Opinion ID: 612076
Heading Depth: 2
Heading Rank: 1

Heading: The Exclusive Purpose Prong of the Alter Ego Test

Text: 10 If a carrier or a holding company with carrier subsidiaries forms a non-carrier subsidiary for the exclusive purpose of evading labor protection, the Commission treats the subsidiary as a carrier subject to section 11343. See FRVR II at 6. Here, however, the record contains substantial evidence to support the ICC's finding that RailTex formed C & A to avoid an unusually lengthy administrative delay and not to evade labor protection. In fact, NCV initially applied under section 11343 and conceded that the Edenton line lease would be subject to labor protection under that section. Labor protection seemed to be of little concern to the parties. 6 NCV withdrew its section 11343 application and RailTex formed C & A only after it became apparent that the administrative processing of the NCV application under section 11343 would be unusually lengthy. J.A. at 100. 11 Before mid-1989, ICC approval under section 11343 generally took less than three months for unopposed applications. 7 Beginning in 1990, however, the ICC deferred action on section 11343 petitions while it resolved issues raised in Wilmington Terminal, 6 I.C.C.2d 799 (1990), regarding the extent of labor protection to be imposed on section 11343 transactions. 8 Before deciding Wilmington Terminal, the ICC delayed at least six section 11343 filings for periods of between 7 and 14 months. 9 The delays occurred in applications involving both sales and leases. For example, in Canadian National Railway Co.--Lease from Grand Trunk Western Railroad Co., ICC Finance Docket No. 31387, the Commission deferred approval of a lease transaction from July 1989 until August 1990. Likewise, in South Carolina Central Railroad Co., Inc.--Purchase--CSX Transportation, Inc. Line Between East Greenville & Laurens, SC, ICC Finance Docket No. 31469, another RailTex subsidiary filed a petition for approval of a sale under section 11343 in May 1989. In November 1989, the ICC extended the deadline for its decision by sixty days. Twice more, in January and February 1990, it postponed the deadline for 30 additional days. Finally, in March 1990, it extended the deadline for an additional 120 days. Several continuances occurred after NCV filed for approval under section 11343. Thus, the record indicates that a substantial delay existed at the time and that it almost certainly would have affected NCV's application for approval under section 11343. 12 Moreover, in a verified statement, David Valentine, vice-president of RailTex and president of both C & A and NCV, told the Commission that RailTex became aware of a number of ICC orders issued in other cases ... wherein the ICC was extending the deadlines for the issuance of final decisions. J.A. at 100. In light of this information, Valentine stated that RailTex decided to withdraw NCV's application and restructure the transaction. According to Valentine, it became apparent that if we simply proceeded on the course we had begun, NCV would face delays of up to a year or more before beginning operations over the Edenton Line. This simply was not acceptable from a financial, operational or risk assessment standpoint. J.A. at 101. 13 According to Rail Labor, however, the desire to avoid delay cannot satisfy the exclusive purpose prong of the alter ego test without eviscerating section 11343. Rail Labor's argument proceeds as follows. All applications for Commission approval experience some delay. If delay alone constituted a legitimate reason for forming a subsidiary, then a carrier who also wished to avoid labor protection could obtain non-carrier treatment under the exclusive purpose test simply by forming a non-carrier subsidiary and claiming that its decision was based on the desire or need to avoid delay. The subsidiary would then always be eligible for section 10901 approval with discretionary labor protection rather than section 11343 approval with mandatory labor protection. Rail Labor claims its argument has special force here because the administrative delay was caused by the ICC's resolution of labor protection issues in Wilmington Terminal. 14 As we have recently noted, the existence of both section 11343 and section 10901 foreclose[s] the Commission from regulating all line transfers under section 10901. Otherwise, Congress's decision to enact [section 11343], and to impose special requirements on line transfers falling within that provision, would be inexplicable. Redden v. ICC, 956 F.2d 302, 308 (D.C.Cir.1992) (emphasis in original). At the same time, however, we have indicated that [t]he Commission is free ... to resolve ambiguity about the respective coverages of the two sections in any reasonable manner. Id. 15 In Railway Labor Executives Ass'n v. ICC, 914 F.2d 276, 284 (D.C.Cir.1990), we considered a similar argument made by Rail Labor. There, we noted that we were reluctant ... to endorse the Commission's formulation that in order to be considered an alter ego of its parent, a subsidiary must have been created for the exclusive purpose of evading the employee protection provisions of section 11343. Because we concluded that substantial business reasons unrelated to the employee protection liabilities led to the formation of the subsidiary in that case, however, we sidestepped deciding whether the exclusive purpose test conflicts with section 11343 until such time as we are presented with a case where the justifications for the formation of a non-carrier subsidiary are less substantial, and the reasonableness of the Commission's rule can be put to a more demanding test. Id. We reach the same conclusion here. 16 Rail Labor's argument might be more persuasive if the delay RailTex sought to avoid were the normal processing delay for section 11343 transactions. Here, however, RailTex sought to avoid the unusual and excessively lengthy administrative delay in effect while the ICC evaluated a portion of its labor protection policy. Moreover, we attach little significance to the fact that the ICC's resolution of labor protection issues in Wilmington Terminal caused the delay. Neither RailTex nor the Edenton line lease was involved in the Wilmington Terminal dispute so that labor protection for Edenton line employees specifically had nothing to do with the delay. Accordingly, because a substantial business reason[ ] unrelated to the employee protection liabilities for the formation of C & A existed, Railway Labor Executives Ass'n, 914 F.2d at 284, we defer scrutiny of the ICC's exclusive purpose test to another day.