L-39-291 Opinion Nvmber 1939 R.R. 46

May 23, 1939

^)bbv»vejl l U h IZ A V O . /'Aj ^ si The Board

' |3.o. General Counsel

Status of the Reading Transportation Company

There has been presented the question of the status of the Read­ ing Transportation Company under the Railroad Retirement Act.

It is my opinion that the Reading Transportation Company is a company owned and controlled by a carrier by railroad subject to the Inter state Commerce Act, within the meaning of Section l-(a) of the Railroad Retirement Act, and is engaged in the operation of equipment and facilitie and in the performance of a service in connection with the transportation of passengers by railroad, with in the meaning of Section l-(a) of the Railroad Retirement Act and Section 202.0? of the Board’s Regulations (seo Federal Register, Vol. 4, Page 1479), and is, therefore, an"employer" under the Railroad Retirement Act. I recommend that the Board so rule.

According to our information the Reading Transportation Company (hereinafter referred to as the "Transportation Company**) was incorporated in Pennsylvania on January 27, 1928. It appears that from the date of incorporation all the capital stock of the Transportation Company has been owned by the Reading Company, a carrier by railroad subject to the Interstate Commerce Act, and on "employer" under the Railroad Retirement Act. The Transportation Company, is, therefore, a company directly owned and controlled by a carrier by railroad subject to the Interstate Commerce Act within the meaning of Section l-(a) of the Railroad Retirement Act. It may also be noted that the officers of the Transportation Company occupy similar positions with the Reading Company and with many of the railroad subsidiaries of the Reading Company, and that some of these officers are also directors of the Transportation Company.

With respect to the purpose of the Transportation Company’s cctivi ties, among the materials supplied, by the company as to its operations is a report of the Public Service Commission of Pennsylvania, dated July 26, 1927, passing on the Transportation Comoany’s application for approval of its incorporation, organization and creation. In its report, the Pennsylvania Commission stated, in part, as follows:

"The proposed company is being formed as a subsidiary to Reading Company which company will own all of the stock - 2 - Memorandum to the Board

11 of the applicant company except the necessary qualifying shares and it is the purpose and intention to engage in motor transportation in edhnection with the operations of the Reading Company in such places and over such routes as conditions may from time to time necessitate.****it has been established that present needs of the public for transportation can best be served by the continued exist­ ence of railroad and street railway companies and the operation of motor vehicles in connection with or in coor­ dination with the rail carriers.**111

"The railroad conpanies operating in Pennsylvania have not prior to 1926 made any attempt to furnish the additional service which apparently the Public demands and which the development of motor vehicles and the improvement of the highways has mode possible. Railroad conpanies in other states have realized the need and taken steps to meet it. In some states the railroad conpanies have reduced the number of stopping places of local trains and carried passengers to and from their stations by motor busses and in this way have considerably reduced the running time of the trains and given faster and better service. Certain railroads are using motor service to prevent congestion of freight in their terminals; and pick-up and delivery service by means of motor vehicles is being offered by many railroads. The purpose of the Read­ ing Conpany to offer to the citizens of this State the im­ proved service which citizens of other states are receiving from railroad companies operating therein, merits approval." (See Public Service Commission of Pennsylvania. Application Docket No. 16,085.)

The extent to which the Transportation Conpany has become engaged "in motor transportation in connection with the operations of the Reading Conpany" is shown by the information given by Mr. E. W. Scheer, President of the Transportation Company (as well as of the Reading Company) in his letter of March 16, 1939. The Transportation Company's total passenger bus route mileage is 613.7 route miles. The following lines of bus operations were established by the Transportation Company "in substitution for abandondd railroad lines;"

"Milton - West Milton...... 1.2 miles Mt. Carmel - Mt. Carmel Jet.... 2.0 " Kutztown - Allentown...... 21.4 " Total 24.6 miles

"These operations replace abandoned railroad passenger train service, but railroad lines are still maintained for freight service." - 3 - Memorandum to the Board

The Transportation Company's bus line operations "established and maintained in lieu of or supplementary to railroad service" were identified by Mr. Scheer as follows:

"Pottsville Shenandoah.... 12.0 miles Lansdale Doylestown.... 12,0 Pottsville Lykens..... 30.7 Reading Lancaster..... 32.9 Philadelphia - Pottsville ..... 90.9 Philadelphia - Allentown..... 58.8 Allentown Williamsport ... 138.4 Harrisburg Allentown '.. 89.0 Fox Chase - Richboro ...... 11.9 Hatboro Ivyland.... 3.0 " Fox Chase North Glenside . 8.0 " Total ...... 487.6 miles

"In addition to the route miles set forth above Reading Transportation Company operates 5.9 miles of route connecting the Hatboro-Ivyland route with the Fox Chase-Richboro route.

