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In re Venture Financial Group, Inc.

United States District Court, W.D. Washington, Tacoma

March 15, 2018

In re Venture Financial Group, Inc., Debtor.
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, IN ITS CAPACITY AS RECEIVER OF VENTURE BANK, DEFENDANT/APPELLANT. MARK D. WALDRON, TRUSTEE FOR VENTURE FINANCIAL GROUP INC., PLAINTIFF/APPELLEE, Adversary No. 14-04194-BDL

          MEMORANDUM

          Ronald B. Leighton United States District Judge.

         THIS MATTER is before the Court on appeal from the bankruptcy court. The FDIC-R (Venture Bank's receiver) appeals the Bankruptcy Court's determination that Chapter 7 debtor Venture Financial Group (Venture Bank's owner) was entitled to $8, 000, 000 in carryback of loss tax refunds, and that FDIC-R was not.

         The Bankruptcy Court determined that VFG had the contractual right to file tax returns on behalf of itself and Venture Bank, and the obligation to pay a portion of any tax refunds to Venture Bank. VFG was therefore a debtor to Venture Bank, its creditor. It held that the relationship did not change even when FDIC-R applied for and obtained from the IRS the right to file tax returns (and to receive tax refunds) as an “alternative agent” on behalf of both VFG and Venture Bank.

         FDIC-R appeals, arguing that VFG and Venture Bank's pre-existing Tax Allocation Agreement (TAA) does not apply where, as here, an alternative agent is properly appointed to (and does) file returns and directly receive refunds. It argues that the refunds reflect Venture Bank's losses, not VFG's, and that under the so-called “Bob Richards Rule, ” tax refunds resulting from the losses of one member of a consolidated group generally belong to that member:

[Absent a contrary agreement], 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.

W. Dealer Mgmt., Inc. v. England (In re Bob Richards Chrysler-Plymouth Corp., Inc.), 473 F.2d 262, 265 (9th Cir. 1973).

         FDIC-R also appeals the Bankruptcy Court's follow-on determination that its receipt of the refunds was a voidable preference: VFG filed for Chapter 7 Bankruptcy protection less than 90 days after the IRS first refunded money to FDIC-R. VFG's Chapter 7 trustee, Mark Waldron, asked the Bankruptcy Court to void the transfer as a preference, claiming that the refunds were on account of an antecedent debt-one VFG owed to FDIC-R (as Venture Bank's receiver) under the TAA, prior to the transfer. The Bankruptcy Court agreed and held that VFG's Bankruptcy estate owns the refunds and that Waldron was entitled to avoid the transfer and recover them from FDIC-R.

         FDIC-R also argues that the Bankruptcy Court lacked jurisdiction because Waldron failed to seek the refunds through an administrative claims process under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). The Bankruptcy Court held that exhaustion of the FIRREA process was not required.

         I. BACKGROUND

         Like many financial institutions, Venture Bank suffered major losses during the financial crisis, and was placed into receivership in 2009. FDIC-R was appointed as the bank's receiver. Two years later, the IRS granted FDIC-R the authority to file tax returns as alternative agent for both VFG and Venture Bank. Over the next three years, FDIC-R filed amended tax returns seeking refunds for carryback of losses dating to 2004, and the IRS issued more than $8, 000, 000 in tax refunds to FDIC-R.

         In an effort to obtain this money, VFG (then itself insolvent) filed for Chapter 7 bankruptcy. Waldron claimed that the TAA entitled VFG to the refunds and obligated it to pay its creditor, Venture Bank, and that FDIC-R's appointment as an alternative agent did not change that contractual relationship. Waldron initiated this adversarial proceeding to avoid the transfer. He claimed that the IRS's payment of the refund to FDIC-R (as alternative agent) was a voidable preference: (1) FDIC-R was VFG's creditor and it benefitted from the payment; (2) the refund payment was on account of VFG's antecedent debt to FDIC-R; (3) VFG was insolvent at the time the IRS paid the refund to FDIC-R; (4) it occurred less than 90 days before VFG's bankruptcy; and (5) FDIC-R received (far) more than it would have had it instead filed a proof of claim[1] like any other unsecured creditor.

         The adversary proceeding was tried to the Bankruptcy Court. It determined: (1) that the TAA created a debtor-creditor relationship between VFG and Venture Bank, and not a agency or trust relationship; (2) that FDIC-R's appointment as alternative agent did not alter or supersede the TAA; (3) that FDIC-R's direct receipt of the refunds from the IRS was nevertheless a preferential payment of an antecedent debt from VFG to its creditor: the FDIC-R subject to avoidance; and (4) that Waldron was not required to exhaust FIRREA's administrative claims process.

         II. STANDARD OF REVIEW

         This Court reviews the bankruptcy court's findings of facts under the clearly erroneous standard, and its conclusions of law de novo. In re Candland, 90 F.3d 1466, 1469 (9th Cir. 1996). Mixed questions of law and fact are generally reviewed de novo. Chubb & Son, ...


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