MEMORANDUM
TO: Members, Subcommittee on Railroads
FROM: Hon. Steve LaTourette, Chairman
SUBJECT: Hearing on Current Governance Issues at Amtrak
Tuesday, November 15, 2005, 10:00 A.M.
Room 2325, Rayburn House Office Building
PURPOSE
The purpose of this hearing will be to allow the Subcommittee to explore
governance at Amtrak, including the relationship between the board of
directors and the chief executive officer.
BACKGROUND
1. Disputed Tenure of Current Board Members
The Amtrak Reform and Accountability Act of 1997 (ARAA), Public Law
105-134, substantially altered Amtrak's corporate governance and structure.
Among other changes, a new structure with new personnel were required for
the Amtrak board of directors. Continuing from prior law were two
fundamental features: that Amtrak is not a department, agency, or
instrumentality of the U.S. government [49 U.S.C. 24301(a)(3)] and that, to
the extent consistent with the federal statute, Amtrak is a District of
Columbia corporation governed by the D.C. Business Corporation Act [49
U.S.C. 24301(e)].
The ARAA required a new "Reform Board" of directors to be appointed, as set
forth in Section 24302 of Title 49. The new board was to "consist of
voting members appointed by the President, by and with the advice and
consent of the Senate, for a term of 5 years." [49 U.S.C. 24302(a)(2)(i).]
Of the seven seats, the President could install the Secretary of
Transportation in one as a presidential option without further
confirmation. [49 U.S.C. 24302(a)(2)(ii)]
President Clinton nominated 6 persons for regular Senate confirmation, and
the then-Secretary of Transportation as the seventh member, for 5-year
terms. (The Amtrak statute contains no "holdover" clause allowing
presidentially appointed board members to serve beyond their tenure until a
successor is confirmed.) The termination dates of the original Reform
Board appointees ranged from June 25, 2003 (4 directors) to September 25,
2003 (2 directors) to August 4, 2004 (1 director).
The pivotal statutory feature was that only one round of presidential
appointments was guaranteed by the ARAA. In Section 24302(h), Congress
specified that 5 years after the appointment of the original Reform Board,
one of two alternatives would apply. If in FY2003, Amtrak was receiving no
federal funds, the Reform Board was to adopt bylaws for shareholder elected
directors. On the other hand, if in FY2003, Amtrak was still receiving
federal funds, a repetition of the presidential appointment paradigm was
required.
During the 5-year tenure of the initial Reform Board, two directors
resigned and were replaced by President Bush. Department of Transportation
(DOT) Secretary Slater was replaced by Secretary Mineta, and Governor Tommy
Thompson was replaced by David M. Laney. Since that time, and reportedly
in the correspondence with the Senate on Mr. Laney, the Administration
asserted that both the DOT Secretary and Mr. Laney were receiving full
5-year terms, even though nearly half of the original terms had already
run.
This leads to the current disputed status of the board, which in turn
affects whether the board has a quorum with legal authority to enter into
legally valid transactions. In order to give effect to all provisions of
the ARAA provisions specifying that in FY2003, including the possibility
that the presidentially appointed directors were to be replaced by
shareholder-elected directors, the conferring of new five-year terms on
mid-term appointees is arguably a legal impossibility, because that would
allow any President during the initial Reform Board's tenure to nullify the
FY2003 ARAA alternatives by simply "churning" the board with new
appointments. If this analysis is correct, then Secretary Mineta and Mr.
Laney have not been actual board members since June 25, 2003. The
Secretary could be-but apparently has not been-reinstalled with another
summary appointment, but Mr. Laney would have to be renominated and
reconfirmed by the Senate.
DOT and Amtrak, in response to a request at the Subcommittee's recent
Amtrak reform hearing, filed legal memoranda in the hearing record on the
various legal issues affecting the board's status. Both argue that the
principal rationale for board members Mineta and Laney receiving new
five-year terms is that the ARAA, unlike prior law, does not specify that
midterm appointees serve only the remainder of the already running term.
