author: MORITZ, Circuit Judge.

text:
    SUNDANCE ENERGY OKLAHOMA, LLC, d/b/a SEO, LLC; Sundance Energy, Inc., Plaintiff Counter Defendants-Appellees, v. DAN D. DRILLING CORPORATION, Defendant Counterclaimant-Appellant.
    Nos. 15-6103 & 15-6135
    United States Court of Appeals, Tenth Circuit.
    Filed September 2, 2016

      George W. Dahnke (Sarah J. Timber-lake and April B. Eberle, with him on the briefs), Abowitz, Timberlake & Dahnke, P.C., Oklahoma City, Oklahoma, for Appellants.
    Mark Blongewicz (Robert P. Fitz-Pat-rick and Sharon T. Thomas, with him on the brief), Hall, Estill, Hardwick Gable, Golden & Nelson, P.C., Tulsa, Oklahoma, and Oklahoma City, Oklahoma, for Appel-lees.
    Before GORSUCH, PHILLIPS, and MORITZ, Circuit Judges.
   MORITZ, Circuit Judge.

Sundance Energy Oklahoma, LLC, brought suit against Dan D. Drilling Corporation for damages resulting from the total loss of an oil and gas well. A jury found against Dan D., and the district court denied its motion for a new trial. Dan D. appeals, arguing the district court erred in (1) giving one jury instruction and omitting another; (2) admitting certain evidence; and (3) awarding Sundance attorney’s fees. Finding no reversible error, we affirm.

BackgrouND

Sundance contracted with Dan D. to drill seven oil and gas wells in June 2012. For each of those wells, Sundance and Dan D. executed a single-well contract (collectively, the June 2012 contracts). The June 2012 contracts used an industry-standard International Association of Drilling Contractors (IADC) form, with only minor changes to the form’s language. Notably, in each of the June 2012 contracts, the parties left section 14 of the IADC form, titled “RESPONSIBILITY FOR LOSS OR DAMAGE, INDEMNITY, RELEASE OF LIABILITY AND ALLOCATION OF RISK,” substantially unaltered. App. vol. 16F, 3813. In relevant part, that section provides, “In the event the hole should be lost or damaged, [Sundance] shall be solely responsible for such damage to or loss of the hole.” Id. at 3814. That section further explains:

[I]t is the intent of [the] parties hereto that all releases, indemnity obligations and/or liabilities assumed by such parties under [the] terms of the Contract ... be without limit and without regard to the cause or causes thereof, including but not limited to ... the negligence of any degree or character (regardless of whether such negligence is sole, joint or concurrent, active, passive or gross) of any party or parties .... ”

Id.

Dan D. ultimately drilled only two of the seven wells due to Sundance’s inability to secure proper leases and drilling permits for the other five. In lieu of the undrilled wells, Sundance asked Dan D. to drill a different group of wells — including one known as the Rother well — and hired Tres Management to provide engineering services and an onsite supervisor known as a company man for this work. In early December 2012, Dan D. signed a multi-well contract (the December 2012 contract) for these new wells. And although Sundance received the signed December 2012 contract — which included terms similar to those contained in the June 2012 contracts — Sundance asserts that its in-house counsel never reviewed or signed the contract before Dan D. began work on the Rother well.

Despite the absence of an executed contract, Dan D. began drilling the Rother well on December 2, 2012, under the supervision of Tres’ company man. On December 9, 2012, Dan D.’s drill pipe became stuck in the hole. After several failed attempts to remove the drill pipe, the company man instructed Dan D.’s employees to stop pulling on the stuck pipe. A driller on the rig ignored these instructions and continued to try to remove the equipment. During these attempts, the drilling line — a thick, coiled steel rope routed through derrick and used to raise or lower the drill string using a pulley system — parted, and portions of the drill rig known as the traveling blocks fell on the driller, killing him. A medical examiner later determined that the driller had significant quantities of methamphetamine in his blood at the time of the accident.

The Occupational Safety and Health Administration (OSHA) suspended operations for 12 days while it investigated the accident. In its June 19, 2014 technical report, OSHA explained that the accident resulted from fatigue failure of the drilling line — a progressive failure occurring over time. Thé report concluded that “[a] proper ‘cut and slip’ program, visual inspection and attention to the ton-mile history of the rope would have limited the wear accumulated by this drill line.” App. vol. 15B, 3469. OSHA thus issued Dan D. a citation for failing to inspect and properly maintain the drilling line. Dan D. and OSHA settled the citation, and OSHA reduced the fíne in return for Dan D. taking corrective actions at the^ drill site.

Following OSHA’s investigation, Sun-dance replaced Tres’ company man. Under the new company man’s supervision, Dan D. -attempted to fish out the drill pipe stuck in the Rother well. But the wellbore had deteriorated during the 12-day shutdown, making it impossible to. remove the drill pipe. Sundance ultimately decided to plug and abandon the Rother well, resulting in a total loss of the hole.

Sundance sued Dan D. for damages, asserting that Dan D.’s negligence, gross negligence, and breach of implied contract to drill the well in a workmanlike manner resulted in the loss of the hole. Before trial, Dan D. filed several motions in li-mine, including one objecting to the admission of two OSHA narratives as hearsay, and one objecting to the admission of toxicology evidence showing that the deceased driller had methamphetamine in his blood at the time of his death. The district court denied the motion to suppress the toxicology evidence, and denied in part the motion to suppress the OSHA narratives, agreeing to admit only certain portions of those documents.

At the subsequent jury trial, Sundance offered testimony indicating that a driller typically keeps a log of the drilling line’s “ton miles,” i.e., the work done by the line, as measured by the load lifted in tons and the distance lifted or lowered in miles. In fact, Sundance’s expert testified, Dan D.’s failure to track and log the ton miles of the drilling line used at the Rother well was “unheard of’ in the industry. App. vol. 11, 2072. The expert further opined that Dan D. should have slipped and cut the drilling line before or during the drill to prevent the accident. Sundance relied on this testimony at closing to argue that Dan D.’s gross negligence caused the line’s failure or, alternatively, that Dan D. breached an implied contract to drill the Rother well in a workmanlike manner. And, Sundance maintained, the ensuing 12-day shutdown caused the wellbore deterioration and ultimately resulted in the total loss of the hole.

For its part, Dan D. argued in closing that the jury should attribute most of the fault not to Dan D., but to Tres and its company man. In any event, Dan D. asserted, the exculpatory provisions provided in the IADC standard contract — which state that Sundance is liable for any damage to or loss of the hole, including any loss resulting from Dan D.’s gross negligence — formed part of an implied contract between Dan D. and Sundance. And under these provisions, Dan D. maintained, it wasn’t liable for the loss of the well.

Dan D. also argued to the district court that Sundance owed a non-delegable duty to Dan D., and, accordingly, that any negligence of its independent contractor — i.e., Tres — was imputable to Sundance. But when Dan D. asked the district court to instruct the jury that it should therefore impute any of Tres’ negligence to Sun-dance, the district court denied its request, noting that it “just didn’t see sufficient evidence that this was a non-delegable duty.” App. vol. 11, 2143. And over Dan D.’s objection, the district court instructed the jury that if it found Dan D. was grossly negligent, the jury shouldn’t consider whether an implied contract between the parties incorporated the exculpatory provisions of the IADC standard contract. The district court based this instruction on its understanding that, under Oklahoma law, a provision that ostensibly exculpates a grossly negligent party' from liability is invalid and unenforceable.

