HINCKS, District Judge.
It is to me altogether plain that the net payment made to the Lenox receiver, Par. 24, was not one made to defend plaintiff’s title and on that account a capital expense under Regulation 111. The receiver here, unlike the taxpayer’s claimant in Levitt & Sons, Inc., v. Nunan, 2 Cir., 142 F.2d 795, Id., 2 Cir., 160 F.2d 209, made no claim hostile to plaintiff’s title: he claimed only an accounting of profits alleged to have accrued to the plaintiff at the expense of Lenox. In this aspect, the case here falls within the rule not of the Levitt case but of Hochschild v. Commissioner, 2 Cir., 161 F.2d 817, and Rassenfoss v. Commissioner, 7 Cir., 158 F.2d 764. See also All States Freight, Inc., v. United States, D.C., 72 F.Supp. 673; Bishop Trust Co., Ltd., v. Commissioner, 47 B.T.A. 737; and Seufert Bros. Co. v. Lucas, 9 Cir., 44 F.2d 528. Indeed, it will be noted that the treatment of the payment to the receiver in this case as an expense of carrying on does not conflict with the views enunciated in Judge Frank’s dissenting opinion in the Hochschild case, supra.
Nor did the plaintiff’s net payment to the receiver lose its inherent quality as an operating expense because it happened to be linked or merged in a single transaction with a contra-item, namely a transfer of the residual Lenox items to the plaintiff. True, the over-all payment included the consideration for the plaintiff’s purchase of the residual assets which the plaintiff, to obtain a settlement, was required to take over and so much of the payment as represented the consideration paid by the plaintiff for these assets was concededly a capital — not an operating — expense. But merely because the parties to that transaction did not attempt to apportion the total payment between capital and operating expenses for purposes of a settlement which for its consummation depended not at all upon any such apportionment, it does not follow that the payment may not be apportioned for the purpose of an ascertainment of taxes which does depend upon an apportionment. In Hochschild v. Commissioner, 7 T.C. 81, the Tax Court recognized the propriety of making a more difficult apportionment of a blanket expenditure for capital and operating items than is involved here. On appeal, 2 Cir., 161 F.2d 817, the apportionment sanctioned by the Tax Court was expressly approved in Judge Frank’s dissent and not disapproved in the opinion of the court. Sec also Helvering v. Stormfeltz, 8 Cir., 142 F.2d 982.
Here, the apportionment for which the plaintiff contends has a basis which is at once obvious and simple. The fair value of the assets taken over needs but to be subtracted from the over-all payment and what is left represents that part of the payment which was made to protect the business by a settlement. By this method, of course, the measure of the deductible payment would vary inversely with the value allocated to the assets. But since the plaintiff is content for present purposes to have its deductible payment determined by subtracting from the over-all payment the highest value of the residual assets of which there is evidence (indeed, a figure somewhat in excess of what I have found to be actual value) the result is beyond the reach of exception by the defendants.
Whether the payments to settle actual and potential claims in behalf of former holders of Lenox preferred stock should also be classified not as capital hut rather as operating expenses, is a closer question. Here, as often is the case in similar situations, the payments were made before the precise theory of the claims had been fully articulated. - It does appear, however, that the claimants contemplated a judicial rescission of their stock sales to the plaintiff and considered that they had a claim for damages as well. Of course, a successful rescission would result in an avoidance of the plaintiff’s title to the stock involved in the challenged transaction and I have little doubt that a payment made solely to prevent such an avoidance would be one to defend title within the meaning of Regulation 111 just as fully as the payment made to-[896]*896prevent a loss of title by the foreclosure of the equitable lien in the Levitt case, supra. But because its decision was based upon that one feature of a complex situation the Tax Court in the Hochschild case was reversed, the Court of Appeals holding that where the threat to the taxpayer’s title depended for its validity upon a claimed breach by the taxpayer of a fiduciary duty the threat to title is incidental only and a payment to settle the claimed breach of duty should be treated as an expense to protect the business generally.
