Alta Wind v. United States , 897 F.3d 1365 ( 2018 )

United States Court of Appeals
for the Federal Circuit
______________________
ALTA WIND I OWNER LESSOR C, ALTA WIND I
OWNER LESSOR D, ALTA WIND II OWNER
LESSOR A, ALTA WIND II OWNER LESSOR B,
ALTA WIND II OWNER LESSOR C, ALTA WIND II
OWNER LESSOR D, ALTA WIND II OWNER
LESSOR E, ALTA WIND III OWNER LESSOR A,
ALTA WIND III OWNER LESSOR B, ALTA WIND III
OWNER LESSOR C, ALTA WIND III OWNER
LESSOR D, ALTA WIND IV OWNER LESSOR A,
ALTA WIND IV OWNER LESSOR B, ALTA WIND IV
OWNER LESSOR C, ALTA WIND IV OWNER
LESSOR D, MUSTANG HILLS, LLC, ALTA WIND V
OWNER LESSOR A, ALTA WIND V OWNER
LESSOR B, ALTA WIND V OWNER LESSOR C,
ALTA WIND V OWNER LESSOR D,
Plaintiffs-Appellees
v.
UNITED STATES,
Defendant-Appellant
______________________
2017-1410, 2017-1411, 2017-1412, 2017-1415, 2017-1417,
2017-1422, 2017-1423, 2017-1424
______________________
Appeals from the United States Court of Federal
Claims in Nos. 1:13-cv-00402-TCW, 1:13-cv-00917-TCW,
1:13-cv-00935-TCW, 1:13-cv-00972-TCW, 1:14-cv-00047-
TCW, 1:14-cv-00093-TCW, 1:14-cv-00174-TCW, 1:14-cv-
00175-TCW, Judge Thomas C. Wheeler.
2 ALTA WIND v. UNITED STATES
______________________
Decided: July 27, 2018
______________________
STEVEN ROSENBAUM, Covington & Burling LLP,
Washington, DC, argued for plaintiffs-appellees. Also
represented by DENNIS AUERBACH, MARGARET BRENNAN,
THOMAS BRUGATO.
ANDREW M. WEINER, Tax Division, United States
Department of Justice, Washington, DC, argued for
defendant-appellant. Also represented by DAVID A.
HUBBERT, JONATHAN S. COHEN, GILBERT STEVEN
ROTHENBERG, FRANCESCA UGOLINI.
______________________
Before NEWMAN, DYK, and CHEN, Circuit Judges.
DYK, Circuit Judge.
In order to encourage the construction of alternative
energy production facilities, Congress enacted sec-
tion 1603 of the American Recovery and Reinvestment Act
(ARRA) of 2009, Pub. L. No. 111-5, 123 Stat. 115, 364–66
(set forth at I.R.C. § 48 note), which provides a cash grant
to entities that “place[] in service” certain renewable
energy facilities, id. § 1603(a). The amount of the grant is
determined using the basis of the tangible personal prop-
erty of the facility (with certain exclusions). Id.
§ 1603(b)(1).
Here, plaintiffs, the owners of the Alta windfarms,
placed into service various windfarm facilities and applied
for approximately $703 million in section 1603 grants.
The government awarded grants in the amount of approx-
imately $495 million. Plaintiffs brought suit in the Court
of Federal Claims (“Claims Court”), seeking approximate-
ly $206 million in additional grant payments, and the
ALTA WIND v. UNITED STATES 3
government counterclaimed, asserting that it had over-
paid plaintiffs in the amount of $59 million. The differ-
ence in the amounts was attributable solely to different
methods for calculating basis. The Claims Court found in
favor of plaintiffs, approving their method of basis calcu-
lation and rejecting the government’s argument that basis
must be calculated using the residual method of I.R.C.
§ 1060, which applies in the case of an acquisition of a
trade or business. The government argues that, under the
residual method, the overall purchase price must be
allocated on a waterfall basis among several categories of
assets, some grant-eligible and some not, resulting in a
lower basis in eligible property than plaintiffs’ method.
On appeal, we hold that the Claims Court erred in re-
fusing to utilize the residual method of I.R.C. § 1060 and
in excluding the testimony of the government’s expert
witness as to the appropriate basis calculation. We vacate
and remand.
BACKGROUND
I
Congress has long used tax incentives to promote in-
vestment in new renewable energy projects. Initially,
these incentives came in the form of tax credits—
specifically the production tax credit (“PTC”) under I.R.C.
§ 45 and the investment tax credit (“ITC”) under I.R.C.
§ 48. It was often the case, however, that renewable
energy investors could not directly monetize these tax
credits because “the size of tax benefits available for
renewable energy investors . . . exceeded the investor’s tax
liability.” Phillip Brown & Molly F. Sherlock, Cong.
Research Serv., R41635, ARRA Section 1603 Grants in
Lieu of Tax Credits for Renewable Energy 1 (2011). For
this reason, it became “common industry practice for
renewable energy developers to partner with tax-equity
investors, where the tax-equity investors [would] offer
4 ALTA WIND v. UNITED STATES
cash in exchange for project ownership, project cash flows,
tax credits, and depreciation benefits.” Id. By 2009, how-
ever, poor economic conditions had reduced the availabil-
ity of tax-equity investors for renewable energy projects.
Id. at 1, 16. Congress created the section 1603 grant
program, which has since expired, to address this tax-
equity shortfall. Id. at 16. 1
Under section 1603, “each person who place[d] in ser-
vice specified energy property” during a designated peri-
od, ARRA § 1603(a), was entitled to receive a cash grant
equal to a percentage—here, 30 percent, id.
§ 1603(b)(2)A)—of the “basis” of the specified energy
property, id. § 1603(b)(1). Specified energy property,
which the parties also refer to as “eligible property,” is
defined by references to § 45 and § 48 of the Internal
Revenue Code. ARRA § 1603(d). “Eligible property” only
1 See also Staff of Joint Comm. on Taxation, JCS-2-
11, General Explanation of Tax Legislation Enacted in the
111th Congress 109–10 (2011) (“The Congress under-
stands that some investors in renewable energy projects
have suffered economic losses that prevent them from
benefitting from the renewable electricity production
credit and the energy credit. . . . The Congress therefore
believes that, in the short term, allowing renewable
energy developers to elect to receive direct grants in lieu
of the renewable electricity production credit and the
energy credit is necessary for continued growth in this
important industry.”); Office of the Fiscal Assistant Sec’y,
U.S. Treasury Dep’t, Payments for Specified Energy
Property in Lieu of Tax Credits under the American Re-
covery and Reinvestment Act of 2009: Program Guidance 3
(2011) [hereinafter Program Guidance] (“It is expected
that the Section 1603 program will temporarily fill the
gap created by the diminished investor demand for tax
credits.”).
ALTA WIND v. UNITED STATES 5
includes tangible personal property and other tangible
property, used as an integral part of the facility, for which
depreciation or amortization is allowable. 2 It does not
include real estate, buildings, or transmission equipment.
