Bank of Guam v. U.S.

• Decision Date: 12 August 2009
• Docket Number: No. 2008-5078.,2008-5078.
• Citation: 578 F.3d 1318
• Parties: BANK OF GUAM, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

578 F.3d 1318

BANK OF GUAM, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 2008-5078.

United States Court of Appeals, Federal Circuit.

August 12, 2009.

Kurt W. Melchior, Nossaman LLP, of San Francisco, CA, argued for plaintiff-appellant. With him on the brief was Robert M. Adler, Nossaman LLP/O'Connor & Hannan, of Washington, DC. Of counsel on the brief were Jerome Sapiro, Jr. and David A. Sauers, The Sapiro Law Firm, of San Francisco, CA.

Brian A. Mizoguchi, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief was Jeanne E. Davidson, Director. Of counsel on the brief was Cleve Lisecki, Attorney-Advisor, Office of the Associate Chief Counsel (International), Internal Revenue Service, of Washington, DC.

Before LOURIE, SCHALL, and GAJARSA, Circuit Judges.

SCHALL, Circuit Judge.

Bank of Guam (the "Bank") appeals from the final judgment of the United States Court of Federal Claims that dismissed its suit for breach of contract against the United States. Bank of Guam v. United States, 80 Fed.Cl. 739 (2008) ("Dismissal Order"). The Bank brought suit against the United States alleging that Guam's collection of the Guam Territorial Income Tax ("GTIT") on interest income received by the Bank from certain United States government obligations ("USGOs" or "bonds") breached a promise by the United States that income from the USGOs held by the Bank would not be subject to taxation by the GTIT. The Court of Federal Claims entered judgment dismissing the Bank's complaint after granting the government's motions to dismiss pursuant to Rules 12(b)(1) and 12(b)(6) of the Rules of the Court of Federal Claims ("RCFC"). Id. at 753-54. The court granted the government's motions because it concluded that (1) certain of the Bank's claims were barred by the statute of limitations set forth at 28 U.S.C § 2501; and (2) as far as the remaining claims were concerned, collection of the GTIT did not constitute the breach of either an express or implied-in-fact contract between the United States and the Bank. As set forth below, we disagree with the court's statute of limitations ruling, which we reverse. We agree with the court, however, that the United States did not breach any express or implied-in-fact contract with the Bank. We therefore affirm the final judgment of dismissal.

BACKGROUND

I.

In 1950, Congress enacted the Organic Act of Guam, establishing the government for the U.S. Territory of Guam. See Organic Act of Guam, Pub.L. No. 630, 64 Stat. 384 (1950) (codified at 48 U.S.C. § 1421) ("the Organic Act"). The Organic Act provides that the "income-tax laws in force in the United States of America and those which may hereafter be enacted shall be held to be likewise in force in Guam." 48 U.S.C. § 1421i(a).¹ Those "income-tax laws" are governed by Title 26 of the United States Code, the Internal Revenue Code ("IRC"). Congress further provided that "[t]he income-tax laws in force in Guam pursuant to subsection (a) of this section shall be deemed to impose a separate Territorial income tax, payable to the government of Guam, which tax is designated the `Guam Territorial income tax [i.e., GTIT].'" § 1421i(b).

By instituting the GTIT, Congress decided to "mirror" the IRC, rather than create an entirely new tax code for Guam. In other words, except for those provisions of the IRC that are "manifestly inapplicable or incompatible with the intent" of § 1421i, IRC § 1 applies to Guam taxpayers as GTIT § 1. See 48 U.S.C. § 1421i(d)(1). See generally Sayre & Co. v. Riddell, 395 F.2d 407 (9th Cir.1968) (explaining "mirroring" and that § 1421i created a "taxing structure for Guam `mirroring' the provisions of the federal tax code"). In effect, the GTIT "mirrors" the IRC by substituting certain terms in the IRC for terms pertinent to Guam, such as replacing "United States" with "Guam." See § 1421i(e) ("Substitution of terms"). In order to relieve extra administrative burden, the GTIT is collected and disbursed by Guam, instead of by the U.S. Treasury. See, e.g., Bank of Am. v. Chaco, 539 F.2d 1226, 1227 (9th Cir.1976) ("[T]he enactment of ... the territorial income tax was done primarily to relieve the United States Treasury of the necessity of making direct appropriations...."). In that way, the GTIT acts as a U.S. federal income tax for those living in Guam, who would otherwise not have to pay U.S. federal income tax.

