In a recent decision, the Eleventh Circuit held that tax refunds remitted by the Internal Revenue Service to a holding company were not the property of the holding company's bankruptcy estate but instead had to be forwarded to the Federal Deposit Insurance Corporation, as receiver for the separate estate of the holding company's bank subsidiary.
The ruling, Zucker v. FDIC (In re BankUnited Financial Corp.), ___ F.3d __, No.
12-11392, (11th Cir. Aug. 15, 2013) (In re BankUnited Financial
Corp. II), is contrary to that of several bankruptcy and district
courts, including that of the bankruptcy court in the BankUnited
case.
Those earlier decisions held that tax refunds received by a holding
company were the property of its bankruptcy estate, even if those
refunds would have been payable to the subsidiary if the holding
company and its bank subsidiary had filed separate returns.
Whether the Eleventh Circuit's decision will result in a
fundamental and permanent change in case law or end up as a mere
odd detour in bankruptcy jurisprudence will depend on whether
courts in the future distinguish it based on its somewhat unusual
facts, and, if not, to what extent they are willing to accept its
analysis of the applicable legal principles.
Under either scenario, however, it appears that when a tax-sharing
agreement is in place, courts will continue to view disputes
between bank-holding companies and their bank subsidiaries as a
matter of contract interpretation, meaning that tax-sharing
agreements that clearly and explicitly address who owns any refunds
should be dispositive.
Background
In bankruptcy cases or other insolvency proceedings involving
more than one affiliated corporation, it is not uncommon for
intercompany issues to arise — e.g., which assets and which
liabilities belong to the estates of which entities.
These issues can be particularly important in the banking industry,
when a bank-holding company and its subsidiary bank both become
insolvent. One reason is that, while the holding company can file
for bankruptcy, a bank cannot, because the Bankruptcy Code does not
permit banks to become bankruptcy debtors. Instead, if the bank is
insolvent, it is typically placed into receivership, with the FDIC
appointed as receiver.[1]
Thus, there are separate fiduciaries for the estates of the holding
company and the bank: a debtor-in-possession (or bankruptcy
trustee) and perhaps a creditors committee for the bankruptcy
estate of the holding company, and the FDIC for the receivership
estate of the bank.
Moreover, the creditor body of the two estates is often very
different. The most significant creditors of the holding company
may be bondholders or lenders that provided financing to the
holding company (often, for it to capitalize its bank subsidiary),
whereas the most significant creditor of the bank can be the FDIC
itself because it will be subrogated to the claims of the
bank's depositors to the extent that the FDIC's insurance
fund pays those depositors.[2]
As a result, where a holding company and bank are both insolvent,
disputes often arise between the bankruptcy estate of the holding
company and the receivership estate of the bank. One leading
subject of such disputes has been which estate is entitled to
receive any tax refunds that may be payable by the IRS (or state
taxing authorities).
These tax refunds have been in the tens or hundreds of millions of
dollars in some cases; indeed, in the Chapter 11 case of Washington Mutual and the receivership of its
bank subsidiary, the tax refunds were potentially in the billions
of dollars.
Whether the refunds are property of the holding company's
estate or, instead, are property of the bank's estate can thus
have a significant impact on the respective recoveries of creditors
of the two separate estates.
If the refunds are owned by the bank-holding company, those refunds
can potentially lead to a recovery for "structurally
subordinated" holding company creditors that is in excess of
the recovery for operating bank creditors. It is perhaps not
surprising, therefore, that this issue has led to considerable
litigation.
The potential for controversy arises because IRS regulations
generally permit affiliated corporate entities to file a
consolidated income tax return. The regulations provide that if a
group of affiliated corporations files such a consolidated return,
the common parent will act as the "sole agent" for the
group on all matters relating to the group's tax liability.[3]
Accordingly, the IRS will pay any refund "to and in the name
of the common parent."[4]
But courts have held that these regulations are purely procedural;
they do not determine as a substantive matter that the parent,
rather than another member of the consolidated group, is entitled
to the refund.[5]
And where the parent is a holding company with no operations of its
own, it is unlikely that it generated the losses that give rise to
the tax refund. Instead, it is likely that an operating company
— in the case of a bank-holding company, its subsidiary bank
— generated those losses.