It also does not include intangibles. The amount of a
section 1603 grant is determined by the basis of the
eligible property. ARRA § 1603(b)(1).
II
Between 2010 and 2012, plaintiffs acquired six com-
pleted windfarm facilities near Los Angeles, California—
Alta I, Alta II, Alta III, Alta IV, Alta V, and Alta VI
(collectively “the Alta facilities”)—from developer Terra-
2 Specifically, section 1603(d)(1) explains that “spec-
ified energy property” includes “[a]ny qualified property
(as defined in section 48(a)(5)(D) of the Internal Revenue
Code of 1986) which is part of a qualified facility (within
the meaning of section 45 of such Code) described in
paragraph (1), (2), (3), (4), (6), (7), (9), or (11) of section
45(d) of such Code.” Under I.R.C. § 45(d)(1), “qualified
facility” includes “any facility using wind to produce
electricity.” And under I.R.C. § 48(a)(5)(D), “qualified
property” includes “property (i) which is– (I) tangible
personal property, or (II) other tangible property (not
including a building or its structural components) . . .
used as an integral part of the qualified . . . facility,
(ii) with respect to which depreciation (or amortization in
lieu of depreciation) is allowable.” Treasury guidance for
the section 1603 program further explains that “qualified
property” does not include “any electrical transmission
equipment, such as transmission lines and towers, or any
equipment beyond the electrical transmission stage, such
as transformers and distribution lines.” Program Guid-
ance 12; see also Treas. Reg. § 1.48-1.
6 ALTA WIND v. UNITED STATES
Gen Power LLC (“Terra-Gen”). 3 Five of the six transac-
tions were sale-leasebacks, in which plaintiffs both ac-
quired the windfarm and leased it back to Terra-Gen,
which was to operate the windfarm and pay rent to plain-
tiffs. Immediately after the transactions, plaintiffs placed
each windfarm into service and applied for section 1603
grants.
The dispute here is how to calculate plaintiffs’ basis in
eligible property for purposes of the section 1603 grants.
Both parties agree that the portion of the purchase prices
attributable to grant-ineligible tangible property (primari-
ly real estate, transmission equipment, and buildings)
must be deducted. The difference between the parties’
positions concerns the allocation of the remainder of the
purchase prices. Plaintiffs contend that the entire re-
mainder can be allocated to grant-eligible tangible per-
sonal property, with none allocated to intangibles. The
result would be that the entire purchase price, absent the
small deduction for grant-ineligible tangible property,
would be included in plaintiffs’ basis. We refer to this
view as the “unallocated method.”
The government argues that the transactions involved
intangibles, including goodwill, and that the remaining
purchase price therefore must be allocated between grant-
eligible tangible personal property and grant-ineligible
intangibles using the residual method required by I.R.C.
§ 1060.
Section 1060 and corresponding Treasury regulations
require that the residual method be used to calculate
basis in the case of “applicable asset acquisition[s],” I.R.C.
3 When plaintiffs acquired Alta VI, the facility was
renamed Mustang Hills. For clarity, we refer to it as Alta
VI throughout the opinion.
ALTA WIND v. UNITED STATES 7
§ 1060(a), which are, in relevant part, any group of assets
(i) the use of which “would constitute an active trade or
business under [I.R.C. §] 355,” or (ii) to which “goodwill or
going concern value could under any circumstances at-
tach,” Treas. Reg. § 1.1060-1(b)(2)(i). According to the
government, in the residual method (or “§ 1060 method”),
the overall purchase price is allocated on a waterfall basis
among several categories of assets, some grant eligible
and some not, with each category calculated at the fair
market value of the assets in that category. See Treas.
Reg. §§ 1.338-6(b), 1.1060-1(a)(1). We refer to this as the
“residual method” or the “§ 1060 method.”
Because the plaintiffs do not attribute any of the pur-
chase price to intangibles, their unallocated method
results in a much higher basis and, consequently, a much
higher section 1603 grant amount than the government’s
residual method. Some background on the transactions is
useful to an understanding of the dispute.
III
The development process began for the Alta facilities
in 2006, when Oak Creek Energy Systems (“Oak Creek”)
entered into a partnership with Allco Wind Energy Man-
agement Pty. Ltd. (“Allco”) to finance, develop, and con-
struct windfarms in the Tehachapi region of California.
Over the next two years, they secured land rights, con-
structed meteorological towers, collected wind data,
completed environmental studies, started the environ-
mental permitting process, and purchased some of the
needed turbines.
In July 2008, Terra-Gen acquired Allco’s U.S. wind
energy business, including its stake in the planned Alta
facilities. After acquiring Allco’s interests, Terra-Gen
completed the process of developing and constructing the
Alta windfarms. This involved obtaining additional land,
securing all required permits, acquiring additional tur-
8 ALTA WIND v. UNITED STATES
bines, and constructing the six windfarms at issue in this
case.
In addition, Terra-Gen completed the process of secur-
ing a customer for the output of the Alta facilities. In
2006, Oak Creek and Allco had executed a Master Power
Purchase and Wind Project Development Agreement
(“Master PPA”) with Southern California Edison (“SCE”),
which provided that Oak Creek and Allco would develop
windfarms with an aggregate capacity of 1,550 megawatts
and that SCE would purchase the windfarms’ entire
electricity output for a period of roughly 24 years. To
effectuate this arrangement, SCE was to enter into a
separate long-term PPA with each individual windfarm,
with the price to be set according to a formula included in
the Master PPA. Terra-Gen executed these windfarm-
specific PPA contracts and entered into other necessary
contracts, such as interconnection agreements.
In 2009, Congress enacted section 1603, under which
the owners of the Alta windfarms could receive a cash
grant in lieu of tax credits. Terra-Gen itself was not
qualified to receive a section 1603 payment, as sec-
tion 1603(g)(4) barred a “pass-thru entity” from receiving
a grant if any “holder of an equity or profits interest” in
the entity was a nonprofit, and Terra-Gen had some non-
profit equity holders. Moreover, Terra-Gen apparently
believed that it could increase the amount of the sec-
tion 1603 grant if it sold the Alta facilities before placing
them into service—because, in plaintiffs’ view, the basis
in grant-eligible property for each windfarm would be
increased by virtue of the transaction.
Thus, Terra-Gen decided to sell the completed wind-
farms, allowing the purchasers to place them into service
and apply for the section 1603 payments. As part of the
transactions, plaintiffs agreed to apply for the sec-
tion 1603 grant using their purchase price to establish
ALTA WIND v. UNITED STATES 9
basis. Five of the six transactions included an indemnity
provision, whereby Terra-Gen agreed to cover the short-
fall that would occur if Treasury did not accept plaintiffs’
use of their unallocated purchase price as their basis in
eligible property. At the time of the transactions, the
windfarms were completely ready for operation.
