Reed v. Railroad Retirement Board

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 12, 1998 Decided June 9, 1998

No. 97-1610

Stuart M. Reed,

Petitioner

v.

Railroad Retirement Board,

Respondent

On Petition for Review of an Order of the

United States Railroad Retirement Board

Jacqueline R. Scott argued the cause and filed the briefs

for petitioner.

Arthur A. Arfa, General Attorney, Railroad Retirement

Board, argued the cause for respondent, with whom Cather-

ine C. Cook, General Counsel, and Steven A. Bartholow,

Deputy General Counsel, were on the brief.

Before: Wald, Tatel and Garland, Circuit Judges.

Opinion for the court filed Per Curiam.

Per Curiam: Former Conrail President Stuart M. Reed

petitions for review of a decision by the Railroad Retirement

Board declaring him ineligible for railroad retirement bene-

fits. We deny the petition because substantial evidence sup-

ports the Board's determination that Reed terminated his

employment with Conrail more than a year short of the ten

years necessary to qualify for such benefits.

Under section 2(a)(1) of the Railroad Retirement Act, an

individual must have "ten years of service" to be eligible for

retirement benefits. 45 U.S.C. s 231a(a)(1). Section 3(i)(4)

of the Act provides that "an individual shall not be deemed

... to have rendered service for compensation in any month

in which such individual was [not] in an employment relation

to one or more [covered] employers...." 45 U.S.C.

s 231b(i)(4). And section 204.5 of the Board's regulations

provides that "an employment relation ... ceases after an

individual has resigned or relinquished his or her rights to

return to the service of [the] employer." 20 C.F.R s 204.5.

On December 30, 1987, Reed entered into an agreement

under which he resigned effective the next day as President,

Chief Operating Officer, and Director of Conrail. Pursuant

to the agreement, Conrail agreed to pay Reed $1.2 million in

exchange for a general release of Reed's claims against the

railroad, and also agreed that Reed would participate in

Conrail's Management Incentive Compensation Plan "for the

calendar year 1987, ... with the amount and timing of any

bonus to be received by Mr. Reed thereunder to be deter-

mined in accordance with the terms of that Plan." Conrail

paid Reed $1,288,763 in 1988 and $75,115 in 1989. The

payments were administered through Conrail's payroll sys-

tem, and Conrail sent Reed IRS Form W-2 wage and tax

statements for those years.

The Board held that the December 1987 agreement termi-

nated Reed's employment relationship with Conrail, and that

the subsequent payments were the separation allowances

contemplated by the agreement. Reed contends that al-

though he resigned as President, Chief Operating Officer, and

Director, he remained an "employee"; that the payments

were for "holding himself available" to advise Conrail in 1988

and 1989; and that those years should therefore be counted

toward the ten-year requirement.

This is Mr. Reed's second trip to this court. We granted

his previous petition for review and remanded to the Board to

explain how its conclusion that Reed had terminated his

employment in December 1987 was consistent with the fact

that the payments he received over the next two years were

distributed through Conrail's payroll system. See Reed v.

Railroad Retirement Bd., No. 96-1117 (D.C. Cir. Jan. 27,

1997). Remand was required because the Board had failed to

address the Railroad Retirement Act's presumption that a

"payment made by an employer to an individual through the

employer's payroll shall be presumed, in the absence of

evidence to the contrary, to be compensation for service

rendered by such individual as an employee of the employer

in the period with respect to which the payment is made," 45

U.S.C. s 231(h)(1) (emphasis added). We also ordered the

Board to explain how Reed's case differed from that of

Illinois Central Gulf, Railroad Retirement Board, Legal Op.

89-80 (June 22, 1989), in which the Board credited as employ-

ment service the period during which individuals received

"dismissal" payments.

On remand, the Board explained that the statutory pre-

sumption had been rebutted by "evidence to the contrary"--

namely, the 1987 agreement under which, according to the

Board's interpretation, Reed resigned before he received the

payments in question. Illinois Central Gulf was different,

the Board said, because in that case the employees agreed to

resign at the end of the period during which their dismissal

payments were to be made. We find these explanations

adequate to satisfy the requirement of reasoned decisionmak-

ing.

We review decisions of the Board for substantial evidence

in the record and for errors of law. See Andrews v. Railroad

Retirement Bd., 595 F.2d 676, 681 & n.59 (D.C. Cir. 1978); 45

U.S.C. s 231g; 45 U.S.C. s 355(f). Moreover, we apply a

Chevron 1 analysis when reviewing an agency's interpretation

of a contract. See National Fuel Gas Supply Corp. v. FERC,

811 F.2d 1563, 1569 (D.C. Cir. 1987). Thus, if the intent of

the parties is clearly expressed in the document, that intent

must prevail. See id. at 1572. If the contractual language is

ambiguous, however, we will defer to an agency's reasonable

interpretation. See id.

Under these deferential standards, we uphold the Board's

conclusion that Reed had no employment relationship with

Conrail after December 1987. The agreement stated that

Reed was "an employee, officer and director of Conrail" and

that he wished "to resign all such positions with Conrail."

The specific resignation clause provided that "[e]ffective at

the close of business on December 31, 1987," Reed "resigns

from employment as President and Chief Operating Officer of

Conrail and as a member of Conrail's Board of Directors."

