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The same is true here. While the underlying litigation was
certainly adversarial, the parties were no longer adversaries
after they agreed on a settlement in principle. Petitioner
wanted the settlement payment connected to a tort so that he
could maximize his recovery by avoiding taxes on his recovery.
Balfour, on the other hand, did not care whether the settlement
proceeds were allocated to tortlike personal injury damages
vis-a-vis other damages. Balfour's only concerns were that all
of petitioner's claims be settled, that nothing be done to
compromise its right to deduct the settlement, and that it be
indemnified for any tax liability resulting from a
mischaracterization of the settlement payment. Balfour, in
effect, gave petitioner the green light to allocate the proceeds
unilaterally in the manner that he desired, and petitioner did
so, allocating the payment in a way that would maximize his
recovery to the neglect of the fisc. Petitioner and Balfour did
not prepare the settlement agreement by realistically evaluating
the damages claimed in the lawsuit and allocating petitioner's
recovery accordingly. Nor did the attorneys for the parties
there ever discuss the merits of petitioner's constructive
discharge claim. As a matter of fact, neither Balfour nor its
attorney was even aware that petitioner had just recently made a
new claim for $2 million in emotional distress.
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