Whirlpool's BS Tax Shelter Fails in the 6th Circuit; on Statutory Interpretation and Legislative History (12/7/21; 2/22/22)

In Whirlpool Fin. Corp. v. Commissioner, 19 F.4th 944 (6th Cir. Dec. 6, 2021), CA6 here and GS here, affirming 154 T.C. 142 (2020), here, Whirlpool tried to smoke a tax shelter, of the bullshit variety, first past the IRS then past the Tax Court (Judge Lauber) and the Sixth Circuit (Judges Kethledge and Norris in the majority on the panel). Whirlpool failed, a well-deserved failure; Whirlpool earned the failure. Basically, through smoke and mirrors Whirlpool attempted to give the appearance that it had successfully shifted profits offshore, thus avoiding U.S. tax.

I won’t get into the technicalities of how Whirlpool hoped to avoid (or evade) U.S. tax. Judges Lauber (Tax Court) and Kethledge (6^th Circuit) handle that discussion well. Besides, that maneuver does not implicate tax procedures.

I write because of how Judge Kethledge addressed the issue of statutory interpretation. I have included statutory interpretation both in my Federal Tax Procedure Book and in my blog entries here. Judge Kethledge presents himself as an originalist, which for present purposes is a textualist requiring that the words of the Constitution or statutes when the words were adopted or ratified. See e.g., the Wikipedia entry for Judge Kethledge here.

The concern I address is what the words mean when adopted or ratified. One thing textualists claim to eschew when determining the original meaning of the words is legislative history. Judge Kethledge genuflects to that claim. For example in a review of his book, Lead Yourself First: Inspiring Leadership Through Solitude, by Raymond M. Kethledge and Michael S. Erwin, here, the following is stated (emphasis supplied):

In a recent speech, he recalled learning one trick of the Washington trade, namely that young staffers write legislative history — which is not part of any law but which some judges will apply if they like it better than the law — often with no oversight whatsoever from the senators themselves. It is therefore no wonder that he has never relied upon legislative history to interpret statutory language.

In Whirlpool, however, it appears that relying on legislative history is precisely what Judge Kethledge does to derive a specialist meaning for some of the statutory text.

My observation is that textualists (basically the same category as originalists) such as Judge Kethledge eschew legislative history except when they don’t. They ignore legislative history when doing so supports the outcome they desire and then deploy legislative history when it supports the outcome they desire. Certainly, in Whirlpool, Judge Kethledge relies on legislative history to determine the outcome. Enough  said.

 JAT Notes (Other):

1. As in the Coca-Cola debacle I discussed earlier (Tax Court (Judge Lauber) rejects Coca-Cola’s Untimely Motion for Reconsideration (12/3/21), here), the well-heeled taxpayer engaged a prominent lawyer brought in to salvage victory from defeat. In this case, the prominent lawyer is Gregory G. Garre of Latham & Watkins (Latham web here and Wikiepedia here). My experience with DOJ Tax Appellate was that such attempts to leverage victory from defeat by hiring such prominent lawyers is of quite limited benefit, albeit very lucrative for the prominent lawyers and the law firms involved.

The more important issue is why textualists claim to eschew legislative history. Legislative history may have some relevance to the issue of what Congress and even a reasonable reader of the text might have meant in the enacted text and there is relevant to how text should be interpreted. 

2. For what it may be worth, I offer this from a footnote in my Federal Tax Procedure Book - 2021 Practitioner Edition, p. 11, here (which I cut and paste below):

