. Railroad Retirement Board. 970 F.2d 295, 297

(7th Cir. 1992) and Despatch Shoos, Inc, v. Railroad Retirement Board. 1 53

F.2d 644, 646 (D.C. Cir. 1946). A majority of the Board finds that WCLR

performs service in connection with railroad transportation.
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WCL Railcars, Inc.

A majority of the Board finds that this case is distinguishable from the case of

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

1 983). The U.S. Court of Appeals for the Seventh Circuit held in that case that

the Rail Division of Itel Corporation, which was involved in leasing rail cars to

railroads, was not a covered employer under the RRA and RUIA. However, the

Rail Division conducted only 12% of its business with its affiliated rail carriers. 

In addition, Itel Corporation had acquired its affiliated rail carriers quite some

time after its Rail Division came into existence. The Court concluded that the

Rail Division's primary function was not to serve Itel Corporation's rail carrier 

subsidiaries, JcL at 1 247. The same conclusion is not true in the case of WCLR,

which commenced operations the same year as its parent corporation, and

which conducts 100% of its business with its affiliated rail carriers. Finally, the

Court in Jtej based its decision on the premise that Congress chose to limit the

RRA and RUIA to services covered by the Interstate Commerce Act, Id^. at

1249. The Seventh Circuit has discredited that premise in two of its

subsequent decisions, Standard Office Building Corporation v. United States,

819 F.2d 1371, 1378 (7th Cir. 1987); Livingston Rebuild Center. Inc, v.

Railroad Retirement Board, 970 F.2d 295, 298 (7th Cir. 1992).

Thus, for the reasons set forth above, a majority of the Board, the Management

Member dissenting, finds that WCLR is under common control with rail carrier 

employers subject to the RRA and RUIA and that WCLR provides service in

connection with railroad transportation. A majority of the Board finds that

WCLR has been an employer under the RRA and the RUIA since August 27,

1987, the date on which it was incorpora

Glen L. Bower