Between December 2010 and June 2011, Terra-Gen
sold five windfarms (Altas I–V) to plaintiffs in sale-
leaseback transactions. In these sale-leaseback transac-
tions, plaintiffs purchased the windfarms then leased
them back to Terra-Gen, which operated the windfarms
and paid rent to plaintiffs. 4 In 2012, Terra-Gen sold a
sixth windfarm, Alta VI, to one of the plaintiffs in an
outright sale. Plaintiffs appear to have placed each facili-
ty into service within weeks of its acquisition.
After acquiring the Alta facilities and placing the
windfarms in service, plaintiffs, with Terra-Gen’s assis-
tance, collectively applied for over $703 million in sec-
tion 1603 grants using the unallocated method to
determine basis. In accordance with Treasury’s require-
ment that companies applying for a section 1603 grant
provide an opinion from an independent auditor validat-
ing the claimed grant-eligible costs, plaintiffs retained
KPMG to examine their applications. KPMG certified that
plaintiffs’ allocations were fairly stated. Ultimately,
Treasury awarded payments equal to 30 percent of each
facility’s grant-eligible construction and development
costs—approximately $495 million in all—instead of
awarding payments equal to 30 percent of each facility’s
unallocated basis as requested.
4 Plaintiffs are trusts that were created by renewa-
ble energy investors for purposes of holding the property
and applying for the section 1603 grants.
10 ALTA WIND v. UNITED STATES
IV
In June 2013, plaintiffs separately brought suits in
the Claims Court, seeking over $206 million in additional
section 1603 grants and arguing that their basis calcula-
tions were correct. The government argued that plaintiffs
were not entitled to the additional grant amount and that,
in fact, the government had overpaid plaintiffs in the
amount of $59 million. The government counterclaimed
for the excess.
In the government’s view, the purchase prices for the
Alta facilities did not reflect the fair market value of the
tangible, grant-eligible property utilized by each wind-
farm, as required by section 1603. In particular, the
government argued that the Alta transactions were
“applicable asset acquisitions” subject to I.R.C. § 1060,
which requires allocation of the purchase price to various
asset classes using the residual method. The government
also argued that the court was required to look beyond the
purchase prices to the value of the relevant assets (here,
the eligible property) because the sale-leaseback structure
and the section 1603 indemnities in the transactions
constituted “peculiar circumstances” that induced plain-
tiffs to pay more than fair market value for the wind-
farms. See Lemmen v. Comm’r, 77 T.C. 1326, 1348 (1981)
(quoting Bixby v. Comm’r, 58 T.C. 757, 776 (1972)).
The Claims Court consolidated the cases and, in May
2016, held a nine-day trial in which plaintiffs relied on
seven fact witnesses and two experts and the government
relied on two fact witnesses and one expert. As discussed
below, the Claims Court granted plaintiffs’ motion to
exclude the testimony of the government’s expert, Dr.
John Parsons, based on the expert’s supposed perjury as
to the listing of prior publications on his resume. This left
the government with no evidence as to the proper alloca-
tion of plaintiffs’ purchase prices.
ALTA WIND v. UNITED STATES 11
After trial, the Claims Court held for the plaintiffs.
Alta Wind I Owner-Lessor C v. United States, 128 Fed. Cl.
702, 722 (2016). In the Claims Court’s view, no goodwill or
going concern value could have existed at the time of the
transfer because the facilities were not yet operational.
Id. at 716. As such, § 1060 did not apply, and there was
no need to calculate basis according the residual method.
Thus, plaintiffs’ basis in the windfarms could be calculat-
ed using the unallocated method, with no part of the
purchase price attributed to intangibles. The court char-
acterized the additional value the windfarms had over
their development and construction costs as “turn-key
value,” which, the court said, “essentially describes value
a facility has when it is ready for immediate use after
purchase” and which should be treated as part of the
basis in tangible, grant-eligible property. Id. at 717.
The Claims Court also concluded that there were no
peculiar circumstances inflating the purchase price. Id. at
718–20. As such, the court determined that the purchase
prices for the eligible, tangible assets, as calculated by
plaintiffs, constituted the basis for the section 1603 grant.
Id. at 722.
The government timely appealed. We consolidated the
appeals, and we have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(3).
DISCUSSION
Section 1603 entitles plaintiffs to a cash grant equal
to 30 percent of the basis of their “specified energy proper-
ty”—the tangible personal property and other tangible
property (not including real estate, buildings, and trans-
mission equipment) integral to plaintiffs’ windfarm facili-
ties. See ARRA § 1603; I.R.C. § 48(a)(5)(D); Treas. Reg.
§ 1.48-1; Program Guidance 12. The parties disagree
about how to calculate the basis.
12 ALTA WIND v. UNITED STATES
Plaintiffs argue that, under the general rule that “the
basis of property is . . . the amount paid for such proper-
ty,” Treas. Reg. § 1.1012-1; see also I.R.C. § 1012(a), the
basis for section 1603 purposes is equal to each facility’s
purchase price minus a small portion attributable to
grant-ineligible tangibles. In plaintiffs’ view, none of the
purchase price should be allocated to intangibles. The
government argues that the Alta transactions are subject
to I.R.C. § 1060, which requires that plaintiffs’ basis in
eligible property be determined using the residual meth-
od, in which the overall purchase price would be allocated
on a waterfall basis among several categories of assets,
some grant-eligible and some not. See Treas. Reg. §1.338-
6(b) (explaining the residual method of allocation). Use of
the residual method would result in a substantial portion
of each purchase price being allocated to grant-ineligible
assets, such as goodwill, going concern value, and other
intangibles.
I
Section 1060 and implementing regulations require
that the residual method be used to calculate basis in the
case of “applicable asset acquisition[s],” I.R.C. § 1060(a),
which the statue defines in relevant part as “any trans-
fer . . . of assets which constitute a trade or business,” Id.
§ 1060(c). Treasury regulations broadly define “assets
constituting a trade or business” as any group of assets
(A) the use of which “would constitute an active trade or
business under [I.R.C. § 355],” or (B) to which “goodwill or
going concern value could under any circumstances at-
tach.” Treas. Reg. § 1.1060-1(b)(2)(i)(A)–(B). The regula-
tions define “goodwill” as “the value of a trade or business
attributable to the expectancy of continued customer
patronage” and define “going concern value” as “the
additional value that attaches to property because of its
existence as an integral part of an ongoing business
activity.” Id. § 1.1060-1(b)(2)(ii). While the Alta assets at
ALTA WIND v. UNITED STATES 13
the time of the sale did not constitute an “active trade or
business under section 355,” 5 the government argues that
they did constitute assets as to which, in the language of
the Treasury regulation, “goodwill or going concern value
could under any circumstances attach.” Id.
