Rodriguez v. FDIC , 914 F.3d 1262 ( 2019 )

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS January 29, 2019
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
In re: UNITED WESTERN BANCORP,
INC.,
Debtor.
------------------------------
SIMON E. RODRIGUEZ, in his capacity
as Chapter 7 Trustee for the bankruptcy
estate of United Western Bancorp, Inc.,
Plaintiff - Appellant,
v. No. 17-1281
(D.C. No. 1:16-CV-02475-WJM)
FEDERAL DEPOSIT INSURANCE (D. Colo.)
CORPORATION, in its capacity as
Receiver for United Western Bank,
Defendant - Appellee.
_________________________________
ORDER
_________________________________
Before BRISCOE, SEYMOUR, and HOLMES, Circuit Judges.
_________________________________
This matter is before the court on the appellant’s Petition for Panel Rehearing and
Motion for Clarification. Upon consideration, the request for panel rehearing is granted in
part and to the limited extent that footnote 3 of the original Opinion will be deleted. The
Petition is otherwise denied, as is the motion to clarify. A copy of the revised version is
attached to this order. The clerk is directed to file the amended version of the Opinion
effective the date of this order.
Entered for the Court
ELISABETH A. SHUMAKER, Clerk
2
FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS January 29, 2019
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
In re: UNITED WESTERN BANCORP,
INC.,
Debtor.
------------------------------
SIMON E. RODRIGUEZ, in his capacity
as Chapter 7 Trustee for the bankruptcy
estate of United Western Bancorp, Inc.,
Plaintiff - Appellant,
v. No. 17-1281
FEDERAL DEPOSIT INSURANCE
CORPORATION, in its capacity as
Receiver for United Western Bank,
Defendant - Appellee.
_________________________________
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:16-CV-02475-WJM)
_________________________________
Mark E. Haynes (Michael M. Lane, with him on the briefs), Ireland Stapleton Pryor &
Pascoe, P.C., Denver, Colorado, appearing for Appellant.
Joseph Brooks, Counsel (Colleen J. Boles, Assistant General Counsel, Kathryn R.
Norcross, Senior Counsel, and Michelle Ognibene, Counsel, on the brief), Federal
Deposit Insurance Corporation, Appellate Litigation, Arlington, Virginia, appearing for
Appellees.
_________________________________
Before BRISCOE, SEYMOUR, and HOLMES, Circuit Judges.
_________________________________
BRISCOE, Circuit Judge.
_________________________________
This appeal, which arises out of a bankruptcy adversary proceeding, concerns
the ownership of a federal tax refund. The tax refund was issued by the Internal
Revenue Service (IRS) to United Western Bancorp, Inc. (UWBI), a thrift holding
company that had, under the terms of a written “Tax Allocation Agreement,” filed
consolidated returns on behalf of itself and several subsidiary corporations. The tax
refund was the result, however, of net operating losses incurred by United Western
Bank (the Bank), one of UWBI’s subsidiaries.
Simon Rodriguez, in his capacity as the Chapter 7 Trustee for the bankruptcy
estate of UWBI, initiated this adversary proceeding against the Federal Deposit
Insurance Corporation (FDIC), as receiver for the Bank, alleging that the tax refund
was owned by UWBI and was thus part of the bankruptcy estate. The bankruptcy
court agreed and entered summary judgment in favor of the Trustee. The FDIC
appealed to the district court, which reversed the decision of the bankruptcy court.
The Trustee now appeals from the district court’s decision.
Exercising jurisdiction pursuant to 28 U.S.C. § 158(d)(1), we agree with the
district court that the tax refund belongs to the FDIC, as receiver for the Bank.
Consequently, we affirm the judgment of the district court and remand to the
bankruptcy court for further proceedings.
2
I
a) UWBI and its affiliates
UWBI is a Colorado corporation and a “unitary thrift [or bank] holding
company.” Aplt. App., Vol. I at 41. UWBI owned several affiliate subsidiaries,
including the Bank. The Bank, UWBI’s principal subsidiary, was headquartered in
Denver and operated a community-based banking network that was comprised of
eight banking locations and a loan servicing office.
b) The Tax Allocation Agreement
UWBI’s affiliate subsidiaries were “members of an affiliated group . . . within
the meaning of Section 1504(a) of the Internal Revenue Code of 1986.” Id. at 41;
see 26 U.S.C. § 1504(a). Beginning in 2004 and continuing thereafter, the affiliated
group “file[d] . . . consolidated federal income tax returns.” Aplt. App., Vol. I at 41.
