author: LYNCH, Circuit Judge.

text:
    SANTANDER HOLDINGS USA, INC., and Subsidiaries, f/k/a Sovereign Bancorp., Inc., Plaintiff, Appellee, v. UNITED STATES of America, Defendant, Appellant.
    No. 16-1282
    United States Court of Appeals, First Circuit.
    December 16, 2016

      Judith A, Hagley, with whom Caroline D. Ciraolo, Acting Assistant Attorney General, Tax Division, Diana L. Erbsen, Deputy Assistant Attorney General, Tax Division, Gilbert S. Rothenberg, Richard Farber, Washington, DC, and Carmen M. Ortiz, United States Attorney, were on brief, for appellant.
    Jonathan S. Massey, Washington, DC, with whom Leonard A. Gail, Chicago, IL, Paul J. Berks, Massey & Gail LLP, Rajiv Madan, and Skadden, Arps, Slate, Meagher & Flom LLP were on brief, for appel-lee.
    Martin S. Kaufman, Scarsdale, NY, on brief for Atlantic Legal Foundation, ami-cus curiae.
    Scott P. Martin, Gibson, Dunn & Crutcher LLP, Washington, DC, Kate Comerford Todd, Steven P. Lehotsky, Washington, DC, Warren Postman, and U.S. Chamber Litigation Center on brief for Chamber of Commerce of the United States of America, amicus curiae.
    Derek T. Ho, Bradley E. Oppenheimer, William H. Milliken, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, DC, and K. Richard Foster on brief for Financial Services Roundtable, amicus curiae.
    Before LYNCH and SELYA, Circuit Judges, and BURROUGHS, District Judge.

       Of the District of Massachusetts, sitting by designation.

   LYNCH, Circuit Judge.

Under the Internal Revenue Code, taxpayers receive, subject to various technical requirements, credits against owed U.S. income tax for every dollar paid to a foreign country for taxable international business transactions of economic substance. See 26 U.S.C. §§ 901-909. Over the past decade, some banks have engaged in complicated transactions the very purpose of which is to generate a foreign tax credit in order to take advantage of the U.S. deductions, and have done so at the expense of the U.S. taxpayer.

This case concerns whether Sovereign Bancorp, Inc., later acquired by Santander Holdings USA, Inc. (together, “Sovereign”), a U.S. taxpayer, is entitled tó a refund from the Internal Revenue Service (“IRS”) after the IRS began disallowing its claim for foreign tax credits and imposing accuracy-related penalties in 2008. The credits at issue here were claimed for tax years 2003 to 2005 for taxes arranged to be paid to the United Kingdom as part of a Structured Trust Advantaged Repackaged Securities (“STARS”) transaction that Sovereign had engaged in. This STARS transaction was initiated in 2003 and was scheduled to last five years, but it ended early, in July 2007, when STARS and similar transactions became the subject of heightened scrutiny from the IRS. See Determining the Amount of Taxes Paid for Purposes of Section 901, 72 Fed. Reg. 15,081 (proposed Mar. 30, 2007). Sovereign and Barclays Bank (“Barclays”), which is chartered in the United Kingdom, were the two parties to the transaction at issue.

Sovereign brought suit to obtain a refund from the IRS in the District of Massachusetts in 2009. The amount of the refund sought is approximately $234 million in taxes, penalties, and interest. Sovereign asserts that it is entitled to foreign tax credits against its U.S. taxes for taxes it paid to the United Kingdom as part of the STARS transaction at issue. As the government concedes, the STARS transaction complied on its face with then-existing U.S. statutory and regulatory requirements. But the government opposes the refund, arguing that the STARS transaction here is an “abusive tax shelter” and so amounts to a transaction that fails the common law economic substance test.

Congress and the IRS have long been concerned with taxpayers inappropriately seeking foreign tax credits. IRS regulations proposed in 2007 and finalized in 2011 prohibited STARS transactions, but not retroactively. See Determining the Amount of Taxes Paid for Purposes of Section 901, 72 Fed. Reg. 15,081, 15,084 (proposed Mar. 30, 2007); Determining the Amount of Taxes Paid for Purposes of the Foreign Tax Credit, 76 Fed. Reg. 42,036 (July 18, 2011) (codified at 26 C.F.R. pt. 1). The regulations reflect an understanding that STARS transactions and similar complex financial structures for which foreign tax credits are sought both pose a danger to the federal fisc and do not serve the purposes intended by Congress in enacting the foreign tax credit regime. Those purposes include avoiding double taxation and enabling the conduct of business affairs abroad by U.S. firms. See H.R. Rep. No. 83-1337, at 4103 (1954) (“The [foreign tax credit] provision was originally designed to produce uniformity of tax burden among United States taxpayers, irrespective of whether they were engaged in business in the United States or engaged in business abroad.”). This case involves a' STARS transaction that took place before such transactions were forbidden by regulation, and no one contends 'the 2011 regulation applies. This decision thus directly affects only that transaction.

During roughly the same period as the transaction at issue here, from 2001 to 2007, other U.S. banks also entered into STARS transactions with Barclays. They similarly sought tax credits, and the IRS similarly opposed them. In Bank of New York Mellon Corp. v. Commissioner (BNY), 801 F.3d 104, 107 (2d Cir. 2015), the Second Circuit affirmed a judgment disallowing the credits claimed by Bank of New York Mellon for its STARS transaction with Barclays. Using somewhat different reasoning, the Federal Circuit in Salem Financial, Inc. v. United States, 786 F.3d 932, 951, 954-55 (Fed. Cir. 2015), also upheld a determination disallowing credits claimed by Branch Banking <& Trust Corporation for a STARS transaction with Barclays. Both circuit court opinions contain extensive factual descriptions of the STARS transactions, which also largely characterize the transaction at issue here. A third case, involving a Wells Fargo STARS transaction, was tried in a federal district court in the Eighth Circuit. See Wells Fargo & Co. v. United States, 143 F.Supp.3d 827, 842 (D. Minn. 2015). After trial, a jury found that the transaction lacked economic substance.

The Massachusetts district court in this case awarded summary judgment to Sovereign. It first entered partial summary judgment for Sovereign on the issue of whether a payment Sovereign received from Barclays should be considered income to Sovereign in calculating the STARS Trust transaction’s profit. Santander Holdings USA, Inc. & Subsidiaries v. United States (Santander I), 977 F.Supp.2d 46, 48 (D. Mass 2013). It then entered judgment for Sovereign after finding as a matter of law that the Trust and Loan transactions had economic substance, and so Sovereign was entitled to interest-related deductions on expenses for the Loan transaction and a refund on the disallowed foreign tax credits claimed for the Trust transaction and the penalties imposed by the IRS. Santander Holdings USA, Inc. v. United States (Santander II), 144 F.Supp.3d 239, 248 (D. Mass. 2015). The court also denied the government’s cross-motion for partial summary judgment in its favor on a number of issues, including whether Sovereign’s U.K. taxes should be regarded as expenses in any calculation of Sovereign’s profit from the STARS transaction. Id. at 242-44, 248. The government appeals from the grant of summary judgment to Sovereign and the denial of its cross-motion.

Through concessions made by both the government and Sovereign, the appeal has been considerably simplified. The government no longer contends that it is entitled to a jury trial on the tax refund claim; it seeks a jury trial only on the penalties claim. The government also does not contend any longer that the district court improperly excluded evidence, or that there are any material disputes of fact, or that summary judgment was entered prematurely. Rather, the government agrees that the controlling issue is one of law and argues that its cross-motion for summary judgment as to the Trust portion of the STARS transaction should have been allowed. Sovereign, for its part, agrees, for the purposes of summary judgment, that the proper focus is on the Trust transaction alone, and not on the Loan transaction.

We hold that the district court committed reversible error and that the government is entitled to summary judgment in its favor as to the economic substance of the STARS Trust transaction. We largely agree with the reasoning of the Federal Circuit opinion in Salem in rejecting the claims that the Trust transaction had economic substance and substantially rely on its analysis.

L

We give a brief description of the transaction and then of this Circuit’s economic substance test.

A. The STARS Transaction

Sovereign entered into the STARS transaction with Barclays in 2003. U.S. banks were then aware of the tax risks of being denied the full amount of U.S. foreign tax credits. See, e.g., Salem, 786 F.3d at 937. Like other STARS transactions, the one*Sovereign entered into had, as the district court put it, a “Rube Goldberg” complexity. Santander I, 977 F.Supp.2d at 48. We explain it briefly and rely on BNY and Salem for further details.

In 2003, Sovereign first created a Trust (the Trust.- half of the transaction) into which it ultimately contributed about $6.7 billion of its U.S.-located income-producing assets. The trustee of the Trust was, by its terms, a U.K. citizen, a fact which subjected the Trust to U.K. taxes. The U.K. taxes were at a rate of 22%. The Trust was also subject to U.S. federal income tax at a rate of 35%, but it could claim á tax credit for the taxes paid to the United Kingdom. The Trust was structured, therefore, to receive foreign tax credits for the amount paid in tax on the Trust to the United Kingdom. It is undisputed that Sovereign paid all U.K. taxes for which it claimed U.S.' tax credits.

Barclays acquired an interest in the Trust for $750 million in November 2003 at the Trust’s initial creation and acquired an additional $400 million interest almost a year later, when Sovereign added additional funds to the Trust. Significantly, Bar-clays was-required to sell its interest in the Trust back to Sovereign for $1.15 billion at the end of the transaction.

Sovereign treated this $1.15 billion contribution from Barclays as a Loan (the Loan half of the STARS transaction) for accounting and regulatory purposes, including in all of Sovereign’s filings to the Securities and Exchange Commission and the Office of Thrift Supervision. The offsetting agreements that converted Bar-clays’s purchase of an interest in the Trust into the Loan effectively resulted in Bar-clays lending Sovereign $750 million at a floating monthly rate of LIBOR plus 50 basis points and $400 million at LIBOR plus 25 basis points.

The Trust engaged in a series of actions that generated a U.K. tax benefit for Bar-clays. The Trust • distributed funds to • a Barclays Blocked Account, which Barclays could, not access, but which, allowed Bar-clays to formally hold the funds in its name. The Barclays Blocked Account then immediately returned the funds to the Trust. Barclays owed U.K. taxes on the distributions made to the Barclays Blocked Account, but, importantly, Barclays was entitled to a tax credit for the U.K. tax paid on this income by. the Trust, and Barclays also was permitted to deduct its re-contributions to the Trust as a tax loss. The combination of the tax credit and deduction “creat[ed] a net tax deduction for Barclays that it could use to offset tax on other income unrelated to. [the STARS transaction].”