The Claims Court determined as a matter of law that
§ 1060 did not apply because no goodwill or going concern
value could have attached to the Alta windfarms at the
time of the transaction. In the Claims Court’s view, “the
fact that the Alta facilities . . . were not yet operational
when purchased” was “dispositive” of the absence of
goodwill and going-concern. Alta Wind, 128 Fed. Cl. at
716. We disagree with the Claims Court. A group of assets
constitutes a trade or business if the “character” of the
group of assets transferred “is such that goodwill or going
concern value could under any circumstances attach.”
Treas. Reg. § 1.1060-1(b)(2)(i)(B). There is no need to
show that a transaction had actual, accrued goodwill or
going concern value at the time of the transaction. See id.§ 1.1060-1(b)(2)(iii) (“Whether sufficient consideration is
available to allocate to goodwill or going concern value
after the residual method is applied is not relevant in
determining whether goodwill or going concern value
could attach to a group of assets.”).
In making this determination, “all the facts and cir-
cumstances surrounding the transaction” are taken into
account. Id. Treasury regulations set out a non-
exhaustive set of factors that indicate that goodwill or
going concern value could attach, including: (1) “[t]he
5 To be treated as an “active business” under § 355,
a corporation must be, among other things, “engaged in
the active conduct of a trade or business . . . throughout
the 5-year period ending on the date of the distribution.”
I.R.C. § 355(b)(2)(A)–(B).
14 ALTA WIND v. UNITED STATES
presence of any intangible assets”; (2) “[t]he existence of
an excess of the total consideration over the aggregate
book value of the tangible and intangible assets pur-
chased”; and (3) “[r]elated transactions, including lease
agreements, licenses, or other similar agreements be-
tween the purchaser and seller . . . in connection with the
transfer.” Id. § 1.1060-1(b)(2)(iii)(A)–(C).
There is no dispute that the second two factors are
present in the Alta transactions. The purchase prices for
the Alta facilities were well in excess of their development
and construction costs (i.e., book value), and the transac-
tions involved numerous related agreements, such as the
leasebacks to Terra-Gen and grant-related indemnities.
See Alta Wind, 128 Fed. Cl. at 716–18.
As to the first factor, “[t]he presence of any intangible
assets,” the government argues that the transactions
included numerous intangible assets, such as the PPAs.
The Claims Court held that no intangible assets were
present, explaining that PPAs should not be treated as
separate intangible assets because they “relate only to
their specific wind farm facilities and are not transferable
or assignable.” Id. at 721. But we think that customer
relationships, like goodwill itself, can exist as separate
intangibles even if they are associated with a particular
facility. In the Master PPA, which preceded the comple-
tion of any of the Alta windfarms at issue, a customer
committed to purchase all of the energy the windfarms
could produce for 24 years with prices to be set according
to a known formula. For that reason, the PPAs, or at least
some portion thereof, may be characterized as customer-
based intangible assets under I.R.C. § 197. See I.R.C.
§ 197(d)(2)(A)(iii) (defining customer-based intangible as
“value resulting from future provision of goods or services
pursuant to relationships (contractual or otherwise) in the
ALTA WIND v. UNITED STATES 15
ordinary course of business with customers”). 6 It also
appears that plaintiffs acquired other intangibles, such as
transmission rights, which ensured that the windfarms
would be able to connect to the larger electrical grid. 7
Thus, at least some intangible assets were present in the
Alta transactions. It therefore appears that each of the
three factors cited in the regulation as indicative of good-
will was present in this case. See Treas. Reg. § 1.1060-
1(b)(2)(iii).
On appeal, plaintiffs argue that no goodwill value
could stem from PPAs—which are long-term contracts to
sell all of each windfarm’s power output—because good-
will is the expectancy of continued customer patronage
without contractual compulsion. Plaintiffs rely on a
passing reference to this effect in Karan v. Comm’r, 319
F.2d 303, 306 (7th Cir. 1963), but do not cite to any circuit
holding that contracts cannot contribute to goodwill. The
Claims Court did not adopt this theory, recognizing
instead that, at least once the windfarms began operation,
“goodwill might accumulate in the form of an expectation
that the parties would not breach the PPAs, or that the
parties might renew the PPAs.” Alta Wind, 128 Fed. Cl. at
716. We think that plaintiffs’ theory is not correct, and
6 Plaintiffs argue that any contracts can only be
treated as separate intangible assets if their terms are
more favorable than market. The Claims Court did not
reach this issue. See Alta Wind, 128 Fed. Cl. at 721–22.
7 The Claims Court apparently agreed that trans-
mission rights could be intangibles, but found that plain-
tiffs’ calculations had already treated the value of
transmission agreements as grant-ineligible property (i.e.
as part of the transmission lines) for allocation purposes.
Alta Wind, 128 Fed. Cl. at 721 n.10. This treatment does
not prevent consideration of transmission rights as intan-
gibles for determining whether § 1060 applies.
16 ALTA WIND v. UNITED STATES
that goodwill can arise based on contracts. As explained
below, Example 4 in the regulation itself supports the
view that goodwill can arise from a contractual relation-
ship. Treas. Reg. § 1.1060-1(b)(3).
In another theory not adopted by the Claims Court,
plaintiffs argue that goodwill cannot exist before a busi-
ness has been operating for a significant period, relying
primarily on Allen H. Dahme Associates, Inc. v. United
States, 436 F.2d 486 (Ct. Cl. 1971). Dahme is inapposite,
as it addressed the propriety of using a capitalization-of-
earnings-based formula for the valuation of goodwill and
simply held that the “formula method” of valuing goodwill
is inappropriate where the business has only been in
operation for a short period (one year in Dahme). Id. at
490. The court recognized that the business in Dahme did
have some goodwill, even if it could not be calculated
using the formula method. Id. (“While we are satisfied
that after one year’s existence [the business] had some
goodwill, we are not satisfied that the formula approach
taken by plaintiff accurately reflected its value . . . .”). In
the context of this formula method, the Internal Revenue
Service typically required a five year history of earnings
to ensure that “[t]he past earnings to which the formula is
applied . . . fairly reflect the probable future earnings,”
Rev. Rul. 68–609, 1968–2 C.B. 327, but the formula
method is not at issue in this case.
Here, the regulation provides that a group of assets
can constitute a trade or business either if “(A) [t]he use of
such assets would constitute an active trade or business
under [I.R.C. §] 355,” or if “(B) [i]ts character is such that
goodwill or going concern value could under any circum-
stances attach to such group.” Treas. Reg. § 1.1060-
1(b)(2)(i). While category A applies only if a corporation
has been engaged in the active conduct of a trade or
business “throughout the 5-year period ending on the date
ALTA WIND v. UNITED STATES 17
of the distribution,” I.R.C. § 355(b)(2)(B), category B has
no fixed time restriction.