In such a context, there is little question that, at the very
least, the subsidiary has a claim against the parent for the amount
of the refund, either as a matter of common law or contract. But if
the parent is insolvent and in bankruptcy, it can make a
substantial difference for the creditors of the bank and the
creditors of the holding company whether, on the one hand, the
refund is held to be the property of the bank, or on the other
hand, it is deemed the property of the holding company, and the
FDIC as receiver of the bank is left with a mere general unsecured
claim against the holding company's bankruptcy estate.
In the former case, the receivership estate of the bank will
receive the full amount of the refund, and the bankruptcy estate of
the holding company will receive none of it. In the latter case,
the bankruptcy estate of the holding company will receive the full
amount of the refund, and the receivership estate of the bank may,
at most, get to share, pari passu, with other general unsecured
creditors of the holding company in any distributions from the
holding company's bankruptcy estate to those creditors.
Because the IRS regulations are purely procedural, several courts
have held that the members of the consolidated group are free to
decide as a matter of contract which member of the group will be
entitled to any refund — that is, whose property the refund
will become.[6]
Thus, in deciding to which entity a tax refund belongs, the courts
typically consider whether the parent and the subsidiary (and any
other members of the consolidated group) entered into a tax
allocation or sharing agreement concerning the consolidated filings
and, if so, the terms of that agreement.
Where the members of the consolidated group have not entered into a
tax allocation or sharing agreement, the receivership (or other)
estate of the subsidiary has generally prevailed.
In a leading case in which the members of the group had not entered
into any such agreement, the Ninth Circuit held that "a tax
refund resulting solely from offsetting the losses of one member of
a consolidated filing group against the income of that same member
in a prior or subsequent year should inure to the benefit of that
member." See Western Dealer Management Inc. v. England (In re
Bob Richards Chrysler-Plymouth Corp.), 473 F.2d 262, 265 (9th Cir.
1973).
Applying this principle, the court determined that the refund was
the property of the estate of the subsidiary, which had generated
the losses giving rise to the refund, even though the IRS was
required under its regulations to pay the refund to the
parent.
The Ninth Circuit reasoned that to allow the parent corporation to
keep the funds under these circumstances simply because it and its
subsidiary chose as a matter of procedural convenience to file a
consolidated return would unjustly enrich the parent and its
creditors at the expense of the subsidiary and its
creditors.[7]
While the parent and subsidiary in Bob Richards were not a
bank-holding company and a bank, the Fifth Circuit reached the same
result in a case involving such entities in which, again, the
members of the group had not entered into an agreement concerning
the issue. See Capital Bancshares Inc. v. FDIC, 957 F.2d 203 (5th
Cir. 1992).[8]
In many cases, however, corporate groups that elect to file
consolidated tax returns do enter into tax allocation or sharing
agreements that address how the group's tax liabilities, tax
payments and tax refunds will be handled. These agreements often
differ in their precise language, and these differences can be
critical.
But, in general, most confirm that the parent will act for all
members of the group with the IRS and thus will pay any tax
liability to, and receive any refund from, the IRS. They typically
go on to provide that to the extent the tax liability or refund is
attributable to a particular subsidiary, that subsidiary will pay
that portion of the tax liability to, or receive that portion of
the refund from, the parent.
In a largely unbroken line of cases, bankruptcy and district courts
construing tax agreements of this nature have ruled that the refund
is the property of the bankruptcy estate of the holding company,
not the property of the receivership estate of the bank —
that is, they have reached the opposite result of that reached by
the courts in cases in which there were no such
agreements.[9]
These courts have distinguished Bob Richards, holding that it
merely provides "a gap-filling rule for situations where there
is no agreement — express or implied — between the
parties" and that this "gap-filling rule does not apply
when the parent and subsidiary have an agreement defining their
relationship with respect to any tax refunds."[10]
Instead, these courts have concluded that, in the absence of
overreaching by the parent, the terms of the agreement between the
parent and its subsidiary will control.
