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that although petitioners reasonably relied on Mr. Meglin’s
representations, they failed to prove by a preponderance of the
evidence that they sustained damages as a direct result of the
breach of contract or misrepresentations. The arbitrator
concluded that petitioners were not entitled to any damages for a
loss of value of the property because petitioners did not meet
their burden of showing that the alleged loss of value was a
proximate and direct result of Mr. Meglin’s misrepresentations.
Petitioners decided to proceed with litigation, and a trial
was scheduled for July 1994. In June 1994, petitioners hired
Arthur Gimmy International to prepare an appraisal report for the
Truckee Hotel. The stated purpose of the appraisal was “to
estimate the fair market value of the whole property on the date
of the sale as well as the investment value of the estate sold
subject to pre-existing financing.” The report stated that the
value of the property at the time of the sale was $800,000.
In July 1994, the parties to the litigation entered into a
mutual release and settlement agreement. Under the terms of the
agreement, Mr. Meglin agreed to pay petitioners the sum of
$271,473.95 by releasing them from $271,473.95 of the amount owed
under the terms of the promissory note executed in connection
with the sale of the hotel.
Petitioners paid legal and consulting fees in connection
with the lawsuit against MHP and Mr. Meglin. On the Schedule C,
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