The Claims Court ultimately rejected § 1060 because
“both parties had not yet begun performance under the
PPAs at the time of purchase,” so the “expectancy [of
continued customer patronage] could not have existed at
that time, [and therefore] goodwill could not have at-
tached.” Alta Wind, 128 Fed. Cl. at 716. Although it may
be that there was technically no goodwill at the time of
the transaction, it was readily apparent that goodwill
could attach once the windfarms began operation—which
was to occur immediately after the transaction—and this
expectation of goodwill was baked into each purchase
price. While it may not be relevant that a new entity
expects goodwill to be generated at some distant future
time, we think the regulation is clearly applicable in the
circumstances of this case, where goodwill could attach to
the transferred assets immediately after the transaction
in question.
At the time of the transactions, the Alta facilities
were on the cusp of operation. They had already entered
PPAs with their only customer, SCE, and no further
construction or development work was necessary. In this
way, plaintiffs’ relationship with SCE was largely identi-
cal to the kind of customer relationship that an operating
business has with its customers. At the time, SCE had a
substantial history of interactions with owners of the Alta
windfarms, which could have contributed to the develop-
ment of goodwill. In 2006, SCE negotiated the Master
PPA and committed to purchase all of the energy the Alta
facilities could produce for a period of roughly 24 years,
with prices set according to a particular formula. Before
plaintiffs acquired the windfarms, SCE entered into PPAs
for each Alta facility. These PPAs finalized pricing and set
out both an expected initial operation date and a firm
operation date by which the facility would start providing
18 ALTA WIND v. UNITED STATES
SCE with power. The insubstantial difference between
the situation prevailing before and after the transfer is
demonstrated by the Claims Court’s determination that,
after the transfer and beginning of performance, “goodwill
might accumulate in the form of an expectation that the
parties would not breach the PPAs, or that the parties
might renew the PPAs”—expectations that would have
appeared to exist even before the transfer and beginning
of performance. Alta Wind, 128 Fed. Cl. at 716.
It is also noteworthy that the purchase prices for the
Alta facilities were negotiated based on anticipated cash
flows that would occur once the facilities became opera-
tional. Those cash flows depended on—and were valued
with reference to—intangible assets such as PPAs. In
short, when plaintiffs purchased the windfarms, they
were purchasing the expectation of future cash flows
based on an established customer relationship.
Finally, the regulations themselves make clear that a
business that is not yet operational (in the sense that it is
not yet serving customers and generating revenue) can
have goodwill. Example 4 of Treas. Reg. § 1.1060-1(b)(3)
describes a transaction in which a manufacturing compa-
ny sells its internal bookkeeping department to a
bookkeeping business and enters into a long-term service
contract with that business. At the time it was sold, the
internal bookkeeping department in Example 4 had
conducted no external business and had no customers. It
generated no revenue until after the sale. So while good-
will, according to the regulation, “is the value of a trade or
business attributable to the expectancy of continued
customer patronage,” id. § 1.1060-1(b)(2)(ii), Example 4
makes clear that goodwill can attach and § 1060 can
apply even when that expectancy of “continued” customer
patronage begins only after the transaction. Each of the
Alta windfarms was sold with a preexisting PPA with a
customer and was put into service (i.e., commenced being
ALTA WIND v. UNITED STATES 19
used in a trade or business) within weeks of the date the
assets were transferred. And, as the Claims Court
acknowledged, they certainly could accrue goodwill value
once they became operational. That prospective goodwill
could well be reflected in the purchase prices, and itself
constitute an intangible asset.
Thus, looking at “all the facts and circumstances sur-
rounding the transaction” and giving particular consider-
ation to the three factors set out in the Treasury
regulations, we conclude that goodwill and going concern
value could have attached to the group of assets trans-
ferred in the Alta transactions immediately after the
transaction and that those assets constitute a “trade or
business” within the meaning of Treas. Reg. § 1060-
1(b)(2). The Alta transactions therefore count as “applica-
ble asset acquisitions” for purposes of § 1060, and their
purchase prices must be allocated using the residual
method.
II
Having determined the Alta transactions are “appli-
cable asset acquisitions” for purposes of § 1060, we must
remand to the Claims Court to determine the proper
allocation of the purchase prices. Section 1060 requires
that, in the case of an applicable asset acquisition, “the
consideration received . . . be allocated among such assets
acquired . . . in the same manner as amounts are allocat-
ed to assets under [I.R.C. §] 338(b)(5).” The regulations
implementing I.R.C. § 338 set out a method of alloca-
tion—the residual method—in which the consideration is
distributed among seven asset classes, some classes for
tangible assets and others for intangible assets. Those
asset classes include:
Class I: Cash and general deposit accounts.
20 ALTA WIND v. UNITED STATES
Class II: Actively traded personal property, certif-
icates of deposits, U.S. government securities and
publicly traded stock.
Class III: Debt instruments.
Class IV: Inventory and other property held for
sale to customers.
Class V: Assets that do not fit within any other
class, including tangible property.
Class VI: I.R.C. § 197 intangibles, including con-
tract rights, but not goodwill and going concern
value.
Class VII: Goodwill and going concern value.
See Treas. Reg. § 1.338-6(b). The consideration is allocat-
ed among these classes in the order they are listed in a
“waterfall” fashion, using the fair market value of the
assets within each class. See id. The parties agree that
none of the assets at issue in this case fits within Class I,
II, III, or IV. As noted above, the Alta transactions in-
cluded both tangible property and intangible property
(including PPAs). The purchase price must therefore be
allocated to Class V, then to Class VI, and finally to Class
VII, if any value remains. 8
8 Plaintiffs argue that the portion of the purchase
price attributable to the expected section 1603 grants and
any associated indemnities are not separate from the
value of the windfarms’ tangible personal property. Rely-
ing on bankruptcy cases that hold that a tax benefit is
treated as part of an asset, see, e.g., U.S. Bank N.A. v.
Lewis & Clark Apartments, LP (In re Lewis & Clark
Apartments, LP), 479 B.R. 47, 53–54 (B.A.P. 8th Cir.
2012); In re Creekside Senior Apartments, LP, 477 B.R.
40, 60 (B.A.P. 6th Cir. 2012), they argue that the same
ALTA WIND v. UNITED STATES 21
In this connection, we address the issue of turn-key
value and its relationship to § 1060. The Claims Court
acknowledged that the purchase prices for the Alta facili-
ties were in excess of the development and construction
costs of the tangible assets making up the facilities. Alta
Wind, 128 Fed. Cl. at 716–17. In the Claims Court’s view,
all of this could be attributed to turn-key value, which is
the incremental value “a buyer would pay . . . for such an
assurance that the plant and equipment would all work
together without need of costly and time-consuming
adjustments and coordination.” Miami Valley Broad.
Corp. v. United States, 499 F.2d 677, 680 (Ct. Cl. 1974).
Unlike goodwill and going concern value, turn-key value
is considered part of the tangible assets in a transaction
rather than a separate intangible asset, id., so it is a
Class V asset for purposes of the residual method.