(This of course begs the question of the structural feature of the statute
concerning FY2003 noted above. Given that structure, repeating the pre-1997
language would have been superfluous.)
By the spring of 2004, only one of the seven original Reform Board
appointees remained in office. Since four of seven directors had left by
the fall of 2003, there was a substantial period of time during which
Amtrak did not have a quorum by the Administration and Amtrak's standard
(four members per the Amtrak bylaws) or the articles of incorporation (five
members). The quorum issue, not dealt with by current federal law, is
discussed below.
In April and August 2004, respectively, President Bush announced the recess
appointment of two new directors, Enrique Sosa and Floyd Hall. In addition
to the inherent termination of even a valid recess appointment at the end
of the "next session" of the Senate under Article II, Section 2, Clause 3
of the Constitution, there are also issues about the validity of any recess
appointment to the Amtrak board. As noted earlier, by federal law, Amtrak
is not part of the federal government. But the recess appointment power
addresses on its face the filling of vacancies among "Officers of the
United States." Thus it is arguable that neither of the two recess
appointees is a validly appointed Amtrak board member. It appears that in
the entire prior history of Amtrak, only one recess appointment was made by
President Reagan, and no quorum issue or other challenge to the validity of
the appointment was raised.
The Administration has submitted pending nominations only for the permanent
appointment of Messrs. Sosa and Hall, whose recess appointments (if valid)
expire when the Senate adjourns at the end of its 2005 session. There has
been no renomination of Mr. Laney and apparently no reappointment of
Secretary Mineta.
2. Does Amtrak have a quorum for a functioning board of directors?
The number of validly serving directors is of crucial importance to the
validity of various transactions. The federal statute sets no quorum
standard for the Amtrak board, so the issue is therefore governed by the
D.C. Business Corporation Act pursuant to 49 U.S.C. 24301(e). That Act
[sec. 29-101.36 (2003)] specifies that a " majority of the number of
directors fixed by the bylaws or in the absence of a bylaw fixing the
number of directors, then of a number stated in the articles of
incorporation, shall constitute a quorum for the transaction of business
unless a higher number is required by the articles of incorporation or the
bylaws [emphasis added]." Although convoluted, this seems to say that the
higher number, whether in the bylaws or articles, controls.
Less opaque is the general rule in the D.C. Business Corporation Act-that
"[w]henever a provision of the articles of incorporation is inconsistent
with a bylaw, the provision of the articles of incorporation shall be
controlling." [section 29-101.47b) This is logically consistent with the
principle that the articles of incorporation, the company's constitutional
document (amendable only with consent of two-thirds of the voting shares)
must prevail over mere bylaws, which can be amended by a quorum of the
board of directors with no shareholder participation. Since the Amtrak
conflict is between articles that specify a quorum of five directors and a
bylaw that requires merely a majority of voting positions for a quorum, the
former seems likely prevail.
In Amtrak's case, the bylaws (necessarily adopted later) contradict the
articles of incorporation on this point. The articles state categorically
that five members are required for a quorum [section 7.01], while the
bylaws set the standard as a majority of the directors with voting
powers--which would be four under the current seven-seat structure of the
board [section 4.08]. Under the D.C. statute, even a fully constituted
board cannot amend the articles of incorporation without the consent of
two-thirds of the shareholders entitled to vote. [sec. 29-101.54] The DOT
preferred stock no longer has any voting rights, pursuant to Section 415©
of the ARAA. The common stock-which, Amtrak acknowledges, reacquired its
voting rights upon enactment of the ARAA-is held by four private sector
corporations-American Premier Underwriters Inc., Burlington Northern Santa
Fe Railway, Canadian Pacific Railway, and Canadian National Railway. Given
the current distribution of stock ownership, only a combination of the
first two listed shareholders would suffice to create the required
two-thirds majority for amendment of the articles of incorporation.
The legal memoranda submitted by DOT and Amtrak cite Section 29-101.36 of
the D.C. statute and assert that a quorum is a majority of the directors
"prescribed in the applicable governing document," which in turn is claimed
to be four of seven directors, without further explanation.
