McCaskey v. Comm'r of Internal Revenue (In re Estate of Halas)

• Court: U.S. Tax Court
• Writing for the Court: HAMBLEN
• Citation: McCaskey v. Comm'r of Internal Revenue (In re Estate of Halas), 94 T.C. 570, 94 T.C. No. 33 (T.C. 1990)
• Decision Date: 11 April 1990
• Docket Number: 10163-89,Docket Nos. 8438-88,10164-89,15748-89,21879-89.,10165-89
• Parties: ESTATE OF GEORGE S. HALAS, SR., DECEASED, VIRGINIA H. McCASKEY, AND MICHAEL R. NOTARO, CO-EXECUTORS, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

94 T.C. 570

94 T.C. No. 33

ESTATE OF GEORGE S. HALAS, SR., DECEASED, VIRGINIA H. McCASKEY, AND MICHAEL R. NOTARO, CO-EXECUTORS, ET AL.,1 Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 8438-88

10163-89

10164-89

10165-89

15748-89

21879-89.

United States Tax Court

Filed April 11, 1990.

P moved the Court to reconsider our opinion, T.C. Memo. 1989-536, in which we denied P's motion to disqualify R's expert witness on the basis of conflict of interest and privileged communication relating to information previously obtained by the expert in connection with a third party who is not before the Court. Other petitioners filed motions in limine to disqualify the expert on the same grounds.

HELD, there is no conflict of interest and our prior opinion, T.C. Memo. 1989-536, is deemed correct. Held further, there is no Federal privilege for appraisers of property. Consequently, all motions are denied. James L. Malone III, for the petitioners.

Lawrence C. Letkewicz, for the respondent.

OPINION

HAMBLEN, JUDGE:

This case is before the Court on the motion for reconsideration of our opinion, T.C. Memo. 1989-536, filed by petitioner, estate of Halas, Sr., pursuant to Rule 161, ² and the remaining petitioners' five motions in limine filed October 27, 1989. In our opinion, we denied petitioner's motion in limine to disqualify Willamette Management Associates, Inc. (hereinafter Willamette) as respondent's expert witness.

We assume the following facts, as submitted by the parties, for purposes of this ruling. Prior to 1981, the Chicago Bears (hereinafter Old Bears) was an Illinois corporation. George Halas, Sr. (hereinafter Halas, Sr.) owned 49.35 percent of the Old Bears common stock, Halas Sr.'s son, George Halas, Jr. (hereinafter Halas, Jr.) owned 19.68 percent of the Old Bears common stock, and Halas, Sr.'s daughter, Virginia McCaskey, owned 19.68 percent. The remainder of the Old Bears common stock was owned by unrelated shareholders. Halas, Jr. predeceased his father in 1979.

In December 1981, the Old Bears was recapitalized and reorganized into a Delaware corporation and named The Chicago Bears Football Club, Inc. (hereinafter Chicago Bears or Bears). Common stock of the Old Bears was exchanged pro rata for stock in the reorganized Chicago Bears. Halas, Sr. received class B common stock equal to 49.35 percent ownership of the Bears. The estate of Halas, Jr. and Virginia McCaskey each received 183 shares of class C common stock and class D common stock respectively equal to 19.68 percent ownership of the Bears. The unrelated shareholders received class A common stock equal to 11.29 percent of the Bears. Each of the four classes of common stock has equal voting rights and different liquidation and dividend rights. Each class of stock receives a different share of a residual dividend pool. Classes D and C stock share the same dividend priorities, the same number of shares outstanding, and the same liquidation and dissolution rights. However, class C common stock is entitled to a per share annual cash dividend of $1,256. Class D common stock is entitled to a per share annual cash dividend of $612.

Immediately after the recapitalization, Halas, Sr., transferred his class B common stock in the Bears to a newly organized Delaware corporation, the Halas Family Holding Company (HFHC), in exchange for 7,143 shares of preferred stock with a stated value of $7,143,000, and a $1,000,000 debenture bearing an interest rate of 17.5 percent due in the year 2001. HFHC immediately issued 9,100 shares of its common stock to thirteen separate corporations, each wholly owned by one of thirteen trusts organized and maintained for the benefit of Halas, Sr.'s thirteen grandchildren. Eleven of the grandchildren are Virginia McCaskey's children, and two are Halas, Jr.'s children. A few days after these transactions, HFHC acquired a 49.35 percent interest in a partnership formed to construct and own skyboxes at Soldiers Field, Chicago, Illinois, where the Bears play their home games. In a similar transaction, Virginia McCaskey transferred all of her class D common stock in the Bears to the McCaskey Family Holding Company (MFHC), in exchange for preferred stock in MFHC and a promissory note. The common shareholders of MFHC were the eleven corporations owned by trusts maintained for the benefit of Virginia McCaskey's children. These eleven corporations were merged into MFHC in 1986. Thereafter, MFHC owned 84.6 percent of the common stock of HFHC and the other common shareholders of HFHC were Stephen Halas, Inc., and Christine Halas, Inc.

