good morning your honors and may please the court i am joseph brooks from the f b i sees appellate litigation unit i have requested that three minutes of my time be reserved for rebuttal thank you under a well established default rule a parent corporation holds any portion of the consolidated tax refund that is allocated to that subsidiaries as an agent or trustee the question presented is whether is that limited to situations where it is so specified somewhere and here it's not just the opposite your honor in the absence of any  one hundred seventy million dollar tax refund that would otherwise belong to the back the answer is no because the tax sharing agreement is silent or at best ambiguous regarding who owns the tax refund and therefore under control in supreme court and six circuit precedent the default rule applies now the district court didn't agree with that what the district court said is that by its reading of the tax sharing agreement it created a debtor creditor relationship with respect to tax refunds and that overrode the default rule that decision has been entirely discredited on its own merits and here's why the district court did not conduct an independent analysis here rather it adopted in its entirety the analysis of the central district of california bankruptcy court in re indy mac bank or that opinion cites or quotes the lower court decisions in bank united and net bank no less than twenty two times and its basic foundation is this because a tax sharing agreement includes an oculus words like reimbursement or pay that conclusively overrides the default rule and creates a debtor creditor relationship let's assume that we agree with you that the district judge was wrong to say it unambiguous establishes a debtor creditor relationship let's assume we agree with you that the t s a is silent on what the relationship is then we have to figure out what do we do next now you automatically then gravitate to this default rule and you i think correctly say that it has been adopted by three other circuits but i'm still trying to figure out why we would apply federal common law i e this default rule in connection with the with a property question which under the bankruptcy code is determined by state law so why would we apply this rule if there is state law that either is or should be able to be applied by the district judge under the facts of this case to answer the question to begin with your honor and let me just add it so you can you can be informed by my thinking when you answer the question it doesn't seem to me that any of the cases about the default rule that you lie upon speak to why apply create federal law a default rule and not look at state law they just assume they don't talk about when i want to begin my saying that it is far from clear that the bob richards case which is the initial case that applied this very general before rule in this context of tax refunds it is far from clear that it was applying for a comma the court doesn't say that it was but even if it was it's also clear that the fourth reli applied is supported by state resulting trust law that was true in california it's also true in ohio and i think something supported if we state law and your position is supported by the state law that we would then look at why do we why do we even speak about something called the default rule and how could that california case establish a default rule in connection with ohio a lot obviously it can't be run or point to two decisions judge white's  court to the court's own decision in the end or a new power case now can renew power did not go off on trust stage it went off on agency and if you read bob richards by richard refers to the default here as creating alternatively an agent or trustee what bob richards says with these cases said is that if the parent company is an agent here because it holds the tax refunds for the purpose of simply passing them on to its subsidiary the parent company is an agent and it acts as a trustee of a specific trust in the in re new power case this court focused first on the fact that the debtor the said admitted in testimony that he was an agent but then the court went on to say as follows not and i think this ties the two points together quote during sentencing for the criminal charge of embezzlement debtor admitting that he operated as the kitchen's agent and the kitchens of the claimants there and the court was on to say i think this is key debtor clearly did not have a far to do with the funds as he wished and as all evidence indicated that the kitchen's sent the money to him for the sole and express purpose of depositing it with the corporation once it formally came into being and this court therefore concluded consequently the bankruptcy court heard and concluding that was not in your index it is not in your table of the order it and that appears your honor to thirty three and thirty nine thirty four now that language about the debtor clearly did not have authority to do anything other than what was expressed the understood that is resulting trust language that shows that agency and resulting trust her two sides of the same coin and that is this court's case law  has been applied for one thing there's never been any issue about whether the rule should be applied indeed there's never been an issue among these parties for years and years and years until the bankruptcy case was filed what rule are we now talking about this this f d i c default rule or the ohio trust your honor it's not an if the i c default but the rule i'm talking about is the rule that an agent acts as the trustee of a specific trust that a parent company holds tax refunds as an agent and the language that i think states the rule better than i ever could your honor if i wanted to state for you the rule that we want to hear today i could not write it better than this quote because the company a f c acts as an agent for its consolidated group with respect to tax matters the company does not own and was promptly remit to the subsidiary bank or its subsidiary as the case may be their respective eligible share of any such refund and the company has no rights in or to the banks or its subsidiary share of any consolidator refund and quote that is language that a f c insisted be inserted an agreement that it executed less than ninety days less than ninety days before