Essentially the same situation is involved here. The settlement with the committee for the benefit of former stockholders and the settlement with the receiver were essentially all part of the same transaction: if, failing a settlement, the committee had accomplished its threatened rescission in behalf of former stockholders the amount of the outstanding Lenox stock held by others than the plaintiff and consequently the aggregate amount of the adverse interest entitled to participate under the claims of the receiver, would have been correspondingly increased. Likewise, as to the plaintiff’s settlement with former stockholders not represented by the committee. This settlement was on the basis of a firm written ■offer made prior to the execution of the agreements of settlement with the receiver and the committee and in effect constituted an integral part of a comprehensive settlement. But for this offer, and its ac-' ■ceptance and subsequent consummation, the plaintiff had sound ground for fear lest the aggregate amount of adverse claims might be increased from this source also. And former stockholders, unless their continued .acquiescence was assured by firm prospect of a settlement, by claiming a right to rescind their sales to the plaintiff might have had sufficient standing in the receivership proceedings to block the settlement between the plaintiff and the receiver. Although the written agreement of settlement with the receiver did not expressly say so, it is a fair inference that the terms of that settlement were based upon an understanding on both sides that both the actual and potential claims of former stockholders would also be settled. There was little incentive for the plaintiff to settle with the receiver for the benefit of present stockholders unless the possibility of harmful publicity from litigation prosecuted for the benefit of former stockholders was also eliminated, and indeed the first negotiations for a compromise were conducted on the basis of an offer for an over-a'll settlement which included the claims both of the receiver and of former stockholders.
Not only were the payments for the benefit of former stockholders thus tied into an over-all settlement but also, it appears, the basis of these payments was not essentially different from that made to the receiver.
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HINCKS, District Judge.
It is to me altogether plain that the net payment made to the Lenox receiver, Par. 24, was not one made to defend plaintiff’s title and on that account a capital expense under Regulation 111. The receiver here, unlike the taxpayer’s claimant in Levitt & Sons, Inc., v. Nunan, 2 Cir., 142 F.2d 795, Id., 2 Cir., 160 F.2d 209, made no claim hostile to plaintiff’s title: he claimed only an accounting of profits alleged to have accrued to the plaintiff at the expense of Lenox. In this aspect, the case here falls within the rule not of the Levitt case but of Hochschild v. Commissioner, 2 Cir., 161 F.2d 817, and Rassenfoss v. Commissioner, 7 Cir., 158 F.2d 764. See also All States Freight, Inc., v. United States, D.C., 72 F.Supp. 673; Bishop Trust Co., Ltd., v. Commissioner, 47 B.T.A. 737; and Seufert Bros. Co. v. Lucas, 9 Cir., 44 F.2d 528. Indeed, it will be noted that the treatment of the payment to the receiver in this case as an expense of carrying on does not conflict with the views enunciated in Judge Frank’s dissenting opinion in the Hochschild case, supra.
Nor did the plaintiff’s net payment to the receiver lose its inherent quality as an operating expense because it happened to be linked or merged in a single transaction with a contra-item, namely a transfer of the residual Lenox items to the plaintiff. True, the over-all payment included the consideration for the plaintiff’s purchase of the residual assets which the plaintiff, to obtain a settlement, was required to take over and so much of the payment as represented the consideration paid by the plaintiff for these assets was concededly a capital — not an operating — expense. But merely because the parties to that transaction did not attempt to apportion the total payment between capital and operating expenses for purposes of a settlement which for its consummation depended not at all upon any such apportionment, it does not follow that the payment may not be apportioned for the purpose of an ascertainment of taxes which does depend upon an apportionment. In Hochschild v. Commissioner, 7 T.C. 81, the Tax Court recognized the propriety of making a more difficult apportionment of a blanket expenditure for capital and operating items than is involved here. On appeal, 2 Cir., 161 F.2d 817, the apportionment sanctioned by the Tax Court was expressly approved in Judge Frank’s dissent and not disapproved in the opinion of the court. Sec also Helvering v. Stormfeltz, 8 Cir., 142 F.2d 982.
Here, the apportionment for which the plaintiff contends has a basis which is at once obvious and simple. The fair value of the assets taken over needs but to be subtracted from the over-all payment and what is left represents that part of the payment which was made to protect the business by a settlement. By this method, of course, the measure of the deductible payment would vary inversely with the value allocated to the assets. But since the plaintiff is content for present purposes to have its deductible payment determined by subtracting from the over-all payment the highest value of the residual assets of which there is evidence (indeed, a figure somewhat in excess of what I have found to be actual value) the result is beyond the reach of exception by the defendants.
