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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
decide 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 question 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 Deposit
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 took the matter to court. The case wound its way through a
bankruptcy court and a federal district court before eventually
landing in the Tenth Circuit. At the end of it all, the court of
appeals ruled for the FDIC, as receiver for the subsidiary bank,
rather than for Mr. Rodriguez, as trustee for the corporate
parent.
How could two separate corporate entities both
claim entitlement to a single tax refund? For many years, the IRS
has allowed an affiliated group of corporations to file a
consolidated federal return. See 26 U. S. C. §1501. This
serves as a convenience for the government and taxpayers alike.
Unsurprisingly, though, a corporate group seeking to file a single
return must comply with a host of regulations. See 26
U. S. C. §1502; 26 CFR §1.1502–0
et seq.
(2019). These regulations are pretty punctilious about ensuring the
government 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 distribute 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 receive.
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 enrichment, and much more.
Some federal courts, however, have charted a
different 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 allocation
agreement, a refund belongs to the group member responsible 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 allocation
agreement. It represents a general rule always to be followed
unless the parties’ tax allocation agreement
unambiguously
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 conflict 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
submitted, reveals no conflict that might justify resort to federal
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 Congress 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
disputes 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 absence 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.
Sabbatino,
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 regulating 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 corporate tax
refund, once paid to a designated agent, is
distributed
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 represented by the Solicitor
General, has gone a step further, expressly 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
“creatures of state law,”
Cort v.
Ash,
422 U.S.
66, 84 (1975), and state law is well equipped to handle
disputes involving corporate property rights. That cases like the
one now before us happen to involve corporate property rights in
the context 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 Internal 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 analytical framework was mistaken, the FDIC suggests
we might affirm the court’s judgment in this case anyway. The FDIC
points out that the court of appeals proceeded to consult
applicable state law—and the FDIC assures us its result follows
naturally from state law. The FDIC also suggests 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 appeals’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.