bankruptcy that statement was made three years after the operative tax year in green was entered into that statement is the bob richards default rule and your honor i believe as most people do that actions speak louder than words this is not a statement in a vacuum barely five months before bankruptcy was filed in this case a tax refund was received by a  to the bank so there's no real issue here that the parties always recognize that this default will apply chief accounting officer supported the language in the dream and absolutely the chief accounting officer said that never in his experience well an officer for these companies did he ever describe the bank's right to future tax refunds as anything other than an asset  that's been issued by the four banking agencies that regulate banks here this interagency policy statements important for two reasons first of all as the eleventh circuit said in that bank this is the background against which these highly regulated brooks i think i get all these arguments but are all of the things that you've been talking about for the last five minutes or so basically all extrinsic evidence that you rely upon to interpret an agreement that you contend is silent on this  point some of them are your honor but there are three reasons and so do are you asking us now to interpret the six extensive evidence and apply it to the agreement or are you encouraging in that sense us jury mandate back to the district judge and tell him to do it preferably the second but possibly the first ok let's stick with a second so now what when we do that if i mean if we do that i'm still hung up on what the f b i see how you characterize this so called default rule because i think i might have said federal common law and you said no it's not so are you basically arguing that we apply state law but in doing so there is a presumption that that's layered over state law by not as clearly as i would have liked but what i meant to say was this your honor whether it's federal common law or not the same result is achieved under state resulting trust law and what the courts have said is when a court is confronted with an issue where one party the search that the rule of decision is for every common law and the second party says that state law in the same result is achieved there's no need to decide whether it's federal qamar state law you apply the rule our view in the first instance that this is federal comical however if the court disagrees that this would have been an appropriate place for even bob richards the ninth circuit to apply federal common law cases then based on resulting trust law it's the same bef to the district judge in terms of applying a federal common law rule versus an ohio truslow running when you say perhaps i'd have the in reverse order we would say option one as a second option to the reason why we would say option one reason why we say that if you know that i apologize or when i think i thought i said yes once i think i got it then you flip on me i thought that i had them in the right order our view is this in the first instance we believe that the tax sharing agreement does not and that's all you need to know you apply the default we when if you disagreed then we believe that the tax your agreement prevent united pernetti bank because it does not expressly say what happens who owns the tax refund when it's received by the parent company it's ambiguous the court's role once it finds an agreement is the a big us is in the first instance to try to resolve the ambiguity applying basic conduct of contract rules and that's the background in the conduct of the parties you we believe there are at least three separate reasons you've answered my question thank you very much i see my time as a thank nowhere is that more pronounced than with operators they told the district court expressly that it was a rule of california law and now they're telling you it's a rule federal common law of course they never explain how this is a rule federal com consistent with u s supreme court governance in this area because they can't they have no argument in response to that but would you agree mr berger on that we really don't need to decide whether there is a federal common law and if so what does it say and how does it  apply until we know whether that would come to a different conclusion than applying state law which we would seem to me typically do in this area you absolutely place table so if we assume that the district judge i want to make the same assumption i asked mr brooks to make and that is the district judge was just dead wrong in saying it was an ambiguous and so we're back to now it's it is him big u s it's weak and it's ambiguous because it's silent on this sort of property piece of property so we we it seems to me in that instance because he didn't examine the extensive givens we either have to examine it ourselves there are two thousand pages of it as they lose him they will lose because what they are telling you you need to find is that there is a resulting trust that is they finally come out of there are saved now or theories resulting trust ok if that is their theory they have to show that they have a wedge that there is some resulting trust here and what is the basis for the resulting trust the only basis it's not in that t s a they acknowledge there is no trust language in that document the only basis for is  not a debtor creditor relationship so i don't see how you if we start with the presumption or the assumption that the agreement asylum and i know you don't like that but if we start with that assumption i don't see how you wouldn't well your honor if the agreement two things on that first the extrinsic evidence that they're talking about is largely people saying yes we complied with the contract so that is not inconsistent with a normal better relationship we owe the money per the contract fine that is a far cry from saying there is actually a trust relationship i remember under how long you have a very high standard to show a trust in all doubt you know if there's any doubt there's no trust have to show clear and convincing evidence so simply saying that over the course of the last ten years we comply with the contract doesn't establish doesn't prove anything with respect to the actual language of the contract that really it doesn't what about with respect to