Herzog Transit Services, Incor v. RRRB ( 2010 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3945
H ERZOG T RANSIT SERVICES,
INCORPORATED , et al.,
Petitioners,
v.
U NITED STATES R AILROAD
R ETIREMENT B OARD ,
Respondent.
Petition for Review of an Order
of the Railroad Retirement Board
No. 09-53
A RGUED M AY 26, 2010—D ECIDED O CTOBER 22, 2010
Before R IPPLE, K ANNE and SYKES, Circuit Judges.
R IPPLE, Circuit Judge. Herzog Transit Services (“Herzog”)
operates, under contract with Dallas Area Rapid Transit
(“DART”) and Fort Worth Transportation Authority (“the
T”), a commuter rail service on a line connecting Dallas
and Fort Worth, Texas. Herzog dispatches all train traffic
along this line, including interstate freight trains. The
2 No. 09-3945
Railroad Retirement Board (“RRB” or “Board”) determined
that Herzog is a covered employer under the Railroad
Retirement Act 1 (“RRA”) and the Railroad Unemploy-
ment Insurance Act2 (which we shall sometimes refer to
collectively as “the Acts”), but only with respect to these
dispatching operations. Herzog, DART and the T petition
for review of this determination. For the reasons set
forth in this opinion, we deny the petition for review.
I
BACKGROUND
1.
Herzog is a contract operator of commuter railroads.
In 1994, the RRB determined that Herzog was not a cov-
ered employer under the Acts. At that time, Herzog
operated commuter rail services in the Miami, Florida
area for the Tri-County Commuter Rail Organization
(now known as South Florida Regional Transportation
Authority, or SF RTA). Since then, Herzog has engaged
in six new operations in five other states: North
Carolina, New Jersey, New Mexico, California and Texas.
This petition concerns only the operation in Texas.
DART and the T jointly own a line of train track be-
tween Dallas and Forth Worth, Texas. On this line, DART
and the T provide commuter rail service, known as the
1
45 U.S.C. §§ 231-231v.
2
45 U.S.C. §§ 351-69.
No. 09-3945 3
Trinity Railway Express (“Trinity” or “TRE”). These
commuter trains have been operated by Herzog since
1996. Four interstate freight carriers also operate on the
line. The Union Pacific Railroad Company and the BNSF
Railway Company, interstate freight carriers, use the entire
line. The Dallas, Garland & Northeastern Railroad and the
Fort Worth & Western Railroad, also interstate freight
carriers, use only part of the line.
Since 2001, Herzog has performed dispatching func-
tions for all train traffic on the line. The operating agree-
ments among the participating lines (DART, the T and the
freight carriers) require Herzog to give priority to the
Trinity trains, but also require it to allow the freight
carriers to use the line.
2.
In November 2003, Richard C. Beall, an employee of
Herzog, wrote to the RRB and asked the Board to deter-
mine that Herzog was a covered employer under the
Acts. In February 2006, the Board ordered that a hearing
be held on whether there has “been a change in the opera-
tions of Herzog Transit Services, Inc., which would
affect its status as an employer under the Railroad Re-
tirement and Railroad Unemployment Insurance Acts.”
A.R. 1256. A hearing was held on May 16, 2006. The
Hearing Examiner issued a report, and the Board rendered
a decision. The Board affirmed and adopted that deci-
sion upon reconsideration. We shall discuss in detail
only the part of the Board’s decision pertinent to this
4 No. 09-3945
petition, namely, the Board’s discussion of Herzog’s
dispatching activities in Texas.3
The Board framed the issue as whether Herzog, a
contractor, was a covered employer under the Acts.4
Focusing on the nature of the activity conducted by
Herzog, the Board emphasized that “dispatching is as
inextricable a part of the actual motion of trains as is
the operation of a train’s locomotive controls by the
engineer.” A.R. 7. Dispatchers, said the Board, direct
and control the movement of trains; no train can move
without an order from the dispatcher. Therefore,
where “the train dispatching includes trains that operate
interstate, the entity dispatching trains operates as a
rail carrier” under the Acts. Id. Because Herzog’s
principal business is intrastate passenger service,
however, the Board found only its dispatching unit to be
a covered employer.5
3
In addition to the portion of the decision concerning
Herzog’s dispatching activities in Texas, the Board also held
that, in all other respects, Herzog was not a covered employer
under the Acts.
4
The Board rejected the argument, not renewed on appeal,
that it should have focused on whether the individual dis-
patchers in question were statutory employees of a railroad
under 45 U.S.C. § 231(b)(1) and (d)(1).
5
20 C.F.R. § 202.3(a) provides in part:
With respect to any company or person principally
engaged in business other than carrier business, but
(continued...)
No. 09-3945 5
In support of this conclusion, the Board identified five
considerations. First, the Board noted that the Federal
Railroad Administration (“FRA”) has issued regulations
highlighting the control of dispatchers over train move-
ment.6 Second, the Board noted that a common carrier
is the insurer of the goods it carries. Third, because dis-
5
(...continued)
which, in addition to such principal business, engages
in some carrier business, the Board will require sub-
mission of information pertaining to the history and
all operations of such company or person with a view
to determining whether some identifiable and separable
enterprise conducted by the person or company is to
be considered to be the employer.
6
49 C.F.R. § 241.5 provides that “dispatch” means in part:
(1) To perform a function that would be classified as a
duty of a “dispatching service employee,” as that term
is defined by the hours of service laws at 49 U.S.C.
