Rodriguez v. Fed. Deposit Ins. Corp.
The Supreme Court unanimously struck down the 'Bob Richards rule,' a judge-made federal standard that some courts had been using to determine which company in a corporate group is entitled to a shared tax refund, ruling that state law must govern instead.
The decision reinforces the constitutional principle that federal judges cannot invent their own rules of law without a genuine, uniquely federal reason to do so — leaving disputes over corporate tax refunds to each state's established rules on contracts, property, and trusts.
“Bob Richards made the mistake of moving too quickly past important threshold questions at the heart of our separation of powers. It supplies no rule of decision, only a cautionary tale.”
The Court's bottom-line verdict on the judge-made Bob Richards rule and why it cannot stand.
How it got here: A bankruptcy court and federal district court ruled below; the Tenth Circuit applied the Bob Richards rule and awarded the refund to the FDIC; the bankruptcy trustee asked the Supreme Court to step in and the Court agreed to hear the case.
The Case in Depth
What happened
United Western Bank suffered massive losses and entered receivership under the FDIC. Shortly after, its parent company, United Western Bancorp, went bankrupt and a trustee named Simon Rodriguez took charge. When the IRS issued a $4 million tax refund to the corporate group, both the FDIC (as the bank's receiver) and Rodriguez (as the parent's bankruptcy trustee) claimed the money, sparking a legal fight over who owned it.
The question before the Court
Can federal courts use a judge-invented rule to decide which company in a corporate group gets a shared tax refund, or must they apply state law instead?
The Court's answer
No — federal courts cannot use the Bob Richards rule, or any judicially invented federal standard, to decide which member of a corporate group is entitled to a consolidated tax refund. The Court held that federal judges may craft their own rules only in a narrow set of situations, and only when doing so is necessary to protect interests that are uniquely and importantly federal. The Bob Richards rule — created by the Ninth Circuit in 1973 and later expanded by some courts into a default rule governing all such tax refund disputes — never identified any such federal interest. Courts applying it simply skipped the threshold question of whether judge-made federal law was appropriate at all.
State law is fully capable of handling disputes over corporate property rights, even when they arise alongside federal bankruptcy proceedings or tax questions. Congress has generally left property rights in bankruptcy estates to state law, and the Internal Revenue Code creates no property rights of its own. Because no uniquely federal interest justifies the Bob Richards rule, it supplies no valid rule of decision, and the case was sent back for the lower court to resolve under state law.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
When banks, holding companies, or other affiliated corporations in bankruptcy fight over a shared IRS tax refund, courts must now apply state law rather than a special federal judge-made rule. Bankruptcy trustees, the FDIC as a bank receiver, and corporate creditors will all need to rely on whatever state's contract, property, and trust rules apply to their dispute, potentially producing different outcomes depending on the state.
What changes now
The Tenth Circuit must now reconsider who gets the $4 million refund by applying state law — and potentially relevant IRS regulations — rather than the Bob Richards rule. The Supreme Court expressed no view on who would win under that analysis. Going forward, all federal courts handling similar disputes between corporate group members over shared tax refunds must use state law as their starting point, abandoning the Bob Richards framework entirely.
What this does not decide
The Court explicitly did not decide who gets the $4 million refund in this specific case, nor how applicable IRS regulations might interact with state law on remand. The ruling also does not address what result state law would reach — some cases may come out the same way, others differently, depending on the state.
How the Court got there
The legal reasoning, step by step
- The Court began with the constitutional baseline: the federal government's lawmaking power is vested in Congress, and under the principle from Erie Railroad v. Tompkins (1938) — a landmark ruling that eliminated a broad, unwritten body of judge-made law — there is 'no federal general common law.' Federal judges may craft their own rules only in carefully limited areas.
- Before federal courts can claim a new area for judge-made law, a strict threshold must be cleared: the rule must be 'necessary to protect uniquely federal interests.' This is a high bar set by prior Supreme Court decisions like Texas Industries v. Radcliff Materials. The Sixth Circuit had correctly identified this requirement; courts applying Bob Richards had simply ignored it.
- The Bob Richards rule — which in its expanded form made a judge-invented federal standard the default rule for all consolidated-return tax refund disputes unless a written agreement clearly said otherwise — never demonstrated any uniquely federal interest. Neither the courts that created and applied it, nor the FDIC defending it, could point to a significant federal concern that only a federal rule could protect. In fact, the FDIC's own lawyers conceded at oral argument that federal courts should not put a 'thumb on the scale' in deciding which corporate group member owns a refund.
- State law already has robust tools for resolving exactly these kinds of disputes — rules for interpreting contracts, preventing unjust enrichment, and creating equitable trusts among them. The mere fact that a property dispute arises in the context of federal bankruptcy or taxation does not transform it into a matter requiring a federal judge-made rule. Congress has long left property rights in bankruptcy estates to state law, and the Internal Revenue Code creates no property rights of its own.
- Because Bob Richards lacked the foundational justification for federal common lawmaking, it represents a separation-of-powers error — federal judges stepping into a lawmaking role that belongs to Congress or the states. The rule is eliminated as a source of law, and the case is sent back to the Tenth Circuit to resolve the tax refund dispute using state law and applicable IRS regulations.