3. If a quorum is lacking, may an executive committee validly
govern the corporation?
If the membership of the Amtrak board falls below the quorum standard
(whether four or five) as it did for some months during 2003-2004 and (even
by the DOT/Amtrak count) will again when the current recess appointments
(if valid) expire, Amtrak and DOT contend in their legal memoranda that the
board may "delegate all its powers" to an "executive committee" of two or
more directors, citing Section 29-101.37 of the D.C. Business Corporation
Act.
In April 2003, the Amtrak board (which had an undisputed quorum at that
point) first authorized the creation of executive committees by amending
the bylaws with a new Section 5.01, setting the minimum size of such a
committee at three directors (two being the statutory minimum under Section
29-101.37 of the D.C. statute). The April 2003 version of this provision
qualified the delegation of powers to any executive committee by stating
that it must be "consistent with applicable law" and that the committee's
exercise of corporate powers was merely "in between meetings of the Board
of Directors."
Analytically, the claim that any executive committee can act indefinitely
as an alter ego for a quorumless board is questionable. If correct, this
would allow any corporate board to negate any and all quorum requirements
for legally valid action merely by delegating all powers to a small
executive committee. The D.C. statute specifies that any delegation of
authority to an executive committee "shall not operate to relieve the board
of directors, or any member thereof, of any responsibility imposed upon it
or him by law." [section 29-1101.37]
Assuming the validity of such a total and indefinite delegation, the
executive committee in question must be governed by the bylaw authorizing
it. As noted, the minimum membership for an executive committee
established in the Amtrak bylaws in April 2003 was 3 directors. As noted
in the Amtrak and DOT memoranda, the putative Amtrak board further amended
the bylaws in September 2003 to reduce this standard to two directors, the
statutory minimum. [section 5.01, Amtrak bylaws]. The putative amendment
also deleted the phrase limiting the exercise of corporate powers by an
executive committee to the time "in between meetings of the board."
The validity of this action, however, obviously depends on the existence of
a quorum at that time. If, as noted earlier, the Amtrak board actually
ceased to have a required quorum in June 2003 when four of seven directors
arguably lost their tenure, then there was no board quorum capable of
validly amending the bylaws in September, and Amtrak's governance rested
entirely on the "executive committee" theory outlined above.
4. What kinds of Amtrak transactions are at risk of legal
invalidity if there is no quorum?
In March 2003, the Amtrak board (with an undisputed quorum) adopted and
published on the Amtrak website a "Statement of Policy Adopted by the
Amtrak Board of the Directors." In this document, the board publicly
announced limits on the authority of various subordinate officers, and
specified certain classes of transactions in which only the board could
validly bind the company. A few examples follow.
a. Labor Contracts
Article VIII, p. 12 of the Policy Statement specifies that "The President &
CEO and/or the Vice President-Labor Relations is authorized to execute
collective bargaining agreements after the Board has approved the pattern
collective bargaining agreement for a particular round of negotiations"
[emphasis added]. In the fall of 2003-after the board had arguably been
reduced to three or perhaps one member-Amtrak signed an initial or
"pattern" agreement with the Transportation Communications Union. Two or
more additional agreements have been signed since then.
b. Settlement of Legal Claims
Article VIII, p. 7 of the Policy Statement authorizes the President to
settle claims against Amtrak or against railroads indemnified by Amtrak
only up to $1 million. A Legal Affairs Committee may approve litigation
settlements up to $3 million. However, "Full Board consideration of
proposed settlements is required for settlements in excess of $3 million."
