Mr. 0. A. Smith, President Pacific Electric Railway Company Pacific Electric Building Los Angeles, California

Dear Sir:

Reference is made to your reply of December 6, 1939, to Board Questionnaire Form LQ-2-C with respect to the status of Motor Transit Company (herein referred to as "Transit") under the Railroad Retirement and Railroad Unemployment Insurance Acts.

Careful consideration has been given the information sub­ mitted by you and certain records of the Interstate Commerce Commis­ sion, principally Docket No. MC-F-785, involving the application of Transit and the Pacific Electric Railway Company (herein referred to as the "Railway Company") for authority under section 213 of the Motor Carrier Act of 1935 to merge the operating rights and property of the former company into the latter and the report of the Interstate Com­ merce Commission on such application, Pacific Electric Railway Company — Merger — Motor Transit Company, 25 M.C.C. 313 (1939). In view of such materials, it is my opinion that Transit was at least on August 29 1935, and thereafter to September 1, 1939, an "employer" under the Rail road Retirement and Railroad Unemployment Insurance Acts as a company directly owned and controlled by a carrier by railroad subject to part I of the Interstate Commerce Act, and engaged in the performance of a service in connection with the transportation of passengers by railroad within the meaning of Section 1 (a) of the Acts and Sections 202.07 and 202.08 of the Regulations (4 Federal Register 1479; April 7, 1939). Service to Transit from November 20, 1916, its incorporation date, to September 1, 1939, is creditable. It is noted that service to the com­ pany between November 20, 1916, and April 22, 1920, would have been rendered to the "White Bus Line."

« Transit was incorporated on November 20, 1916, under the laws of the State of California, at which time it bore the name of "White Bus Line", its name being changed to the present one on April 22 1920. From April 3, 1930, until September 1, 1939, when Transit was -2- Mr. 0. A. Smith, President

merged into the Railway Company and ceased to exist as a corporate entity, Transit was directly owned and controlled, through stock owner­ ship, by the Railway Company, which was in turn owned and controlled by the Southern Pacific Company. Both of these railroad companies are carriers by railroad subject to part I of the Interstate Commerce Act and "employers” under the Railroad Retirement and Railroad Unemployment Insurance Acts. It also appears that certain of Transit’s directors were also directors of the Railway Company and its principal officers held similar positions with the Railway Company. (See Docket No. MC- F-785, Exhibit Nos. A and AA attached to application.) It is clear, therefore, that on August 29, 1935, and thereafter, to September 1, 1939, Transit was owned and controlled by a "carrier employer", within the meaning of Section 1 (a) of the Railroad Retirement and Railroad Unem­ ployment Insurance Acts.

Transit was incorporated for the purpose of engaging in the transportation of passengers, freight, express, and mail by motor ve­ hicle. You have informed us that after October 1, 1937, Transit was engaged only in the transportation by bus of passengers, express, and mail, but that prior thereto it also transported "to a limited extent" freight by truck. As already noted, you have also informed us that Transit’s merger with the Railway Company became effective on September 1, 1939, and that since that date all of Transit’s activities have been conducted by the Railway Company.

From the Interstate Commerce Commission’s report on Pacific Electric Railway Company — Merger — Motor Transit Company, supra, it appears that Transit’s operations as a motor-vehicle common carrier of passengers, mail, and express extended "over approximately 425 route miles between Los Angeles and Long Beach, Sunland, Pasadena, Santa Ana, San Bernardino, and Hemet, serving numerous intermediate points and paralleling to some extent Pacific's rail and motor operations." Tran­ sit's operations, during the period of its control by the Railway Com­ pany, were to a large extent supplementary to and closely coordinated with those of the Railway Company. In support of their application for authority to merge, the two companies stated as follows (Docket No. MF- F-785, Exhibit No. C attached to application):

