B.C.D. 03-44

MAY 2 2 2003

EMPLOYER STATUS DETERMINATION

Nexterna, Inc.

This is the determination of the Railroad Retirement Board concerning

the status of Nexterna, Inc., as an employer under the Railroad

Retirement Act (45 U.S.C. § 231 et seep) and the Railroad

Unemployment Insurance Act (45 U.S.C. § 351 et seep)-

Information regarding Nexterna was provided by William K. Paisley,

Vice President, Finance, & CFO of Nexterna, Ellen Curnes, General

Counsel, Nexterna, and Patrick J. O’Malley, Assistant Vice President,

Federal Taxes, Union Pacific Railroad Company. According to

Mr. Paisley, Nexterna, formerly Automated Monitoring & Control

International, Inc.1, was incorporated in December 1986, began doing

business in January 1987, and first compensated employees in

February 1987. On January 15, 2003, Nexterna transferred its

Transportation Business Segment, consisting of the rail-related portion

of its enterprise, to Union Pacific2.

I - Ownership

It was originally intended that Nexterna be owned equally among four

publicly-owned companies: Motorola, Tandem Computers, Alcatel, and

Union Pacific Corporation. However, negotiations with Motorola failed

and Union Pacific ended up with a 50 percent ownership interest in

Nexterna. On December 15, 1998, the other 50 percent ownership

interest in Nexterna was acquired by Union Pacific. Prior to December

15, 1998, there were three classes of common stock, each with different

voting rights. Class A stock, which was entirely owned by Union

Pacific, had the right to elect three class 3 directors. Each class 3

director had two votes. Class B stock, which was owned in equal shares

by Union Pacific, Tandem Computers, and Alcatel Canada-SEL

Division, had the right to elect three class 2 directors, each of which had

1 For purposes ofsimplification, the company at issue will be referred to as “Nexterna,” regardless ofits name at a

particular time.

2 The balance ofNextema’s operation consists ofthe Field Service Division. It is projected that Nexterna will cease

operations by April 15, 2003, and the Field Service Division will be conducted by a separate entity owned by Union 

Pacific Corporation.

BA#9634
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one vote. Class C stock, which was owned in equal shares by the three

companies, had no voting rights. In addition, there was one Class I 

Director elected by a majority of the issued and outstanding stock

entitled to vote. Union Pacific could elect directors that had seven of

the ten director votes. The “Director supermajority vote” rule contained

in Article II, Section 3 of the By-Laws, required a two-thirds vote of all

class 2 directors and a two-thirds vote of all class 3 directors to amend

the By-Laws, approve Nexterna’s annual budget and operating plan,

and any material change in the budget or operating plan; and to

delegate the authority of the Board of Directors. That same Section 3

also provided that a majority of votes of the directors in office

constituted a quorum at all meetings of the Board of Directors and that

a majority of the votes of the directors at any meeting where there was

a quorum constituted the decision of the Board of Directors except for

those items mentioned above which required a Director supermajority

vote.

Nexterna, Inc.

The supermajority provision ensured that no single shareholder had

control over the “policies and business” of Nexterna. The Nexterna

Board of Directors consistently followed the supermajority provision,

particularly when dealing with the budget process, spending practices,

and other financial issues. For example, any expenditures above the

limits specified in the budget could not be undertaken without a

supermajority vote. The directors nominated by Union Pacific were

aware that they needed the explicit approval of the directors nominated

by Tandem and Alcatel regarding any significant financial or

operational matter. Those directors were not passive and exerted active

control over the Board of Directors by reviewing and approving

contracts with major customers (including Union Pacific), by chairing

the Compensation Committee, and by reviewing and approving annual

budgets and operating plans. The supermajority provision ensured that

the directors nominated by Tandem and Alcatel actively participated in

all significant policy decisions of Nexterna.

The rationale for this voting system was that Nexterna was intended to 

be a joint venture among four companies: Tandem Computers, Alcatel
-3-

Nexterna, Inc.

