# Petition for Writ of Certiorari — NDCHealth Corp. v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2002
- **Citation:** 537 U.S. 1045

## Text

ie : Supreme Qourt, U.S.

(1) FILED

02 328 ave 28 2008

No. 02- cconns
IN THE
Supreme Court of the United States

NDCHEALTH CORPORATION and SUBSIDIARIES,
Petitioners,

V.

UNITED STAFES,

Respondent.

On PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

WILuiAM L. GoLDMAN ~ Puiu C. Coox*
McDermott, WILL & EMERY TimmoTHY J. PEADEN
600 13th Street, N.W. TimoTny L. FALLAwW
Washington, DC 20005-3096 ALSTON & Birp LLP
(202) 756-8000 1201 West Peachtree Street
Atlanta, GA 30309
(404) 881-7000

* Counsel of Record

Counsel for Petitioners —

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COUNSEL PRESS
(800) 274-3321 + (800) 359-6859

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QUESTION PRESENTED

Whether, in denying Petitioner relief under the world
headquarters exception to the 1986 repeal of the investment
tax credit, the Federal Circuit erroneously relied on legislative
history in adding a further requirement not contained in the
statute, thereby creating an. acknowledged, direct conflict
with the Ninth Circuit.

ici tui |

tl

RULES 14.1 AND 29.6 STATEMENTS

tat Pe alia ea:

RULE 14.1 STATEMENT

The parties to this proceeding are NDCHealth
Corporation and Subsidiaries. Prior to October 25, 2001,
Petitioner NDCHealth Corporation was known as National
Data Corporation, and was so named in the complaint and
proceedings below.

RULE 29.6 STATEMENT

NDCHealth Corporation has no parent company and no
publicly held company owns 10 percent or more of the stock
of NDCHealth Corporation. The Subsidiaries are wholly-
owned by NDCHealth Corporation.

iil

TABLE OF CONTENTS
Page
Question Presented ........---eeeeee eer eeeeee 1
Rules 14.1 and 29.6 Statements .......----++--- il
Table of baw ed, eee ee ee eee lil
Table of Cited Authorities ..........-2 esse eeees Vv
Table of Appendices .......---+seee eee reeeees Vill
Opinions Below .......----+eeeeeee rete 1
Statement of Jurisdiction ........-.++e++eeeeee 1
Statutory Provisions Involved .........--++++:: 1
Statement of the Case ........-- eee e eee ee eeeee 1
A. Statutory Background ........--.+-++++ l
B. Factual Background ..........---++--+-- 4
C. Proceedings Below ........---+-+s++0e: 5
Reasons for Granting the Petition ..........---. 7

A. There Is a Direct Conflict in the Circuits as
to Whether the World Headquarters
Exception Is Applicable to Taxpayers Who
Leased and Occupied the Building Before
September 26, 1985. .......---+-eeeeee: 8

iv

Contents

B. The Use of Congressional Legislative History
to Flout the Plain Language of a Statute Is in
Direct Conflict with Supreme Court
ORO es Pee ee ire ee eT

C. The Question Presented Is a Recurring Issue
of Great Practical Importance. ...........

a Ne ae a

Page

13

19

23

Vv

TABLE OF CITED AUTHORITIES

Page
CASES:
Airborne Freight Corp. v. United States, 153 F.3d

967 (9th Cir. 1998) ......-- eee cere eters passim
Airborne Freight Corp. v. United States, No. C95-

301R, 1996 U.S. Dist. Lexis 12902 (W.D. Wash.

PDIG) occ n vee cscvesnvevecvecesersunsnss 9
Beecham v. United States, 511 U.S. 368 (1994) ... 14
Blanchard v. Bergeron, 489 U.S. 87 (1989) ....-- 22
Caminetti v. United States, 242 U.S. 470 (1917) .. 13
Chicago Mercantile Exch. v. Commissioner,

79 T.C.M. (CCH) 1581 (2001) ...----- eee eee 8
Griffin v. Oceans Contractors, Inc., 458 U.S. 564

(1962) onc ccccccrncpcvevcivcereccccososess 13
Iselin v. United States, 270 U.S. 245 (1926) ...... 19

~ Kimberly-Clark Tissue Co. v. United States, 38

F. Supp. 2d 1028 (E.D. Wis. 1999) ....----+--. 8,14
Landreth Timber Co. v. Landreth, 471 U.S. 681

HOD vg veep n ssn ecne ueare cenyen ts eone es: 13

Payless Cashways Inc. v. Commissioner, 114 T.C.
T2 (2000) 2... cc vccccccccsccccsconrcescers 8

vi
Cited Authorities
Page
United States v. Kjellstrom, 100 F.3d 482 (7th Cir.
1996), aff’g, 916 F. Supp. 902 (W.D. Wis. 1996)
Leones bie te G6 iis ee ew ae see 8, 18
United States v. Kjellstrom, 916 F. Supp. 902 (W.D.
Wis. 1996), aff'd, 100 F.3d 482 (7th Cir. 1996)
PE SE ee ee ee ery. 17, 18, 19
United States v. Ron Pair Enters., Inc., 489 U.S. 235
COE 5 9:0 4-on 0s 00eeee bee see dap eee 13
West Virginia Univ. Hosps., Inc. v. Casey, 499 U.S.
8 Ct Re ere Eero in rat mayor Ol WING 14, 19
STATUTES:
I.R.C. § 38 (1985), amended by Tax Reform Act of
1986, Pub. L. No. 99-514, 100 Stat. 2085 ...... l
I.R.C. § 46 (1985), amended by Tax Reform Act of
1986, Pub. L. No. 99-514, 100 Stat. 2085 ..... l
LaL. BA CA a hives’ Cais 4a dane aneaea 2
Job Creation and Worker Assistance Act of 2002
§ 301(a), 26 U.S.C. § 1400L(c) .............. 19, 20
Section 203(b) of the Tax Reform Act of 1986,
Pub. L. No. 99-514, 100 Stat. 2085 ........... 2

a ee. os

ALL SIF BRL ad CLADE BA BE

Vil

Cited Authorities
Page
ection 204 of the Tax Reform Act of 1986,

Pub. L. No. 99-514, 100 Stat. 2085 .......... passim
section 211(a) of the Tax Reform Act of 1986,

Pub. L. No. 99-514, 100 Stat. 2085 ........... 2
TE UBC. © RRSGE) oc cvccecdvveesccccsconses l
28 U.S.C. § 1491(aX1) ..... ce ercccescveeces 5
MISCELLANEOUS:

131 Cong. Rec. 35,285 (1985) .........-0e- eee 16
132 Cong. Rec. 13,090 (1986) ...........--05 16-17
132 Cong. Rec. 14,113 (1986) ...........-0---s 17

132 Cong. Rec. 26,638-40 (1986) .........005. 17

vili

TABLE OF APPENDICES

Page
Appendix A — Per Curiam Opinion Of The United
States Court Of Appeals For The Federal Circuit
ORs GE BU NE Wh A Wee cuadockeeccsens la
Appendix B — Opinion Of The United States Court
Of Federal Claims Dated And Filed July 23,
PEE tev Vsenobangebag ba nneesed Oeen ca eoe - 3a

PETITION FOR A WRIT OF CERTIORARI

NDC Health Corporation and Subsidiaries (“Petitioner”)
respectfully petition for a writ of certiorari to review the
judgment of the United States Court of Appeals for the
Federal Circuit in this case.

OPINIONS BELOW

The opinion of the United States Court of Appeals for the
Federal Circuit (App., infra, 1a-2a) is reported at 291 F.3d 1381.
The opinion of the United States Court of Federal Claims
(App., infra, 3a-29a) is reported at 50 Fed. Cl. 24 (2001).

STATEMENT OF JURISDICTION

The judgment of the court of appeals was entered on
May 30, 2002. App., infra, 1a. The jurisdiction of this Court
is invoked under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

The relevant portions of § 204 of the Tax Reform Act of
1986, Pub. L. No. 99-514, 100 Stat. 2085 (1986), are set forth
in the Appendix to this petition at 30a.

STATEMENT OF THE CASE
A. Statutory Background

For most of the period from 1962 to 1985, a taxpayer
who acquired qualified tangible personal property for use in
its trade or business was allowed a credit against its federal
income tax liability. LR.C. §§ 38, 46.! Commonly referred

1. Unless otherwise noted, “I.R.C.” references are to the Internal
Revenue Code of 1954, as amended.

2

to as the “investment tax credit,” or “ITC,” the amount of
the credit was a fixed percentage of the cost of the qualified

property.

The Tax Reform Act of 1986 (the “Tax Reform Act” or “Act’”’)
added a new section 49 to the Internal Revenue Code that
generally repealed the investment tax credit for property placed
in service after December 31, 1985. Pub. L. No. 99-514,
§ 211(a), 100 Stat. 2085, 2166 (1986). Section 49, however,
extended the placed-in-service dates for property that
qualified as “transition property,” as defined in section 49(e).?
“Transition property” was “any property placed in service
after December 31, 1985, and to which the amendments made
by section 201 of the Tax Reform Act of 1986 do not apply.”
Tax Reform Act § 211(a), 100 Stat. at 2167.

Section 204(a)(7) of the Act created a category of
“transition property” and is commonly referred to as the
“world headquarters” transitional rule. This section provides
as follows:

2. For “transition property,” the Act provided several different
placed-in-service dates, ranging from July 1, 1986, to January 1, 1991,
depending upon the “class life” of the property. Tax Reform Act
§ 203(b), 100 Stat. at 2144.

3. The exceptions to section 201 of the Act are found in sections
203 and 204 of the Act, and are commonly referred to as the
“transitional rules.” Section 203 of Act contains “general transitional
rules,” providing later placed-in-service dates for property acquired
pursuant to a binding contract entered into by December 31, 1985,
as well as certain “self-constructed property” and property considered
part of an “equipped building.” Tax Reform Act § 203(b), 100 Stat. at
2143-44. Section 204 of the Act contains numerous “additional
transitional rules,” including the one at issue in this case. Tax Reform
Act § 204(a), 100 Stat. at 2146-63.

:
I

3

CERTAIN LEASEHOLD IMPROVEMENTS —
The amendments made by § 201 shall not apply
to any reasonable leasehold improvements,
equipment and furnishings placed in service by a

lessee or its affiliates if —

(A) the lessee or an affiliate is the
original lessee of each building in which
such property is to be used,

(B) such lessee is obligated to lease the
building under an agreement to lease
entered into before September 26, 1985,
and such property is provided for such
building, and

(C) such buildings are to serve as world
headquarters of the lessee and its
affiliates.

For purposes of this paragraph, a
corporation is an affiliate of another
corporation if both corporations are
members of a controlled group of
corporations within the meaning of
§ 1563(a) of the Internal Revenue Code
of 1954 without regard to § 1563(b)(2)
of such Code. Such lessee shall include
a securities firm that meets the
requirements of subparagraph (A),
except the lessee is obligated to lease
the building under a lease entered into
on June 18, 1986.