"The services of Motor Transit are, to a largo extent, supplementary to the services rendered by Pacific Electric Railway Company, and if Pacific Electric Railway Company is permitted to acquire the property and rights of the Motor Transit Company the same service now being rendered by Motor Transit Company will be continued to be rendered by Pacific Electric Railway Company until change of routing or exten­ sions or abandonments may hereafter be accomplished in appro­ priate proceedings to meet changing conditions. . . . The reason for the disposition of all of the assets and property, -3- Mr. 0. A. Smith, President

including operating certificates, of Motor Transit Company to Pacific Electric Railway Company, is for the purpose of simplifying the corporate structure and to perform all of the services now required by one agency, namely, Pacific Electric Railway Company, instead of by two agencies through the fiction of Motor Transit Company; in reality, the opera­ tions of Motor Transit Company arc, in fact, carried on by and under the direction of Facific Electric Railway Company, its officers and agents; and it is considered that some sav­ ings in accounting, cost of management and taxes will be accomplished by the acquisition of said properties by Paci­ fic Electric Railway Company.” (Underscoring supplied.)

The close coordination between the operations of Transit and those of the Railway Company is further established by the evidence ad­ duced at the hearing in Docket No. MC-F-785. Frank Carr, a director of both Transit and the Railway Company and vice president of the latter, stated (Transcript of Record, p. 19):

”We have, by coordination, substantially already ac­ complished the consolidation of these companies. They have a common superintendent, common auditor, common law­ yer. common claim agent, et cetera.” (Underscoring supplied.)

And 0. A. Smith, president of Transit and of the Railway Company, tes­ tified in the same proceeding as follows (Transcript of Record, pp. 21-24):

”Q,. If Pacific Electric secured control of the Motor Transit Company some years ago, there was some parallel competition, was there not?

"A. Yes, sir.

"Q,. What did you do in the way of staggering the service of the two companies supplementing with reference to frequency?

A. Following the consolidation, there was what we have termed a coordination of the services of the two com- panies.

”1 first should say this: That in many cases the same terminal points of lines are reached by the lines of both companies; that is, the Pacific Electric on the one hand and the Motor Transit on the other, but in such cases to a large extent, the immediate route is different; that is it is over entirely different property. -4- Mr. 0. A. Smith, President

"All of those things ax*e taken into consideration end the coordination included at these terminal points usually a staggering of schedules and an interchange arrangement in connection with tickets so the passenger may have the bene­ fit of either service they desire to use.

"Q,. That is in effect now, is it?

"A. Yes, sir.

"Q. Would you, in a general way, tell the Commissioners why this consolidation is a good thing to be brought about and why it will not destroy any competition that may now exist?

"A. To all intents and purposes, in so far as the oper­ ation, that is the service, is concerned, the consolidation has already been brought about.

"There are, as I have previously testified, no changes contemplated in the service of either carrier as a result of this application.

"The services of both companies are performed by the /same/ set of officers; and, as 1 say, the services are closely coordinated, the services of the two companies are closely coordinated." (Underscoring supplied.)

It may also be noted that in authorizing the merger, the Inter­ state Commerce Commission found that

"Pacific /Pacific Railway Company/ has already accom­ plished a substantial measure of coordination with Motor /Transit Company/ by eliminating certain duplicato operat­ ing and administrative functions, and it is the purpose of the instant transaction to effectuate corporate simplifi­ cation and eliminate remaining duplications in the matter of tickets, tariffs, timetables, and accounts, with result­ ant economies therefrom and reduction of taxes, .... The merger is in line with our policy of encouraging cor­ porate simplification in the interest of more efficient and economical operation."

More detailed information as to the close relationship between Transit's operations and those of the Railway Company is contained in your reply to Questionnaire Form LQ-2-C. Thus, with respect tothe ex­ tent that the transportation performed by Transit is coordinated with, in substitution for, or a feeder for railroad transportation, you have informed us as follows: -5- Mr. 0. A. Smith, President

"Motor Transit passenger service was co-ordinated with Pacific Electric Railway Company rail parsenger service be­ tween Los Angeles and San Bernardino, between Los Angeles and Glendale, and between Los Angeles and Santa Ana. Motor Transit passenger service was substituted for Pacific Elec­ tric Railway rail passenger service between Los Angeles and the Whittier-Fullerton area; between San Bernardino and Red­ lands; between San Bernardino and Riverside; and between Santa Ana and Orange. Motor Transit passenger service was substituted for Pacific Electric Railway Company motor coach service between Pomona and Claremont, and in San Bimas. The Motor Transit Company's motor coach line in San Dimas, as well as that company's line between Pomona and Claremont, acted as feeders to Pacific Electric Railway Company rail line. Motor Transit's special service operated between Col­ ton and San Bernardino and between Colton and Riverside, account Southern Pacific Company, served as a feeder to Southern Pacific Company, being operated particularly for the benefit of that company's patrons, and also handling mail, baggage and express."