Canada-SEL Division, Union Pacific, and Motorola. As noted earlier,

each of these companies was to own a 25 percent interest in the new

company. However, Motorola decided not to participate. The three

remaining companies decided to proceed, while continuing discussions

with Motorola. They agreed that Union Pacific would hold a 50 percent

ownership interest, with the understanding that half of this interest

could be reallocated to Motorola if it decided to participate.

Negotiations with Motorola continued but finally were not successful,

and neither were discussions with other prospective investors. As

described by counsel for Nexterna, having Union Pacific hold the

additional 25 percent share, the Motorola share, was designed in part to 

facilitate disposition of the Motorola share either to Motorola or to

another investor in one transaction (rather than requiring each investor

to transfer a share of its ownership) and, by requiring a supermajority

vote, was intended to prevent Union Pacific from having sole control of

the Board.

II - Operational Structure and Operations

Counsel for Nexterna characterizes3 it as a high-tech startup joint

venture that operated independently of its three investors. It has

always been managed by its own executive team, which separately

manages all significant functions of Nexterna. None of the directors

were involved in day-to-day management. Nexterna has its own sales

and marketing operations, its own contracting and procurement

practices, and separate legal, accounting, and auditing functions.

Nexterna has its own human resources operation with separate and

distinct policies and practices. None of the members of the executive

team managing Nexterna has simultaneous positions with Union

Pacific and only 13 of of Nexterna’s employees had previously worked

for a railroad. There was no transfer of employees from Union Pacific to 

Nexterna.

Nexterna is primarily a software manufacturer which produces wireless

data technology for two-way communications to be used in data

3 The following description ofNexterna applies only to the operation up until January 15, 2003.
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exchange such as in vehicle tracking. Nexterna offers software

applications, on-board and computing hardware, consulting services,

systems integration, installation services, and ongoing support services.

Hardware manufacturing is primarily outsourced. Nexterna provides

ongoing maintenance and customer service, which Nexterna describes

as an ancillary part of its business analogous to services provided by

such companies as Microsoft and Xerox, or to a lease of vehicles with

maintenance. Nexterna has developed a suite of wireless data

solutions, including consulting services and software and hardware

products, which provide work order reporting, location tracking,

messaging, and other applications. In 1987, 100 percent of its

employees worked in providing services to rail carriers; in 1990, 95

percent; in 1995, 80 percent; and in 2000, 40 percent. Nexterna

forecasts that the share of Nexterna’s revenue attributable to the rail

industry will decline from 66 percent over the past 5 years to 7 percent

in the next 5 years. Among the railroads for which it provides or has

provided services were Burlington Northern, Canadian National,

Canadian Pacific, CSX, Norfolk Southern, the Union Pacific, and others.

The following figures show the percentage of sales by Nexterna to

Union Pacific and to the railroad industry as percentages of total sales.

1996: Sales by Nexterna to Union Pacific were 17.389 percent oftotal sales;

Nexterna, Inc.

1997:

1998:

1999:

2000:

2001:

24.862

28.323

57.958

79.761

80.385

66 66

66 66 2002: 43.335
Nexterna, Inc.

1996: Sales by Nexterna to the railroad industry were 54.220 % oftotal sales;

1997:

1998: “

1999:

2000:

2001:

2002:

64 66

66 64 66

66 66

66 66

66 66 66 66 66

46 66 66 66 66

66 66 66 66 66

68.445

86.989

66 66 66

97.229 “

66 66

91.637

77.302

94.385 “ “ “

The percentages for 2002 represent estimates.

Nexterna entered into a contract with Union Pacific to design and

manufacture software and install and service hardware and software

for a locomotive tracking system, which is what caused the higher

percentage of business attributable to Union Pacific in 2000 and 2001.

Nexterna is in the final stages of completing performance under this

contract, which was for the most part to be completed in 2002.

