Sager Glove Corp. v. Comm'r of Internal Revenue, Docket No. 75057.

• Decision Date: 29 September 1961
• Docket Number: Docket No. 75057.
• Citation: 36 T.C. 1173
• Parties: SAGER GLOVE CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

36 T.C. 1173

SAGER GLOVE CORPORATION, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 75057.

Tax Court of the United States.

Filed September 29, 1961.

Llewellyn A. Luce, Esq., for the petitioner.

David H. Nelson, Esq., and Seymour I. Sherman, Esq., for the respondent.

Petitioner instituted suit under the Federal antitrust laws against certain optical companies, charging loss of profits and injury to its business and property during the years 1936 to 1943, inclusive. The jury awarded damages of $325,000 and the court entered judgment of treble that amount together with costs and charges, and attorneys' fees of $132,000. Thereafter the court ordered a new trial, but the suit was settled by the parties out of court, the petitioner receiving in settlement an amount of $478,142, of which $132,000 was designated as attorneys' fees. Neither the release nor any other evidence establishes the extent, if any, that the remainder of $346,142 represented a recovery of lost capital. Held, that the petitioner has failed to meet his burden of proving error in respondent's determination that the entire amount received in settlement constituted ordinary income under section 22(a) of the Internal Revenue Code of 1939.

ATKINS, Judge:

The respondent determined a deficiency in income tax in the amount of $167,735.33 for the taxable year 1951.

The issue is whether the full amount of $478,142 received by petitioner in 1951 in settlement of an antitrust suit is taxable as ordinary income as determined by respondent or whether $346,142 thereof constitutes nontaxable return of capital as contended by petitioner.

Adjustment will be made under Rule 50 in accordance with agreement between the parties as to other issues.

FINDINGS OF FACT.

Some of the facts are stipulated, and the stipulations, including the stipulated exhibits, are incorporated herein by this reference.

Petitioner is a corporation organized under the laws of the State of Illinois in September 1921 as the Sager Mercantile Company. On April 1, 1929, its name was changed to the Sager Glove Corporation. At all times pertinent hereto it maintained its principal office and place of business in Chicago, Illinois. Its corporate income tax return for the calendar year 1951 was filed with the director of internal revenue for the first district of Illinois.

During the year 1951, Samuel N. Ager owned 67 percent and his wife, Clara M. Sager, owned 33 percent of the outstanding stock of petitioner. Samuel N. Sager was the president and treasurer of petitioner and in active control of its business affairs. Clara Sager was its secretary.

Since 1926 petitioner has been engaged in the business of manufacturing and selling safety material, equipment, clothing, and protective apparel for the protection of the entire body of the worker in industry, including leather and asbestos gloves, mittens, hand pads, and wool and fireproof garments. Since 1931 it has also engaged in the development, manufacture, and sale of industrial safety goggles to protect the eyes of workers engaged in hazardous and semihazardous occupations.

On or about October 14, 1940, the petitioner filed in the District Court of the United States for the Northern District of Illinois, Eastern Division, pursuant to section 15, title 15, U.S.C., a complaint under the antitrust laws against Bausch & Lomb Optical Company, a corporation, American Optical Company, an association, and American Optical Company, a corporation, alleging that its business and property were damaged by the acts of the defendants. On or about February 15, 1954, it filed an amended complaint in the suit setting forth three counts. The first count alleged violations of the Act of Congress of July 2, 1890 (15 U.S.C.secs. 1-7), commonly known as the Sherman Act. The second count alleged violations of the Act of Congress of October 15, 1914, commonly known as the Clayton Act. The third count alleged violations of the Act of Congress of July 19, 1936, commonly known as the Robinson-Patman Act. Each count states, in pertinent part, as follows:

on October 16, 1935, the defendant, BAUSCH & LOMB, notified the plaintiff by its communication that it would not sell any of its merchandise to the plaintiff, and would not accept any further orders from it. Thereafter said defendant refused to sell any more lenses to the plaintiff except that it filled the existing orders. Because of this shutting off of its only available source of supply of lenses plaintiff was forced to cancel its contract with General Motors Corporation, losing thereby many thousands of dollars in profits; it was forced to stop soliciting; refused orders and lost many of the customers which it had developed during the preceding years and was destroyed completely as a competitor in the industrial goggle field. * * *