In particular, they have analyzed whether the agreement created a
mere debtor/creditor relationship between the parent that receives
the tax refund and the subsidiary that generated the loss giving
rise to the refund or, alternatively, created a true trust/agency
relationship. "If the parties are debtor-creditors, then the
tax refunds go to [the holding company][;] ... [if] the parties are
in a trust-agency relationship, then the tax refunds go to the
[b]ank."[11]
After reviewing the terms of the tax allocation or sharing
agreements, the bankruptcy and district courts in these cases have
largely held that those agreements created only a debtor-creditor
relationship between the parent and the subsidiary bank with
respect to any tax refunds received by the parent but attributable
to the subsidiary's operations.[12]
Accordingly, these courts have held that the refund was the
property of the holding company and that the FDIC, as receiver of
the bank, had no more than an unsecured claim in the holding
company's bankruptcy for the amount of the refund. In so
concluding, these courts have pointed to several aspects of the
particular agreement at issue:
- The agreement did not expressly provide that the holding company parent would hold any refund it received in "trust" or "escrow" for the subsidiary.
- The agreement used language that, at least in the view of these courts, implied that the refund became the parent's property and that the parent simply owed a debt to the subsidiary, such as, for example, that the parent would "pay" an amount of money equal to the amount of the refund attributable to the subsidiary's losses to that subsidiary.
- The agreement did not require the parent to make the payment immediately upon its receipt of the refund, but rather gave it a period of time (such as 30 days) before it had to do so, or imposed no time deadline at all for it to so act.
- The agreement did not obligate the parent to put in escrow or otherwise segregate any portion of the refund from the parent's funds between the time it received the refund and made any payment to the subsidiary.[13]
In addition, some of the courts have noted that the agreement
before them provided, in effect, for the calculation of the amount
of any refund the bank subsidiary would have been due by reason of
its losses if it had filed a separate return.
The agreement required the parent to pay the subsidiary that amount
even if the parent did not receive a refund in that (or any other)
sum, perhaps because a different subsidiary in the consolidated
group had offsetting income (and even if that separate subsidiary
was insolvent and could not reimburse the parent).
As the courts have noted, such a structure arguably suggests that
the parent's potential obligation to the subsidiary is a debt
to be paid out of the parent's own funds and is independent of
the receipt of any amount from the IRS.[14]
BankUnited
BankUnited concerned a tax-sharing agreement executed in 1997 by
BankUnited Financial Corporation, a holding company, and one of its
subsidiaries, BankUnited FSB, a bank. Although the bank was the
principal operating company in the BankUnited family of companies,
there were additional subsidiaries as well, and the tax-sharing
agreement governed the tax filings made on behalf of all members of
the consolidated group.
Consistent with the IRS regulations, the agreement provided that
the holding company would file the consolidated tax returns for the
family of companies. But it contained one unusual provision: the
bank, rather than the holding company, was responsible for the
payment of all taxes on behalf of, and the distribution of all
refunds to, members of the consolidated group.
In particular, the tax-sharing agreement specified that each member
of the group would determine what its tax liability would be
"without regard to any income tax expenses or benefits of
other members of the group" — that is, as if it were
filing its own returns separately and not as part of the
consolidated group — and each affiliate would "record an
inter-company income tax receivable or payable with [the
bank]" in the amount of its calculated tax asset or
liability.[15]
The agreement then provided that "[w]ithin 30 days following
the remittance by [the bank] of any income tax payment," or
"within 30 days" of "the filing of any periodic
income tax return," "each member of the group having a
net inter-company income tax payable shall pay such amount to [the
bank], and [the bank] shall reimburse any member of the group for
net inter-company income tax receivables."[16]
Importantly, the agreement did not explicitly address the holding
company's obligation to remit to the bank any tax refunds it
received.
The subsequent dispute arose in a typical fashion. In 2009, the
Office of Thrift Supervision closed the bank and appointed the FDIC
as its receiver. Having lost its principal operating subsidiary,
the holding company filed for bankruptcy the next day.
The holding company and the bank thereafter requested refunds from
the IRS for prior fiscal years totaling more than $48 million. The
IRS granted the request and sent the refunds to the holding
company, which then took the position that the money was the
property of its bankruptcy estate and that the bank, at most, had a
general unsecured claim for the amount of the refunds.