Tax Reform Act § 204(a)(7), 100 Stat. at 2155.

B. Factual Background

During the taxable years 1987 through 1990, Petitioner
was engaged in the business of providing the electronic
interchange of information for the financial, retail, healthcare,
and communications markets through specialized data processing
applications. JA62.* Petitioner had corporate offices and
employees across the United States and throughout the world,
including, at various times during 1987 through 1990, Africa,
Canada, England, Europe, Italy, Japan, the Middle East,
Spain, Sweden, and West Germany. The headquarters of these
worldwide operations was located at One NDC Plaza,

Corporate Square, Atlanta, Georgia 30329 (“One NDC
Plaza”). JA61.

With respect to One NDC Plaza, Petitioner agreed
on April 21, 1973, to lease “the entire four-story office
building to be constructed by Lessor” for a 20-year term.
JA 25. The date on which this 20-year term began to run
(i.e., the “commencement date”) was not expressly provided
in the agreement, but it was triggered in part by the date on
which Petitioner could occupy the first floor of One NDC Plaza.
On April 21, 1973 (i.e., the same date as the agreement),
the parties entered into a “First Amendment to Lease Agreement”
establishing April 27, 1973, as the commencement date of
the 20-year lease for One NDC Plaza. JA 56.

Petitioner was the original and only lessee to occupy
space at One NDC Plaza. This building, along with a second
building that was built by Petitioner as its operations
expanded, functions as the command center for all of
Petitioner’s domestic and international business operations,
and it serves as Petitioner’s world headquarters. JA61.

4. Citations to the record below follow the abbreviation used
in the court of appeals for the Joint Appendix (“JA”).

5

During the taxable years 1987 through 1990, Petitioner
placed in service at One NDC Plaza various leasehold
improvements, equipment, and furniture and fixtures with a
cost of approximately $35 million. Petitioner filed refund
claims for the investment tax credit on this property in 1994,
and when these refund claims were denied by the Internal
Revenue Service, Petitioner filed actions for refund in the
United States Court of Federal Claims.°

C. Proceedings Below

After filing a Stipulation of Facts, the parties filed cross-
motions for summary judgment regarding Petitioner’s
entitlement to the investment tax credit under the world
headquarters transitional rule of section 204(a)(7) of the Tax
Reform Act.® The parties stipulated that Petitioner was the
original and only lessee of One NDC Plaza within the
meaning of section 204(a)(7)(A) of the Act and that One NDC
Plaza was Petitioner’s world headquarters within the meaning
of section 204(a)(7)(C) of the Act. JA61. Therefore, the only
issue under section 204(a)(7) was whether Petitioner satisfied

5. The Court of Federal Claims had jurisdiction over these
matters pursuant to 28 U.S.C. § 1491(a)(1). Petitioner filed two
separate actions, one for tax years 1987 through 1989 and another
for tax year 1990, which were then consolidated for decision. JA18,
19, and 24.

6. These cross-motions involved two issues: (i) whether
Petitioner satisfied the technical requirements of section 204(a)(7)
of the Act and (ii) if so, which of the property placed in service
during the taxable years 1987-1990 qualified for the investment tax
credit (the “class life issue”). Because of the lower court’s ruling on
the first issue, the class life issue was not reached and it is not an
issue in this petition.

6

thepre-September 26, 1985, lease obligation requirement of
section 204(a)(7)(B).

During these proceedings, the United States contended,
and Petitioner agreed, that the initial agreement executed by
Petitioner on April 21, 1973, was an “agreement to lease”
within the meaning of section 204(a)(7)(B). JA103, 122, 186-
187. Nonetheless, despite Petitioner’s acknowledged
obligation “to lease the building under an agreement to lease
entered into before September 26, 1985,” the United States
argued that Petitioner was not entitled to transitional relief
because of an additional requirement not contained in section
204(a)(7)(B) — namely, that a taxpayer must not have
actually leased and occupied the building before September
26, 1985. Petitioner argued that its lease agreement which
commenced onApril 27, 1973, satisfied the “agreement to lease”
requirement.’ Alternatively, Petitioner argued that, in any
event, the original “agreement to lease” executed on April
21, 1973, satisfied the statutory requirement of “an obligation
to lease the building under an agreement to lease entered
into before September 26, 1985.” Tax Reform Act
§ 204(a)(7)(B),100 Stat. at 2155.

On July 23, 2001, the Court of Federal Claims issued its
opinion denying Petitioner’s motion for summary judgment
and granting the United States’ motion on the grounds that
Petitioner did not satisfy the requirements of section
204(a)(7)(B) of the Tax Reform Act. App., infra, 3a-29a.

7. The term “lease agreement” will be used to refer to an.
agreement whereby one contracting party conveys a leasehold interest
in real property to the other contracting party in exchange for a
consideration; this type of agreement is also commonly referred to
as a “lease,” and is contrasted with a purely executory agreement to
enter into a lease agreement at a later date.

7

Drawing a distinction between an actual lease agreement and
an executory contract to enter into a lease in the future, the
court ruled that the lease agreement commencing on April
27, 1973, did not satisfy the statutory requirement of an
“agreement to lease.” Relying in large part on the limited
legislative history of this transitional rule, the court viewed
the provision as having “‘at most, two intended beneficiaries
— the firms Merrill Lynch and Drexel Burnham Lambert.”
App., infra, 20a. The Court of Federal Claims ignored
Petitioner’s alternative argument that the statutory
requirement was satisfied by the “agreement to lease” entered
into on April 21, 1973. See App., infra, 3a-29a.

Petitioner appealed the Court of Federal Claims’ decision
to the United States Court of Appeals for the Federal Circuit,
which affirmed the lower court’s decision in a per curiam
opinion issued on May 30, 2002. App., infra, 1a-2a.

REASONS FOR GRANTING THE PETITION

The Federal Circuit’s decision in this case creates a direct
and acknowledged conflict with the Ninth Circuit. Unlike
the Ninth Circuit, the Federal Circuit erroneously interpreted
section 204(a)(7)(B) of the Tax Reform Act of 1986, the
world headquarters transitional rule, as containing a
requirement that taxpayers not actually lease and occupy their
world headquarters building before September 26, 1985,
despite the lack of such a requirement in the statute. In so
doing, the court inappropriately relied upon legislative history
to supercede the plain language of the Act. The Federal
Circuit’s mode of statutory analysis ignored the clear
precedent of this Court holding that reliance on legislative
history in these circumstances is inappropriate. Statutes
providing transitional relief for taxpayers, a common and

8

recurring part of tax legislation, should be construed by
reference to the plain language enacted by Congress, not
through a search for the supposed circumstances of a single
taxpayer named by individual legislators and in publications
by congressional committees, as was done by the lower court
in this case.

A. There Is a Direct Conflict in the Circuits as to
Whether the World Headquarters Exception Is
Applicable to Taxpayers Who Leased and Occupied
the Building Before September 26, 1985.

There is a direct and acknowledged conflict between the
Ninth and Federal Circuits regarding the issue in this case.
Finding the “Ninth Circuit’s reasoning faulty on several
counts,” the lower court expressly “reject[ed] both the
rationale and conclusion” of the Ninth Circuit in Airborne
Freight Corp. v. United States, 153 F.3d 967 (9th Cir. 1998).®
App., infra, 27a, 29a.

1. In Airborne, the Ninth Circuit held that the transitional
relief of the world headquarters exception was available to a
taxpayer who leased and occupied its world headquarters
building before September 26, 1985, in factual circumstances
indistinguishable from this case. On September 29, 1983,
Airborne agreed to lease approximately three fourths of a
building that was to be constructed in the near future.

8. Other decisions addressing some aspect of the world
headquarters exception include: United States v. Kjellstrom, 100 F.3d
482 (7th Cir. 1996), aff’g, 916 F. Supp. 902 (W.D. Wis. 1996);
Kimberly-Clark Tissue Co. v. United States, 38 F. Supp. 2d 1028
(E.D. Wis. 1999); Payless Cashways, Inc. v. Commissioner, 114 T.C. 72
(2000); Chicago Mercantile Exch. v. Commissioner, 79 T.C.M.
(CCH) 1581 (2001).

9

Airborne then occupied the building in 1984, which was
before September 26, 1985, the critical date contained in
section 204(a)(7)(B). By the time Airborne occupied the
building in 1984, it had exercised an option to lease the entire
building, and the building was used as its world headquarters.
Airborne Freight Corp. v. United States, No. C95-301R, 1996
U.S. Dist. Lexis 12902 (W.D. Wash. 1996).’

The United States argued in Airborne that two conditions
of the world headquarters transitional rule contained in
section 204(a)(7) were not satisfied: (i) Airborne leased and
occupied the building before September 26, 1985 (the same
issue presented here); and (ii) Airborne did not initially lease
the entire building (an issue not involved here). In the view
of the United States, “the exception should apply to taxpayers
who were obligated to lease the building before September
26, 1985, but had not leased the building by that date.
It also argues that, to qualify, the taxpayer must have agreed
to lease the entire building.” 153 F.3d at 970.

The Ninth Circuit rejected the government’s attempts to
add requirements that were not contained in the text of
section 204(a)(7), stating that “[t]he difficulty with the
government’s argument is that none of the words italicized
in the previous paragraph were written into § 204(a)(7).” Jd.
The court held, contrary to the United States’ objections,
that “[t]here is no disqualification of those who executed
leases before September 26, 1985, and the government offers
no reason why the execution of a lease creates a relevantly
different condition from that which existed under an
agreement to lease.” Jd.

9. The opinion of the district court in Airborne is cited for
certain details regarding the factual situation of the taxpayer at issue.

10

The Ninth Circuit rejected the United States’ attempt to
rewrite the statute based upon its view of the legislative
history. In Airborne, the government argued:

that the exception must be construed very
narrowly, in light of the circumstances of its
passage. Congress enacted § 204(a)(7) to allow
the firm of Merrill Lynch to claim investment tax
credits for property placed in service in its new
world headquarters because Merrill Lynch had
agreed to lease the new building in reliance on
the old law. . .. Consequently, the requirements
of § 204(a)(7) reflect Merrill Lynch’s particular
circumstances. The government argues that it is
inappropriate to extend the exception beyond
those circumstances.

153 F.3d at 970.

Because these requirements urged by the United States
were not contained in text of the legislation, however,
the Ninth Circuit refused to impose them on the taxpayer
regardless of “the circumstances of [the Act’s] passage,”
nd held that Airborne was entitled to the transitional relief
of the world headquarters exception because the “plain words”
of the statute were satisfied. Jd. In short, the Ninth Circuit
“decline[d] therefore to write the government’s additional
proposed restrictions into the statute in order to confine the
exception virtually to a class of one.” Jd.