In exchange, Barclays paid Sovereign a monthly sum, referred to as the “Barclays” or “Bx” payment. The amount of the Bx payment was calculated to equal 50% of the U.K. tax Sovereign paid on the Trust’s income. In a sense, the 50% was a return to Sovereign of half of its tax payment, whether or not it was technically a rebate. The Bx payment was “netted against Sovereign’s interest obligation” on the Loan.

The benefits for both parties can be illustrated by a hypothetical also employed by the Second and Federal Circuits. See BNY, 801 F.3d at 111; Salem, 786 F.3d at 938. Assume $100 of income in the Trust for a given month. Through its ownership interest in the Trust and the Trust’s structure, Barclays would be liable for a 30% U.K. corporate tax on the Trust’s income, amounting to $30. BNY, 801 F.3d at 111. Barclays would then claim a credit for the 22% U.K. tax paid on the Trust by Sovereign amounting to $22, bringing Barclays’s own tax liability down to $8. Id. The Trust would set aside $22 to settle the U.K. tax owed by Sovereign; the remaining $78 would be shuttled into and out of the Bar-clays Blocked Account. Id. Sovereign would claim a U.S. foreign tax credit for the $22 it paid in U.K. taxes. Id.

Upon redistributing the $78 to the Trust from the Barclays Blocked Account, Bar-clays would claim a trading loss deduction on the $78 which, at the corporate tax rate of 30%, would amount to $23.40. Id. Bar-clays would make a Bx payment to Sovereign calculated to be half of the 22% U.K. tax paid by Sovereign, which would amount to $11. Id. Barclays then deducted this payment at the 30% U.K. tax rate as well, resulting in a $3.30 deduction. Id. In the end, Barclays would save $7.70 in taxes for each $100 of Trust income ($23.40 - $8 - $11 + $3.30), and Sovereign would save $11 (the amount of the Bx payment calculated against Sovereign’s U.K. tax exposure). Id. Both parties ultimately reduced their tax exposure—Barclays through the various deductions generated by the Trust transaction and Sovereign through the Bx payment.

B. The Economic Substance Doctrine

The federal income tax is, and always has been, based on statute. The economic substance doctrine, like other common law tax doctrines, can thus perhaps best be thought of as a tool of statutory interpretation, as then-Judge Breyer characterized it in his opinion for this court in Dewees v. Commissioner, 870 F.2d 21, 35-36 (1st Cir. 1989).

The common law economic substance doctrine traces back to the Supreme Court’s decision in Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935). The Court there looked beyond the fact that a corporate reorganization technically complied with the statutory requirement and found that it lacked economic substance. Id. at 468-70, 55 S.Ct. 266. It found as such because the reorganization was:

an operation having no business or corporate purpose—a mere device which put on the. form of a corporate reorganization as a disguise for concealing its real character, and the sole object and accomplishment of which was the consummation of a preconceived plan, not. to reorganize a business or any part of a business, but to transfer a parcel of corporate shares to the petitioner.

Id. at 469, 55 S.Ct. 266. The Court reached this conclusion from the fact that “the transaction upon its face lies outside the plain intent of the statute.” Id. at 470, 55 S.Ct. 266.

The Court clarified the doctrine further in Frank Lyon Co. v. United States, 435 U.S. 561, 98 S.Ct. 1291, 55 L.Ed.2d 550 (1978), where it reversed the Eighth Circuit’s decision that a sale-and-leaseback transaction did not meet the economic substance test. Id. at 584, 98 S.Ct. 1291. The Court explained that “[i]n applying this doctrine of substance over form, the Court has looked to the objective economic realities of a transaction rather than to the particular form the parties employed.” Id. at 573, 98 S.Ct. 1291 (emphasis added).

The First Circuit has addressed challenges to the economic substance of transactions in a number of cases, although the cases often have not invoked the “economic substance doctrine” by that name. See, e.g., Stone v. Comm’r, 360 F.2d 737 (1st Cir. 1966); Fabreeka Prods. Co. v. Comm’r, 294 F.2d 876 (1st Cir. 1961); Granite Tr. Co. v. United States, 238 F.2d 670 (1st Cir. 1956). This court has been particularly wary of inquiring into the subjective motivations of taxpayers: “[Ujnless Congress makes it abundantly clear, we do not think tax consequences should be dependent upon the discovery of a purpose, or a state of mind, whether it be elaborate or simple.” Fabreeka Prods. Co., 294 F.2d at 878.

Dewees is our most recent' significant case on the economic substance doctrine. There, this court upheld a tax court decision that a “loss [the petitioners] incurred while engaged in ‘straddle’ trading on . the London Metals Exchange was not an ‘ordinary loss’ deductible from their income.” Dewees, 870 F.2d at 22. The tax court held that the loss was not deductible because the straddle trades were sham transactions and not “entered into for profit” within the meaning of section 108 of the Internal Revenue Code. Id.

This court upheld the tax court’s decision for four principal reasons. We emphasized that the case was one of some 1,100 consolidated by the tax court, from the general pattern of' which ■ the tax court could infer that the transactions' were designed to avoid taxes; that the promotional material for the transactions focused exclusively on their tax effects; that although margin accounts were opened for the transactions, none of the investors in any of the transactions ever received a margin call; and that no investor ever made a net profit or “was ever asked to pay a loss, beyond the initial margin deposit” for the transactions. Id. at 31. We rejected the petitioner’s argument that we must analyze the taxpayer’s subjective motivation under the relevant statutory framework. Id. at 34. Among other reasons, the court noted that the tax court had cohcluded that the transactions were “shams in substance,” and that “[cjase law makes clear that' a taxpayer cannot deduct a ‘sham transaction’ loss, irrespective of his subjective profit motive.” Id. at 35.

Dewees instructs that the economic substance doctrine is centered on discerning whether the challenged transaction objectively “lies outside the plain intent of the [relevant statutory regime].” Id. at 29 (quoting Gregory, 293 U.S. at 470, 55 S.Ct. 266). It further instructs that a transaction fails the economic substance test if, “though [it] actually occurred and technically complied with the tax code, [it] w[as] mere[ly a] devicef ] to avoid tax liability.” Id. at 30; see also Schussel v. Werfel, 758 F.3d 82, 97 (1st Cir. 2014) (noting that courts may “disregard the form of transactions that have no business purpose or economic substance beyond- tax evasion”). In other words, when a transaction “is one designed to produce tax gains ... [not] real gains,” Dewees, 870 F.2d at 31—such as when the challenged transaction has no prospect for pre-tax profit—then it is an act of tax evasion that, even if technically compliant,, lies outside of the intent of the Tax Code and so lacks economic substance.

II.

“We review orders granting or denying summary judgment de novo.” Fithian v. Reed, 204 F.3d 306, 308 (1st Cir. 2000). “The general characterization of a transaction for tax purposes is a question of law subject to review.” Frank Lyon, 435 U.S. at 581 n.16, 98 S.Ct. 1291.

In its first partial summary judgment decision, the district court rejected the government’s argument that the Bx payment was in effect a tax rebate. Santander I, 977 F.Supp.2d at 50. The district court concluded instead that the Bx payment as a matter of law was income to Sovereign. Id. at 52. The Federal Circuit reached the same conclusion as the district court in our case and held that the Bx payment must be counted as income under the logic of Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 49 S.Ct. 499, 73 L.Ed. 918 (1929); IES Industries, Inc. v. United States, 253 F.3d 350 (8th Cir. 2001); and Compaq Computer Corp. & Subsidiaries v. Commissioner, 277 F.3d 778 (5th Cir. 2001). Salem, 786 F.3d at 944-46. By contrast, the Second Circuit accepted the government’s argument. BNY, 801 F.3d at 121-22.

We see no need to address the government’s characterization of the Bx payment as a rebate, not income, because we hold that whether the Bx payment is best characterized as a rebate or as income, Sovereign’s argument still fails. The STARS Trust transaction itself does not have a reasonable prospect of creating a profit without considering the foreign tax credits, and, as a result, it is not a transaction for which Congress intended to give the benefit of the foreign tax credit. This conclusion mirrors that of the Federal Circuit in Salem, and we reach it largely for the reasons stated there. Salem, 786 F.3d at 946-55. We agree with that court that we must “assess [the] transaction’s economic reality, and in particular its profit potential, independent’ of the expected tax benefits.” Id. at 948. Using similar reasoning, we find that the Trust transaction is “shaped solely by tax-.avoidanee features,” id. at 942 (quoting Stobie Creek Invs. LLC v. United States, 608 F.3d 1366, 1375 (Fed. Cir. 2010)), that “lack a bona fide business purpose,” id. Most importantly, we agree with the Federal Circuit that the Trust transaction is profitless, id. at 949, and that it is “not the type of transaction Congress intended to promote with the foreign tax credit system,” id. at 954.

The Trust transaction is profitless because the “profit” to Sovereign from the Bx payment comes at the expense of exposure to double the Bx payment’s value in U.K. taxes. To return briefly to the $100 hypothetical: ■ even if Sovereign receives an $11 Bx payment from Barclays (half of the $22 paid by Sovereign to the United Kingdom at its 22% tax rate), the Trust transaction lacks a reasonable potential (or any potential) of generating profit because the $11 Bx payment is earned at the expense of the $22 U.K. tax. In other words, every $1 the Trust transaction earns through the Bx payment costs $2 from the transaction costs of subjecting the Trust transaction to U.K. tax. When the primary transaction cost of the Bx payment, the U.K. taxes, are factored into the pre-tax profitability calculation, the Trust transaction is plainly profitless. Sovereign’s “profit” comes from the foreign tax credits it claims for the U.K. taxes combined with a Bx payment calculated as half its U.K. tax liability-

Accordingly, we conclude both that the STARS Trust transaction had no objective non-tax economic benefit and that Congress, in creating the foreign tax credit regime, did not intend that it would cover this type of generated transaction. Exposure to U.K. taxation for the purpose of generating U.S. foreign tax credits was the Trust transaction’s whole function.

