NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT
                                  _____________

                                      No. 14-1586
                                     _____________

                 In re DOWNEY FINANCIAL CORPORATION, Debtor

    MATTHEW A. CANTOR, in his capacity as Chapter 7 Trustee for Downey Financial
    Corp., and WILMINGTON TRUST COMPANY, in its capacity as Indenture Trustee

                                             v.

    FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as receiver for
                 Downey Savings and Loan Association, F.A.,
                                                   Appellant



      On Appeal from the United States Bankruptcy Court for the District of Delaware
                       (Bankruptcy Nos. 08-13041 and 10-53731)
                  Bankruptcy Judge: Honorable Christopher S. Sontchi


                       Submitted under Third Circuit LAR 34.1(a)
                                  on January 22, 2015


          Before: FISHER; JORDAN; and GREENAWAY, JR., Circuit Judges.

                            (Opinion filed: January 26, 2015)


                                        OPINION*



*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
GREENAWAY, JR.; Circuit Judge.

I.    BACKGROUND

      Downey Financial Corporation (“DFC”) and its subsidiaries (including Downey

Savings and Loan, F.A. (hereinafter “Downey Bank”) (collectively the “Affiliated

Group”)) entered into a Tax Sharing Agreement (“TSA”), which provided for the filing

of consolidated tax returns. For companies engaged in this practice, IRS regulations state

that any refund is to be paid to the parent company (here, DFC). 26 C.F.R. § 1.1502-

77(a)(B)(2)(v). The sole issue on appeal is the capacity in which DFC held the tax

refunds. This determination impacts whether the money is to be deemed part of DFC’s

bankruptcy estate or whether Downey Bank may receive the refunds outside of the

bankruptcy process.

      The Federal Deposit Insurance Corporation (“FDIC”), in its capacity as receiver

for Downey Bank, appeals the Bankruptcy Court’s grant of summary judgment in favor

of DFC. The Bankruptcy Court concluded that the TSA unambiguously established a

debtor/creditor relationship between DFC and its subsidiaries and thereby declared over

$370 million in tax refunds to be part of DFC’s bankruptcy estate. We will affirm.

II.   ANALYSIS

      We review the grant of summary judgment and the legal interpretation of

contractual language de novo. U.S. Gypsum Co. v. Quigley Co. (In re G-I Holdings,




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Inc.), 

, 201 (3d Cir. 2014).1 Summary judgment is properly granted “if the

movant shows that there is no genuine dispute as to any material fact and the movant is

entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a).

       A.     Interpreting the TSA

       Under California law,2 “even if a contract appears unambiguous on its face, a

latent ambiguity may be exposed by extrinsic evidence [that] reveals more than one

possible meaning to which the language of the contract is yet reasonably susceptible.”

Dore v. Arnold Worldwide, Inc., 

, 60 (Cal. 2006) (internal quotation marks

omitted). “‘The test of admissibility of extrinsic evidence to explain the meaning of a

written instrument is not whether it appears to the court to be plain and unambiguous on

its face, but whether the offered evidence is relevant to prove a meaning to which the

language of the instrument is reasonably susceptible.’” 

Gas & Elec.

Co. v. G. W. Thomas Drayage & Rigging Co., 

, 644 (Cal. 1968)).

       The Bankruptcy Court conducted a “preliminary [review] of all credible extrinsic

evidence” 3 and correctly determined that it should not be considered to “override the



1
        The Bankruptcy Court had jurisdiction pursuant to 28 U.S.C. § 157; we have
jurisdiction to hear a direct appeal of the final judgment from the Bankruptcy Court in
this instance pursuant to 28 U.S.C. § 158(d)(2).
2
        It is undisputed that California law governs the TSA. TSA, § 3.3.
3
        In this preliminary assessment, the Bankruptcy Court reviewed the declarations of
Donald Royer (former General Counsel of DFC and Downey Bank) and William Lesse
Castleberry (an expert specializing in federal income taxation). It correctly determined
that neither should be considered in interpreting the TSA. The Royer Declaration was
impermissible because he was not a signatory to the TSA and provided no
contemporaneous evidence to support his conclusory assertions. Giuliano v. FDIC (In re
Downey Fin. Corp.), 