2. In direct contrast to the Ninth Circuit in Airborne,
the Federal Circuit denied transitional relief to Petitioner
because it leased and occupied its world headquarters before
September 26, 1985. In this case, as in Airborne, Petitioner

11

leased and occupied its world headquarters before September
26, 1985. Petitioner argued in this case, as did the taxpayer
in Airborne, that its actual lease and occupancy of its
headquarters building satisfied the statutory obligation in
section 204(a)(7)(B) of the Act “to lease the building under
an agreement to lease entered into before September 26,
1985.” The United States argued, as it did in Airborne, that
the phrase “agreement to lease” referred exclusively to an
executory contract to enter into a lease at a later date. In a
lengthy opinion dealing almost exclusively with the issue of
whether the words “agreement to lease” included a lease
agreement or only an executory contract to enter a lease in
the future, the lower court explicitly rejected Petitioner’s (and
the Ninth Circuit’s) position and granted the United States’
motion for summary judgment. App., infra, la-2a; 3a-29a.

In addition, Petitioner had entered into a separate
agreement prior to its actuai lease and occupancy of the
building, and the United States and Petitioner agree that this
initial agreement was an “agreement to lease.” JA 103, 122,
186-187. Therefore, there was no dispute before the Court
of Federal Claims or the Federal Circuit that Petitioner had
an obligation “to lease the building under an agreement
to lease entered into before September 26, 1985... .”
Tax Reform Act § 204(a)(7)(B), 100 Stat. at 2155.
Accordingly, based on this agreement and Petitioner’s
satisfaction of the plain language of section 204(a)(7)(B),
summary judgment should have been granted by the Court
of Federal Claims for Petitioner. Instead, both of the lower
courts simply ignored Petitioner’s alternative argument that
it satisfied the plain language of the statute.

The lower courts relied upon the legislative history of
the world headquarters exception as support for the recurring

12

theme that the transitional rule was intended to apply to a
very narrow Class of taxpayers who did not lease and occupy
the building before September 26, 1985. See App., infra,
19a-25a. The court used specific comments by individual
legislators and items published by congressional committees
to conclude that the statute had “at most, two intended
beneficiaries-the firms Merrill Lynch and Drexel Burnham
Lambert.” App., infra, 20a. Indeed, the court interpreted these
sources to conclusively establish that Merrill Lynch was the
sole intended beneficiary of the world headquarters exception
contained in sections 204(a)(7)(A)-(C).'° App., infra, 21a at
n.13. Because the Court of Federal Claims chose not to
address the indisputable fact of Petitioner’s obligation under
an “agreement to lease” entered into before September 26,
1985, and instead relied upon legislative history for the
proposition that a single named taxpayer was the sole
intended beneficiary of the world headquarters exception,
the court effectively added an extra-statutory requirement to
the text of section 204(a)(7)(B) — that a taxpayer who executed
an “agreement to lease” may not also enter into a firm lease
agreement and take possession of the property prior to
September 26, 1985.

Both the resort to and interpretation of the legislative
history by the Court of Federal Claims and ultimately the
Federal Circuit were erroneous. They should have enforced
the plain language of the statute without reference to the
legislative history as did the Ninth Circuit in Airborne.
Moreover, as discussed in Part B below, the substance of the
legislative history in this case in no way establishes the
additional requirement prohibiting lease and occupancy
before September 26, 1985.

10. The Court of Federal Claims also determined that the last
sentence of section 204(a)(7), what the court referred to as the “flush
language,” was intended to apply to Drexel Burnham Lambert.

a senen meena

13

B. The Use of Congressional Legislative History to Flout
the Plain Language of a Statute Is in Direct Conflict
with Supreme Court Precedent.

The resort by the lower courts to the legislative history
of the Tax Reform Act for purposes of adding a requirement
not contained in the actual text of section 204(a)(7) is contrary
to a long line of Supreme Court precedent establishing the
proper use of legislative history in statutory construction.
When interpreting a statute, this Court-has stated that
“all such inquiries must begin . . . with the language of the
statute itself.” United States v. Ron Pair Enters., Inc.,
489 U.S. 235, 241 (1989) (citing Landreth Timber Co. v.
Landreth, 471 U.S. 681, 685 (1985)). Where, as in this
case, the language of the statute is plain, this is also where a
court’s inquiry should end, as “the sole function of the courts
is to enforce [the statute] according to its terms.” Jd.
(citing Caminetti v. United States, 242 U.S. 470, 485 (1917)).
The only exception to the rule that the plain language of the
legislation is conclusive is the “rare” situation where literal
application of the statute “will produce a result demonstrably
at odds with the intentions of its drafters.” Jd. at 242
(citing Griffin v. Oceans Contractors, Inc., 458 U.S. 564,
571 (1982)).

The issue before the Federal Circuit in this case was
whether Petitioner satisfied the statutory requirement set forth

~ in section 204(a)(7)(B) of the Act. Since, as the parties agree,

Petitioner entered into an agreement to lease the building on
April 21, 1973 (which is “before September 26, 1985”),
the lower courts should have ended their inquiry at this point
having found that Petitioner satisfied the plain language
requirements of the statute — a decision which would have
been consistent with both the Ninth Circuit’s decision in
Airborne and this Court’s precedent regarding the

14

interpretation of plain statutory language. Instead, prompted
by the belief that Petitioner simply was not within the narrow
class of taxpayers Congress intended to benefit, the courts
agreed to undertake what this Court has referred to as the
“hopeless” task of “ascertaining what the legislators who
passed the law would have decided had they reconvened to
consider [this particular case].” Beecham v. United States,
511 U.S. 368 (1994). The lower courts overlooked the
principle that “[t}he best evidence of [Congressional] purpose
is the statutory text adopted by both Houses of Congress and
submitted to the President.” West Virginia Univ. Hosps., Inc.
v. Casey, 499 U.S. 83, 98 (1991).

The resort to legislative history was erroneous because
application of the world headquarters exception according
to its plain terms does not yield an absurd result. If section
204(a)(7) is applied according to its plain language, as one
court has noted, the transitional benefit will be afforded only
to the narrow class of taxpayers who purchased qualified
property or made leasehold improvements to their world
headquarters facility, of which they were the original lessee,
between the years 1986 and 1991. See Kimberly-Clark Tissue
Co. v. United States, 38 F. Supp. 2d 1028, 1037 (E.D. Wis.
1999).

It is clear that the 99th Congress knew very well how to
draft a transitional rule that would apply to a single taxpayer
— when that was the intent, it simply named the intended
beneficiary. See Tax Reform Act §§ 204(a)(32) and (33), 100
Stat. at 2161-63; 204(c)(4)(A)-(P), 100 Stat. at 2164-65."

11. Section 204(a)(32) of the Act provides:

The amendment made by § 201 shall not apply to — (K)
A $600,000,000, 250 megawatt plant placed in service
(Cont'd)

15

In the text of the world headquarters exception, however,
Congress went to great lengths to spell out in detail the
conditions that were necessary to qualify for the transitional

(Cont'd)

| by the Sierra Pacific Power Company, (L) 128 units of
rental housing the Point Gloria Limited Partnership . . .
(O) the Santa Rosa Hotel, in New Orleans, Louisiana
.. .(S) two cogeneration facilities, placed in service by
the Reading Anthracite Company, costing approximately
$110,000,000 each. ...

Tax Reform Act §§ 204(a)(32)(K)-(L), (O), (S), 100 Stat. at 2162.
Section 204(a)(33) of the Act provides:

The amendments made by § 201 shall not apply to —
(A) $400,000 of equipment placed in service by Super
Kay Market . . . (I) 40,000 vending machines, for a cost
approximating $3,400,000 placed into service by Folz
Vending Co....

Tax Reform Act §§ 204(a)(33)(A), (I, 100 Stat. at 2163.

Section 204(c)(4) of the Act provides: _
The amendments made by § 201 shall not apply to a
limited amount of the following property or a limited
amount of property set forth in submission before
September 16, 1986, by the following taxpayers —
(A) Arena project, Michigan, (B) Campbell Soup
Company . . . (C) Overton, Florida, (D) Legett and Platt
.. . (F) Standard Telephone Company, (G) Presidential
Air, (H) Ann Arbor Railroad . . . (M) Hardage Company,
(N) Mesa Airlines. . . .

Tax Reform Act §§ 204(c)(4)(A)-(D), (F), (G), (H), (M), (N),
100 Stat. at 2164-65.

16

relief to be granted. When compared with the examples where
Congress made clear its intent to enact a transitional rule
that applied to a single taxpayer, the “absurd” result would
be to interpret the much more broad world headquarters

exception to apply in the same ultra-narrow fashion. :

Furthermore, the legislative history in this case does not
lend even the slightest amount of support to the determination
that a taxpayer who leases and occupies its building before
September 26, 1985, is not eligible for transitional relief.
The Court of Federal Claims’ analysis of the legislative
history related to section 204(a)(7)(B) begins by stating that
“(while the legislative history does not specifically define
the phrase in question, it does strongly suggest that Congress
intended the transitional rules to have a narrow application.”
App., infra, 20a. The opinion should have ended at this point
because the ensuing analysis of the legislative history has
absolutely no relevance to the specific language contained
in section 204(a)(7)(B); rather, the analysis merely supports
the general proposition that the world headquarters exception
was intended to be of limited application.

The legislative history on which the lower courts rely
consists primarily of two statements by individual legislators
and two items published by congressional committees in the
Congressional Record. See App., infra, 19a-22a. First, the
Court of Federal Claims refers to a speech given by a
representative on the House floor in which Merrill Lynch is
specifically referred to as an intended beneficiary of the
provision. App., infra, 20a (citing 131 Cong. Rec. 35,285
(1985) (comments of Rep. Newt Gingrich)). Second, the court
cites to a report of the Senate Finance Committee where again
Merrill Lynch is specifically mentioned as an intended
beneficiary. App., infra, 20a-21a (citing 132 Cong. Rec. 13,090

17

(1986)). Next, the court highlights yet another statement by
an individual legislator in which Merrill Lynch is identified
as an intended beneficiary. App., infra, 21a (citing 132 Cong.
Rec. 14,113 (1986) (comments of Sen. Howard Metzenbaum)).
Finally, the court looked to an entry made by the Senate in
the Congressional Record at Senator Metzenbaum’s behest
identifying intended beneficiaries of the bill and listing
Merrill Lynch as a beneficiary of sections 204(a)(7)(A)-(C)
of the Act. App., infra, 21a (citing 132 Cong. Rec. 26,638-
40 (1986)).

There is no analysis, however, as to hw these sources
serve to support the addition of a statutory requirement in
section 204(a)(7)(B) that a taxpayer not lease and occupy its
building before September 26, 1985. At most, the Court of
Federal Claims can only conclude that this history establishes
that Congress intended the world headquarters exception to
be of limited application. App., infra, 22a. In reading the
court’s analysis of the legislative history, one is left with the
distinct impression that the court ultimately decided that
Petitioner did not qualify for the world headquarters
exception simply because it was not Merrill Lynch."