Our conclusion that the Trust transaction lacks economic substance is entirely consistent with our statement in- Dewees that “taxpayers may lawfully structure transactions that seek real gains in a way that also maximizes tax advantages.” 870 F.2d at 32. Again, this situation does not involve private parties structuring an agreement to benefit both parties and only then seeking to maximize the tax benefits. The Bx payments do not come into fruition until and unless Sovereign pays the U.K. taxes (for which it will seek a 100% credit on its U.S. taxes).

Indeed, the record demonstrates that the Bx payment is inextricably linked to the deliberate incurring of Sovereign’s U.K. tax liability. Barclays and Sovereign made clear to each other that the Bx payment would be calculated based on Sovereign’s U.K. tax liability and the credits that Barclays would then be able to claim. An internal communication between the parties stated that the Bx payment would allow “Barclays [to] share[ ] U.K. tax credits with Sovereign.”

The STARS scheme is profitable only because Sovereign plans to obtain U.S. tax credits; that is, the whole existence of the Trust transaction depends on getting a U.S. tax credit. There is otherwise no business reason to engage in the transaction. As the Salem court found:

The evidence thus supports the trial court’s finding that the STARS Trust was a “prepackaged strategy” created to generate U.S. and U.K. tax benefits for [the counterparty] and Barclays. Bar-clays agreed to bear half of [the counter-party’s] U.K. tax expense under the transaction in exchange for an opportunity to claim substantial U.K. tax benefits for itself (through the trading loss deduction). [The counterparty], on the other hand, benefited by claiming a foreign tax credit equal to the entire amount of the Trust’s U.K. taxes while “getting back one-half of the U.K. tax” from Barclays. Absent those tax advantages, the STARS transaction would never have occurred.

786 F.3d at 952 (citation omitted).- Here, Sovereign subjected its property and income to U.K. taxation only because it anticipated it could avoid U.S. taxes through the resulting U.S. tax credit.

The Trust transaction did not advance the Tax Code’s interest in providing foreign tax credits in ordér to encourage business abroad or in avoiding double taxation. Nor does disallowing foreign tax credits for the STARS Trust transaction interfere with the United Kingdom’s authority. After all, it was the U.K. authorities who in 2005 first called STARS transactions to the attention of the IRS as a potential impermissible tax shelter.

Of course, as the government readily admits, some transactions that are not immediately profitable without tax benefits, such as investments in “nascent technologies,” may have economic substance. See Salem, 786, F.3d at 950. But the Trust transaction is not comparable to such transactions because it does not “meaningfully alter[ ] the taxpayer’s economic position (other than with regard to: the tax consequences).” Id.

Moreover, unlike long-term investments that may not initially turn a profit, but which have economic substance, the Trust transaction lacks any real economic risk. The Salem court pointed out that Barclays ran little risk of having to pay the Bx payment in absence of the anticipated U.K. tax benefits because the counterparty indemnified Barclays should that happen. Id. at 943-44. The Bx payments were not truly independent of the expected U.K. tax effects. The counterparty’s “ability to benefit economically from the Bx payments depended on Barclays’[s] receipt of its expected tax benefits, which in turn depended on the Trust’s U.K. tax payments.” Id. at 944.

Here, too, Sovereign and Barclays “developed contractual remedies and took other steps to minimize the risk of [a divergence between actual effects and the pre-engineered outcome of the Bx payment’s relationship to the U.K. taxes].” Unlike transactions that have survived an economic substance challenge, such as the sale- and-leaseback structure in Frank Lyon, 435 U.S. at 577, 98 S.Ct. 1291, the STARS Trust transaction posed no non-tax risks to Sovereign. Instead, Sovereign’s internal discussions focused on the “risk” of being unable to claim foreign tax credits for the U.K. taxes on the Trust transaction, and it informed the Federal Deposit Insurance Corporation that it would “bear the United States tax risk” of the transaction.

Further, we agree with the government that Sovereign’s U.K. tax was artificially generated through a series of circular cash flows , through the Trust and was the quid pro quo for the Bx payment. The assets in the Trust never effectively left Sovereign’s control, nor did they perform any function when placed in the Trust that they could not without the Trust—other than, - of course, creating .the tax effect that made possible the Bx payment. Indeed, when calculating the profit potential of the STARS transaction, Sovereign deducted the income from the Trust assets, as that income would have been earned without the Trust’s existence.

Resorting to the uncontroversial principle that the foreign tax credit regime was designed to avoid double taxation does not help Sovereign. If mere invocation of that principle were enough, every tax avoidance scheme would pass muster. After all:

the fact that the transactions produced a net gain to the taxpayer after taking both the foreign taxes and the foreign tax credit into account says nothing about the economic reality of the transactions, because all tax shelter transactions produce a gain for the taxpayer after the tax effects are taken into account—that is why taxpayers are willing to enter into them and to pay substantial fees to the promoters.

Salem, 786 F.3d at 948.

Equally fundamental to the purpose of granting foreign tax credits is the related principle that those credits are extended only to legitimate business transactions. See H.R. Rep. No. 83-1337, at 4103 (1954) (“The [foreign tax credit] provision was originally designed to produce uniformity of tax burden among United States taxpayers, irrespective of whether they were engaged in business in the United States or engaged in :business abroad.” (emphasis added)). The Trust transaction provided no business for Sovereign. It furnished Bar-clays with a tax benefit, which Barclays in turn shared with Sovereign, effectively giving Sovereign a tax benefit-of its own when combined with the anticipated foreign tax credits. The Trust transaction was not a legitimate business and lacked economic substance.

III.

We reverse the judgment of the district court as to the economic substance of the Trust transaction and the.foreign tax credits claimed for the Trust transaction and remand for judgment to be entered for the United States on the refund claim and for a trial limited to the penalties issue. Costs are awarded to the appellant.

      . We note that while we discuss the findings of the Second Circuit in BNY, our opinion does not rely in any sense on the earlier opinion of the tax court in that case. See Bank of N.Y. Mellon Corp. v. Comm'r, 140 T.C. 15, as amended by 106 T.C.M. (CCH) 367 (T.C. 2013). Because we do not rely on that opinion, we need not address Sovereign’s argument that the judge in that case suffered from a conflict of interest, a claim the government vigorously disputes.

      . Although Sovereign argues on appeal that the transaction in BNY is distinguishable, it conceded below that the transaction was "very similar” to the one at issue here. And while Sovereign contends that the bank in Salem adopted a different litigation strategy than the one pursued by Sovereign, it does little to demonstrate that the STARS transaction in Salem involved any materially different facts.

      . The government also argued to the district court that the foreign tax credits claimed by Sovereign should be denied on the basis of two “substance over form” doctrines, the "step transaction” and "conduit” doctrines, but the district court rejected the argument, Santander II, 144 F.Supp.3d at 244. As the government focuses its appeal on the economic substance doctrine, we do not consider the district court’s rejection of the government’s substance-over-form argument.

      . The parties have agreed for purposes of this appeal that the Trust transaction should be analyzed separately from the Loan transaction. The bank in Salem similarly accepted the bifurcation of the tax consequences of the Trust transaction and the Loan transaction for purposes of that appeal. Salem, 786 F.3d at 940.
      The government no longer contests the economic substance of the Loan transaction, as long as the Loan transaction is analyzed separately from -the Trust transaction, and does not appeal .the district court's decision that Sovereign may claim certain interest-expense deductions.

      . LIBOR stands for "Intercontinental Exchange London Interbank Offered Rate.” Salem, 786 F.3d at 937 n.1. LIBOR "is a benchmark rate that some of the world’s leading banks charge each other for short-term loans.” Id.

      . When it first marketed this transaction to potential counterparties, Barclays did not include this Loan component. See Salem, 786 F.3d at 936. The government suggests that Barclays added the Loan to "disguise the true nature of the [transaction] and permit U.S. taxpayers to justify STARS as low-cost funding.” Sovereign asserts that "there is no evidence ... that any non-loan transaction was ever offered to (or considered by) Sovereign,” and that "[t]o the extent Barclays may have proposed a non-loan transaction to other banks, the evidence shows they were uninterested in it.” Because we must analyze the Loan and Trust transactions separately, this dispute is immaterial.

      . Sovereign argues that the, foreign tax credit area is so heavily populated with IRS regulation that there is no need for any further regulation by the courts under the guise of the economic substance doctrine. On these facts, we reject the proposition. In practical terms, it takes time for the government to analyze a new problem, come up with a solution, and promulgate regulations. "The endless ingenuity of taxpayers in attempting to avoid taxes means that there will be a first time for everything,” Wells Fargo, 143 F.Supp.3d at 838, and the economic substance test guards against abuse of loopholes that Congress and the IRS have not anticipated.

      . As one commentator says:
      A related ... claim is that the legislature assumes that long-standing common law doctrines such as economic substance will be used to interpret the statutes it enacts. Under this claim, the doctrines have been implicitly adopted as part of the statute—at least where the statute does not indicate otherwise.
      Joseph Bankman, The Economic Substance Doctrine, 74 S. Cal. L. Rev. 5, 11 (2000).

      .In 2010, Congress enacted a statutory economic substance test. See 26 U.S.C. § 7701 (o). The statutory test was not made retroactive. Our analysis, however, is not in conflict with that test, as Congress specified that the 2010 codification would be applied as courts have previously and consistently applied the economic substance doctrine. Id. § 7701(o)(5)(C). If the codification reveals anything about congressional intent as to pre-2010 STARS transactions, it supports our conclusion.

      . To the extent that similar evidence is in the record for this case, it supports our conclusion. As in Dewees, we have examined the pattern that has emerged from comparable STARS transactions, We have used Sovereign's and Barclays's communications to each other about the transaction and, in particular, their emphasis on tire connection of the Bx payment to Sovereign's U,K. taxes and the Trust transaction’s "tax risk,” to conclude that the Trust transaction had no objective purpose outside its, tax effect. And we too have noted that the transaction at issue here was structured such that it exposed neither party to realistic non-tax risk.