For the purpose of monopolizing the trade, and to eliminate the plaintiff as a competitor, the defendant, BAUSCH & LOMB, set up the Kimball Safety Products Company at Cleveland, Ohio in the middle of the year 1937, and the defendant, AMERICAN OPTICAL COMPANY, acquired the interest of the Safety Equipment Service Company at Cleveland, Ohio, to compete with the plaintiff in the general safety equipment field, and as an outlet for its industrial lenses. From then on to this day the defendant, BAUSCH & LOMB, has used the Kimball Safety Products Company, and the defendant, AMERICAN OPTICAL COMPANY, has used the Safety Equipment Service Company for the purpose of ultimately driving the plaintiff out of the safety clothing business through destructive price-cutting tactics. By means of the wide contact with industrial users of safety equipment developed by it through the Kimball Safety Products Company, the defendant, BAUSCH & LOMB, endeavored to destroy plaintiff's business, in order to gain for itself and for the Kimball Safety Products Company the more lucrative industrial goggle business. * * *

* * * The aim and purpose of the defendants is to monopolize for themselves and their own agencies and distributors the manufacture, sale and distribution of industrial safety lenses and goggles, and especially to drive out, through their control of the only sources of supply of lenses used in industrial goggles, all independent manufacturers of such goggles who refuse to maintain the prices fixed by them, and by such means and as a result of such conspiracy, combination and monopoly, the said defendants have attempted, and have succeeded, to destroy a part of plaintiff's business, and have eliminated him as a competitor in the production of industrial safety goggles in the United States.

The conspiracy, combination and monopoly hereinbefore described is a continuing one and defendants intend to carry it out and will continue to do so unless enjoined by this Court. The unlawful restraints, acts, methods and practices pursuant thereto are continuing daily and are daily causing injury to plaintiff's business and property; plaintiff has suffered, is suffering and will continue to suffer immediate great and irreparable loss, damage and injury to its business and property by reason thereof, unless the defendants are enjoined by this Court.

The damages to plaintiff to date include among other things:

(a) sums spent in research, equipment, molds, dies, machinery, salaries, commission, drawing accounts, advertising and in developing the manufacture, sale and distribution of goggle cups and frames and in promoting the marketing of the goggles;

(b) large sums in extra expense in fighting the destructive competitive tactics of the American Optical Company and Bausch & Lomb through the Kimball Safety Products Company and the Safety Equipment Service Company in the general safety equipment field;

(c) loss of other valuable and profitable contracts and orders when Bausch & Lomb refused to sell any more lenses;

(d) payment of excessive and unreasonable prices for lenses purchased from Bausch & Lomb;

(e) loss realized on the liquidation of the excessive stock of lenses forced upon plaintiff in 1934 and 1935;

(f) loss of the just fruits of plaintiff's labor, industry and effort;

(g) loss of profits on being forced to cancel the contracts to supply the goggle requirements of General Motors Corporation;

(h) loss of regular and anticipated profits from the sale of industrial safety goggles which plaintiff would reasonably have made but for the unlawful acts of defendants as aforesaid, including profits which plaintiff might reasonably have made, after defendants had unlawfully eliminated it as a competitor;

(i) loss of profits due to the necessity of meeting the cut-throat price competition of Kimball Safety Products Company and Safety Equipment Service Company operated and controlled by the defendants, BAUSCH & LOMB and AMERICAN OPTICAL COMPANY in the general safety equipment field.

In the complaint the petitioner did not set forth the specific amount of damage suffered for which judgment was requested, the prayer for relief in regard to damages being as follows:

That judgment as provided by law be granted to it against the defendant, and each of them for all damages and injuries as aforesaid, and to be sustained, by reason of said conspiracy, combination and monopoly, and unlawful restraints, acts, methods and practices pursuant thereto, as hereinbefore described; that such damages be made threefold; that the plaintiff recover the costs of this suit, including a reasonable attorney's fee, all in accordance with the statute in such case made and provided.

On November 14, 1944, the District Court entered a judgment dismissing petitioner's complaint. Petitioner appealed to the United States Court of Appeals for the Seventh Circuit from the order of dismissal, and on June 9, 1945, the Court of Appeals entered a judgment reversing the judgment of the District Court insofar as it dismissed the first count of the complaint, but otherwise affirming the judgment of the District Court....