Board Coverage Decision 09-02

Board Order 06-12, which directed preparation of this Report, limits my inquiry to whether there has been “a change in the operations” of Herzog Transit which would “affect its status as an employer under the Railroad Retirement and Railroad Unemployment Insurance Acts since the Board rendered its decision regarding Herzog Transit in B.C.D. 94-109. Because that decision concluded only that Herzog Transit was “not a rail carrier employer”, (R. 2), this first segment of my Report will consider whether new facts regarding Herzog Transit operations since 1994 now render it a rail carrier employer under the Acts. The next segment of the Report will then consider whether a change in the operations of Herzog Transit render it an employer under any other provision of the Acts.

A rail carrier employer is defined by section 1(a)(1) of the Railroad Retirement Act (45 U.S.C. § 231(a)(1)(i)) as:

A virtually identical definition is found in sections 1(a) and (b) of the Railroad Unemployment Insurance Act (45 U.S.C. § 351(a) & (b)). Both Acts thus require reference to the definition of Surface Transportation Board (STB) jurisdiction found in subtitle IV of title 49 of the U.S.C.

As amended by the ICC Termination Act of 1995, the jurisdiction of the Surface Transportation Board includes rail transportation between a place in “* * * a State and a place in the same or another State as part of the interstate rail network * * *.” See 49 U.S.C. §10501(a)(2)(A). The definition thus has two components: rail transportation across state lines, and rail transportation entirely within a single State which is nevertheless “a part of the interstate rail network”. A freight carrier located entirely within one State meets the interstate connection when it interchanges freight with interstate trunk rail lines. See: Union Stock Yard & Transit Co. v. U.S., 308 U.S. 213 (1939)(railroad operating entirely within stockyard but interchanging interstate freight held a rail carrier under Interstate Commerce Act). Freight waybills showing shipments of freight consigned to points out of state are sufficient evidence of interstate commerce under the Interstate Commerce Act. Dearing v. United States, 167 F. 2d 310, 311 (10th Cir., 1948).

Intrastate rail transportation of passengers, however, presents a more complex question because the jurisdictional statute for the STB states that “Except as provided in paragraph (3) of * * * [10501(c)], the Surface Transportation Board does not have jurisdiction under this part over mass transportation1 provided by a local governmental authority.” 49 U.S.C. § 10501(c)(2). In other words, unless a commuter operation can be fit into following section 10501(c)(3), it is not subject to STB jurisdiction, and consequently is not a rail carrier employer as defined by the RRA and RUIA.

Section 10501(c)(3) is divided into two paragraphs. Paragraph (c)(3)(A) first provides:

Considered alone, paragraph (c)(3)(A) would seem to provide a simple answer to the question of the status of commuter authorities under the RRA and RUIA: regardless of STB jurisdiction, they remain “subject to” the RRA and RUIA as covered employers.

The second paragraph, (c)(3)(B), however, disarranges this simplicity with the following additional language:

Paragraphs (A) and (B) of section 10501(c)(3) seem inconsistent. On one hand, paragraph (c)(3)(A) states that all “mass transportation” exempt from STB jurisdiction by 10501(c)(2) is nevertheless subject to the RRA and RUIA. Paragraph (c)(3)(B) on the other hand, first restores STB authority over a governmental authority which would have been subject to ICC authority applying law prior to the 1995 amendment. Then the paragraph ends by stating that the 1995 amendment is to have no effect on coverage under the Acts administered by the Board. Moreover, because both paragraph (A) and the final sentence of paragraph (B) deal with matters (labor relations and retirement programs) beyond the authority of the STB, they are really addressed to the Board rather than the STB. Did Congress mean through 10501(c)(3) to tell the Board that all commuter passenger operations are covered by the RRA and RUIA without regard to the current limitation of STB jurisdiction by 10501(c)(2)? Or did Congress mean that 10501(c)(3) limits coverage under the RRA and RUIA to those intrastate commuter operators which would have been subject to ICC authority under the law prior to 1995?

If the language of a statute is ambiguous on its face, the legislative history may be considered to help determine its meaning. United States v. Donruss Co., 393 U.S. 297 (1969). Since the ICC Termination Act of 1995 revised 10501 to add paragraph (c), the first source would be the House Conference Report on that legislation. The Conference Report states that paragraph 10501(c) derives from former 49 U.S.C. §10504 “Exempt rail mass transportation”2 . A comparison between the former 10504 and current section 10501(c) shows, though, that only the first paragraph, 10501(c)(3)(A), appeared in the prior law. The Conference Report does not discuss the relationship between paragraphs (c)(3)(A) and (c)(3)(B).

The amendatory history of 10501(c) sheds more light. The text of the first paragraph, 10501(c)(3)(A), dates back over 30 years to the Regional Rail Reorganization Act of 1973 (P.L. 93-236, 87 Stat. 985)(the 3-R Act), as amended in 1976. The original 3-R Act reorganized and combined several existing insolvent railroads to create “a rail system in the Midwest and northeast region” to meet the rail transportation needs of the region and the United States as a whole. The resulting “Consolidated Rail Corporation”, or Conrail, was allowed to eliminate redundancies from consolidation by abandoning unprofitable freight lines, and by requiring State subsidies to continue commuter passenger service. The 1976 amendments to the 3-R Act, enacted as part of a comprehensive overhaul of the Interstate Commerce Act, allowed local government authorities to purchase the rail passenger facilities and operate the service. The 1976 amendment freed these local authorities from the jurisdiction of the Interstate Commerce Commission rate review, allowing them to set fares as necessary to pay for the assumed operation. At that time, the predecessor section to 10501(c)(3)(A) was also added to the 3-R Act to clarify that though not subject to ICC rate jurisdiction, these transferred passenger operations would continue as a covered employers under the RRA and RUIA.3 In 1982, Public Law 97-449 codified the 3-R Act provision as 49 U.S.C. §10504(c), and restated it in more general terms.4 With the 1995 ICC Termination Act, 10504(c) then became the present 10501(c)(3)(A).

