[00:00:03] Speaker 04:
Defining versus the United States, 2022, 1834.

[00:00:07] Speaker 04:
Boratsky, when you are ready.

[00:00:13] Speaker 01:
Good morning, Your Honors.

[00:00:15] Speaker 01:
May it please the court?

[00:00:16] Speaker 01:
Chad Boratsky with Skadden Arps on behalf of Philadelphia Energy.

[00:00:20] Speaker 01:
Congress defined alternative fuel mixture to mean a mixture of alternative fuel and taxable fuel.

[00:00:27] Speaker 01:
The question is whether, during the refund period, the term alternative fuel included butane.

[00:00:34] Speaker 01:
As Judge Elrod explained, the straightforward and correct answer is yes.

[00:00:38] Speaker 01:
Congress expressly defined alternative fuel to include liquefied petroleum gas, LPG.

[00:00:45] Speaker 01:
And the ordinary meaning of LPG includes butane.

[00:00:49] Speaker 01:
Therefore, PES qualified for a tax credit during the refund period because it mixed butane, an alternative fuel, with gasoline, a taxable fuel.

[00:00:59] Speaker 04:
Counselor, we already have two circuits against you.

[00:01:02] Speaker 04:
If we find out who you're up with, the Supreme Court.

[00:01:10] Speaker 01:
It would be a split in the circuits.

[00:01:12] Speaker 01:
Whether it goes to the Supreme Court would obviously be up to the government whether to seek cert.

[00:01:17] Speaker 01:
We would certainly argue that this is not a cert worthy issue if the government were to seek cert.

[00:01:24] Speaker 01:
This court shouldn't hesitate to give section 6426 its ordinary meaning.

[00:01:28] Speaker 01:
Congress has already amended this statute.

[00:01:31] Speaker 01:
So the decision is not going to significantly affect taxpayers or the government going forward.

[00:01:35] Speaker 03:
Is it true that most all gasoline, if not all gasoline, in this country has some butane?

[00:01:44] Speaker 01:
It is certainly not true that all gasoline in the country has butane.

[00:01:49] Speaker 03:
The vast majority of it?

[00:01:52] Speaker 01:
I couldn't quantify for you, but it is incorrect to say that all gasoline has it.

[00:01:58] Speaker 01:
At Joint Appendix 254-55, PES itself

[00:02:09] Speaker 01:
blended gasoline that did not include butane.

[00:02:12] Speaker 02:
In addition, when Congress passed this statute, it may well... In this case, all the gasoline had butane in it, correct?

[00:02:18] Speaker 02:
All of the gasoline that you're talking about.

[00:02:21] Speaker 01:
The gasoline for which PES is seeking a credit had butane, but PES, during the refund period, blended gasoline that did not include butane.

[00:02:30] Speaker 01:
That's the record site that I just provided.

[00:02:32] Speaker 01:
In addition, when Congress passed this statute, it may well have wanted to incentivize the additional use of butane.

[00:02:39] Speaker 01:
And not all fuelers were using it.

[00:02:41] Speaker 01:
In the Seventh Circuit case, US Venture first began using butane in 2012.

[00:02:47] Speaker 01:
So it's simply not the case that butane has always been a component of every gallon of gasoline sold in the country.

[00:02:56] Speaker 03:
But butane is a taxable fuel under the tax statute, right?

[00:03:03] Speaker 03:
It's 4081, and then you work your way through the regulations, which the IRS is authorized to promulgate, and makes clear that butane is a taxable fuel.

[00:03:15] Speaker 03:
Is that right?

[00:03:16] Speaker 01:
Yes, butane is a taxable fuel.

[00:03:17] Speaker 03:
So I guess what I'm wondering is, doesn't any fuel or any product have to be either a taxable fuel or an alternative fuel?

[00:03:29] Speaker 03:
I mean, is it true that a fuel

[00:03:32] Speaker 03:
can be classified as both a taxable fuel and an alternative fuel.