21101(2), if the function were to be performed in the
United States. For example, to dispatch means, by
the use of an electrical or mechanical device—
(i) To control the movement of a train or other on-
track equipment by the issuance of a written or verbal
authority or permission affecting a railroad operation,
or by establishing a route through the use of a railroad
signal or train control system but not merely by align-
ing or realigning a switch; or
(ii) To control the occupancy of a track by a roadway
worker or stationary on-track equipment, or both . . . .
(italics in original).
6 No. 09-3945
patching is an indispensable component of carrier
service and must be delivered with such service, Herzog’s
position was analogous to those of contractors and
other entities previously found by the Board to be
covered employers.7 These previous determinations in-
cluded a commuter authority that provided dispatching
services for interstate freight trains operating on its
line. Fourth, the Board noted that, if Trinity (DART and
the T) performed the interstate freight service itself,
it would be a covered employer; Trinity could not
remove an essential aspect of carrier operation from
coverage by removing it from the covered interstate
freight carriers. In this context, the Board referred to its
decision in Employer Status Determination—Railroad Ven-
tures, Inc., B.C.D. 00-47 (served Nov. 7, 2000). Railroad
Ventures set forth a test to determine when a rail line
owner that contracts out railroad activities never-
theless remains a covered employer. The Board stated
that under this test, Trinity (DART and the T) would not
have been a covered employer when the interstate
freight trains performed their own dispatching. Once it
“took back” control over dispatching operations and
assigned them to Herzog, however, Herzog became an
employer as lessee of the dispatching operations. A.R. 41-
7
See Employer Status Determination—Rail Temps, Inc., B.C.D. 03-
38 (served May 6, 2003); Employer Status Determination—Mass.
Bay Commuter R.R. Co., B.C.D. 03-23 (served Mar. 3,
2003); Employer Status Determination—S. Cal. Reg’l R. Auth.,
Segregation of Dispatching Dep’t, B.C.D. 02-12 (served Feb. 12,
2002).
No. 09-3945 7
42. Fifth, the Board emphasized that its decision would
not necessarily have adverse consequences on other
similarly situated entities because the Board considers,
in each case, the particular facts before it.
The Management Member dissented, but wrote only
that he disagreed with “the portion of the majority’s
decision that affirms the Board’s initial determination
finding dispatchers working for Herzog Transit Services
to be covered under the Railroad Retirement Act and
the Railroad Unemployment [I]nsurance Act.” A.R. 9A.
Herzog, DART and the T now petition for review.8
II
ANALYSIS
We begin, as we must, with the governing statutory
scheme. We first shall describe it generally. We then
shall turn to a more precise discussion of the provi-
sions most directly relevant to our analysis.
A.
1.
In the early part of the twentieth century, private rail-
roads administered pension plans. These plans provided
8
Because Herzog is the party directly aggrieved by the Board’s
decision, the arguments we shall address pertain to the status
of Herzog. Therefore, for clarity, we shall refer to the joint
petitioners as “Herzog.”
8 No. 09-3945
small benefits and had strict eligibility requirements.
As a result, they provided little incentive for older em-
ployees to retire, thereby keeping younger workers out
of the industry. But the older workers were dissatisfied
as well; as one former Associate General Counsel to the
RRB has put it, “[t]he older men complained because
these pension plans were like an umbrella that did not
open whenever it rained, offered little protection when
it did open, and hardly any when the heavy rains
came.” David B. Schreiber, The Legislative History of
the Railroad Retirement and Railroad Unemployment
Insurance Systems 2 (1978) (hereinafter Schreiber).
The Railroad Retirement Act was directed toward
remedying this situation. The first version of the Act was
enacted in 1934 and struck down by the Supreme Court. A
new Act was passed in 1935 and promptly challenged
in court. A district court enjoined the Board from com-
pelling the railroads to provide information needed to
administer the Act; however, the court did not prevent
the Board from adjudicating annuities and making
awards if it had the necessary information. Schreiber at 16-
17. While the litigation was pending on appeal, a third Act,
which represented a negotiated compromise between
management and labor that both sides supported, was
enacted in 1937. See S. Rep. No. 697, at 2 (1937). 9 The 1937
Act was styled as an amendment to the 1935 Act, but it was
9
The statute was revised significantly in 1974, although the
coverage provision at issue in this case was not substantively
altered.
No. 09-3945 9
essentially a rewriting. See 50 Stat. 307 (1937). The Act
establishes annuity benefits for retired workers in the
railroad industry. Full annuities are available in the
current version of the Act to those who have completed
ten years of service to one or more employers (or five
years accruing after 1995) and reach the retirement age
provided by the Social Security Act, as well as to those
who have reached the age of sixty and completed thirty
years of service.10 45 U.S.C. § 231a(a)(1)(i), (ii). The
amounts of these annuities are calculated pursuant to 45
U.S.C. § 231b. Reduced annuities are available to those
who have reached the age of 62 and completed at least
ten (or five, all accruing after 1995) but fewer than
thirty years of service. Id. § 231a(a)(1)(iii). Additionally,
certain disabled individuals are entitled to annuities. Id.