Although the resignation clause did not repeat that Reed also

was resigning as an "employee," there is nothing to suggest

that Reed's prior status as an "employee" was based on

anything other than his positions as officer and director. To

the contrary, a subsequent paragraph of the agreement noted

that Reed "was asked to and agreed to resign from his

positions with Conrail" (emphasis added). Nor is there

anything in the agreement to suggest that Reed would re-

ceive any new position, "hold himself available" to advise

Conrail, or otherwise perform any future services. The ab-

sence of such indications is particularly significant given the

agreement's integration clause, which stated that "[t]his

agreement and Exhibit A attached hereto [the general re-

lease] contain the entire agreement between the parties here-

to and supersede any and all prior or contemporaneous

agreements between the parties."

Other sections of the agreement to which Reed points do

not counsel a different interpretation. Although the agree-

__________

1 See Chevron U.S.A. Inc. v. Natural Resources Defense Coun-

cil, Inc., 467 U.S. 837 (1984).

ment did provide that Reed's life insurance and medical

benefits would be made available to him "as if his employ-

ment were continuous from February 10, 1979 through July

31, 1990" (emphasis added), the subjunctive mood of the

emphasized language indicates the signers' understanding

that Reed's employment would not actually be continuous for

that period. And while the agreement also included a "non-

competition" clause barring Reed from employment with one

of Conrail's competitors through July 1990, that hardly evi-

dences an understanding that Reed would be employed with

Conrail during that time. Employers commonly use such

clauses in an effort to restrict their employees' post-

employment activities. See, e.g., Smith, Bucklin & Assocs.,

Inc. v. Sonntag, 83 F.3d 476, 478 (D.C. Cir. 1996); Group

Ass'n Plans, Inc. v. Colquhoun, 466 F.2d 469, 470 (D.C. Cir.

1972). In sum, even were we to view the agreement's lan-

guage as ambiguous, we would uphold the agency's interpre-

tation not only as a reasonable reading, but as the most

reasonable reading of the contract.

The extrinsic evidence of subsequent conduct offered by

Reed is not at variance with this reasonable interpretation of

the contract's language. The fact that Conrail reported its

1988 and 1989 payments to Reed on W-2 forms for those

years is not necessarily inconsistent with the view that he

resigned on December 31, 1987. Indeed, the best explanation

for the payments is that they constituted the payout of the

$1.2 million, which the agreement made clear was "in ex-

change for the General Release" entered into in December

1987, plus the promised bonus for work performed during

1987. Conrail may well have believed that since those pay-

ments were attributable to a year in which Reed was an

employee, they should be reported on W-2 forms in the year

in which they were paid, even though by that time Reed was

no longer employed.2

__________

2 See 26 C.F.R. s 31.3401(a)-(1)(a)(5) (IRS regulation providing

that "[r]emuneration for services ... constitutes wages even though

at the time paid the relationship of employer and employee no

longer exists"). Moreover, although Reed correctly points out that

the current Instructions for Form W-2 indicate that it is to be used

by employers "to report their employees' wages," 1997 Instructions

for Form W-2, at 4, Conrail may have believed that both the

While counsel for Reed does not dispute that the amount

over $1.2 million represented bonus payments, she contends

that it represented bonuses for work Reed performed in 1988

and 1989. Yet, there is no mention in the agreement of any

contemplated bonuses other than those attributable to "calen-

dar year 1987," and no mention of other amounts to be paid

Reed for any other services. There also are no time or

attendance records, or any other documentation to support a

claim that Reed performed work in 1988 or 1989, or that he

was paid for work performed in those years. Even counsel's

own submission to the Board referred to the payments mere-

ly as bonuses "which ... could not be paid until 1989"--

without indicating the work year with which they were associ-

ated. Counsel's "could not be paid until 1989" characteriza-

tion is consistent with the agreement's declaration that "the

amount and timing" of the 1987 bonus were left for future

determination.

Finally, we reject Reed's contention that the Board abused

its discretion in reopening his case after a favorable decision

by a hearings officer. The applicable Board Order permits

the Board to reopen a decision without time limit when the

underlying certification of eligibility for benefits is erroneous.

See Railroad Retirement Board Order 75-5, s 17 (Apr. 12,

1988); see also 20 C.F.R. s 260.9(g) ("The Board may, on its

own motion, review ... any decision issued by a subordinate

official or employee...."). Reed's argument that the Board

had discretion not to reopen his case fails to establish that the

Board abused its discretion by taking the other path.

The petition for review is denied.

__________

release payment and the bonus payments constituted wages for tax

reporting purposes. See 26 C.F.R. s 31.3401 (a)-(1)(b)(4) ("Any

payments made by an employer to an employee on account of

dismissal, that is, involuntary separation from the service of the

employer, constitutes wages...."); id. s 31.3401(a)-(1)(a)(2) ("bo-

nuses ... are wages within the meaning of the statute"). In

concluding that the reporting of these items on W-2 forms is not

necessarily inconsistent with the Board's interpretation of the con-

tract, we need not determine whether Conrail's treatment was

correct under the Internal Revenue Code or IRS regulations.