FEB 0 2 2000

EMPLOYER STATUS DETERMINATION

DECISION ON RECONSIDERATION

Pacstan, Inc.

Iron Horse Development, LLC

This is the determination of the Railroad Retirement Board on reconsideration

of the employer status of Pacstan, Inc. (Pacstan) and Iron Horse Development,

LLC (IHD), as employers 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).

BACKGROUND

On February 3, 1999, it was determined: (i) that Pacstan became an employer

under the RRA and the RUIA effective January 1, 1992; and (ii) that IHD was a

covered employer under the Acts from January 1,1995 through December 4,

1996. Pacstan and IHD submitted a timely request for reconsideration of those

decisions.

Ms. Jo A. DeRoche and Mr. Todd A. Newman, attorneys for Pacstan and IHD,

filed a brief in support of the request for reconsideration. Additionally, Mr.

Nicholas B. Temple, Jr., President ofthe Columbia Basin Railroad Company

(CBRC) (BA No. 2644), submitted a Verified Statement regarding the formation

and functions of Pacstan, Inc. Previously, Mr. Todd Leinbach, controller of

Pacstan, Inc., provided information used by the Board in determining

employer coverage of Pacstan and IHD.

The Board takes notice that Pacstan, Inc. has changed its corporate name from

Pacstan, Inc. to Pacific Standard Corporation effective July 17, 1997. For ease

of reference, this entity will be referred to herein as Pacstan1.

DISCUSSION

Part 1 — Pacstan

In B.C.D. No. 99-7, the Board found that Pacstan became an affiliate employer

under section l(a)(l)(ii) of the RRA and the corresponding provision of the

'This entity is not the same Pacific Standard Corporation that was the subject ofRRB 

Legal Opinion L-91-125. The original Pacific Standard Corporation was a Temple entity

established primarily to provide car repair and related services to WCR.C The original Pacific

Standard Corporation discontinued operations and was dissolved in 1991.

BCD 2000-5.1
Pacstan, Inc.

Iron Horse Development, LLC

RUIA effective on January 1,1992, the date on which it was incorporated and

began operations. Section 1(a)(1) of the RRA 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

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)(lXi) and (ii)].

In order to be an “affiliate employer” under section l(a)(l)(ii) of the RRA, an

entity must meet both of the requirements included in the statutory definition.

In B.C.D. No. 99-7, the Board found that Pacstan was under common control

with the Columbia Basin Railroad Company (CBRC) because the same two

individuals2 who own 100 percent of the stock of CBRC also own 52 percent of

Pacstan. The Board found that Pacstan met the second requirement for an

affiliate employer because it is a management company which conducts 30

percent of its business with CBRC.

In its request for reconsideration, Pacstan argues initially that it should not

have been held to be an employer because it has operated as a “constructive

holding company” and, therefore, like Union Pacific Corporation,3 was not

under common control with a rail carrier employer. Pacstan argues that it

•Brothers, Eric Temple and Nicholas B Temple, Jr

3Union Pacific Corporation v. United States. 26 Cl. Ct. 739 (1992), aff'd., 5 F. 3d 523 

(Fed. Cir. 1993).
Pacstan, Inc.

Iron Horse Development, LLC

should be found not to be under common control with a railroad because it

differs from Union Pacific Corporation (“UPC”):

... in only one respect. Whereas UPC technically

“holds” the stock of UPRR [Union Pacific Railroad]

and the other entities within the UP family, Pacstan is

not the corporate “parent” of the entities it oversees.

This distinction, however, exists only on paper. As the

foregoing demonstrates, Pacstan was created for the

same purpose as UPC, performs the same role within

the Temple corporate family that UPC performs within

its own corporate family, and — like UPC — was not

created to evade the railroad retirement system.

Under these circumstances, the RRB should not treat

Pacstan differently than UPC just because, in a flow

chart, Pacstan would not be connected by vertical lines

to the Temples’ other corporate ventures. (Request for

Reconsideration, page 9. Emphasis supplied.)

Pacstan proposes that the Board use a four-part test to determine whether an

entity should be deemed to be a “constructive holding company” and therefore

not covered by the Acts. The proposed test focuses on the purpose for which an

entity is formed and on the functions which the entity performs. Under the

proposal, a company which meets the following four factors would be found not

to be a covered employer: (1) The company’s purpose is to enable the individual

corporations within the corporate family to focus solely on their day to day

operations. (2) The company was not created to evade the railroad retirement

system. (3) The company manages the growth and oversight of a family of

corporations that includes a common carrier by rail. (4) The company does not

primarily perform “traditional railroad functions”.