The jury returned a verdict in favor of Sundance, finding that Dan D. was grossly negligent and breached an implied contract to drill the hole in a workmanlike manner. And because the jury found Dan D. grossly negligent, the jury didn’t consider whether the implied contract incorporated the exculpatory provisions of the IADC standard contract. Ultimately, the jury attributed 75% of the loss to Dan D.’s negligence and 25% of the loss to Tres’ negligence and awarded Sundance $1.2 million in damages.

Dan D. filed a motion for a new trial under Federal Rule of Civil Procedure 59(a), arguing the court erred by (1) precluding the jury from considering whether the exculpatory provisions in the IADC form were part of the implied contract; (2) ruling that Sundance didn’t have a non-delegable duty to Dan D. and that Tres’ negligence therefore wasn’t imputable to Sundance; and (3) admitting the toxicology evidence and the OSHA narratives. The district court denied the motion and Dan D. appealed that order.

Sundance then filed a motion for attorney’s fees under Okla. Stat., tit. 12, § 940(A), which allows a prevailing party to collect reasonable attorney’s fees in “any civil action to recover damages for the negligent or willful injury to property.” The district court concluded that § 940(A) applied because Sundance brought this civil action to recover damages for Dan D.’s negligent injury to the Rother well. Thus, the court awarded Sundance attorney’s fees. Dan D. also appealed that order, and we consolidated the two appeals.

DisCussion

I, The district court didn’t err in instructing the jury.

Dan D. first argues that the district court erred in (1) instructing the jury that it need not decide whether the allocation of risk provisions formed part of the implied contract if it found Dan D. was grossly negligent, and (2) refusing to instruct the jury that it should impute Tres’ negligence to Sundance. We “review for abuse of discretion a district court’s decision not to give a tendered jury instruction” and “review de novo whether the instructions as a whole accurately informed the jury of the governing law.” Sherouse v. Ratchner, 573 F.3d 1055, 1060 (10th Cir. 2009). An incorrect jury instruction “requires reversal, however, ‘only if the error is determined to have been prejudicial, based on a review of the record as a whole.’ ” Id. at 1059 (quoting Durflinger v. Artiles, 727 F.2d 888, 895 (10th Cir. 1984)).

A. The Gross-Negligence Instruction

The jury found Dan D. was grossly negligent — i.e., that Dan D. failed to act with even “slight care and diligence.” Okla. Stat. tit. 25, § 6. And the district court instructed the jury that if it so found, it shouldn’t consider whether any implied contract between the parties included the exculpatory provisions of the IADC form contract. To support this instruction, the district court explained that “the last word[] in the Oklahoma Supreme Court was that gross negligence was sufficient to vitiate an exculpatory clause.” App. vol. 11, 2145. Dan D. disagrees, arguing that the district court’s gross-negligence instruction was erroneous because provisions exculpating gross negligence aren’t per se invalid under Oklahoma law. Consequently, Dan D. argues, the district court should have granted it a new trial on this basis.

In this diversity action, we look to the rulings of the Oklahoma Supreme Court to determine the applicable law governing the enforceability of exculpatory provisions, “and, if no such rulings exist, [we] must endeavor to predict how that high court would rule.” See Johnson v. Riddle, 305 F.3d 1107, 1118 (10th Cir. 2002). In its order denying Dan D.’s motion for a new trial, the district court relied on Schmidt v. United States, 912 P.2d 871 (Okla. 1996), as the most relevant ease governing exculpatory provisions in Oklahoma. There, the United States District Court for the Western District of Oklahoma certified a question to the Oklahoma Supreme Court regarding whether an exculpatory clause was valid and enforceable. Id. at 872. In answering that question, the court held in part that “exculpatory clauses cannot relieve one from liability for fraud, willful injury, gross negligence or violation of the law.” Id. (emphasis added). It later reiterated that an exculpatory “clause will never avail to relieve a party from liability for intentional, willful or fraudulent acts or gross,' wanton negligence.” Id. at 874 (second emphasis added).

Despite the breadth of the Oklahoma Supreme Court’s statements in Schmidt and their. seemingly clear application to the case at -hand, Dan D. insists these statements were mere dicta because the underlying facts in the case involved ordinary (not gross) negligence, and thus the statements weren’t essential to its holding. But in Schmidt, the Oklahoma Supreme Court didn’t rule on the merits of the underlying case, which arguably involved only ordinary negligence. See 912 P.2d at 872. That was the task of the Western District of Oklahoma. Instead, the Oklahoma Supreme Court answered a certified question about the validity of exculpatory clauses under Oklahoma law generally. Its statements that exculpatory clauses can’t relieve one from liability for gross negligence were therefore essential to its holding in fully answering that question. Thus, we decline to treat the statements as dicta. Moreover, even if we characterize the Oklahoma Supreme Court’s comments as dicta, those comments are nonetheless good indicators of “how that high court would rule.” See Johnson, 305 F.3d at 1118.

Dan D. further argues that what it characterizes as Schmidt’s dicta shouldn’t control this case because the Oklahoma Supreme Court has repeatedly used the term “gross negligence” imprecisely — sometimes to refer to acts that are comparable to willful conduct, and sometimes to refer to conduct that is simply a step above ordinary negligence. Thus, Dan D. maintains, Schmidt “is unclear and not a reliable source of Oklahoma law.” Aplt. Br. 16. But as Sundance points out, Okla. Stat., tit. 25 § 6 has long defined gross negligence as “the want of slight care and diligence.” And we see no indication that the Oklahoma Supreme Court misapplied this well-established statutory definition when answering the certified question in Schmidt.

Dan D. also offers what it characterizes as multiple “[c]ompelling [rjeasons” to conclude that the Oklahoma Supreme Court wouldn’t invalidate the provisions contained in section 14 of the IADC form contract. Aplt. Br. 16. For example, Dan D. argues that (1) the court has routinely expressed a desire to allow parties the freedom to contract; (2) the provisions are industry standard; (3) the exculpatory provisions run both ways; (4) under Oklahoma law, gross negligence differs from negligence only in degree and not in kind; and (5) the exculpatory provisions avoid lengthy and expensive litigation.

Even if these points have some appeal, they aren’t enough to overcome Schmidt’s clear directive. See Flores v. Monumental Life Ins. Co., 620 F.3d 1248, 1250 (10th Cir. 2010) (“As a federal court sitting in diversity, our task is ‘simply to “ascertain and apply” ’ Oklahoma law, attempting to ‘predict what the state’s highest court would do’ if faced with the specific issues before us on appeal.” (quoting Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003))). Because Schmidt controls, we decline to set aside the jury verdict based on the gross-negligence instruction.