Given the broad definition of “mass transportation” exempt from STB jurisdiction under 10501(b), bringing employees of governmental authorities conducting otherwise exempt mass rail transportation within coverage of the RRA and RUIA would conceivably result in coverage of trolley and subway lines. Congress clearly could not have meant this disruption of existing pension and labor relations. Cf. Felton v. Southeastern Pennsylvania Transportation Authority, 952 F. 2d 59, (3rd Cir. 1991) at 65 (noting distinctions between transit employees and Conrail employees transferred to Commuter Rail Division for purposes of the Federal Employers’ Liability Act). An interpretation based on the history of the language of paragraph (c)(3)(A) and the limitation of paragraph (c)(3)(B), is that where a government authority assumes rail passenger commuter operations previously conducted by a rail carrier which was covered as an employer under the RRA and RUIA, then paragraph (c)(3)(A) requires that operation to continue to be covered by the RRA and RUIA, without regard to whether the operation would be exempt from jurisdiction of the STB. A newly established operation must under paragraph (c)(3)(B) meet the standard applied to passenger operations prior to the 1995 amendment. This result gives meaning to both paragraphs (3)(A) and (3)(B). It preserves existing employer and employee expectations in transferred rail service from any pre-existing mass transit operation under (3)(A), yet provides a “fresh start” analysis for new commuter operations under (3)(B), without regard to the changes made by the 1995 amendment.

Prior determinations by this agency of coverage of commuter rail operators are consistent with this analysis of (c)(3)(A). Government authorities which assumed rail passenger operations formerly conducted by rail carrier employers have been determined to be covered employers. See: Coverage Legal Opinion L-81-160, Northeast Illinois Regional Commuter Railroad Corporation, (R. 433-435); Coverage Legal Opinion L-83-45, Metro-North Commuter Railroad (R. 436-438); Coverage Legal Opinion L-83-59, New Jersey Transit Rail Operations, (R. 439-442).

The remaining question is the standard the Board is to apply under paragraph (c)(3)(B) to determine the status of newly-begun government commuter operations under the RRA and RUIA. An authority which transports passengers across State boundaries prima facie conducts rail carrier service in interstate commerce, and would be covered on that basis. Transportation within one state prior to the effective date of the 1995 ICC Termination Act fell under prior section 10501(b)(1), which stated that:

Cases law decided prior to the ICC Termination Act of 1995 explains that a passenger rail carrier which itself did not cross State boundaries was subject to ICC jurisdiction under 10501(b)(1) if the carrier had sufficient connections with interstate commerce to not operate “entirely within a State”.

The Supreme Court addressed the issue of whether intrastate travel becomes part of a trip in interstate commerce in United States v. Yellow Cab Co., 332 U.S. 218 (1947). Insofar as is relevant here, that case concerned the Government’s charge that Yellow Cab engaged in restraint of trade under the Sherman Act by obtaining 86 percent of all taxi licenses in Chicago in order to exclude competitors. The Government claimed that because many travelers took cabs to and from the railroad stations at the beginning and end of an interstate journey, the increased fares made possible by Yellow Cab’s conspiracy to limit the number of taxis impacted on interstate commerce, even though the taxi ride itself was clearly intra-state in each case. 332 U.S. at 230-231. Justice Murphy wrote that “the common understanding is that a traveler intending to make an interstate rail journey begins his interstate movement when he boards the train at the station and that his journey ends when he disembarks at the station in the city of destination.” (Id. at 232). Noting that the traveler had many alternative means to travel to and from the train station, he concluded that the beginning and ending cab rides were too unrelated to interstate commerce to fall under the Sherman Act.

In 1982 the U.S. Court of Appeals affirmed an unreported decision by the former Interstate Commerce Commission which applied reasoning similar to Yellow Cab in Magner-O’Hara Scenic Railway v. I.C.C., 692 F. 2d 442, (6th Cir., 1982). Magner proposed a tourist passenger rail operation over 262 miles of track entirely within Michigan. While Magner operated its own equipment with its own employees, the proposed line was owned by three interstate freight rail carriers, only one of which agreed to grant Magner trackage rights. Magner applied for ICC approval to conduct its operation, evidently with the objective of obtaining ICC assistance in gaining trackage rights from the remaining two rail carriers, but the ICC found it lacked jurisdiction over the proposal. The Sixth Circuit affirmed, finding that the fact that the proposed railway lay entirely in one State, and that “no connectors to any other common carrier are planned” constituted substantial evidence supporting the ICC decision. 692 F. 2d at 444-445.

The ICC subsequently cited both Yellow Cab and the Magner-O’Hara decision in Napa Valley Wine Train, Inc. Petition for Declaratory Order, 7 I.C.C. 2d 954 , Finance Docket No. 31156, (July 18, 1991), 1991 ICC LEXIS 195. Wine Train acquired a 21 mile line of rail entirely in California from a freight carrier and intended to conduct a passenger excursion service. A number of individuals and wineries who objected to Wine Train’s proposal sought to prevent its operation by alleging that Wine Train failed to meet various California legal requirements. Wine Train in turn sought to avoid State regulation by obtaining an ICC order finding that Wine Train in fact engaged in interstate commerce, and consequently California regulations were pre-empted by Federal law. In support of its petition, Wine Train argued that it engaged in interstate commerce because it would conclude a “through-ticket” arrangement with Amtrak which would allow Amtrak interstate passengers to ride Wine Train under one fare. However, Wine Train’s rail line was physically separated by 30 miles from the Amtrak rail line, and Wine Train acknowledged that even a passenger with a “through ticket” from Amtrak to Wine Train would have to separately purchase a bus ride in order to bridge this gap.