             Back in grade school, our teachers taught that an utterance can have at least three meanings:  the meaning that the person speaking intended, the meaning that the words by themselves would convey, and the meaning attributed by the person to whom the words were directed.  So, in statutory interpretation, does the textualist judge try to determine (i) what the legislature “intended” the words to mean, (ii) what the words mean in some objective sense without consideration of what the legislature intended or even what some intended audience might have thought the words to mean at the time, or (iii) what the actual intended audience understood the words to mean at the time of enactment or some hypothesized intended audience would have understood the words to mean at the time of enactment?  In statutory and constitutional interpretation, category (i) is often called original intent, n1 category (ii) I call “plain meaning,” some objective meaning unconcerned with the intent of the author or understanding of the audience, n2 and category (iii), much in vogue now, is often called “original public meaning” (also called “ordinary public meaning” at that the time of enactment)  some imagined person (or a public audience) at the time of enactment would have attached to the text.n3  Problems inhere in all of the approaches, which I cannot explore further here.
   n1 The category (i) referent–the legislator’s understanding–invites use of what is called legislative history which I discuss later for statutes.  For constitutional interpretation, the legislative history would include the debates of the constitutional convention (Madison’s notes or Farrand’s collection) and even the Federalist Papers.
   n2 Many authors do not include this plain meaning category because nominally it does not look to an originalist understanding of either the speaker or audience.  In a sense, though, it does rely upon the understanding of the audience, being the judge who declares the text to have a plain meaning.  This most often comes up for statutory interpretation rather than constitutional interpretation, when statutory text is from a time when the interpreter thinks the linguistic conventions were not that much different from those of the interpreter making the claim that the text is plain, so that, to paraphrase, that interpreter knows it when the interpreter sees or hears it.  I suppose this category might blend into category (iii) which posits some imagined contemporary audience’s understanding of the text, with the imagined audience being the actual audience (the judge in a case).  The “plain meaning” concept also arises in what is called Chevron deference to agency interpretations of statutory text, specifically the Step One inquiry.  I discuss Chevron later in this book.  See below beginning on p. 92.
            This category might also blend into the first under the “reasonable legislator” standard.  John F. Manning, Chevron and the Reasonable Legislator, 128 Harv. L. Rev. 457 (2014); and John F. Manning, Justice Scalia and the Idea of Judicial Restraint, 115 Mich. L. Rev. 747, 765 (2017); see also of the reasonable legislator standard in SAS Inst., Inc. v. Iancu, 584 U.S. ___, 138 S. Ct. 1348, 1358-1359, 1364 (2018) (Gorsuch for majority questioning the standard and Breyer in dissent using it).  Breyer developed the concept in Stephen Breyer, Active Liberty: Interpreting Our Democratic Constitution 88 (2005) (this mode of statutory interpretation asks how a “reasonable member of Congress would have wanted a court to interpret the statute in light of present circumstances in the particular case.” Cleaned up.)  I suppose, also, it might refer to a reasonable legislator at the time of enactment.  Other than to identify the standard, I think it not necessary to develop it further.
   n3 See Bostock v. Clayton County, 590 U.S. ___, ___, 140 S.Ct. 1731, 1739 (2020) (Justice Gorsuch for majority: “This Court normally interprets a statute in accord with the ordinary public meaning of its terms at the time of its enactment”); and Wisconsin Cent. Ltd. v. United States, 585 U.S. ___, 138 S. Ct. 2067, 2075 (2018) (Justice Gorsuch for the majority referring to “the statute’s original public meaning”).  See also Evan D. Bernick, Envisioning Administrative Procedure Act Originalism, 70 Admin. L. Rev. 807, 841-842 (2018) (for constitutional interpretation, the original public meaning is “dominant today,” although noting a “live debate between intentionalists and public meaning originalists”); and John F. Manning, What Divides Textualists from Purposivists?, 106 Colum. L. Rev. 70, 79-80 (2006) (“Textualists thus look for what they call ‘objectified’ intent—the intent that a reasonable person would gather from the text of the law, placed alongside the remainder of the corpus juris.” (Cleaned up)).
            Since the referent in this category is some fictional hypothesized reader or hearer of the words, the interpreter has to make some assumptions, such as that the person is “reasonable” with which I think everyone would agree (e.g., Randy E. Barnett, The Gravitational Force of Originalism, 82 Fordham L. Rev. 411, 417 (2013)), but then it gets muddier–is that hypothesized person
•          a hypothesized reasonable legislator (not the drafter) reading the words of the statute.  Stephen Breyer, Active Liberty: Interpreting Our Democratic Constitution 88 (2005).
•          a judge or lawyer skilled in interpreting legal words? (John O. McGinnis & Michael Rappaport, Originalism and the Good Constitution 118 (2013) as arguing that the referent persons are “well-trained lawyers.”) (NOTE:  If this referent is not a hypothesized, imagined person but the judge who is making the interpretation and the judge thinks the interpretation is plain, this would be a category (ii) interpretation, but critically, all original public meaning applications that I am aware hypothesize the referent.)
•          a well-educated person (say, for contemporary legislation, college degree) or more modestly educated person (say the contemporaneous average education level in the country)? (See e.g., Jack N. Rakove, Joe the Ploughman Reads the Constitution, or, the Poverty of Public Meaning Originalism, 48 San Diego L. Rev. 575 (2011).)
•          a lexicographer (or a dictionary contemporaneous with the legislation)? (For discussion of the problems with dictionaries, see Antonin Scalia & Bryan A. Garner, A Note on the Use of Dictionaries, 16 Green Bag 2d 419 (2013); and Amy Coney Barrett, 2019 Sumner Canary Memorial Lecture: Assorted Canards of Contemporary Legal Analysis: Redux, 70 Case W. Res. L. Rev. 855, 858-859 (2020) (citing inter alia John F. Manning, The Absurdity Doctrine, 116 Harv. L. Rev. 2387, 2393 (2003)).
•          a person armed with a computer capable of distilling mass data sets of word usage from the time.  (See e.g., Wilson v. Safelite Group, Inc., 930 F.3d 429, 438-440 (6th Cir. 2019) (Thapar,  concurring); and Thomas R. Lee & Stephen C. Mouritsen, Judging Ordinary Meaning, 127 Yale L.J. 788 (2018).)
These are just examples of the possibilities.  For a persuasive deconstruction of this type of search I commend especially the Rakove article above using the Joe the Ploughman metaphor; Rakove is a historian, and history is the essence of the search for original meaning in all its iterations.
            For an argument setting aside locating the precise referent for original public meaning, the legislators’ intent and original public meaning, properly applied, should focus on interpretative methodologies at the time both for the legislators and the hypothesized public would be the same and thus the two interpretive methodologies converge, see John O. McGinnis & Michael B. Rappaport, Unifying Original Intent and Original Public Meaning, 113 Nw. U.L. Rev. 1371 (2019).
            Also, for an argument that the search for original public meaning in constitutional interpretation is only for the “clear” original public meaning.  Ninth Circuit Panel Holds Open-Carry Law Infringes Core Right to Bear Arms in Public.132 Harv. L. Rev. 2066  (2020).  In other words, doubts about the original public meaning must be resolved against an original public meaning.  Extrapolating to the statutory interpretation context, if the original public meaning history is not clear that there was an established original public meaning, the statute is ambiguous, meaning that the court has interpretive authority in cases before it (which, as appropriate means that the court can use an agency interpretation under the Chevron deference framework).
            Finally, for an argument that the Constitution requires that legislators’ intent that can be reasonably discerned with standard interpretive tools trump any contrary public meaning, see Mark Seidenfeld, Textualism's Theoretical Bankruptcy and Its Implication for Statutory Interpretation, 100 B.U.L. Rev. 1817 (2020).

