UNITED STATES DISTRICT COURT FOR THE 

DISTRICT OF NEW HAMPSHIRE

United States of America

v. Civil No. 06-CV-211-JD

Opinion No. 2008 DNH 186

Nancy R. Berry, Individually and 

as Fiduciary for the Estate of 

James A. Berry

O R D E R

The United States brought an action against Nancy R. Berry

pursuant to 26 U.S.C. § 7405 to recover a tax refund for the 2000

tax year of $204,695.48, on the ground that the refund was issued

in error. Berry’s refund request claimed that a stock

transaction resulting in a capital gain was incorrectly valued on

her 2000 tax return. The United States moves for summary

judgment, contending that Berry’s original 2000 tax return

correctly reported the stock value. Berry objects, arguing that

she is not bound by the valuation agreed upon during the

transaction and that summary judgment is inappropriate because

factual issues exist such as the actual value of the stock she

received. The United States filed a reply to the objection. 

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Standard of Review

Summary judgment is appropriate when “the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law.” Fed. R. Civ. P.

56(c). The party seeking summary judgment must first demonstrate

the absence of a genuine issue of material fact in the record.

See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A party

opposing a properly supported motion for summary judgment must

present competent evidence of record that shows a genuine issue

for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

256 (1986). All reasonable inferences and all credibility issues

are resolved in favor of the nonmoving party. See id. at 255.

At the outset, the court notes that where the moving party

bears the burden of proof, it will prevail on summary judgment

only if the evidence submitted is conclusive. EEOC v. Union

Independiente de la Autoridad de Acueductos y Alcantarillados de

P.R., 279 F.3d 49, 55 (1st Cir. 2002). In such a case, the court

will grant the motion only if "(1) the moving party initially

produces enough supportive evidence to entitle the movant to

judgment as a matter of law (i.e., no reasonable jury could find

otherwise even when construing the evidence in the light most

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favorable to the non-movant), and (2) the non-movant fails to

produce sufficient responsive evidence to raise a genuine dispute

as to any material fact." Murphy v. Franklin Pierce Law Ctr.,

882 F. Supp. 1176, 1180 (D.N.H. 1994)(citing Fitzpatrick v. City

of Atlanta, 2 F.3d 1112, 1115-17 (11th Cir. 1993)). Summary

judgment will not be granted as long as a reasonable jury could

return a verdict in favor of the nonmoving party. Anderson, 477

U.S. at 248. 

Background

In 2000, Berry was working as a consulting partner (“CP”)

for Ernst & Young U.S., LLC (“E&Y”) when E&Y decided to sell its

consulting practice to Cap Gemini, S.A. (“Cap”). The entire

transaction was outlined in a 580-page “Master Agreement.” 

United States’ Motion for Summary Judgment (“U.S. Summ. J.”), Ex.

5. The details of the Master Agreement were negotiated by many

individuals, including four managing partners of the consulting

practice group. As part of the transaction, the CPs would become

employees of Cap and would be given shares of stock in Cap in

exchange for their interest in E&Y. Pursuant to the Master

Agreement, twenty-five percent of the shares received by a CP

would be immediately sold to provide funds for the payment of

income taxes incurred as a result of the stock transaction. The

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remaining seventy-five percent of a CP’s shares (“restricted

shares”) would be placed in an account with Merrill Lynch. Each

participating CP would be required to provide Cap an irrevocable

power of attorney with exclusive authority over his or her

restricted shares for a period of four years and 300 days,

effective May 1, 2000. During this period, the restricted shares

could be sold only under limited circumstances and Cap would

authorize the release of the shares in installments. Some or all

of a CP’s restricted shares could be forfeited, however, if the

CP breached provisions of the documents executed in the E&Y-Cap

transaction, voluntarily terminated employment with Cap, or was

terminated by Cap “for cause.” U.S. Summ. J., Ex. 13, ¶ 9.

Prior to the closing, E&Y provided the CPs, including Berry,

with the Master Agreement, and the “Partner Information Document”

(“PID”), which explained the above restrictions, the E&Y-Cap

transaction, and the Master Agreement. U.S. Summ. J., Ex. 9, Ex.

