In re: United WesternBancorp, Inc.
Filing
21
ORDER REVERSING BANKRUPTCY COURT'S JUDGMENT: The judgment of the Bankruptcy Court is reversed and this matter is remanded to the Bankruptcy Court for further proceedings consistent with this opinion. Denying as moot 13 FDIC's Request for Oral Argument. Terminating 6 this appeal, by Judge William J. Martinez on 7/10/2017. (ebuch)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 16-cv-2475-WJM
(Appeal from Bankruptcy Adversary Proceeding No. 14-01191-TBM)
In re: UNITED WESTERN BANCORP, INC.
Debtor.
FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as receiver for
United Western Bank,
Defendant-Appellant,
v.
SIMON E. RODRIGUEZ, in his capacity as Chapter 7 Trustee for the bankruptcy estate
of United Western Bancorp, Inc.,
Plaintiff-Appellee.
ORDER REVERSING BANKRUPTCY COURT’S JUDGMENT
The Federal Deposit Insurance Corporation (“FDIC”), acting as receiver for the
defunct United Western Bank (“Bank”), appeals the Bankruptcy Court’s determination
that a tax refund generated on account of the Bank’s losses should remain a part of the
bankruptcy estate of the Bank’s parent company, United Western Bancorp, Inc.
(“Holding Company”). See In re United W. Bancorp, Inc., 558 B.R. 409 (Bankr. D. Colo.
2016) (“UWBI”). For the reasons explained below, the Court finds that the relevant
contract between the Bank and the Holding Company is ambiguous regarding whether
the Holding Company may keep the tax refund in the present circumstances. That
contract further requires that any ambiguity be construed in favor of the Bank.
Accordingly, the tax refund is not part of the Holding Company’s bankruptcy estate and
must be remitted to the Bank. The judgment of the Bankruptcy Court is reversed. 1
I. STANDARD OF REVIEW
In reviewing a bankruptcy court’s decision, the district court normally functions as
an appellate court, reviewing the bankruptcy court’s legal conclusions de novo and its
factual findings for clear error. 28 U.S.C. § 158(a); In re Warren, 512 F.3d 1241, 1248
(10th Cir. 2008). The Bankruptcy Court’s judgment rested on a contract interpretation
made as a matter of law, so this Court’s review is de novo. In re Universal Serv. Fund
Tel. Billing Practice Litig., 619 F.3d 1188, 1203 (10th Cir. 2010).
II. BACKGROUND & PROCEDURAL HISTORY 2
A.
The Holding Company and the Bank
The Holding Company owned thirteen subsidiaries. (App. 41, 45–46.) One of
those subsidiaries was the Bank, which the Holding Company wholly owned, and which
was the Holding Company’s principal asset. UWBI, 558 B.R. at 416. The Bank
operated eight branches and a loan servicing office in Colorado. Id.
B.
The Tax Allocation Agreement (TAA)
The Internal Revenue Code permits an “affiliated group” of corporations (those
with a common parent and a chain of sufficient stock ownership) to file a “consolidated
[tax] return” that aggregates the gains and losses of all of them as if one corporation.
See 26 U.S.C. §§ 1501–04. To facilitate such consolidated filing, eligible affiliated
groups often enter into a written agreement amongst themselves known as a tax
1
The FDIC moved for oral argument. (ECF No. 13.) This Court reviewed the transcript
of the parties’ oral argument before the Bankruptcy Court and found that it answered all of the
questions this Court would ask. The Court therefore denies the request for oral argument.
2
Oddly, this appeal contains both a Record on Appeal (ECF No. 6) as well as an
Appendix (ECF Nos. 10-2 through 10-5). The parties’ briefs generally cite to the Appendix, so
the Court will as well, using the abbreviation “App.”
2
sharing agreement or a tax allocation agreement. Here, the Holding Company and its
subsidiaries entered into a Tax Allocation Agreement” (“TAA”). 3
The TAA is dated January 1, 2008, and was signed by representatives of the
Holding Company and its thirteen subsidiaries, including the Bank. (App. 41, 45–46.) It
refers to all of the subsidiaries combined as “the Group,” and also sometimes as “the
Affiliates.” (App. 41.) The TAA’s recitals announce its purpose as follows: “to establish
a method for (i) allocating the consolidated tax liability of the Group among its members,
(ii) reimbursing [the Holding Company] for the payment of such tax liability, and
(iii) compensating each member of the Group for the use of its losses by any other
member of the Group.” (Id.)
To accomplish this purpose, the TAA first proclaims the following “General Rule”
for federal tax filings:
Except as specifically set forth herein to the contrary, each
Affiliate shall pay [the Holding Company] an amount equal to
the federal income tax liability such Affiliate would have
incurred were it to file a separate return (or, if appropriate, a
consolidated return with its subsidiary affiliates). If [the
Bank] incurs a net operating loss or excess tax credits, the
[Bank] is entitled to a refund [from the Holding Company]
equal to the amount that it would have been entitled to
receive had it not joined in the filing of a consolidated return
with [the Holding Company]. Similar treatment is optional at
[the Holding Company’s] discretion for [other] Affiliates. Any
refund shall generally not exceed the amount claimed or
received as a refund resulting from a carryback claim filed by
[the Holding Company]. However, this shall not prevent [the
Holding Company] from the ability to make a refund over the
amount received or claimed as a refund or carryback, if in its
sole discretion it believes such payment is in its best interest.
3
The TAA is in the record at App. 41–46. Whenever possible, the Court will cite to the
TAA by its internal section numbers, e.g., “TAA § H.4,” but a few important matters bear no
section numbers. In that case, the Court will cite directly to the “App.” page number.
3
(TAA § A.1.) Having proclaimed this general rule, the TAA then goes on to re-proclaim
its purpose, although with a different focus than that evident in the recitals: “In essence,
this Agreement requires that each [Affiliate] be treated as a separate taxpayer with [the
Holding Company] merely being an intermediary between an Affiliate and the Internal
Revenue Service (‘IRS’).” (Id. § A.2.)
The details of actual cash flow to and from the Holding Company and the
Affiliates are addressed later in the TAA, and here the TAA starts to become somewhat
convoluted. As best the Court can discern, each Affiliate was required to pay to the
Holding Company the Affiliate’s “hypothetical estimated income tax liability” on a
quarterly basis at around the same time that the Holding Company was required to
make estimated quarterly payments to the IRS. (Id. §§ F.1, F.2.) However, “[p]ayments
[from the Holding Company] to an Affiliate for net operating losses or similar items shall
not to be made under this [quarterly] provision, but rather on an annual basis pursuant
to Section A.” (Id. § F.3.)
