BCD 1996-11

Canadian Pacific Finance, I

Decision on Reconsideration

Issued December 15, 1995

No G-215 Available

BA # 9624
Notice No. 96-11

B.C.D. 96-11

CANADIAN PACIFIC FINANCE, INC.

EMPLOYER STATUS DETERMINATION ON RECONSIDERATION

This is the reconsideration decision of the Railroad Retirement 

Board as to whether Canadian Pacific Finance, Inc. (hereafter

CPUSF) is an employer under the provisions of the Railroad 

Retirement and Railroad Unemployment Insurance Acts.

According to information provided for the Board's original

determination, CPUSF was incorporated on January 25, 1991, is

privately held and is under common ownership with the Soo Line

Railroad Company and the Delaware and Hudson Railway, both of which 

are carriers subject to the Interstate Commerce Act. CPUSF has 14

employees. Seven of these employees are also officers of either or

both of its affiliated railroads. According to the evidence of

record, for the year ended December 31, 1992, 38% of the company's 

business and 67% of the Company's revenues came from its affiliated

railroads.

The definition of an employer contained in section 1(a) of the

Railroad Retirement Act (45 U.S.C. § 231 (a)(1)) reads in part as

follows:

The term "employer" shall include--

(i) any express company, sleeping car company, and 

carrier by railroad, subject to subchapter I of chapter 105

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 * * *. [Emphasis

supplied.]

Section 1(a) of the Railroad Unemployment Insurance Act

(45 U.S.C. § 351(a)) provides a substantially similar

definition.

Section 202.5 of the Board's regulations (20 CFR 202.5) defines 

a company under common control with a carrier as one controlled

by the same person or persons which control a rail carrier.

The absence of actual exercise of that control does not

determine whether common control as provided in section 

1(a)(1)(ii) exists; the right or power to exercise control is

sufficient. See 20 CFR 202.4. The Board found that CPUSF is
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CANADIAN PACIFIC FINANCE, INC.

under common control with the Soo Line Railroad Company and the

Delaware and Hudson Railway due to their common ownership.

CPUSF does not argue with this finding; in its Memorandum in

Support of Request for Reconsideration CPUSF states "(W)ith

respect to the definition in (ii) above, CPUSF is not itself a

rail carrier, but is under common control with two railroads,

the Soo Line Railroad Company and the Delaware and Hudson

Railway Company, Inc."

However, as CPUSF states in its Memorandum, this is only the

first part of the definition test set forth in section

1(a) (1) (ii) . Since it is not itself a carrier by rail, in

order to be found to be an employer under the Acts, CPUSF must,

in addition to being under common control with one or more 

railroad employers, be performing "services in connection with

the transportation of passengers or property by railroad."

CPUSF argues that the services it performs are strictly in the

financial area, and "in no way relate to transportation of

property or passengers." In making this argument CPUSF refers 

to draft regulations which have been considered but never

adopted by the Board. As these regulations are merely draft 

regulations, they have no precedential value. In determining

whether or not CPUSF performs a service in connection with

railroad transportation, the Board must look to its existing

regulations and precedential decisions.

The question of what constitutes "services in connection with

the transportation of passengers or property by railroad" has

been litigated on several occasions. In Adams v. Railroad

Retirement Board. 214 F. 2d 534 (9th Cir. 1954), the Court held 

that the provision of "accounting services, the services of a

purchasing department, * * * correspondence and stenographic

services * * * bridge and building services, a safety engineer

and repairs for its automotive equipment and its general 

rolling stock" by a carrier's affiliate were services in

connection with rail transportation so as to render the

affiliate an employer under the Acts. Adams. at 542. In

Southern Development Co. v. Railroad Retirement Board. 243 F.

2d 351 (8th Cir. 1957), the Court, at 355, held that a railroad

affiliate which owned and operated an office building "almost

exclusively for use by a railroad company for ticket selling 

and general offices could reasonably be considered [to be

performing] a service connected with and supportive of rail

transportation" and was an employer under the Acts. In

Railroad Concrete Crosstie Coro, v. Railroad Retirement Board.

709 F. 2d 1404 (11th Cir. 1983), the court held that the
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CANADIAN PACIFIC FINANCE, INC.

provision of Crossties by a manufacturer to its railroad

carrier affiliate was "supportive of transportation and

essential to its proper functioning." Railroad Concrete 

Crosstie. 709 F. 2d at 1410, quoting Southern Development Co..

Consequently, the manufacturer of Crossties was found to be an

employer under the Acts.

In Itel Corp. v. United States Railroad Retirement Board. 710

F. 2d 1243 (7th Cir. 1983), the court held that the leasing of

rail cars is not a service in connection with the

transportation of passengers or freight by rail. The Seventh

Circuit read section 1(a) (1) (ii) of the Act as applying to

services covered by the Interstate Commerce Act or where the

related entity exists to serve the rail carrier affiliates and

where its primary purpose is to remove employees from coverage 

under the Railroad Retirement Act. Itel, at 1248.

In a later decision, Standard Office Building Corporation v.

U.S.. 819 f. 2d 1371 (7th Cir. 1987), the Seventh Circuit was

somewhat critical of its reading of section 1(a)(1)(ii) in the

Itel decision, and more recently, in Livingston Rebuild Center,

Inc. v. Railroad Retirement Board. 970 F. 2d 295 (7th Cir.

1992) , the court declined to follow Itel in regard to limiting 

the coverage of the Railroad Retirement and Railroad

Unemployment Insurance Acts to services which are covered under

the Interstate Commerce Act. Livingston Rebuild Center rebuilt 

locomotives and other rolling stock, about 25 percent of its

business being with its affiliated carrier. The Court found

that rebuilding locomotives constituted a service in connection

with rail transportation, stating in regard to the legislative 

history of the Railroad Retirement Act that:

* * * Nothing in what Congress enacted links the

Railroad Retirement Act to the Interstate Commerce Act;

neither the phrase "service ... in connection with

the transportation of passengers or property by 

railroad" nor any close approximation appears in the

jurisdictional provisions of the Interstate Commerce 

Act. Senator Wagner thought the text of the Railroad

Retirement Act encompassed more than the Interstate 

Commerce Act did, 81 Cong. Rec. 6223 (1937), and the

committee report implies that the Railroad Retirement

Act is broader. S. Rep. No. 6976, 75th cong. 1st Sess.

7 (1937). [970 F. 2d at 298.]
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CANADIAN PACIFIC FINANCE, INC.

CPUSF provides tax, cash management, internal audit and 

financing services to its affiliated railroads. These are

comparable to the services found to be services in connection

with transportation in Adams, supra. Furthermore, the Board

notes that according to the original documentation provided,

38% of CPUSF's business and 67% of its revenues are derived

from the services provided to its affiliated railroads. In its

Memorandum, CPUSF states that for 1993 31% of its revenue came

from railroad affiliates, and in 1994, it was 38% of its

revenue . This is still considerably more than the 25% level of

affiliate service at issue in the Livingston case.

A majority of the Railroad Retirement Board finds that CPUSF is

under common control with a carrier subject to the Interstate 

Commerce Act and that CPUSF is performing services in

connection with the transportation of passengers or freight by

railroad. Accordingly, in the opinion of the majority, CPUSF

is an employer subject to the Acts.

M? Speakman, J?7

^/Jerome F. Kever (Dissenting)