In fact, the analysis below bears a striking resemblance
to the district court decision in United States v. Kjellstrom
— the first of the litigated cases regarding the application
of the world headquarters exception. 916 F. Supp. 902
(W.D. Wis. 1996). In Kjellstrom, the district court relied on
the same legislative history as support for its conclusion that

12. The court, to be sure, eschewed any such rationale, stating
that it did not consider the fact that Petitioner was not Merrill Lynch
to be “dispositive,” and noted that it was theoretically possible that
Congress intended to pass a law benefiting one or two taxpayers and
incidentally benefited others in the process. App., infra, 22a.

18

the taxpayer could not qualify for transitional relief under
the world headquarters exception essentially because it was
not Merrill Lynch. Jd. The district court reasoned that
“{a]lthough it is plausible that § 204(a)(7) was meant to
benefit other companies besides Merrill Lynch, Congress
could not have intended to benefit every company who leased
newly constructed world headquarters buildings, unless that
company was similarly situated to Merrill Lynch... .”
916 F. Supp. at 907. On appeal to the Seventh Circuit, the
United States determined that this mode of statutory analysis
employed by the district court was so untenable that it refused
to pursue it, at least expressly. See United States v. Kjellstrom,
100 F.3d 482, 485 n.2 (7th Cir. 1996) (stating that the
Government does not attempt to restrict relief under the world
headquarters exception to Merrill Lynch). Indeed, the Seventh
Circuit flatly rejected the district court’s statutory analysis,
refusing to hold that the world headquarters exception was
limited to Merrill Lynch. Jd. at 485. Instead, the Seventh Circuit
held that the taxpayer did not qualify because it simply did not
meet the plain-language requirements of the statute." Jd.

Notwithstanding the United States’ repeated assertions
in this case that it does not seek to restrict application of the
world headquarters exception to Merrill Lynch alone, it has
continued to make the de facto argument through its
assertions of the need for a “narrow” construction of the
statute. The United States succeeded in convincing the lower
courts that the “policy” underlying section 204(a)(7), and
the transitional rules of the Tax Reform Act in general, should
prevail over the plain language of the statute. Thus, the lower
courts used the legislative history to create an extra-statutory

13. The taxpayer in Kjellstrom did not meet the requirement of
section 204(a)(7)(C) that the building be used as a “world
headquarters.” Kjellstrom, 100 F.3d at 484-485.

19

requirement that would give effect to this “policy.” In this
regard the litigation regarding the world headquarters
exception has come full circle to the disavowed and
discredited district court decision in Kjell/strom — Petitioner
is denied transitional relief not because it fails to meet the
requirements of the statute, but because it supposedly is not
within the ultra-narrow scope of intended beneficiaries
referred to by name in the legislative history.

This Court should grant certiorari to protect the integrity
of its decisions and to confirm that this approach to statutory
construction is not acceptable. See Iselin v. United States,
270 U.S. 245, 251 (1926) (“To supply omissions [to plain
and unambiguous statutory language] transcends the judicial
function.”); West Virginia Univ. Hosps., Inc. v. Casey,
499 U.S. 83 (1991). oe

C. The Question Presented Is a Recurring Issue of Great
Practical Importance.

Clarification by this Court of the proper use of congressional
legislative history in the judicial construction of tailored
transitional rules is of great practical importance to the
interpretation of federal tax statutes as well as other statutes
in general. Rules providing special tax benefits to a targeted
group of taxpayers are a recurring necessity of federal tax

“law. For example, the recently enacted Job Creation and
Worker Assistance Act of 2002 provides a beneficial
five-year recovery period for the depreciation of “qualified
New York Liberty Zone leasehold improvement property.”
§ 301(a), 26 U.S.C. § 1400L(c) (2002).'* The proper method

14. This legislation added a new section 1400L(c) to the Internal et
Revenue Code that provides a tax benefit to taxpayers installing
leasehold improvements in buildings located in a specific area of
New York City. Section 1400L(c)(2) provides: (Cont'd)

20

of determining eligibility for relief under this transitional
rule is to apply the literal language of the statute to the
situations of individual taxpayers, rather than scouring the
legislative history of the Act for the names of specific
intended beneficiaries or for the creation of a legislative
“policy” such as a limitation of the transitional benefit to
taxpayers who actually had property destroyed in the terrorist
attacks of September 11, 2001.

Due to the frequency with which federal tax policy is
amended, and the need of taxpayers to be able to plan their
business activities in order to operate in a tax-efficient manner
under an existing policy, transitional rules will continue to
be an integral part of a federal income tax regime that strives
to achieve fairness and equity. Additionally, Congress will

(Cont’d)

QUALIFIED NEW YORK LIBERTY ZONE
LEASEHOLD IMPROVEMENT PROPERTY — For
purposes of this section, the term “qualified New York
Liberty Zone leasehold improvement property” means
qualified leasehold improvement property (as defined
in section 168(k)(3)) if —

(A) such building is located in the New York
Liberty Zone,

(B) such improvement is placed in service
after September 10, 2001, and before January
1, 2007, and

(C) no written binding contract for such
improvement was in effect before September
11, 2001.

Job Creation and Worker Assistance Act § 301(a), 26 U.S.C.
§ 1400L(c)(2).

21

continue to draft tailored transitional rules as part of the tax
code in order to protect specific groups of taxpayers who are
most in need of relief from a sudden change in federal tax policy.

The issue presented in this case gives the Court an
opportunity to clarify the proper role of legislative history in
such circumstances, and to confirm that, even in situations
where Congress intends a statute to be of narrow application,
random statemenis by legislators and obscure references in
congressional publications are not acceptable substitutes for
the plain text of the legislation.

The method of statutory construction employed by the
lower courts in this case effectively begins with the legislative
history of the Tax Reform Act and then works backward in
an attempt to reverse-engineer section 204(a)(7)(B) of the
Act in order to give effect to the perceived “policy” of ultra-
narrow application. When presented with the undisputed fact
that Petitioner entered into an “agreement to lease” before
September 26, 1985, as required by section 204(a)(7)(B), resort
by the lower courts to the legislative history was unwarranted
even if the narrow application of the statute were intended.
In effect, this method of statutory construction virtually
ensures that any individual referred to by name in a source
of legislative history is guaranteed the benefit of the statute,
regardless of literal compliance with the statutory
requirements; on the other hand, those individuals not
specifically named in the legislative history are effectively
precluded from qualifying for the benefit, even if they were
to comply with the language of the statute.

The potential danger with this method of statutory
interpretation is readily apparent. Legislators and their staffs
would have a tangible incentive to slip in references to their

22

would-be beneficiaries and thereby guarantee their
qualification — while at the same time inadvertently
excluding other individuals who would have qualified under
the plain conditions of the statute. See Blanchard v. Bergeron,
489 U.S. 87, 98 (1989) (Scalia, J., concurring)

As anyone familiar with modern-day drafting of
congressional committee reports is well aware,
the references [to particular cases] were inserted,
at best by a committee staff member on his or her
Own initiative and at worst by a committee staff
member at the suggestion of a lawyer-lobbyist;
and the purpose of those references was not
primarily to inform the members of Congress what
the bill meant . . . but rather to influence judicial
construction.

In this case, the Court should issue a strong pronouncement
that legislative history will not be allowed to stand in the
place of the actual words enacted by Congress and signed
into law by the President.

23

CONCLUSION
The petition for a writ of certiorari should be granted.

Respectfully submitted,

WILLIAM L. GOLDMAN Puitie C. CooK*
McDermott, WILL & EMERY TimoTtuy J. PEADEN
600 13th Street, N.W. TimoTHy L. FALLAW
Washington, DC 20005-3096 §ALsTon & Birp LLP |
(202) 756-8000 1201 West Peachtree Street
Atlanta, GA 30309

(404) 881-7000

* Counsel of Record

Counsel for Petitioner

APPENDIX

la

APPENDIX A — PER CURIAM OPINION OF THE
UNITED STATES COURT OF APPEALS FOR THE
FEDERAL CIRCUIT DECIDED MAY 30, 2002

UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

01-5139
NATIONAL DATA CORPORATION & SUBSIDIARIES,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
DECIDED: May 30, 2002.

Before GAJARSA, LINN, and DYK, Circuit Judges.

PER CURIAM.

National Data Corporation and Subsidiaries (“NDC”)
appeals a decision of the United States Court of Federal
Claims. The Court of Federal Claims summary judgment
decision denied NDC’s tax refund claim. Nat’) Data Corp.
& Subsidiaries v. United States, 50 Fed. Cl. 24, 25 (2001).
NDC argued that certain amounts it expended for leasehold

improvements qualified for the “world headquarters
exception” to the repeal of the investment tax credit.

2a

Appendix A

The exception is codified in § 204(a)(7) of the Tax Reform
Act of 1986. The Court of Federal Claims holding depends
predominantly on its interpretation of the phrase “agreement
to lease” in subparagraph (B) of § 204(a)(7). This court finds
the Court of Federal Claims interpretation of such phrase to
be correct. Therefore, we adopt as this court’s opinion the
Court of Federal Claims interpretation of this particular
phrase and similarly adopt the Court of Federal Claims
application of such interpretation to the facts of this case.
As a result, we affirm.

AFFIRMED.

COSTS

No costs.

3a

APPENDIX B — OPINION OF THE UNITED STATES

COURT OF FEDERAL CLAIMS DATED AND FILED
JULY 23, 2001
UNITED STATES COURT OF FEDERAL CLAIMS
Nos. 97-23T, 97-580T
(Filed: July 23, 2001)

NATIONAL DATA CORPORATION & SUBSIDIARIES,

Plaintiff,
v.
THE UNITED STATES,

Defendant.

Summary Judgment; Income Tax Refund Suit; Investment

Tax Credit; Transition Rules under Tax Reform Act of
1986; “World Headquarters” Exception;
“Agreement to Lease” vs. “Lease.”
OPINION
ALLEGRA, Judge.

For most of the peried from 1962 through 1985, a
taxpayer who acquired qualifying machinery and equipment
for use in its trade or business was allowed an “investment

tax credit” as a dollar-for-dollar offset against its income tax
liability, in an amount equal to a specified percentage of its

4a

Appendix B

investment. The Tax Reform Act of 1986 (the Reform Act),
Pub. L. No. 99-514, 100 Stat. 2085, generally eliminated this
credit for property placed in service after December 31, 1985.
But, as tax acts are wont to do, the Reform Act contained
transitional rules, among them an exception to the repeal for
certain property placed in service in complexes classified as
“world headquarters.” At issue in this case is whether plaintiff
was covered by this exception and thereby entitled to
investment tax credits for certain property it placed in service
after the effective date of the general repeal. This highly
technical issue is before the court on cross-motions for
summary judgment. After careful consideration of the briefs
filed, the oral argument, and for the reasons discussed below,
the court determines that plaintiff is not entitled to the
claimed credits, and, thereforé, GRANTS defendant’s motion
for summary judgment and DENIES plaintiff’s cross-motion
for summary judgment.!

