Rodriguez v. Federal Deposit Insurance Corp.
Justia (with opinion) · Docket · oyez.org
Argued on Dec 3, 2019.Decided on Feb 25, 2020.
Petitioner: Simon E. Rodriguez.Respondent: Federal Deposit Insurance Corporation.
Advocates: Mitchell P. Reich (for the petitioner)
Michael R. Huston (Assistant to the Solicitor General, Department of Justice, for the respondent)
Facts of the case (from oyez.org)
United Western Bancorp, Inc. (UWBI) was in Chapter 7 bankruptcy proceedings when it received a tax refund check from the Internal Revenue Service that was the result of net operating losses incurred by one of UWBI’s subsidiaries (United Western Bank). UWBI and its subsidiaries had entered into a tax allocation agreement in 2008 that was the source of the present ownership dispute. The Federal Deposit Insurance Corporation (FDIC) alleged that, as receiver for the Bank, it was entitled to the federal tax refund that was due because the refund stemmed exclusively from the Bank’s business loss carrybacks. Simon Rodriguez, in his capacity as the Chapter 7 Trustee for the bankruptcy estate of UWBI, initiated a bankruptcy adversary proceeding against the FDIC, alleging that UWBI owned the tax refund and thus that it was part of the bankruptcy estate.
The bankruptcy court agreed with Rodriguez and entered summary judgment. The FDIC appealed to federal district court, which reversed the bankruptcy court. On appeal, the U.S. Court of Appeals for the Tenth Circuit affirmed the district court. Under federal common law, “a tax refund due from a joint return generally belongs to the company responsible for the losses that form the basis of the refund.” Applying this rule and noting that the agreement’s intended treatment of tax refunds mandates the same result, the Tenth Circuit concluded that the tax refund at issue belonged to the Bank and thus that the FDIC, as receiver for the Bank, was entitled to summary judgment.

Question
Does federal common law or the law of the relevant state determine the ownership of a tax refund paid to an affiliated group?

Conclusion
In an opinion authored by Justice Gorsuch, a unanimous Court held that state law is “well equipped to handle disputes involving corporate property rights.” Federal common law should only exist to “protect uniquely federal interests” the Court explained. “Nothing like that exists here” it continued. While the federal government potentially has a sufficiently unique interest in rules governing the receipt of taxes from corporate entities, the court elaborated, it questioned the strength of any interest in how a tax refund, once received, is distributed among the members of that entity. The Court found that neither federal courts that have applied federal common law to this question nor the FDIC as the advocate for federal common law in this case had ever articulated a sufficient unique federal interest to justify the existence of federal common law on this point.
The Court did not decide whether the outcome of the particular dispute before it would have been different if decided under the applicable state law rather than erroneously under the federal common law it deemed improper. Instead, the Court remanded the case to the Tenth Circuit Court of Appeal for that determination.