      . Because exposure to U.K. taxation was the necessary and sufficient condition of the Bx payment, the U.K. taxes were an expense incurred by Sovereign for the ''profit” generated by the Trust transaction. And when the U.K. taxes are recognized as expenses, there is no pre-tax profit, and the Trust transaction lacks a cardinal feature of an economically substantial transaction: a reasonable prospect of pre-tax profit.
      Sovereign and the district court rely heavily on Compaq and IES for the proposition that foreign taxes should not be treated as expenses. Santander II, 144 F.Supp.3d at 242-44. Those cases did not analyze STARS transactions and so are distinguishable factually. We agree with the Salem court's analysis of this issue as to the Trust transaction. 786 F.3d at 947-49.
      Nor does our conclusion that Sovereign's U.K. taxes should be considered expenses contradict the Supreme Court’s ' holding in Old Colony. Old Colony did not involve foreign taxes and says nothing about whether foreign tax liability may ever be considered an expense. See Old Colony, 279 U.S. at 716, 49 S.Ct. 499.

      . See John P. Steines, Jr., Subsidized Foreign Tax Credits and the Economic Substance Doctrine, 70 Tax Lawyer (forthcoming 2017) (‘‘[I]t is virtually impossible for a dispassionate analyst to reasonably conclude that Congress intended to surrender more revenue than that captured by the foreign government in a holistic sense where the U.S. taxpayer and the counterparty split the remaining spoils solely by reason of carefully exploited inconsistent international tax rules in an otherwise unprofitable transaction that is an overly complicated version of an orthodox deal that would not have given rise to credits at all.”). A copy of this article was filed with the court and disclosed to the parties.

      . Moreover, there is no tension between denying foreign tax credits for the STARS Trust transaction and the U.S.-U.K. tax treaty: As the government correctly notes, the treaty requires the grant of foreign tax credits "subject to the limitations of the laws of the United States.” Convention with Great Britain and Northern Ireland regarding Double Taxation and Prevention of Fiscal Evasion, art. 24, July 24, 2001, S. Treaty Doc. No. 107-19. Among those limitations, of course, are "anti-abuse principles” such as the economic substance doctrine. See Treasury Dep't, Technical Explanation of the Convention Between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains 14. See also Del Commercial Props., Inc. v. Comm'r, 251 F.3d 210, 214 (D.C. Cir. 2001) ("[I]f the' sole purpose of a transaction with a foreign corporation is to dodge U.S. taxes, [a] treaty cannot shield the taxpayer from the fatality of the [substance-over-form] step-transaction doctrine.”).


source: Caselaw Access Project

author: STAHL, Circuit Judge.

license: Public Domain

text:
    Andrew HAGERTY, EX REL. UNITED STATES; Relator, Appellant, State of California; State of Colorado; State of Connecticut; State of Delaware; State of Florida; State of Georgia; State of Hawaii; State of Illinois; State of Indiana; State of Iowa; State of Louisiana; State of Maryland; Commonwealth of Massachusetts; State of Michigan; State of Minnesota; State of Montana; State of Nevada; State of New Jersey; State of New Mexico; State of New York; State of North Carolina; State of Oklahoma; State of Rhode Island; State of Tennessee; State of Texas; Commonwealth of Virginia; State of Washington; State of Wisconsin; District of Columbia Plaintiffs, v. CYBERONICS, INC., Defendant, Appellee.
    No. 16-1304
    United States Court of Appeals, First Circuit.
    December 16, 2016

      Joseph S. Hall, with whom Silvija A. Strikis, Katherine C. Cooper, Rachel Proctor May, Kellogg, Huber, Hanson, Todd, Evans & Figel, P.L.L.C., Washington, DC, Suzanne E. Durrell, Durrell Law Office, Boston, MA, Robert M. Thomas, Jr„ and Thomas & Associates were on brief, for appellant.
    William M. Katz, Jr„ with whom Melissa Michelle Davis, J. Patriot Bredehoft, Richard B. Phillips, Thompson &' Knight LLP, Timothy H. Madden, and Donnelly, Con-roy & Gelhaar LLP, Boston, MA, were on brief, for appellee.
    Before BARRON, SELYA, and STAHL, Circuit Judges.

      . Hagerty’s surviving claims against Cyberon-ics were his allegations regarding retaliatory discharge under 31 U.S.C. § 3730(h) (Count 31) and wrongful termination and retaliation in violation of public policy under Mass. Gen. Laws ch. 12, § 5J (Count 33). These claims were voluntarily dismissed without prejudice and are not on appeal. Hagerty also does not separately address the dismissal of his other state law claims in his briefing to this court. We similarly decline to do so in our opinion.

   STAHL, Circuit Judge.

Relator-Appellant Andrew Hagerty (“Hagerty”) brought a qui tam action against Appellee Cyberonics, Inc. (“Cyber-onics”) alleging, among other things, that Cyberonics violated the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., and related state statutes. Specifically, Hagerty alleged that Cyberonics promoted medically unnecessary replacements of batteries in nerve stimulator devices used to treat epilepsy patients, which in turn resulted in patients and medical providers filing false claims for reimbursement from government health care programs.

The district court dismissed all but two of Hagerty’s claims under Federal Rule of Civil Procedure 12(b)(6), including the FCA allegations, holding that Hagerty’s First Amended Complaint was not pled with the particularity required by Federal Rule of Civil Procedure 9(b). Following this dismissal, the district court also denied Hagerty’s request for leave to file a Second Amended Complaint on the basis of undue delay. Hagerty now challenges the district court’s ruling on both fronts, maintaining that his First Amended Complaint satisfies Rule 9(b) and asserting that the district court abused its discretion when denying his motion for leave to file a Second Amended Complaint. After careful consideration, we affirm.

I. Facts & Background

We recite the relevant facts as they appear in Hagerty’s First Amended Complaint. See Hochendoner v. Genzyme Corp., 823 F.3d 724, 730 (1st Cir. 2016). The Vagus Nerve Stimulator (VNS) is a medical device that is implanted in patients with refractory epilepsy, a severe form of the disease in which a patient’s seizures seriously interfere with their quality of life and do not respond to other medications or treatment. The VNS works by delivering short electrical pulses to the vagus nerve through a wire. Each VNS system contains a battery, and the entire VNS system must be surgically replaced when the battery nears the end of its life.

Patients with refractory epilepsy often qualify for coverage under government' healthcare programs like Medicare and Medicaid. Some treatments for refractory epilepsy, including placement of the VNS, are reimbursed by those programs. These programs impose certain requirements on healthcare providers, such as signing a Provider Agreement with the Centers for Medicare and Medicaid Services (“CMS”). In these agreements, providers certify, among other things, that their claims for reimbursement relate to a reasonable and medically necessary treatment. 42 U.S.C. § 1395y(a)(l)(A).

On February 4, 2013, Hagerty filed a qui tarn complaint under seal against Cyberon-ics, alleging that it engaged in a fraudulent scheme to encourage doctors and patients to prematurely and unnecessarily replace batteries in VNS systems. Hagerty, having gained knowledge of the scheme firsthand as a former sales representative of Cyber-onics, further alleged that this scheme caused significant monetary damages to government healthcare programs by inducing patients and medical providers to file false claims for reimbursement in violation of 31 U.S.C. § 3729(a). On October 29, 2013, the government filed a notice declining to intervene in the case, and on December 5, 2013 the complaint was unsealed and served on Cyberonics. Cyberonics then moved to dismiss the complaint on April 28, 2014 on several grounds, including under Rule 12(b)(6) for failure to state a claim and Rule 9(b) for failure to allege instances of fraud with particularity.

Hagerty amended his pleadings and filed his First Amended Complaint on May 19, 2014. The First Amended Complaint alleged that in 2005, the FDA approved the VNS as a treatment for depression, and, anticipating that much of its future growth would come from this market, Cy-beronics hired 300 new salespersons. Cy-beronics then allegedly began lobbying CMS to approve Medicare reimbursement for VNS therapy in depressive patients, which CMS ultimately declined to grant. Facing a dire financial situation, Cyberon-ics reportedly decided to refocus its sales efforts on epilepsy patients, with a particular interest in re-sales to already existing VNS patients.

The First Amended Complaint emphasized that this new sales plan was driven by a “carrot and stick” approach, where sales representatives were rewarded for meeting “aggressive sales quotas,” were placed in a Performance Improvement Program if they did not achieve 75% of their revenue goals in a given quarter, and were terminated the following quarter if their performance did not improve. Hagerty alleged that, under such conditions, Cy-beronics’ sales representatives resorted to fraudulent sales tactics, such as refusing to provide doctors and patients with accurate VNS battery life calculations and encouraging doctors and patients to replace these batteries prematurely.

The First Amended Complaint further alleged that approximately 50% of Cyber-onics’ revenue came from Medicare and Medicaid, with additional revenues coming from TRICARE, the Department of Defense, the Department of Veterans Affairs, and the Federal Employee Health Benefits Program. Hagerty went on to list sixteen hospitals which he claimed had performed and billed for VNS therapy implants in epileptic patients, and specifically named the Southbury Training School, Monson Development • Center, and Wrentham Development Center as “long-term care facilities . ..■ in which vulnerable patients were subjected to unnecessary surgeries to implant replacement devices.” The First Amended Complaint further identified a Dr, Pena, who had three patients undergo battery replacement procedures between September 30, 2010 and November 18, 2010. It also identified a Dr. Thompson, who allegedly, told Hagerty that a Cyber-onics sales representative falsely told physicians to replace VNS batteries prematurely. Moreover, . the First Amended Complaint alleged that Hagerty reviewed an internal patient list and saw that several of Dr. Thompson’s patients had received VNS device replacements in 2010..

By way of conclusion, the First Amended Complaint projected that at least 10,000 medically unnecessary VNS device replacements had occurred at these hospitals and centers since 2007. Coupled with an estimated cost of $20,000 per procedure and an assumption that government healthcare programs covered approximately 50-60% of these procedures, Hagerty reasoned that government healthcare programs lost at least $100 million as a result of Cyberonics’ scheme,

Cyberonics again moved to' dismiss the case. On March 31, 2015, the district court granted the motion, finding that Hagerty had not pled his allegations with the requisite particularity required by Rule 9(b). On August 14, 2015, Hagerty moved for leave to file a Second Amended Complaint. Three months later, the district court denied Hagerty’s motion on the basis of undue delay. This appeal followed.

