221 F.3d 364 (2nd Cir.

2000)

CONSOLIDATED EDISON COMPANY OF NEW YORK,

INC., Plaintiff-Appellant,
v.
UNITED STATES OF AMERICA, Defendant-Appellee.
No. 1350, Docket 99-6186
August Term, 1999

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT
Argued March 24, 2000
Decided July 25, 2000

Consolidated Edison Company appeals from the judgment of the United

States District Court for the Southern District of New York (Mukasey, J.),
granting summary judgment in favor of the United States in a suit for
refund of a penalty for unlawful possession and use of nontaxable diesel
fuel.
Vacated and remanded.
FRANK AGOSTINO, Hackensack, N.J. (Calo Agostino, P.C., on the
brief), for Plaintiff-Appellant.
SEAN C. CENAWOOD, Assistant United States Attorney, New York,
N.Y. (Mary Jo White, United States Attorney for the Southern District of
New York, Jeffrey Oestericher, Assistant United States Attorney, on the
brief), for Defendant-Appellee.
Before: FEINBERG, JACOBS, and STRAUB, Circuit Judges.
Judge Straub dissents in a separate opinion.
JACOBS, Circuit Judge:
Under the Internal Revenue Code ("I.R.C."), certain chemically similar
fuels are taxed when used for highway use, but untaxed when used for
heating. To facilitate this disparate taxation of interchangeable substances,
the I.R.C. provides that untaxed fuel be dyed red and provides for

imposition of penalties when "any dyed fuel is held for use or used by any
person for a use other than a nontaxable use and such person knew, or had
reason to know, that such fuel was so dyed." 26 U.S.C. (I.R.C.) 6715(a)
(2). Red-dyed (untaxed) diesel fuel was accidentally delivered to
Consolidated Edison Company of New York, Inc. ("ConEd") for use in its
trucks, a taxable use, and the Internal Revenue Service ("IRS") assessed a
$31,000 penalty on the basis that ConEd had reason to know that the fuel
was dyed. ConEd filed this action to review the imposition of the penalty,
and now appeals from the judgment of the United States District Court for
the Southern District of New York (Mukasey, J.) granting summary
judgment in favor of defendant United States and dismissing ConEd's
complaint.

On appeal, ConEd argues that (i) as a matter of law, it lacked "reason to know"
that it possessed dyed fuel; (ii) summary judgment was granted despite the
existence of disputed issues of material fact as to whether it had reason to know;
and (iii) even if some penalty was properly imposed against ConEd, the IRS
incorrectly calculated it.

We reject ConEd's contention that it lacked reason to know as a matter of law,

but we agree that a disputed issue of material fact exists as to that issue, and
remand for further proceedings. We do not reach the calculation of the penalty.

BACKGROUND
3

The facts on this appeal are largely undisputed.

A. Taxation of diesel fuel

Because taxed diesel fuel for (inter alia) highway use and untaxed diesel fuel
for (inter alia) heating have largely similar chemical compositions and can be
employed interchangeably, federal law mandates that the untaxed fuel be
identifiable by the addition of red dye. See I.R.C. 4082(a). Nontaxable fuel is
commonly called "red-dyed fuel," while taxable fuel is called "clear fuel" or
"low sulphur diesel fuel." [A 48, 895].

Since January 1, 1994, it has been illegal to be in possession of red-dyed fuel

for taxable purposes. The relevant statute provides:

(a) Imposition of penalty.--If--

...

(2) any dyed fuel is held for use or used by any person for a use other than a
nontaxable use and such person knew, or had reason to know, that such fuel
was so dyed,

...

10

then such person shall pay a penalty in addition to the tax (if any).

11

I.R.C. 6715. The penalty for such possession or use is determined as follows:

12

(b) Amount of penalty.--

13

(1) In general.--. . . [T]he amount of the penalty under subsection (a) on each
act shall be the greater of--

14

(A) $1,000, or

15

(B) $10 for each gallon of the dyed fuel involved.

16

Id.
B. Facts

17

ConEd owns, operates, and leases highway vehicles that use clear--i.e., taxable-fuel. To service those vehicles, ConEd maintains fueling stations, one of which
is in College Point, Queens, New York (the "College Point fueling station" or
"College Point").