With respect to the railroad-interchanged passengers transported by Transit, you hove informed us that Transit interchanged passengers not only with the Railway Company at various connecting points such asGlen­ dale, San Bernardino, and Santa Ana under joint passenger tariffs but also with the Southern Pacific Company, the latter passengers having been trans­ ported "between point of interchange and point located on Motor Transit lines" under a ticket honoring arrangement in accordance with Western Joint Rail-Motor Routing and Honoring Tariff No. 160-1, I.C.C. No. 2905 (G. J. Maguire's issue). The handling by Transit of the Southern Pacific Company's passengers was governed by a number of letter agreements, which were ne­ gotiated by the Railway Company and dated as far back as September 18, 1930, and a contract of April 5, 1938. This contract, which was entered into between Transit and the Southern Pacific Company, stated by way of recital, that the Railway Company, under an agreement dated December 27, 1926, per­ formed certain transportation services "for account of Southern Company" between Colton and San Bernardino and between Colton and Riverside; that on July 20, 1936, the Railway Company discontinued the operation of its regular passenger service between those points but continued the opera­ tion for the Southern Pacific Company of a special combination passenger and baggage cur pending the completion of negotiations for a service to be operated in lieu of that operated prior to July 20, 1936; and that the Railway Company proposes to discontinue such performance of combination passenger and baggage rail service and Transit proposes to supplement its present regular motor coach service by "the operation of special service with combination passenger and baggage motor coach for account of South­ ern ^PacificT" Company between Colton and San Bernardino, and between Col­ ton and Riverside." The agreement then provided, in substance, that (1) Transit would "honor on its motor coaches, both in regular service and in special service performed for account of Southern Company, tickets -6- Mr. 0. A. Smith, President reading via lines of Southern Company, and transport baggage checked thereon, between Colton and San Bernardino, and between Colton and Riverside," and be reimbursed by the Southern Pacific Company at the rate of 42 cents for each ticket so honored; that (2) Transit would furnish equipment for and operate a special service between those points on schedules to be agreed upon by both companies, "connections to be made, in so far as possible, with Southern Company through pas­ senger trains at Colton," and would be paid for such service by the Southern Pacific Company a minimum monthly amount of $500 based on a maximum of seven round trips daily between Colton and Riverside and four round trips daily between Colton and San Bernardino and at the rate of 23 cents per mile for trips made over and above such schedule; and that (3) the Southern Pacific Company would assume the risk of any defects or dangerous conditions on Transit's motor coaches or other premises and would indemnify Transit against all claims arising out of the exercise by the Southern Company of the rights granted it under the contract.

The dates of the letter agreements, referred to above, for Transit's honoring of the Southern Pacific Company's rail tickets and the routes covered by such agreements were as follows:

Dates Coverage: Routes between

September 18, 1930 Los Angeles and Orange, Fullerton, Torba Linda, Broe, Lallabra; Orange and Santa Ana

August 12, 1931 Colton or Riverside and Corona

December 1, 1938 Los Angeles and Anaheim, Norwalk, or Downey

January 4, 1939 Los Angelos and Bassett, Walnut, Spadra, Narod, Loma Linda, and Bryn Mawr

Pursuant to the first two agreements, Transit was to be allowed by the Railway Company, rather than by the Southern Pacific Company, its local fare for each ticket honored between the points covered in such agree­ ments. Under the last agreements, Transit was to bill the Southern Pacific Company directly for the one-way local fare on each ticket hon­ ored. It further appears that Transit was required to handle baggage on the Southern Pacific Company's tickets between certain of the points covered in the first two agreements.