II. Analysis

Hagerty insists that his First Amended Complaint satisfied Rule 9(b)’s particularity requirement and, regardless of the district, court’s view- on that matter, that he should have been given leave-to file a Second Amended Complaint. We review the granting of a motion to dismiss de novo, United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 45 (1st.Cir. 2009), and the denial of a motion to amend for abuse of discretion, United States ex rel. Kelly v. Novartis Pharms. Corp., 827 F.3d 5, 10 (1st Cir. 2016) (citing United States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104, 116 (1st Cir. 2010)).

A. The FCA and Rule 9(b)

The FCA penalizes those who present, or cause to be presented, “false or fraudulent elaim[s] for payment or approval” to the federal government. 31 U.S.C. § 3729(a)(1). Thus, fraud under the FCA has two components: the defendant must submit or cause the submission of a claim for payment to the government, and the claim for payment must itself be false or fraudulent. United States ex rel. Ge v. Takeda Pharm. Co., 737 F.3d 116, 124 (1st Cir. 2013) (“Because FCA liability attaches only to false claims, merely alleging facts related to a defendant’s alleged misconduct is not enough. Rather, a complaint based on [the FCA] must sufficiently establish that false claims were submitted for government payment as a result of the defendant’s alleged misconduct.”) (internal citations omitted).

Federal. Rule of Civil Procedure 9(b), meanwhile, requires that a complaint state these components with “particularity,” meaning relators like Hagerty must allege the.“who, what, when, where, and how of the alleged fraud.” Id. at 123 (internal citation and quotation marks omitted). Still, we have repeatedly emphasized that there is no “checklist of mandatory requirements” that each allegation in a complaint must meet to satisfy Rule 9(b), United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 233 (1st Cir. 2004), abrogated on other grounds by Gagne, 565 F.3d at 46 n.7, and that a “somewhat ‘more flexible’ standard” applies in qui tarn actions where the defendant is alleged to have induced third parties to file false claims, Kelly, 827 F,3d at 13 (1st Cir. 2016) (quoting United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 29-30 (1st Cir. 2009)).

A relator can meet this more accommodating standard by “providing ‘factual or statistical evidence to strengthen the inference of fraud beyond possibility’ without necessarily providing details as to each false, claim.” Ge, 737 F.3d at 123-24 (quoting Duxbury, 579 F.3d at 29) (emphasis added). Such evidence generally includes, inter alia, the “‘specific medical providers who allegedly submitted false claims,’ the ‘rough time periods, locations, and amounts of the claims,’ and ‘the specific government programs to which the claims were made.’ ” Kelly, 827 F.3d at 13 (quoting Ge, 737 F.3d at 121, 124).

As the district court noted, “the allegations concerning [Cyberonics’ scheme] are unquestionably adequate to survive a motion to dismiss.” United States ex rel. Hagerty v. Cyberonics, Inc., 95 F.Supp.3d 240, 264 (D. Mass. 2015). Nonetheless, the First Amended Complaint’s factual and statistical evidence struggles to connect these allegations with the submission of any false claims to government programs.

Hagerty compares his complaint to those we deemed adequate in Duxbury and United States ex rel. Escobar v. Universal Health Servs., Inc., 780 F.3d 504 (1st Cir. 2015), overruled on other grounds by — U.S. -, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016). In Duxbury, the relator alleged that the defendant-company paid kickbacks to eight named medical providers, thereby inducing these providers to submit false claims for reimbursement to Medicare. Duxbury, 579 F.3d at 30. Despite being a “close call,” we held that the complaint satisfied Rule 9(b) because “Dux-bury ha[d] identified, as to each of the eight medical providers (the who), the illegal kickbacks (the what), the rough time periods and locations (the where and when), and the filing of the false claims themselves.” Id. see also Ge, 737 F.3d at 124 (noting allegations in Duxbury were “barely adequate” under Rule 9(b)).

Similarly, in Escobar, we concluded that the relator satisfied Rule 9(b) by alleging “twenty-seven separate dates on which claims were submitted in connection with [care provided by unlicensed and unsupervised personnel], each time including the relevant billing codes, amount invoiced, and the name of the [defendant’s] staff member who provided the treatment for which reimbursement was sought.” 780 F.3d at 515. Though the allegations concerned claims made in connection with a single patient’s care, we allowed the complaint’s other, more general, allegations to proceed because they stemmed from a “systematic failure” to enforce licensure and supervision requirements that necessarily “infected’’ other claims with fraud. Id.

The allegations in Hagerty’s First Amended Complaint are neither as specific as those in Duxbury nor as systematic as those in Escobar. Despite referencing a long list of healthcare providers who performed and billed for VNS replacement surgeries, the complaint does not allege whether these providers submitted reimbursement claims to the government for unreasonable and medically unnecessary procedures. Likewise, the complaint does not allege how many false claims these providers purportedly submitted or how Cyberonics’ actions caused their submission. And though Hagerty identifies several doctors and hospitals with patients who had VNS replacement surgeries, he does not allege that any government healthcare program covered these patients or that any medical provider submitted claims for reimbursement on their behalf.

Similarly, the First Aménded Complaint alleged that Cyberonics employees tried to contact patients about scheduling VNS replacement surgeries without first consulting their doctor. The complaint, however, contains no assertion that these efforts actually resulted in patients scheduling, doctors performing, or government healthcare programs reimbursing the contemplated surgeries. See Kelly, 827 F.3d at 15 (holding that relators failed to tie their allegations of misconduct to “specific fraudulent claims for payment”); Ge, 737 F.3d at 124 (rejecting a “per se rule that if sufficient allegations of. misconduct are made, it necessarily follows that false .claims and/or material false information were filed”). Simply put, we cannot infer, based on the allegations before us, that Cyberonics’ actions “infected” other VNS reimbursement claims with fraud.

The complaint’s most specific allegation comes where Hagerty states that three healthcare providers, Southbury Training School, Monson Development Center, and Wrentham Development Center, had patients who were “seriously disabled” and eligible for various government healthcare programs, and that the VNS replacement surgeries conducted on those patients necessarily resulted in the submission of at least some false reimbursement claims. But again, without any allegation that the patients were actually covered by government programs or that certain replacement procedures conducted on these patients were medically unnecessary, Hagerty has “[a]t most ... [only] raise[d] facts ... suggesting] fraud was possible.” United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 788 (1st Cir. 2007), overruled on other grounds by Allison Engine v. United States ex rel. Sanders, 553 U.S. 662, 128 S.Ct. 2123, 170 L.Ed.2d 1030 (2008).

Fighting an uphill 'battle, Hagerty supplements his factual allegations with'certain statistical allegations which, he claims, compel the inference he wants us to recognize. First, the complaint alleges that a majority of the patients receiving replacement devices are covered by government healthcare programs and that approximately half of Cyberonics’ revenues came from these programs. Second, the complaint estimates that there have been “over 10,000 medically unnecessary and unreasonable VNS device replacements” since 2007 and that patients covered by government healthcare programs “account for at least 50-60% of these unnecessary-replacements.”

These statements are too broad to be given much weight. Hagerty does not allege that any particular patient was actually covered by a government program, provides no basis for his estimate of 10,000 unnecessary procedures, and does not link Cyberonics’ revenues to these procedures. Viewed individually or as a whole, Hagerty’s “evidence and arguments proceed more by insinuation than any factual or statistical evidence that would strengthen the inference of fraud beyond possibility.” See Kelly, 827 F.3d at 15 (internal marks omitted). Accordingly, we affirm the district court’s dismissal of Hagerty’s First Amended Complaint.

B. Motion to Amend

Hagerty also claims that the district court abused its discretion when it denied his motion to amend the First Amended Complaint on the basis of undue delay. Federal Rule of Civil Procedure 15(a) provides that a party may, in certain circumstances, amend a pleading without leave of a court. In all other cáses-, howéver, a party may only amend its pleadings with the opposing party’s written ’consent or the court’s leave. Fed. R. Civ. P. 15(a)(2).

Though courts “should freely give leave when justice so requires,” id. amendments may be denied for several reasons, including “undue delay, bad faith, dilatory motive of the requesting party, repeated failure to cure deficiencies, and futility of amendment,” Rost, 507 F.3d at 733-34 (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)), As relevant here, undue delay, on its own, may be enough to justify denying a motion for leave to amend. Calderón-Serra v. Wilmington Trust Co., 715 F.3d 14, 20 (1st Cir. 2013); see also United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111, 119-20 (1st Cir. 2014). In these cases, a movant has “[at the very least] the burden of showing some valid reason for his neglect and delay.” Perez v. Hosp. Damas, Inc., 769 F.3d 800, 802 (1st Cir. 2014) (quoting In re Lombardo, 755 F.3d 1, 3 (1st Cir. 2014)) (alteration in original). In assessing whether a movant has carried this burden, courts must take into account “[w]hat the plaintiff knew or should have known and what he did or should have done.” Leonard v. Parry, 219 F.3d 25, 30 (1st Cir. 2000).

A significant amount of time clearly passed here. See, e.g., In re Lombardo, 755 F.3d at 3-4 (discussing cases that imposed on the movant the burden to explain grounds for, delay when the delay was fourteen,, .fifteen, and seventeen months, respectively). The district court aptly summarized Hagerty’s listless approach - toward amending his complaint as follows:

Hagerty filed his initial complaint on August 8, 2012, He filed the present action on February 4, 2013. After Cyber-onics filed a motion to dismiss, Hagerty amended the complaint on May 19, 2014. Cyberonics. moved to dismiss the first amended complaint ... on June 18, 2014. The Court ruled on that motion on March 31, 2015; Hagerty did not move for leave to file a second amended complaint until August 14, 2015. That motion was filed (1) more than three years after Hagerty filed the initial lawsuit; (2) more than two and a half years after he filed the initial complaint ...; (3) more than fourteen-months after he filed the -first- amended complaint; (4) more than .-thirteen months after Cyberonics moved to dismiss the first amended complaint; and (5) more than four months after the Court’s memorandum and order on the motion to dismiss.

United States ex rel. Hagerty v. Cyberonics, Inc., 146 F.Supp.3d 337, 343-44 (D. Mass. 2015).