B. The Non-Delegable-Duty Instruction

Dan D. proposed two jury instructions that would have directed the jury to impute Tres’ negligence to Sundance because, Dan D. argued, Sundance owed a non-delegable duty to Dan D. The district court disagreed that Sundance owed Dan D. a non-delegable duty and thus declined to give the proposed instructions. Dan D. insists the district court’s reasoning was flawed under Oklahoma law. And Dan D. argues the district court should have thus granted it a new trial on this basis. But even if we agree with Dan D. that the district court erred by not instructing the jury on the non-delegable duty rule, the error didn’t prejudice Dan D. See McInnis v. Fairfield Cmtys., Inc., 458 F.3d 1129, 1140 (10th Cir. 2006) (explaining that failure to give jury instruction is reversible only if prejudicial).

Sundance sought relief on two separate theories: gross negligence and breach of implied contract. As the district court noted, the jury found for Sundance on both claims. And the jury’s verdict for Sundance on the breach of implied contract claim independently supports the jury’s award of damages, because under Oklahoma law there is no reduction of damages for a breach of contract claim in light of a party’s contributory negligence. See Okla. Stat. tit. 23, § 21 (stating that the measure of damages for a breach of contract “is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby”); Chi., R.I. & P. Ry. Co. v. Rogers, 60 Okla. 249, 159 P. 1132, 1133 (1916) (explaining that contributory negligence doesn’t apply to contractual relations); see also Fortier v. Dona Anna Plaza Partners, 747 F.2d 1324, 1337 (10th Cir. 1984) (concluding that district court didn’t err in failing to reduce plaintiffs breach of contract damages in light of its contributory negligence “because contributory negligence has no place in contract and fraud actions”).

Accordingly, regardless of whether the jury imputed Tres’ negligence to Sundance or if imputation might have affected the underlying negligence award, any error in the district court’s refusal to instruct the jury that Sundance owed a non-delegable duty to Dan D. wasn’t prejudicial because such imputation wouldn’t have affected the breach of contract award.

Dan D. nonetheless argues that the court’s failure to give the instruction was prejudicial because “if the implied contract was to drill the well safely and [the company man’s] and Tres’ actions were imputable to Sundance, then” the district court should have instructed the jury “that such failure[s] by Sundance’s representatives were themselves breaches of the contract, thereby precluding any recovery on the contract claim.” Aplt. Br. 22.

Although Dan D. challenges on appeal the gross-negligence jury instructions, Dan D. doesn’t otherwise challenge the instructions related to the terms of the implied contract. And the jury’s verdict in light of those unchallenged instructions establish that the only terms of the implied contract at issue — notwithstanding the applicability of section 14 of the IADC form — were that Dan D. would drill the Rother well in a good and workmanlike manner and that Sundance would pay Dan D. for its work. There is simply no basis for Dan D.’s assertion that Sundance had a duty to drill the well safely. Thus, we disagree with Dan D.’s assertion that if the non-delega-ble duty rule applied, then the district court would have instructed the jury “that [any] failure[s] by Sundance’s representatives were themselves breaches of the contract.” Aplt. Br. 22. Accordingly, we also decline to set aside the jury verdict based on the non-delegable-duty instruction.

II. The district court didn’t err in admitting the OSHA narratives or the toxicology evidence.

Dan D. next argues that the district court erred by admitting the OSHA narratives and the toxicology evidence. “We review a district court’s rulings on evidentiary matters and motions in li-mine for abuse of discretion.” Seeley v. Chase, 443 F.3d 1290, 1293 (10th Cir. 2006). If the district court erroneously admitted evidence, we will set aside a jury verdict “only if the [admission] prejudicially affects a substantial right of a party.” Id. Erroneously admitted evidence is prejudicial “if we can reasonably conclude that without the evidence, there would have been a contrary result.” Id. (quoting Smith v. Atl. Richfield Co., 814 F.2d 1481, 1487 (10th Cir. 1987)).

Sundance submitted to OSHA a Freedom of Information Act request and received two narratives relating to the accident, including one labeled “Fatality Narrative” and one labeled “Safety Narrative.” App. vol. 14, 2708, 2718. Dan D. argues these two narratives were inadmissible because they are untrustworthy. See Fed. R. Evid. 803(8)(B) (stating that the rule against hearsay doesn’t exclude a record or statement of public office unless opponent shows, “that the source of information or other circumstances indicate a lack of trustworthiness”). And Dan D. argues that the erroneous admission of the OSHA narratives was prejudicial because no other admitted evidence included the derrick hand’s statements that (1) he “heard popping noises” coming from the drilling line when the drill pipe was stuck, and (2) he told his supervisor about those noises prior to the accident. App. vol. 14, 2716.

The district court also admitted a medical examiner’s video deposition and his corresponding report indicating there was methamphetamine in the deceased driller’s blood at the time of the accident. Dan D. argues this evidence is irrelevant and inadmissible under Federal Rule of Evidence 401 because there is no reasonable certainty that the driller was impaired at the time of the accident and because there is no reasonable link between the presence of methamphetamine in the driller’s blood and the accident. Dan D. also argues that, even if relevant, this evidence is inadmissible under Federal Rule of Evidence 403 because its probative value is substantially outweighed by the danger of unfair prejudice; according to Dan D., methamphetamine use “is particularly inflammatory in today’s culture.” Aplt Br. 25. And Dan D. argues the erroneous admission of this evidence was prejudicial because the evidence represented the “critical tipping point” for the jury. Id.

We decline to consider whether the narratives were untrustworthy under Rule 803(8)(B) or whether the methamphetamine evidence was irrelevant under Rule 401 or unduly prejudicial under Rule 403. Even if we assume the district erred in admitting this evidence, Dan D. hasn’t established that, but for the alleged errors, “we can reasonably conclude that ... there would have been a contrary result” at trial. Seeley, 443 F.3d at 1293 (quoting Smith, 814 F.2d at 1487).

For one, the district court also admitted into evidence both the OSHA citation and the June 19, 2014 technical report and Dan D. doesn’t challenge their admission on appeal. The citation indicated that Dan D. committed a “[s]erious” violation by failing to adequately inspect and maintain the drilling line “to eliminate failure of [the] drilling line wire rope[,] which expose[d] employees to struck-by hazards during oil/ gas drilling operations.” App. vol. 13B, 2695. Moreover, the June 19, 2014 technical report and other testimony at trial established that Dan D. failed to keep track of the accumulated ton-miles on the drilling line, an oversight that one expert testified was “unheard of’ in the industry. App. vol. 11, 2072. And Dan D.’s own president admitted that Dan D. failed to properly slip and cut the line. Finally, Sun-dance presented evidence demonstrating that the deceased driller ignored instructions to stop pulling on the stuck drill pipe, and that during his subsequent, unauthorized attempts to remove the pipe, the drilling line failed.

In short — even setting aside the OSHA narratives 'and toxicology evidence — Sun-dance presented overwhelming evidence to the jury of Dan D.’s failure to inspect and maintain the drilling line, and of the driller’s continued, unauthorized attempts to free the stuck drill pipe. There is no basis for concluding that the jury would have granted Dan D. a favorable verdict but for the admission of the OSHA narratives and methamphetamine evidence. Thus, we decline to set aside the jury verdict based on the admission of the OSHA narratives and the toxicology evidence.