Your information further shows that in addition to honoring tickets on the routes covered in the above agreements, Transit also honored tickets of the Southern Pacific Company on other routes pur­ suant to oral agreement whereby Transit "honored such tickets for or -7- Mr. 0. A. Smith, President instead of Pacific Electric Railway Company, receiving from Pacific Electric Railway its local one-way fares for tickets honored, and Paci­ fic Electric in turn received from Southern Pacific, for such tickets, the amounts sot forth in Interchange Agreement between Southern Pacific and Pacific .Electric Railway."

You have informed us that tho revenues received by Transit from all its operations for the years 1935 to 1938 and for the first eight months of 1939 were as follows:

Receipt, delivery, Supplying to rail­ Transportation etc., or handling road service used Other of passengers of property trans- in railroad trans­ Operations and property ported by railroad portation

1935 $555,430.63 $16.63 $29,404.55 1936 636,518.58 20.76 34,350.77 1937 720,515.10 21.50 25,135.42 1938 735,054.28 18.70 $5,500.00 14,142.18 1939 469,340.28 9.97 4,000.00 7,499.51

The account, "receipt, delivery, etc., or handling of property transported by railroad", apparently represents the amounts received by Transit for handling on certain routes baggage checked on tickets of the Southern Pacific Company; and the item, "supplying to railroad service used in railroad transportation", the revenues accruing to Transit under its contract of April 5, 1938, with the Southern Pacific Company. No fur­ ther breakdown of revenues to show income attributable to bus operations coordinated with, supplementary to, or in substitution for rail opera­ tions has been given us.

The slight extent to which Transit was engaged in the carriage of freight by truck during the period before October 1, 1937, when it was conducting some trucking operations, is indicated by the number of freight trucks then used by it as compared with the number of passenger busses. Thus, in the year 1935, Transit used 68 passenger busses, 4 freight trucks, and 2 combination busses; in the year 1936, 82 passenger busses, 4 freight trucks, and 2 combination busses; and in the year 1937, 103 passenger busses, 1 freight truck, and no combination busses. Subse­ quent to 1937, Transit used neither freight trucks nor combination busses in its operations.

In view of the foregoing, it is my opinion that Transit was at least on August 29, 1935, and thereafter to September 1, 1939, princi­ pally engaged in the operation of equipment and facilities and the per­ formance of a service in connection with the transportation of passen­ gers by railroad, within the meaning of Section 1 (a) of the Railroad Retirement and Railroad Unemployment Insurance Acts and Sections 202.07 and 202.08 of the regulations. It is clear that in the handling of rail- interchanged passenger traffic, and the operation of bus routes in -8- Mr. 0. A. Smith, President

coordination with, in substitution for, and as feeders for (supplemen­ tary to) rail service, Transit was engaged substantially, if not princi­ pally, in the operation of equipment and facilities and the performance of a service in connection with the transportation of passengers by rail­ road within the Acts and the regulations. See Board’s rulings on Monon Transportation Go., Boston and Maino Transportation Co., and Reading Transportation Co.. Railroad Retirement Board Law Bulletin No. 1, Decem­ ber 1939, pp. 5, 24; 29, and numerous opinions following those rulings. Moreover, under the circumstances of this case, it would appear reason­ able to conclude that all cf Transit’s bus operations, including those which do not fell squarely within the categories just enumerated, were reasonably directly related, functionally and economically, to the Rail­ way Company’s performance of its common carrier obligations after the Railway acquired control of Transit, and, therefore, all of such opera­ tions constituted the operation of equipment and facilities and the per­ formance of a service in connection with the transportation of passengers by railroad. This conclus*: on would seem to follow from the afore-quoted statements by officials of Transit and the Railway Company in Docket No. MC-F-785 that ’'in realty, the operations of Motor Transit Company are, in fact, carried on by and under the direction of Pacific Electric Rail­ way Company, its officers and agents;” and that ”we have, by coordina­ tion, substantially already accomplished the consolidation of these com­ panies.” (Cf. General Counsel’s Opinion No. 1939 R.R. 99 on Burlington Transportation Company, R.R.B. Law Bulletin No. 1, p. 48; and General Counsel’s Opinion No. 1940 R.R. 24 and U.I. 6 on Union Pacific Stages, Incorporated ) in any event, however, since it appears that Transit is engaged to a substantial extent, if not principally, in passenger bus operations which qualify it as an "employer1', and such operations would naturally be intermingled with its other bus operations, with nothing appearing to require or warrant a finding of such an "identifiable and separable enterprise" as is contemplated by Section 202.09 of the regu­ lations (4 Federal Register 1479), it is my opinion that Transit is, in its entirety, an "employer" under the Acts.

