Alta Wind I Owner Lessor v. United States, 897 F.3d 1365

Background

Congress enacted ARRA §1603 to provide cash grants equal to a percentage of the "basis" of certain renewable energy "specified energy property," i.e., depreciable tangible personal and other tangible property integral to a facility.
Plaintiffs bought six completed Alta windfarm facilities from Terra-Gen, placed them in service, and applied for roughly $703 million in §1603 grants; Treasury paid about $495 million.
Dispute centered on how to compute basis: plaintiffs used an "unallocated method" (allocating virtually all non‑excluded purchase price to grant‑eligible tangible property); the government argued the transactions were "applicable asset acquisitions" subject to I.R.C. §1060, requiring the residual (waterfall) allocation that allocates value to intangibles (e.g., PPAs, goodwill) before goodwill.
The Court of Federal Claims excluded the government’s valuation expert (Dr. Parsons) based on perceived nondisclosure and credibility issues, then ruled for plaintiffs, treating excess purchase price as "turn‑key" value allocated to tangible assets and holding §1060 inapplicable.
On appeal, the Federal Circuit held §1060 can apply where goodwill or going‑concern value "could under any circumstances attach," found the Alta transfers met that standard (PPAs and related agreements supported potential intangibles), and held the Claims Court erred in excluding the government’s expert under Rule 702 without allowing redirect.
The Federal Circuit vacated and remanded for allocation under the §1060 residual method and for reconsideration with the government’s expert testimony admitted; it also ordered reassignment on remand.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether I.R.C. §1060 applies (i.e., whether transferred assets are an "applicable asset acquisition")	Alta: No—facilities were not operational at transfer so goodwill/going‑concern could not attach; purchase price represents tangible/turn‑key value.	U.S.: Yes—PPAs, related agreements, excess consideration, and immediate post‑closing operation show goodwill/going‑concern could attach; §1060 residual allocation required.	§1060 can apply if goodwill/going‑concern could "under any circumstances attach;" facts here satisfy that standard; remand for allocation under the §1060 residual method.
Whether PPAs and related arrangements count as intangible assets supporting goodwill or going‑concern	Alta: PPAs are facility‑specific and nontransferable; cannot generate goodwill absent customer loyalty without contractual compulsion.	U.S.: PPAs create customer‑based intangibles and expected cash flows; they can contribute to goodwill/going‑concern even if performance begins only post‑closing.	Court: Contracts/PPAs can represent customer‑based intangibles; prospective goodwill can attach immediately after transfer; PPAs and transmission rights weigh in favor of §1060 application.
Whether excess purchase price is solely "turn‑key" tangible value (thus grant‑eligible)	Alta: Excess equals turn‑key value (Class V tangible) and should remain in grant‑eligible basis.	U.S.: Some excess is turn‑key (tangible) but other excess may reflect Class VI (I.R.C. §197 intangibles) or Class VII (goodwill); residual method distinguishes these.	Court: Turn‑key value is a Class V tangible but is distinct from intangibles; Claims Court must separate turn‑key from goodwill/intangibles on remand.
Whether exclusion of the government’s expert under Rule 702 was proper	Alta: Expert’s CV omitted pre‑2006 articles and his past writings undermine credibility; exclusion appropriate.	U.S.: Omission did not violate disclosure rules and bear on credibility not Rule 702 reliability; redirect should have been allowed.	Court: Excluding expert on general credibility grounds (and without permitting redirect) was reversible error—credibility is generally for the factfinder and not a Rule 702 gatekeeping basis absent methodological unreliability.

Key Cases Cited

Miami Valley Broad. Corp. v. United States, 499 F.2d 677 (Ct. Cl. 1974) (turn‑key value treated as part of tangible assets distinct from goodwill)
Dahme v. United States, 436 F.2d 486 (Ct. Cl. 1971) (discussing limits of earnings‑capitalization methods for valuing goodwill in short‑lived businesses)
Daubert v. Merrell Dow Pharm., 509 U.S. 579 (1993) (Rule 702 gatekeeping focuses on methodology and reliability, not witness credibility)
Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) (Daubert gatekeeping applies to non‑scientific expert testimony)
Elcock v. Kmart Corp., 233 F.3d 734 (3d Cir. 2000) (credibility may only affect Rule 702 admissibility if tied to methodology reliability)
In re Unisys Sav. Plan Litig., 173 F.3d 145 (3d Cir. 1999) (court may consider credibility in rare circumstances when assessing reliability)
Deputy v. Lehman Bros., 345 F.3d 494 (7th Cir. 2003) (exclusion of expert for credibility/persuasiveness errors is improper)
United States v. Vesey, 338 F.3d 913 (8th Cir. 2003) (district court erred excluding expert primarily for impeachment‑type defects)
Summit 6, LLC v. Samsung Elecs. Co., 802 F.3d 1283 (Fed. Cir. 2015) (credibility and correctness of expert opinions are for the factfinder)