This is the decision of the Railroad Retirement
Board regarding the status of Iowa Pacific
Holdings, LLC, and Permian Basin Railways,
as employers under the Railroad Retirement
and Railroad Unemployment Insurance Acts.
Iowa Pacific Holdings is a limited liability
company based in Chicago, Illinois, which is
owned by seven individuals. According to its
internet web site, Iowa Pacific “was
formed to acquire and operate small- and medium-sized
North American Railroads.” Iowa Pacific
began operations February 1, 2001, and as of
September 2002, it had 7 employees.
Iowa Pacific owns 100 percent of Permian Basin
Railways, Incorporated. Permian Basin began
operations May 25, 2002, when it concluded
two transactions with Rail America, Inc. At
that time, Permian Basin, through its subsidiary
West Texas and Lubbock Railway Company, Inc.,
entered into a lease of the entire rail line
of West Texas and Lubbock Railroad Company,
Inc. (emphasis supplied). See: Board Coverage
Decision 02-93, and West Texas and Lubbock
Railway Co. Inc.—Acquisition and Operation
Exemption—West Texas and Lubbock Railroad
Company, Inc., STB Finance Docket No. 34205,
67 Fed. Reg. 40980 (June 14, 2002). On or about
the same day, Permian Basin also purchased
the stock of the Austin Railroad Company, doing
business as Austin & Northwestern Railroad
Company, Inc. See: Permian Basin Railways,
Inc.—Continuance in Control Exemption—West
Texas and Lubbock Railway Company, Inc. and
Austin & Northwestern Railway Company,
Inc., STB Finance Docket No. 34206, 67 Fed.
Reg. 40979 (June 14, 2002). The Austin & Northwestern
owns a 107 mile line of rail between Monahans,
Texas and Lovington, New Mexico which it operates
as the Texas New Mexico Railroad. See: Rail
America, Inc.—Control Exemption—RailTex,
Inc., STB Finance Docket No. 33813, 64 Fed.
Reg. 62245 (November 16, 1999). Both the West
Texas and Lubbock Railway Company, Inc. (BA
No. 2888) and the Austin Railroad Company,
d/b/a Austin & Northwestern Railroad Company,
Inc., (BA No. 3865) are covered rail carrier
employers under the Acts. See: B.C.D. 02-93,
West Texas and Lubbock Railway Company, Inc.;
and Legal Opinion L-86-125, Austin Railroad
Company, Inc., d/b/a Austin and Northwestern
Railroad Company.
In a letter dated September 10, 2003, the
Vice President of Iowa Pacific stated that
Permian Basin has no employees, and that “The
name Permian Basin Railways is used to refer
to the W[est] T[exas] L[ubbock] C[ompany] and
T[exas] N[ew] M[exico] R[ailroad division of
the Austin & Northwestern Railroad Company]
collectively to customers of each railroad.” Iowa
Pacific itself does provide marketing and accounting
services to its subsidiaries, devoting about
10 percent of its time to Texas New Mexico
and 5 percent to West Texas Lubbock. Iowa Pacific
also reported that 25 percent of its revenue
derives from West Texas Lubbock, and 15 percent
from Texas New Mexico. However, the major portion
of Iowa Pacific’s business consists of
investments and acquisitions in transportation
related companies.
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 * * *.
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).
Iowa Pacific does not operate the rail lines
it owns as a carrier by rail. Further, 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
of section? 3231 of that Act. Union Pacific
Corporation v. United States, 5 F.3d 523 (Fed
Cir. 1993).
The relevant facts of the Union Pacific case
are indistinguishable from those presented
by Iowa Pacific. Accordingly, the Board determines
that Iowa Pacific Holdings, LLC, is not an
employer under the Acts as it is not under
common control with its rail carrier subsidiaries.
Iowa Pacific controls subsidiary Permian Basin
as its sole owner. Through control of Permian
Basin, Iowa Pacific also controls Permian Basin’s
two rail carrier subsidiaries.
Therefore, Permian Basin, Texas New Mexico,
and West Texas Lubbock division of the Austin & Northwestern
Railroad Company are under the common control
of Iowa Pacific within the meaning of the Railroad
Retirement and Railroad Unemployment Insurance
Acts. See regulations of the Board at 20 CFR
202.4. 202.5; and Universal Carloading & Distributing
Company v. Railroad Retirement Board, 172 F.
2d 22, (D.C. Cir. 1948). If Permian Basin performed
any services for its affiliated rail carriers
which were services in connection with the
transportation of property by rail, it would
meet both conditions for coverage under section
1(a)(1)(ii) above. Based on the information
available, however, Permian Basin is a corporate
shell with no employees. Any marketing and
accounting services performed by the parent
superstructure of the railroads for the rail
subsidiaries is done by Iowa Pacific. Accordingly,
because it does not meet both conditions for
coverage under the Acts as a rail carrier affiliate
employer, the Board finds that Permian Basin
Railways is not a covered employer under the
Acts.
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Concurring Opinion of
V. M. Speakman, Jr.
Employer Status Determination
Iowa Pacific Holdings, LLC
Permian Basin Railways
I concur with the result in this case but
for a different reason. My colleagues hold
that Iowa Pacific Holdings LLC, the parent
company of Permian Basin Railways Inc., which
in turn owns a number of railroads, is not
under common control with these carriers. For
support it cites Union Pacific Corporation
v. United States, 5 F. 3d 523 (Fed Cir. 1993).
I have often indicated my disagreement with
the holding in that case, a tax case in which
the Railroad Retirement Board was not even
a party, and believe that the Board has been
remiss in not litigating the issues involved
in Union Pacific in another Circuit to test
the logic of its holding. Holdings by other
Circuits to the effect that “common control” within
the meaning of the Railroad Retirement Act
can exist between a parent and subsidiary could
cause the Federal Circuit to reconsider its
decision in Union Pacific or set the stage
for Supreme Court review. Indeed, repeated
litigation of the same issue is not new to
this agency. See Johnson v. Railroad Retirement
Board, 969 F.2d 1082 (D.C. Cir. 1992). In addition,
the Board like the Internal Revenue Service
has independent authority to determine what
entities are covered under its statute. Board
of Trustees of Galveston Wharves v. United
States, 949 F. 2d 404(Fed. Cir. 1991).
The illogic of the holding in Union Pacific
is demonstrated by the fact that my colleagues
concede that if Permian Basin Railways, Inc.,
performed substantial services in connection
with railroad transportation for its subsidiary
carriers it would be an employer covered under
the Railroad Retirement Act since it and its
carriers are under the common control of Iowa
Pacific. However, if those same services were
performed by Iowa Pacific, the parent company
of Permian Basin, Iowa Pacific would not be
covered because, in the view of my colleagues,
it is not under common control with the carriers
it owns through its ownership of Permian Basin.
The result thus depends entirely on where in
the corporate chain the services are performed.
However, even if one correctly assumes that
Iowa Pacific is under common control with its
carriers, I would find that it is not a covered
employer. Iowa Pacific is not an operating
company but is essentially involved in acquiring
railroads and transportation-related properties
for investment purposes. Mere ownership of
a carrier is not performing a service in connection
with railroad transportation which would cause
company to be covered under Section 1(a)(ii)
of the Railroad Retirement Act. As such, it
would not meet any test for a covered employer
under the Railroad Retirement Act. See 45 U.S.C.
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