The government agrees that turn-key value accounts
for some portion of the purchase price of the Alta transac-
tions and should be treated as part of the grant-eligible
tangible assets. At the time of the transactions, the tangi-
ble assets connected to the Alta facilities were fully as-
sembled, tested, and ready for use—just as the “land,
improvements, technical installations, equipment and
supplies, and other physical items” that constituted the
radio station in Miami Valley, 499 F.2d at 679, were “put-
together” and “in all-round working shape, not a congeries
of uncoordinated physical assets liable as not to fail to
work as a unit,” id. at 680. But turn-key value, “the
increased value of the individual tangible assets because
they were assembled, installed, integrated, tested, coordi-
should be true of the cash grant. We need not decide that
issue in this appeal or decide whether the cash grant
entitlement or associated indemnities are separate intan-
gibles. We leave these issues to the Claims Court on
remand.
22 ALTA WIND v. UNITED STATES
nated, and in operating order,” id. at 681, is separate from
the value that comes from having secured a customer
contract, regulatory approvals, transmission rights, and
various other arrangements that ensured the immediate
operation of the Alta windfarms. See id. at 682 (distin-
guishing going concern value from turn-key value). In
applying the § 1060 residual method, the Claims Court
must distinguish between turn-key value and goodwill
and other intangibles.
III
On remand, the Claims Court will have to make a fac-
tual determination as to the allocation of purchase price.
Therefore, it is important to consider whether the Claims
Court erred in excluding the reports and testimony of the
government’s sole expert, Dr. Parsons, under Federal
Rule of Evidence 702. We conclude that the exclusion of
his reports and testimony was reversible error.
A
Dr. Parsons is currently the head of the MBA finance
track at MIT’s Sloan School of Management and the
Executive Director of MIT’s Center for Energy and Envi-
ronmental Policy Research. He prepared an expert report
and a rebuttal expert report and was prepared to testify
as to the fair market value of the eligible property at the
time of the Alta transactions for purposes of determining
plaintiffs’ basis in eligible property.
At trial, as part of the qualification of Dr. Parsons as
an expert (i.e., voir dire), counsel for the government
asked Dr. Parsons about his experience. This resulted in a
lengthy discussion of Dr. Parsons’ academic focus on
“applied research in the area of energy finance,” for which
“valuation and financing of projects is the main core,”
with additional work on “derivatives and how they’re used
by companies to hedge their risk.” J.A. 73300. On cross-
ALTA WIND v. UNITED STATES 23
examination, plaintiffs’ counsel focused on a nine-page list
of publications on the curriculum vitae (“CV”) attached to
Dr. Parsons’ expert report—a list that appeared under the
heading “Research and Publications.” J.A. 688-75. During
a pre-trial deposition, Dr. Parsons had stated that the list
of publications reflected “what I am as far as research is
concerned” and that “I can’t say that there might not be
something from back in ’85 that’s not here. But . . . I think
it’s a complete listing of my materials.” J.A. 73314. Plain-
tiffs’ counsel then introduced five articles discussing
various aspects of socialist thought and economic theory
that Dr. Parsons had published between 1986 and 1989,
which were not listed on the CV. 9 These articles, which
were not included in full in the record on appeal, de-
scribed aspects of the East German economy, laid out the
evolving views of East German economists, and some-
times identified relative advantages of socialism over
capitalism. Plaintiffs’ counsel suggested that Dr. Parsons
had concealed the existence of the five articles.
Dr. Parsons was under no obligation to disclose the
articles in his expert report, as Rule 26(a)(2)(B) of the
9 The articles included: (1) John E. Parsons, Bubble,
Bubble, How Much Trouble? Financial Markets, Capital-
ist Development and Capitalist Crises, 52 Sci. & Soc’y 260
(1988); (2) John E. Parsons, Forms of GDR Economic
Cooperation With the Nonsocialist World, 29 Comp. Econ.
Stud. 7 (1987); (3) John E. Parsons, Plan and Market in
the Marxist Imagination: The Changing of the Guard
Among GDR Economists, German Pol. & Soc’y, Summer
1989, at 39; (4) John E. Parsons, Which Road to Oz? New
Thinking in East Germany about the World Economy and
the Course of Socialism (Leopold Classic Library, Working
Paper No. 2045-88, 1989); and (5) John E. Parsons, Credit
Contracts in the GDR: Decentralized Investment Decisions
in a Planned Economy, 20 Econ. Plan. 28 (1986).
24 ALTA WIND v. UNITED STATES
United States Court of Federal Claims, which governs
expert disclosures, only requires disclosure of “all publica-
tions authored in the previous 10 years.” But the CV did
list other articles outside the ten-year period, which were
generally related to Dr. Parsons’ research in energy
financing and valuation. Plaintiffs’ attorney argued that
Dr. Parsons should not be permitted to testify because of
the “many falsities” related to the characterization of his
CV as accurate and complete, even though the CV did not
include the five articles about socialism. J.A. 73321.
Additionally, plaintiffs’ counsel introduced an expert
report dated March 10, 1997, that Dr. Parsons had pre-
pared in another case, Babson-United Investment Advi-
sors, Inc. v. Hulbert, No. 96-cv-11349-REK (D. Mass.
dismissed June 26, 1998). It included an earlier version of
his CV that also made no mention of the articles, even
though, at that time, four of the articles were within the
ten-year window for disclosure of publications.
In addition to focusing on Dr. Parsons’ alleged lack of
candor, plaintiffs’ counsel emphasized the socialist con-
tent of the articles—characterizing certain excerpts as
“[p]ure socialist dogma,” J.A. 73318, and arguing in
conclusion that Dr. Parsons “despises the capitalist sys-
tem,” J.A. 73322. The Claims Court expressed similar
concern about the socialist content of the articles, stating
that “whatever [Dr. Parsons] might say about the proper
outcome in this case, I’ll always have in the back of my
mind, well, that’s because he wrote these socialist, Marx-
ist articles,” so, “[r]egardless of the logic that [his testi-
mony] might have, I’m going to be bothered throughout
about where this guy is coming from.” J.A. 73323. The
Claims Court also expressed its view that, even if “we
were to go forward and hear his testimony . . . related to
the valuation of the Alta Wind facilities, I would still be
seriously questioning his testimony in view of these
articles about socialism, Marxism, and capitalism.” Id.
ALTA WIND v. UNITED STATES 25
The court then took a one-hour recess. Upon recon-
vening, the government requested the opportunity to
question Dr. Parsons on redirect. The court refused to
allow such redirect testimony. The court stated that it
was going to exclude Dr. Parsons’ testimony under Rule
702, explaining that:
The big problem is that he was not truthful with
the Court, and no matter how much we might fur-
ther consider what explanations he could offer to
that, the fact remains that nothing that happens
from here on out could change the fact that this
person has serious reliability and credibility prob-
lems. So, no matter how cogent his thinking, his
economic theories might be, I just cannot accept
this witness as an expert under Rule 702. I think
there are serious issues with his credibility and
reliability, and there’s no reason really to consider
the matter further.