[00:03:39] Speaker 01:
Yes.

[00:03:40] Speaker 01:
And to give you an analogy.

[00:03:42] Speaker 03:
Because it feels like to me, when I look at the structure of the excise taxes and the tax credit scheme, there seems to be a clear demarcation that those are two different things, alternative fuels and taxable fuels, and that

[00:04:02] Speaker 03:
any given product can't be both an alternative fuel and a taxable fuel.

[00:04:08] Speaker 03:
It has to be one or the other.

[00:04:10] Speaker 01:
Judge Chen, that is true for purposes of the excise tax.

[00:04:14] Speaker 01:
That is not true for purposes of the tax credit.

[00:04:18] Speaker 01:
When Congress wanted to carry over a definition from the excise tax to the tax credit, it did that explicitly with cross-referencing.

[00:04:27] Speaker 01:
It did that in 6426 for the definition of tax of fuel by cross-referencing 4083A1.

[00:04:35] Speaker 01:
It also cross-referenced the definitions of other types of alternative fuel in 6426D2.

[00:04:41] Speaker 01:
It did not use a cross-reference to 4041 in order to define liquefied petroleum gas and so the ordinary meaning of LPG control.

[00:04:51] Speaker 03:
Well, let's just say we are not sure completely, just based on the face of the statute provisions alone, what liquefied petroleum gas encompasses.

[00:05:01] Speaker 03:
We do know for this alternative fuel mixture credit that the taxable fuel in that mixture

[00:05:11] Speaker 03:
encompasses butane.

[00:05:15] Speaker 03:
That much we know.

[00:05:17] Speaker 03:
Now you're asking us to also think of the other half of the mixture, the alternative fuel, to likewise be butane.

[00:05:26] Speaker 03:
And any mixture has to be a combination of two different things.

[00:05:32] Speaker 03:
But we already know from the statutory scheme that the taxable fuel element of this mixture necessarily encompasses butane.

[00:05:41] Speaker 03:
And that seems to exclude the ability of this alternative fuel to likewise be butane, given that a mixture has to be a combination of two different things.

[00:05:52] Speaker 03:
It can't be a combination of the same stuff, you know, mixing with itself and then saying, well, some of it is

[00:06:02] Speaker 03:
Taxable fuel and the other part qualifies as alternative fuel.

[00:06:06] Speaker 03:
So that's the real tension Well, there's other tensions, but that's one real tension I have with your position and and this is I think the same problem that both the fifth circuit and the other circuit seventh circuit had

[00:06:21] Speaker 01:
So if I can make two points, Judge Chen.

[00:06:24] Speaker 01:
First, I don't think that you can combine butane with butane.

[00:06:29] Speaker 01:
That's all you do and get the tax credit for that.

[00:06:32] Speaker 01:
The reason for that, however, is not because butane can't be an alternative fuel.

[00:06:38] Speaker 01:
The reason for that is because a mixture requires you to mix two different things.

[00:06:43] Speaker 01:
If I combine water with water.

[00:06:45] Speaker 03:
Yes, but we already know it's a given that the taxable fuel part of this mixture necessarily encompasses butane.

[00:06:55] Speaker 03:
And I agree with you, this mixture for this tax credit has to be a combination of two different things.

[00:07:02] Speaker 03:
So doesn't that necessarily exclude from the definition of alternative fuel, whatever that encompasses, butane?

[00:07:09] Speaker 03:
Because we know under the statute the taxable fuel element of that mixture is butane.

[00:07:16] Speaker 01:
No, because if all that the fueler is combining is butane with butane, that wouldn't be enough.

[00:07:23] Speaker 01:
But if you're combining butane with gasoline, then at that point you are mixing, you are combining two different things, and that is what qualifies.

[00:07:32] Speaker 04:
The work that's being done there... Council, butane isn't a taxable fuel under 4041.

[00:07:39] Speaker 04:
Isn't that necessary for you two to get a credit?