While the cross-referenced “Section A” certainly discusses refunds from the
Holding Company for an Affiliate’s net operating losses, it actually says nothing about
the timing of those refunds, e.g., on an annual basis or otherwise. Rather, that seems
to come from Section E. That section first instructs Affiliates that they must make
“[p]reliminary tax settlement payments . . . on or before March 15 following the end of
the appropriate taxable year.” (Id. § E.1.) The Court presumes this refers to any
amounts over those already paid on a quarterly estimated basis during the previous
year. In any event, the various parties’ obligations are trued-up towards the end of each
year: “Final tax settlement payments or refunds are due on or before November 15.”
4
(Id. § E.2.) This appears to be the “annual basis” referred to for refunds based on
quarterly net losses.
The TAA actually contains three distinct refund provisions. One such provision is
that just discussed, i.e., the “[f]inal tax settlement . . . refund[]” that is “due on or before
November 15” of each year, with reference to the previous taxable year. This refers to
a payment from the Holding Company to the Affiliate, likely from monies received from
other Affiliates that owed taxes. The second refund provision is simply an accelerated
process to obtain the same payment: “an Affiliate with a taxable loss for the year may
recover [from the Holding Company] estimated taxes paid for that year before final
settlement if an ‘expedited refund’ claim is filed with [the Holding Company] by February
15 following the end of the tax year.” (Id. § E.1.)
The third refund provision is of the most interest here, as it refers to refunds
received by the Holding Company from the IRS, not any sort of refund of amounts paid
by the Affiliates to the Holding Company. It establishes a 10-business-day deadline for
distributing such refunds:
In the event of any adjustment to the tax returns of the
Group as filed (by reason of an amended return, claim for
refund, or an audit by a taxing authority), the liability of the
parties to this Agreement shall be re-determined to give
effect to any such adjustment as if it had been made as part
of the original computation of tax liability, and payments
between the appropriate parties shall be made within 10
business days after any such payments are made [to the
IRS] or refunds are received [from the IRS], or, in the case of
contested proceedings, within 10 business days after a final
determination of the contest.
(Id. § H.1.) 4 In other words, although an Affiliate with net losses may make a claim on
4
The drafters of the TAA inserted this provision, of all places, in the final section of the
document under the heading “Miscellaneous.” (App. 44.)
5
the Holding Company for a refund of estimated tax payments, it appears the Holding
Company has a self-executing duty to distribute to the Affiliates any actual refund
received from the IRS.
Three other provisions of the TAA are notable. First, it “shall be governed by and
construed in accordance with the laws of the State of Colorado and the applicable laws
of the United States of America.” (Id. § H.6.) Second, through the TAA,
[e]ach Affiliate hereby appoints [the Holding Company] as its
agent . . . for the purpose of filing such consolidated Federal
Income tax returns for the [Group] as [the Holding Company]
may elect to file and making any election, application or
taking any action in connection therewith on behalf of the
Affiliates. Each such Affiliate hereby consents to the filing of
any such returns and the making of any such elections and
applications.
(Id. § G.1.) Third, the TAA contains yet another statement of its purpose (i.e., in
addition to those statements found in its recitals and in § A.2), followed by an “ambiguity
favors the Bank” clause: “The intent of this Agreement is to provide an equitable
allocation of the tax liability of the Group among [the Holding Company] and the
Affiliates. Any ambiguity in the interpretation hereof shall be resolved, with a view to
effectuating such intent, in favor of any insured depository institution.” (Id. § H.4.)
C.
The Origin of This Dispute
In January 2011, the Office of Thrift Supervision closed the Bank and appointed
the FDIC as its receiver. UWBI, 558 B.R. at 416. Thus, the FDIC assumed the role of
marshaling the Bank’s assets as best as possible to pay the Bank’s obligations.
Later in 2011, apparently, the Holding Company filed its consolidated 2010 tax
return on behalf of the Affiliates, including the Bank. In fact, the Bank was particularly
important to this tax return. Whereas the Bank had generated taxable income in 2008
6
(on which the Holding Company paid taxes), the Bank generated an even larger taxable
loss in 2010. Id. at 417. 5 The Internal Revenue Code permits corporations to
“carryback” net operating losses for up to two taxable years. See 26 U.S.C. § 172.
Thus, the Holding Company was permitted to carryback the Bank’s 2010 losses to
offset the taxes paid in 2008. It therefore claimed a refund on its 2010 tax return of
about $4.8 million. UWBI, 558 B.R. at 417. There is no dispute that, to whatever extent
a refund was due, it was entirely the result of revenue generated by the Bank in 2008
and losses incurred by the Bank in 2010—or in other words, neither the Holding
Company itself nor any Affiliate generated any gains or losses relevant to the requested
refund.
While that refund claim was still pending, the Holding Company found itself
insolvent—because the Bank was its only real source of operating income—and so the
Holding Company filed for Chapter 11 reorganization in March 2012. (App. 17.) About
a year later, the Bankruptcy Court converted the proceeding to a Chapter 7 liquidation.
(Id.) Thus, the Trustee was appointed to perform essentially the same role for the
Holding Company that the FDIC was performing for the Bank: to realize as much value
as possible from the Holding Company’s assets so that creditors could receive at least
some compensation.
D.
The Adversary Proceeding
“After learning of the anticipated Tax Refund, the Trustee (acting on behalf of the
[Holding Company’s bankruptcy] estate) filed [an] adversary proceeding against the
FDIC (acting as receiver of the Bank)” to settle the question of whether the refund would
5
The record does not reveal what happened in 2009.
7
belong to the Holding Company (the Trustee’s position) or the Bank (the FDIC’s
position). UWBI, 558 B.R. at 412. The parties agreed “that the underlying facts [were]
undisputed and the contest [could] be decided as a matter of law.” Id. They accordingly
filed cross-motions for summary judgment.
The crux of the dispute was whether the anticipated refund would be considered
property of the Holding Company’s bankruptcy estate. If so, the Bank could make “a
general unsecured claim against [the Holding Company’s] bankruptcy estate for some
or all of the Tax Refund, which should share pari passu with other general unsecured
claims against [the estate].” UWBI, 558 B.R. at 415. On the other hand, the Bankruptcy
Code recognizes that a debtor might possess “only legal title and not an equitable
interest” in certain property. 11 U.S.C. § 541(d). If this is the case, the property in
question “becomes property of the estate . . . only to the extent of the debtor’s legal title
to such property, but not to the extent of any equitable interest in such property that the
debtor does not hold.” Id. Naturally, the Trustee argued that the Holding Company
would possess both legal title and the equitable interest in the anticipated refund, while
the FDIC argued that the Holding Company would lack at least an equitable interest, if
not legal title as well.
While the parties’ cross-motions were pending, the IRS issued the refund in the
adjusted amount of approximately $4.1 million (“Tax Refund” or “Refund”). It deposited
that sum into the Bankruptcy Court’s registry pending resolution of the adversary
proceeding. UWBI, 558 B.R. at 412, 417 n.21.
