L-41-90 Opinion No. 1941 R.R. 9

March 1, 1941

Parker McCollester, Esq. Lord, Day & Lord 25 Broadway New York, New York

Dear Sir:

This will acknowledge your letter of December 5, 1940, con­ cerning the status under the Railroad Unemployment Insurance Act of Seatrain Lines, Inc., hereafter called "Seatrain."

A ruling on Seatrain's status has been delayed in order to permit full study of the practical difficulties and the legal consid­ erations you raised at our conference last year and in subsequent correspondence. But after considering your arguments carefully, I am of the opinion that Seatrain is covered by the Railroad Unemployment Insurance Act. My opinion is based upon the facts that Seatrain is under common control with a carrier by railroad subject to Part I of the Interstate Commerce Act and that it performs services in connec­ tion with the transportation of property by railroad. These facts appear from information submitted by the Hoboken Manufacturers Rail­ road Company and from the following decisions of the Interstate Com­ merce Commission: Investigation of Seatrain Lines, Inc., 195 I.C.C. 215 (1933); 206 I.C.C. 328 (1935) ; Hoboken Manufacturers Railroad Company Notes, 189 I.C.C. 29 (1932); and Hoboken Manufacturers Rail­ road Company Note, 212 I.C.C. 167 (1936); 217 I.C.C. 781 (1937j .

Seatrain was incorporated in Delaware in 1931 as a successor to Over-Seas Railways, Inc., in the operation of vessels especially designed for transportation of cargo loaded in railroad cars. Each of Seatrain's three older vessels has four docks, and each deck has four sets of standard gauge railroad tracks whose aggregate length is approximately one mile, with a capacity of from ninety-five to one hundred cars.

Seatrain's vessels can handle cargo only between ports at which special loading facilities have been constructed. Such facili­ ties include a movable platform called a "cradle" on which is laid a single track of standard gauge. When in place on the dock, the cradle forms a section of the railroad track over which cars are moved to and from the loading point. In the course of loading and unloading, the -2- Parker McCollester, Esq.

cradle is moved between dock and deck, alternately articulating with the tracks on land and with the tracks on the deck to form a continu­ ous track.

The necessary loading facilities exist only at Hoboken, New Orleans (Belle Chasse), Havana and Texas City, Texas. Seatrain directly owns the facilities at Belle Chasse, 11 miles by rail south of New Orleans, which are located on the property of the New Orleans and Lower Coast Railroad Company, a member of the Missouri Pacific System. The facilities at Texas City were constructed on the tracks of Texas City Terminal Railway, a switching line, one-third of whose stock is owned by the Missouri Pacific. The loading facilities at Hoboken are owned by Hoboken Manufacturers Railroad Company, hereafter called the "Hoboken," a switching and terminal railroad subject to Part I of the Interstate Commerce Act, whose entire capital stock, with the exception of directors' qualifying shares, is owned by Sea­ train. Seatrain acquired the Hoboken's stock in 1932 in order to ob­ tain terminals and rail connections on New York Harbor. During that year, its traffic having greatly decreased, the Hoboken was operating at a loss. To participate in the service contemplated by Seatrain to and from the port of New York, the Hoboken had to rearrange its yard and terminal facilities and purchase additional equipment. The funds required for these improvements and for certain expenses were fur­ nished the Hoboken by Seatrain, partly for an unsecured note of the Hoboken and partly through subsequent advances on open account.

Seatrain operates between fixed termini on regular schedules. It has filed with the Interstate Commerce Commission tariffs naming numerous joint and proportional rates covering the movement of traffic from Hoboken to various points in Louisiana, Arkansas and Texas. Eveh shipments which it handles as port-to-port shipments are in most cases known to Seatrain at the time the shipment starts from the interior point to be destined for through movement. Seatrain has contracts with the Hoboken covering the interchange, supply and return of freight cars and with American Refrigerator Transit Company, a subsidiary of the Missouri Pacific, covering refrigerator cars to be handled on its vessels. Under the latter contract a car is considered in Seatrain's service from its delivery to the Hoboken or the New Orleans and Lower Coast until its return by one of those railroads to a trunk line or terminal railroad. Its contract with the Hoboken obligates Seatrain to classify cars on the Hoboken's tracks for shipments via Seatrain and incidentally to move cars to and from its elevator cradle and over the Hoboken's tracks for distances up to two thousand feet. This obli­ gation, the contract states, is the Hoboken's duty under its tariffs. To fulfill this obligation, Seatrain operates a locomotive leased from the Hoboken although the actual work is apparently performed by Hoboken employees for whose services Seatrain reimburses the Hoboken. -3- Parker McCollester, Esq.