18

ConEd contracted with Metro Fuel Oil Corporation ("Metro") for deliveries of
clear fuel beginning January 1, 1997. The contract provided that ConEd would
pay the federal excise tax levied on clear fuel. ConEd's first Metro order,
placed on January 23, 1997, was for 2,000 gallons of clear fuel to be delivered
to the College Point fueling station.

19

ConEd's order was recorded on a delivery ticket generated by Metro. That

delivery ticket, which is potentially crucial, is approximately three inches by
nine inches and consists of a white top leaf, a yellow middle leaf, and a white

bottom leaf. The second and third leaves record what is written on the top leaf
by a standard pressure-dependent duplication process. The top leaf is
multicolored, with black entries mechanically printed on the red and blue
preprinted form. The ticket contains warnings, front and back, that dyed diesel
fuel (inter alia) is for nontaxable use only and that penalties apply for taxable
use.
20

On the ticket generated by the ConEd order, the box labeled "PRODUCT"
contains the typed entry "L.S.DIESEL," i.e., low-sulphur diesel, which is
another name for clear, taxed diesel fuel. It is undisputed that the phrase
"L.S.DIESEL" was highlighted in red by someone at Metro. (This phrase and
one other, irrelevant to this case, are the only things highlighted on the ticket.)
On the same ticket, the box labeled "TAXES" contains the typed figures
"8.25%/46.85," indicating (i) the rate at which the fuel was taxed (8.25%) and
(ii) the amount of the tax ($46.85). The obvious import of the entries in the
"TAXES" box is that the fuel delivered was subject to federal excise tax. The
ticket is reproduced as an appendix to the dissent; but unless the reader can
view the ticket in color, the appendix obscures a key entry. On the face of the
ticket (as is clear in color), the entry "L.S.DIESEL" appears in the right
column, highlighted in bright pink. But in black-and-white, the entry is
obliterated by the highlighter ink and appears as a dark blob.

21

By some accident of Metro's, ConEd's ticket was included among the orders for
red-dyed fuel and stamped "RED DYED" in red print larger than any other
words on the ticket. Metro's "RED DYED" stamp did not, however, exert
sufficient pressure on the top leaf to be reflected on subsequent leaves of the
ticket.

22

On Friday, January 24, 1997, Metro driver James Russell drove a truck full of
red-dyed fuel to the College Point fueling station, the ticket stamped "RED
DYED" in his possession. He arrived there around 7 a.m., stated that he was
delivering the first order under the new contract, and inquired as to the proper
delivery procedures. Russell claims that he then spoke with the supervisor of
the College Point fueling station, Robert Beers, and showed him the ticket;
Beers denies having spoken to Russell prior to the delivery.

23

It is undisputed, however, that Russell was told about College Point's delivery
procedures by Leonard Bertucco, another ConEd employee, and pumped the
2,000 gallons of red-dyed fuel into the fueling station's tank. Russell then
presented the delivery ticket, stamped "RED DYED," to Bertucco for signature.
Bertucco signed the ticket after a brief inspection in which, he claims, he
checked only the entry for quantity and did not notice the "RED DYED" stamp,

which was elsewhere on the page. Russell then detached the yellow middle leaf
of the ticket--which did not bear the imprint of the "RED DYED" stamp--and
gave it to Bertucco.
24

By error, Metro had delivered red-dyed fuel, which was placed in the station's
single, opaque holding tank for low-sulphur fuel. The coloration of the fuel in
the tank could not be ascertained by looking at the tank or by observing the
attached pumps or hoses. The station had not previously received delivery of
any red-dyed fuel.

25

The IRS does not contend that Bertucco or any other ConEd employee had
actual knowledge, at the time of delivery, that the fuel in the tank was reddyed; nor does the IRS claim that Bertucco or any other ConEd employee who
had access to the ticket had reason to know the significance of red dye in diesel
fuel. Bertucco did not ask Russell what type of fuel was being delivered, and
Russell did not say. The only sign to any ConEd employee that the fuel was
dyed was the stamp on the ticket checked by Bertucco.

26

Upon completing his rounds, Russell returned the top leaf of the delivery
tickets to Metro's office, where Metro's operations manager, Joseph
Ricciardella, inspected the day's tickets and discovered the error. He
immediately retained ABC Tank Cleaning ("ABC") to go to College Point and
pump out the misdelivered fuel. He also advised an unknown ConEd employee
at the fueling station that a mistake had been made and instructed that the
pumps that were delivering dyed fuel should be shut down. ConEd promptly
shut down the affected pumps.