Nexterna continues to provide a limited consulting and servicing of the

equipment, which represents a small percentage of the company’s

business.

Nexterna has always planned to diversify beyond the railroad industry

and, since the mid-1990s, it has made a concerted effort to develop nonrail customers. Nexterna’s initial investors understood that businesses

beyond the rail industry would find a use for wireless technologies,

which enable them to extend their computer and information systems to

mobile workers. In order to appeal to other non-rail industries,

Nexterna has expanded its sales and marketing capabilities and

recruited most of its employees from outside the railroad industry. Part
of the diversification strategy involved a $50 million investment for

products called FieldPro and FreightQuest. FieldPro is a

comprehensive field service management software suite and is sold to a 

variety of industries, but not to railroads. FreightQuest is a software

tracking system that allows customers in the commercial trucking

industry to track the status of their shipments. FieldPro is a part of

Nexterna’s growing Field Services business segment, which focuses on

marketing Nexterna’s products to companies with significant field

services or remote employees. Nexterna noted that it suffered an

unanticipated shortfall in other business segments with the collapse of

the technology section of the economy, but that Nexterna still intends to 

diversify.

Nexterna has diversified its customer base in its Transportation unit as

well. Nexterna’s transportation-related business generally involves an

on-board computer, a satellite antenna provided by Wireless Matrix

USA, Inc., and various software products, including Opti-Track AVL

(automatic vehicle location), a vehicle locator, whereby the user can look

at a map and determine location, speed, and other information

regarding use of vehicles. Opti-Track is an on-board computer which

can speed up maintenance since it has a system of monitors which

measure oil, temperature, etc. Opti-Track can also measure fuel usage.

Nexterna has entered into a license agreement with Wireless Matrix, a

leader in the satellite data transmission business, which has obtained a 

license to offer OptiTrac. The contract with Union Pacific referred to

above involves installing Opti-Track in locomotives at a cost of

$6,000.00 to $8,000.00 per locomotive. The contract includes technical

support (“help line”) and updates (which are required when bugs in the

programs are found). The installation covers about one-half of Union

Pacific’s locomotives. Other software products include OptiPath and

OptiWorkOrder.

Nexterna’s contracts with Union Pacific are based on bids submitted to

Union Pacific and on arms-length bargaining writh Union Pacific.

Nexterna does not get better terms from Union Pacific than does its

competitors. It appears from Nexterna’s business plan that it intends

Nexterna, Inc.
to increase its percentage of rail industry business as compared to that

for its affiliate Union Pacific. Nexterna’s contract with Union Pacific

covers about one-half of Union Pacific’s over-the-road locomotive fleet,

and does not cover any of Union Pacific’s approximately 440 switch

engines.

Some of the other products sold by Nexterna are described as follows.

OptiWorkOrder is a graphical user interface that enables railroads to

report work in the field including current train arrivals and departures;

manage train and track inventory; send new or updated work order

information to the field; receive real time updates on completed work;

etc. Mobile Resource Management is an evaluation of a company’s

potential for use of mobile resource management. ARC2 is an onboard

computer to monitor locomotive functioning and to report data.

OptiSoft is a suite of software applications for mobile resource

management including fuel management, fleet location and tracking,

etc. OptiPath consists of wireless messaging middleware. OptiFuel

monitors remote fuel usage. Other software offered includes FieldPro

Escalations, which tracks the status of field service calls and

automatically notifies technicians, dispatchers, managers, or customers

of status changes; FieldPro, which “provides an electronic interface for

connecting the FieldPro service management system with financial and

Enterprise Resource Planning applications;” FieldPro Service Projects,

which provides support for managing projects; Antenna Tools for

FieldPro, which is a web-based application for using FieldPro service

management on the internet; FieldPro Remote Tech, which is a laptopbased application used by technicians to download service order

dispatches and upload completed work orders and expense reports;

FieldPro Sales Order Entry, which supports sales and distribution with

packaging, pricing, quotations, orders, shipping, and billing; and

FieldPro Message Centre, which is “an integrated communications hub

for managing contacts with customers, technicians, vendors and other

groups who interact with [the] service team;” FieldPro Business

Intelligence, which is a software program to help measure trends,

monitor performance indicators, and investigate sources of performance

Nexterna, Inc.
-8-

variation. Other related programs are FieldPro Service Inventory and

FieldPro IVR Module.