Seatrain's traffic has been handled predominantly in freight cars with­ out transfer of lading at the ports, and necessarily in connection with either the Hoboken or the New Orleans and Lower Coast or both.

Since 1932 through its ownership, whether direct or indirect, of the Hoboken's capital stock, Seatrain has been under common control with the Hoboken; for the same interests which have controlled Seatrain necessarily have controlled Hoboken. At the same time, the Missouri Pacific Railroad Company and a subsidiary, the Texas & Pacific, have owned capital stock of Seatrain with more than fifteen per cent of the total voting power and have been represented on Seatrain's board of directors since the latter's incorporation. Moreover, in the opinion of the Interstate Commerce Commission, Seatrain could not operate "with­ out the cooperation of a railroad at each of these terminals." In particular, the cooperation of the Missouri Pacific System "made the venture of Overseas ^/Seatrain's predecessor^ possible." The Missouri Pacific and Texas & Pacific both acquired stock in Overseas in 1927, more than one year before that company began operations, and in Seatrain in 1931, almost a year before that company began operations. Both roads made large cash loans to Overseas in 1929, when its service between New York and Havana started. The New Orleans & Lower Coast Railroad Com­ pany, wholly owned by the Missouri Pacific, is, in the opinion of the Interstate Commerce Commission, "an essential link in Seatrain service." Seatrain's supply of railroad cars depends in part upon contracts with the Missouri Pacific System. The Missouri Pacific's interest in Seatrain's operations arises out of its competition with the Southern Pacific, which has its own water lines between New Orleans and New York, service to which is creditable under the Retirement and Unemployment Insurance Acts.

Seatrain's dependence upon the Missouri Pacific System, by which it is partly owned, might well constitute de facto control, which is included within the statutory phrase, "directly or indirectly con­ trolled." That that phrase is used in Section 1(a) of the Act in its usual sense is fully confirmed, if confirmation is necessary, by both the legislative reports and the committee hearings on the Carriers Taxing Act and the Railroad Retirement Act, whose language is in this respect identical with that of the Unemployment Insurance Act. "De facto control may be exercised not only by direct ownership of stock, but by means of agreements, licenses and other devices which insure that the operation of the company is conducted in the interests of the carrier." S. Rep. No. 697 to accompany S. 2395, 75th Cong., 1st Sess. (1937 Retirement Act) p. 7; H.R. Rep. No. 818 to accompany H.R. 7589 (1937 Carriers Taxing Act) p. 4. It need not be decided, however, whether Seatrain has in fact been controlled by the Missouri Pacific. In any event, Seatrain is, as above stated, under common control with the Hoboken, a carrier by railroad subject to Part I of the Interstate Commerce Act and an "employer" under the Railroad Retirement and Unem­ ployment Insurance Acts. -4- Parker McCollester, Esq.

It is equally clear that Seatrain performs services in con­ nection with the transportation of property by railroad. Its oper­ ations are directly related, both functionally and economically, to railroad operations. Regulations, Section 202.07, 4 Fed. Reg. 1479 (April 7, 1939) ; Regulations under the Railroad Unemployment Insurance Act, Sec. 301.04, 5 Fed. Reg. 2717 (August 1, 1940). In applying to the Shipping Board for a construction loan, Seatrain itself stated that its type of vessel "might be termed an improved 'car ferry'." In its promotional literature Seatrain has described itself as:

"* * * a sea-going railroad, running hundreds or even thousands of miles across the ocean to some far distant port with a train of freight cars a mile long. * * * Although it is an ocean carrier, a Seatrain ship is actually a floating bridge— a connecting link for all railroads. In the case of Cuba, Seatrain has literally added to North American railroads 2,626 miles of standard gauge Cuban track. * * * Thus, it may be said that the function of Seatrain is essentially that of an intermediate rail carrier; it extends the rails out across the sea."

This self-description is, in large measure, substantiated in opinions of the Interstate Commerce Commission. Those opinions make abundantly clear the closeness of Seatrain's operating, financial and administrative relations with the Hoboken and to a lesser extent with the Missouri Pacific System. Equally clear is the importance to those railroads of Seatrain*s unique service. In my opinion, it has also been demonstrated that Seatrain is an important part of the general steam-railroad system of transportation of the United States. Of the ten Commissioners who participated in the first Seatrain investigation four expressed the opinion that Seatrain was at least a car ferry, and two expressed the opinion that Seatrain was itself a railroad. All appear to have agreed that Seatrain was, in the language of Section 1(3) of the Interstate Commerce Act, "used by or operated in connection with any railroad," as stated in the dissenting opinion filed by Commissioners McNamy and Mahaffie. The majority's finding that Sea­ train was not a "railroad" within the meaning of the quoted section seems to have been based upon another ground; namely, that Seatrain was not a car float or ferry within the meaning of that section. The majority nevertheless held (195 I.C.C. at 232):