On January 1, 2008, UWBI and its affiliate subsidiaries entered into a Tax
Allocation Agreement (the Agreement).1 The Agreement’s preamble noted that the
affiliates had previously filed, and intended to continue to file, “consolidated federal
income tax return[s].” Id. The preamble further stated that “UWBI and the Affiliates
desire[d] to establish a method for (i) allocating the consolidated tax liability of the
Group among its members, (ii) reimbursing UWBI 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.
1
Prior to 2008, UWBI and its affiliates had filed taxes under similar, but not
identical, written agreements. Aplt. App., Vol. I at 182.
3
The Agreement in turn, under Section A, entitled “General Rule – Federal,”
outlined how federal tax payments would be made:
1. Except as specifically set forth herein to the contrary, each
Affiliate shall pay UWBI 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 a regulated first-tier Affiliate incurs a net operating loss or
excess tax credits, the regulated Affiliate is entitled to a refund equal to
the amount that it would have been entitled to receive had it not joined
in the filing of a consolidated return with UWBI. Similar treatment is
optional at UWBI discretion for nonregulated first-tier Affiliates. Any
refund shall generally not exceed the amount claimed or received as a
refund resulting from a carryback claim filed by UWBI. However, this
shall not prevent UWBI 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. Additionally,
if part of [sic] all of an unused consolidated net operating loss, net
capital loss, tax credit or similar type item is allocated to an Affiliate
pursuant to Regulations Section 1.1502-21, and it is carried back, if
utilized, or it is carried forward, whether or not utilized, to a year in
which such Affiliate filed a separate income tax return or a consolidated
federal income tax return with another group, any refund or reduction in
tax liability arising from the carryback or carryforward shall be retained
by such Affiliate and such item shall not enter into the calculation of
liability to or from UWBI.
2. In essence, this Agreement requires that each first-tier
subsidiary be treated as a separate taxpayer with UWBI merely being an
intermediary between an Affiliate and the Internal Revenue Service
(“IRS”).
Id. The Agreement also, in Section C, included “specific policies designed to cover
certain factual scenarios” including, for example, “[c]haritable contributions.” Id. at
42.
Section G of the Agreement stated that “[e]ach Affiliate hereby appoints
UWBI as its agent, as long as such Affiliate is a member of the UWBI group, for the
4
purpose of filing such consolidated Federal income tax returns for the UWBI group
as UWBI may elect to file and making any election, application or taking any action
in connection therewith on behalf of the Affiliates.” Id. at 44. Each affiliate also,
under Section G, “consent[ed] to the filing of any such returns and the making of any
such elections and applications.” Id.
Under Section H, entitled “Miscellaneous,” the Agreement contained a
provision regarding refunds from the IRS:
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 or refunds are received, or, in the
case of contested proceedings, within 10 business days after a final
determination of the contest.
Id. (quoting § H.1).
Also under Section H, the Agreement stated, in pertinent part:
The intent of this Agreement is to provide an equitable allocation of the
tax liability of the Group among UWBI 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. at 45 (quoting § H.4).
c) UWBI’s filing of federal tax returns on behalf of the group
UWBI proceeded, in accordance with the terms of the Agreement, to file
federal income tax returns for the consolidated group. In doing so, “the tax liabilities
5
and tax benefits” were computed “on a separate-entity basis for each Affiliate,” but
UWBI ultimately filed one tax return “on a consolidated basis.” Id. at 82.
For the tax year 2008, UWBI filed a federal income tax return for the affiliated
group and reported that the Bank generated $34,397,709 in taxable income. The
return indicated that UWBI itself did not generate taxable income in 2008.
In 2010, the Bank suffered at least $35,351,690 in losses. Based upon the
Bank’s 2010 net operating losses, UWBI, at some point in 2011, filed on behalf of
the affiliated group a tax refund request of $4,846,625 to recover a portion of the
taxes paid by the Bank on its 2008 taxable income.2
d) Appointment of the FDIC as receiver for the Bank
The Bank was a federally chartered savings and loan association. On January
21, 2011, the Office of Thrift Supervision (OTS) closed the Bank and appointed the
Federal Deposit Insurance Corporation (FDIC) as receiver. Shortly thereafter, the
FDIC notified the IRS of these events.
e) UWBI’s bankruptcy proceedings
Because the Bank was UWBI’s principal, if not sole, source of income, the
Bank’s receivership resulted in UWBI becoming insolvent. On March 2, 2012,
UWBI filed a petition for Chapter 11 bankruptcy. As of that date, the tax refund
request that UWBI filed in 2011 was still pending before the IRS.