The ICC determined on these facts that Wine Train conducted only intrastate transportation excluded from ICC jurisdiction under section 10501(b). Though noting that a bona fide through ticket may be sufficient to subject intrastate operations to ICC jurisdiction, the ICC found Wine Train’s operation lacking in other respects. Wine Train had no physical connection with Amtrak; there was no evidence that a significant number of Wine Train passengers would come from Amtrak and would in fact be moving in interstate commerce; the connecting service required a bus ride; differing schedules made it difficult for Amtrak passengers to connect with Wine Train; and Wine Train marketed itself as a local tourist excursion.

These cases indicate that in using 10501(c)(3)(B) to make a determination of whether a new intrastate passenger rail carrier engages in interstate commerce for purposes of section 1(a)(1) of the RRA and sections 1(a) and 1(b) of the RUIA, the Board is to consider whether the intrastate passenger carrier has a through-ticket arrangement with an interstate rail carrier; whether the rail lines of the inter- and intrastate carriers are physically connected; whether a passenger must purchase an intervening motor carrier ride to make a travel connection between the inter- and intra-state carrier; whether the schedules of the two rail carriers coincide sufficiently to allow efficient passenger transfer between the two modes of transportation; whether a significant number of passengers would come from the interstate passenger carrier; and whether the intrastate rail carrier markets itself as more than a local passenger service. In determining whether a trip on the intrastate carrier constitutes a portion of interstate travel, the Board may also consider whether the passenger has multiple local alternatives to the using the intrastate rail carrier when initially embarking on or disembarking from the interstate travel.

Prior decisions of this agency reached results consistent with the standards found in ICC case law. Thus, in B.C.D. 94-116 Southern California Regional Rail Authority, (R. 414-416), the Board held a commuter authority owning rail line solely in California not to be a covered employer, though employees of the contract operator Amtrak continue to be covered. To the same effect, the Deputy General Counsel determined local commuter operations not to be covered employers in Notice No. 91-66, Dallas Area Rapid Transit, (R. 321-322); and Notice No. 89-35, Tri-County Commuter Rail Organization, (R. 374-375). In comparison, in B.C.D. 03-23 Massachusetts Bay Commuter Railroad Company, LLC (R. 426-427), the Board held an operator of commuter passenger service in the Boston area, which included service across State boundaries between Boston and Providence, Rhode Island was a covered rail carrier employer.

It is necessary to restate prior to discussing the evidence that the Board has charged me to consider whether there has been “a change in the operations” of Herzog Transit since the 1994 decision. The record establishes that Herzog Transit has indeed changed by significantly expanding operations to other states since 1994.5 Nevertheless, applying the foregoing standards to the evidence of record, I conclude that the changes since 1994 do not render Herzog Transit a rail carrier employer under the RRA and RUIA, either with respect to the Miami operation for SF RTA since 1994, or with respect to similar operations begun in other cities since 1994.

The first step in analysis is to determine whether any of the commuter rail operations conducted by Herzog Transit must be subject to the RRA and RUIA because the operation was assumed from a rail carrier which previously conducted commuter service pursuant to 49 U.S.C. § 10501(c)(3)(A). Addressing first Herzog Transit’s operation of Miami area commuter service for SF RTA, the record shows that commuter service over the South Florida Rail Corridor was first organized by FDoT in 1988, and the first commuter trains were run under SF RTA auspices in January 1989. (R. 375,380). The commuter passenger service was thus initiated by the government authority, rather than assumed from an interstate rail carrier.

Moreover, Herzog Transit is the second contract operator for SF RTA, because it assumed the operation from UTCD Transit Services in 1994 (R. 7) UTCD had never been determined by the former ICC to be subject to its jurisdiction, and both the Railroad Retirement Board and the National Labor Relations Board also determined UTDC not to be a covered rail carrier employer under the RRA, RUIA, and Railway Labor Act. (Ex. 54, R. 385-41). Since UTDC was never determined to be a rail carrier employer, Herzog Transit did itself not assume the Miami area passenger rail service from an interstate rail carrier when SF RTA awarded Herzog Transit the new contract.

Accordingly, Herzog Transit cannot be determined to be a rail carrier employer “subject to the jurisdiction of the Surface Transportation Board under Part A of subtitle IV of title 49” pursuant to paragraph (A) of section 10501(c)(3) because the operation Herzog Transit undertook for SF RTA was not previously a commuter rail operation conducted by a rail carrier employer covered under the RRA and RUIA.

The same result obtains for three of the four passenger rail operations which Herzog Transit has added since the Board’s coverage decision in 1994. Trinity Railway Express in Dallas-Fort Worth began passenger service in December 1996. (R.314) The rail line was acquired by Trinity co-operator Dallas Area Rapid Transit (DART) directly or through a subsidiary, from the Southern Pacific Transportation and from the Missouri Pacific Railroad, with the intention of initiating commuter rail service. (R. 333). Herzog Transit was the first passenger operator. Altamont Commuter Express (Ace) began passenger service 1998, (R.349), and now runs between Stockton, about 70 miles west of San Francisco, and San Jose at the south end of San Francisco Bay. (R.348) The rail line uses track rights acquired from the Union Pacific for the purpose of commuter operations. (R.345) Herzog Transit was the first passenger operator. Rail Runner Express in New Mexico presently uses 50 miles of track of almost 300 total miles acquired from the BNSF by the Mid-Region Transit District in order to initiate commuter rail service and relieve highway congestion. (R. 411 1916-1917). No commuter rail service was conducted prior to July 2006, when Herzog Transit began service as the contract operator. (R.411) In each case, passenger rail service was initiated by a local government entity. Neither the local entity, nor Herzog Transit, assumed a commuter operation previously conducted by covered rail carrier employer. Consequently, the passenger operation conducted by Herzog Transit for each of these three entities does not become a rail carrier employer on the basis of 49 U.S.C. § 10501(c)(3)(A).