III. The district court properly awarded Sundance attorney’s fees.

Finally, Dan D. argues that the district court erred in awarding Sun-dance attorney’s fees. “In diversity cases, attorney[’s] fees are a substantive matter controlled by state law,” and “[w]e review the legal principles underlying an award de novo.” Combs v. Shelter Mut. Ins. Co., 551 F.3d 991, 1001 (10th Cir. 2008).

In any civil action brought under Oklahoma law “to recover damages for the negligent or willful injury to property and any other incidental costs related to such action, the prevailing party shall be allowed reasonable attorney’s fees.” Okla. Stat. tit. 12, § 940(A). The use of the word “shall” renders the award of attorney’s fees mandatory when an action falls under the purview of § 940(A). See Schaeffer v. Shaeffer, 743 P.2d 1038, 1040 (Okla. 1987).

Sundance requested attorney’s fees under this statute, arguing that the loss of the hole is the type of damage that squarely falls within § 940(A). Sundance explained that § 940(A) applies to actions involving the negligent destruction of a wellbore, relying on Parks v. American Warrior, Inc., 44 F.3d 889 (10th Cir. 1995), Marino v. Otis Engineering Corp., 839 F.2d 1404 (10th Cir. 1988), and Busby v. Canon Well Services, Inc., 771 P.2d 1016 (Okla. Civ. App. 1989). The district court agreed, finding that the “negligent destruction of an oil and gas well falls within the scope of § 940(A),” and that Sundance, as the prevailing party, was entitled to attorney’s fees. App. vol. 5, 1068 (quoting Parks, 44 F.3d at 892).

In challenging the award of attorney’s fees, Dan D. argues § 940(A) applies only to actions involving physical damage to property, not to actions involving “property rights” generally. Aplt. Br. 26 (quoting Woods Petrol. Corp. v. Delhi Pipeline Corp., 700 P.2d 1011, 1012 (Okla. 1984)). Dan D. thus attempts to distinguish the cases Sundance relies on, suggesting those case “involved claims of damages stemming from actual physical injury to the well, namely damages to the producing formations and reserves.” Id. at 27. And “because there was no evidence here of damage to the producing formation or loss of reserves,” Dan D. maintains that § 940(A) doesn’t apply to the facts of this case. Id. at 28.

Although we agree that Woods Petroleum made clear that § 940(A) is limited to “actions for damages for the negligent or willful physical injury to property,” 700 P.2d at 1013, we disagree that this holding precludes attorney’s fees in this case. In Woods Petroleum, the Oklahoma Supreme Court reversed an award of attorney’s fees in an action involving the defendant’s negligent operation of a flow meter, which resulted in a miscalculation of the amount of gas sold to the defendant. Id. at 1012-13. The Oklahoma Supreme Court held that § 940(A) didn’t apply because the Oklahoma legislature didn’t intend that section to encompass actions involving interference with all property rights, but rather to encompass only actions involving “physical negligent or willful injury to property.” Id. at 1012.

In that regard, Woods Petroleum’s, facts are distinguishable from the facts herel Sundance’s recovery here stemmed not from a mere interference with property rights as in Woods Petroleum, but from the physical deterioration of the Rother well during the 12-day OSHA investigation. This is precisely the type of “physical injury to property” to which the Woods Petroleum court indicated § 940(A) would apply. See id. at 1013.

Indeed, notwithstanding Dan D.’s efforts to distinguish Marino and Busby, we find those opinions particularly instructive. In Marino, a well owner brought an action against the manufacturer that made and installed a “packer” device in its well. 839 F.2d at 1406. After the device became stuck and subsequent attempts to remove it destroyed the well, the well owner sought damages against the manufacturer. Id. at 1405-06. The jury returned a verdict for the manufacturer, which then sought attorney’s fees under § 940(A). Id. at 1412. On appeal, we distinguished Woods Petroleum, concluding that § 940(A) applied because the well owner’s alleged injury arose •from physical damage. Specifically, we explained that the plaintiffs “allegations center around the physical injury to property and thus fall within the mandatory coverage of § 940(A) authorizing the recovery of attorney’s fees.” Id. at 1412-13 (emphasis added).

Similarly, in Busby an owner of an oil and gas well hired a contractor to fracture the well, but the contractor allegedly used the wrong chemical agent, resulting in a total loss of the well. 771 P.2d at 1016. The owner brought an action for breach of contract or in the alternative negligence, but the jury found in favor of the contractor. Id. The contractor then sought attorney’s fees under § 940(A), and on appeal the Oklahoma Court of Appeals held that section applied. Id. at 1016-17. That court also distinguished Woods Petroleum, explaining:

The Woods decision did not find that oil or gas was not “property” under the provisions of § 940(A), but rather found that the required physical injury to the property was not present. In [the well owner’s] action against [the contractor], damages were sought for negligent destruction of the oil and gas well. In awarding attorneyPs] fees to [the contractor] under the provisions of § 940(A), the trial court was presented with actual injury to the property itself, and not the broader field of rights in property found to be outside the mean ing of § 94.0(A) in Woods Petroleum

Id. at 1017 (emphasis added).

Dan D. argues that these cases are distinguishable because they involved “damages to producing formations and reserves.” Aplt. Br. 27. We disagree. In concluding that § 940(A) applied, neither Marino nor Busby relied on whether the producing formations and reserves sustained damage; rather, both courts looked to whether the property at issue sustained physical injury. See Marino, 839 F.2d at 1412-13; Busby, 771 P.2d at 1017. Here, as in Marino and Busby, but unlike in Woods Petroleum, Sundance sought damages resulting from the physical injury to an oil and gas well: namely, the deterioration of the wellbore during the 12-day OSHA investigation. Sundance, as the prevailing party, was thus entitled to reasonable attorney’s fees. See Marino, 839 F.2d at 1412-13 (explaining that in case involving negligent destruction of oil and gas well, award of attorney’s fees to prevailing party under § 940(A) is “mandatory”).

Affirmed.

      . Slipping and cutting is a process used to repair worn portions of the line that is generally performed before the start of each new well.

      . In its first Notice of Appeal, Dan D. indicated that it was appealing only the district court’s order denying its motion for a new trial, rather than the district court’s entry of judgment on the jury verdict. A notice of appeal designating a ruling on a post-judgment motion is typically sufficient to appeal the judgment itself. See, e.g., Jones v. Nelson, 484 F.2d 1165, 1168 (10th Cir. 1973); Cheney v. Moler, 285 F.2d 116, 117-18 (10th Cir. 1960). Accordingly, "we will treat this appeal as if” Dan D. took it "from the entry of judgment on the jury verdict.” Grubb v. Fed. Deposit Ins. Corp., 868 F.2d 1151, 1154 n.4 (10th Cir. 1989).