"Reading Transportation Company also operates jointly 95.6 miles of route between Allentown, Pa. and New York City, N. Y., with the Jersey Central Transportation Company, a wholly owned subsidiary of The Central Railroad Company of New Jersey. This route supplements the train service of the Central Railroad between Allentown, Pa. and New York City, N. Y. and extends Reading Transportation Company's route between Harrisburg, Pa. and Allentown, Pa."

In his letter of March 16, 1939, Mr. Scheer gives more detailed information with respect to each of the routes listed above. Three exampl of the type of information given in support of his classification of the various bus lines operated by the Transportation Company should serve to indicate the character of this supporting data.

(1) "Kutztown - Allentown (via Topton) 21.4 miles.

"Operated as a local commutation service in place of abandoned passenger train service between Kutztown and the junction with the main line at Topton, and in lieu of a train withdrawn between Topton and Allentown serving all of the nine (9) communities previously served by the train withdrawn. This bus service is operated on week-days only. Schedule of bus service appears in attached Reading system timetable identified as Exhibit #2." -4- Memorandun to the Board

(2) "Pottsville - Shenandoah. . .12.00 miles.

"Operated as an extension of main line trains from Pottsville to Shenandoah, as a connection to and from main line trains at Maizeville, and. in substitution for discontinued passenger train service between Pottsville and Shenandoah.

"Trains enroute from Philadelphia to Shamokin and Williamsport split at Port Clinton into two trains, one traveling to Pottsville and the other to Shamokin and Williamsport via Tamaqua. Passengers boarding the sec­ tion of train to Pottsville between Port Clinton and Pottsville and. those passengers who desire to travel to Shamokin or other points via Pottsville are carried, by the bus from Pottsville,to Maizeville and thore trans­ ferred to the section of the train traveling via Tamaqua. In addition, passengers going to Shenandoah on the Shanokin- Williamsport section of the train are carried by the bus between Maizeville and Shenandoah. Schedule of bus service appears in attached Reading Systom timetable identified as Exhibit #1; also in Reading Transportation Company timetable Attached hereto and identified as Exhibit #3."

(3) "Allentown - Williamsport . . . 138.4 miles

"Operated as supplementary service to main line pas­ senger train service between Tamaqua and Williamsport and as a connection at Shamokin for a main line passenger train from Philadelphia to Williamsport. Of the twenty-three (23) communities between Tamaqua and Williamsnort served by the passenger trains, eleven (11) ore served by the bus route. This operation is shown in Reading System timetable attached hereto and identified as Exhibit #1."

Additional information furnished by Mr. Scheer as to the high degree of coordination between the Transportation Company’s passenger bus operations and carrier by railroad train operation consisted of the following data:

"Other Evidence of Coordinated Passenger Service

"Further evidence of the coordination between the bus service of Reading Transportation Company and the rail pas­ senger service of Reading Company appears from the following:

"(a) Bus service is used in lieu of advertised special trains when insufficient patronage develops to justify such -5- Memorandum to the Board

special trains.

"(b) Buses are used in caes of interruption in scheduled train service; and vice versa.

"(c) Groups of rail passengers are carried partly by rail and partly by bus where railroad does not serve final destination or docs not meet schedule requirements.

"(d) Roil tickets are interchangeably accepted on buses of Reading Transportation Company as specifically set forth at pages 26, and 28 to 31, inclusive, of Joint Rail-Motor Routing and Honoring Passenger Tariff No. 2 issued, by C. L. Hunter, A^snt, I.C.C. No. 175, copy of which is attached hereto and identified as Exhibit #12.