Nexterna stresses that the products Nexterna designs, markets, and

installs are not unique to the railroad industry and contends that they

are not essential to rail transportation. Nexterna uses wireless

computing technologies to allow for the most effective use of mobile

workers — combining fleet management with remote computing for field

service workers. A significant number of companies in various

industries have purchased Nexterna’s mobile tracking applications.

Nexterna states that, although its wireless data solutions are useful for

managing the mobile data communications in the railroad industry, the

design, manufacture, and installation of wireless communication

services is not a core function historically performed by railroads.

Nexterna states that its chief competitors are not railroads, but other

large technology companies, such as Microsoft, PeopleSoft, Siebel, and

Astea, and manufacturers such as General Electric, Wabtec, Raytheon,

and Lockheed Martin.

Ill - Legal Anatysis

Nexterna, Inc.

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

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).

Prior to December 15, 1998

Nexterna clearly is not a carrier by rail. Accordingly, we turn to section

l(a)(l)(ii) of the Railroad Retirement Act in order to determine whether

it is an employer within the meaning of that section. Under section

l(a)(l)(ii), a company is a covered employer if it provides "service in

connection with" rail transportation and if it is owned by or under

common control with a rail carrier employer.

Until December 15, 1998, Union Pacific Corporation had a 50 percent

ownership interest in Nexterna. The two other companies which had an

interest in Nexterna each had a substantially smaller interest. Section

202.4 of the Board’s regulations provides that:

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.

In the opinion of the Board, the supermajority rule for certain

fundamental actions by the board of directors, and the intent of the

parties in creating this rule, means that Union Pacific Railroad did not

control Nexterna. It was the intent of the parties, in entering into this

arrangement, to protect the holders of the two lesser interests by

carrying out the intent of the original plan which contemplated four

equal shareholders. Accordingly, the Board finds that prior to

December 15, 1998, Nexterna was neither owned by nor under common
Nexterna, Inc.

control with a rail carrier employer and was thus not a covered

employer under the Acts.

After December 15, 1998

On or about December 15, 1998, Union Pacific Corporation, which is the

holding company for Union Pacific Railroad, acquired a 100 percent

interest in Nexterna. Accordingly, Nexterna has been under common

control with Union Pacific Railroad since that date. Therefore, the

remaining issue in regard to the coverage of Nexterna from and after

that date is whether Nexterna is providing a service in connection with

railroad transportation.

Section 202.7 of the Board's regulations provides that service is in

connection with railroad transportation:

* * * if such service or operation is reasonably directly

related, functionally or economically, to the performance of

obligations which a company or person or companies or

persons have undertaken as a common carrier by railroad, or

to the receipt, delivery, elevation, transfer in transit,

refrigeration or icing, storage, or handling of property

transported by railroad. (20 CFR 202.7).

Nexterna contends that the provision of software and hardware

constitutes sales and not a service, and therefore ought not to be

covered under the Acts unless the product sold is essential to or unique

to rail transportation. Nexterna further contends that the provision of

software and hardware for various purposes by Nexterna as described

above is not necessary to the function of railroads, and is not used only

by rail carriers, as is evidenced by Nexterna’s provision of these

products to non-rail companies.

The Board does not adopt Nexterna’s interpretation of the Acts, and

finds that in the manufacture, sale, and servicing of computer software
Nexterna, Inc.

and hardware, Nexterna is providing services in connection with the

railroad industry which is “reasonably directly related, functionally or

economically, to the performance of obligations * * * ” undertaken as a

common carrier by rail.