2
The Internal Revenue Code permits corporations to “carryback” net operating
losses for up to two taxable years. See 26 U.S.C. § 172.
6
On August 30, 2012, the FDIC filed a proof of claim in UWBI’s bankruptcy
case in the aggregate amount of $4,847,000. The FDIC alleged that, as receiver for
the Bank, it was entitled to the federal tax refund that was due and owing from the
IRS to the affiliate group because the refund stemmed exclusively from the Bank’s
business loss carrybacks. The FDIC also alleged that its claim covered “potential
fraudulent transfers or unlawful dividends, unearned insurance premiums to the
extent that the source of the premium payments was the Bank, insurance proceeds
paid under applicable insurance coverage for any such losses, and other protective
claims.” Id. at 62.
The bankruptcy case was converted to a Chapter 7 proceeding on April 15,
2013. Rodriguez was appointed as the Chapter 7 trustee for the bankruptcy estate.
f) The adversary proceeding
On April 16, 2014, the Trustee initiated this adversary proceeding by filing a
complaint against the FDIC asserting three claims: (1) a claim for declaratory relief
in the form of a determination that the tax refund was the property of the debtor
rather than the FDIC, (2) a claim for turnover of the tax refund, pursuant to 11 U.S.C.
§ 542, to the extent the FDIC possessed the tax refund, and (3) an objection to the
FDIC’s proof of claim. The bankruptcy court subsequently authorized the tax refund
to be deposited into the court’s registry. On November 25, 2014, the FDIC filed a
counterclaim alleging that the FDIC, as the receiver for and successor to the Bank,
owned the tax refund.
7
On October 30, 2015, the parties filed cross motions for summary judgment.
The FDIC argued that there was “no provision in the . . . Agreement that transfers
ownership of the Bank-generated tax refunds to [UWBI], indicates that the Bank
intended to transfer beneficial ownership of the tax refunds to [UWBI], or otherwise
alters the widely recognized default rule regarding ownership of tax refunds by the
entity in a consolidated tax group that generated those tax refunds.” Aplt. App., Vol.
I at 78. The FDIC also argued that “[e]ven if the anticipated tax refund is paid to
[UWBI], [UWBI] acts as agent for the Affiliated Group and, therefore, would only
hold bare legal title in the tax refund.” Id. The Trustee argued, in contrast, that the
Agreement “establishe[d] a debtor-creditor relationship between [UWBI] and the
Bank with respect to any tax refunds” and that “[i]f and when the Refund [wa]s paid
to UWBI the funds w[ould] therefore become property of the [bankruptcy] Estate and
[the FDIC] w[ould] have an unsecured, nonpriority claim for its pro rata share.” Id.
at 178.
In 2015, the IRS, after completing an audit, issued a refund in the amount of
$4,081,334.67.
On September 16, 2016, the bankruptcy court issued an opinion and order
granting summary judgment in favor of the Trustee and denying the FDIC’s motion
for summary judgment. In doing so, the bankruptcy court began by noting that 11
U.S.C. § 541 outlines the creation of a bankruptcy estate and provides, in pertinent
part, that the estate includes “‘all legal or equitable interests of the debtor in property
as of the commencement of the case . . . wherever located and by whomever held.’”
8
Aplt. App., Vol. II at 382 (quoting § 541(a)). The bankruptcy court also noted that
“[a] long line of bankruptcy cases (even pre-dating the modern Bankruptcy Code)
dictate that if a debtor owns or is entitled to a federal loss carryback tax refund, such
refund generally becomes property of the debtor’s bankruptcy estate.” Id. at 383.
The bankruptcy court concluded that the Agreement, “the Internal Revenue
Code, and the IRS regulations all dictate that [UWBI], as the bank holding company
for the Affiliated Group has at least bare legal title to the Tax Refund.” Id. at 386
(emphasis in original). “After all,” the bankruptcy court noted, “26 C.F.R. § 1.1502-
77(d)(5) requires that the Tax Refund be made ‘directly to and in the name of’
[UWBI].” Id.