In February 2004, Amtrak settled litigation claims against Amtrak of around
$200 million arising from defects in the Acela high-speed locomotives; the
settlement involved reported cash payments of around $42 million. Even
using the board membership count claimed by the Administration and Amtrak,
the board had only three members as of that time, and may have had only
one.
c. Development of Amtrak Property
Article II, p. 8 of the Policy Statement states that "all development
projects-generally all transactions involving the use of the Corporation's
real property, including air rights, by a third party or a joint venture
between Amtrak and third parties for the purpose of a significant
commercial, industrial or residential development in which the Corporation
participates and receives a share of the revenue generated-shall be
presented to the Board for approval prior to execution." According to
recent press reports, Amtrak is currently considering bids in the hundreds
of millions of dollars to sell air rights over the Chicago Union Station
for construction of large office-residential towers.
d. Hiring or Firing of an Amtrak President/Chief Executive Officer
The relationship between the Amtrak board and the Chief Executive Officer
(CEO), unlike many other issues, is explicitly addressed in the federal
statutes as amended by the ARAA. First, the president of the company is an
ex officio nonvoting board member. [49 U.S.C. 24302(a)(2)(D)] Second,
"Amtrak has a President and other officers that are named and appointed by
the board of directors of Amtrak" [49 U.S.C. 24303(a)]. Third, under the
same provision, all such officers "serve at the pleasure of the board," and
each "must be a citizen of the United States."
The fact that federal law explicitly addresses this relationship
necessarily displaces any inconsistent provision of the District of
Columbia Business Corporation Act, pursuant to Section 24301(e). If the
Amtrak president and other officers must be "named and appointed by the
board," then any lack of a quorum for valid board action would seem to call
in question the legal capacity of any lesser group of directors to hire or
fire a CEO.
If Amtrak currently lacks a quorum of validly serving directors, then the
company faces the dilemma that it must comply with its own Board approval
procedures, but it lacks the legal wherewithal to amend or rescind those
procedures. In the case of the quorum requirement-if in fact governed by
the articles of incorporation, not the bylaws-any alteration to the quorum
standard would require a two-thirds majority consent of the voting
shareholders.
EXPECTED WITNESSES
Hon. Norman Mineta, Secretary of Transportation/Amtrak Board Member
Hon. David M. Laney, Chairman, Amtrak Board of Directors
Hon. Floyd Hall, Member, Amtrak Board of Directors
Hon. Enrique Sosa, Member, Amtrak Board of Directors
Mr. David Hughes, Acting President and CEO, Amtrak
Mr. David Gunn, Former President and CEO, Amtrak
TO: Members, Subcommittee on Railroads
FROM: Hon. Steve LaTourette, Chairman
SUBJECT: Hearing on Current Governance Issues at Amtrak
Tuesday, November 15, 2005, 10:00 A.M.
Room 2325, Rayburn House Office Building
PURPOSE
The purpose of this hearing will be to allow the Subcommittee to explore
governance at Amtrak, including the relationship between the board of
directors and the chief executive officer.
BACKGROUND
1. Disputed Tenure of Current Board Members
The Amtrak Reform and Accountability Act of 1997 (ARAA), Public Law
105-134, substantially altered Amtrak's corporate governance and structure.
Among other changes, a new structure with new personnel were required for
the Amtrak board of directors. Continuing from prior law were two
fundamental features: that Amtrak is not a department, agency, or
instrumentality of the U.S. government [49 U.S.C. 24301(a)(3)] and that, to
the extent consistent with the federal statute, Amtrak is a District of
Columbia corporation governed by the D.C. Business Corporation Act [49
U.S.C. 24301(e)].
The ARAA required a new "Reform Board" of directors to be appointed, as set
forth in Section 24302 of Title 49. The new board was to "consist of
voting members appointed by the President, by and with the advice and
consent of the Senate, for a term of 5 years." [49 U.S.C. 24302(a)(2)(i).]
Of the seven seats, the President could install the Secretary of
Transportation in one as a presidential option without further
confirmation. [49 U.S.C. 24302(a)(2)(ii)]
President Clinton nominated 6 persons for regular Senate confirmation, and
the then-Secretary of Transportation as the seventh member, for 5-year
terms. (The Amtrak statute contains no "holdover" clause allowing
presidentially appointed board members to serve beyond their tenure until a
successor is confirmed.) The termination dates of the original Reform
Board appointees ranged from June 25, 2003 (4 directors) to September 25,
2003 (2 directors) to August 4, 2004 (1 director).
