Opinion ID: 2600653
Heading Depth: 4
Heading Rank: 2

Heading: Mandell's Own Characterization of the Suit[4]

Text: ¶ 26 Another factor often considered in determining the character of settlement proceeds obtained through litigation is the language of the underlying complaint. See Elliott v. Comm'r, 53 T.C.M. (CCH) 1302, 1304 (1987) (considering a plaintiff's characterization in the complaint in concluding that settlement was for lost profits); see also Villaume v. United States, 616 F.Supp. 185, 189 (D.Minn.1985) (rejecting argument that settlement received was for personal injuries because the complaint in state court contained no indication that the suit was intended to recover damages for personal injuries); Estate of Taracido v. Comm'r, 72 T.C. 1014, 1022 (1979) ([T]he proper test to be applied . . . is that the tax character of the settlement proceeds is determined by the nature of the claims involved and the basis of the recovery.). In cases where the underlying lawsuit has advanced to trial, courts have also looked at evidence introduced and arguments made at trial. See Church v. Comm'r, 80 T.C. 1104, 1107 (1983); see also State Fish Corp. v. Comm'r, 48 T.C. 465, 474-76 (1967), clarified by 49 T.C. 13 (1967). ¶ 27 Mandell's complaint and the documents filed in connection with his motion for summary judgment demonstrate that Mandell filed suit for the purpose of recovering the proceeds that he should have received from the 1998 sale of HAU. The complaint states: [Mandell has] discovered that the allocations of the purchase price fixed by [Whitworth] for each corporation were not based upon the actual values of each corporation compared to the total purchase price offered by [Champion]. Instead, [Whitworth's] allocations inflated the values of those companies that he exclusively owned or where he had a larger percentage of ownership. These allocations decreased the true value of [Mandell's] ownership in [HAU]. The complaint further alleges: [Whitworth] also allocated a substantially larger percentage of the cash portion of the purchase price to himself as compared to the cash paid to [Mandell]. [Mandell was] left relying upon achieving the uncertain performance criteria for the bulk of [his] allocated purchase price. ¶ 28 Similarly, in connection with his motion for summary judgment, Mandell alleged that Whitworth's actions caused him to sell his interests at a value substantially below their fair and equitable share of the purchase price paid by Champion. In addition Whitworth paid himself a disproportionate share of the cash portion of the sales price. ¶ 29 In short, it is clear from the language of the complaint and documents filed in connection with Mandell's motion for summary judgment that Mandell sought reimbursement for the misallocated HAU sale proceeds. Although the complaint states causes of action for breach of fiduciary duties, fraud, undue influence, and unjust enrichment, the primary relief it requests is a constructive trust on the funds that Whitworth received by disproportionately allocating the sale proceeds.