E.
The Bankruptcy Court’s Decision
On September 16, 2016, the Bankruptcy Court resolved the parties’ cross-
motions in a lengthy, thorough, and thoughtful opinion. Various portions of the
8
Bankruptcy Court’s analysis will be examined in detail below. For present purposes, it
is enough to state that the Bankruptcy Court held:
•
the Holding Company “has at least bare legal title to the Tax Refund,” id.
at 423 (emphasis in original), a matter that the FDIC does not challenge
on appeal and therefore will not be discussed further;
•
the TAA is unambiguous, id. at 424 & n.26; and
•
the TAA’s unambiguous terms establish that the relationship between the
Holding Company and the Bank was that of debtor and creditor, not that of
agent and principal or trustee and beneficiary, meaning that the Holding
Company possesses an equitable interest in the Refund in addition to
legal title, id. at 424–36.
Thus, the Bankruptcy Court concluded, the Refund was a part of the Holding
Company’s bankruptcy estate and the Bank could only seek it through a general
unsecured claim. Id. at 436–38.
The Bankruptcy Court entered final judgment based on this order, and the FDIC
timely appealed. (App. 406.) This Court has jurisdiction to hear the appeal under 28
U.S.C. § 158(a)(1).
III. ANALYSIS
A.
Preliminary Observation
There is an air of unreality about this litigation. Under normal circumstances, it
would never have been brought. If the directors of a wholly-owned subsidiary elected to
sue the parent company for a refund wrongly withheld under a tax allocation agreement,
it is inconceivable that the parent would do anything other than replace the subsidiary’s
9
directors with those who would cause the subsidiary to withdraw the lawsuit. Only in
situations where an independent fiduciary takes control of the parent or the subsidiary—
or where separate fiduciaries take over both, as in this case—is such a lawsuit likely to
exist. Not surprisingly, then, every case cited by either party in which a court addresses
ownership of a tax refund under a tax sharing or allocation agreement involved either a
bankruptcy trustee or the FDIC as a failed bank’s receiver.
Yet the parties here agree (as do the various cases they cite) that the question of
refund allocation is ultimately a matter of contractual intent. But in what sense can a
court analyze contractual intent in these circumstances? How can a court say there
was a “meeting of the minds” in any true sense between a parent company and a
wholly-owned subsidiary? How does the subsidiary have any intent apart from that of
its parent? Or to put it in concrete terms applicable to this case, imagine a parent
company’s officers considering a draft tax allocation agreement and asking themselves,
“Should this company or one of its subsidiaries end up in bankruptcy or receivership,
and therefore pass out of our control, would we want any outstanding tax refund to
remain the property of the parent, or to be distributed to the subsidiaries as usual?” It is
difficult to imagine the parent company’s officers electing the latter course—and
therefore difficult to imagine, in the present circumstances, how the TAA could require
the refund to flow to the Bank in violation of the Holding Company’s near-certain
contrary intent otherwise.
But these musings prove too much. The corporate fiction is deeply ingrained in
American law. Formal agreements between parents and subsidiaries, and between
subsidiaries themselves, are routine. Abiding by such formalities is generally a legal
10
requirement, even if subsidiaries are really only carrying out the will of the parent. Thus,
the analysis below proceeds as if the parties have always had their own respective
purposes and interests to protect. But, as will become clear, the analysis below also will
not stray far from the reality that these potentially conflicting purposes and interests will
likely manifest themselves only in proceedings related to bankruptcy and receivership. 6
B.
General Principles
“The commencement of a [bankruptcy action] creates an estate.” 11 U.S.C.
§ 541(a). This estate comprises, among many other things, “all legal or equitable
interests of the debtor in property as of the commencement of the case.” Id.
§ 541(b)(1). But, as noted above, the estate does not include property in which the
debtor possesses “only legal title and not an equitable interest.” Id. § 541(d).
“In the absence of any controlling federal law, ‘property’ and ‘interests in property’
are creatures of state law.” Barnhill v. Johnson, 503 U.S. 393, 398 (1992). Thus,
whether the Holding Company possesses both a legal and an equitable interest in the
Refund (thus making it a part of the bankruptcy estate) or only a legal interest (thus
excluding it from the bankruptcy estate) should be a question of what sort of property
interest the TAA created under Colorado law, which governs that agreement.
C.
The Bob Richards Rule
The Court says “should be a question . . . under Colorado law” for good reason.
Whether Colorado law actually applies (as opposed to some sort of federal common
law) has been complicated by the “Bob Richards rule,” on which the FDIC relied heavily
6
Considering the many cases cited by the parties where refund allocation has been
litigated in bankruptcy or receivership proceedings, it is rather astonishing that the tax bar has
not yet agreed upon some sort of standard clause to address these precise circumstances.
11
in the Bankruptcy Court and which it continues to press here.
1.
Bob Richards and Barnes v. Harris
The Bob Richards rule comes from In re Bob Richards Chrysler-Plymouth Corp.,
Inc., 473 F.2d 262 (9th Cir. 1973). That case, like this one, involved a dispute over
whether a parent or a subsidiary was owed a tax refund resulting from the consolidated
tax filing. Id. at 263. In that case, like this one, it was acknowledged that the refund
was due solely to losses incurred by the subsidiary. Id. In that case, however, the
subsidiary was the party in bankruptcy, and its trustee was suing the parent to obtain
the refund for the bankruptcy estate—in contrast to the present case, where the Trustee
speaks for the parent and is suing to prevent the Refund from leaving the bankruptcy
estate.
But Bob Richards nonetheless presented the same basic question: to whom
does the tax refund belong? The Ninth Circuit observed that “as a matter of state
corporation law the parties are free to adjust among themselves the ultimate tax liability”
through “an explicit agreement, or where an agreement can fairly be implied.” Id. at
264. “But in the instant case,” however,
the parties made no agreement concerning the ultimate
disposition of the tax refund. Absent any differing agreement
we feel that a tax refund resulting solely from offsetting the
losses of one member of a consolidated filing group against
the income of that same member in a prior or subsequent
year should inure to the benefit of that member. Allowing the
parent to keep any refunds arising solely from a subsidiary’s
losses simply because the parent and subsidiary chose a
procedural device to facilitate their income tax reporting
unjustly enriches the parent.
Id. at 265. This is what the parties here refer to as the Bob Richards rule.
The Ninth Circuit cited no authority for this proposition. It recognized that “state
12
corporation law” permitted the affiliated corporations to explicitly allocate tax matters
amongst themselves, but when it came to the lack of such an agreement, the Ninth
Circuit did not say whether the unjust enrichment rule it announced flowed from state
law, federal law, or something else. This is significant because, as noted, property
interests included within a debtor’s bankruptcy estate ordinarily “are creatures of state
law.” Barnhill, 503 U.S. at 398.