The fourth new passenger rail operation conducted by Herzog Transit is also not a covered rail carrier employer, but for a different reason. The Waterfront Red Car, which began in July 2003, is similar to the other three post-1994 operations in that Herzog Transit has again contracted with a government entity to operate passenger service over 1½ miles of track owned by the Port of Los Angeles. (TR.147-149). Unlike the others, however, the Waterfront Red Car uses electric trolleys powered through overhead catenary wires. (TR 147) Freight service over the line is separately provided by the Union Pacific using diesel-electric locomotives. (TR 147). The Waterfront Red Car is thus a purely passenger electric trolley operation traveling a short distance. On these facts, I find that the Waterfront Red Car falls within the electric railway exception to rail carrier coverage under RRA section 1(a)(2)(ii) and RUIA section 1(a). Compare, Subway Division, Rochester Transit Corp. 255 I.C.C. 508 (1943)(holding electric railway which derived 49% of business from freight operations to be covered employer under the predecessor provision of the Railroad Retirement Act of 1937).

If Herzog Transit is not a covered passenger rail carrier employer under the Acts because none of the passenger commuter service it conducts was assumed from a rail carrier pursuant to section 10501(c)(3)(A), then the next step under paragraph (c)(3)(B) is to determine whether Herzog Transit is a rail carrier employer under the law as in effect prior to 1996. I find that the evidence of record does not support a conclusion that any of Herzog Transit’s commuter passenger rail operations in Florida, Texas, New Mexico, or California either individually or collectively render Herzog Transit a rail carrier subject to the jurisdiction of the STB pursuant to paragraph 10501(c)(3)(B).

Beginning again with the Miami operation for SF RTA, both the employees and Herzog Transit have maintained that the SF RTA operation has not changed significantly since inception. In the response dated July 23, 2004, Herzog Transit Vice President Norman Jester stated Herzog Transit’s scope of services for SF RTA remained the same. (R. 141) Witness Richard Beall testified at the May 2006 hearing that he believed Herzog Transit should be a covered rail carrier employer because the initial decision that UDTC was not a covered employer was incorrect. (TR. 20).

The evidence shows that the SF RTA line is physically connected to the interstate rail system, and indeed the line itself is used as part of the interstate rail system by CSXT and Amtrak. Further, cars and locomotives destined for the Herzog Transit operation have arrived and departed from interstate service over the entire period before and after 1994. The employees’ collection of letters in Exhibit 64 includes observations of these activities both before and after 1994. For example, letter from Mr. Santor states that as an locomotive engineer over the period 1994 to 2006, he moved cars and locomotives between the CSXT and SF RTA portions of the Hileah yard on at least 20 occasions. (R. 449). Another engineer, Mr. Healy, stated he retrieved from CSXT Interchange Tracks a rebuilt SF RTA locomotive that had been sent elsewhere for service (R.458). A conductor with 17 years of SF RTA service, Mr. Eugene Mehalik, wrote of similar instances of placing SF RTA equipment for shipment interstate to be repaired. (R. 462-463). However, Herzog Transit witness Robert Smith testified that Herzog Transit has no interchange agreement with a freight line (TR. 165), and witness Beall acknowledged that had never seen any documentation of freight shipments (TR. 72).

I find the testimony of the witness for Herzog Transit and the two employee witnesses to be credible, as are the personal observations appearing the employees’ written statements in Exhibit 64. Finding the employees’ testimony and written statements to be credible representations of fact that rail cars and locomotives have physically moved over SF RTA rails does not mean that I must accept as true their testimony that Herzog’s SF RTA operation “interchanges” with freight rail carriers and with Amtrak in the sense that it engages in interstate commerce. I note authority is split as to whether the determination that a particular activity is inter- or intra-state commerce involves a question of law or of fact. 15A Am Jur 2d, Commerce § 8. The RRA and RUIA, though, vest the Board with sole authority to render both findings fact and conclusions of law in any proceeding under the Acts. The question under either standard as to whether Herzog Transit’s activity is interstate commerce under the Acts must be resolved by the Board, not by the witnesses’ opinions. See RUIA sections 5(c) and 5(g), incorporated by RRA section 8.

Applying the case law to the evidence shows Herzog Transit’s operation in Miami to have aspects of both inter- and intra-state commerce. On one hand, the SF RTA line is physically connected to the interstate rail system, and the South Florida Rail Corridor line is actually used not only for interstate freight service by CSXT, but for interstate passenger service by Amtrak. Passengers may make a connection to and from Amtrak and the SF RTA by using five shared train stations. Based on crew observations, a significant number of Amtrak passengers, estimated at 830 to 1,660 passengers per week6, make this connection. These elements point toward a connection to the stream of interstate commerce. Manger-O’Hara, and Wine Train, supra.

Other factors weigh in favor of solely intra-state transportation. Herzog Transit and Amtrak have no joint “through ticket” arrangement allowing passengers to begin on a SF RTA train, then move to an Amtrak train, without an additional fare. SF RTA is constituted by Florida statute as a local commuter authority, not an interstate transportation business, and Herzog Transit may only contract to operate a business which SF RTA is authorized to conduct. Wine Train, supra. Moreover, the intra-state rail line sought by Manger-O’Hara was not only used, but owned by interstate freight carriers, yet the ICC focused exclusively on Manger-O’Hara’s proposed intra-state passenger use of the line in concluding it was not subject to ICC jurisdiction. Manger-O’Hara, supra. SF RTA’s operation is local in the same sense as Manger-O’Hara. Finally, when a passenger disembarks from Amtrak at one of the five joint stations, he may choose to continue his journey by taxi or private auto as well as by SF RTA train, just as the cab passengers in Yellow Cab. 332 U.S. at 232. I conclude that the evidence as a whole establishes that passengers are not embarking from or continuing into interstate commerce when they are on a SF RTA train7.

I reach this conclusion despite the acknowledged fact that all traffic over the South Florida Rail Corridor, including the CSXT freight service and the passenger service by Herzog Transit and Amtrak, is subject to the same rules governing train operation and safety. At the May 2006 hearing, the employees and UTU submitted a copy of the CSX Operating Rules, the CSX Safety Rules, the CSX Equipment Handling Rules, the CSX Signal Rules, and the CSX Hazardous Materials Handling Rules (TR. 31, 32, Exhibits 66 through 71, R. 568-886). The employees and UTU argue that if CSXT is a rail carrier, and if CSXT is subject to these various rules, then if Herzog Transit is subject to these rules, it must be a rail carrier as well. The unstated premise to this argument, though, is that all rail operators subject to these rules are rail carriers also subject to STB jurisdiction. Because this unstated premise is false, the evidence that Herzog Transit operates under these rules does not prove the asserted conclusion.

