Court Opinion

ID: 6348168
Source: CourtListenerOpinion
Date Created: 2022-06-09 00:00:23.358227+00
Date Added: 2024-06-11T15:49:24.538419
License: Public Domain

Case: 21-10937       Document: 00516349198        Page: 1    Date Filed: 06/08/2022

              United States Court of Appeals
                   for the Fifth Circuit
                                                                    United States Court of Appeals
                                                                             Fifth Circuit

                                                                           FILED
                                                                        June 8, 2022
                                   No. 21-10937                       Lyle W. Cayce
                                                                           Clerk

   ETC Sunoco Holdings, L.L.C., formerly known as Sunoco, Inc.,

                                                            Plaintiff—Appellant,

                                       versus

   United States of America,

                                                            Defendant—Appellee.

                    Appeal from the United States District Court
                        for the Northern District of Texas
                              USDC No. 3:20-cv-2981

   Before Clement, Graves, and Costa, Circuit Judges.
   Gregg Costa, Circuit Judge:
             Sunoco sued the Internal Revenue Service in Texas federal court,
   seeking a partial refund of its income tax payments for 2010 and 2011.
   Sunoco’s claims rested on a theory of reduced tax liability that the company
   had argued unsuccessfully for prior tax years in the Court of Federal Claims.
   Because the issue was fully and actually litigated in the earlier case, the
   district court dismissed Sunoco’s new suit under collateral estoppel. We
   affirm.
Case: 21-10937      Document: 00516349198           Page: 2   Date Filed: 06/08/2022

                                     No. 21-10937

                                          I
           The United States collects an excise tax on the sale of motor fuels. 26
   U.S.C. § 4081. In 1983, Congress enacted a tax incentive program that
   reduced the excise-tax rate for certain renewable fuels, including alcohol-fuel
   mixtures. See Highway Revenue Act of 1982, Pub. L. No. 97-424, 96 Stat.
   2097.    The incentives popularized the production of blended fuel but
   depleted the Highway Trust Fund, which receives the revenue from the fuel
   excise tax. H.R. Rep. No. 108-548, pt. 1, at 141–42 (2004). So, in 2004,
   Congress restructured the program. It passed the American Jobs Creation
   Act, which replaced the reduced tax rate for blended fuels with an
   “equivalent” incentive. See id. at 142; Pub. L. No. 108-357, 118 Stat. 1418.
   Under the new framework, fuel producers could claim a refundable credit
   against their excise-tax liability for each gallon of alcohol that they blended
   into the gasoline they sold. 26 U.S.C. § 6426(a)(1).
           The fuel industry soon realized that the Jobs Act might offer an added
   tax benefit: it could potentially also reduce their income-tax liability. Excise
   taxes are one of the “costs of goods sold” that taxpayers may subtract from
   their gross profits for income-tax purposes. See 26 U.S.C. § 162(a); 26
   C.F.R. § 1.61-3(a). If fuel companies could report the facially higher excise
   tax for blended fuel as a cost of sale, without discounting the amount
   refunded in mixture credits, the refunded income would be tax-free.
           Sunoco is a one of the country’s largest producers and distributors of
   blended fuels. From 2005 to 2011, the company claimed over $1.3 billion in
   mixture credits. In its original tax returns for those years, Sunoco only
   included its net excise-tax payments (after the credits applied) in the costs of
   goods sold. But the company later amended its returns, adjusting its gross
   income to reflect the excise taxes that it would have paid if it had not claimed
   the credits. The difference was substantial: Sunoco asked the IRS to refund

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                                          No. 21-10937

   more than $300 million for the tax years 2005-2008 1, and nearly $150 million
   for the years 2010-2011. The IRS denied the refund claims.
           Sunoco brought the dispute over the 2005–2008 tax years to the Court
   of Federal Claims. Sunoco argued that the mixture credits satisfied but did
   not technically “reduce” the company’s excise-tax liability, so there was no
   reason to subtract the credits from the taxes included in the costs of goods
   sold. The court disagreed and ruled for the IRS. The Federal Circuit
   affirmed, holding: “Sunoco asks this court to permit it to deduct, as a cost of
   goods sold, an excise-tax expense that it never incurred or paid. Neither the
   text of the Jobs Act nor its legislative history supports such a reading of the
   Internal Revenue Code.” Sunoco, Inc. v. United States (Sunoco I), 908 F.3d
   710, 715 (Fed. Cir. 2018).
           Sunoco sued the IRS again five years later, seeking to recover the
   alleged overpayments from tax years 2010–2011. The company made the
   same argument as before. But, this time, it filed the complaint in the
   Northern District of Texas. The district court held that issue preclusion
   barred the suit. The court concluded that that the three elements of issue
   preclusion were met: “(i) the Court of Federal Claims and the Federal
   Circuit decided the taxability of the Mixture Credit in Sunoco I; (ii) [Sunoco]
   had a full and fair opportunity to litigate this issue and did so; and (iii)
   determining these issues was necessary to the Court’s judgment in Sunoco
   I.”