, 463-64 (Bankr. D. Del. 2013). The Castleberry
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‘intent’ expressly stated in the TSA.” Giuliano v. FDIC (In re Downey Fin. Corp.), 

, 462-63 (Bankr. D. Del. 2013). The Bankruptcy Court correctly determined that

“the TSA[ is] an integrated contract” (In re Downey Fin. 

), which

expressly states that the intent of the parties was “to establish a method for allocating the

consolidated tax liability of each member among the Affiliated Group.” TSA, § 2.1(a).

       B.     Principal/Agent Relationship

       The Bankruptcy Court determined, and we agree, that the TSA cannot be read as

creating a principal/agent relationship under California law because Downey Bank did

not exercise control over DFC’s activities under the agreement. FDIC v. Siegel (In re

IndyMac Bancorp, Inc.), 554 F. App’x 668, 670 (9th Cir. 2014).4 The TSA did not create

for any subsidiary, including Downey Bank, an ability to control DFC’s activities with

respect to tax filing and refund allocation. Additionally, DFC had sole power to decide

whether to seek a refund rather than a credit against the Affiliated Group’s future

liability. TSA § 2.4(a)

       Contrary to Appellant’s argument, the so-called “Bob Richards default rule”

(which would assume an agency relationship in the consolidated tax filing context) is not

Declaration was inadmissible because contract interpretation is a legal question for which
the court does not require expert opinion. 

argues that IndyMac is distinguishable because in that case the parties
agreed that the TSA was unambiguous. While the bankruptcy court opinion in IndyMac
stated that both parties argued that the TSA was unambiguous in multiple briefs, the
parties in IndyMac put forth contrary readings of the TSA — even while calling it
“unambiguous” — thereby necessitating the court to engage in the same analysis as is
required here. Siegel v. FDIC (In re IndyMac Bancorp Inc.), No. 2:08-bk-21752, 2012
Bankr. LEXIS 1462, at *23 (Bankr. C.D. Ca. March 29, 2012). (“Thus, after considering
all the materials before it, the Court has concluded that the TSA is not ambiguous, either
on its face . . . or following a preliminary reference to the pertinent extrinsic evidence.”).
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applicable here because the parties have agreed to a TSA. In re IndyMac Bancorp, Inc.,

554 F. App’x at 670; Sharp v. FDIC (In re Vineyard Nat’l Bancorp), 

, 443

(Bankr. C.D. Cal. 2014).

       C.     Trust

       The FDIC’s argument that the tax refunds were merely held by DFC in trust for

Downey Bank is also inconsistent with the express terms of the TSA. Under California

law, “[t]he absence of language creating a trust relationship is explicitly an indication of a

debtor-creditor relationship.” In re IndyMac Bancorp, Inc., 554 F. App’x at 670; see also

In re Vineyard Nat’l 

(“[T]he TSA did not create an express

trust as it lacked the necessary language to create such a trust. . . . The TSA did not

identify the Debtor as, and the Debtor did not assent to becoming, a trustee.”). The word

“trust” does not appear in the TSA, nor is any party designated as a “trustee” or

“beneficiary.” The TSA includes words such as “make payment,” “reimburs[e],”

“compensat[e],” and “refund.” § 2.1(a), (e), (f), (h). Such terms are indicative of a

debtor/creditor relationship. See Imperial Capital Bancorp, Inc. v. FDIC (In re Imperial

Capital Bancorp, Inc.), 

, 30 (Bankr. S.D. Cal. 2013) (acknowledging that

“[c]ourts across the country have repeatedly held that terms such as ‘reimbursement’ and

‘payment’ in a tax sharing agreement evidence a debtor-creditor relationship”); In re

IndyMac Bancorp, Inc., 2012 Bankr. LEXIS 1462, at *39.