The definition of rail carrier employer under the RRA and RUIA, as noted above, derives from the jurisdictional statute of the STB under the Interstate Commerce Act. CSXT is required to promulgate the various rules submitted in evidence not by the STB, but by the Federal Railroad Administration of the Federal Department of Transportation (the FRA). See, 49 CFR Part 218 Railroad Operating Practices; 49 CFR Part 229 Railroad Locomotive Safety Standards; and 49 CFR Part 240 Qualification and Certification of Locomotive Engineers. The FRA is authorized by 49 U.S.C. §20103 to promulgate safety regulations pertaining to “railroads”, which are defined by 49 U.S.C. § 20102(1) in pertinent part as:

Unlike STB jurisdiction in 49 U.S.C. §10503(c)(3)(B), the FRA is specifically granted authority to regulate the safety of all intra-state commuter passenger railroads, whether operated by Conrail or otherwise. Because FRA authority extends beyond that of the STB, the fact that Herzog Transit is subject to FRA regulation does not establish that it is a rail carrier for purposes of STB jurisdiction, or for benefit entitlement purposes under the RRA and RUIA.

I also find that the evidence regarding Herzog Transit’s new operations in other States does not support the conclusion that Herzog Transit is a rail carrier employer under the Acts with respect to any of those operations. The facts in each case are essentially the same as those pertaining to SF RTA. Trinity Railway Express in Dallas/Fort Worth, ACE in San Joaquin, and Rail Runner Express in Albuquerque each operate entirely in one State over track owned or leased by a local authority established to conduct commuter train service. Substantially all of the track in each case is also used by an interstate freight carrier, which provides all freight carriage. Though each shares at least one station with Amtrak, there is no evidence that any of the three have a through-ticket arrangement with Amtrak. Moreover, there is no evidence regarding the number of Amtrak passengers using the commuter service. Under Wine Train, Manger-O’Hara, and Yellow Cab, these operations do not have sufficient connection with interstate commerce to fall under jurisdiction of the STB.

Finally, I note that Herzog Transit’s headquarters is located in St. Joseph, Missouri (TR. 173). Herzog Transit conducts passenger rail operations in four other States: Florida, Texas, California, and New Mexico. By marketing its services to purchasers in these States from the Missouri headquarters, Herzog Transit itself clearly engages in interstate commerce. Yellow Cab, 332 U.S. at 225, (sale of auto manufactured in Michigan to cab company in Illinois is interstate trade). I also note that the Board has found that a covered rail carrier operating a freight line entirely within one State is a covered employer with respect to other operations in another State as well, even if those operations would not themselves be rail carrier operations. See B.C.D. 03-10, Transit America LLC. However, I am aware of no authority, and UTU cites none, which would convert four unconnected intra-state rail operations into one interstate rail carrier for purposes of STB jurisdiction. I therefore find that Herzog Transit’s operation of four commuter rail passenger services in different States, none of which are individually rail carrier employers, does not render Herzog Transit a rail carrier itself.

If new operations conducted by Herzog Transit Services since 1994 do not render it a rail carrier employer under the Railroad Retirement and Railroad Unemployment Insurance Acts, it remains to consider whether the new operations render Herzog Transit a covered employer under any other provision of the Acts. Though both Acts provide that receivers, railroad associations and labor organizations may be covered employers, the only provision relevant to Herzog Transit is section 1(a)(1)(ii) of RRA, stating that a non-carrier affiliate of a rail carrier employer is also a covered employer under the Act if it meets two conditions:

Sections 1(a) and 1(b) of the Railroad Unemployment Insurance Act (RUIA), 45 U.S.C. §351(a) and (b) contain a substantially similar definition.

The Board has promulgated regulations which define both “common control” and “service”. With respect to common control, section 202.4 of the Board’s regulations provides that:

Section 202.7 of the Board's regulations defines “service in connection with transportation of passengers or property by railroad” as follows:

In Coverage Legal Opinion L-71-177, Staten Island Rapid Transit Operating Authority (R. 1244-1246), the Board’s General Counsel specifically considered whether a public authority which provided commuter rail service performed a service in connection with rail transportation under these regulations, the RUIA, and the analogous provision of the Railroad Retirement Act of 1937, predecessor to the current RRA of 1974. The City of New York had purchased a 14.5 mile line of track from a private company, the Staten Island Rapid Transit Railway Company (Staten Island Rwy). The City granted Staten Island Rwy trackage rights to continue freight service over the line, and the City further agreed to maintain the rail line. The Metropolitan Transportation Authority (MTA), a public transit instrumentality of New York State separate from the City, then formed Staten Island Rapid Transit Operating Authority (SIRTOA). SIRTOA then obtained a lease of the City’s line for passenger service. SIRTOA also agreed to maintain the right of way and signals for the City; and to dispatch trains over the line.

The General Counsel found that as the MTA also owned the Long Island Railroad, a carrier by rail subject to the jurisdiction of the Interstate Commerce Commission, SIRTOA was consequently under common control with the Long Island. The General Counsel then concluded that the maintenance of track and signals, and the dispatching of trains, constituted “substantial services in connection with, and supportive of, railroad transportation.” Consequently, L-71-177 determined SIRTOA to be covered under the RRA of 1937 and RUIA as a non-carrier affiliate employer. When eighteen years later, SIRTOA advised the Board that all freight service had been abandoned over the entire line, and that the ICC had ruled it no longer had jurisdiction over the line, the Deputy General Counsel determined SIRTOA ceased to be a covered employer under the Acts because it no longer performed services in connection with railroad transportation. Coverage Legal Opinion L-89-63, Staten Island Rapid Transit Operating Authority. (R. 1247-1254).

