Rodriguez v. Federal Deposit Insurance Corp.

Whether courts should determine ownership of a tax refund paid to an affiliated group based on the federal common law “Bob Richards rule,” as three Circuits hold, or based on the law of the relevant State, as four Circuits hold.

Petitioner and its subsidiary filed competing claims for a $4 million tax refund issued to Petitioner. There is a circuit split on how ownership of a tax refund paid to a parent corporation should be determined. Some courts follow the federal common law Bob Richards rule, in which there is a presumption that the refund belongs to the subsidiary that caused the loss, unless there is an agreement assigning the refund to the parent. In re Bob Richards Chrysler-Plymouth Corp., 473 F.2d 262 (9th Cir. 1973). Other courts reject this rule, applying the relevant state’s common law to determine ownership. The Bankruptcy Court applied Colorado law, assigning the refund to Petitioner. The district court reversed and the Tenth Circuit affirmed, applying the Bob Richards rule and assigning the refund to Petitioner’s subsidiary. The Tenth Circuit tightened the Bob Richards rule, stating it would be the default rule unless an agreement unambiguously stated otherwise. Petitioner argues that ownership of refunds should be determined the way other property rights are settled during bankruptcy proceedings—by following the relevant state law. Petitioner also argues that the Bob Richards rule has no “valid legal basis,” stating that there is no supporting provision in the Internal Revenue Code. Petitioner further argues that the circuit split causes “stark regional variations,” which need to be resolved.