Court Opinion

ID: 4510101
Source: CourtListenerOpinion
Date Created: 2020-02-25 16:00:38.788277+00
Date Added: 2024-06-11T12:13:13.890259
License: Public Domain

(Slip Opinion)              OCTOBER TERM, 2019                                       1

                                       Syllabus

         NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
       being done in connection with this case, at the time the opinion is issued.
       The syllabus constitutes no part of the opinion of the Court but has been
       prepared by the Reporter of Decisions for the convenience of the reader.
       See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337.

SUPREME COURT OF THE UNITED STATES

                                       Syllabus

RODRIGUEZ, AS CHAPTER 7 TRUSTEE FOR THE BANKRUPTCY
 ESTATE OF UNITED WESTERN BANCORP, INC. v.
  FEDERAL DEPOSIT INSURANCE CORPORATION,
     AS RECEIVER FOR UNITED WESTERN BANK

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
                 THE TENTH CIRCUIT

 No. 18–1269. Argued December 3, 2019—Decided February 25, 2020
The Internal Revenue Service (IRS) allows an affiliated group of corpo-
  rations to file a consolidated federal return. See 26 U.S. C. §1501. The
  IRS issues any refund as a single payment to the group’s designated
  agent. The tax regulations say very little about how the group mem-
  bers should then distribute that refund among themselves. If a dis-
  pute arises and the members have no tax allocation agreement in
  place, federal courts normally turn to state law to resolve the distribu-
  tion question. Some courts, however, have crafted their own federal
  common law rule, known as the Bob Richards rule. See In re Bob Rich-
  ards Chrysler-Plymouth Corp., 473 F.2d 262. The rule initially pro-
  vided that, in the absence of an agreement, a refund belongs to the
  group member responsible for the losses that led to it. But it has since
  evolved, in some jurisdictions, into a general rule that is always fol-
  lowed unless an agreement unambiguously specifies a different result.
  Soon after United Western Bank suffered huge losses, its parent,
  United Western Bancorp, Inc., was forced into bankruptcy. When the
  IRS issued the group a $4 million tax refund, the bank’s receiver, re-
  spondent Federal Deposit Insurance Corporation (FDIC), and the par-
  ent corporation’s bankruptcy trustee, petitioner Simon Rodriguez,
  each sought to claim it. The dispute wound its way through a bank-
  ruptcy court and a federal district court before the Tenth Circuit ex-
  amined the parties’ tax allocation agreement, applied the more expan-
  sive version of Bob Richards, and ruled for the FDIC.
2                         RODRIGUEZ v. FDIC

                                Syllabus

Held: The Bob Richards rule is not a legitimate exercise of federal com-
 mon lawmaking. Federal judges may appropriately craft the rule of
 decision in only limited areas, Sosa v. Alvarez-Machain, 542 U.S. 692,
 729, and claiming a new area is subject to strict conditions. One of the
 most basic is that federal common lawmaking must be “ ‘necessary to
 protect uniquely federal interests.’ ” Texas Industries, Inc. v. Radcliff
 Materials, Inc., 451 U.S. 630, 640. The Bob Richards rule has not
 satisfied this condition. The federal courts applying and extending Bob
 Richards have not pointed to any significant federal interest sufficient
 to support the Bob Richards rule. Nor have the parties in this case.
 State law is well-equipped to handle disputes involving corporate prop-
 erty rights, even in cases, like this one, that involve federal bankruptcy
 and a tax dispute. Whether this case might yield the same or a differ-
 ent result without Bob Richards is a matter the court of appeals may
 take up on remand. Pp. 4–6.
914 F.3d 1262, vacated and remanded.

    GORSUCH, J., delivered the opinion for a unanimous Court.
                       Cite as: 589 U. S. ____ (2020)                                 1

                             Opinion of the Court

    NOTICE: This opinion is subject to formal revision before publication in the
    preliminary print of the United States Reports. Readers are requested to
    notify the Reporter of Decisions, Supreme Court of the United States, Wash-
    ington, D. C. 20543, of any typographical or other formal errors, in order that
    corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES
                                   _________________

                                   No. 18–1269
                                   _________________

SIMON E. RODRIGUEZ, AS CHAPTER 7 TRUSTEE FOR THE
   BANKRUPTCY ESTATE OF UNITED WESTERN
    BANCORP, INC., PETITIONER v. FEDERAL
     DEPOSIT INSURANCE CORPORATION, AS
      RECEIVER FOR UNITED WESTERN BANK

 ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
            APPEALS FOR THE TENTH CIRCUIT
                              [February 25, 2020]