27

Also that day, the Metro tickets were inspected by a person with the title "IRS
Dyed Diesel Fuel Compliance Officer," who asked about the delivery of dyed
fuel to ConEd and was apprised of the mistake and of the prompt and ongoing
efforts to remedy that mistake. Having thus learned that an innocent mistake,
committed without tax avoidance or evasion, without concealment, and without
harm, was about to be corrected voluntarily, immediately and without
consequence, officer Carl Suares sprang into action: he directed that ABC's
cleaning of the tank be halted, hastened to College Point, took a sample from
the holding tank, and instructed that the station's trucks be immobilized until he
could return three days later to sample their tanks.

28

On Saturday, January 25, 1997, the day after the delivery, ABC cleaned the
College Point holding tank. On Monday, January 27, after the weekend-long
impoundment of ConEd's College Point fleet, Suares returned and sampled the

tanks of the trucks. He concluded that the holding tank and the tanks of eleven
trucks contained red-dyed fuel, and prepared an assessment request demanding
payment of a penalty totaling $31,000: $20,000 for the 2,000 gallons of fuel at
$10 per gallon, plus $1,000 for each of the eleven trucks containing the dyed
fuel. See I.R.C. 6715(b)(1)(A)-(B). On March 11, 1997, ConEd paid the
penalty in full.
29

ConEd thereafter filed an administrative appeal with the IRS, arguing that any
violation of 6715 was inadvertent and thus not subject to penalty. ConEd also
challenged the penalty calculation. On May 13, 1997, the IRS denied ConEd's
administrative appeal.
C. Proceedings below

30

ConEd commenced this action for a refund on June 13, 1997. As in the
administrative appeal, ConEd argued that its conduct was not properly subject
to the penalty clause of 6715 and in any event that the IRS had incorrectly
calculated the applicable penalty. ConEd and the government cross-moved for
summary judgment following the completion of discovery. The district court
denied ConEd's motion for summary judgment and granted the government's
motion in substantial part. See Consolidated Edison Co. v. United States, 34 F.
Supp. 2d 160, 162 (S.D.N.Y. 1998) ("ConEd"); see also Consolidated Edison
Co. v. United States, No. 97 Civ. 4366(MBM), 1999 WL 420506, at *2
(S.D.N.Y. June 23, 1999) (on the government's motion for reconsideration,
granting full summary judgment in favor of the government); Consolidated
Edison Co. v. United States, No. 97 Civ. 4366(MBM), 1999 WL 688456, at *1
(S.D.N.Y. Sept. 2, 1999) (denying ConEd's motion for reconsideration). In
doing so, the district court held that under the plain language of 6715, ConEd's
lack of intent and its employees' ignorance concerning the import of red dye
were immaterial; all that mattered was ConEd's actual possession or use of the
fuel and its constructive knowledge that the fuel was dyed. See ConEd, 34 F.
Supp. 2d at 164-65. The district court further held that the act of transporting
the fuel from the holding tank to the trucks' tanks constituted "use" of the fuel;
that each act of possession or use was a separate "act" for the purpose of the
penalty provision; and thus that the $11,000 penalty for "using" the fuel in the
trucks was properly added to the $20,000 penalty for possessing the fuel in the
holding tank. See id. at 165-67.

31

The $31,000 amount of the penalty only partly reflects the penalty's gravity for
ConEd: successive penalties under 6715 are calculated by multiplying the
amount otherwise due under 6715(b)(1) by the total number of penalties
imposed on the taxpayer. See I.R.C. 6715(b)(2). Should another penalty be

imposed on ConEd, the existence of this prior penalty would double the amount
of that penalty.
DISCUSSION
32

ConEd's claims are three: (i) that it could not be subject to a penalty under
6715(a)(2) because the events alleged by the IRS did not constitute a violation
of that statute; (ii) that even if its conduct was properly subject to a 6715(a)
(2) penalty under the circumstances envisioned by the district court, a disputed
issue remained as to a factual matter material to that penalty, precluding
summary judgment; and (iii) that in any event the IRS miscalculated the
penalty due. We consider the first two arguments together because they are
inextricably linked; we decline to reach the third.1

