Opposition Brief — NDCHealth Corp. v. United States

No. 02-323 | :

In the Supreme Court of the United States

NDCHEALTH CORPORATION AND SUBSIDIARIES,

PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

THEODORE B. OLSON

Solicitor General

Counsel of Record

EILEEN J. O’CONNOR

Assistant Attorney General

RICHARD FARBER

RANDOLPH L. HUTTER

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTION PRESENTED

Whether the leasehold improvements made by peti-

tioner come within the “world headquarters” exception

to the repeal of the investment tax credit under Section

204(a)(7) of the Tax Reform Act of 1986, Pub. L. No. 99-

514, 100 Stat. 2155.

(I)

TABLE OF CONTENTS

Opinions below .......sssssssssssssssssssssssesesssnsessenssnusscensnnnnessnsnnecesgsansssat 1

JUriSdiction ...........cccccscsssssesesssssscssessccsssssssssceeersensnsssscesssssssoeeeeseseseees 1

Statement ......ccccccccssccscssccecssssssscscserssssssseserscessssecscsssssecsssesacesescasores 1

AY Quen ......ssssesssessssessssecssneessssesssscsssscnsneccsnscnnnnnscsnneconsssnsecsansenenees 4

Conclusion ......ceccccesescssesssscsecscesssscsscscssvscscnserencesscnsscosscsssscsscacensacores 9

TABLE OF AUTHORITIES

Cases:

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

967 (9th Cir. 1998), cert. denied, 526 U.S. 1112

(1999) .esescecssecsscsssesscsecssesssessncesecsscsnscssecsessssssnessncencenscnecencenesenses 8

Apache Bend Apartments, Ltd. v. United States,

987 F.2d 1174 (Sth Cir. 1998) .......sscscceseressereesecssreneneneseesees 4

Helvering v. Northwest Steel Rolling Mills, Inc.,

311 U.S. 46 (1940) .......cccccscssseereesecssssesssesscsessesensessnsssenensees 5

Payless Cashways, Inc. v. Commissioner, 114 T.C.

T21 (2000) ......scecssssssscssessssceresererensncesssecnsnsnsncscsesensnssncssnsesssseneees 7

Platt v. Union Pac. R.R., 99 U.S. 48 (1878) ......sssssesseeeees 6

Russello v. United States, 464 U.S. 16 (1983) ........0:++0+ 6

Ryan v. Stanger Inv. Co., 620 S.W.2d 505 (Tenn.

Ct. App. 1981) ......sesssecsseerseccnseenseensssnessnecsneesenscnnsenscenecensseneesees 5

Sands v. United States, 198 F. Supp. 880 (W.D.

Wash. 1960), aff'd sub nom. First Fed. Sav. &

Loan Ass’n v. United States, 295 F.2d 481

(Oth Cir. 1961) .....sescsessssssssesssessnecsneesssennecnsessssssnssnecsneceneenseesess 5

United States v. Kjellstrom, 916 F. Supp. 902

(W.D. Wisc. 196), aff'd on other grounds, 100

F.3d 482 (7th Cir. 1996) .....sccssssscsssesscsssssssseeesssnsseneseeenenenees 5,7

United States v. Wong Kim Bo, 472 F.2d 720 (5th

CIT. 1972) .cecvsccsceccsvscvssvcnssessvssesessesoecesssserencsnsansoesesocossossncenssesness 6

(IIT)

IV

Statute: Page

Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Stat.

2085:

S BOB NENA), 10D Beat. BUSS ....ccrcerecesveessrrsesssersovvverevvnses 9

§ 204(a)(7), 100 Stat. 2155 .........csssscssccessessessees 2,3, 4,5, 6,7

§ 204(a)(T)\(B), 100 Stat. 2155 ............sccccccssssssssssesseceees 3, 4,5

ee, ee Ns, MID UIE entsnidsnsnionncnaninnsiensnsioninhainiicmnlaiateetats 2

Miscellaneous:

2 R. Powell, Powell on Real Property (M. Wolf ed.

OUD iacinensenscistalieiptenninciieiiaanibauasianieininaiaaileininniintinen 6

2A N. Singer, Statutes and Statutory Construction

CP CIRNO I: SIRI sevncciesissenictersiiniesniiienininesiunaciniestiinanianiiliate 6

Jn the Supreme Court of the Gnited States

No. 02-323

NDCHEALTH CORPORATION AND SUBSIDIARIES,

PETITIONERS

VU.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-2a)

is reported at 291 F.3d 1381. The opinion of the United

States Court of Federal Claims (Pet. App. 3a-29a) is

reported at 50 Fed. Cl. 24.