§ 231a(a)(1)(iv), (v). The statute also provides for annuities
to spouses, as well as supplemental annuities to certain
employees. Id. § 231a(b), (c). When an annuity has be-
come due but has not been paid prior to the individual’s
death, it is payable to a surviving spouse, who was
living with the individual at the time of the individual’s
death. Id. § 231e(a)(1). In light of these benefits, it is
unsurprising that the Supreme Court has observed that
“[t]he Railroad Retirement Act is substantially a Social
Security Act for employees of common carriers.” Eichel v.
New York Cent. R.R. Co., 375 U.S. 253, 254 (1963) (per
curiam) (quotation marks and citation omitted).
10
Those with fewer than ten years of service (or five years
accruing after 1995) are covered by the Social Security system.
20 C.F.R. § 404.1401.
10 No. 09-3945
The Retirement Act is just one component of the over-
all statutory scheme. The Railroad Unemployment Insur-
ance Act, enacted in 1938, establishes a system of unem-
ployment insurance for this same group of employees.
Cheney R.R. Co. v. R.R. Ret. Bd., 50 F.3d 1071, 1074 (D.C.
Cir. 1995). Employers and employees subject to the Acts
must pay a payroll tax akin to the social security tax
required of other employers and employees. These taxes,
established by the Railroad Retirement Tax Act, are
higher than the social security tax. See Standard Office
Bldg. Corp. v. United States, 819 F.2d 1371, 1373 (7th Cir.
1987).
The Retirement Act aimed to protect the nation’s railroad
employees. See 48 Stat. 1283 (1934) (“AN ACT To provide
a retirement system for railroad employees, to provide
unemployment relief, and for other purposes.”); H. Rep.
1988, at 1 (1934) (“The bill proposes to establish a railroad
retirement pension system for all carriers subject to the
Railway Labor Act and all employees of such carriers.”).1 1
In order to prevent railroads from avoiding the Act by
creative corporate structuring, the Act from its inception
has covered “any company which is directly or indirectly
owned or controlled by, or under common control with,
one or more employers . . . and which operates any equip-
ment or facility or performs any service . . . in connection
11
The coverage provisions of the Railway Labor Act did not
materially differ from those of the Railroad Retirement Act.
Compare 48 Stat. 1185 (June 21, 1934), with 48 Stat. 1283 (June 27,
1934).
No. 09-3945 11
with the transportation of passengers or property by
railroad.” 45 U.S.C. § 231(a)(1)(ii); see also 48 Stat. 1283(1934). If not for this provision, railroads could remove
most of their workers from the Act simply by setting up a
wholly owned subsidiary. See Despatch Shops, Inc. v. R.R.
Ret. Bd., 154 F.2d 417, 419 (2d Cir. 1946).
In its current form, the Retirement Act defines a covered
employer in five ways. In this case, the Board relied on 45
U.S.C. § 231(a)(1)(i), which has been a part of the Act, in
similar form, since 1934. It provides that “employer”
shall include
(i) any carrier by railroad subject to the jurisdiction
of the Surface Transportation Board under part A
of subtitle IV of Title 49 . . . .
45 U.S.C. § 231(a)(1)(i).
The parties assume that “employer” is defined in identi-
cal fashion in the Unemployment Insurance Act. See Pet’r
Br. 8 n.11 (“substantively identical”); Resp’t Br. 3 (“sub-
stantially similar”). Other courts have so noted or as-
sumed. See Am. Orient Express Ry. Co. v. Surface Transp. Bd.,
484 F.3d 554, 556 (D.C. Cir. 2007) (implicitly assuming);
Cheney R.R. Co., 50 F.3d at 1074 (explicitly noting); Atl.
Land & Improvement Co. v. United States, 790 F.2d 853, 855-
56 (11th Cir. 1986) (explicitly noting the “virtually identi-
cal” language). We agree.1 2
12
For completeness, we note that the analogous provision of
the Railroad Unemployment Insurance Act covers “a railroad
subject to the jurisdiction of the Surface Transporta-
(continued...)
12 No. 09-3945
The Retirement Act and the Unemployment Insurance
Act are administered by the Railroad Retirement Board.1 3
The Board is an independent executive agency with
three members, all appointed by the President. 45 U.S.C.
§ 231f(a). The Board adjudicates claims for benefits
under the Act. R.R. Ret. Bd. v. Duquesne Warehouse Co., 326
U.S. 446, 447 (1946); see also 45 U.S.C. § 231f(b). The Board
also determines the status, as covered or non-covered, of
particular employers and employees. 20 C.F.R. § 259.1.
Its decisions, if they determine “the rights or liabilities
of any person,” may be appealed to the Courts of
Appeals for the Seventh Circuit, the District of Columbia
Circuit, or to the Court of Appeals in which the peti-
tioner resides, “or will have had his principal place of
business or principal executive office.” 45 U.S.C. § 231g;
45 U.S.C. § 355(f).
B.
With this background, we turn now to an examination
of the provisions most pertinent to the case before us.1 4
12
(...continued)
tion Board under part A of subtitle IV of title 49.” 45 U.S.C.
§ 351(b).
13
The Tax Act is administered by the Internal Revenue Service.
Interstate Quality Servs., Inc. v. R.R. Ret. Bd., 83 F.3d 1463, 1464
(D.C. Cir. 1996).
14
As we did in our decision in Livingston Rebuild Center, Inc. v.
Railroad Retirement Board, 970 F.2d 295, 299 (7th Cir. 1992),
(continued...)
No. 09-3945 13
As we noted earlier, the parties focus on the provision
of the RRA that 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 . . . .