[00:07:45] Speaker 01:
Butane, I'm sorry, I'm not sure that helps.

[00:07:53] Speaker 04:
Butane isn't a text that includes under 4041.

[00:07:57] Speaker 04:
Because it is a text.

[00:07:59] Speaker 04:
This is that part of 26, 6426A2.

[00:08:05] Speaker 01:
So under 6426A2.

[00:08:06] Speaker 01:
The text must be imposed

[00:08:16] Speaker 04:
from the 401?

[00:08:20] Speaker 01:
Well, the credit that we are seeking is actually under E because it is for an alternative fuel mixture.

[00:08:28] Speaker 01:
And that credit goes against 401, which is the excite tax for a taxable fuel, which gasoline and butane are.

[00:08:41] Speaker 01:
The other point that I wanted to make, going back to one of Judge Chen's earlier question about whether it is conceptually possible for something to be both

[00:08:51] Speaker 01:
a taxable fuel and something eligible for the credit as part of a mixture.

[00:08:58] Speaker 01:
Congress provided exactly that.

[00:09:01] Speaker 01:
And the example I would provide is renewable diesel.

[00:09:04] Speaker 01:
Renewable diesel is a taxable diesel fuel under 4083 A3A little i. It is also a biodiesel.

[00:09:15] Speaker 01:
that qualifies for the biodiesel mixture tax credit under 6426C5.

[00:09:22] Speaker 01:
That tax credit applies to a mixture of biodiesel and diesel fuel.

[00:09:28] Speaker 01:
And so renewable diesel can be both.

[00:09:30] Speaker 01:
It's a taxable diesel fuel, but when it is combined as part of that mixture, it is also entitled to the credit.

[00:09:38] Speaker 03:
I guess the question there is, did Congress make that express exception hardwired into the statute in a way that's

[00:09:45] Speaker 03:
not nearly as clear here when it comes to butane for this alternative fuel mixture.

[00:09:52] Speaker 01:
So Congress made that exception express for renewable diesel.

[00:09:57] Speaker 01:
That's just as true for butane.

[00:10:00] Speaker 01:
Congress made that exception for liquefied petroleum gas, which ordinarily includes butane.

[00:10:08] Speaker 01:
As a matter of statutory construction,

[00:10:10] Speaker 01:
We ought to look first at the ordinary meaning of the term liquefied petroleum gas, which Congress has not defined in this statute, even though it could have used a cross-reference.

[00:10:21] Speaker 01:
In order to overcome that ordinary meaning, the government needs to have some clear indication

[00:10:27] Speaker 01:
that Congress meant for liquefied petroleum gas to mean something other than what it has already always meant.

[00:10:33] Speaker 01:
If Congress wants to write a statute in which up means down, it can do that.

[00:10:38] Speaker 01:
But we don't ordinarily assume that up means down unless Congress makes that clear.

[00:10:43] Speaker 01:
And here we have this undefined term

[00:10:45] Speaker 03:
Isn't there something in the record that suggests liquefied petroleum gas is really mainly propane, or propane with butane, and it's not necessarily just pure concentrated butane?

[00:10:58] Speaker 01:
So the government makes that argument.

[00:10:59] Speaker 01:
First, it's worth noting that that's a switch in the government's position.

[00:11:02] Speaker 01:
In the Fifth Circuit, the government expressly conceded, the government witness there testified, that butane is always an LPG.

[00:11:09] Speaker 01:
Here, the government is making this argument that in this context, LPG ought to be understood differently.

[00:11:17] Speaker 01:
However, what the government is relying on there is an agency statement that current U.S.

[00:11:23] Speaker 01:
standards restrict LPG in the automotive context to be mostly propane.

[00:11:29] Speaker 01:
First of all, mostly propane is not only propane.

[00:11:33] Speaker 01:
And second of all, the fact that current US standards restrict that shows that, absent the restriction, the ordinary understanding of LPG, which is governed throughout the industry, which dictionary definitions support, that ordinary understanding would tell you that butane is an LPG.

