A three-judge panel found the Federal Deposit Insurance Corp., as receiver for United Western Bancorp, was entitled to the refund because under the tax-sharing agreement between United Western and its parent, United Western Bancorp Inc., ambiguities should be resolved in favor of the bank, the opinion said.
The contract "requires us to construe any ambiguities in favor of the bank and the FDIC," the Tenth Circuit said in remanding the case to the bankruptcy court for further proceedings.
"We conclude that the tax refund at issue belongs to the bank, and that the FDIC, as receiver for the bank, was entitled" to the refund, the opinion said.
In February the Supreme Court vacated the Tenth Circuit's original finding that the FDIC was entitled to the refund, saying it should not have relied on a Ninth Circuit decision from 1973, In re Bob Richards Chrysler-Plymouth Corp.
That decision established federal common law holding that a tax refund should go to the member of a corporate group whose activity gave rise to the refund.In its decision Tuesday, the Tenth Circuit said it looked to Colorado state law to determine ownership of the tax refund, which requires trying to determine the intent of the contracting parties primarily by reading the language within the actual contract.
The tax-sharing agreement, which is a document between parties about how tax refunds and liabilities are allocated, was "poorly drafted and ambiguous" with respect to the nature of the relationship that UWBI and the bank intended to have, according to the opinion. Either an agency relationship existed, which would favor the refund going to the FDIC, or a debtor-creditor relationship existed, which would grant ownership to UWBI, it said.
One section of the tax-sharing agreement between UWBI and the bank states if there is any ambiguity in interpreting part of the contract, that dispute will be resolved in favor of any insured depository institution, which is the bank, the opinion said. That section is not ambiguous and requires the court to favor any uncertainties in favor of the bank and therefore the FDIC, the opinion said.
As the parent company, UWBI filed a federal income tax return for itself and its subsidiaries in 2008 for taxable income of $34.4 million, but carried back $35.4 million of losses in 2010 for two years to generate the refund, according to court documents.
After the bank closed in January 2011 and the FDIC was appointed as receiver, UWBI became insolvent because the bank was its main source of income, court documents said. UWBI filed for Chapter 11 bankruptcy in March 2012 while the refund was still pending before the IRS.
The bankruptcy court found that Simon Rodriguez, as UWBI's Chapter 7 trustee, was entitled to the $4.1 million refund because property is part of a debtor's bankruptcy estate if the debtor has both "legal title" and "an equitable interest" in that property, which UWBI had. However, in July 2017, a Colorado federal judge reversed that decision, finding the FDIC was entitled to the refund because the tax-sharing agreement between the parties could be interpreted to create an agency relationship, which meant the parent was just holding the refund in trust of the subsidiary.
The Tenth Circuit originally affirmed the district court's finding in 2018.
Counsel for Rodriguez did not immediately respond to questions.
A representative of the FDIC told Law360 it does not comment on pending litigation.
U.S. Circuit Judges Mary Beck Briscoe and Jerome A. Holmes and Senior Judge Stephanie K. Seymour sat on the panel for the Tenth Circuit.
Simon Rodriguez is represented by Neal Kumar Katyal, Mitchell P. Reich and Thomas P. Schmidt of Hogan Lovells and by Mark E. Haynes of Ireland Stapleton Pryor & Pascoe PC.
The government is represented by Colleen J. Boles, J. Scott Watson and Joseph Brooks, counsel for the FDIC, as receiver for United Western Bank.
The case is Simon E. Rodriguez v. Federal Deposit Insurance Corp., case number 17-1281, in the U.S. Court of Appeals for the Tenth Circuit.
--Editing by John Oudens.
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