           1
             Sunoco incurred a net operating loss in 2009, so it did not pay federal income tax
   that year.

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                                     No. 21-10937

                                          II
          The only question is the correctness of the issue preclusion ruling.
   Sunoco does not dispute that the three traditional elements of preclusion are
   satisfied. It argues, however, that the court should have considered a fourth
   factor: whether there are “special circumstances that would render
   preclusion inappropriate or unfair.” Gandy Nursery, Inc. v. United States, 318
   F.3d 631, 639 (5th Cir. 2003). We sometimes apply this exception when an
   intervening change in “controlling legal principles” makes the prior ruling
   erroneous or obsolete. See Petro-Hunt, L.L.C. v. United States, 365 F.3d 385,
   399 (5th Cir. 2004); see also Montana v. United States, 440 U.S. 147, 161
   (1979). Sunoco maintains that the exception applies here because, since
   Sunoco I, two of its competitors have appealed the same mixture-credit issue
   to other circuits. See Exxon Mobil Corp. v. United States, No. 21-10373 (5th
   Cir. filed October 26, 2021); Delek US Holdings, Inc. v. United States, 32 F.4th
   495 (6th Cir. 2022). A decision for the fuel producer in either case would
   create a circuit split that might lead the Supreme Court to take up the issue.
   And thus, Sunoco argues, there could be an intervening change in law that
   would render Sunoco I obsolete.
          We disagree and hold that Sunoco I has preclusive effect. To start,
   Sunoco relies on a change in law, which has yet to (and may never) occur.
   We have not ruled in Exxon. And while the Sixth Circuit has decided Delek
   since this appeal was filed, it agreed with the Federal Circuit’s interpretation
   of the mixture credit. 32 F.4th at 495. There has been no “major change[]
   in the law governing” this case. See Montana, 440 U.S. at 161. Sunoco warns
   that this does not “foreclose the possibility” that the law could change in the
   future. But if that amounted to a special circumstance, preclusion would
   never apply.

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                                         No. 21-10937

           Sunoco’s appeal suffers from a more fundamental flaw: We do not
   consider special circumstances when “both parties were involved” in the
   prior suit. Bradberry v. Jefferson Cty., 732 F.3d 540, 549 (5th Cir. 2013); see
   Kariuki v. Tarango, 709 F.3d 495, 506 (5th Cir. 2013).                    Traditionally,
   collateral estoppel did not contain a special-circumstances exception. See
   Bradberry, 732 F.3d at 549. But it did require mutuality of parties. Id. The
   exception appeared after Parklane softened the mutuality rule, id., permitting
   a plaintiff to estop a defendant from relitigating an issue that it argued and
   lost in a suit against a different plaintiff so long as “no unfairness” resulted,
   see Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331–32 (1979). After Parklane,
   some of our decisions “list[ed] the fairness requirement as a general
   requirement for the application of issue preclusion.” RecoverEdge, L.P. v.
   Pentecost, 44 F.3d 1284, 1290 n.12 (5th Cir. 1995). But we later clarified that
   the requirement does not extend to instances of traditional or “mutual
   estoppel.” In re Swate, 99 F.3d 1282, 1290 (5th Cir. 1996); see also Liberty
   Mut. Ins. Co. v. FAG Bearings Corp., 335 F.3d 752, 757–59 (8th Cir. 2003)
   (explaining that equitable considerations are limited to cases involving
   mutual estoppel). The finality concerns underlying preclusion doctrine are
   strongest when the same parties would be forced to relitigate “what is
   essentially the same controversy.” See Restatement (Second) of
   Judgments § 28(2) cmt. b (1982). In that situation, preclusion applies
   without regard for equitable factors. 2

           2
             Sunoco argues that Swate and Bradberry misinterpreted dicta in RecoverEdge. But
   those cases are consistent. RecoverEdge doubted that a “requirement of fairness would
   apply” to mutual estoppel but declined to reach the question because the estopped party
   had not alleged any “special circumstance” affecting the case. 44 F.3d at 1290 n.12. Swate
   and Bradberry then confirmed that fairness only limits nonmutual estoppel. See In re Swate,
   99 F.3d at 1290; Bradberry, 732 F.3d at 549.
            Sunoco also maintains that, since Bradberry, we have “returned to considering
   special circumstances” in the context of mutual estoppel. But Sunoco cites just two cases,

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                                           No. 21-10937

           That is the case here. Because Sunoco and the IRS were both parties
   to Sunoco I, “an inquiry into special circumstances is unnecessary.” See In re
   Swate, 99 F.3d at 1290. Sunoco is barred from relitigating the Federal
   Circuit’s conclusion that it cannot use the mixture credits to offset both
   excise-tax and income-tax liability.
           The judgment is AFFIRMED.

   neither of which supports that statement. One involved a different estoppel exception,
   which narrowly applies to disputes over secondary meaning in trademark cases. See Test
   Masters Educ. Servs., Inc. v. Robin Singh Educ. Servs., Inc., 799 F.3d 437, 448 (5th Cir. 2015).
   The other—a one-page, unpublished decision—listed special circumstances as a general
   estoppel factor but did not apply it. See Jackson v. Fort Bend Cty. Sheriff’s Dep’t, 722 F.
   App’x 390, 390 (5th Cir. 2018) (unpublished).

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