      . Although Schmidt dealt solely with a personal injury claim, see 912 P.2d at 872, rather than negligent destruction of property, Dan D. doesn't argue that Oklahoma law would distinguish between the two types of injuries. Moreover, in concluding that exculpatory clauses can't relieve one from liability for acts of gross negligence, the Oklahoma Supreme Court cited approvingly cases that examined such clauses in contexts outside of personal injury claims. See id. at 874 & n.15 (citing Wolf v. Ford, 335 Md. 525, 644 A.2d 522, 528 (1994) (bad stock market investments); Manhattan Co. v. Goldberg, 38 A.2d 172, 174 (D.C.App. 1944) (loss of property)). Accordingly, we find Schmidt informative, notwithstanding the different injuries involved.

      . This is the same standard the jury applied in the instant case. See App. vol. 4, 812 (instructing jury that "[g]ross negligence is the failure to exercise slight care and diligence”).

      . The district court also relied on the Oklahoma Supreme Court's pre-Schmidt decision in Elsken v. Network Multi-Family Sec. Corp., 838 P.2d 1007 (Okla. 1992). There, the court noted that "[c]ourts have refused to uphold limitation of liability clauses where the defendant’s conduct constituted gross negligence.” Id. at 1009. Dan. D. characterizes this remark as dicta. We need not decide what weight to give this statement, however, because Schmidt settled any lingering questions left by Elsken.

      .Dan D. filed a motion asking this court to certify the gross-negligence question to the Oklahoma Supreme Court. Oklahoma allows for such a procedure “if the answer may be determinative of an issue” and “there is no controlling decision of the Supreme Court or Court of Criminal Appeals, constitutional provision, or statute of this state.” Okla. Stat., tit. 20, § 1602; see also 10th Cir. R. 27.2 (allowing certification). But we have cautioned that "we apply judgment and restraint before certifying,” and that "we will not trouble our sister state courts every time an arguably unsettled question of state law comes across our desks.” Pino v. United States, 507 F.3d 1233, 1236 (10th Cir. 2007). Instead, "[wjhen we see a reasonably clear and principled course, we will seek to follow it ourselves.” Id. For the reasons discussed, Schmidt answered the question Dan D. seeks to certify, see 912 P.2d at 872, 874, and we deny Dan D.'s motion.

      . Dan D. doesn't challenge the reasonableness of the amount awarded, but rather only argues that Sundance wasn't entitled to attorney's fees in the first instance. We thus limit our discussion to the legal question, and express no opinion as to the reasonableness of the actual award.


source: Caselaw Access Project

author:
GORSUCH, Circuit Judge.
      PHILLIPS, Circuit Judge,

license: Public Domain

text:
    Corbin A. MCNEILL; Dorice S. McNeill, Petitioners - Appellants, v. UNITED STATES of America, Respondent - Appellee.
    No. 15-8095
    United States Court of Appeals, Tenth Circuit.
    September 6, 2016
    Gordon B. Nash, Jr., Drinker Biddle & Reath LLP, Chicago, Illinois (Paul J. Hickey, Hickey & Evans, LLP, Cheyenne, Wyoming, and Gabriel G. Tsui, Leech Tishman Fuscaldo & Lampl, LLC, Oak Brook, Illinois, with him on the briefs), for Petitioners-Appellants.
    Michael J. Haungs, Attorney, Appellate Section, Tax Division of the United States Department of Justice, Washington, D.C. (Caroline D. Ciraolo, Acting Assistant Attorney General, Tax Division, and Diana L. Erbsen, Deputy Assistant Attorney General, Tax Division, and Gilbert S. Rothen-berg and Jacob Earl Christensen, Attorneys, Appellate Section, Tax Division of the United States Department of Justice, Washington, D.C., and Christopher A. Crofts, Of Counsel, United States Attorney, District of Wyoming, with him on the brief), for Respondent-Appellee.
    Before LUCERO, GORSUCH, and PHILLIPS, Circuit Judges.
   GORSUCH, Circuit Judge.

After commanding an attack submarine and eventually retiring from the Navy, Corbin McNeill pursued a second career as a utility company executive. It proved a much more lucrative line of work. When he approached his second retirement he found himself slated to receive an $18 million payment. And faced with the promise of a correspondingly prodigious tax bill, Mr. McNeill began fishing around for ways to ease the bite. Eventually, he came across a complicated little scheme suggested by some well-heeled tax advisors. At bottom, the idea was to transfer to Mr. McNeill losses that foreign debt holders had already suffered. Both sides had an incentive to deal: Mr. McNeill wanted to claim the losses as deductions against his income; the foreign debt holders wanted to transfer their assets for a slight premium over their current (and much reduced) market value because Mr. McNeill could use them to secure a tax advantage they didn’t need. See Dep’t of the Treasury, The Problem of Corporate Tax Shelters, at v (1999).

Of course, the deal had to be structured gingerly. Not least to avoid the appearance of any sale of the debt instruments when they transferred from the foreign debt holders to Mr. McNeill, for that risked revealing Mr. McNeill’s true basis in them was quite low and his losses insignificant. So it is that his tax advisors established a partnership (really a series of partnerships) to which the foreign debt holders contributed their underwater debt instruments and their basis in them, and to which Mr. McNeill contributed relatively small sums of money. As structured, Mr. McNeill owned over 90% of the relevant and final partnership. All so that when the partnership proceeded to sell the debt to third parties, it (rather than the foreign debt holders) could claim to realize the whole of the losses and Mr. McNeill could claim on his tax returns that his $18 million in income was offset by $20 million in losses — losses that, well, he never really suffered. In aid of the scheme, various accounting and law firms supplied opinion letters offering their views that it would withstand IRS scrutiny.

That it did not. When a partnership is employed in a tax avoidance scheme the government wishes to unwind, the IRS has historically followed a two step process prescribed by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). First and out of an apparent desire to avoid inefficiencies that might arise if it had to audit and adjust each partner’s tax return separately, the IRS begins by adjusting whatever it deems misreported by the partnership at the partnership level and assigning a provisional overall penalty. See 26 U.S.C. §§ 6221, 6223(a)(2), 6281; United States v. Woods, — U.S. -, 134 S.Ct. 557, 564, 187 L.Ed.2d 472 (2013). And that’s exactly what the IRS did here, holding that the relevant partnership’s claim that no asset sale took place between the foreign debt holders and Mr. McNeill was incredible; that Mr. McNeill’s true basis in the foreign debt was the modest amount he contributed to the partnerships; and that this tax avoidance scheme merited several million dollars in penalties and interest. See generally Distressed Asset/Debt Tax Shelters, 2007 WL 1511543 (I.R.S. Apr. 18, 2007). Under TEFRA, the partnership’s “tax matters” partner — the general partner designated for the job or the general partner with the largest profits— is permitted to seek judicial review of the IRS’s partnership level determinations. 26 U.S.C. §§ 6226(a), 6231(a)(7). And again that’s exactly what happened here. As the tax matters partner, Mr. McNeill filed suit seeking to contest the IRS’s partnership level determinations, though the district court eventually dismissed that suit without prejudice on the government’s motion and Mr. McNeill never sought to reinstate it.

