Walter E. Hess and Helen L. Hess - Page 16

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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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