In Railroad Concrete Crosstie Corporation v. Railroad Retirement

Board. 709 F.2d 1404, 1408 (11th Cir. 1983), in response to the

argument that the manufacture of crossties cannot be construed as a

service, the Court stated that “it is the provision of the crossties by

Railroad Concrete to Florida East Coast which constitutes the ‘service.’”

In support of its decision, the Court cited Railroad Retirement Board v.

Duquesne Warehouse Co., 149 F.2d 507 (D.C.Cir. 1945), affd 326 U.S.

446, 90 L.Ed. 192, 66 S.Ct. 238 (1946), where the Court of Appeals for

the District of Columbia held that a warehouse corporation owned by a

railroad and engaged in loading and unloading railroad cars and other

handling of property transported by railroad, and in other activities

which enabled the railroad to perform its rail transportation more

successfully, was performing "services in connection with" the

transportation of property by railroad and therefore was an employer

under the Railroad Unemployment Insurance Act. The Court of

Appeals quoted from the opinion of the Railroad Retirement Board

which had held that Duquesne was an employer under the Act:

In light of the general purpose of the * * * [Railroad

Unemployment Insurance Act] and accepted doctrines of

statutory construction, the Board has construed the carrier

affiliate coverage provision as denoting services which are an

integral part of, or are closely related to, the rail

transportation system of a carrier and as including within its

coverage (1) carrier affiliates engaged in activities which are

themselves railroad transportation or which are rendered in

connection with goods in the process of transportation, such as

loading and unloading railroad cars, receipt, delivery, transfer

in transit, and other handling of property transported by

railroad; and also (2) carrier affiliates engaged in activities

which enable a railroad to perform its rail transportation, such
as maintenance and repair of way and equipment, and

activities which enable a railroad to operate its rail system

more successfully and to improve its services to the public such

as auxiliary bus transportation, dining facilities, and

incidental warehousing services.

We agree with the Board's construction of the Act. It

follows the ordinary meaning of the words used in the statute.

It achieves a common sense result well within what we

conceive to be the policy of Congress, i.e., to cover the business

of railroading as it is actually carried on. (Footnote omitted.)

149 F.2d at 509.

The Court in Railroad Concrete Crosstie also cited Despatch Shops. Inc.

v. Railroad Retirement Board. 153 F. 2d 644 (D.C. Cir. 1946), which

involved a subsidiary of the New York Central Railroad Company which

owned and operated railroad freight car shops which manufactured and

repaired railroad cars for its parent. The court concluded that the

primary purpose of Despatch Shops was to aid the transportation

operations of its parent company, the New York Central. The Court did

not find persuasive an argument that because Despatch manufactures

new cars it should be considered an independent manufacturing

company, rather than a carrier affiliate which performed services for

the carrier. 153 F. 2d at 646.

Further, the Court in Railroad Concrete Crosstie also cited Southern

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

1957), which concerned a real estate investment subsidiary of the

Kansas City Southern Railroad Company that purchased a building

which it rented to the railroad to house its general offices. Employees of

the subsidiary cleaned and maintained the building. In affirming the

Board’s decision that the company was an employer under the Acts, the

Court noted that the furnishing of offices and their maintenance and

repair were certainly supportive of transportation and essential to its

proper functions 243. F. 2d at 355.

Nexterna, Inc.
Nexterna, Inc.

It is clear from Despatch Shops and Railroad Concrete Crosstie that the

fact that a concern manufactures or constructs a product does not

remove it from the “service in connection” language of the Acts.

Despatch Shops constructed rail cars and Railroad Concrete Crosstie

supplied crossties, just as Nexterna supplies Union Pacific and other

rail carriers with computer hardware and software.