45 U.S.C. § 231(a)(1) (emphasis supplied). This subsec-
tion contains several terms and phrases that require
further investigation.
1.
We turn first to the phrase “carrier by railroad.” The
RRA provides no definition of this term. Notably, how-
ever, the Interstate Commerce Commission Termination
Act of 1995 15 (“ICCTA”), which delineates the jurisdic-
tion of the Surface Transportation Board (“STB”), defines
“rail carrier” as a “a person providing common carrier
railroad transportation for compensation.” 49 U.S.C.
§ 10102 (emphasis supplied). The RRB seemed to
assume, and we see no reason to disagree, that Congress
intended “carrier” to have the same meaning in both of
these closely related statutes and that the RRA statute
therefore affords no broader coverage than the ICCTA.
The ICCTA definition of “rail carrier” presents, in turn,
its own internal issues. The ICCTA does not define
14
(...continued)
we pretermit a determination of whether we owe the deter-
mination of the Board a particular degree of deference.
15
109 Stat. 803 (1995).
14 No. 09-3945
“common carrier.” Other courts have assumed that the
term should be given the same meaning as it is given
in the common law: an entity that holds itself out to the
public as offering transportation services to all who are
willing to pay its tariff.1 6
The ICCTA also defines “transportation.” That term
is defined to include:
(A) a locomotive, car, vehicle, vessel, warehouse,
wharf, pier, dock, yard, property, facility, instru-
mentality, or equipment of any kind related to
the movement of passengers or property, or both,
by rail, regardless of ownership or an agreement
concerning use; and
(B) services related to that movement, including
receipt, delivery, elevation, transfer in transit,
refrigeration, icing, ventilation, storage, handling,
and interchange of passengers and property . . . .
49 U.S.C. § 10102(9).
16
Fayard v. Ne. Vehicle Servs., LLC, 533 F.3d 42, 46 (1st Cir. 2008);
Am. Orient Express Ry. Co. v. Surface Transp. Bd., 484 F.3d 554, 557
(D.C. Cir. 2007); New York Susquehanna & W. Ry. Corp. v. Jackson,
500 F.3d 238, 250 (3d Cir. 2007); Black’s Law Dictionary 242
(9th ed. 2009) (“A commercial enterprise that holds itself out
to the public as offering to transport freight or passengers for
a fee.”).
No. 09-3945 15
2.
Section 231(a)(1) also defines employer by requiring
that the “carrier by railroad” be subject to the jurisdic-
tion of the Surface Transportation Board. The relevant
statute, which is dependent on the definitional section
we have just referenced, provides that the Board has
jurisdiction over:
transportation by rail carrier that is—
(A) only by railroad; or
(B) by railroad and water, when the transportation
is under common control, management, or ar-
rangement for a continuous carriage or shipment.
49 U.S.C. § 10501(a)(1) (emphasis supplied). STB jurisdic-
tion attaches to such transportation that is part of the
interstate rail network. Id. § 10501(a)(2)(A).
C.
With these statutory provisions as our decisional
matrix, we now examine the RRB’s resolution of the
situation presented by this case.
1.
In determining that Herzog’s dispatching operations
were covered by the Acts, the Board reasoned that
Trinity (DART and the T), as the owner of the rail line in
question, formerly had leased the right to run interstate
rail operations over its line to the four interstate freight
rail owners that operate interstate freight trains over
16 No. 09-3945
its lines. Having retained no part of the interstate opera-
tion of rail transportation for itself, Trinity was not,
during that earlier period, a covered employer under the
Acts. In January 2001, however, Trinity altered that ar-
rangement by taking back one aspect of the right to run
interstate rail operations over its lines—dispatching—and
vesting that right in Herzog Transit, which also oper-
ated an intrastate commuter line over the same track.
Herzog then performed the dispatching function for
the interstate operations as well as the commuter line.
In the Board’s view, Herzog’s dispatching function con-
stitutes a necessary and integral part of the operation
of interstate trains over Trinity’s tracks and, therefore,
its activity as a dispatcher constitutes operation as a rail
carrier subject to the RRA.
2.
In determining whether the Board’s analysis comports
with the statutory mandate that we have described,
we believe that, as a first step, it is essential to keep in
mind two overarching considerations. First, the subsec-
tion of the RRA that we have analyzed is part of a
much broader provision that brings within the scope of
an “employer” many different entities.1 7 These various
17
45 U.S.C. § 231(a)(1) provides:
The term “employer” shall include—
(i) any carrier by railroad subject to the jurisdiction of
the Surface Transportation Board under part A of
(continued...)
No. 09-3945 17
17
(...continued)
subtitle IV of Title 49;
(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 transpor-
tation of passengers or property by railroad, or the
receipt, delivery, elevation, transfer in transit, refrigera-
tion or icing, storage, or handling of property trans-
ported by railroad;
(iii) any receiver, trustee, or other individual or body,
judicial or otherwise, when in the possession of the
property or operating all or any part of the business
of any employer as defined in paragraph (i) or (ii) of
this subdivision;
(iv) any railroad association, traffic association, tariff
bureau, demurrage bureau, weighing and inspection
bureau, collection agency and any other association,
bureau, agency, or organization which is controlled and
maintained wholly or principally by two or more
employers as defined in paragraph (i), (ii), or (iii) of this
subdivision and which is engaged in the performance
of services in connection with or incidental to rail-
road transportation; and
(v) any railway labor organization, national in scope,
which has been or may be organized in accordance
with the provisions of the Railway Labor Act, as
amended [45 U.S.C. 151 et seq.], and its State and
(continued...)