[00:11:51] Speaker 01:
In any event,

[00:11:52] Speaker 01:
If the court thinks that there's a dispute about that issue, that's something that the Court of Federal Claims could consider on remand.

[00:11:59] Speaker 01:
The Court of Federal Claims, in this case, made no determination about whether the ordinary meaning of LPG includes butane.

[00:12:06] Speaker 01:
It thought that was irrelevant because it thought that Congress had implicitly imported this dichotomy between alternative and taxable fuels.

[00:12:14] Speaker 01:
into the excise tax credit.

[00:12:17] Speaker 01:
And it simply didn't do that.

[00:12:19] Speaker 01:
If it had wanted to do that, it could have done so expressly by cross-reference.

[00:12:22] Speaker 01:
Instead, Congress left liquefied petroleum gas undefined.

[00:12:26] Speaker 01:
The ordinary meaning of that term has to control.

[00:12:30] Speaker 01:
Unless the court has further questions, I'll save the remainder of my time for rebuttal.

[00:12:33] Speaker 04:
We'll give you three minutes for rebuttal.

[00:12:35] Speaker 04:
Thank you.

[00:12:36] Speaker 04:
Ms.

[00:12:36] Speaker 04:
Hagley.

[00:12:47] Speaker 00:
Good morning and may it please the Court, Judith Hagley from the Department of Justice representing the United States.

[00:12:53] Speaker 00:
Congress has not provided an alternative fuel mixture credit for making ordinary gasoline.

[00:12:58] Speaker 00:
To qualify for the credit, the taxpayer must mix two different types of fuel, an alternative fuel and a taxable fuel.

[00:13:07] Speaker 00:
And butane has been classified by statute and regulation as an exclusively taxable fuel since 1992, long before the credit was enacted in 2005.

[00:13:17] Speaker 00:
And butane is listed as a taxable fuel gasoline blend stock because it's been a standard step in ordinary gas production since at least the 1960s.

[00:13:27] Speaker 00:
It's a component of gasoline, not an alternative gasoline.

[00:13:31] Speaker 00:
At certain times of the year, there's less butane in gasoline.

[00:13:35] Speaker 00:
But butane is generally always in gasoline, at least in small amounts from the refining process.

[00:13:41] Speaker 00:
And then more is added because it's the cheapest component in gasoline up to the EPA's limit because it's a pollutant.

[00:13:51] Speaker 00:
So however butane may be classified in chemistry textbooks for purposes of this excise tax and credit scheme,

[00:13:59] Speaker 00:
it is classified as taxable fuel gasoline.

[00:14:03] Speaker 03:
So did Congress make a mistake when it defined for the tax credit provision LPG as an alternative fuel encompassing LPG when LPG is sometimes understood as being just butane?

[00:14:24] Speaker 00:
No, well, in this context, there's no mistake.

[00:14:26] Speaker 00:
LPG is referenced in both 40-41 and in 64-2016.

[00:14:31] Speaker 00:
And in both contexts, LPG is limited to substances that are not taxable fuels.

[00:14:37] Speaker 00:
So limited to substances that are not retained or pending.

[00:14:41] Speaker 00:
Now, in this case, we had an alternative argument that the court didn't address that Congress understood in this context based on a report from agencies.

[00:14:49] Speaker 03:
But I guess the concern or the argument from the other side is,

[00:14:54] Speaker 03:
When it came to defining alternative fuels for this tax credit provision, Congress didn't carry over the definition of alternative fuel as being any product that is not a taxable fuel, as defined in 4081.

[00:15:11] Speaker 03:
It didn't include that.

[00:15:14] Speaker 03:
It didn't carry that over for some reason.

[00:15:16] Speaker 00:
It didn't refer to it in 6426D, but it does refer to it in 6426A.

[00:15:23] Speaker 00:
which links up the credit, links up the 6420-60 credit for alternative fields to Section 3041.

