Fed. Deposit Ins. Corp. v. Simon E. Rodriguez, in His Capacity for the Bankr. Estate of United W. Bancorp, Inc. (In re United W. Bancorp, Inc.)
| Decision Date | 10 July 2017 |
| Docket Number | Civil Action No. 16–cv–2475–WJM |
| Citation | 574 B.R. 876 |
| Parties | IN RE: UNITED WESTERN BANCORP, INC., Debtor. Federal Deposit Insurance Corporation, in its capacity as receiver for United Western Bank, Defendant–Appellant, v. Simon E. Rodriguez, in his capacity as Chapter 7 Trustee for the bankruptcy estate of United Western Bancorp, Inc., Plaintiff–Appellee. |
| Court | U.S. District Court — District of Colorado |
John J. Clarke, Jr., DLA Piper US, LLP, New York, NY, John Frederick Young, Markus Williams Young & Zimmermann LLC, Denver, CO, for Defendant–Appellant.
Kimberley Haines Tyson, Mark E. Haynes, Ireland Stapleton Pryor & Pascoe, P.C., Denver, CO, for Plaintiff–Appellee.
ORDER REVERSING BANKRUPTCY COURT'S JUDGMENT
The Federal Deposit Insurance Corporation ("FDIC"), acting as receiver for the defunct United Western Bank ("Bank"), appeals the Bankruptcy Court's determination that a tax refund generated on account of the Bank's losses should remain a part of the bankruptcy estate of the Bank's parent company, United Western Bancorp, Inc. ("Holding Company"). See In re United W. Bancorp, Inc. , 558 B.R. 409 (Bankr. D. Colo. 2016) (" UWBI "). For the reasons explained below, the Court finds that the relevant contract between the Bank and the Holding Company is ambiguous regarding whether the Holding Company may keep the tax refund in the present circumstances. That contract further requires that any ambiguity be construed in favor of the Bank. Accordingly, the tax refund is not part of the Holding Company's bankruptcy estate and must be remitted to the Bank. The judgment of the Bankruptcy Court is reversed.1
In reviewing a bankruptcy court's decision, the district court normally functions as an appellate court, reviewing the bankruptcy court's legal conclusions de novo and its factual findings for clear error. 28 U.S.C. § 158(a) ; In re Warren , 512 F.3d 1241, 1248 (10th Cir. 2008). The Bankruptcy Court's judgment rested on a contract interpretation made as a matter of law, so this Court's review is de novo. In re Universal Serv. Fund Tel. Billing Practice Litig. , 619 F.3d 1188, 1203 (10th Cir. 2010).
The Holding Company owned thirteen subsidiaries. (App. 41, 45–46.) One of those subsidiaries was the Bank, which the Holding Company wholly owned, and which was the Holding Company's principal asset. UWBI , 558 B.R. at 416. The Bank operated eight branches and a loan servicing office in Colorado. Id.
The Internal Revenue Code permits an "affiliated group" of corporations (those with a common parent and a chain of sufficient stock ownership) to file a "consolidated [tax] return" that aggregates the gains and losses of all of them as if one corporation. See 26 U.S.C. §§ 1501 – 04. To facilitate such consolidated filing, eligible affiliated groups often enter into a written agreement amongst themselves known as a tax sharing agreement or a tax allocation agreement. Here, the Holding Company and its subsidiaries entered into a "Tax Allocation Agreement" ("TAA").3
The TAA is dated January 1, 2008, and was signed by representatives of the Holding Company and its thirteen subsidiaries, including the Bank. (App. 41, 45–46.) It refers to all of the subsidiaries combined as "the Group," and also sometimes as "the Affiliates." (App. 41.) The TAA's recitals announce its purpose as follows: "to establish a method for (i) allocating the consolidated tax liability of the Group among its members, (ii) reimbursing [the Holding Company] for the payment of such tax liability, and (iii) compensating each member of the Group for the use of its losses by any other member of the Group." (Id. )
To accomplish this purpose, the TAA first proclaims the following "General Rule" for federal tax filings:
Except as specifically set forth herein to the contrary, each Affiliate shall pay [the Holding Company] an amount equal to the federal income tax liability such Affiliate would have incurred were it to file a separate return (or, if appropriate, a consolidated return with its subsidiary affiliates). If [the Bank] incurs a net operating loss or excess tax credits, the [Bank] is entitled to a refund [from the Holding Company] equal to the amount that it would have been entitled to receive had it not joined in the filing of a consolidated return with [the Holding Company]. Similar treatment is optional at [the Holding Company's] discretion for [other] Affiliates. Any refund shall generally not exceed the amount claimed or received as a refund resulting from a carryback claim filed by [the Holding Company]. However, this shall not prevent [the Holding Company] from the ability to make a refund over the amount received or claimed as a refund or carryback, if in its sole discretion it believes such payment is in its best interest.