In the Union Pacific case, the United States Court of Appeals for the Federal

Circuit held that Union Pacific Corporation was not under common control

with its wholly owned subsidiary, the Union Pacific Railroad. The Court

reached its decision, however, not because of the purpose for which Union

Pacific Corporation was created or based upon the functions which Union

Pacific Corporation performed, but solely because Union Pacific Corporation
4-

Pacstan, Inc.

Iron Horse Development, LLC

owns the Union Pacific Railroad. The Court wrote that, “The term 'under

common control’ does not usually apply to two companies in a parentsubsidiary relationship.” 5 F.3d at 525.

Similarly, in the case of Pacstan, the Board finds that the purpose for which

Pacstan was created is not relevant to a determination of whether it is under

common control with a rail carrier. The term “control” is defined in the

Board’s regulations 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 of the

policies and business of such a company or person. (20

CFR 202.4).

Section 202.5 of the 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 carrier is controlled. (20 CFR 202.5).

Thus, the Board’s regulations provide that a company is under common control

with a rail carrier within the meaning of section l(a)(l)(ii) of the RRA if the same

person or persons have the right to direct the policies and business of that

company. In the case of Pacstan, brothers Eric Temple and Nicholas B. Temple,

Jr. own 52 percent of Pacstan and also own 100 percent of the stock of Columbia

Basin Railroad Company. By virtue oftheir ownership interest, Eric and Nicholas

B. Temple, Jr. have the right to control both CBRC and Pacstan. The Board

therefore affirms its initial finding that Pacstan is under common control with a 

rail carrier employer.
-6-

Pacstan, Inc.

Iron Horse Development, LLC

the submission of information pertaining to the history and all

operations of such company or person with a view to determining

whether it is an employer or whether some identifiable and separable

enterprise conducted by the person or company is to be considered

to be the employer, and will make a determination in the light of

considerations such as the following:

(1) The primary purpose ofthe company or person on and since

the date it was established;

(2) The functional dominance or subservience of its business

which constitutes a service or operation of equipment or facilities in

connection with the transportation of passengers or property by

railroad in relation to its other business;

(3) The amount of its business which.constitutes a service or

operation of equipment or facilities in connection with the

transportation of passengers or property by railroad and the ratio of

such business to its entire business;

(4) Whether such service or operation is a separate and distinct

enterprise;

(5) Whether such service or operation is more than casual, as

that term is defined in §202.6. [20 CFR 202.9(a)].

In support of this argument, Pacstan cites the following factors. First, Pacstan

was established to provide management oversight to all of the corporate entities

within the Temples’ corporate family, and notjust to the rail carriers, Washington

Central Railroad Company and Columbia Basin Railroad Company. The

management oversight functions performed by Pacstan are not railroad specific.

Pacstan performs essentially the same functions, e.g., payroll, assessing and

reviewing current and prospective business development opportunities, and

providing general direction and support as to operational and managerial issues,

for both its railroad and non-railroad affiliates. Since its beginning, Pacstan has

consistently derived less than half of its revenue from and spent less than half of

its time on its single railroad affiliate. From May 1, 1994 to December 3, 1996,

when the railroad affiliate was Washington Central Railroad Company, the

revenue and time figures attributable to Pacstan’s railroad-related activities were

49 percent and 40 percent, respectively. From December 4, 1996 to the present,

Pacstan’s sole railroad affiliate has been Columbia Basin Railroad Company.
Pacstan, Inc.

Iron Horse Development, LLC

-7-

During that time period, Pacstan has derived 30 percent of its revenue from and

spent 25 percent of its time on matters related to CBRC. Pacstan also stated that

its railroad-related work has consistently been performed by a core group of

individuals familiar with railroad operations, along with its support staff. Other

Pacstan employees perform little or no rail-related work at all. Pacstan provided

a chart showing the percentage of time each employee was estimated to have

spent on each corporate affiliate from May 1994 through 1998. Pacstan

acknowledged that the level of attention consistently dedicated to its railroad

affiliate by certain Pacstan employees has been neither irregular nor infrequent

and, therefore, is more than casual service under section 202.6 of the Board’s

regulations.

The Board finds that segregation is appropriate in this case. The evidence

demonstrates that while Pacstan has done and continues to do a substantial

amount ofservice for its rail carrier affiliate, more than one-half of its revenue has

consistently been derived from and more than one-half of its time has routinely

been spent performing work for its non-rail affiliates. The source of Pacstan’s

revenue and its allocation oftime is consistent with the purpose for which Pacstan

maintains it was established; i.e., to provide management oversight to all of the

corporate entities within the Temple family of corporations. Additionally,

although Pacstan does not have a railroad department perse, it has a separate

group of core group employees who provide a regular level ofservice to its railroad

affiliate. There is no serious question as to the nature of the services being

performed for the railroad affiliate, the identity of the employees providing those

services, or the portion of their remuneration attributable to the performance of

those services. The Board therefore finds that Pacstan is an affiliate employer

under the RRA and the RUIA only with respect to the services provided for its rail

carrier affiliates, initially to WCRC and subsequently to CBRC.