In this connection, there nay be noted the statement appearing in the official Railway Guide of March, 1939, to the effect that "Read­ ing Transportation Company is a subsidiary of Reading Company for the operation of motor coaches in connection with passenger train service."

Finally, in addition to the foregoing information as to the close relationship and coordination between the origins and operations of the Transnortation Company’s bus lines and the train operations of the Reading Company, evidence of the direct functional and economic relation­ ship between the Transportation Company’s operations and those of the Reading Company nay be found in the agreement between the two companies, dated June 30, 1937, and still in effect, covering the performance by the Transportation Conpany of certain passenger bus services on a cost basis. This agreement provides, in part, as follows:

"WHEREAS, Transportation Company, prior to June 1, 1935 and continuously since that date, transported in its buses passengers and incidental traffic, such as mail, baggage, light express and newspapers, for Rail­ road Company in substitution for, or supplemental to, train service, along the following lines of said Rail­ road Company:

"(1) Mt. Carmel, Pa. and Mt. Carmel Junction, Fa. (2) Milton, Pa. and West Milton, Pa. (3) Reading, Pa. and Allentown, Pa.; via Topton,

and**** "WHEREAS, such train-substitution operations have been performed under an oral agreement between the two connsnies whereby the Transportation Company bills Reading Company on the basis of the actual costs of performing these services v v )|c -6- Memorandum to the Board

"WHEREAS, the parties hereto are desirous of continuing said train-substitution operations upon the same terms and conditions as above mentioned and are desirous of placing said oral agreement in written form.

’WOW',THEREFORE, in consideration of the promises and of the mutual covenants and conditions hereinafter set forth, the parties hereto covenant an^ agree as follows:

”1. Railroad Company shall deliver to Trans­ portation Company such passengers and incidental traffic which Railroad Company desires transported by motor vehicle in substitution for, or supplemental to, railroad train service along the routes or between the termini served by Railroad Conpany.

r”2. Transportation Company shall furnish the necessary motor buses, labor, and equipment, and shall safely, promptly and efficiently receive, carry, transfer and deliver said passengers and incidental ifcraffic to and from the designated points to the satisfaction of Railroad Company.

"3. Railroad Company shall pay to Trensportetion Company, as full compensation for the operations to be performed in accordance with this agreement, the actual costs thereof, which costs are to be computed in the same manner as such costs were computed under the oral agree­ ment above mentioned.

"4. All revenues from the transportation of passengers and incidental traffic received by Transpor­ tation Company in the performance of said train-sub­ stitution operations shall be turned over to Railroad Compcny.***(underscoring supplied)

Tuot the various bus operations of the Transportation Company performed in substitution for, or in lieu of or supplementary to, rail­ road service are substantial in character is established by the follow­ ing statement of revenues r e c e i v e d by the Transportation Company from all its passenger bus operations during the years 1935 through 1938, both inclusive, which statement was supplied, by Mr. Scheer: -7- Memorandum to the Board

From Operations From Operations in lieu of or in Substitution Supplementary of Railroad to Railroad Total Year Service Service Revenue Col. 1 Col. 2 Cols. 1 and 2

1935 $16,044.35 $405,438.71 $421,533.06 1936 16,887.22 342,889.92 359,777.14 1937 16,358.15 244,720.63 261,078.78 1933 17,288.05 231,914.41 249,202.46

Commenting on these revenue figures, Mr. Scheer stated:

"Figures shown in Column 2 include relatively small amounts of revenue derived from operation of the bus route of 5.9 miles in length which connects the Hatboro- Ivylsnd route with the Fox Chase-Richboro route, which ope ration is considered to be in common carrier service. It is impossible to separate such amounts from the reve­ nues derived from operation of bus routes in lieu of or supplementary to railroad service."

In my opinion, it is clear from the foregoing information with respect to the passenger bus operations and services of the Transportation Company that there is such a direct functional and economic relation between those operations and services and the performance by the Reading Company of its obligations as a common carrier by railroad as to bring such operations and sorvicos of the Transportation Company within the scope of Section 202.07 of the Board’s Regulations, and thus establish that they are operations and. services in connection with the transnortation of passengers by railroad within the meaning of Section 1 (a) of the Railroad Retirement Act. On this point I may refer to my opinion of December 30, 1938, to the effect that the Monom Transportation Company is an "employer" within the meaning of the Railroad Retirement Act, which opinion was approved by the Board on January 3, 1939; and to the opinion on the Boston and Maine Transporta­ tion Company.

