Ir-41-362

July 29, 1941

Mr. i, President Railwa; iuipment & Realty Company, Ltd.

Dear Sir:

Our investigation of the status under the Railroad Retirement and Railroad Unemployment Insurance Acts of the Railway Equipment & Realty Company, Ltd., and two of its subsidiaries, the Key System and the National Service Company, Ltd,, has now been completed. Based upon the information furnished by your attorneys, and that obtained from the files of the Interstate Commerce Commission and the standard financial manuals, it is my opinion that these companies are not "employers" within the meaning of the Acts.

The Railway Equipment & Realty Company, Ltd., and its subsid­ iary companies were formed in connection with the reorganization of the Key System Transit Company. The latter company operated transbay pas­ senger service between San Francisco and adjacent cities, ferryboats from and to San Francisco, and electric street railways and urban motor coach transportation service in the East Bay metropolitan area. Pursuant to the Plan For Readjustment of the Key System Transit Company, dated July 20, 1929, the property and the business of the Key System Transit Company were taken over by the Railway Equipment & Realty Company, Ltd., and its subsidiaries, including the Key Terminal, Ltd. (now the Key Sys­ tem), the Key System, Ltd. (now the Oakland Terminal Railroad Company), and the East Bay Street Railway, Ltd. (now the East Bay Transit Company).1/ The Key System Service Company (now the National Service Company, Ltd.), which had been owned by the Key System Transit Company, was also made a subsidiary of the Railway Equipment & Realty Company, Ltd.

1/ The Oakland Terminal Railroad Company and the East Bay Transit Company are not involved in the present determination, their status under the Acts having already been determined. The Oakland Terminal Railroad Company has been held to be an "employer". Item No. 3595, Approved List of Employers. The East Bay Transit Company was found not to be an employer. Item No. 1569, Approved List of Employers. The Railway Equipment & Realty Company, Ltd., was incorporated as a holding company under the laws of Delaware on December 11, 1929• It is a norv-public utility company and, under its charter, is without authority to engage in public utility operations. Its principal business is that of owning and holding the capital stocks of its subsidiaries and the owning, renting and selling of real and personal property. It has never filed annual reports, tariffs, powers of attorney or concurrences with the Interstate Commerce Commission. Most of its property consists of transportation equipment which it leases to its subsidiaries. Moody1s Public Utilities for 1940 states that the company owned 51 interurban articulated electric railway units, 184 electric street railway passenger cars, 229 urban type gasoline motor coaches, 3 freight locomotives, 44 electric service cars, 30 motor trucks, 2 passenger automobiles, 3 pas­ senger ferryboats, office buildings, and various tracts of land. The company does not maintain either the property or the equipment which it leases, nor does it perform any managerial, legal, accounting or any other service for any of its subsidiaries. Although its officers and directors are the same as those of its subsidiaries, your attorneys have informed us that each of the companies is managed as a separate and distinct entity.

It is clear from the foregoing that the Railway Equipment & Realty Company, Ltd., is not a carrier by railroad. The question is whether it is nevertheless an "employer" under the Railroad Retirement and Railroad Unemployment Insurance Acts by reason of its being a "com­ pany 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 performs any service (except . . . casual service, and the casual operation of equipment or facilities) in connection with the transportation of passengers or property by railroad ..." (Railroad Retirement and Railroad Unemployment Insurance Acts, section 1(a)). Since the officers and directors of the company are the same as those of the Oakland Terminal Railroad Company, which has been held to be an "employer", the company is under common control with a carrier within the meaning of the Acts. However, the only service performed by the company in connection with the operations of the Oakland Terminal Rail­ road Company consists of its leasing to the latter company a small pro­ portion of its real estate and equipment, as appears from the following table:

INCOME DERIVED FROM RENTALS BY THE RAILWAY EQUIPMENT AND REALTY COMPANY. LTD. (in percentages)

From all From Oakland Terminal sources Railroad Company

(a) Real Estate 14/ 4/10 of 1/

(b) Railway and Ferry 86/ 1/6 of 1 % Equipment It is doubtful that the leasing of property and equipment under the circumstances described herein constitutes the performance of a service in connection with transportation by railroad within the meaning of the Acts. (See Examiner’s Report, Status of Central Vermont Trans­ portation Company, Jurisdictional Docket No. 1+7) However, even if the leasing of property and equipment to the Oakland Terminal Railroad Company were construed to be a service in connection with railroad transportation, it is such an insubstantial part of the operations of the Railway Equipment & Realty Company, Ltd., as to amount to nothing more than a "casual service". (See section 202.06 of the Regulations issued under the Railroad Retirement Act of 1937* 4 Fed. Reg. 1478, April 7, 1939.) Since the company performs no other service in con­ nection with transportation by railroad, it is not an "employer". (See Portland Traction Company, 237 I.C.C. 647 (1940)).

The Key System and the National Sen/ice Company, Ltd., are also, by virtue of their subsidiary relationship to the Railway Equip­ ment & Realty Company, Ltd., under common control with the Oakland Terminal Railroad Company. However, as appears below, neither of these companies performs a service in connection with railroad transportation.