But that wasn’t quite the end of the story. The second step in TEFRA’s historically prescribed process remained to unfold. Partnerships are, of course, generally but pass-through entities when it comes to income and taxes: it’s not the partnership but the partners themselves who usually pay the taxes. So after deciding a partnership’s overall tax liability and penalties TEFRA usually requires the IRS to proceed to issue a tax assessment for each individual partner, one representing his share of the overall partnership assessment, though along the way the IRS may make adjustments it thinks appropriate for individual partners. Id. § 6231(a)(6); Woods, 134 S.Ct. at 564. In response, each partner is obliged to pay the sum the IRS demands but then, after doing so, he may bring a lawsuit seeking a refund in which he may “assert any partner level defenses.” 26 U.S.C. § 6230(c)(1), (c)(4).

That’s the step where we find ourselves in this case. The IRS determined that Mr. McNeill’s share of the partnership’s liability was $7.75 million. Mr. McNeill duly paid that amount in full and then proceeded to file this lawsuit seeking a partial refund. By now proceeding a bit more cautiously with the IRS, Mr. McNeill didn’t suggest that the partnership scheme was lawful or that he should be excused the taxes the IRS assessed. Instead, he argued only that he should be excused from the penalties and associated interest the IRS had imposed (about $4.6 million). Mr. McNeill noted that, under TEFRA, a taxpayer may be excused penalties and interest even after pursuing an unsuccessful tax strategy so long as he can prove that he had “reasonable cause” for the position he took and that he filed his tax return in “good faith.” See id. § 6664(c)(1). And as evidence of reasonable cause and good faith, Mr. McNeill pointed the court to all those accountants and lawyers who offered him letters opining that his tax scheme would meet with the IRS’s approval.

But the district court declined to decide the merits of Mr. McNeill’s partner level defense. Instead of passing on the question whether Mr. McNeill could prove reasonable cause and good faith for his tax position, the district court held it was precluded from doing so. Not by operation of the judicial doctrines of claim or issue preclusion. The judicial order dismissing the partnership level case expressly indicated that it was without prejudice and no order in that case ever passed on the reasonable cause/good faith question. Neither the district court in its decision nor the government in its brief before us suggests this was sufficient to trigger claim or issue preclusion principles. Instead, the district court held only that TEFRA itself — as a matter of statute — precludes a managing partner like Mr. McNeill from pursuing at the partner level a reasonable cause/good faith defense where (as here) the IRS in administrative proceedings has rejected the partnership’s assertion of reasonable cause/good faith at the partnership level.

So much, however, we cannot find anywhere in the law. The relevant portion of TEFRA says just this:

No review of substantive issues. — For purposes of any claim or suit under this subsection, the treatment of partnership items on the partnership return, under the settlement, under the final partnership administrative adjustment, or under the decision of the court (whichever is appropriate) shall be conclusive. In addition, the determination under the final partnership administrative adjustment or under the decision of the court (whichever is appropriate) concerning the applicability of any penalty ... which relates to an adjustment to a partnership item shall also be conclusive. Notwithstanding the preceding sentence, the partner shall be allowed to assert any partner level defenses that may apply or to challenge the amount of the computational adjustment. Id. § 6230(c)(4).

To be sure, the government argues that the second sentence supports the district court’s judgment. As the government observes, this language indicates that the IRS’s administrative partnership level determinations about penalties and interest “shall ... be conclusive.” And to be conclusive, the government suggests, these determinations must be conclusive not just against the partnership itself but also against the managing partner in any later partner level refund action.

It’s an argument that is sound as far as it goes but one that doesn’t go quite far enough. It fails to account for the statute’s very next and last sentence, which expressly says that “[njotwithstanding the preceding sentence, the partner shall be allowed to assert any partner level defenses that may apply or to challenge the amount of the computational adjustment.” Here, then, Congress pretty clearly seemed to contemplate a regime in which any partner may assert any “partner level defenses” that may apply. And by statute the reasonable cause/good faith defense appears to be one available at the partner level: after all, it applies when (among other things) the “taxpayer” can show he acted in good faith and (again) under TEFRA it is usually the partner who is the taxpayer. Id. § 6664(c)(1).

The government replies that it is inappropriate to allow managing partners to pursue a good faith defense at the partner level when the partnership already raised a good faith defense because often it’s the managing partner’s good faith that’s tested at the partnership level. But even if an arrangement like the government suggests would make some sense, it just isn’t the one the statute provides. Nothing in the last sentence of the statute carves out managing partners and prevents them alone from taking advantage of its terms. If Congress had wished to single out managing partners for special treatment, it certainly could have done so — as it has done for other types of partners in other settings. See, e.g., id. § 6231(a) (defining tax matters partner, notice partner, pass-thru partner, etc.); id. § 6223 (differentiating among them). Its choice not to do the same here deserves our cognizance. Neither, for that matter, is it clear why, if we were to engage in the business of rewriting the statute to carve out managing partners, we would stop there. Why not also carve out tax matters partners who are responsible by statute for litigating partnership level defenses? See id. § 6226(a). Or members of committees who signed off on the transaction that resulted in a penalty? Couldn’t you make a good case they too should be bound by determinations made in partnership level proceedings? Even the government itself seems unsure of the answer. Before us, the government sometimes suggests managing partners should be carved out, but sometimes suggests tax matters partners should be too. And we confess this vacillation only suggests to us further need for caution about reading into the statute language that just isn’t there. For that matter, too, it is not difficult to imagine why Congress might have chosen the very language it did — why it settled on a scheme in which partnership level determinations do not operate to preclude any partner (managing, tax matters, etc.) from raising the reasonable cause/ good faith defense in partner level proceedings. By way of example only, the material facts underlying the reasonable cause/good faith defense of a managing (or tax matters) partner might well be different (and more compelling) at the partner level than at the partnership level: a law or accounting firm might issue a different opinion letter to the partner than it does to the partnership (as happened in this very case) or issue an opinion letter only to the partner and not to the partnership at all.

What the language of the controlling statute suggests the surrounding statutory environment and the government’s own implementing regulations confirm. In TEFRA Congress indicated that “partnership item[s]” are those that the Secretary of the Treasury has deemed “more appropriately determined at the partnership level than at the partner level.” Id § 6231(a)(3). And the Secretary’s relevant regulations expressly indicate that § 6664(c)(l)’s reasonable cause/good faith defense is not a “partnership item” but something more appropriately determined at the partner level. Compare 26 C.F.R. § 301.6221-l(c) (“Partnership-level determinations include all the legal and factual determinations that underlie the determination of any penalty ... other than partner-level defenses specified in paragraph (d) ....” (emphasis added)), with id. § 301.6221-l(d) (citing § 6230(c)(4) and noting that § 6664(c)(l)’s reasonable cause and good faith defense is a partner level defense that “may not be asserted in the partnership-level proceeding” (emphasis added)). So it seems the government today asks us to adopt a position that’s in more than a little tension with the views its own expert agency has expressed on the subject in its authoritative regulations.