Nexterna contends that its principal business is not the performance of

service in conection with rail transportation, and cites section 202.8 of

the Board’s regulations, which provides that a company under common

control which is principally engaged in service in connection with rail

transportation is a covered employer. Although the Board finds that

Nexterna is principally engaged in service in connection with rail

transportation, the fact that a company is not principally engaged in

service in connection with rail transportation does not mean that the

company is not covered under the Acts. Ifthe company performs some

railroad service, then section 202.9 of the Board’s regulations may

apply. That section provides that, under certain circumstances, only

part of the enterprise may be a covered employer.

The following cases cited by Nexterna do not seem to apply to the

instant case. Parker LaFarge, Inc., B.C.D. No. 94-18, involved payroll

services being performed by a quarrying company for an affiliate

railroad. The decision held that payroll services constituted services in

connection with railroad service, but ruled that the services in that case

represented such a small percentage of the company’s operations that

the service constituted casual service under section 202.64 of the

Board’s regulations. Trans-Global Solutions, Inc., d/b/a Austin Area

Terminal Railroad, Inc., B.C.D. 01-41, did not, as Nexterna suggests,

hold a company not to be covered because it was principally engaged in

non-carrier business. That decision held the company to be covered as a

carrier, but, under section 202.3 of the Board’s regulations, only to the

extent of its operation performing rail-related service (that decision also

“The service rendered * * * is ‘casual’ whenever such service or operation is so irregular or infrequent as to afford

no substantial basis for an inference that such service or operation will be repeated, or whenever such service is

insubstantial.”
held that a subsidiary that took over the operation of the rail line was a

carrier employer). Green Hills Rural Development, L-87-156, cited by

Nexterna for the same purpose as Trans-Global Solutions, is

substantially identical to that case: Green Hills Rural Development was

held to be a carrier employer only to the extent of its carrier operations.

These cases would not appear to have any bearing on the case of

Nexterna.

Nexterna cites a number of legal opinions5 involving large

manufacturing companies which happened to be under common control

with a railroad. These companies held themselves out in the market

place as major producers and suppliers of certain products. Substantial

sales were made by all of them to non-affiliated customers both in and

outside the railroad industry. In the case of Ford, the opinion noted

that sales to railroads were only an insignificant amount of its business.

Likewise, Carnegie and Wheeling had substantial sales to non-railroad

concerns and Pullman had only a small quantity ofsales to its rail

affiliate. The Board does not rule here that all manufacturing affiliates

of railroads who sell their products to their affiliate carriers are

performing services in connection with the transportation of passengers

or property by railroad. However, although language contained in those

decisions suggest that the provision of manufactured items may not

constitute a service in connection with rail transportation, the Board in

its decision regarding Railroad Concrete Crosstie concluded that, at

least where the product manufactured is integral to rail transportation

and where the amount of business done with the rail affiliate is not

insubstantial, that manufacturing may constitute a service in

connection with rail transportation.

Other opinions cited in regard to this area also do not seem applicable.

In Pabtex, Inc., B.C.D. 95-112, Pabtex operated a bulk handling facility

which transferred coal and coke from trucks and rail cars to ships and

barges. The Board found that Pabtex did not perform a service for its

affiliate but rather that its operations were performed pursuant to

Nexterna, Inc.

5 Camegie-Illinois Steel Company, L-39-811; Wheeling Steel Corporation, L-39-571; Pullman Standard Car

Manufacturing Company, L-40-403; and Ford Motor Company, L-40-304.
Nexterna, Inc.

contractual arrangements with brokers6. Nexterna points out that the

Court in Interstate Quality Services v. Railroad Retirement Board. 83

F.3d 1463 (D.C. Cir. 1996), in affirming the Board’s decision holding

Interstate Quality Services to be an employer under the Acts,

distinguished the Board’s earlier decisions regarding Carnegie and

Pullman, mentioned above, by stating that the company “is not in the

business of manufacturing or selling but instead provides services to its

customers * * *.” This case, which concerned a rail affiliate which

performed loading, unloading, and warehousing, does not hold that

manufacturing cannot constitute a service in connection with rail

transportation7. The Court was attempting to distinguish the cases

involving manufacturing, such as Carnegie and Pullman, which are

addressed above.

