B.C.D. 03-22

Employer Status Determination FEB 2 7 2003

Cedar American Rail Holdings, Incorporated

This is the decision ofthe Railroad Retirement Board regarding the status ofCedar

American Rail Holdings, Incorporated (Cedar American) as an employer under the

Railroad Retirement and Railroad Unemployment Insurance Acts. The status of

this company has not previously been considered.

Information regarding Cedar American was provided by Ms. Kirsti Stein, Assistant

Comptroller of Cedar American. In her letter dated September 19, 2002, she

advised that the first employee of Cedar American started employment June 17,

2002, and that as of September 1, 2002, Cedar American employed 55 individuals.

She described the business of the company as performing administrative functions

for the Iowa, Chicago & Eastern Railroad Corporation (IC&E RR) and the Dakota,

Minnesota & Eastern Railroad Corporation (DM&E RR).1 The Surface

Transportation Board has described Cedar American as the wholly owned

subsidiary of DM&E RR, and the beneficial owner of 100 percent of the common

stock ofthe IC&E RR, placed in a voting trust pending approval ofthe acquisition

action by the STB. See: Dakota. Minnesota & Eastern Railroad Corporation and

Cedar American Rail Holdings, Inc.—Control—Iowa. Chicago & Eastern Railroad

Corporation, STB Finance Docket No. 34178, 67 Fed. Reg. 61188, 61190,

(September 27, 2002).

Section 1(a)(1) of the Railroad Retirement Act (RRA) (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;

The DM&E RR (BA 2632) has previously been determined to be a rail carrier employer

covered by the Acts effective September 5, 1986. See Legal Opinion L-86-123. The

status of IC&E RR under the Acts is the subject of a separate decision of the Board

considered concurrently with the status of Cedar American.

BA#9632
-2-

Cedar American Rail Holdings, Incorporated

(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) ofthis 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 * * *.

See also section 202.8 of the Board's regulations (20 CFR 202.8). Sections 1(a)

and 1(b) of the Railroad Unemployment Insurance Act (RUIA), 45 U.S.C. 351(a)

and (b) contain substantially similar definitions, as does section 3231 of the

Railroad Retirement Tax Act (RRTA), 26 U.S.C. 3231.

Cedar American is clearly not a carrier by rail. Whether Cedar American is

covered as a rail carrier affiliate depends in the first instance on whether it is under

common control with a rail carrier. 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 ofsection 3231 ofthat Act. Union Pacific Corporation v. United States. 5

F.3d 523 (Fed Cir. 1993). As defined by the Union Pacific case, Cedar American

as the corporate parent of IC&E RR is not under common control with its

subsidiary. However, Cedar American is itself the wholly owned subsidiary of

DM&E RR. The DM&E RR, through ownership of Cedar American, thus also

owns IC&E RR. In this sense, both Cedar American and IC&E RR are under the

control ofthe DM&E RR. Union Pacific, 5 F. 3d at 527; see also Utah Copper Co.

v. Railroad Retirement Board, 129 F. 2d 358, 363, (10lh Cir. 1942) (a railroad and a

company providing mechanical repairs for the railroad, both owned by a parent

company, are under common control under the Acts). In view ofthe fact that the

Board has determined in a separate decision that IC&E RR is a rail carrier

employer under the Acts, the Board now finds Cedar American, by reason of the

ownership by DM&E RR of both Cedar American and IC&E RR, to be under

common control with the IC&E RR within the meaning of the Acts. See section

202.5 ofthe Board’s regulations (20 CFR 202.5).
-3-

Cedar American Rail Holdings, Incorporated

The remaining question is whether Cedar American performs a service in

connection with the transportation of property by rail. Regulations of the Board

provide that service rendered by a carrier affiliate is in connection with the

transportation of property by railroad ifsuch service is reasonably directly related,

functionally or economically, to the performance of obligations which a company

has undertaken as a common carrier by railroad, or to the handling of property

transported by railroad. See 20 CFR 202.7. As noted above, Ms. Stein states that

Cedar American “performs administrative functions” for the DM&E RR and the

IC&E RR. Management and administration have been held to be services within

the meaning ofthe Acts. See Adams v. Railroad Retirement Board. 214 F. 2d 534,

542 (2nd Cir, 1954) (non-carrier affiliate which performed accounting, purchasing,

correspondence and stenography for an affiliated railroad performed a service in

connection with railroad transportation). Moreover, the evidence is that Cedar

American performs these services solely for the affiliated rail carriers. Compare,

Standard Office Building v. United States. 819 F. 2d 1371, 1379 (7th Cir., 1987)

(property management firm which performs approximately half of its service for

unrelated, non-railroad tenants is not performing sendees in connection with rail

transportation within the meaning of the Railroad Retirement Tax Act); and

Livingston Rebuild Center, Inc, v. Railroad Retirement Board. 970 F. 2d 295, 298

(7th Cir, 1992) (where a company derives 95 percent of its locomotive and rail car

repair business from its rail cander affiliate, the company performs a service in

connection with rail transportation under the Acts). Accordingly, the Board finds

that Cedar American performs a service in connection with rail transportation by

providing administrative services to its rail carrier affiliates.
-4-

Cedar American Rail Holdings, Incorporated

It is therefore the determination of the Board that Cedar American Holdings, Inc.,

became a covered employer under the Acts effective June 17, 2002, the date it

hired its first employee.

Cherryl 1. Thomas

V. M. Spealanan, Jr.