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Here, the claims underlying the settlement payment and
alleging mismanagement by petitioner of its business, originated
in petitioner’s business decision to remove V. Eihusen as its
chairman and CEO. In addition, in accordance with the three
tests enunciated by the Court in Old Town Corp., we conclude that
(1) members of the board lacked confidence that petitioner would
prevail in the subject litigation; (2) petitioner made the
settlement payment to avoid damages or liability it could have
incurred absent the settlement; and (3) members of the board were
justified in taking V. Eihusen’s claims seriously and acted
reasonably in attempting to settle the ESOP litigation and the
Intermodal litigation so as to reduce the expenditure of time and
the money. Also, applying the test of Commissioner v. Lincoln
Sav. & Loan Association, 403 U.S. 345 (1971), to the portion of
petitioner’s payment made to settle the ESOP litigation and the
Intermodal litigation, we find that it (1) was paid or incurred
during the subject years; (2) was incurred in connection with
petitioner’s trade or business as it was directly related to
petitioner’s business practices; (3) was an expense; (4) was a
necessary expense in that petitioner was required to expend a
significant amount of resources in defending itself and its
directors, officers, and employees and hence settled the claims
so as to avoid larger expenditures in continuing to litigate
without any certainty of prevailing; and (5) was an ordinary
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