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Itel Corp. v. United States Railroad Retirement Board

June 23, 1983


On Petition for Review of a Decision of the United States Railroad Retirement Board.

Author: Swygert

Before CUDAHY and ESCHBACH, Circuit Judges, and SWYGERT, Senior Circuit Judge.

SWYGERT, Senior Circuit Judge. This appeal challenges the United States Railroad Retirement Board's ("the Board") ruling that as of July 1, 1975 the Rail Division of ITEL Corporation ("ITEL") is an employer within the meaning of the Railroad Unemployment Insurance Act ("RUIA"), 45 U.S.C. § 351(a) (1976), and the Railroad Retirement Act ("RRA"), id. § 231(a)(1) ("the Acts"). We reverse.


The facts are undisputed. Until recently, the major part of ITEL's revenues was derived from the sale, lease, and lease underwriting of computer systems. Since 1979, however, ITEL has suffered significant losses in its computer business, and, in 1981, ITEL petitioned for reorganization under Chapter 11 of the Bankruptcy Code. In 1978 the Rail Division accounted for 35 percent of ITEL's revenues and 28 percent of ITEL's operating income. In 1980 ITEL's Rail Division accounted for 36 percent of ITEL's assets and 15 percent of ITEL's employees, providing $33 million in operating income to ITEL. Because ITEL is principally engaged in business wholly unrelated to rail transportation, see 20 C.F.R. § 202.9 (1982), the Board found that only the Rail Division is an employer under RUIA and RRA.

ITEL's Rail Division was established in the early 1970's. It originally arranged lease financing of rail cars and locomotives, acting as a broker to arrange the financing of these purchases by other companies. Several years later the Rail Division shifted its focus, purchasing rail cars and leasing the rail cars to railroads. The Rail Division's lease financing activities were abandoned in 1979.

The Rail Division has a fleet of 15,600 railroad cars. The bulk of the Rail Division's business involves leasing rail cars to short-line railroads. The Rail Division monitors the rail cars' movements and accounts for and collects payments due lessees from non-lease railroads pursuant to Interstate Commerce Commission regulations. The Rail Division also sells this monitoring, accounting, and collecting service to non-leesee railroads. In some cases, the Rail Division is also responsible for the repair and maintenance of its cars. This work is not directly performed by the Rail Division employees. In addition, the Rail Division leases truck trailers to railroads for use in trailer-on-flatcar service. ITEL has several flat-rate/fixed-payment leases with larger railroads.

In July 1975 ITEL acquired the first of four small railroads. It is uncontested that these railroad subsidiaries and their 447 employees are subject to RRA and RUIA. About 12 percent of the Rail Division's railcars are leased to these subsidiary railroads and less than 5 percent of Rail Division employees are involved in transactions with the subsidiary railroads. Since the acquisition of the railroads, the Rail Division has not performed any transportation service for the railroad subsidiaries that the railroads previously provided for themselves.


A "reasonable basis" test is appropriate when passing upon an agency's construction of the statutes which it administers. Paden v. United States Department of Labor, 562 F.2d 470, 473 (7th Cir. 1977).

When faced with a problem of statutory construction, the Court shows great deference to the interpretation given the statute by the officers or agency charged with its administration. "To sustain the Commission's application of this statutory term, we need not find that its construction is the only reasonable one, or even that it is the result we would have reached had the question arisen in the first instance in judicial proceedings." Unemployment Comm'n v. Aragon, 329 U.S. 143, 153, 91 L. Ed. 136, 67 S. Ct. 245 . See also, e.g., Gray v. Powell, 314 U.S. 402, 86 L. Ed. 301, 62 S. Ct. 326 ; Universal Battery Co. v. United States, 281 U.S. 580, 583, 74 L. Ed. 1051, 50 S. Ct. 422 .

Udall v. Tallman, 380 U.S. 1, 16, 13 L. Ed. 2d 616, 85 S. Ct. 792 (1965).

Congress has entrusted the Board with the authority to make employer/employee determinations under the statutes it administers. 45 U.S.C. §§ 231f(b)(1), 362(l). The Board's interpretation of RRA and RUIA is entitled to deference if it has a reasonable basis in law. Railroad Retirement Board v. Duquesne Warehouse Co., 80 U.S. App. D.C. 119, 149 F.2d 507, 510 (D.C. Cir. 1945), aff'd, 326 U.S. 446, 90 L. Ed. 192, 66 S. Ct. 238 (1946); Brotherhood of Railway and Steamship Clerks v. Railroad Retirement Board, 99 U.S. App. D.C. 217, 239 F.2d 37, 42-43 (D.C. Cir. 1956); Southern Development Co. v. Railroad Retirement Board, 243 F.2d 351, 353 (8th Cir. 1957).


At issue is whether the Board's interpretation of the definition of an employer under the RUIA and RRA to encompass ITEL's Railroad Division has a reasonable basis in law. Sections 1(a) and 1(b) of the RUIA, 45 U.S.C. §§ 351(a), (b) provide in relevant part:

(a) The term "employer" means any carrier (as defined in subsection (b) of this section), and any company which is directly or indirectly owned or controlled by one or more such carriers or under common control therewith, 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 or the receipt, ...

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