The U.S. Treasury is authorized to issue USGOs, such as Treasury bills and bonds. See, e.g., 5 U.S.C. § 301; 12 U.S.C. § 391; 31 U.S.C. §§ 3102-3104 (pertaining to bonds, notes, and Treasury bills); 31 U.S.C. § 3121 (authorizing the Secretary of the Treasury to prescribe rules and regulations pertaining to USGOs). While USGOs, and the interest earned on them, are typically subject to federal income tax for U.S. taxpayers, see generally 26 U.S.C. § 61 (including interest in definition of "gross income"), USGOs are "exempt from taxation by a State or political subdivision of a State," 31 U.S.C. § 3124(a)²; see 31 C.F.R. § 356.32 ("exempt from taxation by a State or political subdivision of a State"). Treasury regulations also state that USGOs "shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority." 31 C.F.R. §§ 309.4, 340.3, 345.5. In addition to the aforementioned regulations that explicitly exempt USGOs from taxation imposed by a possession, other Treasury regulations define "State" to include "any ... territory or possession of the United States." 31 C.F.R. § 357.2. At no time, however, have there been statutes or regulations that explicitly exempt USGOs from taxation by the GTIT.

II.

The facts pertinent to this appeal are not in dispute and are set forth in the decision of the Court of Federal Claims. See generally Dismissal Order, 80 Fed.Cl. at 739. The Bank is a resident of Guam and, in 1978, it began purchasing USGOs, including Treasury bills and bonds, each imprinted with a statement "that they were `exempt from all taxation now or hereafter imposed ... by ... any of the possessions of the United States.'" Bank's Compl. ¶ 7. Although USGOs purchased after 1986 were no longer issued in paper form and therefore could not include the printed statement, various federal regulations maintained the language previously printed on the USGOs. See, e.g., 31 C.F.R. § 309.4 (Treasury Bills); 31 C.F.R. § 340.3 (Treasury Bonds); 31 C.F.R. § 356.32 (Treasury Bills, Notes, and Bonds).³

On January 24, 2001, the Director of the Guam Department of Revenue and Taxation ("GDRT") issued a Notice of Deficiency to the Bank for tax years 1992-94, contending that the Bank owed GTIT taxes on the interest earned on the Bank's USGOs. In response, the Bank initiated a suit in the United States District Court for the District of Guam, contending that Guam could not, through the GTIT, collect taxes on USGOs. Bank of Guam v. Dir. of Dep't of Revenue & Taxation, No. 01-00016, 2002 U.S. Dist. LEXIS 9662 (D.Guam May 14, 2002) ("Guam Tax Ruling"). Ruling to the contrary, the court decided that the Ninth Circuit's decision in Gumataotao v. Director of Department of Revenue & Taxation, 236 F.3d 1077 (9th Cir.2001), "directly contradicts the petitioner's assertion that the respondent erred when he determined that Guam could tax the interest income on [bonds]." Guam Tax Ruling, 2002 U.S. Dist LEXIS 9962, at *7. Agreeing with Gumataotao, the court expressly held that the "GTIT does not exempt interest paid to Guam residents from [USGOs]." Id. at *6. Thus, the court dismissed the Bank's claim pursuant to Fed.R.Civ.P. 12(b)(6) accordingly. Id. at *7. Subsequently, instead of appealing the district court's decision to the Court of Appeals for the Ninth Circuit, the Bank settled with the GDRT, paying the GTIT taxes owed and abandoning its case. Dismissal Order, 80 Fed.Cl. at 743.

III.

On January 17, 2007, the Bank filed its four-count complaint in the Court of Federal Claims, putting forth many of the same arguments it had advanced in the District Court of Guam, but as breach of contract claims. The Bank requested a monetary award equaling the amount of tax it paid in settlement with the GDRT "for all open tax years through and including 2001" plus the amount of tax it paid to the GDRT commencing in 2002. Bank's Compl. ¶¶ 12, 20. The first count of the complaint alleged that, because Guam sought to collect GTIT on income from the USGOs, the United States had breached a contractual promise that income from the USGOs would be exempt from taxation imposed by a possession. Id. ¶¶ 18-20. The second count contended that all bond contracts should be reformed "to contain an obligation on the part of the United States government, requiring it to reimburse and indemnify the Bank." Id. ¶ 26. In its third count, the Bank alleged an implied-in-fact contract requiring the United States to reimburse the Bank all taxes it had paid on the USGOs. Id. ¶ 30. Finally in count four, because the Bank "expect[ed] to continue to purchase and hold USGOs," and because collecting the GTIT on USGOs amounted to a breach of present and future USGO contracts, the Bank sought declaratory relief requiring the government to "reimburse the Bank on a forward basis for all sums which the Bank will hereafter be obliged to pay." Id. ¶¶ 33-35; id. WHEREFORE clause ¶ 3.

The government filed motions to dismiss all counts under RCFC 12(b)(1) and 12(b)(6). Pursuant to RCFC 12(b)(1), the government argued that the Court of Federal Claims lacked jurisdiction over all of the Bank's contract claims because those claims were barred by the Tucker Act's, 28 U.S.C. § 1491(a), statute of limitations. See 28 U.S.C § 2501 (requiring filing "within six years after such claim first accrues"). In particular, the government contended that, even...