J.A. 73324. The Claims Court also stated, contrary to its
prior statements, that the exclusion had “nothing to do
whatever with the fact that [Dr. Parsons] has certain
ideological views or he once had them back in the eighties
and nineties.” Id.
B
The Claims Court’s construction and application of
Rule 702 is an issue governed by Federal Circuit law. See
Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d
1564, 1575 (Fed. Cir. 1984) (per curiam), overruled on
other grounds by Richardson-Merrell, Inc. v. Koller, 472
U.S. 424, 432 (1985). Rule 702, which governs the stand-
ards for expert witnesses, provides:
A witness who is qualified as an expert by
knowledge, skill, experience, training, or educa-
tion may testify in the form of an opinion or oth-
erwise if:
26 ALTA WIND v. UNITED STATES
(a) the expert’s scientific, technical, or other spe-
cialized knowledge will help the trier of fact to
understand the evidence or to determine a fact in
issue;
(b) the testimony is based on sufficient facts or da-
ta;
(c) the testimony is the product of reliable princi-
ples and methods; and
(d) the expert has reliably applied the principles
and methods to the facts of the case.
Fed. R. Evid. 702. An expert’s credibility generally is not
relevant to determining the admissibility of his or her
testimony. In Daubert v. Merrell Dow Pharmaceuticals,
Inc., 509 U.S. 579 (1993), the Supreme Court explained
that the Rule 702 inquiry is “a preliminary assessment of
whether the reasoning or methodology underlying the
testimony is scientifically valid and of whether that
reasoning or methodology properly can be applied to the
facts in issue.” Id. at 592–93; see also Kumho Tire Co. v.
Carmichael, 526 U.S. 137, 141 (1999) (concluding that
“Daubert’s general holding—setting forth the trial judge's
general ‘gatekeeping’ obligation—applies not only to
testimony based on ‘scientific’ knowledge, but also to
testimony based on ‘technical’ and ‘other specialized’
knowledge"). Rule 702 is therefore addressed to determin-
ing the validity of an expert’s scientific or other methodol-
ogy.
Here, plaintiffs did not seek to exclude Dr. Parson’s
testimony based on any flaws in his methodology. There is
no mention in Rule 702 itself or the Supreme Court’s Rule
702 cases suggesting that assessment of an expert’s
credibility is required apart from the issue of methodolo-
gy.
ALTA WIND v. UNITED STATES 27
In excluding Dr. Parsons’ testimony, the Claims Court
relied on Meinhardt v. Unisys Corp. (In re Unisys Savings
Plan Litigation), 173 F.3d 145, 155–56 (3d Cir. 1999), for
the proposition that a trial court can exclude under Rule
702 the testimony of an expert witness deemed not credi-
ble due to misrepresentation of his qualifications. In that
case, the Third Circuit emphasized that Daubert paints
the district court as a kind of “gatekeeper,” responsible for
screening evidence to ensure that it is reliable as well as
relevant. Id. at 155. “Thus in our view,” the Third Circuit
explained, “the [Supreme] Court’s emphasis on reliability
as well as on relevancy embraces within its standard the
credibility of the witness proffering expert opinion.” Id. at
156. The Unisys court believed that considering an ex-
pert’s credibility under Rule 702 is particularly appropri-
ate where “it is the district court judge sitting as a finder
of fact who must rule on issues of evidence.” Id.The Third Circuit has since suggested that Unisys is
no longer good law. In Elcock v. Kmart Corp., the Third
Circuit concluded that, while there may be some circum-
stances where a judge can properly evaluate an expert’s
general credibility as part of Rule 702’s reliability inquiry,
the credibility must relate to the reliability of the meth-
odology at issue, which is the core of the Rule 702 inquiry.
233 F.3d 734, 750–51, 751 n. 8 (3d Cir. 2000); see also 29
Charles Alan Wright & Victor Gold, Federal Practice and
Procedure § 6265.3 (2d ed. 2016).
There is no such relationship in this case. The fact
that Dr. Parsons wrote five articles on socialism in the
1980s in no way suggests that he could not reliably testify
about the valuation of renewable energy assets. The
Claims Court stated that the alleged misrepresentations
were “especially dispositive here because Dr. Parsons’
untruthfulness related to his writing on economics topics,
which was the area in which he was called to testify as an
expert.” Alta Wind, 128 Fed. Cl. at 707. In the same vein,
28 ALTA WIND v. UNITED STATES
plaintiffs’ counsel argued to the Claims Court that Dr.
Parsons “shouldn’t be allowed to be an expert in this case”
because the question at issue is “Capitalism 101” and Dr.
Parsons “despises the capitalist system.” J.A. 73322. The
articles expressed, for example, that capitalism has
“reactionary and destructive features” that “stand[]
against clearly defined alternatives for accomplishing the
same goals, viz. national economic planning of various
forms.” J.A. 73316. But there is no relationship between a
person’s views on socialism and his or her capacity to
provide expert testimony regarding the appropriate way
to calculate plaintiffs’ basis in grant-eligible property.
Other circuits have agreed that an expert’s general
credibility is not a proper basis for exclusion of expert
testimony under Rule 702. Deputy v. Lehman Bros., 345
F.3d 494, 506 (7th Cir. 2003) (holding that the district
court erred by excluding expert testimony under Rule 702
based on reasons related to the expert’s “credibility and
persuasiveness”); United States v. Vesey, 338 F.3d 913,
917 (8th Cir. 2003) (concluding that the district court
erred by excluding expert testimony based primarily on
the expert’s “contradictory, evasive, and ‘speculative’
responses”, and noting that doing so improperly “shifted
the focus of [the Rule 702] inquiry to the credibility of [the
expert]”). 10 We agree.
10 See also Summit 6, LLC v. Samsung Elecs. Co.,
802 F.3d 1283, 1296 (Fed. Cir. 2015) (“[T]he question of
whether the expert is credible or the opinion is correct is
generally a question for the factfinder, not the court.”);
Deputy, 345 F.3d at 506 (“[I]ssues of credibility and per-
suasiveness . . . are relevant only in valuing the testimo-
ny, not in determining its admissibility.”); Elcock, 233
F.3d at 751 n.8 (“Although Daubert assigns to the district
court a preliminary gatekeeper function . . . it does not
ALTA WIND v. UNITED STATES 29
Plaintiffs further argue that, even if credibility is not
generally considered under Rule 702, it may properly be
considered in a bench trial, where the judge acts as both
gatekeeper and factfinder. But there is nothing in the text
of Rule 702 that indicates that the standard may be
applied differently in bench trials than it is in jury trials.
Even in a bench trial, credibility is determined by the
court on the full record, not as a preliminary matter on an
abbreviated record, as was the case here. We therefore
conclude that the Claims Court erred in excluding Dr.
Parsons’ testimony under Rule 702.