   JUSTICE GORSUCH delivered the opinion of the Court.
   This case grows from a fight over a tax refund. But the
question we face isn’t who gets the money, only how to de-
cide the dispute. Should federal courts rely on state law,
together with any applicable federal rules, or should they
devise their own federal common law test? To ask the ques-
tion is nearly to answer it. The cases in which federal
courts may engage in common lawmaking are few and far
between. This is one of the cases that lie between.
   The trouble here started when the United Western Bank
hit hard times, entered receivership, and the Federal De-
posit Insurance Corporation took the reins. Not long after
that, the bank’s parent, United Western Bancorp, Inc.,
faced its own problems and was forced into bankruptcy, led
now by a trustee, Simon Rodriguez. When the Internal
Revenue Service issued a $4 million tax refund, each of
these newly assigned caretakers understandably sought to
claim the money. Unable to resolve their differences, they
2                    RODRIGUEZ v. FDIC

                      Opinion of the Court

took the matter to court. The case wound its way through
a bankruptcy court and a federal district court before even-
tually landing in the Tenth Circuit. At the end of it all, the
court of appeals ruled for the FDIC, as receiver for the sub-
sidiary bank, rather than for Mr. Rodriguez, as trustee for
the corporate parent.
   How could two separate corporate entities both claim enti-
tlement to a single tax refund? For many years, the IRS has
allowed an affiliated group of corporations to file a consoli-
dated federal return. See 26 U.S. C. §1501. This serves as
a convenience for the government and taxpayers alike. Un-
surprisingly, though, a corporate group seeking to file a sin-
gle return must comply with a host of regulations. See 26
U.S. C. §1502; 26 CFR §1.1502–0 et seq. (2019). These reg-
ulations are pretty punctilious about ensuring the govern-
ment gets all the taxes due from corporate group members.
See, e.g., §1.1502–6. But when it comes to the distribution of
refunds, the regulations say considerably less. They describe
how the IRS will pay the group’s designated agent a single
refund. See §1.1502–77(d)(5). And they warn that the IRS’s
payment discharges the government’s refund liability to all
group members. Ibid. But how should the members distrib-
ute the money among themselves once the government sends
it to their designated agent? On that, federal law says little.
   To fill the gap, many corporate groups have developed “tax
allocation agreements.” These agreements usually specify
what share of a group’s tax liability each member will pay,
along with the share of any tax refund each member will re-
ceive. But what if there is no tax allocation agreement? Or
what if the group members dispute the meaning of the terms
found in their agreement? Normally, courts would turn to
state law to resolve questions like these. State law is replete
with rules readymade for such tasks—rules for interpreting
contracts, creating equitable trusts, avoiding unjust enrich-
ment, and much more.
   Some federal courts, however, have charted a different
                 Cite as: 589 U. S. ____ (2020)             3

                      Opinion of the Court

course. They have crafted their own federal common law
rule—one known to those who practice in the area as the
Bob Richards rule, so named for the Ninth Circuit case from
which it grew: In re Bob Richards Chrysler-Plymouth
Corp., 473 F.2d 262 (1973). As initially conceived, the Bob
Richards rule provided that, in the absence of a tax alloca-
tion agreement, a refund belongs to the group member re-
sponsible for the losses that led to it. See id., at 265. With
the passage of time, though, Bob Richards evolved. Now,
in some jurisdictions, Bob Richards doesn’t just supply a
stopgap rule for situations when group members lack an al-
location agreement. It represents a general rule always to
be followed unless the parties’ tax allocation agreement un-
ambiguously specifies a different result.
   At the urging of the FDIC and consistent with circuit
precedent, the Tenth Circuit employed this more expansive
version of Bob Richards in the case now before us. Because
the parties did have a tax allocation agreement, the court
of appeals explained, the question it faced was whether the
agreement unambiguously deviated from Bob Richards’s
default rule. In re United Western Bancorp, Inc., 914 F.3d
1262, 1269–1270 (2019). After laying out this “analytical
framework” for decision, id., at 1269 (emphasis deleted), the
court proceeded to hold that the FDIC, as receiver for the
bank, owned the tax refund.
   Not all circuits, however, follow Bob Richards. The Sixth
Circuit, for example, has observed that “federal common
law constitutes an unusual exercise of lawmaking which
should be indulged . . . only when there is a significant con-
flict between some federal policy or interest and the use of
state law.” FDIC v. AmFin Financial Corp., 757 F.3d 530,
535 (2014) (internal quotation marks omitted). In the Sixth
Circuit’s view, courts employing Bob Richards have simply
“bypassed th[is] threshold question.” 757 F.3d, at 536.
And any fair examination of it, the Sixth Circuit has sub-
4                    RODRIGUEZ v. FDIC

