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Service asserted protective deficiencies against both parties.
Id. at 426.
The Federal District Court granted summary judgment in favor
of the seller of the business treating the gain as gain from the
sale of capital assets and rejected Better Beverages’ unilateral
allocation in the absence of any evidence that both parties
agreed to the allocation. Id. at 426-427. The Fifth Circuit
affirmed the District Court, stating:
our rejection of Better Beverages’ unilateral
assertions of value as an inadequate indicator of
actual cost basis is wholly consistent with the trend
among other courts, in cases like this one, to require
the buyer to prove that the parties mutually intended
at the time of the sale that some portion of the lump
sum consideration be allocated to the seller’s covenant
not to compete. * * * the most efficacious method
and, ordinarily, the only truly reliable and
practicable way for a purchaser to satisfy his burden
in a case like this one is by proof of the parties’
specific agreement, expressed or implied, to allocate
some portion of the lump sum purchase price to the
covenant * * *. Better Beverages cannot travel this
smooth road, however. * * * Better Beverages conceded
not only that no agreement had ever been reached
regarding allocation of some portion of the price to
the covenant, but also that such a price or allocation
apparently never had been discussed by the parties.
The ultimate inquiry is * * * what, if any, portion of
the lump sum price actually was exchanged for the
covenant * * *.
Id. at 430-431 (emphasis added).
The Eleventh Circuit has never explicitly addressed the
mutual intent test set forth in Annabelle Candy Co. and adopted
by the Fifth Circuit in Better Beverages, Inc. However, because
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