L 7 4-185 Sidley & Austin One First National Plaza M - -3l 4 Chicago, Illinois 60670

Attention: John M. O'Hare, Esq.

Gentlemen:

This is in response to your letter dated May 29, 1974, in which you forwarded to us an inquiry from Canadian Pacific Limited as to whether the Coast Steamship Service, hereinafter called the Steamship Service, would be considered an "employer” within the mean­ ing of section 1(a) of the Railroad Retirement Act if it becomes a wholly-owned subsidiary of Canadian Pacific Limited.

In 1939 the Steamship Service (also known as the Puget Bound line) was one of three divisions of steamship and ferry operations which were directly owned and operated by the Company (now known as Canadian Pacific Limited). In that year approximately 27V of the passenger revenue and 3S% of the freight revenue of these divisions was obtained from traffic in conjunction with railway opera­ tions. In the same year approximately 17% of the Steamship Service's revenue was derived from traffic moving to or from points in the United States in conjunction with Canadian railway operations.

At the present time Canadian Pacific Limited still owns and operates the Steamship Service, which new provides transportation services along four routes in the United States and Canada. Canadian Pacific proposes to isolate this Steamship Service operation by the formation of a separate, wholly-owned subsidiary. The primary purpose of trans­ ferring all of the assets and business of the F teams hip Service to a separately incorporated company would be to remove all of the employees of the newly created subsidiary from the coverage of the Railroad Retirement and Unemployment Insurance Acts.

A detailed description of the current operations of the Steamship Service is contained in the following excerpts from the inquiry which you forwarded to us from Canadian Pacific Limited:

"BCCS, as presently comprised, operates primarily in the Straits of Georgia area and provides service along four routes. * * * The Victoria, British Columbia- Seattie-Port Angeles service is supplied by the 'Princess Marguerite' which operates of her sailing time within United States waters, with ports of call at -2- Sidley & Austin

Seattle and Port Angeles in addition to Victoria, British Columbia. It is a tourist ferry and day excursion service, which operates during the month* of May through September. Hiis vessel operates one round trip per day between Seattle and Victoria, between the middle of May and the middle of September, plus one round trip per day between Victoria and Port Angeles bet we n the middle of June and the first week in September. The ship is used for csurrying passengers, their baggage, and their auto­ mobiles only. There are no through tickets connecting with any railway and there is no freight or express carried on this route. Service on this route accounted for approximately 2k.6% of the total gross revenue of BCCF in 1969 . Current operations reflect no substantial change in this figure.

“The , British Columbia-Alaska service also operates within U.S. waters 47% of her sailing time, calling on various ports in Alaska. Service is provided by the 'Princess Patricia.* It is a summer cruise service operating between the months of May and October each year, carrying passengers only. The vessel makes one round trip between Vancouver, B.C. and Skagway, Alaska every eight days, stopping at various ports of call enroute. Passengers arrive in Vancouver, British Columbia by any method they choose and are ticketed Independently at Vancouver for the cruise. Passengers may arrive by air, bus or family automobile. It is not possible to buy a combined ticket for this cruise. There is no freight or express handled by the 'Princess Patricia. Service cm this route accounted for approximately 24.2% of the total gross revenue of BCCS in 19^9 • Current opera­ tions reflect no substantial change in this figure.

"The remainder of the service conducted by the B.C.C.6. is exclusively within Canadian waters. The Vancouver, British Columbia-fiwartz Bay, Vancouver Island, B.C. service was initiated in 1966 to handle the trucking industry's drop trailer traffic between Vancouver and the south end of Vancouver Island, British Columbia. The service is provided six nights each week the year around. The service is taken care of by one round trip of the 'Trailer Princess,' a self-propelled oarge carrying drop trailers only. A second vessel, the 'Carrier Princess,' a self-propelled barge with some passenger accommodation, makes two round trips per night carrying drop trailers, with automobiles and passengers only if space is avail­ able after truck loading. This traffic is not interchanged -3- Sidley & Austin

connected, or associated with any transportation by rail. Approximately 26,000 drop trailers per year are handled through Swartz Bay.