Not surprisingly, the FDIC, as receiver of the bank, disagreed. The
parties stipulated that the money would be maintained in escrow
until the dispute was resolved. The holding company then filed an
adversary proceeding in its bankruptcy case seeking (among other
relief) a declaration that the refunds were an asset of its
bankruptcy estate.
Following the lead of the many bankruptcy and district court
decisions that preceded it, the BankUnited bankruptcy court granted
that relief. BankUnited Financial Corp. v. FDIC (In re BankUnited
Financial Corp.), 462 B.R. 885 (Bankr. S.D. Fla. 2011) (In re
BankUnited Fin. Corp. I), rev'd, In re BankUnited Financial
Corp. II.
The bankruptcy court acknowledged that "the [agreement]
presumes that at some point [the holding company] is going to
deliver a tax refund to the bank;" this was "implicit in
the [agreement's] provision that the bank gives out the
allocable shares in any refund to the group."[17]
But the bankruptcy court concluded that this obligation was nothing
more than a contractual duty giving rise to a debt, making the bank
a mere creditor of the holding company. The money remained the
property of the holding company, rather than funds held in trust
for the bank.
In reaching this conclusion, the bankruptcy court stressed that the
tax-sharing agreement described "the entire relationship
between the various members of the [group] ... only in terms of
payables and receivables — inter-company debts and
claims."[18]
Indeed, the bankruptcy court seemed to suggest that if and when the
holding company remitted a refund to the bank, any other members of
the group that might have incurred losses under which they would
have been entitled to all or a portion of that refund had they
filed individual tax returns would be mere unsecured creditors of
the bank:
"Depending on how the tax balance sheet obligations are set up
at a particular time, the fact that the bank, when it holds the
funds, stands as a debtor or creditor, does not change the fact
that when [the holding company] holds the funds it also has the
status of the debtor or creditor."[19]
On the basis of this analysis, the bankruptcy court granted summary
judgment to the holding company. The parties then stipulated to an
immediate appeal to the Eleventh Circuit, bypassing the district
court.[20]
A unanimous panel of the Eleventh Circuit reversed, rejecting the
bankruptcy court's analysis. It agreed that the question was
one of "contract interpretation": "Federal law does
not govern the allocation of the group's tax refunds; hence, a
parent and its subsidiaries are free to provide for the allocation
of tax refunds by contract."[21]
And it concluded that the tax-sharing agreement was
"ambiguous" both because it "does not state when
[the holding company] must forward the tax refunds to the
bank" and because it "does not explain whether [the
holding company] 'owns' the refunds before forwarding them
to the Bank."[22]
But, notwithstanding this "ambiguity," the panel viewed
the parties' intent, which controlled under applicable state
(Delaware) law, as "obvious;" the parties intended that
the holding company "forward the tax refunds to the bank on
receipt," rather than "retain the tax refunds as a
company asset and ... be indebted to the bank in the amount of the
refunds."[23]
In the Eleventh Circuit's view, this reading of the tax-sharing
agreement was necessary to fulfill the agreement's
"paramount purpose" — "to ensure that the tax
refunds are delivered to the group's members in full and with
dispatch."[24] And the panel found nothing in the language of
the agreement to suggest the opposite.
In particular, the agreement did not specify "a fixed interest
rate, a fixed maturity date or the ability to accelerate payment
upon default" — the sorts of "protection[s]"
the panel would have expected the bank to have demanded if it were
merely a creditor of the holding company.[25]
Accordingly, the panel concluded that "[w]hen [the holding
company] received the tax refunds, it held the funds intact —
as if in escrow — for the benefit of the bank and thus, the
remaining members of the consolidated group."[26]
It therefore reversed the judgment of the bankruptcy court and
instructed it to enter a new judgment directing the holding company
"to forward the funds held in escrow to the FDIC, as receiver,
for distribution to the members of the group in accordance with the
[tax-sharing agreement]."[27]
Analysis
The Eleventh Circuit's decision in BankUnited raises as many
questions as it answers.
First, the panel's approach toward the task of contract
interpretation appears to be unusual. After determining that the
tax-sharing agreement was "ambiguous," the panel did not
follow the approach often adopted by courts when they conclude that
the terms of a contract are ambiguous: require a trial and permit
each side to present parol evidence.