The pivotal statutory feature was that only one round of presidential
appointments was guaranteed by the ARAA. In Section 24302(h), Congress
specified that 5 years after the appointment of the original Reform Board,
one of two alternatives would apply. If in FY2003, Amtrak was receiving no
federal funds, the Reform Board was to adopt bylaws for shareholder elected
directors. On the other hand, if in FY2003, Amtrak was still receiving
federal funds, a repetition of the presidential appointment paradigm was
required.
During the 5-year tenure of the initial Reform Board, two directors
resigned and were replaced by President Bush. Department of Transportation
(DOT) Secretary Slater was replaced by Secretary Mineta, and Governor Tommy
Thompson was replaced by David M. Laney. Since that time, and reportedly
in the correspondence with the Senate on Mr. Laney, the Administration
asserted that both the DOT Secretary and Mr. Laney were receiving full
5-year terms, even though nearly half of the original terms had already
run.
This leads to the current disputed status of the board, which in turn
affects whether the board has a quorum with legal authority to enter into
legally valid transactions. In order to give effect to all provisions of
the ARAA provisions specifying that in FY2003, including the possibility
that the presidentially appointed directors were to be replaced by
shareholder-elected directors, the conferring of new five-year terms on
mid-term appointees is arguably a legal impossibility, because that would
allow any President during the initial Reform Board's tenure to nullify the
FY2003 ARAA alternatives by simply "churning" the board with new
appointments. If this analysis is correct, then Secretary Mineta and Mr.
Laney have not been actual board members since June 25, 2003. The
Secretary could be-but apparently has not been-reinstalled with another
summary appointment, but Mr. Laney would have to be renominated and
reconfirmed by the Senate.
DOT and Amtrak, in response to a request at the Subcommittee's recent
Amtrak reform hearing, filed legal memoranda in the hearing record on the
various legal issues affecting the board's status. Both argue that the
principal rationale for board members Mineta and Laney receiving new
five-year terms is that the ARAA, unlike prior law, does not specify that
midterm appointees serve only the remainder of the already running term.
(This of course begs the question of the structural feature of the statute
concerning FY2003 noted above. Given that structure, repeating the pre-1997
language would have been superfluous.)
By the spring of 2004, only one of the seven original Reform Board
appointees remained in office. Since four of seven directors had left by
the fall of 2003, there was a substantial period of time during which
Amtrak did not have a quorum by the Administration and Amtrak's standard
(four members per the Amtrak bylaws) or the articles of incorporation (five
members). The quorum issue, not dealt with by current federal law, is
discussed below.
In April and August 2004, respectively, President Bush announced the recess
appointment of two new directors, Enrique Sosa and Floyd Hall. In addition
to the inherent termination of even a valid recess appointment at the end
of the "next session" of the Senate under Article II, Section 2, Clause 3
of the Constitution, there are also issues about the validity of any recess
appointment to the Amtrak board. As noted earlier, by federal law, Amtrak
is not part of the federal government. But the recess appointment power
addresses on its face the filling of vacancies among "Officers of the
United States." Thus it is arguable that neither of the two recess
appointees is a validly appointed Amtrak board member. It appears that in
the entire prior history of Amtrak, only one recess appointment was made by
President Reagan, and no quorum issue or other challenge to the validity of
the appointment was raised.
The Administration has submitted pending nominations only for the permanent
appointment of Messrs. Sosa and Hall, whose recess appointments (if valid)
expire when the Senate adjourns at the end of its 2005 session. There has
been no renomination of Mr. Laney and apparently no reappointment of
Secretary Mineta.
2. Does Amtrak have a quorum for a functioning board of directors?
The number of validly serving directors is of crucial importance to the
validity of various transactions. The federal statute sets no quorum
standard for the Amtrak board, so the issue is therefore governed by the
D.C. Business Corporation Act pursuant to 49 U.S.C. 24301(e). That Act
[sec. 29-101.36 (2003)] specifies that a " majority of the number of
directors fixed by the bylaws or in the absence of a bylaw fixing the
number of directors, then of a number stated in the articles of
incorporation, shall constitute a quorum for the transaction of business
unless a higher number is required by the articles of incorporation or the
bylaws [emphasis added]." Although convoluted, this seems to say that the
higher number, whether in the bylaws or articles, controls.