ownership with respect to ownership that's where you have to look at section five forty one there and i think that that is the that is where bank united when the stray because it said they were going to we're going to ignore the bankruptcy context here you have to in this is consistent with a make you have to consider what you know we're in bankruptcy now we're in bankruptcy and five forty one has a broad conceptualization of what the state is and consistent with a make this that has priority over i mean the equities of certainly there are differences between constructive and resulting trusts but what motivated the court you know make us was the fact that it was an equitable remedy imposed by the court and that is exactly what a resulting trust is under ohio law and so there's no in it defeats the overall policy rideable distribution of the estate they say you know we're trying to get the whole refund know it's going to be distributed amongst the unsecured creditors of which they are the largest so that is the whole purpose of omegas and it is entirely consistent with resulting trust to have it apply in that circumstance that you can see that the tax sharing agreement makes no mention about tax refunds no i do not is exactly what they tell us happened in the complaint so that's that's what happened then if there is any adjustment based on that which is what's the adjustment the adjustment is the refund then you take that the agreement it's unclear to big us they filed an expert report your honor that walked through this very agreement and said here's what we do with a refund here's how we figure out how we get to one hundred seventy million dollars so for them to stand up here and say it's and big it's it's a purely contractual relationship this is no different than any other intercompany agreement between affiliates where you have some affiliate maybe pain for more of the services than the other at the end of the day you out that's exactly what this achieves they want you to recognize a resulting trust and real how long it is not in here what this is talking about is reimbursing the parties pain the party has any case that says on this kind of situation that the debtor creditor relationship with the holding company and this is absolutely your honor all of the cases that we cited in our brief and i grant you most of them are district courts other than the second circuit one of the first central one but they go through this very language and say words like reimbursement and payment are indicative of a debtor creditor relationship and we have something beyond that which is this clause in paragraph four that says the parties shall promptly settle amounts owing between them and look if they wanted to create if the parties here wanted to create a trust any first your attorney knows how to do that you would say we hold it in trust you segregate it you segregate the account you don't comingle that didn't happen here in remember they were not seeking the entirety of the hundred ninety five million dollars consolidated refund here they're seeking a portion of that one hundred seventy million of the portion that i take it everyone acknowledges results from a benefit that that went that deserved seems deservedly to belong to and yes it is attributable to  operating losses caused by interest but the other thing i would say on that in terms of who deserves what remember we're a bank holding company we infuse capital into the banks so for them to say it's all the bank's money is divorced from reality because a lot of it is our money your honor and that's why when they say this isn't fair that's part of my response they have eight it is fair because it's a consolidated group and b were in bankruptcy in this is exactly what the second circuit talked governance and that's a question on to itself but if we get to that all the people that drafted this agreement seem to say it means something other than what you're arguing but more importantly the whole context in which you entered into this tax sharing agreement the government obligation that you've got to have one the whole reasoning seems to be contrary to what you're now saying the agreement clearly said you are i don't think  their reasoning is is inconsistent with that in in terms of the extrinsic evidence i'm not aware of any witness who said yes it was going to be a trust remember there are resulting trust when you say that there are no witnesses on the subject or allowed by the district court your honor i believe there were they took the deposition of just about everyone on that i mean ok the district court considered that testimony no no i think the point yes yes i mean i got that i'm back to trying to figure out what the contract meant and all the extrinsic evidence seems to suggest it means something the exact opposite of what you say is both clear or what it means if it's ambiguous so how do we deal with it well your are maybe i'm not understand your question but but my point about the extensive coverage is that ben showed that they were following the contract so yes if there's not a bankruptcy we would pay this money to the bank ok we're not disputing that but there is a bankruptcy so we can't under fire forty one but we would pay begs the question of whether you held it as a debt or to the bank or whether you held that as disagree to go in because if if you look at the reimbursement in payment language in here and that's what several other district courts have held including the downey case it just came down that we cited a brief that is they have to have said that the what the district court did those words game over right but what i would say is there is also the the other provision of section four about the parties settling the amounts when between back in blackstone but it but then the other thing the courts look at is is there any segregation is can we comingle funds absolutely we can and there's no requirement th go into a specific count which would be perhaps indicative of a trust relationship and remember in this gets back to seems like this jet this was a windfall situation this tax refund well i mean it was fortuitous in many respects because congress changed the law to permit it i mean there's no question about that but then the question is what do we do with it and i think that is where the policies of five forty one come into play since