It’s a position that turns out to be in tension, too, with a good bit of judicial precedent, much of it invited by the government. The Supreme Court itself has suggested that under TEFRA a partner’s reasonable cause and good faith defense cannot be “conclusively” determined at the partnership level. Woods, 134 S.Ct. at 564 (“[T]he partner may nonetheless have acted in good faith with reasonable cause, ... see § 6664(c)(1). [This issue cannot] be conclusively determined at the partnership level.”). And the lower court cases the government attempts to rely upon are perhaps even less helpful to its cause. In Stobie Creek Investments, LLC v. United States, 82 Fed.Cl. 636 (2008), the partnership argued that “the partnership-level trial should resolve conclusively the reasonable cause defenses of each of the individual partners.” Id. at 658. Meanwhile, the government (consistent with its regulations, of course) contended that the reasonable cause/good faith defense is more properly adjudicated at the partner level — and it prevailed upon the court to agree, for the court proceeded to hold that TEFRA “explicitly disallows adjudication of partner-level defenses” like reasonable cause/good faith “in a partnership-level proceeding.” Id. Much the 'same story played out in Klamath Strategic Investment Fund ex rel. St. Croix Ventures v. United States, 568 F.3d 537, 548 (5th Cir. 2009), where the government again argued that the reasonable cause/good faith defense “is a partner-level defense that can only be asserted in separate refund proceedings.” Id. at 547. Neither does the government acknowledge its about-face today. Instead, and bypassing that curiosity, it proceeds to observe that courts in these and other related cases have suggested that the reasonable cause/good faith defense “may be a partner- or partnership-level defense, depending on who is asserting it.” Stobie Creek Invs., LLC v. United States, 608 F.3d 1366, 1380 (Fed. Cir. 2010); see also Klamath, 568 F.3d at 548; Am. Boat Co. v. United States, 583 F.3d 471, 480 (7th Cir. 2009). But to suggest, as these cases may, that both a partnership and a partner may assert the reasonable cause/good faith defense does not necessarily mean that if the first does so, the second — if he happens to be a managing partner — may not. Certainly nothing in the cases the government cites holds so much.

At the end of the day, the government seems pretty much left to suggest only that its current (if not erstwhile) interpretation of the statute would yield a more efficient process. If partnership level determinations about reasonable cause and good faith were conclusive against (some) partners, it notes, there would be no need for a fact-finder to consider that defense when raised by (those) partners at the partner level. But while we readily admit this arrangement might save labor in some cases, it’s not even clear whether it would in all or perhaps even most. For surely in at least some cases the parties would spend much time litigating collateral questions — questions like who is bound (really just the managing partner? what about others?) or what was conclusively determined in the earlier partnership level proceedings (this reasonable cause/good faith argument or another one? or are all foregone if not contested at the partnership level?) — that could be avoided by simply focusing the parties on the merits of the defense. Neither, of course and far more importantly, can any claim of efficiency substitute for the statute’s text and structure as a basis for discerning statutory meaning.

In saying this much we do not mean to deny that there’s often a strong identity of interests between a managing or tax matters partner and a partnership. Neither do we mean to suggest that issues addressed in partnership level proceedings always may be contested by individual partners in partner level proceedings. So, for example, our case doesn’t involve the question whether TEFRA would (or could) permit parties to relitigate matters that the doctrine of issue preclusion might otherwise forbid thanks to their final determination in an earlier judicial proceeding by parties with sufficient commonality of interests to qualify as privies. See Entek GRB, LLC v. Stull Ranches, LLC, 763 F.3d 1252, 1258 (10th Cir. 2014) (discussing use of offensive issue preclusion against parties and their privies). The only question before us is whether, when no party argues that a final judicial ruling exists that triggers judicial preclusion principles, an adverse decision in a TEFRA administrative partnership level proceeding prevents a managing (or tax matters) partner from pursuing a reasonable cause/good faith defense in later partner level proceedings.

It is not only a narrow question but one of receding importance too, for Congress has recently revamped the process for auditing partnerships in order to permit the IRS, beginning in 2018, to recoup taxes from the partnership itself rather than the partners individually. See Bipartisan Budget Act of 2015, Pub. L. No. 114-74, 129 Stat. 584, 625 (to be codified at 26 U.S.C. § 6221). And perhaps that new law will go a long way toward meeting the government’s efficiency concerns in future cases. But however that may be, it is not within our charter to apply that new law retroactively to cases like this one, though it does seem a bit like that’s what we’re effectively being asked to do.

The judgment is reversed and the case remanded for further proceedings consistent with this opinion.

PHILLIPS, Circuit Judge,

dissenting.

I agree that, in the usual case, adjustments to partnership items concerning penalties announced in a Final Partnership Administrative Adjustment (FPAA) aren’t conclusive against partners in partner-level proceedings. This makes sense because TEFRA disallows partners from barging into partnership-level proceedings to assert partner-level defenses. Instead, TEFRA requires partners to await completion of the partnership-level proceedings, and to pay assessed penalties and interest, before asserting partner-level defenses in refund actions.

But this ease is an unusual one. Mr. McNeill is no ordinary partner but is Dul-wich LLC’s managing partner. And Mr. McNeill is also Dulwich’s tax-matters partner, which enabled him to have Dulwich sue in Wyoming federal court to oppose adjustments the IRS had made in the Dul-wich FPAA. And more unusual yet, Mr. McNeill ultimately allowed Dulwich’s challenge to its FPAA’s adjustments to be dismissed. TEFRA takes note of those details and imposes consequences. For instance, upon the dismissal of Dulwich’s FPAA challenge, the FPAA’s findings rise to the level of final and correct findings of the district court itself. Though Mr. McNeill remained free in his penalty-refund action to assert a partner-level defense based on his reasonable cause in pursuing the sham tax scheme, in doing so he faced the FPAA’s already-conclusive determination that he hadn’t acted with reasonable cause or in good faith. In view of this conclusive determination on his refund action’s key question, the district court granted summary judgment in the government’s favor. I agree with the district court’s reasoning and would affirm.

Before examining the applicable law, I think it’s worth circling back to how this case arose and has made its way to us. In its thorough order, the district court recounts in detail Mr. McNeill’s activities leading up to his $7.75 million tax underpayment and $4.59 million assessment for penalties and interest. Soon before participating in the 2002 tax-avoidance activity, Mr. McNeill had served on a board of directors of a corporation that had filed for bankruptcy. There, he dealt with creditors, some of which were distressed-debt investors. Later that year, when Mr. McNeill was set to get an $18 million payout from a company he’d worked for, Mr. McNeill began investigating opportunities to use distressed debt to his advantage. With the help of his attorneys and accountants, Mr. McNeill orchestrated a scheme under which he wrongly claimed about $20 million in losses and correspondingly underpaid his taxes. The district court’s order shows Mr. McNeill to be a financially sophisticated person, fully active in the decisions leading to his tax underpayment and penalty.

Even before filing his 2002 tax return and continuing until now, Mr. McNeill has driven this case. This is unsurprising because Mr. McNeill is Dulwich’s managing partner and tax-matters partner, and, by the end of 2002, its 98% owner. And, in turn, Dulwich owns 99% of Livrpol LLC, the entity that reported over $22 million in losses from the sale of underwater debt instruments, of which Mr. McNeill ultimately claimed $20 million of the losses. That’s how Mr. McNeill set it up.