18 No. 09-3945
subsections are designed primarily to bring within the
railroad retirement scheme employees who play many
different roles in the interstate railway system of the
United States. When read together, these subsections
make clear that Congress envisioned a broad retirement
program for employees playing many roles within the
railroad industry. See United States R.R. Ret. Bd. v. Fritz,
449 U.S. 166, 168 (1980) (noting that the 1937 Act was
intended to benefit “persons who pursued careers
in the railroad industry”).1 8 It was “designed to provide
pensions for employees ‘of the Nation’s railroad
transportation system.’ ” Id. (quoting H. Rep. No. 1069, at
17
(...continued)
National legislative committees, general committees,
insurance departments, and local lodges and divisions,
established pursuant to the constitution or bylaws
of such organization.
(Brackets in original).
18
It is also apparent that the various subgroups within the
statute’s coverage are not necessarily exclusive.
In any event, the other subsections make evident Congress’s
decision to place within the railroad retirement system those
employed in directly supporting the running of the interstate
rail system. Our reading of the statutory language finds sup-
port as well in decisions dealing with whether a subsidiary of
a railroad is an “employer.” In that context, our colleagues in
the District of Columbia Circuit have emphasized that
“[t]he statutes require that services be performed merely ‘in
connection with’ rail activity.” Interstate Quality Servs., 83 F.3d at
1464.
No. 09-3945 19
2 (1937)). In short, this bedrock provision makes evident
that, as our colleagues in the District of Columbia Circuit
have put it, the statute has a “broad purpose” and a
“protective character.” Cheney R.R. Co., 50 F.3d at 1078. As
the judges of the District of Columbia Circuit also have
said, the legislative history supports a reading of the
text that gives effect to Congress’s clear intent that this
benefit statute “be construed broadly.” Id. at 1077-78.
Secondly, as we recognized in Livingston Rebuild Center,
Inc. v. Railroad Retirement Board, 970 F.2d 295, 298-99 (7th
Cir. 1992), the provisions of this statutory scheme are
not to be constrained by the business models common
at the time of the passage of the Act. Unless and
until Congress deems otherwise, they are equally ap-
plicable to today’s railroad industry and the organiza-
tional relationships of today’s business environment,
which reflect, among other factors, increased competition
and the increased frequency of intrastate commuter lines
sharing trackage and other facilities with participants
in the Nation’s interstate railway system. It is not
unusual for an entity, the activities of which generally
do not involve interstate transportation, to perform a
particular function that is an integral part of interstate
transportation by rail and that therefore is subject to
the Acts.19 The RRA may have been enacted when all
19
The American Public Transportation Association, as amicus,
informs us that “a commuter rail operator very often is the
dispatcher of all the trains on shared track, including
freight trains.” Amicus Br. 4.
20 No. 09-3945
functions integral to interstate transportation usually
were performed by carriers or their affiliates. Today,
the rail transportation industry has adopted other ef-
ficiencies. Our duty nevertheless remains the same.
We must apply the statute to ensure individuals per-
forming these integral functions to interstate rail trans-
portation are covered and thereby effectuate Congress’s
broad protective purpose.
Notably, in order to keep the Acts from reaching too
broadly, the Board has promulgated regulations that
account for entities that perform “carrier business” but
are principally engaged in other business.2 0 Such entities
may, subject to certain considerations, be covered only
with respect to those employees performing the integral
functions. These regulations state that coverage will be
compatible with the statutory directive only when the
function performed by the entity has a direct link to
the actual operation of interstate trains. Specifically, the
regulation identifies a series of factors which the
Board must consider in determining whether such an
entity may be covered by the Acts. According to the
RRB’s regulation, in making such a determination, the
Board considers the “history and all operations” of the
company “with a view to determining whether some
identifiable and separate enterprise conducted by the
[company] is to be considered to be the employer.” 20
C.F.R. § 202.3. The Board considers the following factors:
20
The Board’s authority to promulgate such regulations is
found at 45 U.S.C. § 231f(b)(5).
No. 09-3945 21
(1) The primary purpose of the company or person
on and since the date it was established;
(2) The functional dominance or subservience of
its carrier business in relation to its non-carrier
business;
(3) The amount of its carrier business and the
ratio of such business to its entire business;
(4) Whether its carrier business is a separate and
distinct enterprise.
Id.
This approach is certainly compatible with long-
standing judicial interpretation. Ever since the Supreme
Court’s seminal decision in Railroad Retirement Board v.
Duquesne Warehouse Co., 326 U.S. 446 (1946), the key
inquiry has been not whether an entity not owned by
the interstate railroads provides the same service, but
whether the interstate carrier could have performed the
work and charged for it. Id. at 454; see also Atl. Land &
Improvement Co., 790 F.2d at 856; R.R. Concrete Crosstie
Corp. v. R.R. Ret. Bd., 709 F.2d 1404, 1410 (11th Cir. 1983).
Dispatching services are a necessary part of the opera-
tion of any train, including interstate trains. There is
great force in the RRB’s point that the Federal Railroad
Administration, charged with carrying out “all railroad
safety laws of the United States,” 49 U.S.C. § 103(b),
considers dispatching services to be central to the safe
operation of a train and has described them in its own
regulations in terms that underline their centrality to
22 No. 09-3945
train operation.21 Interstate rail carriers can, and often
do, undertake to perform this function themselves
and, when they incur such an expense, can no doubt
charge for it.
