B.C.D. 01-74

SEP 2 0 2001

EMPLOYER STATUS DETERMINATION

San Diego and Arizona Eastern Railway Company

This is a determination of the Railroad Retirement Board concerning

the continued status of San Diego and Arizona Eastern Railway

Company (SD&AE) (BA No. 2738) as an employer under the Railroad 

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

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

The SD&AE was a wholly owned subsidiary of the Southern Pacific

Transportation Company until November 1, 1979, when the San Diego

Metropolitan Transit Development Board (MTDB) purchased the stock

of SD&AE, becoming the sole owner thereof. The property was acquired

for use in connection with a public transit system. To conduct the

freight operations of the SD&AE, MTDB contracted with Kyle

Railways, Inc. (Kyle) (BA No. 9003), which in turn created a subsidiary

for freight operation purposes, namely, the San Diego & Arizona

Eastern Transportation Company (BA No. 2751). In 1984, MTDB

sought a new operator.1 In Finance Docket No. 30457, decided August 

9, 1984, the ICC authorized San Diego and Imperial Valley Railroad 

(SD&IV) (BA No. 3758) to conduct railroad operations over the line.2 In

a footnote to a subsequent decision, the ICC noted that SD&AE, as

owner of the line, holds the residual common carrier obligation to

provide rail service on the line. (See ICC Finance Docket 30457,

decided September 20, 1985, footnote 8).

In its decision regarding the employer status of Railroad Ventures, Inc.

(B.C.D. 00-47), the Board held that an entity that has STB authority to

1 In 1984, Kyle sought abandonment and discontinuance of service of the line, which was denied by

the ICC in Decision AB-16 (subpart No. 1).

2 Footnote 5 of the ICC decision indicated that formal ICC authority for San Diego and Arizona

Eastern Transportation Company to discontinue operations would not be required once a

replacement carrier was permitted to institute operations, since no interruption in service would

result. In B.C.D. 92-52, the Board determined that San Diego & Arizona Eastern Transportation

Company ceased to be a rail carrier employer under the Acts administered by the Board effective

November 30, 1984.

BA# 2738
San Diego and Arizona Eastern Railway Company

operate a rail line, but leases or contracts with another to operate the 

line in question, is covered under the Acts administered by the Board

unless the Board determines that the entity is not a carrier. The Board

enunciated a three-part test in B.C.D. 00-47 to be applied in making 

this determination. An entity that leases a line to another company or

contracts with another company to operate the line is a carrier under

the Railroad Retirement Act unless the Board finds that all three of the

following factors exits: 1) the entity does not have as a primary

business purpose to profit from railroad activities; 2) the entity does

not operate or retain the capacity to operate the rail line; and 3) the 

operator of the rail line is already covered or would be found to be

covered under the Acts administered by the Board. As outlined in

detail below, applying this three-part test to the facts of SD&AE, the

Board determines that SD&AE is no longer a covered employer under

the Acts.

In a letter dated April 30, 2001, Mr. Jack Limber, Deputy General 

Manager and General Counsel of MTDB, advised that, since 1979,

SD&AE has been reconstituted as a Nevada nonprofit corporation, in

which MTDB as public agency is its sole member. As a nonprofit

corporation, SD&AE clearly satisfies the first prong of the test, that is,

its primary business purpose is not to profit from railroad activities. 

According to Mr. Limber, SD&AE functions simply as a land-holding 

company over which various short line operators have been authorized

to operate the freight services. Consequently, SD&AE does not retain

the capacity to operate a rail line, satisfying step two of the test.

Finally, the third step of the test is satisfied, as SD&IV (BA No. 3758),

the current operator of the rail line, is already covered under the Acts

administered by the Board. (See Legal Opinion L-84-138, issued 

November 8, 1984.)

The Board therefore finds that effective with the close of business 

April 30, 2001, the San Diego & Arizona Eastern Railway Company

ceased being a covered employer under section l(a)(l)(i) of the Railroad
3

San Diego and Arizona Eastern Railway Company

Retirement Act (45 U.S.C. § 231(a)(l)(i) and the corresponding provision

of the Railroad Unemployment Insurance Act.3

3 The date of April 30, 2001 was selected as the termination effective date as it was in a letter dated

April 30, 2001 where the Board was first advised that SD&AE had been reconstituted as a nonprofit

corporation.