Hagerty’s proffered explanations for his delay are twofold. First, Hagerty argues that the only relevant period of delay was the four months after the granting of the motion to dismiss and places responsibility for any delay accruing before, the dismissal squarely on the district court. We can easily reject this argument, however, because nothing prevented Hagerty from moving for leave to plead any new information once he became aware of it. Where we have excused delay based on the actions of a district court, -it has been because the district court did not promptly deal with a motion to amend, not because the district court took its time evaluating a motion to dismiss. See Farkas v. Tex. Instruments, Inc., 429 F.2d 849, 851 (1st Cir. 1970). In the motion to amend cases, the delay is attributable to the district court because the motion evidences the movant’s proactive approach to addressing known weaknesses in the First Amended Complaint.

Second, Hagerty maintains that he could not have known or anticipated the deficiencies that would form the basis of the district court’s dismissal of his First Amended Complaint. He specifically contends that unlike in other cases where the amended complaints were dismissed due to the plaintiffs lack of diligence, see Acosta-Mestre v. Hilton Intern. of P.R., Inc., 156 F.3d 49, 53 (1st Cir. 1998), he has shown “care and attentiveness” towards assuaging the district court’s concerns about his complaint. But Cyberonics’ motion-to dismiss, filed in June 2014, put Hagerty on notice of the deficiencies in the complaint, and he made no attempt to fix these deficiencies until August 2015. See Feliciano-Hernández v. Pereira-Castillo, 663 F.3d 527, 538 (1st Cir. 2011) (upholding district court’s undue delay determination where motion to amend was filed “nearly a year after the motion to dismiss was filed”); ACA Fin. Guaranty Corp. v. Advest, Inc., 512 F.3d 46, 57 (1st Cir. 2008) (“Plaintiffs may not, 'having the needed information, deliberately wait in the wings ... with another amendment to a complaint should the court hold the first amended complaint was insufficient. Such an approach would impose unnecessary costs and inefficiencies on both the courts and party opponents.”).

Thus, we conclude both that Hagerty did not meet his burden of providing a valid reason for his delay and that the district court did not abuse its discretion in denying his motion for leave to amend.

Ill, Conclusion

Thé judgment of the district court is AFFIRMED.

      . At the time CMS denied its request, Cyber-onics was allegedly $132.5 million in debt.

      . Cyberonics employees purportedly represented that these batteries should be replaced after four or five years despite their average lifespan being between eight and nine years. As a result of this new sales tactic, Hagerty alleges that Cyberonics erased its debt by 2010 and avoided bankruptcy.

      . Cyberonics alternatively argues that the district court also denied Hagerty's motion because any amendment would have been futile. Since, as we will explain, the district court's denial was justified under an undue delay analysis, we decline to consider the futility of Hagerty's proposed amendments.

      . Only one patient from these facilities is actually identified in the complaint: "F.P.,” a Medicare-eligible epileptic whose VNS device was replaced on May 12, 2010. Paralleling the broader problems with Hagerty’s allegations, there is no indication that F.P. was an actual Medicare recipient, that his replacement surgery was unnecessary, or that any false claim was submitted on his behalf.

      . A party may amend a pleading once as a matter of course within “21 days after serving it,” or “if the pleading is one to which a responsive pleading is required, 21 days after , service of a responsive pleading or 21 days after, service of a motion under, Rule 12(b), (e), or (f), whichever is earlier.” Fed. R. Civ. P. 15(a)(1).

      . Hagerty cites to a long list of our decisions, including Hayes v. New England Millwork Distribs., Inc., 602 F.2d 15, 19 (1st Cir. 1979), and Klunder v. Brown Univ., 778 F.3d 24, 34 (1st Cir. 2015), which, he claims, requires us to also find that the delay was prejudicial to the opposing party. Hayes, however, noted that "[wjhile courts may not deny an amendment solely because of delay and without consideration of the prejudice to the opposing party, it is clear that ‘undue delay’ can be a basis for denial[.]” 602 F.2d at 19 (internal citations omitted). Similarly, although Klun-der states that “[i]n reviewing a district court's decision on whether or not to grant an amendment, [appellate courts] routinely focus [their] analysis on the prejudice to the non-moving party,” 778 F.3d at 34, its immediate citation to the. Hayes language identified above signifies that we were referring to delay, not undue delay. Id.


text:
    Debra TROIANO, Plaintiff, Appellant, v. AETNA LIFE INSURANCE COMPANY and General Dynamics Corporation Long Term Disability Plan, Defendants, Appellees.
    No. 16-1307
    United States Court of Appeals, First Circuit.
    December 16, 2016

      J. Scott Kilpatrick, with whom Mason J. Waring and Chisholm Chisholm & Kilpa-trick LTD, Providence, RI, were on brief, for appellant.
    Jonathan C. Bond, with whom Miguel A. Estrada, Gibson, Dunn & Crutcher LLP, Washington, DC, Kenneth J. Kelly, Scar-lett L, Freeman, and Epstein Becker & Green, P.C., New York, NY, were on brief, for appellees.
    Before LYNCH, LIPEZ, and BARRON, Circuit Judges.
   LYNCH, Circuit Judge.

This lawsuit arises from a dispute between an ERISA disability plan administrator and a beneficiary over the amount by which the monthly disability payments made to the beneficiary should be offset by her other monthly income from Social Security. The administrator maintains that the disability payments must be offset by the gross (pre-tax) amount of Social Security income, while the beneficiary argues that the payments must be offset by the net (post-tax) amount of Social Security income. The district court found for the administrator, noting that its interpretation of the Plan language to allow for a gross offset was entitled to deference and was, in any event, ultimately reasonable. In addition to contesting this decision, the beneficiary complains that the district court abused its discretion when it denied the beneficiary’s broad requests for discovery. Having made a number of assumptions in the beneficiary’s favor, we affirm. To be clear, the dispute is not about whether the Social Security income may offset the disability payments. It is about whether the administrator may use the simple gross amount of the Social Security payments for offset purposes.

I.

Plaintiff Debra Troiano is a former employee of Electric Boat Corporation, a subsidiary of defendant General Dynamics Corporation (“GDC”). While working there from 1988 to 2003, Troiano participated in GDC’s long-term disability (“LTD”) Plan, which was funded and administered by defendant Aetna Life Insurance Company (“Aetna”).

A. The Plan’s Structure and Documents

GDC’s LTD Plan is an employee welfare benefits plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq. The terms of the Plan are set forth in four relevant documents: (1) the Group Policy, which contains general terms and conditions governing the Plan; (2) the Summary of Coverage, which details the LTD benefits; (3) the Booklet, which describes the group coverage plan; and (4) the Summary Plan Description (“SPD”). GDC issued the SPD in compliance with ERISA, which requires a plan to provide information “written in a manner calculated to be understood by the average plan participant, and ... sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” Id. § 1022(a),

The Plan itself vests Aetna with broad authority to exercise discretion in administering the Plan. The Group Policy explains that Aetna is a fiduciary under ERISA and has “discretionary authority to ,, construe any disputed or doubtful terms of th[e] policy.” The Group Policy further reserves Aetna’s “right to adopt reasonable policies, procedures, rules, and Interpretations of th[e] policy to promote orderly and efficient administration.” The SPD describes Aetna’s authority in a similarly expansive way,- assigning Aetna the “absolute authority and sole discretion” to interpret all terms of the Plan and to resolve ambiguities in the Plan or the SPD.

The relevant documents also provide that a Plan participant who suffers a “total disability” will receive monthly LTD benefits. The amount of such benefits will equal a percentage of the participant’s “predisa-bility earnings,” up to a monthly maximum of $18,000, “minus all other income benefits” that are “payable for a given month” to the participant or to her spouse, children, or dependents. The Booklet reiterates that “[i]f other income benefits are payable for a given month[,] [t]he monthly benefit payable under th[e] Plan for that month will be the lesser of: the Scheduled Monthly LTD Benefit; and the Maximum Monthly Benefit; minus all other income benefits.” It further defines “other income benefits” to encompass “[b]enefits under the Federal Social Security Act.”

The SPD consistently states that basic monthly earnings are “the gross monthly pay paid to you by the Company for performing your job in effect immediately before the Disability begins.” It clearly provides that “[y]our benefit amount from the LTD Plan is reduced by any payments you are eligible to receive from other sources, such as ... [benefits under the Federal Social Security Act,” It further clarifies that,the monthly LTD payments will not be reduced by any cost-of-living increases in other income benefits.

Importantly, as “an example of how the benefit reduction works,” the SPD provides a scenario in-which Tom, a fictional beneficiary, “has Basic Monthly Earnings of $3,000, bought the 60% level of coverage, ... becomes eligible for LTD benefits .., [and] qualifies for a Social Security benefit of $600 per month.” The SPD expressly states that, under this example, Tom’s monthly LTD benefits would be $1,200: $1,800, which equals 60% of $3,000, minus $600 in Social Security benefits.

The SPD explains that participants can choose between one of two benefit levels: the “base level” of 50% of predisability earnings or. the “buy-up” level of 60% of predisability earnings. The employer pays the premiums for 50% of coverage. Participants who choose the buy-up level must pay the premium for the additional 10% of coverage. The SPD explains that the “cost for the additional coverage is deducted from [the participant’s] paycheck on an after-tax basis.” While the participant is “taxed on both [her own] cost and the Company contributions,” the SPD assures that “the LTD Plan benefit will not be subject to income tax.” Troiano elected the 60% coverage option.

B. Troiano’s Eligibility for LTD and Social Security Benefits

Troiano became disabled in July 2003 and applied for Plan benefits. From December 2003, when Aetna approved her claim, until April 2010, when Aetna began offsetting her monthly LTD benefits by her gross Social Security income, Aetna issued to Troiano monthly payments of $3,350, which equals 60% of $5,583.33, Troiano’s monthly gross predisability earnings. •

In a letter dated June 10, 2009, Aetna informed Troiano that an application for Social Security Disability Insurance (“SSDI”) benefits on her behalf was warranted. In fact, Troiano had already applied for SSDI benefits in June 2004. After years of administrative wrangling and litigation in federal district-court, an administrative law judge determined in October 2009 that Troiano had been “under a disability,” as defined by the Social Security Act, since July 12, 2003. An award letter from the Social Security Administration subsequently confirmed that Troiano had been entitled to baseline monthly payments of $1,783 starting in January 2004 (five calendar months after becoming disabled). It further noted that, in addition to the $1,783, Troiano was entitled to incrementally greater amounts that took into account annual cost-of-living adjustments (“COLAs”) for each year' she received SSDI ■ payments. By December 2008, the monthly SSDI benefits with COLAs had risen to $2,131, which was $348 more than the $1,783 baseline. The award letter lastly stated that Troiano would receive a lump-sum payment for the amount that had been due to her through January 2010.