Less opaque is the general rule in the D.C. Business Corporation Act-that
"[w]henever a provision of the articles of incorporation is inconsistent
with a bylaw, the provision of the articles of incorporation shall be
controlling." [section 29-101.47b) This is logically consistent with the
principle that the articles of incorporation, the company's constitutional
document (amendable only with consent of two-thirds of the voting shares)
must prevail over mere bylaws, which can be amended by a quorum of the
board of directors with no shareholder participation. Since the Amtrak
conflict is between articles that specify a quorum of five directors and a
bylaw that requires merely a majority of voting positions for a quorum, the
former seems likely prevail.
In Amtrak's case, the bylaws (necessarily adopted later) contradict the
articles of incorporation on this point. The articles state categorically
that five members are required for a quorum [section 7.01], while the
bylaws set the standard as a majority of the directors with voting
powers--which would be four under the current seven-seat structure of the
board [section 4.08]. Under the D.C. statute, even a fully constituted
board cannot amend the articles of incorporation without the consent of
two-thirds of the shareholders entitled to vote. [sec. 29-101.54] The DOT
preferred stock no longer has any voting rights, pursuant to Section 415©
of the ARAA. The common stock-which, Amtrak acknowledges, reacquired its
voting rights upon enactment of the ARAA-is held by four private sector
corporations-American Premier Underwriters Inc., Burlington Northern Santa
Fe Railway, Canadian Pacific Railway, and Canadian National Railway. Given
the current distribution of stock ownership, only a combination of the
first two listed shareholders would suffice to create the required
two-thirds majority for amendment of the articles of incorporation.
The legal memoranda submitted by DOT and Amtrak cite Section 29-101.36 of
the D.C. statute and assert that a quorum is a majority of the directors
"prescribed in the applicable governing document," which in turn is claimed
to be four of seven directors, without further explanation.
3. If a quorum is lacking, may an executive committee validly
govern the corporation?
If the membership of the Amtrak board falls below the quorum standard
(whether four or five) as it did for some months during 2003-2004 and (even
by the DOT/Amtrak count) will again when the current recess appointments
(if valid) expire, Amtrak and DOT contend in their legal memoranda that the
board may "delegate all its powers" to an "executive committee" of two or
more directors, citing Section 29-101.37 of the D.C. Business Corporation
Act.
In April 2003, the Amtrak board (which had an undisputed quorum at that
point) first authorized the creation of executive committees by amending
the bylaws with a new Section 5.01, setting the minimum size of such a
committee at three directors (two being the statutory minimum under Section
29-101.37 of the D.C. statute). The April 2003 version of this provision
qualified the delegation of powers to any executive committee by stating
that it must be "consistent with applicable law" and that the committee's
exercise of corporate powers was merely "in between meetings of the Board
of Directors."
Analytically, the claim that any executive committee can act indefinitely
as an alter ego for a quorumless board is questionable. If correct, this
would allow any corporate board to negate any and all quorum requirements
for legally valid action merely by delegating all powers to a small
executive committee. The D.C. statute specifies that any delegation of
authority to an executive committee "shall not operate to relieve the board
of directors, or any member thereof, of any responsibility imposed upon it
or him by law." [section 29-1101.37]
Assuming the validity of such a total and indefinite delegation, the
executive committee in question must be governed by the bylaw authorizing
it. As noted, the minimum membership for an executive committee
established in the Amtrak bylaws in April 2003 was 3 directors. As noted
in the Amtrak and DOT memoranda, the putative Amtrak board further amended
the bylaws in September 2003 to reduce this standard to two directors, the
statutory minimum. [section 5.01, Amtrak bylaws]. The putative amendment
also deleted the phrase limiting the exercise of corporate powers by an
executive committee to the time "in between meetings of the board."
