B.C.D. 03-84

EMPLOYER STATUS DETERMINATION

Decision on Reconsideration

Delaware Otsego Corporation

DEC 24 2003

This is the determination of the Railroad Retirement Board on

reconsideration of its decision dated April 24, 2002, regarding the

employer status of Delaware Otsego Corporation (DOC) as an employer

under the Railroad Retirement Act (45 U.S.C. § 231 et sea.) (RRA) and

the Railroad LTnemployment Insurance Act (45 U.S.C. § 351 et seq.)

(RUIA).

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

rk k k

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).

BACKGROUND - BOARD COVERAGE DECISION 02-32

Board Coverage Decision (BCD) 02-32 held that DOC became an

employer under the RRA and the RUIA effective January 31, 1996.

That decision concluded that DOC was a carrier based on a contract it

BA#9248
Decision on Reconsideration

Delaware Otsego Corporation

had entered to act as the agent of the Toledo, Peoria and Western

Railway Corporation (B.A. 2346), in wrhich company it had a substantial

interest, effective as of that date. The Board concluded that DOC was

the operator of the Toledo, Peoria and, accordingly, was a carrieremployer under the Acts. DOC sold its interests and discontinued its

administrative agreement with Toledo, Peoria on August 31, 1999.

DOC was a publicly held company until October 4, 1997, when Walter

G. Rich purchased 80 percent of its common stock and the Norfolk 

Southern Corporation and CSX Transportation acquired ten percent

each. At the time of the stock purchase, DOC wholly owned the New

York, Susquehanna and Western Railway (B.A. No. 3251), for which it 

provided services. Accordingly, the Board concluded that DOC was

under common control with an employer under the Acts for which it 

provided services and was thus an affiliate employer effective October 4,

1997.

REQUEST FOR RECONSIDERATION

In its request for reconsideration, DOC contends that it was not the

operator of the Toledo, Peoria, and that it is not under common control

with the New York, Susquehanna, and that, consequently, it should not

be held to be an employer under the Acts.

-IThe “Administrative Services Agreement” entered into on January 31,

1996 between the Toledo, Peoria and DOC, provided that DOC agreed

to function as the agent of the Toledo, Peoria to supervise and manage

the operation and maintenance of the Toledo, Peoria rail properties.

The services to be performed by DOC under that Agreement are listed

in the Board’s decision dated April 24, 2002, and included performance

of the following duties: the supervision of all railroad operations on rail
Decision on Reconsideration

Delaware Otsego Corporation

properties; the supervision of the maintenance of rail properties!

employment of personnel as might be required for the proper operation

and maintenance of rail properties, including payment of salaries,

wages, payroll taxes, premiums and charges for insurance, etc., and

including the discharge and other disciplining of personnel; the

incurring and payment of all charges and operating expenses of rail

properties! the billing and collecting of all charges for transportation

services, rents, fees, and other amounts due the Toledo, Peoria! and the

negotiation and execution of leases and licenses and other agreements.

In its request for reconsideration, DOC states that it did not manage

the Toledo, Peoria as stated in the Agreement. A re-examination of the

entire record shows that the audit performed in connection with the

Board’s coverage determination described work performed by DOC for

the Toledo, Peoria which included payroll, purchasing, accounting, legal 

services, accounts payable and receivable management, data

processing, real estate management, and administration. This

description is not consistent with the terms of the Agreement but is

consistent with DOC’s contention that it provided administrative

services for all of its subsidiaries and did not operate any of them.

Accordingly, on re-examination of the evidence in the record, the Board

concurs with DOC that it did not operate the Toledo, Peoria and was

not an employer under the Acts by reason of the services provided to the

Toledo, Peoria.

-IIThe issue remaining is whether, within the meaning of that phrase in

the definition of an employer under the ERA and the RUIA, DOC is

under common control with the New York, Susquehanna as of October

4, 1997. As mentioned above, DOC was a publicly held company until

October 4, 1997, when Walter G. Rich purchased 80 percent of its
-4-

Decision on Reconsideration

Delaware Otsego Corporation

common stock and the Norfolk Southern Corporation and CSX

Transportation acquired ten percent each.

A representative of DOC advised that DOC employees also perform

administrative services for the New York, Susquehanna.

Approximately 94 percent of DOC’s operating revenue derived from 

Toledo, Peoria and New York, Susquehanna. Services which DOC

employees perform for the New York, Susquehanna include accounting,

payroll, legal and other services.

Four of the five officers of DOC are also officers of the New York,

Susquehanna1; three of the five officers of DOC are directors of the New

York, Susquehanna2; and one director of DOC is a director of the New

York, Susquehanna3.

As pointed out in the Board’s April 24, 2002, decision, a majority of the

Board has previously held that a holding company will not be under

common control with its subsidiary based on the decision in Union

Pacific Corporation v. United States. 5 F.3d 523 (Fed Cir. 1993). The

Court held, regarding a claim for refund of taxes under the Railroad

Retirement Tax Act, that a parent corporation which owns a rail carrier

subsidiary is not under common control with the subsidiary within the

meaning of § 3231 of the Act. The Court wrote that, “The term ‘under

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

Consistent with the Board’s decisions that have followed the Union

Pacific decision, DOC would not be under common control with its

subsidiary prior to October 4, 1997.

1 Walter Rich, Joseph Senchyshyn, Nathan Fenno, and Tabetha Rathbone.

2 Walter Rich, Joseph Senchyshyn, and Nathan Fenno,

3 Walter Rich.
Decision on Reconsideration

Delaware Otsego Corporation

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)

Section 202.4 of the Board regulations defines control 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 ofsuch 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).