3. I say just use legislative history for whatever persuasive value it has.

4. One final comment about the Whirlpool opinions. Although the majority of the panel and the dissenter disagreed, they did so respectfully. Perhaps that’s because they are all likely conservative judges, all appointed by Republican President’s (Reagan, Bush and Trump). (See Wikiepedia on Current 6^th Circuit Judges, here.)

• The majority calls the dissenting opinion “a thoughtful opinion, in this difficult case.” (Slip Op. 13.)
• The dissent says:  “The majority thoughtfully engages with both and comes to a reasoned conclusion. But I see this case differently.”  (Slip Op. 17.)

 And not only were the majority and dissenter respectful of other views, they were respectful of the Tax Court (Judge Lauber), describing Judge Lauber’s opinion “a meticulously reasoned 62-page opinion.”  (Slip Op. 8).

All of which is to say that judges can and should disagree respectfully without intermperate language that sometimes is found in opinions.

Added 2/22/22 2:30pm:

Professor Andy Grewal has a thoughtful post on the majority and concurring decisions in Whirlpool in The Sixth Circuit Conjures Phantom Regulations (Notice and Comment 2/21/22), here. Professor Grewal asserts that the Sixth Circuit erred. Basically, he urges that expanded inclusion of the statute required regulations, but the Sixth Circuit expanded without regulations claiming that, for the particular application to Whirlpool, the statute was sufficiently mandatory to require the inclusion. Respectfully, I do not find Professor Grewal's argument convincing. I thought that the "phantom regulation" issue always turned upon the mandate in the statute. If the result  Congress desired could be interpreted in the statute for a particular context, then a specific regulation may not be required. This most often comes up when Congress gives Treasury authority to confer by regulations a statutory benefit; courts just did not think it right that  Treasury could refuse to grant the benefit by not adopting any regulations in a context where a fair reading of the statutory text would have included the benefit.

I suppose one mode of analysis is to consider what courts should do in these cases where Treasury adopted regulations but did not include a taxpayer benefit that the statutory text, fairly interpreted, seemed to command. Merely because Congress conferred authority to expand further, does not mean that Congress did not intend Treasury to  include expansion the statutory text clearly intended. Maybe a Chevron-type analysis might apply. In the hypothesized regulations excluding a benefit Congress clearly intended, would a court sustain a regulation as unreasonable that did not include the benefit.

I discuss phantom regulations in my Federal Tax Procedure  Book, pp. 74-75. See John A. Townsend, Federal Tax Procedure (2021 Practitioner Ed.) (August 1, 2021). Available at SSRN: https://ssrn.com/abstract=3897433,  I  do not get into the Chevron issue in that discussion, however.