L-41-136 Opinion No. 1941 R.R. 12

March 15, 1941

President , Inc.

Dear Sir:

The question of the "employer" status of Pennsylvania Grey­ hound Lines, Inc., hereinafter referred to as Penn Greyhound, under the Railroad Unemployment Insurance and Retirement Acts has been raised. Both statutes have defined in identical terms an "employer" to include "any company which is directly or indirectly owned or con­ trolled by one or more such carriers ^/express company, sleeping-car company, or carrier by railroad, subject to part I of the Interstate Commerce Act^ or under common control therewith, and which operates any equipment or facility or performs any service .... in connec­ tion with the transportation of passengers or property by railroad, or the receipt, delivery, elevation, transfer in transit, refriger­ ation or icing, storage, or handling of property transported by rail­ road . . . ."

Ownership of the common stock of the Penn Greyhound is held equally by the Greyhound Corporation, and the American Contract and Trust Company which is wholly owned by the Pennsylvania Railroad, here­ inafter referred to as the Railroad, a carrier by railroad subject to part I of the Interstate Commerce Act. As the Railroad completely owns and controls the American Contract and Trust Company, the Railroad's participation in Penn Greyhound will be considered directly rather than indirectly through the American Contract and Trust Company. Since the Greyhound Corporation is not an express company, sleeping-car company, or carrier by railroad subject to part I of the Interstate Commerce Act and since it is neither directly or indirectly owned or controlled by any such company, or under common control therewith, the Greyhound Corporation is not an "employer" within the Railroad Retirement and Un­ employment Insurance Acts. \J In view of this fact, Penn Greyhound's status depends firstly upon whether or not it is "controlled by" the Railroad.

\J The stock of the Greyhound Corporation is widely held and there is no indication of its control by any railroad or railroads. A dis­ cussion of Greyhound Corporation is found infra, pp. 2-3. Control is an issue of fact which must be determined after an examination of the pertinent indicia in the surrounding facts and circumstances. Thus Section 202.04 of the Regulations to the Railroad Retirement Act of 1937, 4 Fed. Reg. 1478, April 7, 1938, defines con­ trol as follows:

"A company or person is controlled by one or more carriers, whenever there exists in one or more such carriers the right or power by any means, method or circumstances, irrespective of stock ownership, to direct, either directly or indirectly, the policies and business of such a company or person and in any case in which a carrier is in fact exercising direction of the policies and business of such a company or person."

To determine whether the Railroad possesses this right or power over Penn Greyhound evidence relative to the latter's organi­ zation, growth, operations, etc. must be examined. Although the Rail­ road had entered the bus field shortly before 1930, it believed that a tie-up with a group experienced in bus operations would be advisable and joined on March 28, 1930 with the Greyhound Corporation in forming the Penn Greyhound. 2/ The Greyhound Corporation (known before 1930 as the Motor Transit Corporation) had been incorporated in 1926 and had acquired interests in bus companies operating in the territory adjacent to . During the ensuing years its activities became nation-wide. The system developed along three lines: (l) autonomous regional operations; (2) uniform national policies and centralized control of common functions and standards; and (3) coordination with other forms of transportation. Greyhound Corporation enforces national policies with respect to all matters which affect more than one company. Actual operations are carried on in a particular region under a single regional corporation. The officers usually have been identical and all policies and management have been and are decided and administered by the Greyhound Corporation. Since 1928 it adopted a policy of inviting railroads to participate with it in the ownership of bus lines, with a view to developing coordinated passenger trans­ portation. Its position in this respect was pointed out in the annual stockholder report for the year 1935:

"Among the advantages of such a relationship are savings from joint use of facilities, substitution of bus service for unprofitable train service, and the movement of passengers to railroads from points not served by rail. Independence of

Zj Penn Greyhound operates in , , , Kentucky, , Michigan, Pennsylvania, West , New York, New Jersey, , , Virginia, and the District of Columbia - terri­ tory also served by the Railroad. management is maintained as between the two modes of trans­ portation, and each is operated in its ovm interest, coop­ erating where there is mutual advantage to be gained."