Rather, it inferred the parties' intent, which it deemed
"obvious" even though it acknowledged that the agreement
did not directly address the critical question: "whether [the
holding company] 'owns' the refunds before forwarding them
to the bank."[28]
Second, the panel approached the lack of absolute clarity in the
contractual terms seemingly from precisely the opposite standpoint
many bankruptcy and district courts have taken.
In interpreting the tax-sharing agreement to mean that Holdco held
the refund in trust for the bank, the panel emphasized that the
agreement lacked the sorts of contractual protections it would
expect to see if the bank were a mere unsecured creditor — a
fixed interest rate, maturity date and right of acceleration.
But the bankruptcy and district courts that have reached the
opposite judgment, holding that refunds were the property of the
holding companies and the banks were mere unsecured creditors, have
pointed to the absence of the sorts of contractual provisions that
they would expect to see if the parties had intended that the
refunds would be held by the holding company in trust for the bank
— provisions that specify that the refunds, when received by
the holding company, must be segregated, not commingled with the
holding company's own funds, and placed in an escrow account
pending their virtually immediate transmission to the bank.
The approach taken by these courts is arguably supported by the
general bankruptcy law policy favoring equal treatment of
creditors; by determining that the funds are the property of the
holding company in bankruptcy, those funds are available for
ratable distribution to all of the holding company's creditors
and are not held in trust for the sole benefit of one
creditor.[29]
On the other hand, the contrary approach of the Eleventh Circuit in
BankUnited arguably furthers the tax law policy stated in the Bob
Richards "gap-filling" rule — that, unless the
parties contract to the contrary, a tax refund attributable to
losses incurred by a particular subsidiary is its property to be
used to satisfy the claims of its creditors.
Third, the opinion of the panel in BankUnited never discusses
— indeed, does not even mention — all the bankruptcy
and district court decisions that have found that tax refunds were
the property of the holding company, not the property of the bank.
It is thus unclear whether the panel thought those cases were
distinguishable or wrong.
Finally, and relatedly, it is not clear the extent to which the
Eleventh Circuit in BankUnited considered it critical to its
decision that the tax-sharing agreement before it — unlike
most — provided for the bank, not the holding company, to pay
any taxes for the consolidated tax group and remit any refunds
received to the applicable member of the group.
The opinion certainly notes that unusual fact. Indeed, it stresses
the point in concluding that its reading of the agreement fosters
the agreement's "paramount purpose" of ensuring that
the bank can fulfill its contractual obligation to remit any tax
refund to the appropriate members of the tax group "in full
and with dispatch."[30]
But the opinion can also be read to suggest that the panel believed
the refund was not necessarily the property of the bank either, but
rather was the property of whichever member(s) of the group
generated the losses giving rise to the refund.
Thus, the opinion states that "[i]n the bank's hands, the
tax refunds occupied the same status as they did in the holding
company's hands — they were tax refunds for distribution
in accordance with the [tax-sharing agreement]."[31]
And, as noted, the panel directed the bankruptcy court to enter a
judgment requiring the holding company to transmit the funds to the
FDIC, as receiver of the bank, "for distribution to the
members of the group in accordance with the [tax- sharing
agreement]."[32]
The decision can hence be read to suggest that had the Eleventh
Circuit been confronted with the fact pattern present in most of
the other cases — a tax-sharing agreement that provides for
the holding company to receive any tax refund and for it to
distribute that refund to the applicable member(s) of the
consolidated tax group — the panel would have disagreed with
the prior bankruptcy and district court precedent and held that any
such refund was not the property of the holding company's
estate, but rather was the property of the bank and/or other
applicable member(s) of the tax group.
The Bottom
Line
Whether BankUnited will be a watershed moment in litigation over
tax refunds and tax-sharing agreements between insolvent holding
companies and their bank subsidiaries is hard to say at this
point.
It is possible that it will lead to a fundamental change in the
direction of the case law, causing courts in the future to rule for
the FDIC in these disputes. That it is circuit-level authority may
make it more influential than the prior bankruptcy and district
court decisions that found for the holding company.
On the other hand, BankUnited may be viewed in the future as
largely sui generis and limited to its unusual facts. Or, even if
its reasoning is viewed as more generally applicable, that
reasoning may be rejected by other courts in the future.