"The Vancouver, B.C.-Nanaimo, Vancouver Island, B.C. route is the only route connected with rail transporta­ tion. This route is used the year around to carry rail cars, trucks, drop trailers, automobiles, and passengers between the Canadian Mainland and Vancouver Island, British Columbia. The vessels on this route are the ’Princess of Vancouver,' a combined rail, truck, trailer, automobile and passenger ferry. This vessel makes three round trips per day. The 'Doris Yorke,1 a chartered self-propelled barge carrying rail and drop trailer traffic, makes one round trip per night. The 'Halda Transporter, * a chartered self-propelled barge carrying drop trailers only, makes one round trip per night. The 'Carrier Princess' and the 'Trailer Princess' from the Swartz Bay route will make a day round trip to Nanaimo from Vancouver as required, carrying leftover drop trailer traffic from the night before, or any rail [traffic] that la available. There is no interchange connection or association with rail services with the trailers, drop trailers, automobiles and passengers carried on this route. Schedules for these vessels are set to best accommodate the trucking industry's require­ ments."

Section 1(a) of the Railroad Retirement Act provides, in part, that the term "employer" means

"* * * any company which is directly or indirectly owned or controlled by one or more such carriers * * * and which operates any equipment or facility or performs any service * * * in connection with the transportation of passengers or property by railroad * * *."

In 1939 the Steamship Service was directly operated by the Canadian Pacific Railway Company. By serving as an integral part of a carrier by railroad subject to part I of the Interstate Commerce Act which was therefore an employer under the Railroad Retirement and Unemployment Insurance Acts, its employees were covered under the Acts with respect to that part of their service which was performed within the territorial limits of the United States. Since 1940 the Steamship Service's opera­ tions have changed considerably with the result that the passenger steamships "Princess Marguerite" and "Princess Patricia,” which are the only vessels operated by the Steamship Service within United States waters and which account for approximately one-half of its gross revenue, provide Sidley 8. Austin no freight, express or through connecting service with either Canadian or United States railroads. They move solely between water ports, and have no relation whatever to rail transportation. In addition to these lines, the Steamship Service also operates two other routes which lie wholly within Canadian waters. One, between Vancouver and Swartz Bay, British Columbia, primarily transports truck trailers, in addition to some passengers and automobiles on a space available basis. None of this traffic is interchanged, connected, or associated with any trans­ portation by rail. The second, between Vancouver and Nanaimo, British Columbia, carries railroad cars, trucks, truck trailers, automobiles, and passengers between the mainland Mid Vancouver Island, and is the only route operated by the Steamship Service which has any connection with rail transportation. Gross revenues from the rail connected activities of this route, consisting of the transportation of railway cars between rail connections at Vancouver and Nanaimo, amounted to 18$ of the Steamship Service's total gross revenue. These rail con­ nected services are performed entirely within Canada, and the proposed subsidiary therefore would perform no rail connected services between United States ports or in United States waters and no services connected with United States rail transportation.

It can readily be seen that whereas on the routes operated by the Steamship Service in 1940 there were substantial direct passenger and freight rail connections with through tickets and through tariffs, and year-round traffic in United States territorial waters, the economic condition has changed since that time so that the operations of the Steamship Service, particularly those within United States waters, are no longer substantially connected with railway service. Wider the proposed plan the Victoria, British Columl ia-Seattie-Port Angeles and Vancouver, British Columbia-Alaska lines, as well as the other opera­ tions of the Steamship Service which are conducted wholly in Canada, would constitute a water-borne shipping service, performing no services in the United States in connection with rail transportation, which would be a separately incorporated subsidiary of a Canadian railroad corporation.

An examination of the proposal submitted by Canadian Pacific Limited indicates that none of the services provided by a separately incorpo­ rated British Columbia Coast Steamship Service would be rendered "in connection wi th the transportation of passengers or property by railroad" in the United States. Accordingly, the British Columbia Coast Steamship Service, if incorporated and operated in the manner described in the proposed plan, would not be an employer within the meaning of the Railroad Retirement and Unemployment Insurance Acts.

Very truly yours,

Mylea F. Gibbons General Counsel

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