Nexterna also cites VMV Enterprises, B.C.D. 93-79, to the effect that in

order for a company to be considered to be providing services in

connection with rail transportation, it must be providing something

greater than a minimal amount of service to its rail affiliate.

Nexterna’s contention is that the effort of its organization for its rail

affiliate Union Pacific does not constitute service. However, since the

Board finds that Nexterna’s efforts do constitute service, VMV does not

apply in this case, where a substantial portion of Nexterna’s operations

are performed for Union Pacific. Similarly, Nexterna’s citation of the

Board’s decision regarding A & K Railroad Materials, Inc., B.C.D. 94­

07, is inapposite. That company was found to be performing very little

business with its affiliate railroad. Accordingly, that service was found

to be “casual.”

The Court in Livingston Rebuild Center v. Railroad Retirement

Board. 970 F.2d 295 at 298 (7th Cir. 1992), characterized the

Railroad Retirement Act as “a creaky statute, presuming that

‘railroads’ are distinct entities * * *.” As mentioned above, the

6 The Board did state that the operations performed by Pabtex “are analogous to a manufacturing operation and not

rail-related services * * To the extent that this language suggests that a manufacturing operation cannot

constitute rail-related services, the Board does not follow it.

7 The court cites Railroad Concrete Crosstie, which affirmed the Board’s decision that a manufacturer ofrail ties 

was a covered employer and is addressed above.
Nexterna, Inc.

Court in Duquesne Warehouse Company stated that the Board's

construction of the Act “follows the ordinary meaning of the words

used in the statute. It achieves a common sense result well within

what we conceive to be the policy of Congress, i.e., to cover the

business of railroading as it is actually carried on. (Footnote

omitted.) 149 F.2d at 509.” See also Interstate Quality Services,

cited above, wherein the Court stated that:

Reloads first argues that the services it performs, including the

loading, unloading and storage of rail freight, are not

‘obviously essential to the functioning of the railroad’ or

‘inextricably linked to the operation of the railroad.’ [Citations

omitted.] Perhaps so - but they need not be. The statutes

require that services be performed merely ‘in connection with’

rail activity * * *.8

Accordingly, since Nexterna did a substantial portion of its business

with the railroad industry (66 percent of its revenue over the past 5

years is attributable to the rail industry), and a substantial portion of

that business with its affiliate carrier, the Board finds that Nexterna

provided services in connection with railroad transportation. However,

as mentioned above, on January 15, 2003, Nexterna transferred its railrelated operations to Union Pacific9.

Accordingly, it is determined that Nexterna became an employer within

the meaning of section l(a)(l)(ii) of the Railroad Retirement Act (45

U.S.C. § 231(a)(1)(h)) and the corresponding provision of the Railroad

Unemployment Insurance Act as of December 15, 1998, the date as of

which it came under common control with Union Pacific. The Board

finds further that Nexterna ceased to be a covered employer

8 In this connection it should be noted that the November 2002 issue ofRailway Aee contains an article at page 21,

“KCS Moves to Scheduled Operations” concerning the adoption by the Kansas City Southern of an information

technology system, developed in-house, which seems similar to that provided by Nexterna for Union Pacific.

Consequently, it appears that the product produced by Nexterna is at least not atypical ofthat used by carriers, and is

perhaps widely, ifnot universally or exclusively, used by carriers.

9 At that time, Nexterna laid off approximately 33 employees with an additional 33 to be laid offno later than April

15, 2003. Union Pacific has hired approximately 40 ofthese individuals.
-17-

January 15, 2003, the date as of which the portion of its operation

which provides rail-related services was transferred to Union Pacific.

Nexterna, Inc.

Cherryl T. Thomas

V. M. Speakman, Jr.

LC-uui J

rome F. Kever