Like the many prior bankruptcy and district court decisions, courts
in subsequent cases may view references to inter-company
"payables" and "receivables" in tax allocation
or sharing agreements as suggesting that the parent and subsidiary
have a debtor-creditor, not trustee-beneficiary,
relationship.
And, in light of the bankruptcy law policy favoring equal treatment
of all creditors, they may demand express language in tax-sharing
agreements providing that refunds will be held by the holding
company parent in trust before finding that any such refund is the
property of the bank subsidiary.
Only time will tell whether BankUnited will prove to be a seminal
decision that alters the direction of the law, or a singular
aberration in a continuing steady series of victories for the
bankruptcy estates of holding companies in litigation over tax
refunds with the receivership estates of their insolvent bank
subsidiaries.
Whatever its other implications, BankUnited is perfectly consistent
with the prior case law in one respect, and that respect may also
prove significant for the future of litigation in this area.
Like so many decisions before it, BankUnited approached the
decision of which corporate affiliate owned the tax refund as a
matter of contract interpretation — the terms of the
tax-sharing agreement controlled.
This suggests that parties have the ability to predetermine the
outcome of future disputes over the ownership of tax refunds by
including in their tax-sharing agreements explicit language
specifying the capacity in which the parent company will receive
and hold any tax refunds attributable to losses of a
subsidiary.
To be sure, management of a group of corporate affiliates may not
view the issue as critical in corporate planning since it is likely
to matter only if the holding company becomes insolvent.
But, after BankUnited, bondholders and lenders to the holding
company may be more concerned and may view the holding company as
more creditworthy if it insists on a tax allocation or sharing
agreement with its bank subsidiary (and any other subsidiaries)
that specifies that any refund paid to the holding company is its
property.
Conversely, bank regulators may want to insist that the agreements
between bank-holding companies and their bank subsidiaries provide
precisely the opposite — that the agreements specify that any
refund attributable to losses incurred by the bank are its property
and that the holding company receives any such refund in trust or
escrow for the bank.
In this regard, the FDIC has argued in several cases that such a
refund must be treated as the property of the bank under an
interagency policy statement issued by the FDIC, the Office of the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, and the Office of
Thrift Supervision, and under federal law.[33]
But that argument has been generally rejected by bankruptcy and
district courts on the ground that the policy statement does not
have the force of law, and the statutory provision does not clearly
bar a tax-sharing agreement from providing that a refund is the
property of the holding company even if it is attributable to the
operations of its bank subsidiary.[34]
Going forward, therefore, bank regulators may want to review
tax-sharing agreements executed by depository institutions and
insist that they specify that any tax refunds received by the
institution's parent, but attributable to losses incurred by
the bank, are the bank's property held in trust by the
parent.
In short, the future remains uncertain in this important area
affecting the recoveries of creditors of bank-holding companies and
their bank subsidiaries.
The opinions expressed are those of the author(s) and do not
necessarily reflect the views of the firm, its clients, or
Portfolio Media Inc., or any of its or their respective affiliates.
This article is for general information purposes and is not
intended to be and should not be taken as legal advice.
[1] 11 U.S.C. § 109 (specifying that a bank may not be a
debtor in a bankruptcy case); 12 U.S.C. § 1821(c) (providing
that a bank may be put into receivership with the FDIC to serve as
the receiver).
[2] 12 U.S.C. §§ 1821(g) (providing for the FDIC to pay
claims of depositors up to specified limits and specifying that,
upon such payment, the FDIC is subrogated to the claims of the
depositors).
[3] 26 C.F.R. § 1.1502-77.
[4] Id.
[5] See, e.g., Superintendent of Ins. v. First Cent. Fin. Corp. (In
re First Cent. Fin. Corp.), 269 B.R. 481, 489 (Bankr. E.D.N.Y.
2001) (the establishment of the common parent as the agent for all
members of the consolidated tax group under the tax regulation
"is purely procedural in nature, and does not affect the
entitlement as among the members of the Group to any refund by the
I.R.S."), aff'd sub nom. Superintendent of Ins. v. Ochs
(In re First Cent. Fin. Corp.), 377 F.3d 209 (2d Cir. 2004).