This has led the Sixth and Eleventh Circuits to conclude that the Bob Richards
rule could only be an announcement of federal common law. FDIC v. AmFin Fin. Corp.,
757 F.3d 530, 535 (6th Cir. 2014) (“AmFin”); In re NetBank, Inc., 729 F.3d 1344, 1352
n.3 (11th Cir. 2013). And the Sixth Circuit has rejected Bob Richards on this basis,
finding it an unnecessary exercise of federal common law authority. AmFin, 757 F.3d at
535–36.
If writing on a clean slate, this Court would be inclined to agree with the Sixth
Circuit—the Bob Richards rule can only be grounded, if anywhere, in federal common
law, and yet Bob Richards does not explain the need for a federal common law rule with
respect to ownership of tax refunds, as compared to other sums of money whose
ownership has been effectively analyzed under state law. See, e.g., Lubin v. Cincinnati
Ins. Co., 677 F.3d 1039, 1041–42 (11th Cir. 2012) (analyzing under applicable state law
whether an insurance payout was property of the bankrupt holding company or of a
subsidiary failed bank). Thus, at a minimum, Bob Richards should not be reflexively
applied. At oral argument before the Bankruptcy Court, the bankruptcy judge displayed
similar concern. (See, e.g., App. at 275–76, 292.) Cf. Danforth v. Minnesota, 552 U.S.
264, 289–90 (2008) (“while there are federal interests that occasionally justify . . .
13
development of common-law rules of federal law, our normal role is to interpret law
created by others and not to prescribe what it shall be” (internal quotation marks and
footnote omitted)); United States v. City of Las Cruces, 289 F.3d 1170, 1186 (10th Cir.
2002) (“The reluctance to create common law is a core feature of federal court
jurisprudence. Federal courts should only fashion common law in a few and restricted
circumstances.” (internal quotation marks and citations omitted)).
But this Court does not write on a clean slate, due to the Tenth Circuit’s recent
decision in Barnes v. Harris, 783 F.3d 1185 (10th Cir. 2015). Barnes was a shareholder
derivative action against a failed bank’s holding company. Id. at 1188. Among the
plaintiffs’ theories of liability against the holding company’s directors was that the
holding company should have held onto at least a portion of a $9 million tax refund
received on behalf of the holding company and its subsidiaries. Id. at 1189, 1195. The
district court dismissed this theory of derivative liability and the Tenth Circuit affirmed,
relying on Bob Richards:
As the district court explained, a tax refund due from a joint
return generally belongs to the company responsible for the
losses that form the basis of the refund. See [Bob Richards].
Plaintiffs did not allege that the Holding Company possessed
any business interests other than the Bank that might have
generated losses. . . .
Plaintiffs counter that companies may agree to alter the
default allocation rule by agreement. See Bob Richards, 473
F.2d at 265. . . . Yet plaintiffs have not alleged the existence
of any agreement to allocate the refund . . . .
Id. at 1195–96. The Tenth Circuit therefore found the plaintiffs’ claim inadequately
pleaded in this regard.
The Court cannot deem Barnes’s adoption of Bob Richards to be dicta. “Dicta
are statements and comments in an opinion concerning some rule of law or legal
14
proposition not necessarily involved nor essential to determination of the case in hand.”
Thompson v. Weyerhaeuser Co., 582 F.3d 1125, 1129 (10th Cir. 2009) (internal
quotation marks omitted). The Bob Richards rule was essential to the Tenth Circuit’s
decision to affirm the district court. Moreover, the Tenth Circuit was explicitly presented
with the argument—albeit for the first time in the appellant’s reply brief—that the Bob
Richards rule was unnecessary federal common law. See 2014 WL 3795344, at *18–
19. Thus, this Court cannot say that the Tenth Circuit was unaware of Bob Richards’s
questionable status. For whatever reason, it chose to say nothing about the federal
common law argument, but the argument was certainly before the court, the court did
not announce that the argument had been forfeited (e.g., as untimely), 7 and the court
applied the Bob Richards rule as if beyond question.
2.
Effect of Bob Richards Here
But what, precisely, is the scope of the Bob Richards rule? The FDIC argued in
the Bankruptcy Court, and continues to argue here, that Bob Richards mandates its
default presumption unless there exists an inter-corporate agreement that
unambiguously allocates the refund away from the party incurring the relevant losses.
(App. 91–92, 354; ECF No. 10 at 27–28, 37, 39.) 8 The Trustee argued in the
Bankruptcy Court, and continues to argue here, that Bob Richards only applies in cases
7
The appellant based its argument on the Sixth Circuit’s AmFin decision, which had
been announced after the appellant’s opening brief was filed. But the Eleventh Circuit’s
NetBank decision, which predated the appellant’s opening brief, also characterized the Bob
Richards rule as federal common law; and in any event, the federal common law issue should
be obvious to any lawyer reasonably experienced in federal choice-of-law questions. Thus,
there was a basis to reject the argument as untimely. But the Tenth Circuit never announced as
much.
8
All ECF page citations are to the page number in the ECF header, which does not
always match the document’s internal pagination, especially where the document has prefatory
material such as a table of contents or table of authorities.
15
where there is no tax allocation agreement of any kind, which is not the case here.
(App. 238–39; ECF No. 11 at 15–16.)
The Bankruptcy Court interpreted Bob Richards to fall essentially halfway
between these two positions. See UWBI, 558 B.R. at 432–34. The Bankruptcy Court
did not endorse the Trustee’s claim that any tax allocation agreement of any kind
overcomes the Bob Richards presumption, whether the agreement addresses refunds
or not. But the Bankruptcy Court also rejected the Trustee’s argument that the
agreement in question must clearly allocate the refund away from the party incurring the
losses. Rather, the Bankruptcy Court strictly interpreted the language from Bob
Richards where the Ninth Circuit announced that “the parties made no agreement
concerning the ultimate disposition of the tax refund.” Bob Richards, 473 F.2d at 265.
In this case, said the Bankruptcy Court, “the TAA is an agreement ‘concerning ultimate
disposition of the tax refund’—the exact type of agreement that was absent in Bob
Richards. Since such an agreement is present, the Bob Richards default rule is facially
inapplicable.” UWBI, 558 B.R. at 433. The Bankruptcy Court therefore stood by its
analysis of what this Court will call the “IndyMac factors” (discussed further below),
which led the Bankruptcy Court to conclude—as an IndyMac analysis essentially always
does—that the agreement in question created nothing more than a debtor-creditor
relationship, thus leaving both legal and equitable title to the Refund in the Holding
Company’s hands. Id. at 424–28.