The two Staten Island decisions, standing alone, support the proposition that a public authority operator of intrastate commuter passenger service over a publicly-owned rail line, if performing maintenance of and dispatching over the rail line, is covered as a non-carrier rail affiliate employer under the RRA and RUIA. This conclusion, however, must be viewed in light of subsequent interpretations of the Acts by the Courts and the Board.

The initial SIRTOA decision in 1971 cited as support the Court of Appeals decision in Southern Development Company v. Railroad Retirement Board, 243 F. 2d 351 (8th Cir., 1957). Southern Development Company owned an office building, 64 percent of which was occupied by offices of the related rail carrier. 243 F. 2d at 352. The Eighth Circuit held that by maintaining the property used by the rail carrier in its operations, Southern Development performed a service in connection with rail transportation. Id. at 355. However, in 1987, the Court of Appeals considered a case under the Railroad Retirement Tax Act (RRTA) which was identical to Southern Development, except that only about half of the property was occupied by the affiliated rail carrier. Standard Office Building v. United States, 819 F. 2d 1371, (7th Cir., 1987), at 1379. After analyzing previous cases under both the RRA and RRTA, the 7th Circuit concluded Standard Office did not perform a service in connection with rail transportation. The Court considered both the proportion of occupancy by the railroad affiliate, and the expectations of Standard Office custodial employees in reaching its decision. 819 F. 2d at 1379-80.

Later, the Seventh Circuit held the non-carrier affiliate covered where it performed less than half of its services for the affiliated rail carrier but over half for the railroad industry in general. Livingston Rebuild Center v. Railroad Retirement Board, 970 F.2d 295, 296 (1992)(car repair 25% for affiliate, 95% for industry). These cases raised a question as to whether, and to what degree, the non-carrier affiliate must perform service for the affiliated rail carrier under section 1(a)(1)(ii).

The Board answered this question in B.C.D. 93-79 VMV Enterprises. (R. 1255-1260). VMV Enterprises earned about 58 percent of its revenue from rail car repair work for the industry, but only 2.5 percent was earned from repairs for its rail carrier affiliate. The Board determined that to fall within the non-carrier affiliate provision of the RRA and RUIA, the non-carrier affiliate must provide “more than minimal service to its rail carrier affiliate”. (R. 1258). The Board later applied this standard to find the non-carrier affiliate covered in B.C.D. 95-26 Interstate Reloads. (R. 1261 – 1269). The non-carrier company performed over 30% of its freight loading and unloading service for its affiliated rail carrier, and between 60% and 80% for railroad industry in general. (R. 1262). The Board’s decision was affirmed by the District of Columbia Circuit in Interstate Quality Services v. Railroad Retirement Board, 83 F. 3d 1463, (D.C. Cir., 1996).

If repair of the engines which provide locomotive power in Livingston Rebuild Center may be a service in connection with railroad transportation under the Acts, there is no reason to question the General Counsel’s unstated conclusion in L-71-177 that maintenance of signals and track, and train dispatching performed by SIRTOA are also “reasonably directly related, functionally or economically, to the performance of obligations which a company or companies * * * have undertaken as a common carrier by railroad” as defined by section 202.7 of the regulations. See also, Railroad Concrete Crosstie Corp. v. Railroad Retirement Board, 709 F. 2d 1404 (11th Cir., 1983)(manufacture and provision of concrete railroad ties to affiliated rail carrier for maintenance of way). Nevertheless, in view of VMV Enterprises, I find that a intrastate passenger commuter operation which performs the services listed in SIRTOA must perform more than a minimal proportion of these services for a rail carrier affiliate.

Once again, I note that Herzog Transit operations have expanded considerably since the Board rendered B.C.D. 94-109. Considering the evidence of record with respect to these new operations in light of the foregoing principles, I conclude that Herzog Transit is not covered under the RRA and RUIA as a non-carrier affiliate company of a rail carrier employer by reason of any operations which begun after 1994.

Initially, the record shows that Herzog Transit is under common control with a rail carrier. Herzog Transit is parent to Transit America, which owns the Buchanan County rail line in Missouri. Through ownership of Transit America, Herzog Transit is also parent to TA Services Inc., which operates the Buchanan County rail line, and the “Coaster” passenger service for the North San Diego County Transit Development Board. Both Transit America and TA Services, Inc., have been determined to be rail carrier employers under the RRA and RUIA. Further, Herzog Transit is itself the wholly-owned subsidiary of Herzog Contracting. Herzog Transit conceded at the May 2006 hearing that because Herzog Contracting owns Herzog Transit and indirectly the two rail carrier subsidiaries, Herzog Transit is under common control with a rail carrier employer for purposes of section 1(a)(1)(ii) of the RRA, section 1(a) of the RUIA, and section 202.4 of the Board’s regulations. (TR. 134).8

Herzog Transit does not perform maintenance of right of way on the South Florida Rail Corridor under the agreement with SF RTA, and the trains over the line are dispatched by CSXT employees. (R. 229, TR. 156). Herzog Transit does maintain the right of way and dispatches all train traffic as operator of Trinity Railway Express in Dallas-Fort Worth (TR. 169,151). Herzog Transit maintains the rail line in San Pedro, California for the Waterfront Red Car Line (R. 1232-33), and for the Rail Runner Express in New Mexico (R. 1213-14). In each case, the rail line maintained is also used by freight rail carriers subject to the Acts, as was the rail line maintained by SIRTOA9. In none of these cases is the rail line used by any rail carrier affiliated with Herzog Transit: The portion of service to the affiliated carrier is zero. Lacking the minimal proportion of service to an affiliate necessary under the VMV Enterprises decision, none of the services in addition to passenger commuter operations which Herzog Transit performs in Texas, California or New Mexico constitute services in connection with railroad transportation under the RRA and RUIA.