Part 2 — Iron Horse Development, LLC

In B.C.D. No. 99-7.1, the Board held that Iron Horse Development, LLC (IHD) was

a rail affiliate employer from January 1, 1995 to December 4, 1996. The Board

based its decision on information that IHD was a real estate lease management

company which obtained essentially all of its revenue from the management of

railroad property.
Pacstan, Inc.

Iron Horse Development, LLC

-8-

In its request for reconsideration, IHD argues that it was never an employer under

the ERA and the RUIA because it was created to manage railroad owned property

that is either idle or leased to third parties for non-railroad purposes. IHD

explained that when, in previous information submitted to the Board, it had

indicated that it derived “virtually 100 percent" of its revenue from the

management of “railroad property,” it was referring to real estate owned by

railroads, but used for non-railroad purposes. IHD stated that most of the real

estate is either chartered right of way or fee simple property that has been leased

to non-carrier third parties. IHD appended Exhibit D to its request for

reconsideration to provide what it called “a representative sample of IHDmanaged property.” IHD states that Exhibit D shows that IHD, among things,

manages property leased to: Boise Cascade Corporation in connection with a

pipeline permit, Ellensburg Telephone Company in connection with a wireline

permit, Del Monte Foods Plant 125 for use as a private crossing, Hansen Fruit &

Cold Storage Company for use in connection with a storage building and parking

lot, Inland Pipe & Supply Company for use in connection with warehouse and

office functions, Valley Leasing Company for use as an employee parking lot,

Central Salvage & Auto Company for use in connection with an auto wrecking

facility, Nakano Foods, Inc. for use in connection with a vinegar and juice

processing plant. IHD has indicated that it has not performed any services in

connection with rail transportation functions of either of its rail carrier affiliates.

Based upon the additional information submitted by IHD, a majority of the Board

accepts IHD’s description ofthe services it performs as involving “non-operating

properties.”

The question of whether the management of non-operating property constitutes

service in connection with rail transportation was considered by the Board in

B.C.D. No. 97-18 and B.C.D. No. 97-18.1, where a majority of the Board found that

CSX Real Property, Inc. and CSX Realty, Inc. were not employers under the RRA

and the RUIA because the property which they managed was not used for railroad

operations. Those coverage decisions cited and followed the ruling of the Board’s

then General Counsel in Legal Opinion L-41-614, an early coverage case which

decided that Santa Fe Pacific Railroad Company (the Santa Fe) was not covered

under the RRA and the RUIA. The Santa Fe was controlled through stock

ownership by The Atchison, Topeka and Santa Fe Railway Company (Atchison),

a rail carrier employer under the Acts. After selling its common carrier property

to Atchison in 1902, Santa Fe managed and sold land-grant lands, which consisted
Pacstan, Inc.

Iron Horse Development, LLC

-9-

almost entirely of grazing lands. Its activities included contracting to sell, selling,

leasing and paying taxes on lands it owned, making exchanges of land with the

United States under acts of Congress, procuring patents, and paying surveying

costs to the United States as required by law. The net revenues from Santa Fe’s

activities were transferred to Atchison in the form of dividends upon its stock in

the Santa Fe and were commingled with other funds ofAtchison. Legal Opinion

L-41-614 concluded that:

The liquidation of non-common-carrier lands, the

proceeds of which are not set aside for any specific

railroad purpose, does not constitute the performance of

a service in connection with railroad transportation.

In the case of IHD, the additional explanation and information provided in the

request for reconsideration demonstrates that IHD manages property that is not

used in connection with railroad transportation. A majority ofthe Board therefore

finds that IHD did not provide service in connection with railroad transportation

and was thus never an employer under the RRA and the RUIA. The ruling in

B.C.D. No. 99-7.1 is reversed.

FINDINGS

1. Pacstan became a rail affiliate employer under section l(a)(l)(ii) of the RRA

and the corresponding section of the RUIA effective May 1, 1994 only with

respect to the services provided for its rail carrier affiliates.

2. Iron Horse Development, LLC was never an employer under the RRA and

the RUIA because it did not provide service in connection with railroad

transportation.
Pacstan, Inc.

Iron Horse Development, LLC

-10-

CONCLUSION

For the reasons explained above, the request for reconsideration is denied in part

and allowed in part.

Cherryf T. Thomas

V. M. Speakman, Jr. (Dissenting

in part)

Jerome F. Kever