I. FACTS

Neither party disputes the facts at issue here, which are
as follows:

Plaintiff, National Data Corporation and Subsidiaries
(NDC or plaintiff), is a Georgia corporation that provides
electronic information services for financial, retail, health
care and communications markets. On April 21, 1973,
plaintiff entered into an agreement to be the original lessee

1. Because the court concludes that plaintiff is allowed no credit,
it does not reach issues raised by the parties’ briefs regarding the
application of Section 203 of the Reform Act and the amount of credit
potentially owed plaintiff.

5a

Appendix B

of a building located at One NDC Plaza in Atlanta, once the
first floor of that newly-constructed building could be
occupied. The commencement date for the lease was not
specified in the initial agreement, but was settled upon
in a First Amendment to the Lease Agreement, which set
April 27, 1973 as the lease initiation date. Under the
provisions of the original agreement, as first amended, the
term of the lease was 240 months, or until April 27, 1993.
On September 24, 1991, however, the lease was extended to
April 30, 2003, with an additional renewal term of 10 years
at the option of NDC. The One NDC Plaza serves as NDC’s
corporate headquarters and the hub for all of its worldwide
operations. From 1987 to 1990 (the four taxable years at issue
here), plaintiff had other corporate offices located throughout
the United States, as well as offices and computer centers
throughout Western Europe, Japan, and Canada.

NDC’s taxable year ran from June 1 to May 31. In its
taxable year 1987, plaintiff placed approximately $6.5 million
in leasehold improvements, equipment, furniture, and fixtures
in service at the One NDC Plaza. In taxable year 1988,
plaintiff placed an additional $17 million in improvements
in service at the building, followed by an additional $5.5
million in improvements in taxable year 1989, and an
additional $5.8 million in improvements in taxable year 1990.
For each of the taxable years in question, plaintiff timely
filed corporate income tax returns, but did not claim thereon
investment credits for the aforementioned property.
On August 8, 1994, however, plaintiff filed claims for
refunds, asserting that it was entitled to investment tax credits
for leasehold improvements, furnishings, and equipment
placed in service at One NDC Plaza, during the four taxable
years at issue. Plaintiff claimed approximately $2.1 million

6a
Appendix B

in tax credits, for a total refund claim of approximately $1.7
million. On September 5, 1996, the Appeals Office of the
Internal Revenue Service denied plaintiff’s refund claims for
taxable years 1987-89, and, on August 12, 1997, it denied
plaintiff’s refund claim for taxable year 1990.

On January 14, 1997 and August 25, 1997, plaintiff
commenced the instant consolidated suit, seeking a refund
of $1,687,192, corresponding to the amounts it previously
claimed on account of the investment tax credit. As noted
above, this matter is before the court on the parties’ cross-
motions for summary judgment. The case was transferred to
the undersigned judge on February 8, 2001. Oral argument
was heard in this case on April 18, 2001.

II. DISCUSSION

Summary judgment is appropriate when there is no
genuine dispute as to any material fact and the moving party
is entitled to judgment as a matter of law. RCFC 56;
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
As noted, the facts material to the motions are essentially
undisputed. Based on those facts, the court concludes, as a
matter of law, that defendant is entitled to summary judgment.

Before the enactment of the Tax Reform Act of 1986
(the Reform Act), Pub. L. No. 99-514, 100 Stat. 2085, section
38 of the Internal Revenue Code of 1954? governed a

2. Section 2 of the Reform Act redesignated the “Internal
Revenue Code of 1954” “as heretofore, hereby or hereafter amended”
the “Internal Revenue Code of 1986.” § 2, 100 Stat. at 2095. However,
references to the operative Internal Revenue Code provisions at issue
here will be to Internal Revenue Code of 1954 (26 U.S.C.), unless
otherwise indicated.

7a

Appendix B

taxpayer’s eligibility for the investment tax credit, while
section 46 of the Code controlled the amount of such credit
allowable. With permutations not here relevant, the latter
section provided that “the amount of the investment credit
determined under this section for any taxable year shall be
an amount equal to . . . the regular percentage” of a taxpayer’s
“qualified investment.” I.R.C. § 46(a)(1). Paragraph (c)(1)
of section 46 defined the term “qualified investment” as the
aggregate of a defined portion of “the basis of each new
section 38 property (as defined in section 48(b)) placed in
service by the taxpayer during such taxable year,” plus a
defined portion of “the cost of each used section 38 property
(as defined in section 48(c)(1)) placed in service by the
taxpayer during such taxabie year.” Id. at § 46(c)(1). Under
these provisions, then, the amount of the credit allowed for
a particular taxable year generally was determined by
multiplying the regular percentage by the “qualified
investment,” i.e., the defined portion of the basis or cost
associated with certain qualifying property that was placed
in service during that taxable year. See B.F. Goodrich v.
United States, 94 F.3d 1545, 1548-49 (Fed. Cir. 1996).

Section 211(a) of the Reform Act eliminated this
investment tax credit by making the “regular percentage”
specified in section 46(a)(1) of the Code inapplicable to
“any property placed in service after December 31, 1985.”
§ 211, 100 Stat. at 2167-68. See also Telecom USA, Inc. v.
United States, 192 F.3d 1068, 1070 (D.C. Cir. 1999),
cert. denied, 529 U.S. 1123 (2000); S. Rep. No. 99-313,
at 96 (1986). However, Congress “softened the blow slightly
by providing transitional rules to ameliorate the loss of’ the
investment tax credit, United States v. Commonwealth Energy

8a

Appendix B

Sys., 235 F.3d 11, 15 (1st Cir. 2000), among them, a limited
exception to the repeal for certain types of “transition
property,” including property falling within a “world
headquarters” exception. See Pub. L. No. 99-514, § 204(a)(7),
100 Stat. 2155. The latter exception provided, in pertinent
part:

Certain leasehold improvements. — The [repeal
of the investment tax credit] shall not apply to

any reasonable leasehold improvements,
equipment and furnishings placed in service by a
lessee... if —

(A) the lessee ... is the original lessee of each
building in which such property is to be used,
(B) such lessee is obligated to lease the building
under an agreement to lease entered into before
September 26, 1985, and such property is provided
for such building, and

(C) such buildings are to serve as world
headquarters of the lessee... .

Such lessee shall include a securities firm that
meets the requirements of subparagraph (A),
except the lessee is obligated to lease the building ©
under a lease entered into on June 18, 1986.

Id. See Kimberly-Clark Tissue Co. v. United States,
38 F. Supp. 2d 1028, 1031 (E.D. Wis. 1999). As noted by the
Tax Court, “(t]he requirements of the world headquarters rule
are cumulative,” and a taxpayer “must prove that it meets all
the requirements of subparagraphs (A), (B), and (C) in order
to qualify for an investment tax credit under this transitional

9a

Appendix B

rule.” Payless Cashways, Inc., v. Commissioner, 114 T.C.
72, 77 (2000). Pursuant to section 203(b) of the Reform Act,
property subject to this exception was eligible for the credit
provided it was placed in service by January 1, 1991. § 203,
100 Stat. at 2144.

Plaintiff argues, and defendant concedes (at least for
purposes of the cross-motions), that plaintiff met two prongs
of section 204(a)(7)’s requirements — that is, it was the
“original lessee” of the One NDC Plaza for purposes of
subparagraph (A), and its building qualified as a “world
headquarters” for purposes of subparagraph (C). However,
the parties disagree as to whether NDC qualified under
subparagraph (B), which requires that the “lessee is obligated
to lease the building under an agreement to lease entered
into before September 26, 1985.” § 204, 100 Stat. at 2155.
Defendant asserts that this language does not apply to a
taxpayer, such as NDC, who, prior to September 26, 1985,
had already signed a lease and occupied its world
headquarters. It is to that issue that the court now turns.

In construing the “world headquarters” exception, the
court must first look to whether the statutory language is
plain and unambiguous. See United States v. Ron Pair Enters.,
Inc., 489 U.S. 235, 241 (1989); Chevron U.S.A. v. Natural
Res. Def. Council, 467 U.S. 837, 842-43 (1984).
In performing this task, it is guided by certain principles of
interpretation.’ The first, a “fundamental canon of statutory

3. See N.L.R.B. v. United Food & Commercial Workers Union,
Local 23, 484 U.S. 112, 123 (1987) (“On a pure question of statutory
construction, our first job is to try to determine congressional intent,
using ‘traditional tools of statutory construction.’ ”).

10a

Appendix B

construction,” is that, “unless otherwise defined, words will
be interpreted as taking their ordinary, contemporary,
common meaning.” Perrin v. United States, 444 U.S. 37,
42 (1979). The second, in many ways a corollary of the first,
is that a statute should be construed so that each part is given
effect and no part is rendered inoperative or superfluous.‘
See Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979).
The third is that “where Congress uses terms that have
accumulated settled meaning under . . . the common law, a
court must infer, unless the statute otherwise dictates, that
Congress means to incorporate the established meaning of
these terms.” Field v. Mans, 516 U.S. 59, 69 (1995) (internal
citations omitted).° Lastly, yet another rule of interpretation
applicable here is that “provisions granting special tax
exemptions are to be strictly construed.” Helvering v.
Northwest Steel Rolling Mills, 311 U.S. 46, 49 (1940).°

4. This rule has specifically been applied in construing the
investment tax credit transition rules under the Tax Reform Act.
See Commonwealth Energy Sys., 235 F.3d at 15; Bell Atlantic Corp.
v. United States, 224 F.3d 220, 224 (3d Cir. 2000).

5. See also United States v. Shabani, 513 U.S. 10, 13 (1994)
(stating that it is a settled principal of statutory construction that
“absent contrary indications, Congress intends to adopt the common
law definition of statutory terms”); 2B Norman J. Singer, Sutherland
Statutory Construction § 50.04 (6th ed. 2000) [hereinafter Sutherland
Statutory Construction] (emphasizing “utility of examining a federal
statute with reference to the common law of the various states as it
existed at the time the statute was enacted”).

6. See also Commissioner v. Jacobson, 336 U.S. 28, 49 (1949)
(exemptions “are specifically stated and should be construed with
restraint” in light of the purpose of taxing income comprehensively);
Espenshade v. United States, 354 F.2d 332, 336 (Ct. Cl. 1965).

lla

Appendix B

This oft-quoted tax maxim has been applied in interpreting
tax transition rules, see United States v. Hemme, 476 U.S.
558, 566-67 (1986), and, specifically, in construing those of
the Reform Act, including those involving the phase-out of
the investment tax credit, see Commonwealth Energy Sys.,
235 F.3d at 15-16; Apache Bend Apartments, Ltd. v. United
States, 987 F.2d 1174, 1175 (Sth Cir. 1993); United States v.
Kjellstrom, 916 F. Supp. 902, 905 (W.D. Wis. 1996), aff'd,
on other grounds, 100 F.3d 482 (7th Cir. 1996).