The conclusion just stated is also reached with full cogni­ zance of the fact that, as noted previously, Transit was engaged prior to October 1, 1937, to a slight extent in the carriage of freight by truck. A company will not be considered an "employer" under the two Acts on the basis of trucking services provided by it (Board Ruling on "Trucking Companies", R.R.B. Law Bulletin No. 1, p. 144.) However, as already shown, Transit was even prior to October 1, 1937, principally engaged in the passenger bus operations already considered.

In your reply to Board Questionnaire Form LQ-2-C, you state that in the opinion of your Chief Counsel, Transit was not an "employer" within the meaning of the Railroad Retirement Act on the grounds that Transit’s operations were confined to the transportation of passengers, baggage, and express by motor vehicle wholly within the State of Cali­ fornia in "local and interurban service between Los Angeles and most of the principal cities in the four Southern California counties:- -9- Mr. 0. A. Smith, President

Los Angeles, Orange, Riverside and San Bernardino”; and that, although it transported passengers between points served in common with the Rail­ way Company and the Southern Pacific Company through the optional hon­ oring of tickets, such service was not an integral part of any steam railroad system of transportation or of the Railway Company, less than five per cent of Transit’s total passengers having been handled under such arrangement and only a fractional portion of such passengers hav­ ing been moved in interstate commerce.

There is no requirement, either expressed or implied, in either the Railroad Retirement Act or the Railroad Unemployment Insurance Act that a carrier affiliated company can qualify as an ’’employer” under those Acts only on the basis of operations performed by it in interstate commerce. To qualify as such an "employer” , it is necessary that the carrier affiliated company be owned or controlled by or under common control with an express company, sleeping-car company, or carrier by railroad subject to part 1 of the Interstate Commerce Act and engaged in the operation of any equipment or facilities or the performance of any service in Connection with railroad transportation. That Transit fully satisfied these requirements has boen established above. Although the passengers interchanged with railroads may have amounted only to less than five per cent of Transit's total passengers, we have seen that Transit also operated a considerable number, if not all, of its passen­ ger bus routes in substitution for and as feeders to bhe Railway Company and all its passenger bus operations were coordinated with and subserv­ ient to the operations of the Railway Company, all of which show that its operations and services were "in connection with" railroad trans­ portation.

In summary, it is my opinion that the Motor Transit Company was on August 29, 1935, and thereafter to September 1, 1939, when it was merged into the Railway Company, an "employer" under the Railroad Retirement and Railroad Unemployment Insurance Acts. Service to Tran­ sit from November 20, 1916, its incorporation date, to September 1, 1939, is creditable. (See sections 1 (f) and 202 of the Railroad Re­ tirement Act of 1937.)

One further observation may be made. Since, as already noted, it appears from the application to merge that Transit's operations were "carried on by and under the direction of Pacific Electric Railway Com­ pany, its officers and agents", it may be that at least for some time prior to Transit's merger into the Railway Company the individuals en­ gaged in the performance of Transit's work were subject to the continu­ ing authority of the Railway Company to supervise and direct the manner of rendition of their compensated service and that they were, therefore, during such time "employees" of the Railway Company within the meaning of the Acts. In view, however, of the conclusion reached as to Transit's status as an "employer", it is unnecessary to decide the question whether its personnel were at any time "employees" of the Railway Company. -10- Mr. 0. A. Smith, President

Will you please advise the Director of the Board's Bureau of Wage and Service Records, Washington, D. C., of the identity of the pro­ per official to whom communications should be addressed regarding the filing of reports and the supplying of other information, required under the two Acts, with respect to Transit,

Very truly yours,

Lester P. Schoene General Counsel