"* * * that Seatrain Lines, Incorporated, is a common carrier by water engaged in the transportation of property partly by railroad and partly by water, that Seatrain Lines, Incorporated, and the Hoboken Manufacturers Railroad Company are used under a com­ mon control management, and arrangement for continu­ ous carriage or shipment of property in railroad -5- Parker McCollester, Esq.

cars, in interstate and foreign commerce, that Seatrain Lines, Incorporated, and the New Orleans & Lower Coast Railroad Company are used under a common arrangement for such continuous carriage. * * *."

Seatrain's function as a link in a rail-water transportation route based upon the Missouri Pacific System is further emphasized by its most recent extension of service. In connection with the applica­ tion for reconsideration of the decision in Docket No. 25546, reported at 206 I.C.C. 328 (1935), Seatrain stated its intention to construct a terminal at Texas City, Texas, at a cost of approximately $4,500,000 and upon completion thereof to operate two new vessels between that point and New York City. Since both petitioning railroads serve Texas City, such construction and extension of service would still further integrate Seatrain's service with that of the Missouri Pacific System. So close was that integration theretofore that competing break-bulk coastwise steamship lines had asserted that Seatrain's "particular advantage over the break-bulk steamship lines" through its non-break- bulk service enables it to "handle all traffic that the all-rail routes can" and that such advantage, perhaps heightened by the cooperation of interested railroads, might "mean the ultimate death-knell of competing lines. See Class Rates Via Seatrain Lines, I. & S. Docket No. 4542.

It follows from the nature of its operations as above set forth and from its common control with a "carrier-employer" that Seatrain is an "employer" under the Railroad Unemployment Insurance Act Section l(a) of that Act, broader than Section 1(3) of the Interstate Commerce Act, includes not only carriers by railroad but "any company" which is under common control with such a carrier "and which operates any equipment or facility or performs any service * * *" in connection with railroad transportation.

Since the appropriate language of the Railroad Retirement Acts is identical with that of the Railroad Unemployment Insurance Act Seatrain is subject to all three statutes. Regulations under the Railroad Unemployment Insurance Act, Sec. 301.04, 5 Fed. Reg. 2717 (August 1, 1940). Although Seatrain may not have been under common control with a carrier by railroad prior to its acquisition of the Hoboken's stock in 1932, by operation of Section 1(f) of the 1937 Rail­ road Retirement Act, service to it is creditable under that Act from the date of its incorporation.

As you have maintained, the fact that Seatrain is subject to the Acts may create some distinctions in the security legislation ap­ plicable to seamen in the Cuban trade. But under the Railroad Retire­ ment, Railroad Unemployment Insurance and Carriers Taxing Acts such distinctions are unavoidable when competing companies perform services in connection with railroad transportation and less than all of them are owned or controlled by or under common control with railroads. -6- Parker McCollester, Esq.

There remains only the question whether or not Seatrain has conducted the principal part of its business in the United States, within the meaning of Section l(c) of the Railroad Retirement Act and Section 1 (e) of the Railroad Unemployment Insurance Act. The issue here is raised by the fact, as stated by you, that Seatrain* s "ships are in the territorial waters of the United States probably less than one-third of the time." Service performed for Seatrain on the high seas is, in my opinion, either to be disregarded or to be treated as business done in the United States in determining this issue. As stated above, Seatrain was organized and incorporated in this country. It was developed by United States capital, United States management, and by labor presumably hired almost entirely in the United States. It has served as a connecting link in the railroad system of the United States. It has owned, and operated in close connection with, a carrier by railroad subject to the Interstate Commerce Act. Three of Sea­ train* s four ports as well as its principal offices are located within the United States. Its ships presumably fly the United States flag. In short Seatrain is, as the term is popularly used, a United States corporation.

This conclusion assumes importance in the light of the com­ mittee hearings on the 1937 Railroad Retirement Act, which included the present Section 1(c) for the first time. Discussion of this pro­ vision was confined to consideration of its effects upon "United States employers" which incidentally operated in Canada and "Canadian roads" which incidentally operated in the United States. Evidently it was intended to include as companies "not conducting the principal part of their business in the United States" only Canadian railroads - and necessarily Mexican roads, if any. Thus, in the statement of Mr. Hay, Counsel for the Committee of Railway Labor Executives, serv­ ice covered under the proposed bill was analyzed as follows: "For United States roads, wherever rendered; for Canadian roads service in the United States'." (Underscoring supplied.") Hearings. S. 2395, 75th Cong. 1st Sess. pp. 38-39. Hearings II.R. 6596, 75th Cong. 1st Sess. p. 132. "United States railways" were also contrasted with a "Canadian railway" in the testimony of Mr. Harrison, spokesman for the Brotherhoods. Hearings H.R. 6S56, 75th Cong. 1st Sess. p. 50.