Applying these familiar canons to the lariguage of section
204(a)(7), the court first trains its eye on that portion of
subparagraph (B) which states “[s]uch lessee is obligated to
lease the building under an agreement to lease entered into
before September 26, 1985.” § 204, 100 Stat. at 2155. Relying
on the present tense of the “is obligated” language, defendant
first contends that this provision requires that a taxpayer be
obligated under an “agreement to lease” as of September 26,
1985. It then predicates that an “agreement to lease” is a
separate and distinct concept from that ofa “lease,” and refers
only to an executory contract to enter into a building lease in
the future. It asserts that while plaintiff originally entered
into such an “agreement to lease,” it was not obligated to
lease the building under that agreement as of the effective
date of the transition provision, but, instead, was operating
under a supervening lease. As such, according to defendant,
plaintiff is not covered by the transitional ruie. For its part,
plaintiff insists that defendant is reading requirements into
the statute that simply are not there, and, in particular,
contends that the term “agreement to lease” is legally
synonymous with the term “lease.” Thus, it maintains that it

12a

Appendix B

fully met the requirements of section 204(a)(7)(B), when, in
1973, i.e., prior to September 26, 1985, it was the original
lessor and occupant of the NDC Plaza.

For many reasons, section 204(a)(7)(B) will not bear
plaintiff’s interpretation. The key phrase in that statute,
“agreement to lease,” is neither defined in Webster's
Dictionary nor Blacks Law Dictionary. Nonetheless, both
familiar lexicons define the term “lease” as constituting an
“agreement” or a “contract” — Webster s defines that phrase
as “a contract by which one conveys lands, tenements, or
hereditaments for lie, for terms of year, or at will,” Webster's
Third New International Dictionary 1286 (1993), while
Black's similarly describes it as “any agreement which gives
rise to relationship of landlord and tenant,” Black's Law
Dictionary 889 (6th ed. 1990). These definitions suggest that
in common usage, a layperson would not employ the phrase
“agreement to lease” or “contract to lease” to refer simply to
a “lease,” as the word “agreement” or “contract” is implied
and subsumed within the latter concept. This observation,
though a splinter of logic in the first instance, takes on sturdier
proportions when buttressed by the common law
understanding of the phrase “agreement to lease,” or its
equivalent, “contract to lease,” which, although subject to
some local variation, is a familiar denizen of landlord and
tenant law.

As noted in a leading treatise in this area, “[a] lease is
said to convey a present estate in distinction to a contract to
lease, which is to provide for the creation in the future.”
3 Milton R. Friedman, Friedman on Leases § 34.1
(4th ed. 1997) [hereinafter Friedman on Leases]. Burnishing
this explanation, another treatise indicates:

13a

Appendix B

it is important to distinguish leases from
nonpossessory interests because important
consequences depend on the distinction. For the
same reason, a lease must also be distinguished
from a contract to make a lease. The distinction
is that a lease is a transaction that is already
partially executed, while a contract to lease creates
obligations that are purely executory....
A contract to lease is an agreement that
contemplates the future execution of a formal
lease giving the prospective tenant the right to
possession; the contract to lease is purely
executory, and does not itself transfer a right to
possession to the prospective tenant.

2 Richard R. Powell, Powell on Real Property § 16.02[4]
(Michael Allan Wolf ed., 2001) [hereinafter Powell].
See also 51C C.J.S. Landlord & Tenant § 185a (1968) (“There
is a distinction between a present lease and an executory
contract to enter into a lease in that the latter vests no estate
in the proposed lessee, while the former conveys an estate.”’).
The principal raison d’etre of this distinction lies in the fact
that a lease, unlike an agreement to lease, gives a right to
possession, which, in turn, defines the relief available upon
its breach — for a breach of a lease, the landlord’s remedy is
for accrued or accruing rent; while, for breach of an
“agreement to lease,” a landlord may expect only ordinary
contract damages (with a corresponding duty to mitigate).
Friedman on Leases, §§ 34.1, 34.5.’ Cases distinguishing

7. See also Roger A. Cunningham, William B. Stoebuck & Dale

A. Whitman, The Law of Property 263 (2d ed. 1993) (measure of
(Cont'd)

l4a

Appendix B

between leases and agreements or contracts to lease are
legion, with one court perhaps best summing up the usual
judicial formula stating, albeit simply, that “[a]n agreement
to lease is not a lease, just as a contract to sell is not a sale.”
Ryan v. Stanger Inv. Co., 620 S.W.2d 505, 508 (Tenn. Ct.
App. 1981).°

(Cont'd)

damages is the “major consequence” of the distinction); J.A.
Connelly, Annotation, Measure of Damages for Lessor's Breach of
Contract to Lease or to Put Lessee Into Possession, 88 A.L.R.2d
1024 (1963). Other state law consequences that spring from the
distinction between a lease and an agreement to lease involve the
proper application of statutes of fraud and recordation statutes, some
of which distinguish between contracts and leases. Powell, § 16.02[4].
See generally Emory Washburn, American Law of Real Property 453
(1876) (noting the importance of the distinction between “agreements
to lease and agreements which operate as leases” for parol evidence
purposes); Restatement (Second) of Property § 2.5 (1977) (contract
section governs contract to lease).

8. See, e.g., Dan Cohen Realty Co. v. National Sav. & Trust

Co., 125 F.2d 288, 289 (6th Cir. 1942) (“There is a sharp and generally
recognized distinction between the rights and liabilities created by
an executed lease on the one hand and an executory contract to lease
on the other.”); Sands v. United States, 198 F.Supp. 880, 883
(W.D.Wash.1960), aff’d sub nom. First Federal Sav. & Loan Ass'n
of Bremerton v. United States, 295 F.2d 481 (9th Cir.1961) (drawing
distinction between “agreement to lease” and “lease”); Feeley v.
Michigan Ave. Nat’l Bank, 141 Ill.App.3d 187, 95 Ill.Dec. 542, 490
N.E.2d 15, 18 (Ill. App. 1986) (“An agreement to lease is a contract
to formally execute a contract in the future for exclusive possession
of lands or tenements for a determinate period. . . . A lease is generally
defined as a contract for exclusive possession of lands, tenements or
hereditaments for life, for a term of years, or at will, or for any interest
(Cont'd)

15a

Appendix B

Under the statutory canons outlined above, this court
must presume that Congress was aware of this common
law distinction in enacting the Reform Act. But, .n fact,
there is evidence that Congress actually appreciated this
distinction — evidence that is found, interestingly enough,
in the text of two prior acts that phased out the investment
tax credit for a time. In 1966, for example, Congress
suspended the credit for “suspension period property,”
but excluded from that category property acquired “pursuant

(Cont’d)

less than that of the lessor, usually for a specified rent of
compensation.”); Byrd Cos., Inc. v. Birmingham Trust Nat'l Bank,
482 So.2d 247, 253 (Ala. 1985) (drawing distinction between “lease”
and “agreement to lease” in applying recording statute); Jarget Stores,
Inc. v. Twin Plaza Co., 153 N.W. 2d 832, 840 (1967) (drawing the
same distinction and indicating that “[t]he fact that a document covers
a building yet to be constructed implies that the transaction is at
most an agreement to lease rather than a lease”), Motels of Maryland,
Inc. v. Baltimore County, 223 A.2d 609, 612 (Md.1966)
(distinguishing between a “contract to lease” and “lease”); Zook v.
Zook, 11 Pa. D. & C. 203 (1928) (citing cases from the 1800s and
noting that a lack of “present words of demise” distinguishes a lease
from “merely an agreement to lease”). Plaintiff notes that a few
treatises and cases use the phrase “agreement for lease,” rather than
“agreement to lease,” suggesting thereby that the phrase “agreement
to lease” is not a well-accepted term of art. See, e.g., John N. Taylor,
The American Law of Landlord and Tenant 81 (1879) (referring to
an “agreement for a lease”). In the court’s view, however, the
numerous treatises and cases cited above demonstrate to the contrary.
Moreover, it is telling that plaintiff has not cited a single case at
common law in which a court has construed any of the relevant
phrases — “agreement to lease,” “contract to lease” and “agreement
for lease” — to be synonymous with the term “lease.”

16a
Appendix B

to a binding lease or contract to a binding lease or contract
in effect on October 9, 1966.” Tax Reform Act of 1966,
26 U.S.C. § 48(h)(8) (1966) (emphasis added). Similarly, in
1969, when it terminated the credit (only to reenact it
three years later), Congress continued the credit for
“pre-termination property,” defined as property acquired
“pursuant to a binding lease or contract to lease in effect
on April 18, 1969.” Tax Reform Act of 1969, 26 U.S.C.
§ 49(b)(6) (1969) (emphasis added). The language and
structure of these provisions belie any notion that Congress
believed either that the phrases “leases” and “contract to
lease” were synonymous or that the latter phrase somehow
incorporated the former. Rather, when, in 1966 and 1969,
Congress wanted to include both concepts in a transitional
provision, it did so quite explicitly and alternatively.
To conclude, as plaintiff does, that the phrase “contract to
lease” covers a “lease” is blithely to assume that Congress’
use of the latter term in these earlier provisions was
gratuitous. Such a conclusion, however, would violate the
canon, highlighted above, that “a legislature is presumed to
have used no superfluous words. Platt v. Union Pacific R.R.
Co., 99 U.S. 48, 52 (1878).° Indeed, because in phasing out

9. Such a conclusion also would be inconsistent with the
legislative history of the 1969 act, which again evidenced an
understanding of the distinction between a “contract to lease” and a
“lease.” Thus, for example, in explaining the types of “pre-termination
property” that would not be subject to the credit repeal, the
accompanying Senate Report indicated that “neither the lessor nor
the lessee may receive any investment credit with respect to property”
where “property is leased after April 18, 1969 (other than pursuant
to a binding contract to lease entered into before April 19, 1969).”

S. Rep. No. 91-552, at 246 (1969), reprinted in 1969 U.S.C.C.A.N.
(Cont'd)

17a

Appendix B

the credit in 1966 and 1969, Congress apparently understood
the meaning and common law tradition of the words it
selected, it is reasonable to conclude that it had that same
basic understanding in mind when, in 1986, it passed the
Reform Act."

To be sure, “[c]anons of constructions need not be
conclusive,” the Supreme Court recently stated, “and are
often countered ... by some maxim pointing in a different
direction.” Circuit City Stores, Inc. v. Adams, 121 S. Ct. 1302,
1309 (2001). Yet, here, not only do all the canons harken to
the same conclusion, but there is further indication in section

(Cont'd)

2282. In recognizing that leases entered into after the effective date
could qualify for the credit if the lease derived from an agreement to
lease entered into before that date, the quoted language indicates
that Congress not only understood the common law distinction
between a “lease” and a “contract to lease,” but also knew that the
former type of agreement could spring from the latter.