In a letter dated April 16, 2010, Aetna informed Troiano that it had learned of her monthly $1,783 SSDI award, as well as the retroactive lump-sum payment. Aetna’s letter reminded Troiano that under the provisions of the Plan, her LTD benefits were subject to offset by “other income benefits,” that such benefits included “[b]enefits under the Federal Social Security Act,” and that Aetna had a right to recover overpayments. After recounting the relevant Plan provisions, the letter announced that Aetna would begin offsetting Troiano’s monthly LTD benefits by $1,783, the gross amount of her SSDI benefit. Aetna consistently used this $1,783 amount in all of its calculations regarding the offset. Aetna also demanded, and has since received from Troiano, full reimbursement of $126,526—the amount by which it had overpaid Troiano between January 2004 and March 2010.

Fifteen months later, in a letter dated July 29, 2011, Troiano, through her counsel, first requested that Aetna offset her LTD benefits by the net, rather than the gross, amount of her SSDI benefits. As stated in this letter, it is undisputed that Troiano’s LTD benefits were tax-free, whereas she was required to pay federal and state income taxes on her SSDI benefits. Following internal communications discussing the “exact verbiage” that Aetna had used in response to such requests before, Aetna denied Troiano’s request in a short letter to her counsel dated November 28, 2011: “It is industry standard to offset the ... gross amount and not the net amount. To adjust the SSDI offset, according to net amount, would involve taxes and we do not get involved in taxation.”

After another six months, Troiano’s counsel followed up with a second letter. Styled as an “appeal” of Aetna’s decision to apply a gross offset and dated May 25, 2012, this letter articulated Troiano’s argument for why a net offset was proper. Troiano also requested in the letter that Aetna turn over numerous documents that she claimed were relevant to Aetna’s decision to apply a gross offset. She asserted that Aetna was obligated to comply with her request under ERISA and applicable Department of Labor regulations. Although internal emails reveal that Aetna’s in-house legal team discussed this May 2012 letter, Aetna never responded to Troiano’s second request.

Aetna continues to offset Troiano’s monthly LTD benefits by the gross amount of her $1,783 baseline monthly SSDI income, as it has always done.

II.

On November 13, 2014, Troiano filed suit against Aetna and GDC in the U.S. District Court for the District of Rhode Island. She alleged that Aetna had breached its fiduciary duty and sought a declaration “that her past and future LTD benefits should be offset against the SSDI benefits she was awarded minus any income taxes she was assessed on such benefits.” (We do not recount the procedural history surrounding Troiano’s amended complaint, which is no longer relevant.)

Defendants GDC and Aetna moved for summary judgment in March 2015. On May 8, 2015, the district court held a hearing on Troiano’s motion for an order compelling production of privileged documents and for discovery under Federal Rule of Civil Procedure 56(d). The district court denied the motion from the bench. Throughout the hearing, the court reminded Troiano that “discovery [wa]s the exception” in ERISA cases and thus that Troiano faced a heavy burden of “narrowing [the discovery request] and tailoring it to those bits of information that [she] need[ed] in order to respond” to the defendants’ summary judgment motion. The district court ultimately ruled that Troiano had failed to meet this burden by seeking “a full panoply of discovery” with an impermissible “scattershot[,] I want everything” approach. The court would not allow Troiano’s “fishing expedition, to uncover something that w[ould] create an ambiguity” in the Plan language.

At the end of the hearing, the court also denied Troiano’s request for “conflict discovery” under Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008). The court found that Troiano’s case was not a “denial of benefits,” as explained below, and that Glenn was therefore inapposite.

Troiano then filed both a response to the defendants’ earlier motion for summary judgment and a cross-motion for summary judgment. The district court resolved the cross-motions in the defendants’ favor. As a threshold matter, in both the hearing and the summary judgment opinion, the district court rejected Troiano’s argument that Aetna’s offset of her LTD benefits by the gross amount of her SSDI benefits was a denial or reduction of benefits. It noted first that “this case [wa]s not about the denial of LTD benefits under 29 U.S.C. § 1132(a)(1)(B)” because it was “undisputed that Aetna approved Troiano’s disability claim and that it paid her more than $248,251 in unreduced, non-taxed LTD benefits over a six-year period.” Troiano v. Aetna Life Ins. Co., No. 14-496-ML, 2015 WL 5775160, at *7 (D.R.I. Sept. 30, 2015).

The district court likewise ruled that the offset was not a reduction of benefits because Troiano continued to benefit from “regular COLA increases which, under the terms of the Plan, do not contribute to a further reduction of her LTD benefits.” Id. at *8. Further, the court reasoned that the extent of Troiano’s income tax exposure was beyond Aetna’s control: “[WJhether and to what extent [Troiano’s] SSDI benefits are taxable is really controlled by her own life’s activities: whether she’s married, whether she has children, whether she adopts children, whether she has a home. [I]t’s all going to be determined by factors that are not within the control of Aetna.” Transcript of Motion Hearing at 36, Troiano, No. 14-496-ML, ECF No. 30 (D.R.I. 2015).

Rather than an appeal of a benefit denial or reduction, the district court viewed the suit as one involving straightforward interpretation of the Plan’s offset provision—namely, whether that provision should be read as providing for a gross or net offset. In approaching this task, the court rejected Troiano’s argument that de novo review should apply. The court instead held that Aetna’s interpretation was reasonable and thus entitled to deference because the Plan’s “plain language” vested Aetna with “broad discretionary powers and authority to interpret the provisions of the Plan.” Troiano, 2015 WL 5775160, at

First, it observed that the language of the Plan—which stated that “LTD benefits were subject to an offset against any SSDI benefits that were ‘payable to her for a given month,’ or which she was ‘eligible to receive’ ”—made no guarantees that Troi-ano would receive a tax-free monthly benefit equal to 60% of her gross monthly predisability earnings. Id. at *8. The court also noted that the SPD’s example decreased the fictional beneficiary’s LTD benefits by $600 in SSDI benefits per month, but that “[njothing in the example indicates that this is the amount the beneficiary actually receives, nor does the example indicate that the offset includes a calculation of any income tax liability the recipient may incur.” Id. Finally, the court credited Aetna’s argument that “including a calculation of each Plan participant’s varying ... income tax liability would be unreasonably burdensome and preclude the orderly and effective administration of the Plan.” Id. All of these considerations counseled in favor of Aetna’s Plan interpretation.

Troiano now appeals, challénging both the affirmance of Aetna’s Plan interpretation and the denial of discovery under Glenn and' Rule 56(d).

III.

A. Interpretation of Plan’s Offset Provision

We review de novo a district court’s resolution of cross-motions for summary judgment. Rideout v. Gardner, 838 F.3d 65, 71 (1st Cir. 2016). “We may affirm the district court’s decision on any grounds supported by the record.” Collazo v. Nicholson, 535 F.3d 41, 44 (1st Cir. 2008) (quoting Estades-Negroni v. Assocs. Corp. of N. Am., 377 F.3d 58, 62 (1st Cir. 2004)).

The parties’ first point of disagreement is the appropriate standard of review that the district court should have applied in resolving their conflicting interpretations of the Plan language. Troiano maintains that her lawsuit is an appeal of a benefits denial, or reduction under 29 U.S.C. § 1132(a)(1)(B), and that de novo review should apply. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). Although she acknowledges that a plan that expressly gives the plan administrator discretionary authority to construe the plan’s terms enjoys deference even under Firestone, see id. she argues that Aetna forfeited the deference that it would ordinarily enjoy because it violated ERISA regulations when it neglected to reply to her May 25, 2012 “appeal” letter. See Bard v. Bos. Shipping Ass’n, 471 F.3d 229, 230, 240 (1st Cir. 2006). Aetna responds by reiterating why Troiano’s suit concerns neither a denial nor a reduction in benefits and thus lies altogether outside of the § 1132(a)(1)(B) framework. In Aetna’s view, the language of the Plan, which grants Aetna “discretionary authority to[ ] ... construe any disputed or doubtful terms of th[e] policy,” should control.

We need not resolve this issue because, even making four key assumptions in Troi-ano’s favor and applying de novo review, she still loses. We assume for purposes of adjudicating this suit that (1) Troiano’s suit is indeed a challenge to a benefit denial or reduction under § 1132(a)(1)(B); (2) Aetna committed ERISA violations and thus forfeited the deferential standard of review it would otherwise have received; (3) Aetna’s assumed procedural violations prejudiced Troiano; and (4) Troiano filed a timely appeal within the Plan’s 180-day deadline and thus did not forfeit judicial review. See Stephanie C. v. Blue Cross Blue Shield of Mass. HMO Blue, Inc., 813 F.3d 420, 425-26 (1st Cir. 2016) (requiring showing of prejudice); Terry v. Bayer Corp., 145 F.3d 28, 40 (1st Cir. 1998) (requiring compliance with an ERISA plan’s internal appeal procedures). Aetna’s interpretation of the Plan language withstands de novo scrutiny.

The Plan language makes clear- that Troiano’s reading is wrong. The Plan repeatedly states that LTD benefits will be offset by other income benefits that are “payable” to the beneficiary or her dependents: “If other income benefits are payable for a given month: The monthly benefit payable under this Plan for that month will be the lesser of: the Scheduled Monthly LTD Benefit[ ] and the Maximum Monthly Benefit; minus all other income benefits, but not less than the Minimum Monthly Benefit.” It then defines “[o]ther income benefits” to “include those, due to your disability or retirement, which are payable to: you; your spouse; your children; your dependents.” The SPD, meanwhile, notes that a beneficiary’s LTD benefits will be reduced by other payments that she is “eligible to receive” from other income sources.

Both the “payable” and the “eligible to receive” language illustrate • that the amount that Aetna may permissibly offset is the full SSDI amount that is payable to Troiano or, put another way, that Troiano was eligible to receive from the. Social Security Administration. Troiano was eligible for monthly payments of $1,783, notwithstanding the amount of taxes—if any—that she could have to pay on that sum. Accordingly, the plain language of the Plan—which allows for offsets by other income that is payable to the beneficiary— supports Aetna’s decision to offset Troi-ano’s LTD benefits by the full amount of SSDI benefits for which she is eligible, rather than by the amount left over after she has paid whatever income tax she owes to federal and state governments.