10. Under the heading “Tax Implications,” the PID explained that

the transaction would constitute a capital gain reportable on the

CP’s 2000 federal income tax return and that each CP would be

“responsible for paying [his or her] own taxes out of the

proceeds allocated to [him or her]; however, [he or she] will

receive funds from the sale of Cap Gemini shares for [his or her]

tax obligations as they come due.” U.S. Summ. J., Ex. 9, at 18-

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19. The PID also provided that the restricted shares would be

“calculated at 95 percent of the closing price” of Cap stock on

the closing date and that this “will slightly reduce tax due on

the Cap Gemini shares received at closing.” Id. In addition,

the PID noted that E&Y, the CPs, and Cap “will treat valuation

and related issues consistently for US federal income tax

purposes.” Id. at 19. The PID encouraged the CPs to read the

entire document and listed a phone number which the CPs could

call with questions.

Approval of the E&Y-Cap transaction required seventy-five

percent of the CPs to vote in favor of it. In March 2000, a

meeting was held over a two-day period for the CPs to discuss the

proposed transaction. Prior to this meeting, Berry and the other

CPs received a “Partner Transaction Agreement Kit” (“PTAK”), a

“Partner Transaction Agreement Signature Document” (“PTASD”), and

a “Consulting Partner Transaction Agreement” (“CPTA”) (together

with the Master Agreement, hereinafter collectively referred to

as the “transaction documents”). U.S. Summ. J., Ex. 10, Ex. 12,

Ex. 13. The CPTA provided, in part: “The parties to [this

agreement] are or will be the Firm, Cap Gemini, . . . and each

Consulting Partner who executes and delivers a Signature Document

and thereby becomes a party to this Agreement. Each Consulting

Partner who becomes a party to this Agreement will thereby become

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1The United States acknowledges that the CPTA submitted with

its motion is unsigned. However, in her objection and in her

affidavit submitted with her objection, Berry admits to signing

the CPTA. Berry Objection to Plaintiff’s Motion for Summary

Judgment (“Berry Obj.”), ¶ 12; Berry Obj., Ex. 2, ¶2-3. This

fact is thus undisputed. 

6

a party to the Master Agreement.”1 U.S. Summ. J., Ex. 13,

Preamble. 

The CPTA further provided: “You acknowledge your obligation

to treat and report the Transaction for all relevant tax purposes

in the manner provided in Sections 7.7(f) and (h) of the Master

Agreement.” U.S. Summ. J., Ex. 13, ¶ 5(b)(xii). Section 7.7(f)

of the Master Agreement provided that the parties “agree to

determine the value of and allocate the total consideration

transferred by [Cap] pursuant to this Agreement in accordance

with . . . the manner . . . set forth in Schedule 7.7(f) attached

hereto,” and that such allocation was binding upon the parties. 

U.S. Summ. J., Ex. 5, ¶ 7.7(f). Schedule 7.7(f) provided, in

part: “Notwithstanding any other provision of the Agreement, the

parties agree that all [Cap] Ordinary Shares that are not

monetized in the Initial Offering will be valued for tax purposes

at 95% of the otherwise-applicable market price.” U.S. Summ. J.,

Ex. 6.

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The CPs ultimately voted ninety-five percent in favor of the

E&Y-Cap transaction and Berry received 6,820 shares of Cap stock

as a result. Twenty-five percent (i.e., 1,705) of these shares

were liquidated to pay for the taxes that Berry would owe as a

result of the stock transaction. The remaining seventy-five

percent (i.e., 5,115) of the shares were deposited into a Merrill

Lynch restricted account in Berry’s name.

In 2001, Berry and her husband filed a joint federal income

tax return for the tax year 2000. The return showed income of

$1,024,511 from the sale of her interest in E&Y. This amount

reflects the receipt of the 1,705 Cap shares liquidated at the

closing (valued at approximately $265,000) and the receipt of

5,115 Cap shares (restricted shares), which were valued at

ninety-five percent of their closing price on the transaction’s

closing date (approximately $760,000). Berry paid the capital

gains tax assessed on this amount. 

In 2004, Berry filed an amended joint tax return for the

year 2000 for herself and her late husband, reflecting a capital

gain of only $264,780 from the E&Y-Cap stock transaction and

claiming a tax refund of $156,416. Berry claimed that under the

“claim of right” doctrine, her 2000 capital gain should reflect

only the twenty-five percent of her 6,820 Cap shares that were

liquidated at the closing, since the remaining seventy-five

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percent of her shares were restricted and carried “a substantial

risk of forfeiture.” U.S. Summ. J., Ex. 4, at 3. On June 9,

2004, the IRS issued Berry a refund for $204,695.48, which

included the $156,416 in taxes Berry paid in 2000, plus interest. 

