Court Opinion

ID: 9653468
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:47:16.038604+00
Date Added: 2024-06-11T18:12:59.456731
License: Public Domain

FRANK, Circuit Judge,
dissents in part with opinion.
FRANK, Circuit Judge (dissenting in part).
To explain my reasons for partially dissenting, I must supplement my colleagues’ statement of facts. The complaint in the State court suit, Turner v. American Metal Company, 268 App.Div. 239, 50 N.Y.S.2d 800 (expressly made part of the stipulation on which the instant case was tried in the Tax Court), charged that, as a result of a conspiracy in which taxpayer and other officers and directors of American Metal had joined, the following had occurred: (a) Taxpayer had himself wrongfully acquired title to certain shares of the Climax Company, and the equitable title to those shares was therefore in American Metal. (b) Taxpayer had aided others in wrongfully acquiring title to certain other Climax shares; some of those others were direct parties to the conspiracy, while still others acquired such shares with full knowledge of the conspiracy; the equitable tille to all these shares was asserted to be in American Metal, (c) Taxpayer had aided in causing American Metal wrongfully to spend money for the benefit 8f Climax, to the damage of American Metal. On this basis, the Turner complaint prayed as follows : (a) That taxpayer be ordered to transfer to American Metal the legal title to the Climax shares which he had wrongfully obtained; (b) that he account for any dividends on those Climax shares ;1 (c) that he and the other conspirators be held liable, jointly and severally, for all damages to American Metal resulting from the conspiracy. I think that these facts call for a nicer analysis than that contained in my colleagues’ opinion, for the following reasons :
1. In part, the Turner suit sought to hold taxpayer liable merely, for damages *820said to have resulted from his conduct as an official of American Metal. Here I refer to (a) the alleged damages resulting from the moneys said to have been wrongfully paid by American Metal for the benefit of Climax, and (b) the alleged damages to American Metal resulting from the fact that the taxpayer and his alleged co-conspirators aided others than himself in allegedly wrongful acquisition of Climax stock.2 To that extent, I agree that, in the Turner suit, he was not defending the title to the Climax stock he held or to any other of his property. To rule otherwise would be to say that defense of any suit is a defense against an attack on title to property, since an adverse judgment (through levy of execution or otherwise) may diminish a defendant’s property, including, for instance, stock in which he may have invested. Consequently, taxpayer’s expense in defending that phase of the Turner suit was, I think, incurred as a result of “carrying on a trade or business.” Up to that point, in line with the authorities cited by them, I agree with my colleagues.
2. I think, however, that the same is not true of his defense of that part of the Turner suit which charged him with having himself wrongfully obtained Climax shares and which sought an order directing him to transfer those shares to American Metal as its equitable pwner. To that extent, the Turner action was a direct attack on his title to the Climax shares.
True, that attack was grounded on the alleged impropriety of his conduct as an American Metal official, coupled with alleged similar improper conduct by other such officials conspiring with him; for the theory of the Turner suit was that only by such conduct had it been possible for him to acquire the Climax shares. But, in that respect, the action was the same as if, not being himself an American Metal officer, taxpayer had obtained Climax stock through action of American Metal officers known to him to be violative of their corporate obligations; in those circumstances, his expense of defending a suit seeking to compel him to transfer the title to such stock to American Metal, as its equitable owner, would not have been incurred in “carrying on a trade or business.” So it seems to me that this follows: That, in order to succeed in having taxpayer ordered to transfer his Climax stock to American Metal, Turner had to prove that taxpayer’s acquisition of that stock, for his own benefit, had been made possible by taxpayer’s misconduct as an American Metal official, does not alter the fact that the Turner suit, as to those shares, was a direct attack on taxpayer’s title to that stock. In other words, I think it immaterial that the alleged defect in that title stemmed from taxpayer’s own alleged deviation from his corporate duties. Wherefore, in defending this phase of the action, taxpayer, I think, was engaged directly in protecting his title to property. See, e.g., Bowers v. Lumpkin, 4 Cir., 140 F.2d 927 151 A.L.R. 1336; Jones Estate v. Commissioner, 5 Cir., 127 F.2d 231; Levitt & Sons v. Nunan, 2 Cir., 142 F.2d 795; Levitt & Sons v. Commissioner, 2 Cir., 160 F.2d 209; Murphy Oil Co. v. Burnet, 9 Cir., 55 F.2d 17; Moynier v. Welch, 9 Cir., 97 F.2d 471. As here the “matter of title was directly involved and not merely incidental,” Rassenfoss v. Commissioner, 7 Cir., 158 F.2d 764, 768 is distinguishable. For like reasons, I think that none of the other cases cited by my colleagues in support of their conclusion is apposite on this point.
However, taxpayer was, even as to that phase of the Turner suit, also in part defending the way he had functioned as a corporate officer. That part of the expense was, I believe, deductible.
3. Taxpayer made no proof of the appropriate allocation of the expenses as between the items discussed above. Since he had the burden, perhaps, if the foregoing is correct, he should fail: But I think that, in accordance with the doctrine of Cohan v. Commissioner, 2 Cir., 39 F.2d 540, 543-545, we should remand for determination of the allocation by the Tax Court.

 As to expenses incurred in defending as to this item, the Tax Court decided in favor of taxpayer, and the Commissioner has not appealed.

 There would be no such damages if those others still had the shares and were thus able to transfer them to American Metal.