The law is not in Troiano’s favor. The Eighth Circuit has reached precisely the same conclusion as ours after examining similar ERISA plan language. See Parke v. First Reliance Standard Life Ins. Co., 368 F.3d 999, 1005 (8th Cir. 2004) (where an LTD plan allowed the administrator to offset monthly LTD payments by -SSDI benefits that the beneficiary “[wa]s eligible to receive because of his/her Total Disability,” the administrator could offset its LTD payments by the gross SSDI amount,.because the beneficiary was “eligible to receive the full [pre-tax amount] each month” (emphasis added)).

The context in which the relevant provisions appear further confirms that the Plan allows for a gross offset. In the same section that defines “other income benefits” to include Social Security benefits; the Plan expressly limits the amount by which Aetna may offset LTD benefits by other types of income benefits. For instance, only “50% of any award provided under The Jones Act or The Maritime Doctrine of Maintenance, Wages and Cure” can count toward the offset of LTD benefits. Similarly, “retirement benefits for which [one is] or may become eligible under a group pension plan” qualify as offset-eligible income “only to the extent that such benefits were paid for by an employer.” The specificity with which the Jones Act and pension-plan benefits were defined demonstrates that the Plan was written with express limits on Aetna’s ability to offset, where such limits were actually contemplated. Cognizant of the Plan’s selective use of explicit limiting language..in defining “other income benefits,” we decline to read an implicit net-offset limitation into the Plan where nothing indicates that, the Plan includes one.

The accessible example provided in the SPD is also contrary to Troiano’s net-offset reading. In that example, Tom, a fictional beneficiary, had predisability earnings of $3,000 per month, signed up for the 60% level of coverage, became eligible for LTD benefits, and also “qualifie[d] for a Social' Security benefit of $600 per month.” Tom’s monthly LTD benefit would be $1,200 per the following calculation provided in the SPD:

$1,800 Tom’s unreduced LTD benefit (60% of $3,000)
- $600 Social Security benefit
$1,200 Tom’s monthly LTD benefit

This example does not mention taxes in any way. Rather, it states that Tom qualified for monthly SSDI benefits of $600— just as Troiano qualified for monthly SSDI benefits of $1,783—and deducts that full amount from his monthly LTD benefits. In addition to the Plan language, this example put Troiano on notice that her LTD benefits would be offset by any SSDI-benefit amount for which she was eligible, without any exploration into her tax liability, if any, on that sum.

The administrative consequences that would flow from Troiano’s contrary interpretation only confirm our reading in favor of a gross offset. Troiano’s interpretation—that Aetna must offset by the net amount of her SSDI benefits—would require Aetna to take in a staggering amount of personal tax information from Troiano and others similarly situated. It would require Aetna to audit that tax information in order to ensure the accuracy of the tax calculations provided by each beneficiary— not to mention the fact that the tax obligations of individual beneficiaries may change on a yearly basis, thereby requiring Aetna to account for and audit tax documents year after year, for beneficiary after beneficiary, on an individual basis. Such a system would result in a tremendous increase in Aetna’s administrative burden and, perhaps, affect its actuarial accounting. We find it implausible that a plan would envision such a complex scheme without a single reference to its implementation. Plan administrators could choose to pass on the added cost of doing business to beneficiaries in the form of higher premiums and lower benefits, ultimately hurting beneficiaries. The- cascading adverse effects of Troiano’s implausible interpretation reinforce the sensible industry standard among ERISA plan administrators to “not get involved in taxation.”

Troiano argues that the SPD’s assurance that her “LTD Plan benefit [would] not be subject to income tax” supports her contention that any SSDI benefits she receives should be offset on a net, rather than gross, basis. Otherwise, she contends, the Plan would violate its own guarantee that her “Scheduled Monthly LTD Benefit” would be “60% of [her] monthly predis-ability earnings.”

But the language of the SPD states that Troiano’s “benefit amount from the LTD plan”—undisputedly, a tax-free benefit— will be “reduced by any payments [a participant is] eligible to receive from other sources,” such as SSDI. Nowhere does the SPD state that “other income benefits” themselves will not be subject to tax. If anything, the SPD suggests the opposite by virtue of its reference to offsetting “payments.”

Nor does the Plan by its terms suggest otherwise. The Plan explicitly states—in accord with the SPD—that “[a'jny benefit actually payable may be reduced by ‘other income benefits.’ ” The Plan does not state that these other income benefits will not be subject to tax or that, after the offset by other income benefits, the benefit actually payable will also necessarily equal 60% of the participant’s gross monthly predisa-bility earnings. And, for the reasons just given, we do not believe it would be accurate to read the Plan impliedly to have said otherwise.

Finally, Troiano invokes the contra proferentem canon, but that canon does not salvage her losing claim. Contra prof-erentem counsels “that the policy terms must be strictly construed against the insurer and in favor of the insured ... when courts undertake de novo review of plan interpretations.” Stamp v. Metro. Life Ins. Co., 531 F.3d 84, 93 (1st Cir. 2008). But the canon applies only where the Plan language is ambiguous. See, e.g., Seaco Ins. Co. v. Davis-Irish, 300 F.3d 84, 86 (1st Cir. 2002). In this context, where the Plan language unambiguously supports Aetna’s interpretation, the canon has no application.

The Plan’s plain language, the' textual context in which that language appears, the sample SSDI offset provided in the SPD, and the administrative consequences of a net-offset system lead us to conclude that the Plan permits Aetna to offset LTD benefits by the gross amount of SSDI benefits. We reach this outcome even applying de novo review. Simply put, no provision in the Plan or SPD guaranteed Troi-ano 60% of her predisability earnings after' taking into account all relevant offsets and corresponding tax liabilities.

B. Denial of Discovery

Troiano also appeals the district court’s denial of discovery. She contends that under either Federal Rule of Civil Procedure 56(d) or a theory of Aetna’s structural conflict of interest, she should have been granted discovery. She is mistaken.

First, and assuming again in Troi-ano’s favor that her suit properly falls within the benefits-denial framework, Troi-ano did not meet her threshold burden of showing that Aetna’s purported conflict influenced its decision to deny her a benefit. While this circuit has recognized that “courts should take cognizance of structural conflicts in ERISA cases ... whenever a plan administrator, whether an employer or an insurer, is in the position of both adjudicating claims and paying awarded benefits,” Denmark v. Liberty Life Assur. Co. of Bos., 566 F.3d 1, 7 (1st Cir. 2009), we have also emphasized that the same burden-of-proof rules that apply to “any other aspect of an ERISA claim for improper denial of benefits” likewise apply to the conflict-discovery issue, Cusson v. Liberty Life Assur. Co. of Bos., 592 F.3d 215, 225 (1st Cir. 2010), abrogated on other grounds by Montanile v. Bd. of Trs. of Nat’l Elevator Indus. Health Benefit Plan, — U.S. -, 136 S.Ct. 651, 193 L.Ed.2d 556 (2016). The beneficiary thus bears the burden of showing that the conflict influenced the Plan administrator’s decision in some way. Troiano has offered nothing to show that Aetna’s structural conflict influenced its gross-offset decision.

Second, the district court did not abuse its “broad measure of discretion” in denying Rule 56(d) discovery. Mack v. Great Atl. & Pac. Tea Co., 871 F.2d 179, 186 (1st Cir. 1989) (quoting In re Recticel Foam Corp., 859 F.2d 1000, 1006 (1st Cir. 1988))). “If a nonmovant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition [to a summary judgment motion],” Rule 56(d) empowers the - district court to “allow time to obtain affidavits or declarations or to take discovery,” among other options. Fed. R. Civ. P. 56(d) (em phasis added). But “Rule 56(d) relief is not to be granted as a matter of course.... [T]he district court is entitled to refuse a Rule 56(d) motion if it concludes that the party opposing summary judgment is unlikely to garner useful evidence from supplemental discovery.” Hicks v. Johnson, 755 F.3d 738, 743 (1st Cir. 2014). Especially in the ERISA context, where “cases are generally decided on the administrative record without discovery,” Morales-Alejandro v. Med. Card Sys., Inc., 486 F.3d 693, 698 (1st Cir. 2007), the party seeking discovery must provide “some very good reason .., to overcome the strong presumption” against discovery, Liston v. Unum Corp. Officer Severance Plan, 330 F.3d 19, 23 (1st Cir. 2003)).

The district court did not abuse its discretion or cause Troiano to suffer “manifest injustice” when it concluded that she had not satisfied this heavy burden. Mack, 871 F.2d at 186. At the May 2015 motions hearing, the court noted that Troiano had impermissibly asked for “a Ml panoply of discovery,” taken a “scattérshoty I want everything” approach, and sought to uncover material that might “create an ambiguity” in the Plan language through a “fishing expedition.” Given that the case was a matter of interpreting Plan language, the court supportably ruled that it could “simply decide this case based on the facts as asserted by the Plaintiff and the plan documentation as provided in the administrative record.” We have no occasion to disturb this decision.

IV.

Because there is no ambiguity in the language of the Plan and no error in the district court’s decision to deny discovery, we conclude that Troiano received all that she bargained for through her monthly LTD' benefits that are offset by the gross amount- of her monthly SSDI benefits. We affirm.

      . The letter also urged Aetna to reduce the offset amount by Troiano’s monthly Medicare premiums and to reimburse her for various fees that she had incurred during the SSDI application process. These issues are not on appeal.

      . At oral argument, each party pointed out language that would have to have been included in the Plan or SPD for the opposing party’s interpretation to be reasonable. Troi-ano argued that it would have been simple for Aetna, to add one line in the Plan clarifying that LTD benefits would be offset by the gross amount of a beneficiary’s SSDI benefits, and yet Aetna did not do so. Aetna countered that Troiano’s reading of the Plan would require extensive language about the method by which it would calculate and audit each individual beneficiary’s tax liabilities and about the documentation that each beneficiary must submit to Aetna.

      . Indeed, at oral argument, Troiano could identify no analogous circumstance under which an ERISA plan administrator was responsible for calculating the tax liability of every plan participant.