10. Both tax-writing committees, in 1986, certainly were aware
that Congress had phased out the credit on two prior occasions.
Hearing testimony before those committees, leading up to the passage
of the 1986 Code, indeed, highlighted this fact. See Tax Reform
Proposals — VII: Hearing before Comm. on Finance, United States
Senate, 99th Cong. 120 (1985) (statement of Robert Mercer,
Chairman and Chief Executive Officer, Goodyear Tire & Rubber Co.)
(discussing the earlier phaseouts); Comprehensive Tax Reform, Part
VI: Hearings before House Comm. on Ways and Means, 99th Cong.
5390, 5407-08 (1985) (statement of David I. Margolis, Chairman of
the Board, Colt Industries, Inc.) (same). See also Congressional
Budget Office, Congress of the United States, Revising the Corporate
Income Tax 19-21 (1985) (report to Congress discussing the history
of the investment credit, including the two phaseouts).

18a

Appendix B

204(a)(7) itself that Congress understood the distinction
between a lease and an agreement to lease. Thus, while, as
discussed above, in subparagraph (B), the “world
headquarters” exception applied to “an agreement to lease
entered into before September 26, 1985,” the statute also
indicated, in the last sentence of paragraph (7), that the same
exception would apply where “the lessee is obligated to lease
under a lease entered into on June 18, 1986.” § 204, 100
Stat. at 2155 (emphasis added). If, as plaintiff claims, a
“lease” is an “agreement to lease” then why, in a single
statutory paragraph, did Congress employ both phrases? Were
plaintiff correct, Congress presumably would have used one
phrase or the other in both places, paralleling the language
in section 204(a)(7)(B) with that in the last sentence of
paragraph (7). But it did not, choosing instead to employ
different language and bringing into play yet another rule of
statutory construction, to wit, that when different words are
used in the same provision they are presumed to have a
different meaning. See Russello v. United States, 464 U.S.
16, 23 (1983)." In this court’s view, this canon of construction
is fully applicable here, revealing the last sentence of section
204(a)(7) to be further evidence that Congress did not intend ©
the phrase “agreement to lease” to include a “lease.”

11. See also Hecht Co. v. Bowles, 321 U.S. 321, 326-27 (1944);
Lindsey v. Tacoma-Pierce County Health Dep t, 195 F.3d 1065, 1074
(9th Cir.1999); United States v. Maria, 186 F.3d 65, 71 (2d Cir.1999).
See generally 2A Sutherland Statutory Construction § 46.06 (“[W]hen
the legislature uses certain language in one part of the statute and
different language in another, the court assumes different meanings
were intended.”).

12. Notably, as originally introduced, section 204(a)(7) used
the term “lease” and only later was amended to substitute the phrase
(Cont'd)

19a
Appendix B

Still, without a specific statutory definition of the phrase
“agreement to lease,” there arguably is enough ambiguity in
the clause “is obligated to lease under an agreement to lease”
to warrant reference to the statute’s legislative history.
See Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997).

(Cont'd)

“agreement to lease.” Compare H.R. 3838, 99th Cong., 1st Sess.
(1985) ( “such lessee is obligated to lease the building under a lease
entered into before September 26, 1985 ...”) (emphasis added);
H.R. 3838, 99th Cong., 2d Sess. (1986) (same) with the Reform Act
(“such lessee is obligated to lease the building under an agreement
to lease entered into before September 26, 1985 ...”) (emphasis
added). Such an amendment, of course, would have been unnecessary
had Congress viewed the terms “agreement to lease” and “lease” as
interchangeable. Indeed, other language in section 204(a)(7)(C)
suggests that the statute was intended to cover only a company that
had obligated itself to lease a building in the future, but had not yet
occupied the structure. Thus, for example, the statute provides that
the buildings to be leased “are to serve” as a world headquarters.
This language is in a form of the future tense and ordinarily would
not be understood to encompass property already serving as a
headquarters — were the latter intended, Congress would have simply
used the word “serves.” See Charles Darling, Guide to Grammar
and Writing, at http://ccc.commnet.edu/grammar/tenses/simple
future.htm (last modified 2001) (“The construction form of to be +
infinitive is used to convey a sense of planning for the future,
command, or contingency.”); Anthony Hughes, The Online English
Grammar, at http://www.edufind.com/english/grammar/tenses2 1 .cfm
(last modified 2001) (“This form refers to an obligation to do
something at a time later than now.”). Indeed, at least two courts
have observed that the “are to serve” language is “prospective,”
suggesting that it refers to a building that, as of the effective
date of the transitional rule, was not yet being used as a world
headquarters. See Kjellstrom, 916 F. Supp. at 907; Payless Cashways,
114 T.C. at 79.

20a
Appendix B

While that legislative history does not specifically define the
phrase in question, it does strongly suggest that Congress
intended the transitional rules to have a narrow application.
Consistent with that history, the courts have generally
observed that the transition rules of the Relief Act were
enacted to provide relief “to a very, very few specified favored
taxpayers,” Apache Bend, 987 F.2d at 1175. See also
Commonwealth Energy Sys., 235 F.3d at 16; Airborne Freight
Corp. v. United States, 153 F.3d 967, 970 (9th Cir. 1998),
cert. denied, 526 U.S. 1112 (1999). As discussed below,
section 204(a)(7) proves no exception to this observation,
as various aspects of its legislative history indicate that it
had, at most, two intended beneficiaries — the firms Merrill
Lynch and Drexel Burnham Lambert.

House Resolution 3838, which contained the original
draft of what ultimately became section-204(A)(7), was
passed by the House of Representatives on December 16,
1985. On December 9, 1985, prior to passage, Representative
Newt Gingrich from Georgia spoke on the floor of the House,
railing against the “giveaways” created by the transitional
rules and specifically citing Merrill Lynch as the intended
beneficiary of the transitional rule applicable to the world
headquarters exception. See 131 Cong. Rec. 35,285 (1985).
Subsequent to its passage by the House, H.R. 3838 was
referred to the Senate Finance Committee on May 29, 1986.
- On June 10, 1986, the Committee published in the
Congressional Record the identities of the intended
beneficiaries of the various transitional rules relating to the
repeal of the investment tax credit, indicating therein, again,
that Merrill Lynch was the sole intended beneficiary of the
world headquarters transitional rule. See 132 Cong. Rec.

2la

Appendix B

13,090 (1986). On June 17, 1986, the proposed investment
credit transitional rules were assailed again, this time by
Senator Howard Metzenbaum from Ohio, who, in
successfully moving an amendment to limit the transition
rules, again identified Merrill Lynch as the beneficiary of
the provision in question. See 132 Cong. Rec. 14,113 (1986).
Finally, on September 27, 1986, after the Senate had passed
its version of the Reform Act, and the Conference Committee
had issued its report modifying the bill, the Senate, at Senator
Metzenbaum’s behest, entered into the Congressional Record
the intended beneficiaries of the transitional rules cross-
referenced to the page of the Conference Report on which
the particular rule was listed. Two entries in this listing reflect
that Merrill Lynch was the intended beneficiary of section
204(a)(7)(A)-(C), and Drexel Burnham Lambert the
beneficiary of the flush language in section 204(a)(7) added
by the Conference Committee. 132 Cong. Rec. 26,638-40
(1986).'°

13. To reach this conclusion requires a bit of deductive logic.
As recounted in Kjellstrom, 916 F. Supp. at 905-06, the Congressional
Record, in a list entitled “ACRS/ ITC: RULES IN HOUSE BILL
AND HOUSE AND SENATE BILLS,” indicates that Merrill Lynch,
Sonat Offshore Drilling, Kern River Pipeline and Tri-Cities Sewage
were the beneficiaries of the rules listed on page I-75 of the
conference report. 132 Cong. Rec. 26,638-39(1986). Four transitional
rules were quoted on page I-75 — the world headquarters transition
rule, and rules pertaining to submersible drilling units, natural gas
pipelines and waste or sewage treatment plants. Accordingly, it may
readily be deduced that the world headquarters rule applied only to
Merrill Lynch, while the other rules focused on the other three
companies — a submersible drilling company, a gas pipeline company
and a sewage treatment company. A second list in the Congressional

Record, entitled “NEW HOUSE AND SENATE oT ware)
ont’

22a

Appendix B

Now, of course, plaintiff is neither Merrill Lynch nor
Drexel Burnham Lambert, and, despite the legislative
history recited above, the court does not deem that fact
dispositive. Clearly, Congress could have passed a provision
intended to benefit one or two taxpayers and incidentally
benefitted others. But, the legislative history outlined
above does indicate that Congress intended the world
headquarters exception to be limited.'* By contrast, plaintiff’s
interpretation of that rule has an exceedingly broad berth.
For example, under its reading of the statute, the credit would

(Cont’d)

RULES-FINAL LIST” and subtitled “ACRS/ITC,” lists the “Drexel
Burnham Office Building” as an additional beneficiary of the
Conference Committee version of the bill. 132 Cong. Rec. 26,640
(1986). That version of the bill added the last sentence of section
204(a)(7), see footnote 12, supra, leading the court to conclude that
the flush language in that section was intended to benefit Drexel
Burnham Lambert.

14. To be sure, the Supreme Court has “eschewed reliance on
the passing comments of one Member ... and casual statements from
the floor debates.” Garcia v. United States, 469 U.S. 70, 76 (1984)
(citations omitted). Here, however, we are faced not with a single,
idle statement, but rather a pattern of statements — and one that is
consistent not only with the Conference Committee Report’s emphasis
on the narrow scope of the transition rules, but also the statute’s
language itself. Accordingly, in this court’s view, these statements
of individual members are an accurate gauge of Congressional intent.
See Grove City College v. Bell, 465 U.S. 555, 566-67 (1984);
Kjellstrom, 916 F. Supp. at 906. See also 2A Sutherland Statutory
Construction, § 48.13 (“The statements of individual legislators . . .
can be given effect if they are consistent with statutory language and
other legislative history which justifies reliance upon them as
evidence of legislative intent.”).

23a

Appendix B

be extended to a taxpayer that had leased its corporate
headquarters in 1969, during the period in which the Congress
had suspended the investment tax credit; or in 1959, prior to
the credit’s initial passage; or even 1899, prior to the passage
of the modern income tax.'* In fact, plaintiff’s interpretation
would reach any taxpayer that was the original lessor of
property, no matter how “old and cold” their lease, provided
that lease was entered into some time between the beginning
of time and September 25, 1986. Moreover, under plaintiff’s
view, Congress extended the credit to all these lessors of
world headquarters, many of whom would have entered into
their original leases prior to the investment tax credit even
existing, while providing no transitional relief to other
taxpayers who clearly had relied on the existence of the credit
in making investment decisions and thus had much more
compelling cases for relief — those who, for example, before
the effective date of the repeal, carefully factored in the
impact of the credit in choosing to purchase (rather than lease)
a headquarters or to purchase or lease some other type of
building. As such, plaintiff’s interpretation of the transition
rule would ascribe to Congress the logic-chopping intent of
rewarding the unwitting, while shortchanging the witting.