It appears that the Transportation Company is extensively enraged also in trucking operations; indeed, the figures given us by Mr. Scheer as to the Company’s trucking mileage and revenues indicate that the Company may be principally engaged in such operations. Thus Mr. Scheer informed us that in 1938, the Transportation Company's total trucking route mileage was 953.3 miles, and that during the years 1935 through 1938, both inclusive, the Company received from all its trucking activities the following amounts of revenue:

1935 $380,065.50 1936 415,007.67 1937 297,550.72 1933 404,549.92 -8- Memorandum to the Board

In response to an inquiry as to whether "the passenger bus opera­ tions in substitution for, in lieu of, or supplementary to railroad service (are) susceptible of segregation from all the ether activities of the Transportation Company," Mr. Scheer replied:

"Aside from the passenger bus operations in sub­ stitution for, in lieu of, or supplementary to railroad service, the only other activity of Reading Transporta­ tion Company is the operation of trucks. It would not be practical to segregate the above-mentioned bus opera­ tions because both are maintained, supervised and accounted for by the same personnel."

The figures as to number of employees given us in the Transporta­ tion Company’s replies of March 29, 1938 to on earlier questionnaire indicate also that a large number of the Company’s employees may not be, as a practical matter, classified as trucking or bus employees. Thus, according to those figures, the Company’s employees for the three years 1935 through 1937 were classified as follows:

All other operations msintenance, plctform-men, - Trucks Buses etc.

1935 136 OCJ 139 1936 153 54 166 1937 84 48 83

A company engaged exclusively in trucking operations may not be on the basis of the "carrier subsidiary" provisions in Section l-(n) of the Railroad Retirement Act, an "employer" under the Act (see my memo­ randum of May 2, 1939, to the Board on "Trucking Companies," approved by the Board on May 4, 1939). Still, as point out above, the Transporta tion Company is engaged to a substantial extent in the performance of passenger bus operations which constitute such operation of equipment and facilities and performance of a service in connection with the trans portation of passengers by railroad as is covered by Section 1—(a) of the Act and Section 202.07 of the Board’s current regulations, /s the above-quoted statement by Mr. Scheer on segregation and the figures o£ classes of employees indicate, however, the bus operations of the Trans­ portation Company ore apparently so interwoven with its trucking activities that it would seem to be difficult, if not imnossible, as a practical matter, to segregate its bus operations from its trucking activities. In other words, as was concluded in the case of the Boston and Maine Transportation Company, there appears to be but one operating unit here, with the result that the bus operations do not seem to con­ stitute such an "identifiable and separable enterprise" as is con­ templated by Section 202.09 of the Board's current regulations. See also Beard Ruling on Baltimore Fidelity Warehouse Comoany, February 21, 1939; and my opinion on the Lonr: Dock Company, sets forth in a letter of January 26, 1939, to Mr. T. J. Tobin, Comptroller of the Erie Railroad Company. -9- Memorandum to the Board

Under these circumstances, it is my opinion that since it appears that the Reading Transportation Company is a wholly owned and controlled subsidiary of the Reedihg Company, a "carrier employer" under the Rail­ road Retirement Act, and was, on August 29, 1935, and is now, sub­ stantially engaged in bus operations which constitute the operation of equipment and facilities and. the performance of a service in connection with the transportation of passengers by railroad within the meaning of Section l-(a) of the Railroad Retirement Act, and Section 202.07 of the Board's Regulations, it is an "employer" within the meaning of Section l-(a) of the Railroad Retirement Act, and I recommend that the Board so rule.

By operation of Section l-(f) of the Railroad Retirement *ct of 1937, service to the Transportation Company would be creditable from the date of its incorporation, January 27, 1928 to dote.

Approved May 25, 1939 See Board Order No. 39-330 Lester P. Schoene General Counsel o o 5 Latimer Mr. Eddy Mr. Reed Mr. Davidson Mr. Lynch Mr. Hursey Mr. Glover Mr. Matschek Mr. Mer m a n