JURISDICTION

The judgment of the court of appeals was entered on

May 30, 2002. The petition for a writ of certiorari was

filed on August 28, 2002. The jurisdiction of this Court

is invoked under 28 U.S.C. 1254(1).

STATEMENT

1. Prior to 1986, Congress had provided an income

tax credit for certain types of business investment

(1)

2

spending. Although Congress generally repealed the

investment tax credit in enacting the Tax Reform Act

of 1986, Pub. L. No. 99-514, § 211(a), 100 Stat. 2166, as

part of that repeal Congress provided “transitional

rules” that continued to permit the investment tax

credit to be claimed in narrowly drawn situations. One

of these transitional rules is the “world headquarters”

exception, which allows an investment tax credit for

certain property placed in service by a taxpayer after

1985 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 head-

quarters of the lessee and its affiliates.

§ 204(a)(7), 100 Stat. 2155. This provision further speci-

fies that “[s]uch 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.” Jbid.

2. On April 21, 1973, petitioner entered into a “Lease

Agreement” for a building located at One NDC Plaza in

Atlanta, Georgia. Pet. App. 4a-5a. The agreement pro-

vided that petitioner (then known as National Data

Corporation) “does hereby lease, demise, and rent from

Lessor, the entire four-story office building to be

constructed by Lessor” for a 20-year term. C.A. App.

25. On that same date, the parties entered into a “First

Amendment to Lease Agreement,” which established

April 27, 1973, as the commencement date of the 20-

3

year lease. C.A. App. 54, 56. Petitioner was the origi-

nal lessee of One NDC Plaza, and the building served as

petitioner’s “world headquarters” as that term is used

in Section 204(a)(7) of the Tax Reform Act of 1986. Pet.

App. 4a-5a, 9a.

During its 1987-1990 tax years, petitioner placed

approximately $35 million in leasehold improvements,

equipment, furniture and fixtures in service at One

NDC Plaza. Pet. App. 5a. Petitioner did not claim an

investment tax credit for these leasehold improvements

on its corporate income tax returns for these years.

Ibid.

On August 8, 1994, however, petitioner filed an

amended return that claimed investment tax credits for

its leasehold improvements to One NDC Plaza. Peti-

tioner sought a refund for the four tax years at issue of

approximately $1.7 million. Pet. App. 5a-6a. When the

Internal Revenue Service disallowed the refund claims,

petitioner brought this refund suit in the Court of

Federal Claims. /d. at 6a.

3. The Court of Federal Claims agreed with the

United States that petitioner failed to qualify for the

“world headquarters” exception to the repeal of the

investment tax credit. Pet. App. 4a. The court noted

that the term “agreement to lease,” as used by Con-

gress in Section 204(a)(7)(B) of the Tax Reform Act, is

not synonymous with the term “lease.” Pet. App.

9a-18a. The court held that, in enacting Section

204(a)(7)(B), Congress created a narrow exception to

the repeal of the investment tax credit that is available

only to the small number of taxpayers who, prior to

September 26, 1985, had entered into an “agreement to

lease” property to serve as the taxpayer’s world head-

quarters and who then executed a lease after that date.

Pet. App. 19a-25a.

4

The court noted that the contrary position advocated

by petitioner would make the exception provided in

Section 204(a)(7)(B) broadly available to any taxpayer

that had entered into a lease for its world headquarters

at any time prior to September 26, 1985. Pet. App. 23a.

The court held that petitioner did not qualify for the

“world headquarters” exception because petitioner had

actually leased its world headquarters, and had not

executed merely an “agreement to lease” the premises,

in 1973. Ibid.

4. The court of appeals affirmed. Pet. App. la-2a.

The court agreed with the trial court’s interpretation of

the phrase “‘agreement to lease’ in subparagraph (B) of

§ 204(a)(7)” and “adopt[ed] the Court of Federal Claims

application of such interpretation to the facts of this

case.” Pet. App. 2a.

