House explores actions of Amtrak board WASHINGTON -- The vote by the Amtrak board of directors to fire the railroad's president, David L. Gunn, has created intense interest in Congress in the board itself, which some legal experts say has been operating for years using untested legal principles, according to this report by Matthew L. Wald published by the New York Times.
The concerns come as the board faces new questions about its future.
For the second time in recent history, it may soon lack a quorum. Only four of the board's seven seats are filled, and some directors who have served recently may not have been properly appointed under a 1997 law meant to reform the railroad, said Representative Steven C. LaTourette, Republican of Ohio, chairman of the railroad subcommittee of the House Transportation and Infrastructure Committee.
In addition, one of the railroad's shareholders believes that changes the board is making in Amtrak's structure cannot be completed without consultation with the holders of common stock.
Mr. LaTourette said that at a meeting two weeks ago, David M. Laney, the chairman of the Amtrak board, provided a written response to questions about the board's composition. "But I have more questions after reading it," Mr. LaTourette said. If the board is not properly constituted, he said, it cannot conduct business.
"You don't want to have, compounding its well-documented financial difficulties, Amtrak entering into contracts and agreements illegally," he said. "That would be disturbing."
Mr. LaTourette has scheduled a hearing for Tuesday on the governance issues and on Mr. Gunn's dismissal.
Of the four current board members, only Mr. Laney was confirmed by the Senate for the job. Two of the appointees, Enrique Sosa and Floyd Hall, were recess appointments put in place by President Bush under Article 2 of the Constitution, which allows the president to name people to fill vacancies that occur when Congress is out of session.
Such appointees serve only until the end of the Congressional session, meaning that Mr. Sosa's and Mr. Hall's terms will end when the current session of Congress ends in a few weeks.
A deeper problem may be that Amtrak's enabling legislation specifies that it is not a government agency, and the legality of recess appointments to Amtrak has not been tested in court, legal experts say.
Mr. Hall and Mr. Sosa declined interview requests made through Amtrak. All four board members are Bush loyalists, but they are not popular with Amtrak supporters in Congress. Senator Frank R. Lautenberg, Democrat of New Jersey, said on Wednesday that before Mr. Sosa was appointed to the board, he said he had never ridden an Amtrak train.
The fourth member of the board, by statute, is the secretary of transportation. Norman Y. Mineta, the current secretary, has designated Jeffrey A. Rosen, the general counsel of the Transportation Department, to serve as his representative on the board.
Mr. Laney said in an interview that he had no indication of whether the White House would appoint more directors.
The railroad has plans to operate without a quorum by appointing an executive committee to exercise the authority of a quorum between meetings. Such committees are allowed under the District of Columbia's corporation law. But the idea that the committee can act on behalf of a quorum when there is no quorum has not been tested in court, legal authorities say.
"It appears what they're saying is, once they have four, the four can appoint two, and the two can do all the stuff that four could," Mr. LaTourette said. "I'm not so sure that's right."
Jeffrey D. Bauman, a professor at the Georgetown University Law Center, said the idea of operating a corporate entity without a quorum had not been tested in court because the circumstances were so unusual. A more frequent legal dispute involves the opposite case, with more people claiming to be directors than there are seats.
"When there are vacancies, they get filled," Professor Bauman said of most corporations. "It's pretty clear that this kind of a situation would never arise in a real corporation."
Mr. LaTourette said that a 1997 law intended to wean Amtrak off federal subsidies might have required the replacement of the board in 2003. If Amtrak was still taking subsidies at that point, the law required that a new board, appointed by the president, would take over.
Amtrak maintains that the current board is legal.
Another issue is the board's legal ability to deal with the Northeast Corridor tracks linking Boston, New York and Washington. The Bush administration has called for stripping the corridor from Amtrak and turning it over to a federal-state consortium. The plan's prospects are uncertain, partly because the states have shown no interest.
But the Amtrak board, while it opposes the transfer at this point, voted in September to have the railroad's executives prepare to create a separate subsidiary to own and operate the corridor.
Mr. Laney said that the District of Columbia's corporation law forbids a board to sell "all or substantially all" of a corporation's assets without shareholder approval. A shareholder, he said, might argue that the corridor was substantially all of Amtrak's assets.
Amtrak issued common stock when it was established, to compensate the railroads that gave Amtrak equipment to run its passenger service. More than half of the common stock is owned by a Cincinnati company, American Financial Group, whose chairman and chief executive officer is Carl H. Lindner III, who is also an owner of the Cincinnati Reds. Mr. Lindner is a major donor to Republican causes.
A lawyer for Mr. Lindner said that he had not taken a position on the Northeast Corridor. But the second-largest Amtrak shareholder, the Burlington Northern Santa Fe Railway, has.
"As a longstanding shareholder of Amtrak," said Richard Russack, a spokesman for the railroad, "we would hope that the board would give us the opportunity to review their actions. We do have the right, as a common-stock shareholder, to vote on whatever action they're going to take."
(The preceding report by Matthew L. Wald was published by the New York Times on Sunday, Nov. 13, 2005.)
November 14, 2005