The bankruptcy court in turn concluded that the FDIC failed to establish that
the Bank had equitable ownership of the Tax Refund. In support of this conclusion,
the bankruptcy court noted that “neither the Internal Revenue Code nor the IRS
regulations establish which entity, [UWBI] or the Bank, has equitable or beneficial
ownership of the Tax Refund.” Id.
The bankruptcy court also determined that the Agreement created a debtor-
creditor relationship between UWBI and the Bank with respect to the tax refund. In
particular, the bankruptcy court concluded that the Agreement (a) “created fungible
payment obligations through an intercompany account of payments and
reimbursements” that indicated “the parties were creating a debtor-creditor
relationship,” (b) contains no escrow, segregation, or use restrictions regarding what
UWBI can or cannot do when it receives a tax refund from the IRS, and (c) delegates
9
decision-making on tax matters to UWBI. Id. at 390. Consequently, the bankruptcy
court concluded that UWBI was “the beneficial owner of the Tax Refunds,” and thus
the Tax Refund “belong[ed] to the Trustee (as Trustee of the [UWBI] bankruptcy
estate).” Id.
Based upon these conclusions, the bankruptcy court determined “that the
Trustee [wa]s entitled to the Tax Refund.” Id. at 400. The bankruptcy court
emphasized that this “d[id] not leave the FDIC without a remedy” because it was
“still a general unsecured creditor of the [UWBI] bankruptcy estate and [could] share
pari passu with any other allowed general unsecured claims.” Id. at 400-01.
The bankruptcy court entered judgment in the adversary proceeding on
September 16, 2016.
g) The district court’s decision
The FDIC appealed and, on July 10, 2017, the district court issued an order
reversing the judgment of the bankruptcy court. The district court concluded, in
pertinent part, that the Agreement was “ambiguous regarding whether [UWBI] may
keep the tax refund in the present circumstances” and “that any ambiguity [should] be
construed in favor of the Bank.” Aplt. App., Vol. III at 529. The district court noted
that the plain language of Section A.2 of the Agreement “declare[d] that the purpose
of the [Agreement] is to set up an arrangement in which [UWBI] acts as nothing
more than a go-between, as between the subsidiaries and the IRS.” Id. at 552. The
district court also concluded that Section H.4 of the Agreement required it to construe
any ambiguities in favor of the Bank and that, consequently, it was required to
10
interpret the Agreement as requiring UWBI “to act as agent on behalf of the Bank in
obtaining and remitting the refund.” Id. at 559. Accordingly, the district court
concluded that UWBI “held no more than legal title to the Refund, while the Bank
held equitable title,” and thus “[t]he Refund [wa]s not part of [UWBI’s] bankruptcy
estate.” Id. at 560.
The Trustee now appeals from the district court’s decision.
II
The Trustee’s arguments on appeal
The Trustee argues that under “[t]he plain language” of the Agreement,
“UWBI holds equitable title to the Tax Refund, and thus . . . the Refund is property
of the UWBI estate.” Aplt. Br. at 12. In support, the Trustee asserts that the
Agreement “imposes two reciprocal obligations.” Id. He contends that “[i]t requires
each affiliate to pay to UWBI funds equal to the amount the affiliate would have been
liable to pay the IRS had the affiliate filed an individual . . . tax return,” and it in turn
“obliges UWBI to pay each affiliate funds equal to the amount of the refund to which
that affiliate would have been entitled had it filed a separate tax return.” Id. at 12-13.
Further, the Trustee argues that “[n]othing in the [Agreement] grants [the Bank] any
interest in any IRS tax refund actually received by UWBI.” Id. at 13. In short, the
Trustee argues, the Agreement “creates a debtor-creditor relationship, and the Bank
holds only an unsecured claim against the UWBI estate in the amount of funds the
Bank would have received had it filed a separate tax return.” Id. at 14.
11
Standard of review
“When hearing an appeal from a district court’s review of a bankruptcy-court
order, ‘we independently review the bankruptcy court’s decision, applying the same
standard as the . . . district court.’” In re Peeples, 880 F.3d 1207, 1212 (10th Cir.
2018) (quoting In re C.W. Min. Co., 798 F.3d 983, 986 (10th Cir. 2015)). “We
review bankruptcy-court orders granting summary judgment in adversarial
proceedings de novo, and affirm if ‘there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.’” Id. (quoting Fed. R. Civ.
P. 56(a)).
The scope of UWBI’s bankruptcy estate
It is well established that “[f]iling for Chapter 11 [or Chapter 7] bankruptcy
has several relevant legal consequences,” the most important of which, for purposes
of this appeal, is that “an estate is created comprising all property of the debtor.”
Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 978 (2017) (citing 11 U.S.C.
§ 541(a)(1)). This includes “all legal or equitable interests of the debtor in property
as of the commencement of the [bankruptcy] case.” 11 U.S.C. § 541(a)(1). The
estate does not include, however, “[p]roperty in which the debtor holds, as of the
commencement of the [bankruptcy] case, only legal title and not an equitable interest
. . . .” 11 U.S.C. § 541(d). Thus, in order for the tax refund to be considered part of
UWBI’s estate, UWBI must hold both legal and equitable title to the tax refund.
12
The analytical framework for resolving ownership of the tax refund
Section 1501 of the Internal Revenue Code (the Code) authorizes an “affiliated
group” of corporations to “mak[e] a consolidated return with respect to income tax
. . . .” 26 U.S.C. § 1501. The Code defines the term “affiliated group” to mean, in
pertinent part, “1 or more chains of includible corporations connected through stock
ownership with a common parent corporation which is an includible corporation
. . . .” 26 U.S.C. § 1504(a)(1)(A). The Code does not, however, specify what
happens when an affiliated group that has filed a consolidated federal tax return
receives a tax refund. More specifically, the Code is silent with respect to the legal
and equitable ownership of such a tax refund.
Federal common law, however, provides a framework for resolving this issue.
The general rule in this circuit, as outlined in Barnes v. Harris, 783 F.3d 1185, 1195
(10th Cir. 2015), is that “a tax refund due from a joint return generally belongs to the
company responsible for the losses that form the basis of the refund.” In adopting
this principle, Barnes cited to and effectively adopted the Ninth Circuit’s decision in
In re Bob Richards Chrysler-Plymouth Corp., Inc., 473 F.2d 262, 265 (9th Cir.
1973).3
3
In Fed. Deposit Ins. Corp. v. AmFin Fin. Corp., 757 F.3d 530 (6th Cir.
2014), the Sixth Circuit declined to adopt the Bob Richards rule on the grounds that
it “is a creature of federal common law” and that “federal common law constitutes an
unusual exercise of lawmaking which should be indulged only in a few restricted
instances.” Id. at 535. Whether or not this is a valid criticism, we are bound by the
decision in Barnes.
13
Bob Richards involved facts somewhat similar, but not identical, to those at
issue here. Western Dealer Management, Inc. (WDM) was a parent corporation that
wholly owned two subsidiary corporations, one of which was Bob Richards Chrysler-
Plymouth Corporation, Inc. (Bob Richards). In October 1965, Bob Richards filed a
petition in bankruptcy. While that bankruptcy proceeding was pending, WDM filed
consolidated federal income tax returns on behalf of itself and its two subsidiaries for
the tax years 1965 and 1966. Notably, “[t]he return for 1966 showed that the
consolidated group was entitled to a refund of taxes” in the amount of $10,063.25
and “[t]he entire refund . . . was due to the earnings history of” Bob Richards. Id. at
263. The bankruptcy trustee claimed that the refund belonged to the bankruptcy
estate, but WDM claimed a right to the entire tax refund “as a set-off” of a “$45,000
unsecured obligation of” Bob Richards. Id.
The Ninth Circuit concluded that “[t]he Trustee, not WDM, [wa]s entitled to
the refund.” Id. at 264. In reaching this conclusion, the Ninth Circuit first “note[d]
that at the date of the filing of the petition in bankruptcy, the Trustee acquired any
interest [Bob Richards] had in the carryback tax refund.” Id. The Ninth Circuit in
turn noted there was “no evidence that [Bob Richards] or the Trustee at any time
voluntarily assigned its rights in the refund to WDM.” Id. Although the Ninth
Circuit acknowledged that Bob Richards “consented to the filing of a consolidated
tax return,” it noted that “such consent [could not] be construed to include the
transfer of a valuable asset without further consideration.” Id.
14
Relatedly, the Ninth Circuit noted “that there is nothing in the [Internal
Revenue] Code or Regulations that compels the conclusion that a tax saving must or
should inure to the benefit of the parent company or of the company which has
sustained the loss that makes possible the tax saving.” Id. (quotations and brackets
omitted). Thus, the Ninth Circuit noted, the normal rule is that “where there is an
explicit agreement, or where an agreement can fairly be implied, as a matter of state
corporation law the parties are free to adjust among themselves the ultimate tax
liability.” Id. In the case before it, however, “the parties made no agreement
concerning the ultimate disposition of the tax refund.” Id. at 265.