[6] See, e.g., In re Zucker v. FDIC (In re NetBank, Inc.), 459 B.R.
801, 809 (Bankr. M.D. Fla. 2010) ("However, while pursuant to
§ 1.1502-77 a parent company acts as an agent for the
consolidated group in filing consolidated tax returns, the
designation in § 1.1502-77 of the common parent of a
consolidated group as agent for each member of the group is solely
for the convenience and protection of the Internal Revenue Service
and is not intended to affect the determination of the entity to
which a tax refund belongs."), aff'd, 2012 WL 2383297
(M.D. Fla. June 25, 2012).
[7] Id.
[8] See also Sharp v. FDIC (In re Vineyard Nat'l Bancorp), No.
10-01815, 2013 WL 1867987 (Bankr. C.D. Cal. May 3, 2013) (denying
summary judgment to the bankruptcy estate of the parent holding
company because whether the tax-sharing agreement between that
holding company and its bank subsidiary remained in effect in the
relevant tax year was a material issue of fact in dispute).
[9] See, e.g.,
Imperial Capital Bancorp. Inc. v. FDIC (In re Imperial Capital
Bancorp. Inc.), 492 B.R. 25 (S.D. Cal. 2013); FDIC v. Amfin Fin.
Corp., 490 B.R. 548 (N.D. Ohio 2013); Zucker v. FDIC (In re
NetBank, Inc.), 459 B.R. 801 (Bankr. M.D. Fla. 2010), aff'd,
2012 WL 2383297 (M.D. Fla. June 25, 2012); Team Fin., Inc. v. FDIC
(In re Team Fin., Inc.), No. 09-5084, 2010 WL1730681 (Bankr. D.
Kan. Apr. 27, 2010); In re IndyMac Bancorp Inc., No. 12-cv-02967,
2012 WL 1951474 (C.D. Cal. May 30, 2012); Resolution Trust Corp. v.
Franklin Sav. Corp. (In re Franklin Sav. Corp.), 182 B.R. 859 (D.
Kan. 1995); United States v. MCorp. Fin., Inc. (In re MCorp. Fin.,
Inc.), 170 B.R. 899 (S.D. Tex. 1994).
See also Superintendent of Ins. v. First Cent. Fin. Corp. (In re
First Cent. Fin. Corp.), 269 B.R. 481 (Bankr. E.D.N.Y. 2001),
aff'd sub nom. Superintendent of Ins. v. Ochs (In re First
Cent. Fin. Corp.), 377 F.3d 209 (2d Cir. 2004). First Central
involved an insurance company rather than a bank. Insurance
companies, like banks, cannot file for bankruptcy but instead their
insolvencies are addressed through receiverships. In First Central,
the bankruptcy and district courts both concluded that the
tax-sharing agreement between the insurer and its holding company
parent did not create a trust relationship and that the tax refunds
at issue thus belonged to the parent's bankruptcy estate. In
that case, the state insurance supervisor, acting as receiver for
the insurer subsidiary, argued that a constructive trust should be
imposed because the refund resulted from taxes that the subsidiary
had paid and was principally generated by the subsidiary's
losses. This was the only issue that the insurance supervisor
raised on appeal. The Second Circuit rejected the argument, holding
that the existence of a valid and enforceable tax-sharing agreement
precluded a finding that a constructive trust existed.
[10] In re Imperial Capital Bancorp, Inc., 492 B.R. 25, 32 (S.D.
Cal. 2013).
[11] Id. at 29.
[12] We are aware of only two decisions, issued before the Eleventh
Circuit's recent opinion in BankUnited, construing a tax
allocation or sharing agreement as making a refund the property of
the subsidiary and requiring the parent when it received the refund
to hold the money in trust for the subsidiary. In Lubin v. FDIC,
No. 10-cv-00874, 2011 WL 825751, *5 (N.D. Ga. Mar. 2, 2011), the
agreement specified that "if the holding company receives a
tax refund from a taxing authority, these funds are obtained as
agent of the consolidated group on behalf of the individual group
members" and "[t]his allocation agreement ... should not
be intended to consider refunds attributable to the subsidiary
banks ... as the property of the holding company." In BSD
Bancorp Inc. v. FDIC (In re BSD Bancorp.), No. 94-1341, 1995 U.S.