Herzog Transit also performs car repair in two “stand alone” operations for governmental passenger operators, New Jersey Transit Rail Operations, and North Carolina Department of Transportation “Piedmont” train. Neither of these two authorities contract with Herzog to operate the trains. In each case the services are performed for entities totally unrelated to Herzog Transit. Accordingly, under VMV Enterprises, these car repair and maintenance operations are not services in connection with railroad transportation under the RRA and RUIA.

As noted earlier, Herzog Transit is parent to Transit America, which owns the Buchanan County rail line in Missouri. Through ownership of Transit America, Herzog Transit is also parent to TA Services Inc., which operates the Buchanan County rail line, and the “Coaster” passenger service for the North San Diego County Transit Development Board. Mr. Robert J. Smith, who testified at the May 2006 hearing as witness for Herzog Transit and handles Herzog Transit labor relations, is himself an employee of Transit America. (TR. 175, 177). Subsidiary rail carrier Transit America therefore performs at least some administrative services for its non-rail carrier parent, Herzog Transit. However, there is no evidence of record that the reverse is true: i.e., no evidence shows Herzog Transit, the non-carrier affiliate, performs administrative services for Transit America, the rail carrier. Again, under the VMV Enterprises test, the “service” in question must flow from the non-carrier to the affiliated railroad.

The evidence does not show that Herzog Transit performs any services in connection with the transportation of passengers or property by rail either with respect to the commuter rail operations it conducts, or with respect to the rail carrier operations conducted by its affiliated rail carrier employers. I therefore conclude that Herzog Transit is not an employer covered by section 1(a)(1)(ii) of RRA or section 1(a) of the RUIA.

The previous portions of this Report have considered whether Herzog Transit, by reason of the new operations it has begun since the Board’s decision in 1994, changed its status as a covered employer. Because the train dispatching conducted beginning in year 2000 by Herzog Transit under its agreement with Trinity Railway Express in Texas is a special case, this section of the Report considers that activity separately from all other operations.

Where a line of railroad is owned by one entity but operated as a rail carrier by a second, unrelated entity, the RRA, the RUIA and the agency’s regulations do not directly address the status under the Acts of the owner of the rail line as a rail carrier employer. Consequently, a line of Board decisions have defined the circumstances under which the owner of a rail line leased or contracted to another would be a rail carrier employer under the Acts.

Initially, the Board established in 1941 a universal rule that where a rail line was owned by one company but operated by another, both the lessor and lessee companies were rail carrier employers under the RRA and RUIA. See Board Order 41-10 Central Vermont Transportation Company. Forty-eight years later, the Board reconsidered the status of a “lessor” employer in Board Order 89-74, Board of Trustees of Galveston Wharves. (R. 323-329). Galveston Wharves ruled that if a lessor retained merely a reversionary interest in the right of way as real estate, but had no equipment with which to conduct rail carrier business if the lessee ceased operations, then the lessor company was not a rail carrier employer under the Acts.

The Board revisited the issue again in the year 2000, and struck a posture between Central Vermont’s holding that all lessor companies were rail carrier employers regardless of the ability to actually conduct rail service, and Galveston Wharves’ holding that a lessor without equipment was not a rail carrier employer. See B.C.D. 00-47, Railroad Ventures, Inc., (reconsideration decision)(R. 420-425). As recently restated by B.C.D. 07-04, Blue Rapids Railway Company, under the Board’s decision in Railroad Ventures the owner of a rail line operated in interstate commerce by another entity will be determined to be a rail carrier employer under the RRA and RUIA unless three conditions are met:

As mentioned earlier, the Board in B.C.D 94-116 Southern California Regional Rail Authority, initially determined that So. Cal Regional Rail was not a rail carrier employer because it merely owned the line of rail operated in interstate commerce by a trunk line rail carrier covered by the RRA and RUIA, and by Amtrak. (R. 414-416). When the Board was informed that So. Cal. Regional Rail had formed a division to dispatch trains over its rail line, though, the Board held that the dispatching division of the government authority engages in carrier business and consequently is a covered rail carrier employer under the RRA and RUIA. See: B.C.D. 02-12 Southern California Regional Rail Authority, Segregation of Dispatching Department, (R. 417-419). While it did not directly address the Railroad Ventures factors, I infer that the Board found that So. Cal. Regional Rail no longer merely passively owned real estate when its employees began to actively determine the order in which trains run over its rail line because this is clearly a part of rail carrier service. The Dispatching Department decision therefore clarifies that to satisfy the second and third elements of Railroad Ventures, the covered employer “operation” of the lessor’s rail line must include dispatching train service over the line. Where the rail line owner, rather than the rail service operator, dispatches the train service, then the lessor rail line owner operates the line to that extent in interstate commerce as a covered rail carrier employer under the RRA and RUIA. This “carrier business” portion of the lessor may be segregated from “non-carrier business” of the lessor under section 202.3 of the Board’s regulations (20 CFR 202.3) if appropriate.

The individuals who dispatch interstate freight trains, Amtrak interstate passenger trains, and Herzog Transit intrastate commuter passenger trains for Trinity Railway Express are in the identical position to the dispatchers of interstate freight trains, Amtrak interstate passenger trains, and intrastate commuter passenger trains over the line owned by So. Cal. Regional Rail. If the owner of the rail line, Dallas Area Rapid Transit (DART) conducted the dispatching itself, under the Dispatching Department decision DART would be an active rail carrier employer with respect to that business, and the dispatchers would be covered DART employees.

In this case, however, DART has contracted this portion of its rail carrier responsibilities not to one of the freight lines (UP RR or BNSF), but to Herzog Transit. With respect to train dispatching, then, DART, Trinity and Herzog Transit fail the third element of the Railroad Ventures test because it is not conducted by a covered rail carrier. This must mean that either (1) the dispatching activity is attributed back to DART as “Lessor” rail line owner, or (2) Herzog Transit is acting as a “Lessee” rail carrier employer under contract with DART, with respect to this activity only. In either case, the dispatchers are employees of a rail carrier employer under the RRA and RUIA.