All of which led the Ninth Circuit to adopt what has since become known as
“the Bob Richards rule”:
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.
Applying these principles to the facts before it, the Ninth Circuit emphasized
that “WDM received the tax refund from the government only in its capacity as agent
for the consolidated group.” Id. And because “there [wa]s no express or implied
agreement that the agent had any right to keep the refund,” it concluded “that WDM
was acting as a trustee of a specific trust and was under a duty to return the tax
refund to the estate of the bankrupt.” Id.
15
The Trustee argues that Barnes and Bob Richards are inapplicable here
because of the existence of the Agreement. But the Trustee is only partially correct.
Barnes, which adopted Bob Richards, clearly applies to this case and outlines the
general framework that we must apply in resolving the parties’ dispute. The Trustee
is correct, however, that this case differs from Barnes and Bob Richards because
there was a written agreement in place—the Agreement—that discussed the filing of
a consolidated federal tax return. Consequently, as directed by Barnes and Bob
Richards, we must look to the terms of the Agreement and, taking into account
Colorado case law, decide whether it unambiguously addresses how tax refunds are
to be handled and, if so, whether it purports to deviate from the general rule outlined
in Barnes and Bob Richards. See generally Barnhill v. Johnson, 503 U.S. 393, 398
(1992) (“In the absence of any controlling federal law, ‘property’ and ‘interests in
property’ are creatures of state law.” (quotations omitted)).
What does the Agreement say about tax refunds?
As we shall explain, the written terms of the Agreement are, at best,
ambiguous regarding the nature of the relationship that UWBI and the Bank intended
to create with one another. Specifically, certain of its provisions suggest the
existence of an agency relationship, while other provisions suggest the intent to
create something other than an agency relationship.
As noted, Section A.1 of the Agreement, which is contained under the heading
“General Rule – Federal,” provides, in pertinent part:
16
If a regulated first-tier Affiliate incurs a net operating loss or excess tax
credits, the regulated Affiliate is entitled to a refund equal to the amount
that it would have been entitled to receive had it not joined in the filing
of a consolidated return with UWBI. Similar treatment is optional at
UWBI discretion for nonregulated first-tier Affiliates. Any refund shall
generally not exceed the amount claimed or received as a refund
resulting from a carryback claim filed by UWBI. However, this shall
not prevent UWBI 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. Additionally, if part of
[sic] all of an unused consolidated net operating loss, net capital loss,
tax credit or similar type item is allocated to an Affiliate pursuant to
Regulations Section 1.1502-21, and it is carried back, if utilized, or it is
carried forward, whether or not utilized, to a year in which such
Affiliate filed a separate income tax return or a consolidated federal
income tax return with another group, any refund or reduction in tax
liability arising from the carryback or carryforward shall be retained by
such Affiliate and such item shall not enter into the calculation of
liability to or from UWBI.
Aplt. App., Vol. I at 41.
The first of these sentences—stating that “[i]f a regulated first-tier Affiliate,”
i.e., the Bank, “incurs a net operating loss or excess tax credits, the regulated
Affiliate is entitled to a refund equal to the amount that it would have been entitled to
receive had it not joined in the filing of a consolidated return with USBI”—is
arguably ambiguous. On the one hand, it purports to “entitle[]” the regulated affiliate
“to a refund equal to the amount that it would have received had it not joined in the
filing of a consolidated return.” On the other hand, when contrasted with the last
sentence, it does not give the Bank the right to “retain” the refund. Instead, under the
first sentence, a refund received by UWBI as a result of a net operating loss incurred
by the Bank is taken into account by the parties in calculating their year-end
liabilities to each other.
17
The second and third sentences of Section A.1 afford UWBI with two types of
discretion: (1) whether to pay any refund at all to a nonregulated affiliate; and (2)
when it pays a refund to any affiliate, whether to pay an amount equivalent to the
amount the affiliate would have received had it filed its own income tax return, or
instead to pay a greater amount. These sentences thus arguably point toward
something more than a mere agency relationship.
The last sentence of Section A.1 indicates that if a net operating loss of any
affiliate is carried back to a year when that affiliate was filing a separate income tax
return (or filing a consolidated return with another group), then “any refund . . . shall
be retained by such Affiliate and such item will not enter into the calculation of
liability to or from UWBI.” This arguably suggests that, in all other situations, an
affiliate does not “retain” a tax refund and, instead, refunds are taken into
consideration during the annual reconciliation of liability between the parties.