       In addition to the language of the TSA, we are persuaded by: 1) the lack of any

requirement that DFC segregate, or otherwise hold in escrow, money paid to it by

Downey Bank and the other subsidiaries and 2) DFC’s ability, at its “sole discretion,” to

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control the application for a refund or disposition of funds once received. 5 § 2.4(a). The

only potential constraint on DFC’s discretion is the requirement that it “consider in good

faith any treatment proposed by the Affiliated Group members,” but this does not

override the grant to DFC of control over the refund process. 

makes a superficially appealing argument that the TSA created a

trust because of its requirement that “[i]n no instance shall the allocation of tax liability to

any member . . . be less favorable than the tax liability which would result from such

member filing a separate tax return.” § 2.1(d). However, “[a] debtor-creditor

relationship may exist ‘even though the payee may be contractually obligated to pay an

equal amount to a third person.’” In re IndyMac Bancorp, Inc., 554 F. App’x at 670

(quoting Petherbridge v. Prudential Sav. & Loan Ass’n, 

, 518 (Cal.

Ct. App. 1978)).

       In light of these facts, the TSA does not create a trust under California law. See

Altura P’ship v. Breninc, Inc. (In re B.I. Fin. Servs. Grp., Inc.), 

, 354 (9th

Cir. 1988) (concluding no trust existed where the words “trust,” “trustee,” or

“beneficiary” were not used; the payee was not required to segregate funds; and the payee

could use the money for its own purposes); see also In re Vineyard Nat’l Bancorp, 508

5
         The TSA provided DFC the right, “in its sole discretion: (i) to determine (A) the
manner in which such returns shall be prepared and filed, including, without limitation,
the manner in which any item of income, gain, loss, deduction or credit shall be reported
. . . (C) the elections that will be made . . . on behalf of any member of the consolidated
group . . . (ii) to consent, compromise or settle any adjustment or deficiency proposed . . .
(iii) to file, prosecute, compromise or settle any claim for refund; and (iv) to determine
whether any refunds to which the consolidated group may be entitled shall be paid by
way of refund or credited against the tax liability of the consolidated group.” § 2.4(a)
(emphasis 

(concluding that because “the [parent] would have owed the [subsidiary]

sums it did not receive from the IRS if the [subsidiary] were entitled to receive a refund

[had it filed] a separate return,” the TSA created a “debtor-creditor relationship because it

established the [parent’s] obligation irrespective of whether a refund was obtained”).

       D.     Resulting Trust

       The FDIC’s final argument is that we should find the existence of a resulting trust.

This is an equitable remedy “‘aris[ing] by operation of law from a transfer of property

under circumstances showing that the transferee was not intended to take the beneficial

interest.’” Fid. Nat’l Title Ins. Co. v. Schroeder, 

, 864 (Cal. Ct.

App. 2009) (quoting Lloyds Bank Cal. v. Wells Fargo Bank, 

, 341 (Cal.

Ct. App. 1986)). In other words, a resulting trust works to prevent unjust enrichment.

The TSA’s grant to DFC of sole discretion to make decisions about the tax filings

indicates that “the parties intended that DFC obtain beneficial interest in the refunds it

received.” In re Downey Fin. 

. Because “[t]here is nothing

‘unjust’ about enforcing the parties’ contractual obligations set forth in the TSA,” an

equitable remedy is inappropriate. 

III.   CONCLUSION

       In light of the foregoing analysis, we conclude that the TSA unambiguously

created a debtor/creditor relationship between DFC and its subsidiaries. As such, the tax

refunds are part of DFC’s Chapter 7 bankruptcy estate. We will affirm the Bankruptcy

Court’s judgment.



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