DOC was a publicly held company until October 4, 1997. There is no

evidence that a majority of ownership was concentrated in any one

shareholder or entity prior to that date. However, after October 4,

1997, Walter G. Rich owned 80% of the shares of DOC, which in turn

owned the New York, Susquehanna. Furthermore, Walter Rich was

also President and director of the subsidiary railroad, New York,

Susquehanna. As DOC states in its request:

DOC, as sole shareholder, elects directors of NYSW, who

appoint the officers. As is typical in such situations, DOC and

NYSW share certain directors and officers. DOC has seven

directors, one of whom is also a director of the subsidiary. DOC

has five officers, three of whom are directors of the subsidiary.

Four of DOC’s five officers are also officers of the subsidiary.
Decision on Reconsideration

Delaware Otsego Corporation

Notably, a majority of the subsidiary’s officers, including the Vice

Presidents of Engineering, Transportation, Marketing & Sales, 

and Mechanical, hold no position at DOC at all. These are the

officers who run the railroad, who are compensated by the railroad

and who pay railroad taxes on their earnings.

DOC contends that the Board is bound by Union Pacific, which held

that the existence of common officers or directors between the parent

and subsidiary would not render the parent to be under common control

with the subsidiary. See, Union Pacific at P.526. The Court noted that

officers and directors serve “the shareholders of the corporate entity or

as authorized by the corporate charter”. The Court concluded, “the

shared individuals within the leadership of these separate corporations

do not make the Corporation an employer under Section 3231 (a).”

DOC also contends that the Board is acting inconsistently with certain

previous decisions of the Board: OmniTRAX, Inc., North American

Railnet, Inc., Beard Land and Investment Company, and The Broe

Companies, Inc. Although it is stated in the Board decisions regarding

these companies that close corporations were involved, and the Board

did rely on Linion Pacific in those decisions, there was no evidence cited

in the Board decisions regarding the composition of the ownership of

those companies, nor of the degree of actual control through a common

directorate or common officers. To the extent that those decisions imply

that the Board would apply Union Pacific to any case involving a parent

with a subsidiary employer without examining the existence of control,

the Board rejects that implication.

Nevertheless, the Board recognizes the impact of the Union Pacific

decision and the Board’s application of the Union Pacific decision in

other coverage determinations. Given the history of the Board’s

consideration of the covered status of this company and the intervening
Decision on Reconsideration

Delaware Otsego Corporation

-7-

decision in Union Pacific, the Board has determined to reverse its 

finding in the initial decision and find DOC not to be covered.

In addition, the Board finds any officer of NYSW that is also an 

employee or officer of DOC should report their compensation and/or

service as reportable under the RRA and RUIA for NYSW. Further,

NYSW should report, as its employee for reporting purposes, any 

employee of DOC who is involved in the day-to-day operations of NYSW

rather than the administrative responsibilities of a parent holding

company.

Accordingly, the Board modifies it’s decision of April 24, 2002, to find

that DOC is not a covered employer under the RRA and RUIA.

However, certain employees of DOC may ultimately be found to be

employees of NYSW as a result of their work for the railroad.

H/M.

V. M. Speakman, Jr. (Separate

opinion attached)
SEPARATE OPINION OF

V. M. SPEAKMAN, JR.

EMPLOYER STATUS DETERMINATION

DELAWARE OTSEGO CORPORATION (DOC)

While I concur with the result reached in the determination on DOC’s

request for reconsideration; namely, that any officer ofthe parent company 

DOC who is also an officer ofNYSW, and employees ofDOC who are

involved in the day-to-day operations ofNYSW, should be considered 

employees ofthat company, I believe that the initial determination ofthe

Board on DOC, as reflected in B.C.D. 02-32, provided a result which is

more consistent with our regulations.

In that decision the Board found that as ofOctober 4, 1997, DOC was in

common control with its wholly-owned subsidiary, NYSW, and that it was

performing services which were not trucking nor casual in nature for that

carrier, and thus was an employer under the Acts. The Board based its

decision on the fact that on October 4, 1997, Walter G. Rich, became an

80% owner ofDOC which in turn wholly-owned NYSW. In finding

common control between DOC and NYSW the Board, correctly I believe,

found that Union Pacific v. United States, 5 F.3d 523 (Fed. Cir. 1993) did

not apply to the fact situation presented, and that section 202.5 of our

regulations controlled. That section provides that a carrier and non-carrier 

are under common control when the power to direct the business ofthese

companies is vested in the same person or persons.
In Union Pacific the court held that for purposes of administration ofthe

Railroad Retirement Tax Act, a parent company cannot be said to be in

common control with its parent company. I will not take the time here to

debate the merits ofthat decision, but only point out that the Board’s

decision in the initial consideration ofDOC recognized that, even if one

assumes that Union Pacific was correctly decided, there are limits to its

application. Specifically, where the parent and sub are owned by a small

number ofshareholders and not engaged in enterprises outside the railroad

industry, Union Pacific is not applicable and the parent and sub may be said

to be under common control. In such a case the common control lies in the

owners, which is not true in the case ofa publicly held corporation where

ownership is generally too diffuse to allow control to be vested in one or a

small group ofshareholders. Consequently, I believe that the Board-was on

the mark in its first decision on DOC and that DOC should be considered an

employer under the Acts, because it is under common control with its rail

carrier sub and performs substantial services for that carrier.

V. M. Speakman, Jr.

Date