(TAA § A.1.) Having proclaimed this general rule, the TAA then goes on to re-proclaim its purpose, although with a different focus than that evident in the recitals: "In essence, this Agreement requires that each [Affiliate] be treated as a separate taxpayer with [the Holding Company] merely being an intermediary between an Affiliate and the Internal Revenue Service (‘IRS')." (Id. § A.2.)
The details of actual cash flow to and from the Holding Company and the Affiliates are addressed later in the TAA, and here the TAA starts to become somewhat convoluted. As best the Court can discern, each Affiliate was required to pay to the Holding Company the Affiliate's "hypothetical estimated income tax liability" on a quarterly basis at around the same time that the Holding Company was required to make estimated quarterly payments to the IRS. (Id. §§ F.1, F.2.) However, "[p]ayments [from the Holding Company] to an Affiliate for net operating losses or similar items shall not to be made under this [quarterly] provision, but rather on an annual basis pursuant to Section A." (Id. § F.3.)
While the cross-referenced "Section A" certainly discusses refunds from the Holding Company for an Affiliate's net operating losses, it actually says nothing about the timing of those refunds, e.g. , on an annual basis or otherwise. Rather, that seems to come from Section E. That section first instructs Affiliates that they must make "[p]reliminary tax settlement payments ... on or before March 15 following the end of the appropriate taxable year." (Id. § E.1.) The Court presumes this refers to any amounts over those already paid on a quarterly estimated basis during the previous year. In any event, the various parties' obligations are trued-up towards the end of each year: "Final tax settlement payments or refunds are due on or before November 15." (Id. § E.2.) This appears to be the "annual basis" referred to for refunds based on quarterly net losses.
The TAA actually contains three distinct refund provisions. One such provision is that just discussed, i.e. , the "[f]inal tax settlement ... refund [ ]" that is "due on or before November 15" of each year, with reference to the previous taxable year. This refers to a payment from the Holding Company to the Affiliate, likely from monies received from other Affiliates that owed taxes. The second refund provision is simply an accelerated process to obtain the same payment: "an Affiliate with a taxable loss for the year may recover [from the Holding Company] estimated taxes paid for that year before final settlement if an ‘expedited refund’ claim is filed with [the Holding Company] by February 15 following the end of the tax year." (Id. § E.1.)
The third refund provision is of the most interest here, as it refers to refunds received by the Holding Company from the IRS, not any sort of refund of amounts paid by the Affiliates to the Holding Company. It establishes a 10-business-day deadline for distributing such refunds:
In the event of any adjustment to the tax returns of the Group as filed (by reason of an amended return, claim for refund, or an audit by a taxing authority), the liability of the parties to this Agreement shall be re-determined to give effect to any such adjustment as if it had been made as part of the original computation of tax liability, and payments between the appropriate parties shall be made within 10 business days after any such payments are made [to the IRS] or refunds are received [from the IRS], or, in the case of contested proceedings, within 10 business days after a final determination of the contest.
(Id. § H.1.)4 In other words, although an Affiliate with net losses may make a claim on the Holding Company for a refund of estimated tax payments, it appears the Holding Company has a self-executing duty to distribute to the Affiliates any actual refund received from the IRS.
(Id. § G.1.) Third, the TAA contains yet another statement of its purpose (i.e. , in addition to those statements found in its recitals and in § A.2), followed by an "ambiguity favors the Bank" clause: ...
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