Court Opinion

ID: 4477569
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:36.472066+00
Date Added: 2024-06-11T15:03:30.165821
License: Public Domain

Atkins, J., dissenting: In William F. Davis, Jr., 17 T. C. 549, appeal to C. A. 9 dismissed October 20, 1953, which was followed in Robert Lehman, 25 T. C. 629, this Court held that payments made pursuant to section 16 (b) of the Securities Exchange Act of 1934 are in the nature of penalties and that they are not deductible, since the allowance of the deduction thereof would frustrate a sharply defined public policy expressed in the Securities Exchange Act. As pointed out there, good faith, innocent transgression, or fair dealing neither excuse nor abate the statutory exaction. It was also pointed o'ut that the payment does not constitute a restitution to the person from whom the stock was purchased or sold, or a restitution of a profit which belonged to the corporation. The view there taken that such a payment is in the nature of a penalty is supported by the decisions in the cases of Smolowe v. Delendo Corporation, (C. A. 2) 136 F. 2d 231, certiorari denied 320 U. S. 751, and Dotenheim v. Emerson Electric Mfg. Co., (E. D., N. Y.) 7 F. R. D. 195. I am unable to distinguish the instant case in principle from the Davis case. Clearly the payment herein was made pursuant to section 16 (b) even though the petitioner’s principal motives were to avoid possible injury to his professional reputation and to avoid litigation expenses. Neither here nor in the Davis case had there been a judicial determination of liability. Pieece, J., agrees with this dissent.