Presumably a reason for the enactment of the proviso in Section l(c) of the Retirement Act was that in its absence the Act would cover employees whose wages could not be taxed by the United States. But as Mr, Harrison said: "* * * if you receive your compensation from an employer in the United States, why, Congress has the power to levy a tax upon such compensation as is paid in the United States." Hearings H.R. 6596, 75th Cong. 1st Sess. p. 27. From this viewpoint there would certainly have been no reason to ex­ clude service to a United States company because of its operations on -7- Parker McCollester, Esq.

the high seas. Compensation for services performed for Seatrain on the high seas is of course taxable by the United States, and such com­ pensation would not be an appropriate subject for taxation by any other country. Indeed, it is not even suggested that the taxing or security laws of any other country may cover this compensation, which is claimed to be outside the coverage of the Retirement and Unemploy­ ment Insurance Acts.

Supporting the view that service performed on a United States vessel at sea is equivalent to service performed on United States soil is the old rule of international law that "a vessel at sea is con­ sidered as a part of the territory to which it belongs when at home." Wilson v. McNamee, 102 U.S. 572, 574 (1880). Daniel Webster as Secre­ tary of State wrote to Lord Ashburton on August 1, 1842: "It is natural to consider the vessels of a nation as parts of its territory, though at sea, as the State retains its jurisdiction over them. * * 6 Webster's Works 306, quoted with approval in United States v. Flores, 289 U.S. 137, 156 (1933). It would seem, therefore, that for the purpose of determining whether it was "not conducting the principal part of its business in the United States" the operations of a United States employer in its own ships on the high seas should ordinarily be deemed business done in the United States.

Even if Section 1(c) of the Retirement Act were ambiguous, the canons of statutory construction would support the view that in determining this issue service performed for a United States employer on the high seas is to be deemed business done in the United States. Since Seatrain is an "employer," its seamen would in any event be sub­ ject to the Retirement and Unemployment Insurance Acts for at least part of their voyages. To treat Seatrain as not conducting the prin­ cipal part of its business in the United States because of business done on the high seas would, as you state, subject these seamen to different United States security statutes for different portions of the same voyage and create "the complication of reporting under two statutes and withholding two sets of compensation taxes at different rates." This complication would be aggravated by the absence of any pre-existing method of allocating sailors' compensation between work done on United States soil or in United States territorial waters and work done elsewhere. Such a complication, unnecessary in this case, is the very sort of administrative difficulty which the adoption of Section 1(c) of the Retirement Act was intended to minimize.

And treating service rendered on the high seas to a United States employer as service rendered in the United States would be in line with modern tendencies in the interpretation of workmen's com­ pensation laws. Wherever possible, courts now localize employment - with all the incidents of this status - in a single jurisdiction. -8- Parker McCollester, Esq.

Cf. Bradford Electric Light Co. v. Clapper, 286 U.S. 145 (1932) ; Alaska Packers Association v. Industrial Accident Commission, 294 U.S. 5*32 (l935). Such localization of the employment relation, in contrast with earlier, more mechanical and less integrated doctrines, has been shown to be highly desirable as well as legally sound. See Beale, Social Justice and Business Costs, 49 Harvard Law Review 593, 601-60TI Professor Beale's principal contention on this point coincides with the view of the draftsmen of Section 1(c) of the Retirement Act as well as the view suggested by implication in your letter of January 23, 1940: A single contract of social insurance should, where practicable, "cover all necessary situations."

It is unnecessary, however, to determine whether service to Seatrain on the high seas is to be treated as service performed in this country or as merely "neutral" in determining where the principal part of its business has been done. For present purposes it is enough that Seatrain has performed far more business in the United States than in Cuba, the only other country in which it operates, that it has more employees and considerably more property and performs much more transportation in the United States than in Cuba. It is abundantly clear, in short, that Seatrain, a United States corporation, lias not performed the principal part of its business in any country other than the United States.

To recapitulate, Seatrain is an employer under the Railroad Retirement and Railroad Unemployment Insurance Acts. Service to it is creditable under the Retirement Act from the date of its incorpora­ tion. And under Section l(c) of the Retirement Act and 1(e) of the Unemployment Insurance Act, service to Seatrain is creditable whether or not performed in the United States.

A copy of this letter is being sent to Mr. Graham M. Brush, President of Seatrain.

Very truly yours,

Lester P. Schoene General Counsel