it has to be kept for the benefit of the state well as falling for bankruptcy change if there was a better creditor or a trustee agent relationship one of the other is a change because they went into bankruptcy because obviously this relationship existed prior to bankruptcy what it was is bankruptcy could that change the what what changes about bankruptcy is the trust component of it because that's what omega seach is us like if you have a if you have an implied at the will trust argument honor and so that's that's where bankruptcy matters if it's just normal better credit or same result same result back in you before we lose you here to sitting down is what i meant  when you were saying why this was clear and it was a debt or cutter relationship we use the word adjustment and is that is that out of the t s a is that it is that an important key word here or not yes and the reason is to get back to it's gilman's question he says is there any indication about what to do with the refund and that's where the section for what is adjustment mean as you interpret that word adjustment means in this context getting a refund back because it says in the event of any adjustment of liability of the group for a consolidated return in a year by reason of the following including filing a refund application just to go you have an adjustment to going to be  basic logic which is sometimes silly in this case did the did the return that they file seek a refund yes and they got the refund yes so we're was am i going wrong in thinking a just moment means something different than refund well the adjustment modifies like four different things here so but one of them is the refund application so in this context just tell me only point is when you get back to the question of what you do don't read man if that were the case they were dead in five resulting trust there are three types of resulting trust in ohio woman and they don't argue that they satisfy any so i think that's again significant for your consideration and thank you trust to respond to the last point made that if it is a resulting trust you don't need any of them sure your honor responded to in our brief i'll say the same thing again we cite i think four different cases in law that apply resulting trust prince his brief  of those you don't need any of those i don't know your honor what we cite are four cases including an ohio supreme court case university hospitals that apply resulting trust analysis to situations not included in those three to situations that are analogous that's what to what's happening here perhaps the best one is the street case out of the leaves in the district of ohio in which a group of persons who donated one point five million dollars to a charity believing it was going to be used for a specific purpose a motion to dismiss was filed and the court held that claim states resulting trust claim under ohio state law that's our claim here this is these tax refunds are for a specific purpose there's no merit to that at coast up and down inside and out for people's courts just as your are mentioned parties in the position of these parties would expect the default rule to apply unless they explicitly provide otherwise and that's the import of this court's decision maser in tiny printing and in jack henry some of which involve default rules nowhere near as common as this one in one case this court applied that analysis to the rule that says that federal interest rates apply label if we if we apply of ohio you get to the same point do you need to label that it's the default will your honor we've got a common law we don't need it but it's helpful to us and here's why if it is in happen in a situation if you're advocating for the for the default rule and the state law of whatever state the f d i c is worried about here would yield a contrary result you're still saying the default rule controls over contrary state law i'm not saying that your honor i don't have to confront that situation because here there is no difference but if we have a catch i have to confront that situation because if it yields the same result then why do we stop do not pass go at the default rule when it's really then turning upon off but if it yields the same result your honor the instructions from supreme court on down are clear a court does not need to decide the conflict of laws issue whether it's between states between jurisdictions or between federal common law the cases in our brief and state law that issue is not presented when the outcome is the same so you're actually comfortable then try to put words in your mouth that didn't work very well earlier you're actually comfortable with us starting with ohio law and if you win and are you going to remain and do consider extrinsic evidence then we don't have to decide the default when i say that right re new power of some decision in the ninth circuit richards then basically stablish is an element of every state's property law how can that be i know this is a very narrow  it applies not to property generally it applies to the issue of whether a federal income tax refund ok how that should be treated under the federal bankruptcy law it has no application beyond that there were considerable federal interest involved here and the reason why i waffled on your question before about what if we find it state law and some of the case you would need to look in any given case to do an analysis as to whether or not federal common law or stay or should apply if they did not reach the same result that if you did that analysis here based on the fact that this deals with how to characterize a federal income tax refund under the concerns of the bankruptcy code it seems like it's a perfect day for federal rule they apply the rule beyond your honor as in re new power where this court found on appeal that the debtors admission it was an agent was a loan sufficient to establish agency is every new power if the parent corporation held this as an agent the refund want to the f b i see and there is an admission they could not be clearer on remain and what could these folks possibly say what evidence could they dig up to refute their statement in a signed contract three months before bankruptcy that we hold this as an agent we must turn over immediately to the bank and we have no rights in this the answer is there could be no such evidence