The United States instituted the present action in 2006, seeking

to recover the $204,695.48 paid to Berry, plus accrued interest.

Discussion

The United States seeks recovery of the refund issued to

Berry pursuant to 26 U.S.C. § 7405(b) which provides, in relevant

part: “Any portion of a tax imposed by this title which has been

erroneously refunded . . . may be recovered by civil action

brought in the name of the United States.” The United States

bears the burden of showing that the refund issued to Berry is

erroneous. United States v. Commercial Nat’l Bank, 874 F.2d

1165, 1169 (7th Cir. 1989). 

A. “Strong Proof” Rule

The United States contends that there is a legal presumption

that Berry is bound by the tax treatment of the stock transaction

in the original transaction documents. The United States argues

that Berry cannot overcome this presumption, which requires

“strong proof” of a contrary intention of the parties. See

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2Berry also argues that the United States cannot rely upon

Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967), for the

same reasons. The United States, however, does not rely upon

Danielson in its motion. In any event, Danielson is not

applicable as the First Circuit has declined to adopt the rule in

Danielson in favor of the “strong proof” rule. Harvey Radio, 470

F.2d at 120.

9

Leslie S. Ray Ins. Agency, Inc. v. United States, 463 F.2d 210

(1st Cir. 1972); Harvey Radio Laboratories, Inc. v. Commissioner,

470 F.2d 118 (1st Cir. 1972). Berry counters that the United

States’s reliance upon Leslie S. Ray and Harvey Radio is

misplaced because the principles enunciated in those cases apply

only when a taxpayer (1) is a party to the agreement at issue,

(2) affirmatively agrees to the structure of the deal, and (3)

later attempts to vary that structure.2

The First Circuit first outlined the “strong proof” rule in

Leslie S. Ray: “the allocation in the agreement [of the parties

in the sale of a going business] presumptively controls the tax

consequences of the purchase, [however], the parties may overcome

the presumption by ‘strong proof’ that at the time of execution

of the contract, it was the intention of the parties to allocate

a different amount.” Leslie S. Ray, 463 F.2d at 212. The court

explained that this “means that a taxpayer may vary the

allocation stated, or implicit, in the agreement by, but only by,

establishing that the parties, who have competing tax interests

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in the matter, agreed on a different figure when they signed the

contract.” Id. The First Circuit expressly adopted the “strong

proof” rule in Harvey Radio. Harvey Radio, 470 F.2d at 119-120.

The undisputed facts show that the “strong proof” rule is

appropriately applied to Berry. First, the CPTA document

explicitly made Berry a party to the E&Y-Cap agreement and stock

transaction. U.S. Summ. J., Ex. 13, Preamble (“Each Consulting

Partner who becomes a party to this Agreement will thereby become

a party to the Master Agreement.”) As a result of the

transaction Berry received, and accepted, 6,820 shares of Cap

stock. She is, therefore, a party to the agreement for purposes

of the application of the “strong proof” rule. 

Second, Berry “affirmatively” agreed to the terms of the

agreement by signing the transaction documents and accepting the

Cap stock. She contends that despite her signature, she was

merely a “third party” to the transaction with no real bargaining

power who was offered a “take it or leave it” deal. Berry Obj.,

at 15. In her affidavit, she also claims: “I did not believe

that I had any choice but to sign the noted documents if I wanted

to avoid a negative impact on my employment with [Cap].” Berry

Obj., Ex. 2, ¶ 3. 

The undisputed facts belie her claim that she was a third

party with no bargaining power. Several partners from Berry’s

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consulting practice group directly participated in the stock

transaction negotiations on behalf of all of the CPs, including

Berry. All CPs were invited to participate in the two-day

meeting held in March 2000 to discuss the proposed transaction. 

After the meeting, each CP was given a paper ballot on which he

or she could privately vote for or against the transaction. 

Persons who could not attend the meeting were able to participate

by phone or computer. Approval of the transaction required at

least a seventy-five percent favorable vote by all CPs. The CPs

voted ninety-five percent in favor of the transaction. Berry

does not claim that she was not at the March 2000 meeting, or

that she voted against the transaction. The involvement of the

negotiating partners, Berry’s opportunity to participate in the

March 2000 meeting, and her ability to vote all show that Berry

was a party to the transaction with bargaining power. Berry

presents no evidence to the contrary and thus has failed to

present a genuine issue of material fact on this issue.

