 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued February 21, 2013                Decided April 9, 2013

                        No. 12-1150

              INDIANA BOXCAR CORPORATION,
                       PETITIONER

                             v.

              RAILROAD RETIREMENT BOARD,
                     RESPONDENT


            On Petition for Review of a Decision
             of the Railroad Retirement Board


        John D. Heffner argued the cause and filed the briefs
for petitioner.

       Ronald A. Lane argued the cause for amici curiae
American Short Line and Regional Railroad Association in
support of petitioner. With him on the brief was Keith T.
Borman.

        Kelli D. Johnson, General Attorney, Railroad
Retirement Board, argued the cause for respondent. With her
on the brief was Karl T. Blank, General Counsel.

   Before: BROWN and KAVANAUGH, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
                             2

    Opinion for the Court filed by Circuit Judge KAVANAUGH.

     KAVANAUGH, Circuit Judge:               Indiana Boxcar
Corporation is a parent holding company that owns several
railroad subsidiaries. Recently, the Railroad Retirement
Board determined that Indiana Boxcar is an “employer” for
purposes of the Railroad Retirement Act and the Railroad
Unemployment Insurance Act, two statutes that protect retired
and unemployed rail workers. The Board’s determination
will subject Indiana Boxcar to additional tax liability.

     To be an employer under those two Acts, a company such
as Indiana Boxcar – which is not itself a railroad – must be
“under common control” with a railroad. 45 U.S.C. §§ 231,
351. Before this case, the Board repeatedly held that parent
corporations like Indiana Boxcar are not under common
control with their railroad subsidiaries.      Under Board
precedent, in other words, the term “common control” does
not usually apply to two companies in a parent-subsidiary
relationship. Here, however, the Board did not adhere to that
precedent and did not reasonably explain and justify its
deviation from its precedent. Therefore, the Board’s decision
was arbitrary and capricious under the Administrative
Procedure Act. We vacate and remand to the Board.

                              I

     Indiana Boxcar Corporation is a holding company that
owns several railroads. Although Indiana Boxcar is in the
railroad business, Indiana Boxcar is not itself a railroad.

     Indiana Boxcar is owned by R. Powell Felix, who is also
its president, and his wife, Sandra M. Felix. As of 2008,
Indiana Boxcar had two employees: Mr. Felix and his
daughter, Kesha Felix Lainhart. Between 1999 and 2008,
                               3
Indiana Boxcar owned four railroads outright and owned an
interest in or managed other railroads. Felix is or has been the
president of each railroad that Indiana Boxcar owns.

    In 2008, the Railroad Retirement Board determined that
Indiana Boxcar is an “employer” for purposes of the Railroad
Retirement Act and the Railroad Unemployment Insurance
Act, two statutes designed to aid retired and unemployed rail
workers. That finding means that Indiana Boxcar will have to
pay additional taxes.

    Railroad carriers – that is, railroads themselves – are
employers under the Acts. Alternatively, a company is
considered an employer if it (i) is “under common control”
with a railroad and (ii) “performs any service . . . in
connection with” railroad transportation. 45 U.S.C. §§ 231,
351. Although Indiana Boxcar is not a railroad carrier, the
Board found that Indiana Boxcar satisfied the alternative
definition of an “employer” under the Acts.

     The Board found that both Indiana Boxcar and its
railroad subsidiaries were under the “common control” of
Felix. Because Felix owned Indiana Boxcar and was
president of both Indiana Boxcar and each of the railroads,
Felix controlled all of the relevant entities. Hence, Indiana
Boxcar and the railroads were under shared, or “common,”
control.

     The Board also found that Indiana Boxcar satisfied the
second prong of the alternative test. The Board concluded
that Indiana Boxcar performed services “in connection with”
railroad transportation, because Indiana Boxcar performed
various management services for each of its railroad affiliates.
Indiana Boxcar was thus deemed an employer under the Acts.
                              4
     After the Board upheld those determinations in a decision
on reconsideration, Indiana Boxcar petitioned for review in
this Court.