Six railroads now own interests in as many Greyhound companies. Zj

The Railroad transferred to Penn Greyhound certain bus property, rights and franchises in payment for half the common stock. It also advanced $800,000 for the total issue of Penn Greyhound's 7 per cent preferred stock which acquires voting privilege upon the non-payment of dividends for two successive years. However, this contingency has not occurred, nor does it seem likely in the light of past earning statements. 4/

The Railroad and Greyhound Corporation have four represen­ tatives respectivelvonthe Board of Directors. Those representing the Railroad are | J, Vice-President-Operation o^Ra^^oa^; J, Yice-President-Comptrollor of Railroad;! 1 Vice-President - Finance of Railroad, Vice-President - Traffic Railroad. Other officials of Penn Greyhound are also Rail­ road men. Thus Treasurer of Railroad, is also the Treasurer of Penn Greyhound. Secretary of Railroad, is also Secretary of the Penn Greyhound, V ice-President of the Railroad, is Vice-President of Penn Greyhound; and Chief of Corporate Work of Railway, holds the same position with Penn Greyhound. Removal of a director requires a vote of three-fourths of the directors and the majority of directors must consent before action can be taken in ordinary matters. The Executive Committee to which the Board of Directors has delegated much of its power is four in number, two Railroad and two Greyhound Corporation members. Thus, the Railroad would seem to have at least a negative control in both the Executive Committee and the Board of Directors.

However, the actual management and control of the Penn Grey­ hound are in the hands of the Greyhound Management Company, hereinafter referred to as the Management Company, which is completely owned by the Greyhound Corporation. The Management Company's power is derived from a contract made with Penn Greyhound and the pertinent parts of which are herein set out:

3/ However, Greyhound Corporation is not owned by any railroad or group of railroads and evidently no railroad is today among its thirty largest stockholders.

4/ Profit for 11 months ended November 30, 1935 $1,844,175.95 Profit for year 1937 1,033,396.66 Profit for year 1938 1,306,660.25 Profit for year 1939 1,818,624.37 "First, The Owning Company ^Penn Greyhoundy7 hereby employs the Management Company to act as its managing agent .... subject, however, at all times to the general supervision and direction of the Boards of Directors of the Owning Company and the Operating Com­ panies 5/. . . . The Management Company agrees to co-ordinate its management of such lines with that of any other motor bus line or system of lines managed by it . . . .

"Second: .... the Management Company shall furnish such additional equipment, personnel, facilities, supplies, and appurte­ nances as may from time to time be reasonably required for such effi­ cient and economical management, subject, however, to the prior approval by the Owning Company ....

"Seventh. The Management Company shall keep such accounts and records as shall be satisfactory to the Comptroller of the Owning Company and to the Comptrollers of American Contract and Trust Company and Greyhound Corporation, joint owners of the Owning Company, which accounts and records shall be open to the inspection of said Comp­ trollers, or their duly authorized representatives, at all reasonable times .... * * * * V * "Eleventh. This agreement .... shall continue in full force and effect for a term of fifteen (15) years and thereafter from year to year or of any year thereafter upon six (6) months' written notice from either party to the other; Provided, also that this agree­ ment shall terminate notwithstanding the above .... at any time upon six (6) months' written notice by the Owning Company to the Management Company, if, in the judgment of the Board of Directors of the Owning Company, the Management Company is not conducting the serv­ ice covered by this contract in a reasonably efficient and economical manner." ****** Under the terms of this contract control of the Penn Greyhound is delegated to the Management Company, the alter ego of the Greyhound Corporation, for fifteen years and continues in effect thereafter from year to year unless six months' notice is given by either Penn Grey­ hound or the Management Company. Since Penn Greyhound's Board of Directors require a majority vote to act, the Greyhound Corporation could always block any Railroad attempt to give the notice of termi­ nation. Although disputes arising under the agreement shall be decided by arbitrators representing Railroad and the Management Com­ pany, these matters could concern only minor details insofar as there

