HERZOG TRANSIT SERVICES v. UNITED STATES RAILROAD RETIREMENT BOARD (October 22, 2010)

The Dallas Area Rapid Transit and the Fort Worth Transportation Authority (collectively, the "Transit Authorities") own a stretch of railroad track between the two cities on which they provide commuter rail service. Four other railroad companies operate interstate freight service on the same stretch of track. Herzog Transit Services has operated the commuter service for the Transportation Authorities since 1996. Before 2001, Herzog had no involvement with the interstate carriers. In 2001, however, the Transit Authorities contracted with Herzog to provide all dispatching operations, including interstate, for the track. Shortly thereafter, a Herzog employee asked the Railroad Retirement Board for a determination that Herzog was a "covered employer" under the Railroad Retirement Act. The Board found that Herzog was a covered employer to the extent it was providing dispatching services to interstate carriers. Herzog and the Transit Authorities petitioned for review of the order.

In their opinion, Judges Ripple, Kanne, and Sykes (dissenting) denied the petition. The Court first embarked on a short history of American railroads, their pension plans, the Railroad Retirement Act (the "Retirement Act"), and the Railroad Unemployment Insurance Act (the "Unemployment Act"). The purpose of the Retirement Act is to provide a retirement system for employees of the nation's railroads; the Unemployment Act provides unemployment insurance for the same employees. The Court then recited the relevant definitions and principles:

  • the Court and the parties agreed that an "employer" is the same under each act
  • the acts adopted a broad definition of employer in order to prevent the railroads from setting up subsidiaries to avoid coverage
  • an employer includes "any carrier by railroad subject to the jurisdiction of the Surface Transportation Board"
  • the Interstate Commerce Commission Termination Act of 1995 (“ICCTA”), which sets forth the Surface Transportation Act's jurisdiction, defines "rail carrier" as one "providing common carrier railroad transportation for compensation"
  • the Court adopted the common law definition of "common carrier" -- an entity holding itself out as offering transportation services to anyone willing to pay
  • the ICCTA defines "transportation" as equipment related to passenger or property of movement by rail and services relating to that movement
  • the Surface Transportation Board has jurisdiction over all rail carrier transportation
  • the statutory scheme should be construed broadly to cover employees who play different roles within the railway system
  • the statutory scheme must not be limited by the business operation models in use at the time of its passage.

Applying those definitions and principles to the facts at hand, the Court agreed with the Board that Herzog’s dispatching function was a necessary and integral part of the interstate operation and therefore was operation as a "rail carrier" subject to the Retirement Act. The Court distinguished the Board's earlier RAILTRAN decision. That decision involved the same rail lines at an earlier point in time and under a different operating structure. Dallas and Fort Worth co-owned the line, which was managed by a state agency. A railroad company conducted the freight and commuter operations and had operating and dispatching duties. Dallas and Fort Worth sought a declaratory judgment from the Board that a revised arrangement, under which they would contract with a third party to operate the commuter service and perform dispatching duties, would not make them employers under the acts. The Board concluded that it would not -- they would continue to be non-operating owners. The Court believed the RAILTRAN was consistent with the Board's decision here. In both cases, the non-operating owner (Dallas and Fort Worth in RAILTRAN -- the Transportation Authorities in this case) was found not to be an employer. In RAILTRAN, the employer status of the entity conducting the dispatching operations (i.e., the analog to Herzog) was not at issue.

Judge Sykes dissented. She took no issue with the history or the definitions relied upon by the majority. She concluded, however, that providers of subsidiary services such as dispatching are not "common carriers" since they did not hold themselves out as providing rail service to the public. Judge Sykes believed that RAILTRAN was directly on point and supported her conclusion. According to her analysis, RAILTRAN held that the non-operating owner would not become an "employer" if it assumed interstate dispatching functions or contracted with someone to do so. If the Transportation Authorities would not become "employers" if they took over the dispatching function, judge Sykes concluded that Herzog did not become an employer when it contracted with them to do that very same task.