Section A.2 of the Agreement, which is also contained under the heading
“General Rule – Federal,” states: “In essence, this Agreement requires that each first-
tier subsidiary be treated as a separate taxpayer with UWBI merely being an
intermediary between an Affiliate and the Internal Revenue Service . . . .” Id.
Although the term “intermediary” is not expressly defined in the Agreement, it is
commonly understood to mean “[a] mediator or go-between.” Intermediary, Black’s
Law Dictionary (10th ed. 2014). Thus, in contrast to most of Section A.1, Section
A.2 clearly points to the existence of an agency relationship between UWBI and its
18
affiliates, rather than a debtor/creditor relationship. In other words, it suggests that
UWBI will simply act as a conduit through which the refund will pass.
Section F of the Agreement, entitled “Tax Settlement Payments – Federal and
State,” states, in pertinent part, that affiliates are to make “[e]stimated payments of
Federal . . . taxes” to UWBI on a specified quarterly basis (April 15, June 15,
September 15, and December 15). Id. at 44. Those estimated payments are to be in
“an amount equal to the amount of any estimated federal income taxes which the
Affiliate would have been required to pay on or before such dates if the Affiliate had
filed its own separate income tax return for such taxable period.” Id. “Payments [by
UWBI] to an Affiliate for net operating losses or similar items shall not be made
under this provision, but rather on an annual basis pursuant to Section A” of the
Agreement. Id.
In turn, Section E of the Agreement, entitled “Tax Settlement Payments –
Federal,” provides in pertinent part:
1. Preliminary tax settlement payments are due on or before March 15
following the end of the appropriate taxable year. Although
overpayments of estimated taxes made by Affiliates are not refunded
until final tax settlement is done, an Affiliate with a taxable loss for the
year may recover estimated taxes paid for that year before final
settlement if an “expedited refund” claim is filed with UWBI by
February 15 following the end of the tax year.
2. Each first-tier Affiliate shall compute its final tax settlement liability
based on the amounts included for that Affiliate (and its subsidiaries, if
applicable) in the consolidated federal income tax return filed. A copy
of such computation will be prepared by October 31, and any
differences will be resolved. Final tax settlement payments or refunds
are due on or before November 15.
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Id. at 43-44.
Considered together, Sections E and F obligate affiliates to make quarterly
estimated tax payments to UWBI during the course of a taxable year, preliminary tax
settlement payments to UWBI on or before March 15th following the end of the
taxable year, and final tax settlement payments, if necessary, to UWBI on or before
November 15th following the end of the taxable year. In turn, Section E, when
considered together with Section A, obligates UWBI to (1) refund to its affiliates, by
November 15th following the end of the taxable year, any overpayments of estimated
taxes, (2) expedite any such refund if an affiliate has a taxable loss for the year in
question and the affiliate files with UWBI an expedited refund claim by February
15th following the end of the taxable year, and (3) ensure that, when a regulated first-
tier affiliate incurs a net operating loss or excess tax credits, any such refunds paid to
that affiliate are equal to or greater than the amount that such affiliate would have
been entitled to receive had it not joined in the filing of the consolidated tax return.
Section G of the Agreement states that “[e]ach Affiliate hereby appoints
UWBI as its agent . . . for the purpose of filing such consolidated Federal income tax
returns for the UWBI group as UWBI may elect to file and making any election,
application, or taking any action in connection therewith on behalf of the Affiliates.”
Id. at 44.
Lastly, Section H of the Agreement, entitled “Miscellaneous,” contains two
relevant paragraphs. Section H.1 states:
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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 or refunds are received, or, in the
case of contested proceedings, within 10 business days after a final
determination of the contest.
Id. Further, Subsection H.4 states, in pertinent part:
The intent of this Agreement is to provide an equitable allocation of the
tax liability of the Group among UWBI 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. at 45.
