Special to the Business Journal
WASHINGTON , After Steven F. Cade lost in U.S. Tax Court here, his lawyer said he would take another swing in higher courts.
That decision was reached when a tax court judge ordered the Carlsbad golf-club maker and his wife, Maureen, to pay $651,000 in taxes on damages he collected over the sale of his wholesale grocery business.
Judge David Laro upheld an Internal Revenue Service ruling that he owed the taxes despite the couple’s claim that the award was tax-exempt because it was for injuries to Cade. The IRS ruled portions of the jury award were taxable economic benefits and not for injuries.
“Obviously, we’re disappointed in the tax court’s decision, most notably because the cases we cited weren’t even considered,” said Charles W. Becker, the couple’s San Diego tax attorney. “We’ll be appealing to the 9th Circuit (Court of Appeals).”
In a telephone interview, Becker claimed that the 9th U.S. Circuit Court of Appeals in other cases had ruled that similar jury awards were for non-taxable injuries.
“Luckily for us,” he said, “the 9th Circuit has been pro-taxpayer on this issue.”
While Laro’s 14-page opinion was issued early in December, Cade said that he was unaware that a decision had been reached until a reporter called him for comment. Cade said that he could not comment on the case because he had not read the opinion.
In the opinion, Laro found that a portion of $2.3 million of the $3.83 million the San Diego Superior Court jury awarded Cade in 1993 was taxable since it was for lost compensation and employment benefits rather than for injury as the couple had contended.
The case has its roots in an Aug. 17, 1990, agreement under which Cade sold the Cade-Grayson Co., a grocery wholesaler, to CG Merger Corp. As part of the sale, Cade was to be retained for five years as the new company’s president and chief executive officer.
Under that agreement, Laro wrote in the opinion, Cade was to be paid a $676,000 annual salary, $1.25 million in incentive compensation and a $500,000 supplemental incentive compensation package plus other fringe benefits. Cade was fired a year later.
Cade, president and chief executive officer of La Jolla Club of Vista, sued the CG Merger Corp.; John R. Heller, owner of Heller Seasonings & Ingredients, Inc.; the James R. Heller Trust, and Harris Trust and Savings Bank. La Jolla Club manufactures golf clubs for children.
The opinion written by Laro said that Cade charged in his lawsuit that Heller, Heller Seasonings and CG Merger “made false representations to (the) petitioner to induce him to sell his stock and to enter into the employment agreement.”
In the suit, Cade accused the defendants in the San Diego Superior Court case of “interference with the employment agreement” that “caused (the) petitioner to suffer emotional distress, loss of reputation, and consequential damages of an unspecified amount.”
Besides the jury award, Cade also won an agreement from the Harris bank to also pay $665,000 in punitive damages, bringing the total payment to the couple to $4.5 million.
The Cade couple’s tax case dates back to 1997 when the couple filed a petition with the court appealing the IRS ruling. The case was tried before Laro.
Moskal is a free-lance reporter based in Washington, D.C.