Trinity Railway Express and DART have not been notified of, or participated in any capacity in, the proceedings connected with this Report. Moreover, because the focus of the inquiry pursuant to the Board’s Order has been Herzog Transit’s activity as operator for SF RTA in Florida, only minimal information has been obtained regarding the Trinity operation. For these reasons, I believe it is inappropriate to make any recommended decision to the Board in this Report regarding the status of the train dispatchers over the Trinty/DART rail line beyond my finding that under the Dispatching Department decision, this must be covered rail carrier service. Rather, I recommend the matter be referred to the General Counsel and to the Division of Audit and Compliance, Bureau of Fiscal Operations for preparation of an initial decision.

The Board directed that I prepare this Report in response to the requests made by individual Herzog Transit employees for a determination that the service performed in the Miami commuter operation was service to a covered employer under the RRA and RUIA. The employees’ fundamental belief, that their operation of heavy rail equipment over a rail line used by other covered employers (CSXT and Amtrak) should render them covered employees for benefit entitlement purposes under the Acts, has visceral appeal. This is especially true when it is conceded that other visually indistinguishable heavy rail commuter operations elsewhere in the country, including one conducted by an affiliated Herzog company (TA Services Inc.), are covered as RRA and RUIA employers. The Herzog Transit employees believe it inequitable that the employees running these similar commuter operations are covered for benefit purposes, but the Herzog Transit employees are not.

The hard truth is that a decision regarding a company’s status as a covered employer under the Acts must be made on the law, not on the equities. The train dispatching in Texas aside, Herzog Transit’s commuter operations in each case do not meet the requirement for rail carrier employer coverage. In no case does Herzog Transit conduct commuter operations of behalf of a government authority which assumed passenger service from a prior covered interstate rail carrier employer. Neither does Herzog Transit conduct in any location commuter operations which would have been subject to jurisdiction of the former Interstate Commerce Commission prior to 1995. In addition, Herzog Transit’s maintenance of way and equipment services in these operations do not render it a covered affiliate employer because Herzog Transit performs none of these services for an affiliated rail carrier employer, as required by relevant Board precedent.

Because Herzog Transit fails either test, the Report must recommend that the Board determine the changes in the business of Herzog Transit Services since B.C.D. 94-109 do not render it a covered employer under the Railroad Retirement and Railroad Unemployment Insurance Acts.

Respectfully submitted, ____________________________ Karl T. Blank Hearing Examiner April 30, 2007

Cases
Dearing v. United States, 167 F. 2d 310 (10th Cir. 1948)	30
Felton v. Southeastern Pennsylvania Transportation Authority 952.F. 2d 59, (3rd Cir. 1991)	34
Interstate Quality Services v. Railroad Retirement Board, 83 F. 3d 1463, (D.C. Cir., 1996)	54
Livingston Rebuild Center v. Railroad Retirement Board, 970 F. 2d 295, (7th Cir., 1992)	53
Magner-O’Hara Senic Railway v. I.C.C., 692 F. 2d 442, (6th Cir., 1982)	37,45,46,49
Napa Valley Wine Train, Inc. petition for Declaratory Order, Finance Docket No. 31156, (July 18, 1991), 7 I.C.C. 2d 954, 1991 ICC LEXIS 195	37,45,46,49
Railroad Concrete Crosstie Corp. v. Railroad Retirement Board, 709 F. 2d 1404, (11th Cir., 1983)	54
Southern Development Company v. Railroad Retirement Board, 243 F. 2d 351 (8th Cir., 1957)	53
Standard Office Building v. United States, 819 F. 2d 1371, (7th Cir., 1987)	53
Subway Division, Rochester Transit Corp. 255 I.C.C. 508 (1943)	43
Union Stock Yard & Transit Co. v. U.S., 308 U.S. 213 (1939)	30
United States v. Donruss Co., 393 U.S. 297, (1969)	32
United States v. Yellow Cab Co., 332 U.S. 218 (1947)	36,37,46,39

1Mass transportation is defined by reference to the Urban Mass Transportation Act, as amended, to be “regular and continuing general or special transportation to the public” (49.U.S.C. § 5302(a)(7)).

2See: H. Rep. No. 422, 104th Cong., 1st Sess. 242; and 49 U.S.C.A. Transportation 10101 to 20100, Interstate Commerce Act Disposition Tables, Table III, p. 17.

3See P.L. 94-210 § 804, 90 Stat. 31, at 139, amending section 304(j) of the 3-R Act (P.L. 93-236).

4See: P.L. 97-449 § 4(b)(4), 96 Stat. 2413, at 2441; and the note to that legislation prepared by the House Office of Law Revision Counsel, as reprinted in 1982 U.S. Code, Cong., and Ad. News , 97th Cong., 2d Sess. 4220, at 4260.

5The location and date of commencement of each of these new operations is summarized in Chart One of the Appendix attached to this Report.

6Witness B estimated 5 to 10 passengers per train run were coming from or going to Amtrak trains. (TR 50). Trains run 28 times each weekday, and 26 time Saturday and Sunday, for a total of 166 trains per week (28 trains x 5 weekdays +26 trains on weekends). If 5 Amtrak passengers were transferring on each, the weekly total would be 830; if 10 Amtrak passengers, the weekly total would be 1,660.

7Herzog Transit has provided the brief by UTU to the NLRB, in which UTU conceded that the employees of UTDC were not covered employees under the Railway Labor Act. (R. 1201-1202). UTU is not estopped from contesting the issue before the Railroad Retirement Board because the Herzog Transit and the Board were not parties, and because the definitions of covered employer under the RRA, RUIA, and Railway Labor Act are not precisely coincident. Nevertheless, it is noteworthy that at least in one context, UTU reached the same conclusion as I recommend.

8The ownership of these companies is illustrated in Chart Two of the Appendix attached to this Report.

9The maintenance and dispatching services for each commuter rail operation is summarized in Chart One of the Appendix attached to this Report.