The validity of this action, however, obviously depends on the existence of
a quorum at that time. If, as noted earlier, the Amtrak board actually
ceased to have a required quorum in June 2003 when four of seven directors
arguably lost their tenure, then there was no board quorum capable of
validly amending the bylaws in September, and Amtrak's governance rested
entirely on the "executive committee" theory outlined above.
4. What kinds of Amtrak transactions are at risk of legal
invalidity if there is no quorum?
In March 2003, the Amtrak board (with an undisputed quorum) adopted and
published on the Amtrak website a "Statement of Policy Adopted by the
Amtrak Board of the Directors." In this document, the board publicly
announced limits on the authority of various subordinate officers, and
specified certain classes of transactions in which only the board could
validly bind the company. A few examples follow.
a. Labor Contracts
Article VIII, p. 12 of the Policy Statement specifies that "The President &
CEO and/or the Vice President-Labor Relations is authorized to execute
collective bargaining agreements after the Board has approved the pattern
collective bargaining agreement for a particular round of negotiations"
[emphasis added]. In the fall of 2003-after the board had arguably been
reduced to three or perhaps one member-Amtrak signed an initial or
"pattern" agreement with the Transportation Communications Union. Two or
more additional agreements have been signed since then.
b. Settlement of Legal Claims
Article VIII, p. 7 of the Policy Statement authorizes the President to
settle claims against Amtrak or against railroads indemnified by Amtrak
only up to $1 million. A Legal Affairs Committee may approve litigation
settlements up to $3 million. However, "Full Board consideration of
proposed settlements is required for settlements in excess of $3 million."
In February 2004, Amtrak settled litigation claims against Amtrak of around
$200 million arising from defects in the Acela high-speed locomotives; the
settlement involved reported cash payments of around $42 million. Even
using the board membership count claimed by the Administration and Amtrak,
the board had only three members as of that time, and may have had only
one.
c. Development of Amtrak Property
Article II, p. 8 of the Policy Statement states that "all development
projects-generally all transactions involving the use of the Corporation's
real property, including air rights, by a third party or a joint venture
between Amtrak and third parties for the purpose of a significant
commercial, industrial or residential development in which the Corporation
participates and receives a share of the revenue generated-shall be
presented to the Board for approval prior to execution." According to
recent press reports, Amtrak is currently considering bids in the hundreds
of millions of dollars to sell air rights over the Chicago Union Station
for construction of large office-residential towers.
d. Hiring or Firing of an Amtrak President/Chief Executive Officer
The relationship between the Amtrak board and the Chief Executive Officer
(CEO), unlike many other issues, is explicitly addressed in the federal
statutes as amended by the ARAA. First, the president of the company is an
ex officio nonvoting board member. [49 U.S.C. 24302(a)(2)(D)] Second,
"Amtrak has a President and other officers that are named and appointed by
the board of directors of Amtrak" [49 U.S.C. 24303(a)]. Third, under the
same provision, all such officers "serve at the pleasure of the board," and
each "must be a citizen of the United States."
The fact that federal law explicitly addresses this relationship
necessarily displaces any inconsistent provision of the District of
Columbia Business Corporation Act, pursuant to Section 24301(e). If the
Amtrak president and other officers must be "named and appointed by the
board," then any lack of a quorum for valid board action would seem to call
in question the legal capacity of any lesser group of directors to hire or
fire a CEO.
If Amtrak currently lacks a quorum of validly serving directors, then the
company faces the dilemma that it must comply with its own Board approval
procedures, but it lacks the legal wherewithal to amend or rescind those
procedures. In the case of the quorum requirement-if in fact governed by
the articles of incorporation, not the bylaws-any alteration to the quorum
standard would require a two-thirds majority consent of the voting
shareholders.
EXPECTED WITNESSES
Hon. Norman Mineta, Secretary of Transportation/Amtrak Board Member
Hon. David M. Laney, Chairman, Amtrak Board of Directors
Hon. Floyd Hall, Member, Amtrak Board of Directors
Hon. Enrique Sosa, Member, Amtrak Board of Directors
Mr. David Hughes, Acting President and CEO, Amtrak
Mr. David Gunn, Former President and CEO, Amtrak