Further, Berry’s affidavit does not contain specific facts

based upon personal knowledge to support her claim that her

employment would be negatively affected if she declined to sign

the agreement. Berry has provided no evidence, nor does she

claim, that she was threatened with termination should she

attempt to negotiate the terms of the stock transaction. See

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United States v. Fletcher, No. 06-C-6056, 2008 WL 162758 (N.D.

Ill. Jan. 15, 2008) (in similar case involving same E&Y-Cap

transaction and a CP, finding insufficient evidence of duress

where CP offered no evidence that she was threatened with

termination). Rather, she asserts her belief that she had no

choice but to sign the agreement. Her statement of belief cannot

be considered an assertion of fact for purposes of summary

judgment. See Quinones v. Houser Buick, 436 F.3d 284, 291 (1st

Cir. 2006) (“Without first-hand knowledge of facts supporting his

allegations, [the plaintiff] could not simply testify to a

belief.”). 

Therefore, there is a lack of competent evidence of record

to support Berry’s claim that she did not affirmatively agree to

the transaction. Further, neither party disputes that Berry is

now attempting to alter the terms of the E&Y-Cap transaction. 

The “strong proof” rule discussed in Leslie S. Ray and Harvey

Radio is therefore applicable.

B. Enforceability of the E&Y-Cap Agreement

Alternatively, Berry contends that even were the “strong

proof” rule applicable, a genuine issue of material fact exists

as to whether the transaction documents are enforceable because

the E&Y-Cap transaction constitutes a contract of adhesion. The

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United States responds that a contract of adhesion is not a basis

to avoid the tax consequences of the transaction and that Berry

cannot prove that the transaction was a contract of adhesion. 

The First Circuit has not expressly decided whether the tax

treatment of a transaction expressed in a contract of adhesion

can be enforced. In Leslie S. Ray and Harvey Radio, the focus

was upon the intent of the contracting parties, and the court had

no occasion to decide this issue. Even assuming that the tax

treatment in a contract of adhesion is not enforceable, Berry has

failed to allege facts sufficient to show a triable issue

regarding whether the E&Y-Cap transaction is an unenforceable

contract of adhesion.

A contract of adhesion is a “contract[] formed with the use

of standard form documents [where] [t]he party that prepared the

contract[] typically approaches the potential contractual

relationship with a take-it-or-leave-it posture.” Kristian v.

Comcast Corp., 446 F.3d 25, 32, n.2 (1st Cir. 2006). Under New

Hampshire law, a contract of adhesion is unenforceable if it is

unconscionable and oppressive. See PK’s Landscaping v. New Eng.

Tel. & Tel. Co., 128 N.H. 753, 755 (1986); see also Mills v.

Nashua Fed. Sav. & Loan Ass’n, 121 N.H. 722, 726 (1981) (“Absent

evidence to the contrary, . . . [the] agreement entered into

between [the parties] is presumed to have resulted from a mutual

Case 1:06-cv-00211-JD Document 20 Filed 10/02/08 Page 13 of 18
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meeting of the minds and constitutes a legally enforceable

contract.”). The New Hampshire Supreme Court has stated that

unconscionability “include[s] an absence of meaningful choice on

the part of one of the parties together with contract terms which

are unreasonably favorable to the other party.” Pittsfield

Weaving Co. v. Grove Textiles, 121 N.H. 344, 346 (1981). The

court further added in Pittsfield Weaving that “[t]he existence

of gross inequality of bargaining power is also a factor to be

considered.” Id.

As the party bearing the burden of proof on the

unenforceability issue, Berry must submit “definite, competent

evidence” to support her claim that the E&Y-Cap transaction is a

contract of adhesion. Kearney v. Town of Wareham, 316 F.3d 18,

22 (1st Cir. 2002). In addition, she cannot rely on speculation

or conjecture and must present “more than a mere scintilla of

evidence in [her] favor.” Invest Almaz v. Temple-Inland Forest

Prods. Corp., 243 F.3d 57, 76 (1st Cir. 2001) (internal quotation

omitted).