33

As an initial matter, we note that jurisdiction is proper. ConEd having paid the
contested penalty and filed a Claim for Refund and Request for Abatement, the
district court had jurisdiction under 28 U.S.C. 1346(a)(1) and I.R.C. 7422(a)
to review the IRS's imposition of the penalty. This Court has jurisdiction to
review the final order of the district court pursuant to 28 U.S.C. 1291. Notice
of appeal was timely filed on July 22, 1999.
A. Standard of Review

34

This Court reviews de novo the district court's decision to grant summary
judgment. See Retrofit Partners I, L.P. v. Lucas Indus., Inc., 201 F.3d 155, 159
(2d Cir. 2000). Summary judgment is improper if there are genuine issues of
material fact; otherwise, judgment as a matter of law for the moving party is
warranted. See Sharkey v. Ultramar Energy Ltd., 70 F.3d 226, 228-29 (2d Cir.
1995). All ambiguities must be resolved, and all inferences drawn, in favor of
the nonmoving party. See id.
B. Violation of 6715(a)(2)

35

ConEd argues that it should not be subject to the penalty imposed under 6715
because (i) having ordered clear fuel--and duly paid the applicable tax--it had
no "reason to know" that it had committed a violation of I.R.C. 6715(a)(2);
and (ii) since it never used non-taxable fuel at the College Point fueling station
in the past, it had no duty to educate the employees at that location as to the
significance of red dye. ConEd also specifies the following disputed material
facts: (i) whether Beers saw the delivery ticket prior to the delivery; (ii)
whether Bertucco saw the "RED DYED" stamp on the ticket; and (iii) "what

knowledge a similarly situated corporate taxpayer in [ConEd]'s position should

possess" upon an employee's examination of the delivery ticket. [Blue 34].
36

The statute is not as complex as ConEd contends: a penalty is to be imposed

whenever "any dyed fuel is held for use or used by any person for a use other
than a nontaxable use and such person knew, or had reason to know, that such
fuel was so dyed." I.R.C. 6715(a)(2). ConEd concedes that dyed fuel was (at
least) held "for a use other than a nontaxable use," so the only question (bearing
on ConEd's violation of 6715(a)(2)) is whether ConEd "knew, or had reason to
know, that [the] fuel was so dyed." Id. (emphasis added). It is immaterial
whether ConEd's employees understood the significance of red coloration or
that a violation or other consequence would stem from ConEd's possession or
use of red-dyed fuel. Also immaterial was ConEd's purity of heart, or actual
payment of the applicable excise taxes. All that matters here under this statute
is ConEd's awareness that the fuel was dyed. ConEd is therefore not entitled to
judgment as a matter of law on the bases asserted.

37

Respondeat superior. As to whether ConEd "knew, or had reason to know, that

[the] fuel was so dyed," I.R.C. 6715(a)(2), it is undisputed that ConEd's
knowledge is imputed from that of its employees. This Court stated in Apollo
Fuel Oil v. United States, 195 F.3d 74 (2d Cir. 1999) (per curiam), that:

38

[Appellant] as a corporate entity had reason to know of the presence of reddyed fuel intentionally placed in its truck's propulsion tank. In general, when an
agent is employed to perform certain duties for his principal and acquires
knowledge material to those duties, the agent's knowledge is imputed to the
principal. Thus, "it is elementary" that a corporation "can be guilty of 'knowing'
... violations of regulatory statutes through the doctrine of respondeat superior."

39

Id. at 76-77 (quoting United States v. A&P Trucking Co., 358 U.S. 121, 125,
79 S.Ct. 203, 206 (1958)) (internal citations omitted). The question is whether
ConEd's employees--Bertucco or Beers or both--"knew[] or had reason to
know" that the fuel delivered was dyed fuel.2 I.R.C. 6715(a)(2).