Considered in its entirety, it is apparent that the Agreement was intended to
authorize the filing of a consolidated tax return and, in turn, to create a series of
payment obligations between UWBI and its affiliates—including the Bank—in order
to carry out the goal of filing a consolidated tax return. Affiliates are obligated, by
way of both estimated and final tax payments, to pay UWBI the precise amount of
their federal income tax obligations. UWBI, in turn, is obligated to refund to its
affiliates any overpayments of estimated taxes. When an affiliate incurs a taxable
loss due to net operating losses or excess tax credits, UWBI’s obligations depend
upon the nature of the affiliate. If the affiliate is a regulated, first-tier affiliate such
as the Bank, then UWBI is obligated to pay that affiliate “a refund equal to” or
greater than “the amount that it would have been entitled to receive had it not joined
in the filing of a consolidated return with UWBI.” Id. at 41 (§ A.1 of the
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Agreement). For “nonregulated first-tier Affiliates,” UWBI has the discretion to
decide whether or not to treat them similarly to regulated first-tier affiliates in terms
of tax refunds. Id.
Critically, however, the Agreement is, on its face, ambiguous with respect to
the type of relationship it intends to create between UWBI and regulated, first-tier
affiliates, such as the Bank, regarding the ownership of refunds from the IRS. 4 See
Pinnacol Assurance v. Hoff, 375 P.3d 1214, 1229 (Colo. 2016) (noting that a contract
is ambiguous if it is reasonably susceptible of more than one meaning); id. (“Whether
a written contract is ambiguous is a question of law that we review de novo.”). On
the one hand, portions of the Agreement quite clearly indicate the intent to create an
agency relationship between UWBI and its regulated, first-tier affiliates. For
example, Section A.2 states that “each first-tier subsidiary [is to] be treated as a
separate taxpayer with UWBI merely being an intermediary between an Affiliate and
the” IRS. Aplt. App., Vol. I at 41. Likewise, Section G states that UWBI is being
appointed by each affiliate to act as its agent for purposes of filing the consolidated
tax return and taking any action in connection therewith. On the other hand, portions
of the Agreement arguably suggest the intent for UWBI to retain tax refunds before
forwarding them on to regulated, first-tier affiliates. For example, parts of Section
4
Rodriguez argues the FDIC has waived any argument that the Agreement is
ambiguous. We reject that argument. The FDIC has consistently argued the
Agreement creates an agency relationship, rather than a debtor/creditor relationship.
The FDIC has also consistently argued that any ambiguity in the Agreement must be
resolved in the Bank’s favor. Aplt. App., Vol. I at 89, 237; Vol. III at 423, 434, 452,
453, 500, 520-21.
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A.1 imply that UWBI will retain tax refunds and then later take them into account
during the annual settlement process. In addition, the fact that Section A.1 affords
UWBI with discretion regarding the amount to refund a regulated, first-tier affiliate
(i.e, the exact amount of the refund or a greater amount) seems to suggest something
other than an agency relationship. Finally, the ambiguity of the Agreement on this
issue is compounded by the fact that it contains no language requiring UWBI to
utilize a trust or escrow for tax refunds—which would suggest the existence of an
agency or trust relationship—nor does it contain provisions for interest and
collateral—which would be indicative of a debtor-creditor relationship. See In re
NetBank, Inc., 729 F.3d 1344, 1351 (11th Cir. 2013); Fed. Deposit Ins. Corp. v.
AmFin Fin. Corp., 757 F.3d 530, 535 (6th Cir. 2014).
Resolving the Agreement’s ambiguity
Notably, the Agreement itself provides a method for resolving the ambiguity.
Section H.4 of the Agreement states that “[a]ny ambiguity in the interpretation hereof
shall be resolved, with a view to effectuating such intent [i.e., to provide an equitable
allocation of the tax liability of the Group among UWBI and the Affiliates], in favor
of any insured depository institution.” Aplt. App., Vol. I at 45. Quite clearly,
construing the Agreement to create an agency relationship between UWBI and the
Bank with respect to federal tax refunds—and thereby affording ownership of the tax
refund to the Bank—is more favorable to the Bank than construing the Agreement to
create a debtor/creditor relationship and thus affording ownership of federal tax
refunds to UWBI. We therefore conclude that the ambiguity in the Agreement must
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be construed in favor of the Bank and the FDIC, and that, consequently, the
Agreement must be read as creating only an agency relationship between UWBI and
the Bank.
Conclusion
In sum, we conclude that the Agreement creates an agency relationship
between UWBI and the Bank and that, consequently, the Agreement’s intended
treatment of tax refunds does not differ from the general rule outlined in Barnes and
Bob Richards. Therefore, we conclude that the tax refund at issue belongs to the
Bank, and that the FDIC, as receiver for the Bank, was entitled to summary judgment
in its favor.
III
We AFFIRM the judgment of the district court and REMAND to the
bankruptcy court for further proceedings consistent with this opinion.
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