This Court agrees with the Bankruptcy Court that, under any reasonable
definition of “concerning,” the TAA is an agreement concerning ultimate disposition of
tax refunds. Ironically, however, interpreting the Bob Richards rule in this manner will
16
usually put the subsidiary in a worse position than if no tax allocation agreement ever
existed. That is aptly illustrated here. When the Holding Company receives a refund
from the IRS, the TAA imposes upon the Holding Company a self-executing duty to “redetermine[]” the Affiliates’ tax liability “as if [the refund] have been made as part of the
original computation,” and then the Holding Company must distribute that refund to the
Affiliates within ten business days. (TAA § H.1.) So, yes, the TAA “concerns” the
“ultimate disposition” of the refund, and in fact declares that the refund belongs to the
Affiliate that incurred the relevant losses. But by so declaring, it turns out that the
Affiliates have actually weakened their claim to any refund. They have now given a
Bankruptcy Court—one of the only venues in which the TAA might be litigated—an
opening to disregard Bob Richards, apply the IndyMac factors, and hold that the refund
does not belong to the Affiliates, at least not any more than any other creditor can claim
that money in debtor’s possession belongs to it.
Concerned as it was for the problem of unjust enrichment, it is almost
inconceivable that the Ninth Circuit meant the Bob Richards rule to apply this way. See
473 F.2d at 262 (“Allowing the parent to keep any refunds arising solely from a
subsidiary’s losses simply because the parent and subsidiary chose a procedural device
to facilitate their income tax reporting unjustly enriches the parent.”). This Court is
convinced that if the scenario at issue here had been presented to the Ninth Circuit in
the Bob Richards appeal, that court would have phrased its ruling in a manner
consistent with the FDIC’s position here, i.e., that the tax allocation agreement must
contradict the default rule. Indeed, the Ninth Circuit’s language already suggests that it
had this very idea in mind. Immediately after the “agreement concerning the ultimate
17
disposition of the tax refund” sentence on which the Bankruptcy Court relied, the Ninth
Circuit said the following: “Absent any differing agreement we feel that a tax refund
resulting solely from offsetting the losses of one member of a consolidated filing group
against the income of that same member in a prior or subsequent year should inure to
the benefit of that member.” Id. (emphasis added). “Differing” in this context can only
sensibly refer to the general rule announced later in the sentence.
If Bob Richards created a federal common law rule, then this Court may
conceivably invoke its own federal common law authority to clarify the meaning of Bob
Richards within the District of Colorado, or even to refine the rule if needed. As noted
above, however, there has been no analysis either from the Ninth Circuit or the Tenth
Circuit regarding the need for, or federal interests served by, Bob Richards as a rule of
federal common law. Cf. Resolution Trust Corp. v. Heiserman, 856 F. Supp. 578, 581
(D. Colo. 1994) (courts considering creation of federal common law must evaluate
“whether the federal program, which by its nature is and must be uniform throughout the
nation, necessitates formulation of controlling federal rules,” “whether application of
state law would frustrate specific objectives of the federal program,” and whether
“application of a federal rule would disrupt commercial relationships predicated on state
law”). Therefore it would be difficult for this Court to declare with confidence that any
clarification or extension of Bob Richards fits within those uniquely federal purposes.
As it turns out, the Court thankfully need not engage in any such inquiry. As
explained below, even if the Bankruptcy Court applied Bob Richards correctly, both in
letter and in spirit, the ensuing analysis of the property interest created by the TAA
ultimately favors the FDIC. The Court therefore turns to that analysis.
18
D.
The TAA as Construed Under Colorado Law
Given its interpretation of Bob Richards, the Bankruptcy Court announced that
“the unambiguous terms of the TAA as construed under Colorado law govern the rights
and obligations of [the Holding Company] and the Bank and also dictate the ultimate
entitlement to the Tax Refund on a beneficial basis.” UWBI, 558 B.R. at 424 (footnote
omitted). Whether those terms are unambiguous is this Court’s ultimate disagreement
with the Bankruptcy Court, but this Court, like the Bankruptcy Court, must first work
through the terms of the TAA to reach a conclusion about ambiguity.
1.
IndyMac
The Bankruptcy Court approached this analysis through what this Court has
dubbed the IndyMac factors, given their origin as an analytical test in In re IndyMac
Bancorp, Inc., 2012 WL 1037481 (Bankr. C.D. Cal. Mar. 29, 2012). 9 Just like the
present dispute, IndyMac involved a subsidiary bank in FDIC receivership demanding
tax refund proceeds possessed by its bankrupt holding company. Id. at *1–2. The court
explained its analytical approach to the problem as follows:
First, the Court has looked to a set of cases involving the
very issue presented here: a dispute about the ownership of
tax refunds in bankruptcy when a prebankruptcy tax sharing
agreement existed. Second, the Court has looked to a
separate set of cases involving the interpretation of parties’
legal relationships—both inside and outside of bankruptcy—
under California law. . . .
***
The Court’s analysis of the applicable case law indicates that
three key factors are examined when considering whether a
9
This opinion was a report and recommendation, which was subsequently adopted by
the Central District of California in an unpublished disposition, see 2012 WL 1951474 (C.D. Cal.
May 30, 2012), which was in turn affirmed by the Ninth Circuit also in an unpublished
disposition, see 554 F. App’x 668 (9th Cir. 2014).
19
particular document or transaction establishes a debtorcreditor relationship, on the one hand, or a different sort of
relationship (such as a trust, mere agency, or bailment
relationship), on the other hand.
Id. at *13 (footnotes omitted). The court then proceeded to discuss these three factors.
The first factor was whether the tax sharing agreement (as it was called in that
case) “create[d] fungible payment obligations”—or in other words, whether the
agreement created a right to the refund itself or to “amounts [paid by the holding
company] equal to what the subsidiary would have received if it hypothetically were a
standalone tax filer.” Id. at *13–15. The IndyMac court derived this rule from other
bankruptcy court decisions (some of which have since been overruled) but also stated
that it “fully accords with the Ninth Circuit’s application of California law in the
bankruptcy context.” Id. at *13. With respect to the tax sharing agreement under
consideration, the court found that it frequently contained the words “reimbursement”
and “payment,” which “are indicative of a debtor-creditor relationship and, in
comparison, are completely inconsistent with the existence of a trust or agency
relationship.” Id. at *14.
The second factor was whether the tax sharing agreement contained “provisions
requiring the parent to segregate or escrow any tax refunds” or “restrictions on the
parent’s use of the funds while in the parent’s possession.” Id. at *15. It is not clear
why IndyMac treated this as just one factor to consider, given that the case law the
court cited in support was essentially unequivocal regarding the result:
The key principle emerging from these cases was
summarized in In re Black & Geddes, Inc.: “It is a firmly
established principle that if a recipient of funds is not
prohibited from using them as his own and commingling
them with his own monies, a debtor-creditor, not a trust,
relationship exists.” 35 B.R. 830, 836 (Bankr. S.D.N.Y.