40

Reason to know. As used in the Internal Revenue Code, the phrase "reason to
know" is a term of art: one has "reason to know" "what a reasonable person in
the [defendant's] . . . subjective position would have discovered." United States
v. Campbell, 897 F.2d 1317, 1321-22 (5th Cir. 1990) (quoting Sanders v.
United States, 509 F.2d 162, 166 (5th Cir. 1975)) (internal quotation marks
omitted; alterations in original); accord United States v. Estate Preservation
Servs., 202 F.3d 1093, 1103 (9th Cir. 2000). This construction of "reason to

know" comports with this Court's "reasonably prudent taxpayer" standard,

adopted in Hayman v. Commissioner, 992 F.2d 1256, 1261-62 (2d Cir. 1993)
(citing Price v. Commissioner, 887 F.2d 959, 963-65 & n.9 (9th Cir. 1989)).
41

In the context of federal taxation, whether a reasonable person would have had
"reason to know" is a question of fact. See Hayman, 992 F.2d at 1260 (implying
that "reason to know" is a "finding[] of fact"); Bankers Trust Co. v. Crawford,
781 F.2d 39, 44 (3d Cir. 1986) (referring to "reason to know" as a "finding[] of
fact"); see also Taylor v. Commissioner, 43 F.3d 1483, 1994 WL 704748, at *2
(10th Cir. Dec. 19, 1994) (unpublished table decision, available for citation
according to 10th Cir. Local Rule 36.3) (referring to "reason to know" as a
"finding of fact").

42

Constructive knowledge. The government argues that Bertucco had "reason to

know" of the presence of dyed fuel because (i) he signed the stamped ticket,
and (ii) as a matter of settled law, his act of signing the ticket charged him with
constructive knowledge of its contents. The district court agreed:

43

Here, regardless of whether Bertucco ... paused to read the whole delivery
ticket, [he] had constructive knowledge of the presence of dyed diesel by virtue
of the "RED DYED" stamp.

44

ConEd, 34 F. Supp. 2d at 165. The district court equated constructive

knowledge with "reason to know," an equation the parties do not contest [Blue
24; Red 17], and that is consistent with precedent. See, e.g., Holzapfel v. Town
of Newburgh, 145 F.3d 516, 524 (2d Cir. 1998) (holding that constructive
knowledge satisfies the "reason to know" standard); Hayman, 992 F.2d at 1262.

45

In general, individuals are charged with knowledge of the contents of

documents they sign--that is, they have "constructive knowledge" of those
contents. In Hayman, for example, this Court held that one who asserts an
innocent-spouse defense to tax evasion cannot claim ignorance of the contents
of tax returns she signed: "Although Hayman claims to have signed the returns
without reading them, she nevertheless is charged with constructive knowledge
of their contents." Hayman, 992 F.2d at 1262 (citing Schmidt v. United States,
5 Cl. Ct. 24, 27 (1984); Levin v. Commissioner, 53 T.C.M. (CCH) 6, 8 (1987));
see also Shaw v. Autozone, Inc., 180 F.3d 806, 811 (7th Cir. 1999) (charging a
party with constructive knowledge of a booklet she never read on the basis of
her signature on a form stating that she had read the booklet) (citing Betaco,
Inc. v. Cessna Aircraft Co., 32 F.3d 1126, 1136 (7th Cir. 1994) ("As a result of
[the duty to read the contract] a person who signs a written contract is bound by

its terms regardless of his or her failure to read and understand its terms."
(internal quotation marks and citation omitted))). Under this standard, Bertucco
(and by respondeat superior, ConEd) is charged with knowledge of the contents
of the ticket he signed. This renders immaterial two disputed fact issues cited
by ConEd: since Bertucco had constructive knowledge of the ticket's contents,
it is immaterial (i) whether Bertucco actually saw the "RED DYED" stamp,
and (ii) whether Beers saw the stamped ticket, and thereby had knowledge of
its contents.
46

The disputed issue of material fact. Bertucco's signature on a ticket stamped

"RED DYED" entailed constructive knowledge of the ticket's contents, but
does not necessarily entail constructive knowledge that the fuel was dyed red.
A fact-finder may consider the ticket as a whole in deciding whether a
reasonably prudent taxpayer familiar with the ticket's contents would have
reason to know that the fuel was red. And the ticket conveyed, at best, mixed
signals.