As a consequence of these transactions, all of the outstanding shares of Chicago Bears class B common stock were held by HFHC, all of the outstanding shares of Bears class C common stock were held by the estate of Halas, Jr., and all of the outstanding shares of the Bears class D common stock were held by MFHC.

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                ¦Reorganized Chicago Bears Common Stock Ownership   ¦
                +---------------------------------------------------¦
                ¦            ¦            ¦            ¦            ¦
                +---------------------------------------------------+
                

 Number of Percentage Class of
                shares of ownership stock  
                HFHC                 459         49.35%         B
                MFHC                 183         19.68          D
                Estate of Halas, Jr. 183         19.68          C
                Other Shareholders   105         11.29          A
                                     930         100.00
                

Halas, Sr. died in 1983. Virginia McCaskey and Michael Notaro were duly authorized as executors of his estate.

Pursuant to the Bears' Certificate of Incorporation, executed on October 19, 1981, the Bears was granted a right to purchase any shares that a shareholder proposed to transfer to parties other than existing shareholders, their spouses, descendants, or the trustee of a trust for the benefit of the same. In 1988, the Bears purchased shares of its class C common stock from the estate of Halas, Jr. In accordance with the Certificate of Incorporation, the stock was appraised by three valuation experts chosen in the following manner: one was selected by the Chicago Bears, one was selected by the estate, and the third appraiser was chosen by the first two appraisers. The third appraiser was Willamette. The estate of Halas, Jr. and the Chicago Bears jointly employed Willamette.

On June 1, 1988, the Treasurer of the Bears, Theodore P. Phillips, and Ellen Cleary of the accounting firm Price, Waterhouse & Co. met with Louis Paone of Willamette to assist Mr. Paone in his efforts to assign a fair market value to the estate of Halas, Jr.'s class C common stock in the Bears as of the valuation date of May 31, 1988. Prior to this meeting, Mr. Paone had been given background financial information, including the Bears' certified financial statements for the fiscal years ending February 29, 1984 through February 29, 1988. The conversation at the meeting involved a wide- ranging discussion of the Bears' finances in general, the Bears' financial statements, and the general financial operation of National Football League teams.

By separate statutory notices of deficiency, respondent determined deficiencies in estate tax for Halas, Sr. and in gift tax for Virginia McCaskey. Subsequent to argument on petitioner's motion in limine, respondent also issued separate statutory notices of deficiency to the HFHC common stockholders and to the MFHC common stockholders as transferees of the gifts from Halas, Sr. and Virginia McCaskey to HFHC and MFHC respectively.

In response to the notices of deficiency, the three common shareholders of HFHC -- MFHC, Stephen Halas, Inc., and Christine Halas, Inc. -- filed separate petitions on May 15, 1989. The common shareholders of MFHC, the eleven corporations owned by trusts maintained for the benefit of Virginia McCaskey's children, filed a single petition on June 30, 1989. Virginia McCaskey filed a petition on September 6, 1989.

Respondent seeks to use Willamette as its expert witness to appraise the fair market value of shares of HFHC as of the date of Halas, Sr.'s death. The primary assets of HFHC as of the valuation date were the shares of class B Bears common stock and the interest in the partnership formed to construct and own the skyboxes at Soldiers Field. In Estate of Halas v. Commissioner, T.C. Memo. 1989-536, we denied petitioner's motion in limine to bar respondent from ‘consulting with, reviewing and/or introducing at trial any expert reports, memoranda or oral testimony prepared by or on behalf of the firm of Willamette Management Associates, Inc., its officers, * * * and/or any related corporations * * *.‘

Motions in limine to disqualify Willamette as respondent's expert witness were filed by the five new petitioners. Subsequently, all six cases were consolidated for trial. Petitioner filed this motion for reconsideration of our denial of petitioner's motion in limine to disqualify Willamette as respondent's expert witness in Estate of Halas v. Commissioner, T.C. Memo. 1989-536. Accordingly, we now consider petitioner's motion to reconsider as well as the five new motions in limine.

The only issue before the Court is whether to disqualify respondent's expert witness. We note that the granting of a motion for reconsideration pursuant to Rule 161 rests within the discretion of the Court. Vaughn v. Commissioner, 87 T.C. 164, 166-167 (1986). Motions for reconsideration will not be granted unless unusual circumstances or substantial error is shown. Vaughn v. Commissioner, 87 T.C. at 167.

In deciding whether to grant or deny the motion before us we apply the rules of evidence applicable to trials without a jury in the U.S. District Court for the District of Columbia. Thus, the Federal Rules of Evidence govern. In addition, to the extent that they may be appropriate, the rules of evidence contained in the Federal Rules of Civil Procedure will apply. Rule 143(a).

In Estate of Halas v....