The Board’s own administrative precedent also sup-
ports our decision. In this case, the Board relied on its
earlier decision in Employer Status Determination—S. Cal.
Reg’l R. Auth., Segregation of Dispatching Dep’t, B.C.D.
02-12 (served Feb. 12, 2002). There, a governmental entity
charged with the administration of commuter rail opera-
tions (“SCRRA”) had contracted the operation of all
trains to AMTRAK. It nevertheless became a partially
covered employer when it decided to provide its own
dispatching services for all traffic, interstate and intra-
state, over its tracks. The Board noted that SCRRA
had organized the dispatching services into a separate
identifiable department that maintained strict personnel
separation from the remainder of the agency’s activities
and that was under the sole supervision of a dis-
patching manager.
We cannot accept Herzog’s view that an earlier deci-
sion of the STB 22 involving the same line commands
an opposite result in the present case. See City of
Dallas, City of Fort Worth and D/FW RAILTRAN, Petition for
21
See note 6, supra.
22
The RAILTRAN decision predated the creation of the STB
and, therefore, was decided by the predecessor agency, the
Interstate Commerce Commission. For ease of reading, we
shall refer to its decision as that of the STB.
No. 09-3945 23
Declaratory Order, I.C.C. Fin. Docket No. 32406, 1993 WL
540395 (served Dec. 30, 1993). RAILTRAN concerned the
same lines involved in the present case, although under a
different structure than the current iteration. At the time
of the RAILTRAN decision, the cities of Dallas and Fort
Worth owned the rail line and a state administrative
agency, RAILTRAN, was tasked with the responsibility
to “preserve and manage the [line] for commuter rail
service.” Id. at *1. Pursuant to a then-existing operating
rights agreement, a railroad company paid rent for use
of the lines and was responsible for maintenance, opera-
tion and dispatching on the line. Id. at *2. The cities had
the right to choose an operator who would contract
with the railroad to perform commuter rail services.
Freight operations were conducted by the railroad and
were subject to existing rights of other railroads.
The parties negotiated new agreements that modified
these existing relationships, and they sought a declara-
tory judgment from the STB about whether the pending
contractual arrangements would alter the non-carrier
status of the cities and of RAILTRAN. Under the new
agreement, the cities and RAILTRAN would have the
right and responsibility to both select and contract with
an entity or entities to operate commuter rail and perform
dispatching on the track.
The STB held that this proposed arrangement would not
transform the existing non-carrier status of the cities
and of RAILTRAN, because the proposal “would not
change their relationship to the line.” Id. at *4. That is, the
cities and RAILTRAN would remain non-operating
24 No. 09-3945
owners who would contract with other parties to provide
the commuter operations and dispatching. According
to the STB, nothing in that arrangement would convert
the non-operating, non-dispatching owners themselves
into covered entities.
We acknowledge the superficial similarities in the
factual background underlying both of these decisions
from different administrative agencies. In each, a non-
operating owner assumes responsibility for interstate
railroad-related functions and contracts with a third
party to execute that responsibility. Importantly, how-
ever, the agencies’ inquiries focused on two different
entities in these transactions and answered different
questions. The STB was evaluating its jurisdiction at
the request of the predecessors-in-interest of Trinity, the
non-operating owner, and found that it had none. In
the present case, the Board’s inquiry concerned Herzog,
the entity that would be performing the dispatching func-
tions. The analog to Herzog in the prior STB case
had not yet been identified, although the language in
the opinion suggests that the parties contemplated it
would be one of the interstate railroads already servicing
the line. Further, to the extent that the present case
does address Trinity itself, it reaches the same conclusion
as that reached in RAILTRAN—that Trinity is not a
covered entity. A.R. 8 (“Trinity itself is not a covered
employer to the extent that the train dispatching opera-
tions conducted on Trinity’s behalf [are] reported by
Herzog Transit.”). Indeed, these two decisions are ani-
mated by a single, consistent principle. Those entities
that assume direct responsibility for the movement
No. 09-3945 25
of trains in interstate commerce are subject to federal
regulation. Those entities whose participation in
interstate commerce is indirect are not subject to the
federal statutes.23
Here, Trinity acquired the duty to perform the dis-
patching function for the interstate rail operations along
its tracks. It then delegated this function to Herzog, the
operator of the intrastate service on its tracks. Herzog,
therefore, in performing the dispatching function for
the interstate freight traffic on Trinity’s track, is per-
forming the function of a common carrier in interstate
commerce and is a covered employer under the statute,
at least with respect to the dispatching function.
Conclusion
The Railroad Retirement Board correctly determined
that Herzog was, insofar as it performed the dispatching
23
We note in passing that the STB has followed this principle
when dealing directly with entities to which the dispatching
function is delegated. If the pertinent agreement renders
minimal the effect which the dispatching function will have
on the interstate movement of trains, the STB has determined
that the entity performing the function is not subject to
federal regulation. See Utah Transit Auth.—Acquisition Exemp-
tion—Union Pac. R.R. Co., S.T.B. Fin. Docket No. 35008, 2007
WL 2107123, at *5 (served July 23, 2007); Los Angeles County
Trans. Comm’n—Pet. for Exemption—Acquisition from Union Pac.