ARGUMENT

The issue addressed in this case lacks any substantial

recurring importance because it arises under a “transi-

tional” tax provision that applies to activity that oc-

curred prior to 1986. The decision of the court of

appeals is, in any event, correct. Further review is

therefore not warranted.

1. Section 204(a)(7) is a “transitional rule” that was

enacted as part of, and to provide a limited exception to,

the general repeal of the investment tax credit. Courts

have routinely recognized that the transitional ruies

established in the Tax Reform Act of 1986 were nar-

rowly drawn and were intended to have limited appli-

cation. See, eg., Apache Bend Apartments, Ltd. v.

United States, 987 F.2d 1174, 1175 (5th Cir. 1993) (en

banc). This understanding of the intended scope of the

transitional rules flows not only from their text and

history but also from the general principle that

5

“provisions granting special tax exemptions are to be

strictly construed.” Helvering v. Northwest Steel

Rolling Mills, Inc., 311 U.S. 46, 49 (1940).

In particular, the narrow exception to the general

repeal of the investment tax credit provided by Section

| 204(a)(7) is available only when several carefully drawn

| conditions are met. To qualify for this exception, the

taxpayer must, prior to September 26, 1985, have made

an “agreement to lease” a building or buildings as the

original lessee, and the buildings must be intended “to

be used” or “to serve” as the “world headquarters” of

the lessee and its affiliates. Pet. App. 8a. These condi-

tions are highly restrictive. For example, in United

States v. Kjellstrom, 100 F.3d 482, 484-485 (7th Cir.

1996), the court held that the taxpayer was not entitled

to relief under this provision (i) because it lacked

“affiliates” and (ii) because the office could not be the

taxpayer’s world headquarters when the company had

no other offices.

The use of the term “agreement to lease” as opposed

to the term “lease” in Section 204(a)(7)(B) constitutes

an express restriction on the availability of this transi-

tional rule. Although the term “agreement to lease” is

not defined in the statute, that term is commonly

employed to refer to an executory contract, rather than

to an actual lease creating a leasehold interest. See,

e.g., Sands v. United States, 198 F. Supp. 880, 883 (W.D.

Wash. 1960) (drawing a distinction between “agreement

i to lease” and “lease”), aff’d sub nom. First Federal Sav.

& Loan Ass’n v. United States, 295 F.2d 481 (9th Cir.

1961). As the court stated in Ryan v. Stanger Inv. Co.,

620 S.W.2d 505, 508 (Tenn. Ct. App. 1981), “[a]n agree-

ment to lease is not a lease, just as a contract to sell is

not a sale.” The distinction between these two concepts

is well established: “The distinction is that a lease is a

6

transaction that is already partially executed, while a

contract to lease creates obligations that are purely

executory.” 2 R. Powell, Powell on Real Property §

16.02[4] (M. Wolf ed. 2000). This distinction is often

important, for example, in determining the appropriate

relief upon a breach by one of the parties. See ibid.

The text of this transitional rule reflects that Con-

gress understood the difference between the terms

“lease” and “agreement to lease” in drafting Section

204(a)(7)(B). When Congress meant to refer to a

“lease,” rather than to an “agreement to lease,” it

expressly used that different term. The last sentence of

Section 204(a)(7) provides a limited expansion of the

transitional rule for a “securities firm that meets the

requirements of subparagraph (A), except the lessee is

obligated to lease the building wnder a lease entered

into on June 18, 1986.” If Congress had intended the

term “lease” in this limited expansion of the “transi-

tional” rule to have the same meaning as the term

“agreement to lease” in subparagraph (B), it would

presumably have used the same term in both places.

When, as here, Congress employs different terminology

in two portions of the same statute, the difference in

these terms is to be given its ordinary consequence and

effect. Russello v. United States, 464 U.S. 16, 23 (1983)

(“it is generally presumed that Congress acts inten-

tionally and purposely in the disparate inclusion or

exclusion” of terms) (quoting United States v. Wong

Kim Bo, 472 F.2d 720, 722 (5th Cir. 1972)). See Platt v.

Union Pacific R.R., 99 U.S. 48, 58 (1878) (“a legislature

is presumed to have used no superfluous words”); 2A N.