[00:15:32] Speaker 00:
And is the Fifth Circuit and the Seventh Circuit correctly recognized?

[00:15:35] Speaker 00:
these two statutory provisions need to work in harmony.

[00:15:39] Speaker 00:
A substance that is not an alternative fuel under 4041 is also not an alternative fuel under 6426.

[00:15:49] Speaker 00:
Well, Congress could have created an exception for that, as it did with renewable diesel in 6426C, which is Council for Philadelphia Energy recognized, hasn't expressed provision to that effect.

[00:16:02] Speaker 00:
But it did not do so here.

[00:16:04] Speaker 00:
And it did not do so because butane is a taxable fuel.

[00:16:09] Speaker 00:
It's just defined to be gasoline.

[00:16:11] Speaker 00:
It's not an alternative to gasoline.

[00:16:13] Speaker 02:
What about the argument made by the other side when it referenced biodiesel fuels and was arguing that it can have a dual role?

[00:16:24] Speaker 02:
In this case, why isn't that butane can be taxable, both taxable and alternative?

[00:16:33] Speaker 00:
Because there's no expressed provision in the credit that allows it, as there is with the renewable diesel provision in 6426C.

[00:16:43] Speaker 00:
6426C allows a credit for a mixture of biodiesel and diesel.

[00:16:50] Speaker 00:
And renewable diesel, for tax purposes, is defined in the regulations to be diesel.

[00:16:57] Speaker 00:
Congress wanted to allow the credit to apply to the use of renewable diesel.

[00:17:03] Speaker 00:
Expressly provide to that in the credit itself sixty four twenty six Because there's no saying that butane or any other gasoline blend stock for purposes of the credit

[00:17:21] Speaker 00:
is going to be treated as something other than how it is defined for purposes of the tax.

[00:17:27] Speaker 00:
It's defined to be gasoline.

[00:17:29] Speaker 00:
And that definition, set out in 4083, is expressly incorporated into the credit itself in 6426E.

[00:17:40] Speaker 00:
In short, the Court of Federal Claims correctly determined that Philadelphia Energy is not entitled to $500 million for making ordinary gasoline.

[00:17:50] Speaker 00:
That determination is consistent with every other court that has considered the issue, including the Fifth and the Seventh Circuit.

[00:17:56] Speaker 00:
And we request this court respectfully to affirm the court's decision.

[00:18:01] Speaker 00:
Unless the court has any further questions, the government rests on its brief.

[00:18:08] Speaker 03:
roving position on whether LPG is just really mainly propane versus butane?

[00:18:20] Speaker 00:
In these cases they've all been decided on summary judgment.

[00:18:23] Speaker 00:
And it was mentioned in the district court briefing in both the Fifth Circuit and the Seventh Circuit decisions that wasn't as fully developed as it was in this case.

[00:18:31] Speaker 00:
This was the last case to be briefed, and the government more robustly developed that argument.

[00:18:36] Speaker 00:
The Court of Federal Claims noted it and determined it didn't need to be decided.

[00:18:40] Speaker 00:
Because, however, whatever the ordinary meaning of liquefied petroleum gas is,

[00:18:45] Speaker 00:
And it's our position that it's limited to a specific propane mixture.

[00:18:48] Speaker 00:
Whatever it is, it does not include taxable fuels.

[00:18:51] Speaker 02:
Are there any other pending cases right now that's addressing this issue?

[00:18:55] Speaker 00:
There are no other court decisions or court cases addressing this issue.

[00:18:59] Speaker 00:
Before the IRS, there are several dozen refund claims still pending.

[00:19:04] Speaker 00:
I think it's about $15 billion at issue.

[00:19:07] Speaker 00:
So the government is still very much concerned about the impact this case could have.

[00:19:12] Speaker 03:
Those are pending where?

[00:19:14] Speaker 00:
For the IRS.

[00:19:15] Speaker 00:
And of course, they could all be brought to the Court of Federal Claims.