In December 2006, the IRS issued FPAAs for Dulwich and Livrpol. The two FPAAs contained almost-identical findings. The Dulwich FPAA’s penalty section included a finding that Dulwich and its partners (obviously including Mr. McNeill) “lacked substantial authority for the positions taken, and that the [sic] they did not have a reasonable belief that those positions were more likely than not the correct treatment of such items.” R. vol. 9 at 22. It also included a finding that Dulwich and its partners “did not have reasonable cause and good faith for any of the resulting underpayments.” Id. In March 2007, Mr. McNeill, as Dulwich’s managing partner, filed a petition for readjustment of Dul-wich’s FPAA. in the United States District Court for the District of Wyoming. Importantly, in the Wyoming suit, Mr. McNeill claimed that Dulwich’s partners had “reasonably relied on the advice of their tax advisors and legal counsel in good faith.” Id. at 38.

In May 2008, in the United States District Court for the District of Connecticut, Mr. McNeill (as Dulwich’s managing partner) filed a petition for readjustment of Livrpol’s FPAA (Dulwich was eligible to do so because Livrpol’s tax-matters partner hadn’t filed a challenge, 26 U.S.C. § 6226(b)(1)). Because Livrpol was the top-tier entity that sustained the loss, the government moved to dismiss Dulwich’s Wyoming suit in favor of Livrpol’s Connecticut suit. In response, the Wyoming court stayed Dulwich’s suit until the Li-vrpol suit was finally resolved to see whether that resolution disposed of all the issues in Dulwich’s Wyoming suit. After extensive discovery over two years in Connecticut, Mr. McNeill voluntarily dismissed that suit. After the parties advised the Wyoming court that Mr. McNeill had dismissed the Livrpol suit, the Wyoming court gave Mr. McNeill 60 days in which to reopen the challenge to Dulwich’s FPAA. Mr. McNeill chose not to reopen it, leading to the Wyoming court’s dismissing it.

In October 2012, Mr. McNeill filed a claim for a refund of his then-paid penalty and interest. In August 2014, after the IRS hadn’t responded to the claim, Mr. McNeill filed his present action for a Petition for Refund of Penalties and Interest, asserting as a partner-level defense his alleged reasonable cause and good faith. That put front and center the issue we must now decide: Did the Dulwich FPAA’s determinations about Dulwich’s lack of reasonable cause and good faith conclusively establish in Mr. McNeill’s penalty-refund action his own lack of reasonable cause for his tax activity? The district court said yes. It noted that the Dulwich FPAA’s findings became final and correct when Mr. McNeill didn’t reopen Dulwich’s Wyoming case and allowed its dismissal. And because the Dulwich FPAA rejected the same reasonable-cause defense Mr. McNeill offered in his penalty-refund action, the district court treated the Dulwich FPAA as conclusively establishing Mr. McNeill’s own lack of reasonable cause too.

In determining that Dulwich’s partnership-level defense based on its reasonable cause for its tax activity must fail, the IRS in its FPAA needed to measure Dulwich’s conduct and state of mind. When evaluating a partnership’s conduct and state of mind, the federal circuit courts have done so based on the conduct and state of mind of the partnership’s managing partner. See Southgate Master Fund, L.L.C. ex rel. Montgomery Capital Advisors, LLC v. United States, 659 F.3d 466, 493 n.86 (5th Cir. 2011) (“Where, as here, the reasonable-cause defense is asserted in a partnership-level proceeding, we look to the conduct of the partnership’s managing partners in evaluating the reasonableness of the partnership’s reporting position.”); Am. Boat Co. v. United States, 583 F.3d 471, 479-80 (7th Cir. 2009) (concluding that a partnership could raise its own reasonable-cause defense — separate from any partner-level, reasonable-cause defense— based on its managing partner’s conduct on the partnership’s behalf); Klamath Strategic Inv. Fund ex rel. St. Croix Ventures v. United States, 568 F.3d 537, 546-48 (5th Cir. 2009) (allowing a partnership-level reasonable-cause defense as asserted on the partnership’s behalf by its managing partners); Stobie Creek Invs. LLC v. United States, 608 F.3d 1366, 1381 (Fed. Cir. 2010) (concluding that the partnership could raise a reasonable-cause defense under § 6664(c) “based on the actions of its managing partner”).

Here, the district court determined that Mr. McNeill’s reasonable cause for his tax activity is identical to Dulwich’s reasonable cause. Mr. McNeill hasn’t contested that. In view of this, I agree with the district court that the Dulwich FPAA’s determination that Mr. McNeill lacked reasonable cause for his tax activity is conclusive in Mr. McNeill’s later partner-level refund action. I see nothing in 26 U.S.C. § 6230(c)(4) announcing a rule that all partner-level defenses automatically fully escape the effects and underpinnings of FPAAs’ partnership-level determinations of penalties and interest:

(4) No review of substantive issues
For purposes of any claim or suit under this subsection, the treatment of partnership items on the partnership return ... under the final partnership administrative adjustment ... shall be conclusive. In addition, the determination under the final partnership administrative adjustment ... concerning the applicability of any penalty ... which relates to an adjustment to a partnership item shall also be conclusive. Notwithstanding the preceding sentence, the partner shall be allowed to assert any partner level defenses that may apply ....

26 U.S.C. § 6230(c)(4). I don’t read the third sentence as making the second sentence’s conclusive penalty determinations inconclusive for partner-level defenses in penalty-refund actions. Instead, I read the third sentence as ensuring that partners can always bring partner-level defenses subject to any conclusive determinations being applied in those partner-level proceedings. And many times, partners can prevail at the partner level because none of the FPAA’s conclusive determinations defeat their partner-level defense. For instance, those partners may not have known or done all that the partnership’s managing partner knew and did. And even here, if Mr. McNeill had somehow asserte'd that his own reasonable-cause defense differed from Dulwich’s reasonable-cause defense based on his own conduct and intent, he might still have prevailed despite the conclusive effect TEFRA gives to the FPAA’s penalty determinations.

Nor does the TEFRA regulation guarantee all partners an absolute right to assert reasonable-cause defenses in their partner-level refund actions. It does, however, allow partner-level defenses based on reasonable cause if the defenses are personal to the partner and “cannot be determined at the partnership level.” 26 C.F.R. § 301.6221-l(d). Here, because the reasonable cause Mr. McNeill asserted for Dul-wich and later for himself are the same, Mr. McNeill’s partner-level defense based on his reasonable cause for his tax activity could be and was determined at the Dul-wich partnership level.

      . Although Mr. McNeill emphasizes that the Connecticut court’s dismissal order reserved his ability to pursue partner-level defenses of reasonable cause and good faith, that has little bearing here because Mr. McNeill was not Livrpol’s managing partner.

      . See 26 U.S.C. § 6226(h) ("If an action brought under this section is dismissed ..., the decision of the court dismissing the action shall be considered as its decision that the notice of final partnership administrative adjustment is correct, and an appropriate order shall be entered in the records of the court.”).

      .Although the majority is correct that in years past the government has challenged whether partnerships have statutory authority to make their own reasonable-cause defenses, I don’t see how that matters. The government lost those arguments, and it's now free to enforce the law as the courts have interpreted it. The parties agree that Dulwich — through its tax-matters partner, Mr. McNeill — had a statutory right to challenge its FPAA on reasonable-cause grounds.