R.R. Co., S.T.B. Fin. Docket No. 32375, 1996 WL 408632, at *3
(served July 23, 1996).
26 No. 09-3945
function for interstate trains using the tracks of Trinity,
a covered employer. Accordingly, the petition for re-
view is denied.
P ETITION D ENIED
S YKES, Circuit Judge, dissenting. An employer is
covered by the Railroad Retirement and Unemployment
Insurance Acts (and therefore required to contribute to
these federal funds) if it is a “carrier by railroad subject
to the jurisdiction of the Surface Transportation Board.”
45 U.S.C. § 231(a)(1)(I) (Railroad Retirement Act); 45
U.S.C. § 351(b) (Railroad Unemployment Insurance
Act). The Transportation Board’s jurisdiction is limited
to “transportation by rail carrier that is . . . by railroad
[operating interstate].” 49 U.S.C. § 10501(a) (Transporta-
tion Board has jurisdiction over transportation by rail
carrier that is “in the United States” and “part of the
interstate rail network” or between a place in one state
and a place in another state, U.S. territory, or foreign
country). A “rail carrier,” in turn, is defined as a “person
providing common carrier railroad transportation for
compensation.” Id. § 10102(5). “Common carrier” is not
defined, but as my colleagues have noted, the Trans-
portation Board and the courts have used the common-
No. 09-3945 27
law definition: an entity that “holds itself out to the
general public as engaged in the business of transporting
persons or property from place to place for compensa-
tion.” Am. Orient Express Ry. Co., S.T.B. Fin. Docket
No. 34502, at 4 (served Dec. 29, 2005), 2005 WL 3552968;
Am. Orient Express Ry. Co. v. Surface Transp. Bd.,
484 F.3d 554, 557 (D.C. Cir. 2007) (affirming the Trans-
portation Board’s use of this definition).
Putting these elements together, to be covered by the
Acts, an employer must provide interstate common-
carrier transportation by rail. More specifically, the em-
ployer must hold itself out to the public as offering inter-
state passenger or freight rail transportation for a tariff.
See Majority Op. at 14 (giving “common carrier” its
common-law meaning: “an entity that holds itself out
to the public as offering transportation services to all
who are willing to pay its tariff”).
Petitioners Dallas Area Rapid Transit (“DART”) and
Fort Worth Transportation Authority (“the T”) are
regional public-transportation authorities and political
subdivisions of the State of Texas.1 Since 1999 they
have jointly owned a line of train track that runs between
the cities of Dallas and Forth Worth. The cities
previously owned the line, having acquired it in 1984
from the Trustee in bankruptcy for the Chicago, Rock
Island and Pacific Railroad Company. See City of Dallas,
City of Fort Worth & D/FW RAILTRAN, I.C.C. Fin. Docket
1
For ease of reference, I refer to DART and the T collectively
as “DART,” unless the context requires otherwise.
28 No. 09-3945
No. 32406 (served Dec. 30, 1993), 1993 WL 540395(“RAILTRAN”). DART provides commuter rail service
on the subject line marketed under the brand name
“Trinity Railway Express.” Herzog Transit Services, Inc.,
operates this service under a contract with DART. The
line of track and the commuter rail service operating on
it are entirely intrastate, running only between Dallas
and Fort Worth.
Four interstate freight railroads also use this line of
track pursuant to preexisting easements and related
agreements that have been modified over time as the
ownership of the line has transferred to Dallas and Fort
Worth and then to DART. In 2001 DART expanded
Herzog’s contract operating responsibilities to include
maintenance of the track and dispatching of all train
traffic. In response to this move, and based on an
inquiry from a Herzog employee, the Railroad Retire-
ment Board opened a proceeding for an “employer
status determination.” In a split decision, the Board
held that Herzog is a covered employer under the Acts
with respect to its employees who perform dispatching
services. Emp’r Status Determination—Dec. on Recons.,
Trinity Ry. Express—Train Dispatching, Herzog Transit
Servs., Inc., B.C.D. 09-53 (served Oct. 28, 2009), available
at http://www.rrb.gov/blaw/bcd/bcd09-53.asp (last visited
Oct. 12, 2010).
As my colleagues have noted, the Board’s rationale
was that because “[d]ispatching service is an indis-
pensable component of carrier service and must be deliv-
ered as a part of carrier service,” dispatching operations
No. 09-3945 29
are covered by the Acts. Id. at 4. The Board further
held that “[w]here, as in this case, the train dis-
patching includes trains that operate interstate, the
entity dispatching trains operates as a rail carrier within
the meaning of the definition of an employer under the
Railroad Retirement and Railroad Unemployment Insur-
ance Acts.” Id.DART, the T, and Herzog jointly petitioned this court
for review. In a scholarly opinion, my colleagues have
outlined the applicable statutes and regulations and
provided a thorough explanation of the historical back-
ground of the Acts. In my view this should lead us to
reject the Board’s decision. But my colleagues accept it
and therefore deny the petition for review. I disagree.
The Board’s decision ignores the statutory requirements
for covered-employer status under the Acts and con-
flicts with the Interstate Commerce Commission’s (“ICC”)
decision in RAILTRAN, which addressed the common-
carrier status of the predecessor operator of this very
same Dallas-Fort Worth commuter rail line under
similar circumstances as those presented here.
