Hogan Lovells secures Supreme Court victory in case addressing ownership of corporate tax refunds

Washington D.C., 27 February 2020 – Hogan Lovells secured a unanimous victory before the Supreme Court yesterday in Rodriguez v. Federal Deposit Insurance Corporation, an important case concerning the rules for determining who owns a tax refund.

The case was argued by Mitchell Reich, a senior associate on the appellate team and a former law clerk to Justice Elena Kagan.

Hogan Lovells represented petitioner Simon Rodriguez, the Chapter 7 Trustee for the bankruptcy estate of United Western Bancorp, Inc.  During bankruptcy proceedings, Rodriguez and the Federal Deposit Insurance Corporation (FDIC) disagreed as to who owns a $4 million tax refund that the IRS paid to United Western Bancorp.  To resolve that disagreement, the Tenth Circuit applied a rule of federal common law, known as the “Bob Richards rule,” under which the Tenth Circuit presumed that the refund belongs to the FDIC.  Hogan Lovells successfully petitioned the Supreme Court to review that decision, arguing that the Bob Richards rule is an invalid exercise of federal common lawmaking authority, and that courts should apply to state law to resolve disputes over the ownership of tax refunds.

In a unanimous decision, the Supreme Court agreed with petitioner’s argument and invalidated the Bob Richards rule.  It held that this rule fails to satisfy “one of the most basic” requirements for the creation of federal common law because it serves no “uniquely federal interest.”  The Bob Richards rule, the Court explained, “supplies no rule of decision, only a cautionary tale.”  The Court then remanded the case to the Tenth Circuit to determine who owns the refund “under state law.”

The Supreme Court’s decision gives petitioner Rodriguez an opportunity to recover the refund.  It resolves a significant and longstanding split among the circuit courts.  And it will have significant economic consequences:  For decades, courts applied the Bob Richards rule to determine who owned tax refunds that sometimes reached into the tens or hundreds of millions of dollars.  That rule hindered tax planning and affected the ability of creditors to recover assets in bankruptcy.  The Supreme Court’s decision will ensure that these important ownership questions are resolved according to ordinary rules of state law, rather than through application of a judge-made presumption.

Reich led the appellate team that handled the case.  That team also included partner Neal Katyal, former Acting Solicitor General of the United States, and Tom Schmidt, a counsel in the appellate group.   


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