Singer, Statutes and Statutory Construction § 46.06, at

194 (West 6th ed. 2000) (“when the legislature uses

certain language in one part of the statute and different

el

7

language in another, the court assumes different mean-

ings were intended”) (footnote omitted).

Other portions of this same statute support this

conclusion. In subparagraph (A) of the statute, Con-

gress referred to the “building in which such property

is to be used,” and in subparagraph (C) it restricted the

statute’s application to “such buildings are to serve as

world headquarters of the lessee and its affiliates.” As

the Court of Federal Claims noted, this language

“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.”

Pet. App. 19a n.12. See United States v. Kjellstrom,

916 F. Supp. 902, 907 (W.D. Wis. 1996) (the use of the

words “are to serve” in subparagraph (C) is “evidence

that the drafters envisioned the building would serve as

a world headquarters at some point in the future”),

aff’d on other grounds, 100 F.3d 482 (7th Cir. 1996);

Payless Cashways, Inc. v. Commissioner, 114 T.C. 72,

79 (2000) (“the words * * * ‘such buildings are to

serve as world headquarters’, are prospective”).

As the courts below concluded, the use of the term

“agreement to lease” coupled with the prospective lan-

guage “is to be used” and “are to serve” demonstrates

that Congress intended to provide a narrow exception

that is available only to those taxpayers who, prior to

September 26, 1985, entered into an agreement to lease

premises that were to serve as their world head-

quarters, but who had not entered into an actual lease

of the premises until after that date. Petitioner exe-

cuted a “Lease Agreement” with respect to its world

headquarters prior to September 26, 1985, but prior to

that date it also executed a lease for the building and

began occupying it. Pet. App. 4a-5a. The courts below

therefore correctly concluded that this narrow “transi-

8

tional” rule is not available to petitioner in this case. Id.

at la-2a.

Petitioner incorrectly contends that the decision in

this case conflicts with “a long line of Supreme Court

precedent establishing the proper use of legislative

history in statutory construction.” Pet. 13. The Court

of Federal Claims based its decision on the language of

the statute, and the court of appeals affirmed based on

the reasoning of that decision. Pet. 2a, 9a-18a. These

courts viewed the legislative history as confirming,

rather than overriding, their interpretation of the text

of the statute. Id. at 19a-29a.

2. As petitioner notes (Pet. 8), the Ninth Circuit

reached a different conclusion in Airborne Freight

Corp. v. United States, 153 F.3d 967 (1998). The court

held in that case that a taxpayer may obtain the benefit

of the transitional rule even if it actually leased and

occupied the building prior to September 1985. Id. at

970. As the court emphasized in Airborne Freight,

however, the issue addressed in these cases is not a

matter of recurring importance to the administration of

the tax laws (id. at 971):

Other companies that leased their world head-

quarters decades ago cannot have had their expecta-

tions defeated as they entered and originally

equipped their buildings long before the repeal of

the investment credit. Moreover, the opportunity

for other taxpayers to take advantage of the world

headquarters exception expired, at the latest, on

January 1, 1991. See § 203(b)(2)(A) [of the Tax

* The taxpayer filed a petition for a writ of certiorari on a

different issue on which the government had prevailed in the court

of appeals in Airborne Freight. The Court denied that petition.

526 U.S. 1112 (1999).

9

Reform Act of 1986, supra]. The exception remains

a narrow and temporally limited one.

As the court emphasized in Airborne Freight, this

transitional rule is not available to any taxpayer who

places leasehold improvements or other qualifying

property in service in a leased world headquarters

after January 1, 1991. Tax Reform Act of 1986,

§ 203(b)(2)(A), 100 Stat. 2144. Indeed, there is only one

other case pending in the courts that involves the same

issue presented in this case. Moreover, the Internal

Revenue Service is unaware of any other cases pending

administratively that involve this issue. And, because

this transitional rule can apply only for property placed

in service prior to 1991, it is manifestly unlikely that

any additional cases involving this narrow statutory

question will hereafter arise in the future.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

THEODORE B. OLSON

Solicitor General

EILEEN J. O'CONNOR

Assistant Attorney General

RICHARD FARBER

RANDOLPH L. HUTTER

Attorneys

NOVEMBER 2002