Like the Board, my colleagues rest their decision on the
fact that dispatching is “a necessary and integral part” of
interstate rail transportation. Majority Op. at 16. It
goes without saying that a train—whether running
wholly intrastate or interstate—does not move without
an order from a dispatcher. But it does not follow that
dispatching alone is enough to trigger covered-employer
status under the Acts. Under the interlocking definitions
in the statutory scheme, covered-employer status is
30 No. 09-3945
limited to interstate “common carriers” by rail—that is, to
entities that hold themselves out to the public as pro-
viders of interstate rail transportation for passengers
or freight. Providers of subsidiary services that make
interstate rail transportation possible are not themselves
“interstate common carriers.” 2
It makes no difference to the common-carrier analysis
that DART “t[oo]k back one aspect of the right to run
interstate rail operations over its lines—dispatching—and
vest[ed] that right in Herzog Transit.” Id. This analysis
misconstrues the contractual arrangements among and
2
There may be an exception for entities that have the power to
“materially interfere” with the operations of a common carrier.
The Transportation Board has strongly implied that a noncarrier
with the power to “materially interfere” with the operations
of a common carrier is itself subject to the jurisdiction of the
Transportation Board. See Metro-N. Commuter R.R. Co., S.T.B.
Fin. Docket No. 34293, at 3 (served May 13, 2003), 2003 WL
21062876; see also Md. Transit Admin., S.T.B. Fin. Docket No.
34975 (served Oct. 9, 2007), 2007 WL 2936134. However, the
“materially interfere” inquiry is practical, not abstract, and
looks to whether the noncarrier is actually in a position
to exert meaningful negative influence over a common
carrier’s operations. Here, DART’s agreement with Herzog
significantly limited Herzog’s dispatching discretion by sub-
jecting it to the General Code of Operating Rules and establish-
ing strict priority rules for trains running on the subject line. J.A.
at 266. Herzog is therefore not in a position to materially
interfere with the operations of a common carrier and is not
subject to the jurisdiction of the Transportation Board under
this alternative theory.
No. 09-3945 31
between the parties. As the owner of the line, DART
had the right to dispatch trains on the track. It could
perform this function itself or contractually designate
another to do it—one of the freight railroads, perhaps, or
Herzog or another contractor. But it is not correct to
suggest that by designating Herzog to do the dispatching,
DART effectively “took back one aspect of the right to
run interstate rail operations over its lines” and vested it
in Herzog. Id. The interstate freight railroads had pre-
existing rights, via easement or other contracts, to run
their trains on this track. DART did not “take back” these
rights from them. DART owns the line but never owned
interstate freight rights (or interstate passenger rights,
for that matter) and never assumed responsibility for
interstate rail service.
To the contrary, DART owns and through its contract
partner (Herzog) operates a wholly intrastate commuter
line. As such, neither DART nor Herzog is an interstate
common carrier. If DART was dispatching the trains
itself, it would not, by virtue of that function alone,
become an interstate common carrier. That it assigned
the dispatching function to Herzog does not make
Herzog an interstate common carrier, either.
This was essentially the holding in RAILTRAN, a 1993
decision by the ICC (the predecessor to the Transporta-
tion Board) in a case involving the cities of Dallas and
Forth Worth and this very same commuter rail line. The
cities had formed RAILTRAN to manage and operate
the line for commuter rail service and were in the
process of restructuring their contractual arrangements
32 No. 09-3945
with the interstate freight carriers that also used the
corridor. They sought a declaratory order from the ICC
on the question whether RAILTRAN or the cities would
become common carriers (and therefore covered em-
ployers under the Acts) if they assumed certain func-
tions—including dispatching—necessary to operate the
line. The ICC held that the proposed agreements would
not trigger its jurisdiction; the agreements, the agency
held, “will not change the non-carrier status” of
RAILTRAN or the cities. RAILTRAN, I.C.C. Fin. Docket
No. 32406, 1993 WL 540395, at *4. The agreements “would
permit [the cities or RAILTRAN] to select a Designee to
perform certain contract duties such as maintenance,
dispatching and operational control” of the line, “[b]ut . . .
that authority would not change their relationship to
the line.” Id. The ICC concluded that the cities and
RAILTRAN “will not become common carriers under the
Act by executing or carrying out [the proposed agree-
ments], or by contracting for an Operator to provide
rail commuter service or Designee to dispatch and/or
maintain the Corridor for joint use.” Id. at *5. The ICC
further concluded that its authorization was not re-
quired (that is, its jurisdiction would not be triggered)
if RAILTRAN were to “dispatch or maintain the Cor-
ridor [itself] or to select a Designee other than [one of the
interstate freight carriers] to perform this function.” Id.RAILTRAN, it seems to me, is directly on point. Its
holding, as applied here, means that DART’s assignment
of the dispatching function to Herzog does not make either
DART or Herzog an interstate common carrier subject
to the Transportation Board’s jurisdiction. It is true that
No. 09-3945 33
the petitioners did not alert the Board to the RAILTRAN
decision during the agency proceedings. But the Board
has not relied on waiver doctrine and instead has
devoted considerable space in its appellate brief to dis-
cussing this case. Despite its length, however, the Board’s
discussion of RAILTRAN has not persuasively distin-
guished it.
Because the Board’s decision fails to apply the statutory
standards for covered-employer status under the Acts
and conflicts with the ICC’s decision in RAILTRAN,
I would grant the petition for review and reverse. Ac-
cordingly, I respectfully dissent.
10-22-10