20
1984). These precise words have been quoted and applied
by the Ninth Circuit Court of Appeals and by California’s
state appellate courts. [Citing cases.]
Id. In any event, the court found that no such restrictions existed in the tax sharing
agreement. Id. at *16.
The third and final factor was whether the agreement gave the parent company
“sole discretion to prepare and file consolidated tax returns and to elect whether or not
to receive a refund.” Id. In IndyMac, it did. Id. Thus, all three factors favored finding
that the tax sharing agreement created a debtor-creditor relationship, and so the tax
refunds in question remained property of the holding company’s bankruptcy estate. Id.
at *17–20.
2.
The Bankruptcy Court’s Application of IndyMac
In this case, the Bankruptcy Court announced at the outset that it would follow
the three IndyMac factors. UWBI, 558 B.R. at 424–25.
As to the first factor (fungibility), the Bankruptcy court found that “the TAA is
peppered throughout with terminology evidencing a debtor-creditor relationship
including: ‘allocating,’ ‘reimbursing,’ ‘compensating,’ ‘pay,’ ‘refund,’ ‘liability,’ ‘reimburse,’
‘liable,’ ‘payments,’ ‘refunded,’ and ‘liability.’” Id. at 425. As to the portion of the TAA
specifically addressing tax refund payments received from the IRS, the Bankruptcy
Court emphasized that it required “‘payments between the appropriate parties’” within
ten business days after “‘re-determination’” of the parties’ tax liability, and therefore
nothing “suggest[ed] that the Bank had a direct interest in any IRS tax refunds.” Id. at
426 (quoting TAA § H.1).
As to the second factor (escrow, segregation of funds, etc.), the Bankruptcy
Court stated that “[o]ne could search the TAA in vain for days trying to locate any
21
express, or even implied, requirement for [the Holding Company] to escrow or
segregate any funds that it might receive as a tax refund from the IRS.” Id. at 427.
As to the third factor (delegation of decision-making authority to the parent), the
Bankruptcy Court emphasized TAA § G.1, by which the Affiliates appointed the Holding
Company as their “agent” empowered to “elect to file and mak[e] any election,
application or tak[e] any action in connection therewith on behalf of the Affiliates.” Id.
“In sum,” said the Bankruptcy Court, “under the terms of the TAA, [the Holding
Company] is the beneficial owner of the Tax Refunds.” Id. at 427–28.
3.
Whether IndyMac Provides Appropriate Guidance
Many bankruptcy courts since IndyMac have adopted its analysis. See, e.g., In
re Downey Fin. Corp., 499 B.R. 439, 455 (Bankr. D. Del. 2013), aff’d, 593 F. App’x 123
(3d Cir. 2015); In re Imperial Capital Bancorp, Inc., 492 B.R. 25, 29–30 (S.D. Cal. 2013);
FDIC v. AmFin Fin. Corp., 490 B.R. 548, 554 (N.D. Ohio 2013), rev’d and remanded,
757 F.3d 530 (6th Cir. 2014). Its appeal is obvious: it is easy to apply to an otherwise
complicated situation—a highly salutary feature in our perpetually congested court
system. But the Court is troubled with two aspects of IndyMac.
First, the idea that there are three factors to weigh is illusory. As already noted, if
lack of escrow or segregation provisions automatically dictates a debtor-creditor
relationship, then the Court sees little sense in treating the second factor as just one
more data point to consider. Moreover, whether the parent company has complete
control over the tax filing (the third factor) will likely favor the parent in every case
because it is essentially mandated by an IRS regulation concerning consolidated tax
filings. See 26 C.F.R. § 1.1502-77(a)(1) (“one entity (the agent) is the sole agent that is
authorized to act in its own name regarding all matters relating to the federal income tax
22
liability for the consolidated return year for each member of the group”). A provision
affirming as much may not appear in every tax allocation agreement, but surely any
attorney representing a parent company would, in such a situation, fill that gap by
citation to this regulation.
Second, IndyMac is not a one-size-fits-all test. The IndyMac bankruptcy court
itself recognized that its task was to determine under state law “whether a particular
document or transaction establishes a debtor-creditor relationship, on the one hand, or
a different sort of relationship (such as a trust, mere agency, or bailment relationship),
on the other hand.” Id. at *13. And it attempted, in some instances more successfully
than others, to ground its three factors in the law of the applicable state (California). But
subsequent courts, including the Bankruptcy Court here, have applied IndyMac as if its
three factors represent a federal common law of tax allocation agreements—or in other
words, they apply IndyMac without reference to whether the applicable state’s law
supports the factor in question. To be sure, it seems unlikely that California law on
these issues differs significantly from any other state’s laws. Nonetheless, the fact that
subsequent bankruptcy courts have not tied the IndyMac factors into their own states’
laws raises the possibility, with some justification, that IndyMac is being adopted for its
own sake, not because it actually satisfies a court’s obligation to determine the property
status of the refund under state law.
Despite all this, IndyMac certainly starts by asking the right question: does the
agreement in question “establish[] a debtor-creditor relationship, on the one hand, or a
different sort of relationship (such as a trust, mere agency, or bailment relationship), on
the other hand.” Id. This Court would phrase it in somewhat the reverse fashion: Does
23
the agreement create a trust relationship, agency relationship, or some other
relationship under state law that conveys only legal title, not equitable title, to property?
If not, it is a typical commercial (debtor-creditor) contract, meaning the party that
receives property under the contract holds both legal and equitable title to that property.
The Court accordingly turns to these questions.
4.
The Importance of TAA § A.2
“The primary goal of [contract] interpretation is to determine and give effect to the
intention of the parties.” Cache Nat’l Bank v. Lusher, 882 P.2d 952, 957 (Colo. 1994).
Whether the parties intended the TAA to create a trust relationship, agency relationship,
or anything like either of these cannot be analyzed without keeping in mind TAA § A.2:
“In essence, this Agreement [i.e., the TAA] requires that each [Affiliate] be treated as a
separate taxpayer with [the Holding Company] merely being an intermediary between
an Affiliate and the [IRS].” Nothing in the TAA gives the key words here—“merely being
an intermediary”—any specialized meaning. The Court therefore must read them
according to their plain and ordinary meaning. Cache Nat’l Bank, 882 P.2d at 957.
“Intermediary” is generally defined as “a mediator or go-between; a third-party
negotiator.” Black’s Law Dictionary, s.v. “intermediary” (10th ed. 2014); see also
Merriam-Webster Online, s.v. “intermediary” (offering similar definitions), at
https://www.merriam-webster.com/dictionary/intermediary (last accessed July 3, 2017).
