P. David Musgrave and Barbara J. Musgrave - Page 17

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          credit, reputation, and business generally which might result               
          from such a suit.  Petitioner testified that he was new in the              
          practice, that he thought he was going to lose clients because of           
          the publicity, and that he would be held to a higher standard               
          because he was in a position of integrity and trust.  Petitioner            
          also testified that the potential risk from the suit was treble             
          damages and that "It wasn't worth it."                                      
               We also think that a reasonable person, standing in the                
          place of petitioner or the S Corporation, would have thought that           
          the settlement with Color Q would be warranted in light of the              
          exposure to damages from the suit.  The record shows that the               
          accounting firm, Arthur Andersen, performed an audit for Color Q            
          which showed that Mr. Jeffcott had, inter alia, changed names on            
          checks.  Additionally, petitioner's counsel advised him to settle           
          the claim, and that advice appears reasonable under the                     
          circumstances.  In light of the S Corporation's potential                   
          liability for the damages from the suit, treble damages under the           
          Ohio Corrupt Activities Act, the costs of the suit, and the                 
          attorney's fees, we conclude that petitioner's fears were                   
          reasonable.  We think that a reasonable person would have thought           
          that the settlement payment in the amount of $193,500 was less              
          than the damages that could be assessed if Color Q's suit                   
          prevailed.  Additionally, we conclude that there was                        
          justification for the belief that there existed sufficient                  
          exposure to liability that a compromise was necessary.  Old Town            




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