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necessary business expenses incurred in the course of
petitioner’s trade or business.
The second portion of the disputed legal expenses, $90,392,
was incurred by petitioner with respect to Oakland 1 and Oakland
2. Oakland 1 was brought against Pomeroy and others, and
involved claims of diversion of Arbor funds to Pomeroy’s own
management company, failure to pay to Arbor the management fees
to which it was entitled, and breach of fiduciary duty. The
remedies sought in that proceeding included restitution and
exemplary damages. Claims in Oakland 2 focused on the alleged
breach of fiduciary duty by petitioner and Pomeroy, and their
purported financial manipulation of Crittenton through “corporate
instrumentalities” which included H.K. Peach, Arbor, and PNC.
This proceeding also involved claims of failure to pay rent on
the part of PNC and failure to make partnership contributions by
H.K. Peach.
For reasons similar to those described above as to the $770,
we conclude that the Lincoln Sav. & Loan Association test has
been met as to the $90,392. Our analysis of the origin of the
claim test here is also similar to that of the fees relating to
Oakland 3. We find that in Oakland 1, petitioner’s position
originated from his desire to negate the claims of breach of
fiduciary duty and diversion of fees. In addition, he
counterclaimed against Pomeroy under the same theories.
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