The Key System was incorporated under the laws of California on August 7, 1930 as the Key Terminal Railway, Ltd., and assumed its present name on February 26, 1935. Prior to July 1, 1935, the Key System, together with the Oakland Terminal Railroad Company, was engaged in freight switching and other operations which may have constituted it an "employer" within the meaning of the Acts. This matter is at present under consideration, and we make no finding at this time with respect to the status of the Key System prior to July 1, 1935. Subsequent to this date, however, the Key System has been engaged solely in the opera­ tion of an interurban passenger service. It has leased and operated al1 passenger properties owned by the Oakland Terminal Railroad Company, but has no connections with the freight operations of that company. It has filed no tariffs, concurrences or powers of attorney with the Interstate Commerce Commission. At the present time, it operates a motor-coach service over the San Francisco-Oakland Bay Bridge and electric trains between various points in Alameda County and San Francisco. It operates 184.90 round-trip miles of motor-coach route and 138.12 round-trip miles of rail route. The ferry service which had been operated by the Key System and its predecessors since October 26, 1903 between San Francisco and Oakland was discontinued on January 15, 1939. However, during the Golden Gate International Exposition of 1939 and 1940, the operation of ferries was resumed between the Exposition and San Francisco and Oakland. In addition to the properties leased from the Oakland Terminal Railroad Company, Key System leases 51 interurban type articulated electric rail­ way units, 34 motor coaches, 3 turbo-electric ferryboats and 15 street cars from the Railway Equipment & Realty Company, Ltd.; leases 37 interurban type articulated units from the California Toll Bridge authority; and owns 1 ferry steamer.

The Railroad Retirement and Railroad Unemployment Insur­ ance Acts both contain the following proviso: "That the term ’employer' shall not include any street, interurban, or suburban electric railway, unless such railway is operating as a part of a general steam-railroad system of transportation, but shall not exclude any part of the general steam-railroad system of transportation now or hereafter operated by any other motive power." (Section 1(a)). In Texas Electric Railway. 208 I.C.C. 193, 202 (1935), the tests for distinguishing between an interurban and a commercial railroad operated by electric power were set forth by the Commission as follows:

"The Commission's views as to what constitutes an inter­ urban were stated in Rules For Testing Other Than Steam Power Locomotives, supra. Those views should not be lightly departed from after Congress has authorized the Commission to determine the status of electric railways under a similar exemption provision in an act not other­ wise administered by us. In haraony with that and similar decisions, we are of the opinion that an electric railway which is engaged in the general transportation of freight, whether the revenue therefrom is greater or less than its passenger revenue, which handles the bulk of such freight in standard equipment similar to that used by the steam railroads, which freely interchanges the same with the steam railroads for transportation to or from points on their lines, a considerable portion thereof being handled in interstate or foreign commerce, and which participates in joint rates with the steam railroads for interstate transportation, has more of the characteristics of a commercial railroad operated by electric power than of an interurban as that term is used in the exemption provision under consideration. Of course, there are many other cir­ cumstances and conditions which may have a bearing on the question, and some electric railways are of such an unusual character that their status might depend on other things, but we believe the factors referred to are generally the most important and should be given great weight where all of them exist together."

It is clear that Key System does not possess any of the above criteria. Although it is an electric railway company, it does not en­ gage in the general transportation of freight, does not use standard equipment, does not interchange equipment with steam railroads and does not participate in joint rates with the steam railroads for interstate transportation. The Key System has physical connections with the Oakland Terminal Railway Company and several other carriers that are "employers1’ under the Acts. However, it conducts no interchange traffic with any of these companies. Moreover, your attorneys stated in their letter dated May 9, 1938:

"The Company performs no service of any kind in connection with the transportation of passengers or property by rail­ road in interstate commerce . . . None of its revenues are therefore derived from such operations, and none of the time of its officers or employees is devoted thereto."

In Rules For Testing Other Than Steam Power Locomotives, 122 I.C.C. 414 (1927), the Commission found that the Key System Transit Company, predecessor of the Railway Equipment & Realty Company, Ltd., and its subsidiaries, was a street and interurban electric railway not operated as a part of any general steam-railroad system of transporta­ tion, and therefore not within the scope of the Locomotive Inspection Act. In the previous year, 1926, the company had derived a revenue of over $7,000,000 from passenger service and slightly over $25,000 from freight. Since 1935, the Oakland Terminal Railroad Company has been the only subsidiary of the Railway Equipment & Realty Company, Ltd., which has performed the freight and industrial switching services pre­ viously performed by the Key System Transit Company.

On the basis of the foregoing evidence, it is apparent that since July 1, 1935, the Key System has been nothing more than a street, interurban, or suburban electric railway which has not operated as a part of a or the general steam-railroad system of transportation. It is my opinion, therefore, that the Key System falls within the exemp­ tion proviso in section 1(a) of the Acts, and is not an "employer" within the meaning of the Acts.

The National Service Company, Ltd., was organized on March 9, 1925, under the laws of California as the Key System Service Company, and assumed its present name on September 11, 1930. It is engaged in the operation of a restaurant and news, checking and bootblack stands in the terminals of the Key System. During the Golden Gate International Exposition, it operated cocktail lounges and news and lunch counters on ferries of the Key System, and also operated intramural transportation at the Exposition. Since the Key System is not an employer, the service rendered to the Key System by the National Service Company, Ltd., does not constitute service performed in connection with transportation by railroad. Therefore, since the National Service Company, Ltd., is not itself a carrier by railroad, it is not an "employer" within the meaning of the Acts. In summary, it is my opinion that the Railway Equipment & Realty Company, Ltd., and its subsidiaries, the Key System and the National Service Company, Ltd., are not "employers" under the Railroad Retirement and Railroad Unemployment Insurance Acts, since they are neither carriers by railroad operating as part of a or the general steamr-railroad system of transportation nor companies performing serv­ ices in connection with the transportation of passengers or property by railroad.

Your cooperation has been appreciated.

Very truly yours,

General Counsel