47

One signal is the "RED DYED" stamp. If the ticket conveyed nothing else
about the fuel color, that stamp might be a sufficient reason to know that the
fuel was dyed. The IRS emphasizes that the ticket contains two pre-printed
warnings that possession of red-dyed fuel for taxable purposes is illegal. But
these warnings alert the reader to the importance of the fuel color without
saying what color the fuel is; they are printed on all delivery tickets, regardless
of the tax status of the fuel delivered; they are attached by asterisks to the box
marked "PRODUCT"; and by their terms they apply only "IF [the delivered]
PRODUCT IS #2, #4 OIL OR OFF ROAD/RED DIESEL"--which, according
to the very entry tagged with these warnings, this delivered product was not.

48

The ticket also conveyed signals that would indicate to a taxpayer that the fuel
was clear. The ticket specifies the tax rate payable on the kind of fuel delivered,
and the amount of tax due for the delivery. These entries obviously indicate
clear (i.e., taxable) fuel. In another box, the ticket specifies the product as
"L.S.DIESEL"--that is, clear, taxable, low-sulphur diesel fuel.

49

Under these circumstances, Bertucco and ConEd should not be charged with
constructive knowledge of the fuel coloration as a matter of law. There is a
disputed issue of material fact as to what a reasonably prudent taxpayer would
have reason to know from examination of the ticket. If Bertucco had no "reason
to know" that red-dyed fuel had been delivered, and therefore no ConEd
employee had "reason to know" that red-dyed fuel had been delivered, then
ConEd lacked that knowledge as well.

50

The dissent argues that the "RED DYED" stamp on the ticket was sufficient to
establish ConEd's "reason to know" as a matter of law, notwithstanding
multiple contra-indications on the face of the same ticket, and is concerned that
our decision might unintentionally facilitate the doings of organized crime. We
conclude only that the contradictory ticket does not give "reason to know" at
least where (as here) the course of business is to use clear fuel and pay tax on it,
one contra-indication on the face of the ticket is a tax charge that is paid or
uncontested, and there is no circumstance outside the four corners of the ticket
that corroborates or reinforces the "RED DYED" stamp. Such a conclusion can
give no comfort to organized crime.
C. Calculation of the penalty

51

Because we conclude that the district court erred in granting summary

judgment, we need not reach the question of whether the IRS properly
calculated the penalty against ConEd.

CONCLUSION
52

The judgment of the district court is vacated, and the case is remanded to the
district court for further proceedings consistent with this opinion.

Notes:
1

The district court ruled that the fuel transfer to trucks' tanks constituted fuel
"use," seemingly without regard to whether the trucks were put to any use (such
as highway driving) for which taxed fuel is required--indeed, without regard to
whether the trucks were ever used at all following fueling, or simply re-parked.
ConEd does not challenge this ruling.

The moment Metro informed ConEd that it had erroneously delivered red-dyed
fuel, ConEd obviously "knew, or had reason to know, that [the] fuel was so
dyed." I.R.C. 6715(a)(2). Because ConEd immediately shut the pumps down
and began a remediation program upon receiving Metro's phone call, however,
the red-dyed fuel was at that point no longer held or used "for a use other than a
nontaxable use." Id. Rather, it was held for removal, not "use." ConEd's
knowledge of the dyed status of the fuel during the remediation efforts
therefore does not itself give rise to a violation of I.R.C. 6715(a)(2).
STRAUB, Circuit Judge, dissenting:

53

I respectfully dissent.

54

The majority is skeptical of the government's enforcement of I.R.C. 6715

against ConEd under the circumstances of this case.1 See, e.g., ante at 368
(stating that IRS compliance officer "sprang into action" upon learning "that an
innocent mistake, committed without tax avoidance or evasion, without
concealment, and without harm, was about to be corrected voluntarily,
immediately and without consequence"). However, Congress sought to attack a
serious problem when it enacted the stringent penalty provisions found in
6715. Throughout the 1980s and early 1990s, theft and evasion of gasoline and
diesel fuel taxes resulted in spectacular revenue losses to federal and state
governments. Organized crime played a large role in fuel tax hijacking. By one
account, organized crime had a hand in stealing as much as $8 million a month
in fuel taxes for many years in the New York area. See generally Ron Hagquist
& Dawn Doyle, Fuel Tax Hijacking: How State Governments are Responding,
15 Gov't Fin. Rev. 45 (1999); see also 139 Cong. Rec. E1486 (daily ed. June
14, 1993) (statement of Rep. Istook) (discussing the scale of the diesel excise
tax evasion problem); 138 Cong. Rec. H7188-89 (daily ed. Aug. 3, 1992)
(statement of Rep. Matsui). At the time of enactment of 6715 in 1993, the
level of evasion and theft of federal diesel fuel taxes was estimated by the U.S.
Department of Transportation to represent between 15 and 25 percent of the
total amount of diesel fuel consumed, amounting to hundreds of millions of
dollars in revenue losses each year. See H. Rpt. 103-111, at 748 (1993); Fuel
Tax Evasion and Highway Trust Shortfall: Hearing Before the Subcomm. on
Investigations and Oversight of the House Comm. on Public Works and
Transportation, 103rd Cong., 1994 WL 417181 (Aug. 10, 1994) (statement of
Jane F. Garvey, Deputy Administrator, Federal Highway Admin., U.S. Dep't of
Transportation).