“Merely” is the adverbial form of “mere,” which is generally defined as “being nothing
more than.” Id., s.v. “merely,” at https://www.merriam-webster.com/dictionary/merely
(last accessed July 3, 2017). Thus, TAA § A.2 declares that the purpose of the TAA is
to set up an arrangement in which the Holding Company acts as nothing more than a
go-between, as between the subsidiaries and the IRS. This purpose must be kept in
24
mind in the ensuing analysis.
5.
Trust
The Bankruptcy Court noted that “what the FDIC seems to be attempting is to
suggest an argument sounding primarily in trust rather than agency.” UWBI, 558 B.R.
at 431. But the Bankruptcy Court was “quite confused as to the FDIC’s position
regarding possible trust issues.” UWBI, 558 B.R. at 431–32. The confusion is
understandable. The FDIC’s summary judgment briefing below focused on establishing
that an express trust is unnecessary if the Holding Company can be deemed a
“conduit,” which the FDIC equated to the “intermediary” language already in the TAA.
(See, e.g., App. 86, 254–55.) In other words, the FDIC appeared to be seeking
recognition of some sort of generic trust-like relationship, without really identifying what
that relationship was. This did not comport with the three types of trusts that the
Bankruptcy Court found to exist under Colorado law (express trusts, constructive trusts,
and resulting trusts), and the Bankruptcy Court therefore rejected the possibility of a
trust relationship. UWBI, 558 B.R. at 432.
In this appeal, the FDIC has not specifically argued that the Bankruptcy Court’s
analysis was error. Rather, in a footnote, the FDIC argues that the Bankruptcy Court’s
“discussion of trust law . . . was another diversion.” (ECF No. 10 at 35 n.13.) This
footnote goes on to claim that “[t]he circumstances in which Colorado law will impose a
resulting trust are far broader than the bankruptcy court suggested” (id.), but it does not
argue that a resulting trust would cover the situation at hand, or that the Bankruptcy
Court’s analysis should be overturned. Accordingly, the FDIC has forfeited any
argument sounding in trust law. See, e.g., United States v. Hunter, 739 F.3d 492, 495
25
(10th Cir. 2013) (arguments inadequately developed in the opening brief are forfeited). 10
6.
Agency
Unlike its trust argument, the FDIC certainly continues to press an agency
argument. (See ECF No. 10 at 29–36.) The FDIC’s main argument in favor of an
agency relationship is that TAA § G.1 explicitly declares one:
[e]ach Affiliate hereby appoints [the Holding Company] as its
agent . . . for the purpose of filing such consolidated Federal
Income tax returns for the [Group] as [the Holding Company]
may elect to file and making any election, application or
taking any action in connection therewith on behalf of the
Affiliates.
Building on this, the FDIC notes that “[a]n agent is duty-bound to protect and turn over
any property the agent receives for its principal.” (ECF No. 10 at 30.) See also
Restatement (Third) of Agency § 8.12 cmt. b (2006) (“If the agent receives property for
the principal, the agent’s duty is to use due care to safeguard it pending delivery to the
principal.”); cf. Moore & Co. v. T-A-L-L, Inc., 792 P.2d 794, 798 (Colo. 1990) (declaring
a real estate broker to be an “agent,” and as such, owing to the seller a duty to “account
. . . for all money and property received”). The Bankruptcy Court had two responses to
this argument.
a.
“Limited and Procedural” Agency
The Bankruptcy Court first concluded that this grant of agency “is limited and
procedural only,” meaning that it only extends to precisely what it says—and it says
10
To be clear, the Court is not convinced that Colorado law requires a party to fit any
trust-like relationship into the labels of “express,” “constructive,” or “resulting.” The Colorado
Supreme Court has held, for example, that a public utility company holds overcharges
recovered from wholesalers “in trust” pending refund to the ratepayers, without fitting the
relationship into a predefined category of trust. See Colo. Office of Consumer Counsel v. Pub.
Serv. Co. of Colo., 877 P.2d 867, 873 (Colo. 1994). The FDIC actually cited this case below
(see App. 255), but has not continued to press the argument here.
26
nothing about the Holding Company “being an agent for holding any tax refunds for the
Bank’s benefit.” UWBI, 558 B.R. at 430–31. The Bankruptcy Court’s notion of a “limited
and procedural agency” comes from other bankruptcy cases interpreting 26 C.F.R.
§ 1.1502-77(a)(1), the IRS regulation discussed above which declares that one entity
among a consolidated filing group (usually the parent) must be the agent for the whole
vis-à-vis the IRS: “one entity (the agent) is the sole agent that is authorized to act in its
own name regarding all matters relating to the federal income tax liability for the
consolidated return year for each member of the group.” Other bankruptcy courts have
faced an argument that the IRS regulation itself (not some provision of the relevant tax
allocation agreement) creates an agency relationship that entitles the subsidiary to any
refund. These courts have, not surprisingly, rejected this argument, considering that
whatever “agency” this regulation establishes is for the convenience of the IRS and has
nothing necessarily to do with a consolidated filing group’s internal affairs. Thus, courts
have deemed such agency to be “procedural.” See, e.g., Bob Richards, 473 F.2d at
265 (“[T]he refund is made payable to the parent and the acceptance of the refund by
the parent discharges any liability of the government to any subsidiary. But these
regulations are basically procedural in purpose and were adopted solely for the
convenience and protection of the federal government.”); In re First Cent. Fin. Corp.,
269 B.R. 481, 489 (Bankr. E.D.N.Y. 2001) (“this agency is purely procedural in nature,
and does not affect the entitlement as among the members of the Group to any refund
paid by the I.R.S.”); see also Jump v. Manchester Life & Cas. Mgmt. Corp., 579 F.2d
449, 452 (8th Cir. 1978) (“Though IRS regulations provide that the parent corporation is
the agent for each subsidiary in the affiliated group, this agency relationship is for the
27
convenience and protection of IRS only and does not extend further.” (citation omitted)).
Again, these cases involved an argument in which the regulation itself was
deemed relevant to determining whether an agency relationship had been created.
Here, the FDIC argues from the explicit language of TAA § G.1. The Bankruptcy
Court’s rejection of the FDIC’s argument hinged on the belief that TAA § G.1 was
intended as nothing more than a contractual recognition of the relevant IRS regulations.
See UWBI, 558 B.R. at 418 (describing § G.1 as “mimicking the requirements of [the]
IRS regulation”); id. at 430 (referring to “the agency referenced in the TAA (and included
in the IRS regulations)”); id. at 431 (“While the TAA did identify [the Holding Company]
as an agent for the Affiliated Group for purposes of filing consolidated federal income
tax returns, it did so using language very similar to the IRS regulations.”).