Dist. LEXIS 22588 (S.D. Cal. Feb. 28,1995), the agreement provided
that "refunds due subsidiaries" that could not be
"fully funded when due" would be carried on the
applicable subsidiary's books as a "loan to parent"
and would accrue interest; the court cited this language as
evidencing that, in other circumstances where the parent could
remit the refund in full to the bank subsidiary, the parent and the
bank had intended that the parent receive the refund in trust for
the subsidiary.
[13] See, e.g., In re NetBank, Inc., 459 B.R. at 813 ("the
court places ... significance on the absence in the tax-sharing
agreement of a provision requiring that the debtor place tax
refunds received by it in escrow, the absence of a provision
requiring that the debtor segregate any tax refund due to the bank,
and the absence of restrictions on how the money might be used
during the time between the receipt of a refund and the payment to
a member").
[14] See, e.g., In re NetBank, Inc., 459 B.R. at 815 ("Just as
the debtor [the parent holding company] is obligated under the
tax-sharing agreement to pay the bank, regardless of whether the
consolidated group is receiving a refund, the debtor's
obligation to pay the bank is nowhere conditioned on the
debtor's collection of tax payments from other members of the
consolidated group.").
[15] In re BankUnited Fin. Corp. II, 2013 WL 4106387, at
*2-3.
[16] Id. at *3.
[17] In re BankUnited Fin. Corp. I, 462 B.R. at 900.
[18] Id.
[19] Id.
[20] See 28 U.S.C. § 158(d)(2).
[21] In re BankUnited Fin. Corp. II, 2013 WL 4106387, at *1, *2, *4
& n.2.
[22] Id. at *4.
[23] Id. at *5.
[24] Id.
[25] Id.
[26] Id. at *6.
[27] Id.
[28] Id. at *4-5.
[29] See, e.g., Begier v. IRS, 496 U.S. 53, 58 (1990)
("Equality of distribution among creditors is a central policy
of the Bankruptcy Code."); Poss v. Morris (In re Morris), 260
F.3d 654, 666 (6th Cir. 2001) ("bankruptcy policy of ratable
distribution among creditors conflicts with the constructive trust
remedy and counsels its sparing use"); Brockway Pressed Metals
Inc. v. Eynon Assocs. (In re Brockway Pressed Metals Inc.), 363
B.R. 431, 456 n.19 (Bankr. W.D. Pa. 2007) (Bankruptcy courts
generally are not inclined to utilize a trust theory as a means of
obtaining preferential treatment in a bankruptcy .... Such claims
are allowed to prevail in only the narrowest of circumstances as an
exception to the "equality of distribution" rule.),
aff'd sub nom Eynon Assocs v. LaSalle Bank Nat'l Assocs.
(In re Brockway Pressed Metals, Inc.), 304 Fed. App'x 114 (3d
Cir. 2008).
[30] In re BankUnited Fin. Corp. II, 2013 WL 4106387, at *5.
[31] Id. at *6.
[32] Id.
[33] See Interagency Policy Statement on Income Tax Allocation in a
Holding Company Structure, 63 Fed. Reg. 64757-01, 1998 WL 804364
(F.R.) (Nov. 23, 1998), at *64759 ("[A] parent company that
receives a tax refund from a taxing authority obtains these funds
as agent for the consolidated group on behalf of the group members.
Accordingly, an organization's tax-allocation agreement or
other corporate policies should not purport to characterize refunds
attributable to a subsidiary depository institution that the parent
receives from a taxing authority as the property of the
parent"); 12 U.S.C. § 371c (placing restrictions on loans
from a bank to its parent or other affiliate).
[34] See, e.g., In re NetBank, Inc., 459 B.R. at 818-19 ("the
Policy Statement does not constitute a rule or regulation or have
the force of law"); id. at 819 ("Even assuming that the
tax-sharing agreement triggers the restrictions set forth in §
371c, the Court cannot determine from the record before it that the
tax-sharing agreement violates these restrictions."); but see
BSD Bancorp, 1775 U.S. Dist. LEXIS 22588, at **14-15 (citing §
371c as support for its reading of the tax allocation agreement as
making the refund the property of the bank).
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