To support her contract of adhesion claim, Berry submitted

her affidavit, an expert report from Michael Losapio (“Losapio

Report”), a certified public accountant and valuation analyst,

and Losapio’s affidavit. In her affidavit, as discussed above,

she states that she “did not believe” that she had any choice but

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to sign the transaction documents in order to “avoid a negative

impact” on her employment with Cap and that she “did not have any

ability to negotiate . . . and in fact did not negotiate” the

terms of the E&Y-Cap transaction. Berry Obj., Ex. 2, ¶¶ 3, 5. 

The Losapio Report discusses the value of Berry’s restricted

shares, concluding that the shares should have been valued at

fifty-five percent, not ninety-five percent, of their freely

traded market value. 

This evidence fails to show a genuine issue of material fact

regarding the enforceability of the E&Y-Cap transaction. 

First, Berry does not assert that the transaction involved the

type of “standard form documents” characteristic of a contract of

adhesion. See Kristian, 446 F.3d at 32. Second, Berry has

failed to present any competent evidence that the E&Y-Cap

transaction was presented to her on a “take it or leave it”

basis, that she was given no meaningful choice, or that there was

a gross inequality of bargaining power. As discussed above, a

favorable vote from seventy-five percent of the CPs, of which

Berry was one, was needed to approve the transaction. Partners

from the consulting group were part of the negotiations on behalf

of the other CPs. A two-day meeting was held for all CPs to

discuss all aspects of the transaction. Berry presents no

evidence to rebut these facts. 

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Finally, Berry has presented no competent evidence to show

that the terms of the transaction were unreasonably favorable to

E&Y or Cap. Even accepting the fifty-five percent valuation in

Losapio’s report, this alone does not show that the ninety-five

percent valuation in the transaction was unreasonably favorable

to E&Y or Cap over her. Berry has failed to submit competent

evidence that the E&Y-Cap transaction was a contract of adhesion. 

Therefore, the transaction documents are enforceable against

Berry.

C. Application of the “Strong Proof” Rule

Given the applicability of the “strong proof” rule, the

issue on summary judgment is whether the ninety-five percent

valuation for Berry’s restricted shares specified in the

transaction documents controls the tax consequences of the stock

transaction. The parties do not dispute that the transaction

documents specified that the restricted shares would be valued at

ninety-five percent of their closing price on the transaction’s

closing date for federal income tax purposes. This valuation

presumptively controls the tax treatment of the stock transaction

unless there is “strong proof” that at the time of the agreement

the parties intended a different valuation. See Leslie S. Ray,

463 F.2d at 212.

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3The United States correctly points out that this argument

is inconsistent with Berry’s amended 2000 tax return where she

claimed the restricted shares should not have been taxed at all

because she realized no long-term capital gain from them in 2000.

17

Berry does not argue that a different valuation was

intended. Rather, she contends that she should have been taxed

based upon the “actual value” of her restricted shares, which she

contends was fifty-five percent of its open market value at the

time of closing.3 Berry Obj., at 10. Under the “strong proof”

rule, however, the actual value of the stock is irrelevant. 

Rather, it is the value assigned to the stock in the transaction

documents that controls, unless there is “strong proof” that the

parties intended to assign a different value. Leslie S. Ray, 463

F.2d at 212. Since nothing has been submitted on summary

judgment to indicate that a different valuation was intended by

the parties, the ninety-five percent valuation assigned to the

restricted stock in the transaction documents “controls the tax

consequences” of the stock transaction. Id.

Therefore, the United States has produced sufficient

evidence to establish that Berry is bound by the ninety-five

percent valuation of her restricted stock, and Berry has failed

to produce sufficient responsive evidence to raise a genuine

dispute as to any material fact on this issue. The evidence is

thus conclusive that the United States erroneously issued Berry a

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refund in the amount of $204,695.48. The United States is

entitled to judgment against Berry for this amount, plus accrued

interest as allowed by law from June 9, 2004. 

Conclusion

For the foregoing reasons, the United States’s motion for

summary judgment (document no. 13) is granted. The clerk of

court shall enter judgment accordingly and close the case.

SO ORDERED.

____________________________

Joseph A. DiClerico, Jr.

United States District Judge

October 2, 2008

cc: Thomas P. Cole, Esquire

Steven J. Dutton, Esquire

Scott H. Harris, Esquire

Karen A. Smith, Esquire

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