The Bankruptcy Court’s view is reasonable, but the Bankruptcy Court cited no
evidence to support such an intent. The language of TAA § G.1 (“agent . . . for the
purpose of filing such consolidated Federal Income tax returns for the [Group] as [the
Holding Company] may elect to file and making any election, application or taking any
action in connection therewith on behalf of the Affiliates”) is not the same as the
language of the IRS regulation (“agent . . . authorized to act in its own name regarding
all matters relating to the federal income tax liability for the consolidated return year for
each member of the group”). If the Holding Company and the Affiliates truly wished to
do nothing more than import the regulatory requirement into the TAA, one might expect
that they would adopt the regulation’s language verbatim. They did not. Thus, it is
equally reasonable that the parties meant something more than a basic affirmance of
IRS regulatory requirements. And if so, “taking any action in connection therewith on
28
behalf of the Affiliates” is broad enough to encompass accepting a refund on behalf of
the Affiliates who might be entitled to it (or to a portion of it) if treated as separate
taxpayers—as TAA § A.2 commands that they be treated vis-à-vis each other and the
Holding Company, which acts “merely” as an “intermediary” with the IRS.
On the other hand, the Bankruptcy Court was correct to observe that the TAA
contains none of the usual indicia of a relationship beyond a typical commercial
transaction, such as restrictions on comingling of funds. UWBI, 558 B.R. at 427. The
Sixth and Eleventh Circuits have noted, however, that such an observation may result in
a wash when the tax agreement at issue similarly lacks indicia of a normal debtorcreditor relationship, such as an interest rate or collateral. AmFin, 757 F.3d at 535;
NetBank, 729 F.3d at 1351. This argument may not go as far as the Sixth and Eleventh
Circuits seem to take it, given that typical commercial contracts are the default and may
be governed by numerous default rules in the absence of expected terms, whereas trust
and agency relationships normally require some evidence of intent to create such a
relationship. Nonetheless, those courts’ reasoning is well taken here when compared to
the language of the TAA, which lacks any indicia of a debtor-creditor relationship and, in
fact, affirmatively characterizes the Holding Company as a “mere[] . . . intermediary.”
Given all this, there are at least two reasonable interpretations of TAA § G.1.
b.
Subsidiary as Principal, Parent as Agent
The Bankruptcy Court’s second reason for rejecting the FDIC’s interpretation of
TAA § G.1 is a conclusion that a subsidiary can never appoint a parent as its agent:
. . . the agency referenced in the TAA is not consistent with
Colorado common law agency. In Colorado, there can be no
agency relationship where the alleged agent is not subject to
the control of the alleged principal. The FDIC is turning
agency on its head because the Bank did not control [the
29
Holding Company] (or at least the FDIC produced no
evidence that the Bank controlled [the Holding Company]).
Subsidiaries generally do not control their parents. So, the
agency argument does not work.
UWBI, 558 B.R. at 431 (citations omitted).
As stated in the Court’s preliminary observation above (Part III.A), reasoning
such as this proves too much. Although it may be true in a practical sense that a wholly
owned subsidiary-principal could never direct a parent-agent contrary to the parent’s
wishes, that does not mean that the subsidiary and the parent are not separate legal
entities with at least nominally separate directors and management. When corporate
formalities are properly observed, courts nearly always respect them, and thus there
seems to be no reason that a subsidiary cannot efficaciously designate its parent as its
agent. Accordingly, there remain at least two reasonable interpretations of TAA § G.1
regarding the scope of the Holding Company’s agency on behalf of the Bank.
E.
Ambiguity
In Colorado, “ambiguity of a contract . . . is a question of law.” Cheyenne
Mountain Sch. Dist. No. 12 v. Thompson, 861 P.2d 711, 715 (Colo. 1993). “In
determining whether an ambiguity exists, [the court] must ask whether the disputed
provision is reasonably susceptible on its face to more than one interpretation.” Allen v.
Pacheco, 71 P.3d 375, 378 (Colo. 2003). The Court has concluded that the TAA could
be reasonably interpreted both to create an agency relationship (in which case the
Holding Company was required to act toward the Refund as a fiduciary for the Bank) or
a standard commercial relationship (in which case the Holding Company has no greater
obligation to the Bank than it does to any other creditor).
The TAA, by its express terms, breaks the tie in favor of the Bank: “The intent of
30
this Agreement is to provide an equitable allocation of the tax liability of the Group
among [the Holding Company] and the Affiliates. Any ambiguity in the interpretation
hereof shall be resolved, with a view to effectuating such intent, in favor of any insured
depository institution.” (TAA § H.4.) There can be no question that the “equitable
allocation” in this matter is to remit the Refund to the Bank. At oral argument below, the
Trustee’s counsel commendably acknowledged, “Absent bankruptcy . . . the parent
wouldn’t have the right to keep this refund.” (App. 348.) Because the TAA can
reasonably be interpreted to require the Holding Company to act as agent on behalf of
the Bank in obtaining and remitting the refund, the TAA requires that this Court so
construe it.
The Bankruptcy Court partially sidestepped the ambiguity argument by
announcing that the parties both agreed that the TAA was unambiguous. UWBI, 558
B.R. at 424 n.26. The FDIC indeed asserted below that the TAA’s terms
unambiguously favored the FDIC’s position, but the FDIC also argued in the alternative
based on TAA § H.4. (App. 251, 331–36.) Thus, the FDIC preserved the argument,
and continues to urge it here in the alternative. (See ECF No. 10 at 22, 40, 41.)
The Bankruptcy Court also determined, of its own accord, that the TAA was
unambiguous, but it did so because the rule of IndyMac is that an agreement with
supposedly fungible obligations, a lack of comingling restrictions, and a full delegation of
tax-related authority to the parent is, by definition, “unambiguously” a typical commercial
contract, not a contract creating any heightened relationship. The Court need say
nothing further about the validity of that rule as a general matter. It appears that no
other case applying the IndyMac approach has faced a tax allocation agreement with
31
language such as that contained in TAA § A.2: “In essence, this Agreement requires
that each [Affiliate] be treated as a separate taxpayer with [the Holding Company]
merely being an intermediary between an Affiliate and the [IRS].” This language must
be weighed against any inferences drawn out of the IndyMac analysis, and it at least
creates an ambiguity—thus triggering TAA § H.4.
Accordingly, the Court concludes that the Holding Company, construed as an
agent under TAA §§ A.2, G.1, and H.4, held no more than legal title to the Refund, while
the Bank held equitable title. The Refund is not part of the Holding Company’s
bankruptcy estate. See 11 U.S.C. § 541(d).
IV. CONCLUSION
For the reasons set forth above, the Court ORDERS as follows:
1.
The judgment of the Bankruptcy Court is REVERSED and this matter is
REMANDED to the Bankruptcy Court for further proceedings consistent with this
opinion;
2.
The FDIC’s Request for Oral Argument (ECF No. 13) is DENIED AS MOOT; and
3.
This appeal (ECF No. 6) is TERMINATED.
Dated this 10th day of July, 2017.
BY THE COURT:
______________________
William J. Martinez
United States District Judge
32
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