Even more importantly, the Claims Court erred in ex-
cluding the testimony of the government’s sole expert
without giving the government the opportunity to conduct
redirect examination to explain the omission. Treatises
indicate that redirect examination is essential for “reply-
ing to new matter adduced on cross-examination.” 1
Kenneth S. Broun et. al., 1 McCormick on Evidence § 32
(7th ed. 2013). Indeed, redirect “[e]xamination for this
purpose is often deemed a matter of right.” Id. In United
States v. Marzano, for instance, cross-examination re-
vealed that a witness had “failed to disclose on his appli-
cation for a seat on the Chicago Mercantile Exchange, as
required by the application form, that he had been con-
victed of a crime,” 160 F.3d 399, 402 (7th Cir. 1998)—a
twelve-year-old misdemeanor that the witness stated he
had forgotten, id. at 403. On appeal, the Seventh Circuit
held that it was error to disallow any explanation of the
omitted misdemeanor on redirect, noting that, if the
witness had “been allowed to explain the nature of his
necessarily follow that the court should be given free rein
to employ its assessment of an expert witness’s general
credibility in making the Rule 702 reliability determina-
tion.”).
30 ALTA WIND v. UNITED STATES
conviction, the credibility of his testimony that he had
forgotten it when he filled out the form would have been
enhanced. We cannot think of any reason why he was not
permitted to explain.” Id. Other circuits have noted that
district courts are “in clear cases required[] to permit a
witness to explain on redirect examination what he meant
by his answer to a question that had been put to him on
cross-examination.” Lust v. Sealy, Inc., 383 F.3d 580, 587
(7th Cir. 2004) (collecting cases); see also Josephs v.
Harris Corp., 677 F.2d 985, 989–90 (3d Cir. 1982) (holding
that it was an abuse of discretion to restrict plaintiffs’
ability to address on redirect examination the impression
left by cross-examination that plaintiffs’ expert had no
support for his opinion).
There are several reasons why the opportunity to ex-
plain on redirect was particularly important in this case.
First, the exclusion of the five articles from the 2016 CV
attached to Dr. Parsons’ report in this case was permissi-
ble under Rule 26(a)(2)(B)(iv), which requires disclosure of
“the witness’s qualifications, including a list of all publi-
cations authored in the previous 10 years.” Dr. Parsons’
CV satisfied this requirement by providing a complete list
of the publications he authored in between 2006 and
2016.
Second, the pre-2006 articles placed under the head-
ing “Research and Publications” could be viewed as of a
different character than the five omitted articles. The
listed articles all appear to relate to details of business
operations—energy project valuation, project financing,
and “derivatives and how they’re used by companies to
hedge their risk,” J.A. 73300—as differentiated from
articles concerning government economic policy. In other
words, the list of articles on Dr. Parsons’ CV might have
ALTA WIND v. UNITED STATES 31
been prepared by limiting it to those on the subject of his
testimony, excluding articles on unrelated subjects. 11
Third, it has not been shown that anything in the five
articles about socialism was inconsistent with the opin-
ions expressed in Dr. Parsons’ expert report. And finally,
Dr. Parsons’ CV does include his academic appointments
with East German universities, including his position in
1987 as a visiting scholar at Hochschule für Ökonomie
and his affiliation in 1983 and 1986 with Humboldt
Universität zu Berlin, which might suggest that he was
not attempting to conceal any socialist ties. J.A. 688-75. 12
11 The listed articles outside the ten-year period in-
clude, for example, “Estimating the Strategic Value of
Long-Term Forward Purchase Contracts Using Auction
Models,” a 1989 article about the contracts used to finance
the international natural gas trade; “The Design of Opti-
mal Production Sharing Rules in a Petroleum Exploration
Venture,” a 1991 article about how to structure mineral
rights; and “The Maturity Structure of a Hedge Matters:
Lessons from the Metallgesellschaft Debacle,” a 1995
analysis of a German company that attempted to hedge
risk using crude oil futures. See J.A. 688–79; J.A. 73300–
01.
12 In excluding Dr. Parsons’ testimony, the Claims
Court relied heavily on the fact that he had omitted the
same five articles in an earlier version of his CV attached
to an expert report he prepared in 1997.
Rule 608(b) permits the court to allow a witness to be
cross examined as to specific instances of conduct bearing
on their character for truthfulness. Fed. R. Evid. 608(b).
In determining whether to permit such cross-
examination, however, it is appropriate for the court to
consider the remoteness in time of the conduct in question
and to view the conduct as less probative of untruthful-
ness if it happened long in the past. See 4 Jack B. Wein-
32 ALTA WIND v. UNITED STATES
In short, there were clearly open questions as to Dr.
Parsons’ reasons for not listing the articles, which the
government should have been permitted to explore on
redirect. In remanding the case, we express no opinion as
to Dr. Parsons’ overall credibility or as to whether he
properly valued the assets in question.
IV
While cases are ordinarily remanded to the deciding
judge, there are some situations in which reassignment is
appropriate to preserve the appearance of fairness. See
Contreras v. Sec’y of Health & Human Servs., 844 F.3d
1363, 1369 (Fed. Cir. 2017); Lazare Kaplan Int’l, Inc. v.
Photoscribe Techs., Inc., 714 F.3d 1289, 1298 (Fed. Cir.
2013); Cohesive Techs., Inc. v. Waters Corp., 543 F.3d
1351, 1375 (Fed. Cir. 2008); Int’l Rectifier Corp. v. Sam-
sung Elecs. Co., 238 F. App’x 601, 604 (Fed. Cir. 2007)
(unpublished decision); see also Liteky v. United States,
510 U.S. 540, 554 (1994) (“Federal appellate courts’ ability
to assign a case to a different judge on remand
rests . . . on the appellate courts’ statutory power to
‘require such further proceedings to be had as may be just
under the circumstances.’” (quoting 28 U.S.C. § 2106)).
We think that this is one of those rare cases where reas-
signment is appropriate on remand.
stein & Margaret A. Berger, Weinstein’s Federal Evidence,
§ 608.22(2)(c)(iv) (Mark S. Brodin, ed., 2d ed. 2018) (de-
scribing “[h]ow old the misconduct is” as a relevant factor
and citing cases and legislative history to that effect); see
also Johnson v. Elk Lake School District, 283 F.3d 138,
145 n.2 (3d Cir. 2002) (concluding that the district court
did not abuse discretion in barring cross-examination
related to misstatements on a witness’ resume submitted
nine years prior).
ALTA WIND v. UNITED STATES 33
CONCLUSION
Because goodwill and going concern value could have
attached to the assets transferred in the Alta transac-
tions, I.R.C. § 1060 applies and plaintiffs’ basis in grant-
eligible assets must be assessed using the residual meth-
od. And because credibility is not relevant to the inquiry
under Rule 702, and because the government was denied
the opportunity for redirect examination, it was error to
exclude the testimony of the government’s expert. We
therefore vacate and remand to the Chief Judge of the
United States Court of Federal Claims for reassignment
of the case. See RCFC 40.1.
VACATED AND REMANDED
COSTS
Costs to the United States.