While, as Mr. Justice McReynolds once stated, “[l]ogic
and taxation are not always the best of friends,” Sonneborn
Bros. v. Cureton, 262 U.S. 506, 522 (1923), this court is loathe
to attribute to Congress such an anomalous, yet sweeping,

15. At oral argument, the court posed to plaintiff’s counsel a
series of hypotheticals, asking whether, under plaintiff’s theory, the
exception would apply to leases executed in the years indicated in
the text (i.e., 1969, 1959 and 1899). In each instance, plaintiff’s
counsel unabashedly answered that it would.

24a

Appendix B

approach, without the flimsiest of textual support, and
especially in the face of a contrary conference report, which
clearly indicates that the “special transitional rules” are “of
limited application.” H.R. Conf. Rep. No. 99-841, at I-62
(1986), reprinted in 1986 U.S.C.C.A.N. 4075, 4150.'°

16. Striving for evidence to support its claim that Congress used
the terms “lease” and “agreement to lease” interchangeably, plaintiff
latches onto a portion of the legislative history of section 204(a)(3)
of the Reform Act, which provision, like section 204(a)(7), discussed
above, provided investment credit transitional relief to a taxpayer
subject to “an agreement to lease.” § 204, 100 Stat. at 2149. Plaintiff
finds it significant that the Conference Committee report describing
the “agreement to lease” language in section 204(a)(3) refers to it as
involving “lease agreements.” While this observation is true, see H.R.
Conf. Rep. No. 99-841, at II-59 to II-60 (1986), reprinted in 1986
U.S.C.C.A.N. 4075, 4147-48, it offers only empty solace to plaintiff,
as can be seen when the quoted language is read in context:

The bill provides transitional relief for certain situations
where written binding contracts require the construction
or acquisition of property, but the contract is not between
the person who will own the property and the person
who will construct or supply the property. This rule
applies to written service or supply contracts and
agreements to lease entered into before March 2, 1986
(January 1, 1986, in the case of the investment tax credit).
An example of a case to which this rule would apply
would be lease agreements under which a grantor trust
is obligated to provide property under a finance lease
(to the extent continued under the bill).

Id. This passage makes apparent not only that the report’s reference
to “lease agreements” is to an “agreement to lease,” but also that
Congress used the term “agreement to lease” in section 204(a)(3) in

a factual setting typical for that term — that is, where an individual
(Cont’d)

25a

Appendix B

This is not, as plaintiff claims, a matter of “undertaking to
put words into the statute that, whatever the reasons may
have been, Congress did not put there,” /nternational Trading
Co. v. Commissioner, 484 F.2d 707, 711 (7th Cir. 1973), but
rather of effectuating the words and intent of what the
Congress actually enacted. And on both these important
counts, NDC’s arguments fall short. Cf United States v.
Brown, 333 U.S. 18, 27 (1948) (“[nJo rule of construction
necessitates our acceptance of an interpretation resulting in
patently absurd consequerices’’).

To be sure, this conclusion — that the transition rule
applies only to parties obligated to lease under an “agreement
to lease,” but not a “lease” — has received a mix reception
in the courts, with one prior decision supporting this court’s
view, see United States v. Kjellstrom, 916 F. Supp. 902 (W.D.
Wis. 1996), aff'd on other grounds, 100 F.3d 482 (7th Cir.
1996), and two others, including one by the Ninth Circuit,
rejecting that conclusion, see Airborne Freight Corp. v.
United States, 153 F.3d 967 (9th Cir. 1998); Kimberly-Clark
Tissue Co. v. United States, 38 F. Supp. 2d 1028 (E.D. Wis.
1999). In the Ninth Circuit case, the defendant apparently
argued, as it did here, that:

the exception should apply to taxpayers who were
obligated to lease the building before September

(Cont’d)

agrees to lease in the future a building that has yet been constructed
or acquired. Accordingly, far from supporting plaintiff’s position,
this snippet from the legislative history of the Reform Act actually
constitutes further evidence that there is a real and meaningful
distinction between a “lease” and an “agreement to lease.”

26a

Appendix B

26, 1985, but had not leased the building by that
date. It also argued that, to qualify, the taxpayer
must have agreed to lease the entire building. If
these narrow constructions are not adopted,
according to the government, the purpose of the
exception will be frustrated: taxpayers who agreed
to lease and leased buildings decades before the
repeal of the investment credit will be entitled to
avail themselves of the transitional exception.

Airborne Freight, 153 F.3d at 970 (emphasis in original).
The Ninth Circuit, however, made short shrift of this
argument, stating:

The difficulty with the government’s argument is
that none of the words italicized in the previous
paragraph were written into § 204(a)(7). There is
no disqualification of those who executed leases
before September 26, 1985, and the government
offers no reason why the execution of a lease
creates a relevantly different condition from that
which existed under an agreement to lease. ...
We decline therefore to write the government’s
additional proposed restrictions into the statute
in order to confine the exception virtually to a
Class of one.

Id. Notwithstanding these comments, the court found that
the statute incorporated a “reasonable expectation” test,
indicating that “[w]e have no quarrel with the government’s
argument that, in light of its purpose, the exception should
be available only to those whose expectations at the time

27a

Appendix B

they undertook their obligations would otherwise be defeated
by the repeal of the investment credit.” Jd. The Ninth Circuit
found that while Airborne “qualifies . . . under such a guiding
principle,” “other companies that leased their world
headquarters decades ago” would not, concluding, on that
basis, that its decision was “not likely to open the floodgates.”
Id. at 970-71.

With all due respect, this court finds Ninth Circuit’s
reasoning faulty on several counts."’ First, the court of appeals
failed to recognize that adopting defendant’s position does
not require the statute to be augmented, but merely enforced,
by its terms. The case law outlined above reveals that there
is a fundamental difference between an “agreement to lease”
and a “lease” — a distinction apparently understood by the
Congress, but lost on the Ninth Circuit. Second, the Ninth
Circuit’s interpretation of the statute comports neither with
the ordinary rules of construction nor the relevant legislative
history. On this count, it is beyond peradventure that,
generally, the maxim that tax exceptions are construed
narrowly and, specifically, the legislative history of
this provision, both point toward the conclusion that Congress
intended this exception to apply to a select few.
See Commonwealth Energy Sys., 235 F.3d at 16. The Ninth
Circuit clearly betrayed that intent in eschewing a reasonable,
narrow construction of the statute in favor of an apocryphal,
yet broader version thereof. Finally, perhaps bothered by the
last point, the Ninth Circuit ultimately hinged its ruling on a
legal fiction — that section 204(a)(7) directly imposes a

17. The district court decision in Kimberly-Clark Tissue Co.,
supra, essentially adopted the same reasoning as the Ninth Circuit
and, in this court’s view, suffers from the same flaws.

28a

Appendix B

separate and distinct “reasonable expectation” requirement
— so that only taxpayers who met the statute’s express terms
and entered into transactions based upon the reasonable
expectation of receiving an investment tax credit should be
eligible. In this regard, it appears the Ninth Circuit is guilty
of the very sin that it wrongly accused the defendant of
committing — a bit of statutory joie de revision — minting
an eligibility requirement that has no antecedent in the
statute’s language.'* Adopting this “reasonable expectation”
principle, purportedly as a limitation on its ruling, actually
freed the appellate court to brush aside the obvious clash
between its sweeping interpretation and what Congress
intended.'* Thus, after careful analysis, this court respectfully

18. To be sure, in drafting the transition rules, Congress did
focus on taxpayers who had made economic decisions relying upon
the existence of the investment tax credit. But, it effectuated that
intent not directly, by imposing a separate reliance requirement in
the statute, but indirectly, by drafting eligibility requirements that
logically could be met only by taxpayers who had reasonably relied
upon the existence of the credit. In contrast, having construed that
statutory language broadly in a way that clearly defeated Congress’
intent, the Ninth Circuit then proceeded to reintroduce the reliance
concept as a separate and distinct nonstatutory gloss on its otherwise
broad interpretation.

19. On this point (and others), the court agrees with the district
court in Kjellstrom, which stated:

Nothing in the legislative history indicates that Congress
intended to provide an exemption for a// taxpayers who
had leased world headquarters buildings prior to 1985
and as early as 1974. To read the statute this broadly
would undermine Congress’s intent as it is evidenced in
the legislative history to the Tax Reform Act.

916 F.Supp. at 907.

29a

Appendix B

concludes that the Ninth Circuit’s opinion proves both too
little and too much. For this and the other reasons stated,
this court, therefore, respectfully rejects both the rationale
and conclusion reached in Airborne Freight and Kimberly-
Clark Tissue.

In sum, the text of the Reform Act, as illuminated by the
statute’s legislative history, the various statutory canons of
construction, and common law, forecloses the construction
of section 204(a)(7) urged by NDC. As such, this court
concludes that, with respect to the taxable years in question,
NDC did not meet section 204(a)(7)(B)’s requirement that a
taxpayer “is obligated to lease the building under an
agreement to lease entered into before September 26, 1985.”
§ 204, 100 Stat. at 2155. Therefore, it is not entitled to the
transition rule exception from the general repeal of the
investment tax credit.

III. Conclusion

For the foregoing reasons, the court concludes that
plaintiff is not entitled to the claimed investment tax credits.
Accordingly, the defendant’s motion for summary judgment
is GRANTED, and the plaintiff’s cross-motion for summary
judgment is DENIED. The Clerk shall dismiss the complaints
in Case Nos. 97-23 T and 97-580 T.

s/ Francis M. Allegra
Francis M. Allegra
Judge

30a

APPENDIX C — TAX REFORM ACT OF 1986

Tax Reform Act of 1986, Pub. L. No. 99-514, § 204(a)(7),
100 Stat. 2085, 2155 (1986).

CERTAIN LEASEHOLD IMPROVEMENTS — The
amendments made by section 201 shall not apply to any
reasonable leasehold improvements, equipment and
furnishings placed in service by a lessee or its affiliates if —

(A) the lessee or an affiliate is the original lessee of each
building in which such property is te be used,

(B) such lessee is obligated to lease the building
under an agreement to lease entered into before
September 26, 1985, and such property is provided
for such building, and

(C) such buildings are to serve as world headquarters
of the lessee and its affiliates.

For purposes of this paragraph, a corporation is an affiliate
of another corporation if both corporations are members of
a controlled group of corporations within the meaning of
section 1563(a) of the Internal Revenue Code of 1954 without
regard to section 1563(b)(2) of such Code. Such lessee shall
include a securities firm that meets the requirements of
subparagraph (A), except the lessee is obligated to lease the
building under a lease entered into on June 18, 1986.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_0330%3A1. Public record. Not legal advice.