5/ The Penn Greyhound carried on actual operations through a number of wholly owned operating subsidiaries which were later merged into the Penn Greyhound. is a specific provision for termination of the agreement if the Management fails to act in a "reasonably efficient and economical manner." Here again termination is to occur upon six months' notice if it is warranted in the judgment of the Board of Directors of Penn Greyhound and, as indicated above, the Greyhound Corporation's con­ sent would be necessary before a majority of the Directors could be obtained. The primary purports of the agreement are not only to run the Penn Greyhound as a unit, but to set it in the pattern of the entire Greyhound system. The effect of the contract has given the c ontrolofPenn Greyhound to the Greyhound Corporation. Thus Mr. President of Penn Greyhound, testified in a hearing before the Interstate Commerce Commission, Docket No. MC-1502, Sub. 2, December 16, 1937 to the effect that the Railroad officials who are also officers of the Penn Greyhound "do not perform any function in the actual operation of Pennsylvania Greyhound because of the manage­ ment contract"; that "the operations of Pennsylvania Greyhound Lines, Inc., are controlled by the Greyhound Corporation" through Greyhound Corporation personnel; that the Management Company's purpose "is to effect economies through joint facility arrangement between the various Greyhound Companies"; that the bus company since it operates in the sane territory as the Railroad is "highly competitive with the Pennsylvania Railroad, though in those situations where it is in the interest of the bus company to do so, we have coordinated or sub­ stituted our bus service for train service."

The nation-wide character of the Greyhound system has been referred to previously. The Penn Greyhound is closely affiliated with the following Greyhound Systems: Eastern Greyhound Lines; Central Grey­ hound Lines; ; ; ; Teche Greyhound Lines; Richmond Greyhound Lines; Northland Greyhound Lines; Southwestern Greyhound Lines; Pacific Grey­ hound Lines; Canadian Greyhound Lines; Ohio Greyhound Lines and Illi­ nois Greyhound Lines. The affiliation which the Greyhound Corporation has obtained and maintained with these companies either directly or indirectly has enabled it to form an integrated national system of bus transportation in that there is: (l) joint solicitation, joint selling and joint provision of transportation; (2) continuous through carriage of passengers, mail, express; and (3) operations are on a joint traffic basis with joint operating and facility arrangements. Much of the success of Penn Greyhound is due to this integration, a feature made possible by the Greyhound Corporation. Although both the Railroad and the Greyhound Corporation have advanced $200,000 respectively to Penn Greyhound, financial matters are evidently in the hands of the Greyhound Corporation. Thus it arranged the finan­ cing and purchase of new buses costing $675,000 and incidentally subordinated indebtedness owed it by Penn Greyhound to the financing bank. The Railroad has guaranteed some minor operations of Penn Greyhound, which have amounted to less than $40,000 annually. The insignificance of this item is apparent when compared to a yearly gross income of $1,500,000 to $2,000,000. The economic success of Penn Greyhound has been the result of the Greyhound Corporation's activities and not those of Railroad. The very fact that the Rail­ road submitted to the contract with the Management Company is signi­ ficant of the Railroad's intent to consider Penn Greyhound primarily as an investment. The fact that it acquired all the preferred stock, which is primarily an investment measure, is also indicative of the Railroad's purpose. A further indication of this purpose follows from the fact that there is little coordination between the Railroad and Penn Greyhound. The Railroad's relation to Penn Greyhound has been that of an investor who has never acquired control or the power to control, but merely sought a fair return on his investment.

I therefore conclude that the Pennsylvania Greyhound Lines, Inc., like Greyhound Corporation, is not and has not been an express company, sleeping-car company or carrier by railroad subject to part I of the Interstate Commerce Act or directly or indirectly owned or controlled by or under common control with any such company or carrier and hence is not and has not been an "employer", subject to the Rail­ road Retirement or Unemployment Insurance Acts.

Very truly yours,

General Counsel