55

Against this backdrop of massive revenue losses, Congress enacted

enforcement measures that, as the majority correctly observes, include rather
stringent penalty provisions. As the majority notes, the statute is "not as
complex as ConEd contends." Ante at 369. To the contrary, itsstrict provisions
are quite straightforward. Section 6715 exacts a penalty whenever "dyed fuel is
held for use or used . . . for a use other than a non-taxable use" by one who has
"reason to know[] that such fuel was so dyed." I.R.C. 6715(a)(2), 26 U.S.C.
6715(a)(2). There is nothing ambiguous about this statutory language. If
taxpayers have "reason to know" that the fuel being held for use is red-dyed,
then they are imputed with constructive knowledge that they are holding reddyed fuel-regardless of their understanding of the tax consequences of holding
that red-dyed fuel or even their actual knowledge of whether the fuel is, in fact,
red-dyed.

56

Here, ConEd concedes that the dyed fuel was both "held" and "used" within the
meaning of the statute. As the majority recognizes, the only relevant question
therefore concerns whether ConEd had reason to know that the fuel was reddyed. "All that matters . . . is ConEd's awareness that the fuel was dyed"-its
understanding of the tax consequences of that coloration and its "purity of
heart" are simply irrelevant. Ante at 370. The delivery ticket presented in this
case (which is appended to this opinion) revealed to ConEd in bright red, 18point letters stamped across the center of the ticket that the delivered fuel was
"RED DYED." The ticket also contained two additional disclosures, one on the
front and one on the back, stating clearly that possession of red-dyed fuel under
certain circumstances is illegal. While the majority holds that the delivery
ticket conveyed "mixed signals" since it "obviously indicate[d]" that tax was to
be paid on the delivered fuel, ante at 371-72, the mere presence of this notation
on the delivery ticket is insufficient to create a genuine issue of material fact as
to ConEd's "reason to know" that the fuel was red-dyed. In order to avoid
summary judgment in favor of the government, ConEd "must do more than
simply show that there is some metaphysical doubt as to the material facts."
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986);
see also Gallo v. Prudential Residential Services, L.P., 22 F.3d 1219, 1223 (2d
Cir. 1994) ("When no rational jury could find in favor of the nonmoving party
because the evidence to support its case is so slight, there is no genuine issue of
material fact and a grant of summary judgment is proper."). Rather, ConEd
must provide sufficient affirmative indication "that [its] version of relevant
events is not fanciful." Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 101
(2d Cir. 1997) (internal quotation marks and citations omitted).

57

ConEd has failed to meet this burden. Given the bold red stamp across the face
of the delivery ticket plainly indicating that the fuel was "RED DYED," no
reasonable fact-finder could conclude that a reasonably prudent taxpayer in
ConEd's position lacked "reason to know" that the fuel was red-dyed. Rather,
the evidence remains "so one-sided that" the government "must prevail as a
matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).
ConEd is a sophisticated operator of several fueling stations, and it does, in fact,
use red-dyed fuel at other facilities. A781-82; Transcript at 22. The undisputed
facts of this case leave no question-not even an inference-but that ConEd had
"reason to know" that the fuel was red-dyed.

58

Accordingly, I would affirm the District Court's judgment.[Tabular or

Graphical Material Omitted][Tabular or Graphical Material Omitted]

Notes:

Notes:
1

Unless otherwise noted, I adopt the various abbreviations and acronyms

utilized by the majority.