Campbell Taggart, Inc. v. United States
| Decision Date | 01 December 1982 |
| Docket Number | No. CA 3-80-0968-C.,CA 3-80-0968-C. |
| Parties | CAMPBELL TAGGART, INC. v. UNITED STATES of America. |
| Court | U.S. District Court — Northern District of Texas |
Neil J. O'Brien, Pamela Hobgood Wiese, Gardere & Wynne, Dallas, Tex., for plaintiff.
William W. Guild, Atty. in Charge, Johnny D. Mixon, Atty., Tax Div., Dept. of Justice, Dallas, Tex., Roger M. Moore, Atty. (Southern Region), Tax Div., Dept. of Justice, Washington, D.C., James A. Rolfe, U.S. Atty., Martha Joe Stroud, Asst. U.S. Atty., Dallas, Tex., for defendant.
CORRECTED OPINION
This is an income tax case which the parties have agreed is of first and last impression.
Plaintiff is a Delaware corporation with its principal place of business in Dallas, Texas. It is a holding company that mainly derives its income from service fees and dividends paid by its 60 domestic and three foreign subsidiaries. These subsidiaries produce and sell food and food related items or service the food industry.
Of the 63 present subsidiaries, 38 were acquired by purchase. This has been Plaintiff's principal mode of breaking into new geographical areas.
On April 7, 1967, the Federal Trade Commission entered a final order compelling Plaintiff to divest itself of four bakeries of the 23 that it had acquired in the previous 10 years. That order also forbade Plaintiff to acquire any new American bakeries without the FTC's permission for a period of 10 years.
Partially because of this ban on domestic growth, Plaintiff has since the late 1960s been interested in international acquisitions. As a result Plaintiff has had extensive discussions with bakers and related industry companies about potential acquisition in many countries.
One subsidiary that Plaintiff has acquired is Bimbo, S.A., a Spanish baker of bread and cake. Plaintiff first acquired a 50% interest in Bimbo from a Mexican national, Sr. Jaime Jorba in early 1971. In 1972, another 1% was acquired by Plaintiff and in 1978, the remaining 49% was acquired.
In 1972, Plaintiff became interested in buying a Spanish supermarket chain by the name of Superdescuento, Uno, Dos, Tres ("Supermarkets") from Sr. Jorba and some Spanish relatives of his.
On December 6, 1972, Plaintiff agreed to purchase 50% of Supermarkets from Sr. Jorba and his relatives. It was agreed that Plaintiff would pay 7,000,000 pesetas to Sr. Jorba and his relatives and contribute 80,000,000 pesetas to the capital of Supermarkets in return for 50% ownership. Among other terms and conditions of the agreement, Section 1.2 set forth these pre-conditions:
The parties to this agreement were advised by their Spanish lawyers in 1973 that the Spanish Government would look more favorably on the deal if Plaintiff were already a partial owner of Supermarkets. So the parties signed another agreement on October 10, 1973 by which Plaintiff acquired one-half of Sr. Jorba's interest for 7,000,000 pesetas. On paper this gave Plaintiff 25% of Supermarkets, Sr. Jorba 25% and his Spanish relations 50%. This agreement contained an escape clause that allowed either party to demand the return of the stock in supermarkets for the return of the pesetas if the Spanish Government ultimately refused to approve the deal. This Court will not, of course, comment on the efficacy of the new agreement in the eyes of the Spanish Government. But for the purposes of the Internal Revenue Code of 1954, the Court does not see that this changes the bargain of the parties. The Court will look through this written agreement because the escape clause really left the parties with their original bargain. Also, as there is not the slightest suggestion that the October 10, 1973 agreement was entered into because of its tax consequences in the United States, it will be ignored.
About the same time as this second agreement was signed, it became apparent that the financial condition of Supermarkets had deteriorated significantly and that the outlook for Supermarkets was bleak. Because of this, Plaintiff was advised by counsel that it need not carry out the agreement pursuant to Section 1.2(c), supra.
Plaintiff decided to go through with the deal because it was afraid that to do otherwise would taint its business reputation, goodwill and credibility as an acquirer of businesses. Ample evidence has been presented that Plaintiff has always dealt fairly with those that it has come in contact with. This has resulted in an excellent reputation and a large amount of goodwill for Plaintiff in both the domestic and international marketplaces. Indeed, the parties have stipulated that Plaintiff has never failed to consummate a written agreement.
After learning about Supermarkets' poor financial situation and deciding to conclude the transaction, Plaintiff's officers decided to sell its interest in Supermarkets. Sr. Jorba was advised of this decision on January 18, 1974 and he agreed to sell his and his relatives interest along with Plaintiff.
Starting the week of January 14, 1974, Plaintiff attempted to find a buyer for Supermarkets. Contacts were made in this country, in France and in the Netherlands. Before a buyer was found, approval of the Spanish Government was obtained and the acquisition was carried out on November 20, 1974.
Plaintiff knew on November 20, 1974 that it was paying more for Supermarkets than its market value and that Supermarkets prospects were dim.
Finally, on December 15, 1975, Plaintiff sold its Supermarkets stock for 24,193,314 pesetas. Plaintiff's total loss (including related expenses) amounted to $1,202,908.23.
The parties have stipulated that the legal issues are:
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Campbell Taggart, Inc. v. U.S.
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