                      Opinion of the Court

mitted, reveals no conflict that might justify resort to fed-
eral common law. Ibid. We took this case to decide Bob
Richards’s fate. 588 U. S. ___ (2019)
  Judicial lawmaking in the form of federal common law
plays a necessarily modest role under a Constitution that
vests the federal government’s “legislative Powers” in Con-
gress and reserves most other regulatory authority to the
States. See Art. I, §1; Amdt. 10. As this Court has put it,
there is “no federal general common law.” Erie R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938). Instead, only limited
areas exist in which federal judges may appropriately craft
the rule of decision. Sosa v. Alvarez-Machain, 542 U.S.
692, 729 (2004). These areas have included admiralty dis-
putes and certain controversies between States. See, e.g.,
Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., 543
U.S. 14, 23 (2004); Hinderlider v. La Plata River & Cherry
Creek Ditch Co., 304 U.S. 92, 110 (1938). In contexts like
these, federal common law often plays an important role.
But before federal judges may claim a new area for common
lawmaking, strict conditions must be satisfied. The Sixth
Circuit correctly identified one of the most basic: In the ab-
sence of congressional authorization, common lawmaking
must be “ ‘necessary to protect uniquely federal interests.’ ”
Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S.
630, 640 (1981) (quoting Banco Nacional de Cuba v. Sab-
batino, 376 U.S. 398, 426 (1964)).
  Nothing like that exists here. The federal government
may have an interest in regulating how it receives taxes
from corporate groups. See, e.g., 26 CFR §§1.1502–6, –12,
–13. The government also may have an interest in regulat-
ing the delivery of any tax refund due a corporate group.
For example and as we’ve seen, the government may wish
to ensure that others in the group have no recourse against
federal coffers once it pays the group’s designated agent.
See §1.1502–77(d)(5). But what unique interest could the
federal government have in determining how a consolidated
                  Cite as: 589 U. S. ____ (2020)              5

                      Opinion of the Court

corporate tax refund, once paid to a designated agent, is dis-
tributed among group members?
   The Sixth Circuit correctly observed that Bob Richards
offered no answer—it just bypassed the question. Nor have
the courts applying and extending Bob Richards provided
satisfactory answers of their own. Even the FDIC, which
advocated for the Bob Richards rule in the Tenth Circuit,
failed to point that court to any unique federal interest the
rule might protect. In this Court, the FDIC, now repre-
sented by the Solicitor General, has gone a step further, ex-
pressly conceding that federal courts “should not apply a
federal common law rule to . . . put a thumb on . . . the scale”
when deciding which corporate group member owns some
or all of a consolidated refund. Tr. of Oral Arg. 40; see also
id., at 32–36.
   Understandably too. Corporations are generally “crea-
tures of state law,” Cort v. Ash, 422 U.S. 66, 84 (1975), and
state law is well equipped to handle disputes involving cor-
porate property rights. That cases like the one now before
us happen to involve corporate property rights in the con-
text of a federal bankruptcy and a tax dispute doesn’t
change much. As this Court has long recognized, “Congress
has generally left the determination of property rights in
the assets of a bankrupt’s estate to state law.” Butner v.
United States, 440 U.S. 48, 54 (1979). So too with the In-
ternal Revenue Code—it generally “ ‘creates no property
rights.’ ” United States v. National Bank of Commerce, 472
U.S. 713, 722 (1985) (quoting United States v. Bess, 357
U.S. 51, 55 (1958)). If special exceptions to these usual
rules sometimes might be warranted, no one has explained
why the distribution of a consolidated corporate tax refund
should be among them.
   Even if the Tenth Circuit’s reliance on Bob Richards’s an-
alytical framework was mistaken, the FDIC suggests we
might affirm the court’s judgment in this case anyway. The
6                    RODRIGUEZ v. FDIC

                      Opinion of the Court

FDIC points out that the court of appeals proceeded to con-
sult applicable state law—and the FDIC assures us its re-
sult follows naturally from state law. The FDIC also sug-
gests that the IRS regulations concerning the appointment
and duties of a corporate group’s agent found in 26 CFR
§§1.1502–77(a) and (d) tend to support the court of ap-
peals’s judgment. Unsurprisingly, Mr. Rodriguez disagrees
with these assessments and contends that, absent Bob
Richards, the Tenth Circuit would have reached a different
outcome.
   Who is right about all this we do not decide. Some, maybe
many, cases will come out the same way under state law or
Bob Richards. But we did not take this case to decide how
this case should be resolved under state law or to determine
how IRS regulations might interact with state law. We took
this case only to underscore the care federal courts should
exercise before taking up an invitation to try their hand at
common lawmaking. Bob Richards made the mistake of
moving too quickly past important threshold questions at
the heart of our separation of powers. It supplies no rule of
decision, only a cautionary tale. Whether this case might
yield the same or a different result without Bob Richards is
a matter the court of appeals may consider on remand. See,
e.g., Conkright v. Frommert, 559 U.S. 506, 521–522 (2010);
Travelers Casualty & Surety Co. of America v. Pacific Gas
& Elec. Co., 549 U.S. 443, 455–456 (2007); Gonzales v.
Duenas-Alvarez, 549 U.S. 183, 194 (2007).
   The judgment of the court of appeals is vacated, and the
case is remanded for further proceedings consistent with
this opinion.
                                              It is so ordered.