                              II

    The Administrative Procedure Act requires that agency
decisionmaking be both reasonable and reasonably explained.
See Motor Vehicle Manufacturers Assn. v. State Farm Mutual
Auto. Insurance Co., 463 U.S. 29, 57 (1983); 5 U.S.C.
§ 706(2)(A). An agency acts unreasonably for purposes of
the APA when, for example, it departs from its past precedent
without reasonably explaining and justifying the departure.
See FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515
(2009).

     In this case, the Railroad Retirement Board determined
that Indiana Boxcar – a parent company that owned several
railroad subsidiaries – was an “employer” under the Railroad
Retirement Act and the Railroad Unemployment Insurance
Act. To satisfy the definition of an “employer” under those
Acts, the Board initially determined that Indiana Boxcar was
“under common control” with its railroad subsidiaries. 45
U.S.C. §§ 231, 351.

     Indiana Boxcar argues that the Board’s “under common
control” determination conflicts with Board precedent. We
agree with Indiana Boxcar. Until now, the Board used the
definition of “common control” found in Union Pacific, a
Federal Circuit case. Union Pacific Corp. v. United States, 5
F.3d 523 (Fed. Cir. 1993); see, e.g., Mississippi Tennessee
Railroad, LLC, B.C.D. 04-16 (2004) (adopting and applying
the holding of Union Pacific); Delaware Otsego Corp.,
B.C.D. 03-84 (2003) (same); North American Railnet, Inc.,
B.C.D. 97-49 (1997) (same). In Union Pacific, the court held
that the term “‘under common control’ does not usually apply
                              5
to two companies in a parent-subsidiary relationship.” Union
Pacific Corp., 5 F.3d at 525. Rather, the term most naturally
applies to companies “occupying parallel positions as
subsidiaries” – or siblings – “controlled by a common parent.”
Id. at 526. The court added that “shared leaders” alone “do
not subject” two “corporate entities to ‘common control,’”
because officers ultimately owe their allegiance to
shareholders or corporate owners. Id. at 526-27.

     Since Union Pacific, the Board has consistently applied
that case’s reasoning in determining who qualifies as an
“employer” under the Railroad Retirement Act and the
Railroad Unemployment Insurance Act. The Board has
applied Union Pacific both to public companies like Union
Pacific, where ownership and control are diffuse, and to
privately held companies, where control is more concentrated.
For example, in Delaware Otsego, the Board found that a
privately owned holding company and its subsidiary were not
under common control even though control over the parent
and the subsidiary was concentrated in one person. There,
one individual was majority owner of the holding company,
the holding company owned a railroad subsidiary, and the
majority owner of the holding company was president of the
subsidiary. See Delaware Otsego Corp., B.C.D. 03-84, at 5.
In Mississippi Tennessee Railroad, the Board reaffirmed that
Union Pacific applies and precludes a finding of “common
control” even when a parent company is “privately held by
two individuals rather than publicly owned.” Mississippi
Tennessee Railroad, LLC, B.C.D. 04-16, at 2.

    There is no legally significant distinction between
Indiana Boxcar and the companies at issue in previous Board
decisions. As in Delaware Otsego, one person both owns the
parent company and serves as president of each railroad
subsidiary. As in Mississippi Tennessee Railroad, Indiana
                               6
Boxcar is a privately owned, closely held company. But here,
the Board nonetheless held that the parent company and the
railroad subsidiaries were under common control.

    The Board attempted to account for its shift by explaining
that Union Pacific applies primarily to publicly traded
companies where ownership is “diffuse.” Indiana Boxcar
Corp., B.C.D. 12-3, at 6 (2012). By contrast, according to the
Board, Union Pacific does not apply to “closely held
corporate structures where control of the parent company and
subsidiary carrier(s) is clearly concentrated in a few
individuals.”    Id. (parentheses in original).      But both
Delaware Otsego and Mississippi Tennessee Railroad
involved closely held private corporations. And in each case,
control was “clearly concentrated in a few individuals.” So
the distinction between publicly traded and privately held
companies does not justify the Board’s failure to follow
precedent.

    Because the Board departed from its precedent and did
not offer sufficient explanation and justification for doing so,
its decision was arbitrary and capricious under the
Administrative Procedure Act. We therefore vacate and
remand to the Board.

                                                    So ordered.