[00:19:36] Speaker 01:
Thank you.

[00:19:36] Speaker 01:
Just a few quick points.

[00:19:38] Speaker 01:
First of all, counsel for the government argues that there is no express provision here analogous to the same one that there is for renewable diesel.

[00:19:47] Speaker 01:
As I explained earlier, however, the express provision is the one that makes liquefied petroleum gas an alternative fuel.

[00:19:55] Speaker 01:
Congress didn't define the term liquefied petroleum gas.

[00:19:58] Speaker 01:
Courts presume that an undefined term bears its ordinary meaning, and Congress legislates against that backdrop.

[00:20:05] Speaker 01:
Second, with respect to what that backdrop is in this case.

[00:20:10] Speaker 01:
In 1959 and 1960, Treasury promulgated regulations.

[00:20:17] Speaker 01:
In 1959, it was a regulation about the gasoline excise tax.

[00:20:21] Speaker 01:
And Treasury said gasoline does not include liquefied gases such as, and butane was one of the examples.

[00:20:28] Speaker 01:
In 1960, Treasury defined special motor fuel, that is, alternative fuel, to include, quote, liquefied petroleum gases such as

[00:20:37] Speaker 01:
And Butane was one of the examples.

[00:20:40] Speaker 01:
So Congress is legislating against a backdrop where Treasury itself understood, had long understood, that Butane was an LPG.

[00:20:48] Speaker 01:
In addition to the industry understanding that the Fifth and the Seventh Circuits recognized of LPG, and as to the government's position, the government's own witness in the Fifth Circuit case in VTOL, this is quoting from page 258 of that opinion from Judge Elrod's dissent,

[00:21:05] Speaker 01:
The government's own witness testified that, quote, butane is always an LPG.

[00:21:11] Speaker 01:
So Congress was legislating against this backdrop when it wrote the term LPG into the statute.

[00:21:18] Speaker 01:
It has to be given its ordinary meaning.

[00:21:20] Speaker 01:
Lastly, with respect to creating a circuit split, yes, if this court were to rule in our favor, it would be disagreeing with the Fifth and Seventh Circuits and creating a split.

[00:21:29] Speaker 01:
Those courts, respectfully, did not grapple with the statutory context that we're putting before the court here.

[00:21:35] Speaker 03:
Last quick question.

[00:21:38] Speaker 03:
For excise tax purposes, gasoline, which is typically a mixture of gasoline and butane, that's a purely taxable fuel.

[00:21:48] Speaker 03:
Butane, taxable, gasoline, taxable.

[00:21:52] Speaker 03:
Why do you think Congress would want to give a tax credit to something that's a purely taxable fuel and now designate that as an alternative, well, a mixture of alternative and taxable fuel?

[00:22:13] Speaker 03:
To me, it doesn't make sense.

[00:22:15] Speaker 03:
Why would Congress do that?

[00:22:17] Speaker 01:
Congress might well have wanted to promote the greater use of butane and to encourage mixing butane with gasoline, which, as I said in my opening argument, not all fuelers did at the time and not all fuelers do today.

[00:22:32] Speaker 01:
It might have wanted to do that because Congress wanted to encourage the use of fuels that are readily available domestically, that are inexpensive, and that produce fewer greenhouse gas emissions than pure gasoline.

[00:22:45] Speaker 01:
and mutane checks all of those boxes.

[00:22:50] Speaker 04:
Thank you, Council.

[00:22:52] Speaker 04:
Dr. Case is submitted.

[00:22:53] Speaker 04:
But before we leave, I want to make a comment and particularly address something, Mr. Council.

[00:23:01] Speaker 04:
In the red brief, Philadelphia

[00:23:21] Speaker 04:
blatant attempt to evade the court's rules.

[00:23:27] Speaker 04:
One might also consider it just an innocent error.

[00:23:32] Speaker 04:
We won't attempt to adjudicate that issue here, but I would like to suggest to government counsel that the board count limit