Whether the payments to settle actual and potential claims in behalf of former holders of Lenox preferred stock should also be classified not as capital hut rather as operating expenses, is a closer question. Here, as often is the case in similar situations, the payments were made before the precise theory of the claims had been fully articulated. - It does appear, however, that the claimants contemplated a judicial rescission of their stock sales to the plaintiff and considered that they had a claim for damages as well. Of course, a successful rescission would result in an avoidance of the plaintiff’s title to the stock involved in the challenged transaction and I have little doubt that a payment made solely to prevent such an avoidance would be one to defend title within the meaning of Regulation 111 just as fully as the payment made to-[896]*896prevent a loss of title by the foreclosure of the equitable lien in the Levitt case, supra. But because its decision was based upon that one feature of a complex situation the Tax Court in the Hochschild case was reversed, the Court of Appeals holding that where the threat to the taxpayer’s title depended for its validity upon a claimed breach by the taxpayer of a fiduciary duty the threat to title is incidental only and a payment to settle the claimed breach of duty should be treated as an expense to protect the business generally.
Essentially the same situation is involved here. The settlement with the committee for the benefit of former stockholders and the settlement with the receiver were essentially all part of the same transaction: if, failing a settlement, the committee had accomplished its threatened rescission in behalf of former stockholders the amount of the outstanding Lenox stock held by others than the plaintiff and consequently the aggregate amount of the adverse interest entitled to participate under the claims of the receiver, would have been correspondingly increased. Likewise, as to the plaintiff’s settlement with former stockholders not represented by the committee. This settlement was on the basis of a firm written ■offer made prior to the execution of the agreements of settlement with the receiver and the committee and in effect constituted an integral part of a comprehensive settlement. But for this offer, and its ac-' ■ceptance and subsequent consummation, the plaintiff had sound ground for fear lest the aggregate amount of adverse claims might be increased from this source also. And former stockholders, unless their continued .acquiescence was assured by firm prospect of a settlement, by claiming a right to rescind their sales to the plaintiff might have had sufficient standing in the receivership proceedings to block the settlement between the plaintiff and the receiver. Although the written agreement of settlement with the receiver did not expressly say so, it is a fair inference that the terms of that settlement were based upon an understanding on both sides that both the actual and potential claims of former stockholders would also be settled. There was little incentive for the plaintiff to settle with the receiver for the benefit of present stockholders unless the possibility of harmful publicity from litigation prosecuted for the benefit of former stockholders was also eliminated, and indeed the first negotiations for a compromise were conducted on the basis of an offer for an over-a'll settlement which included the claims both of the receiver and of former stockholders.
Not only were the payments for the benefit of former stockholders thus tied into an over-all settlement but also, it appears, the basis of these payments was not essentially different from that made to the receiver. These claims were stimulated by the hope that the claims of the receiver could be made good; the value of these claims, like the value of the receiver’s claim, depended upon the possibility that, if litigation which involved publicity -harmful to plaintiff’s business proceeded, a decree might result enlarging the Lenox estate at the expense of the plaintiff’s on the ground that the plaintiff had profited by a breach of the fiduciary duty owed by the common directors to Lenox.
On the whole these considerations distinguish the case here from the Levitt case and bring it within the ruling in the Hochschild and Rassenfoss cases. This, without reliance upon a ruling as extreme as that of Helvering v. Community Bond & Mortgage Corp., 2 Cir., 74 F.2d 727. And it would, I think, produce a result almost grotesque to treat the payments made for the benefit of former stockholders as a belated addition to capital cost when the payment to the Lenox receiver for the benefit of present stockholders was plainly an operating expense. I conclude, therefore, that the payments for the benefit of former stockholders as well as the net payment to the receiver should not be treated as capital expenses.
With the conclusions stated out of the way, there is little difficulty in reaching the cognate conclusion that on the underlying facts all the payments in settlement were both necessary and ordinary within the meaning of the Revenue Act. International Shoe Co. v. Commissioner, 38 B.T.A. 81. Beyond dispute, the settlements removed serious hazard of loss and thus were helpful to the plaintiff’s busi[897]*897ness. In this aspect, therefore, the payments were “necessary” within the pronouncements of Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212, and Levitt & Sons v. Nunan, 2 Cir., 142 F.2d 795. And clearly the hazard to the plaintiff’s business from the pending and threatened litigation was such that in the world of business affairs the payments constituted a “common and accepted means of defense” and so qualified as an “ordinary” expense of the business within the definition of the Welch case [290 U.S. 111, 54 S. Ct. 9]. Indeed, in this aspect the case is considerably stronger for the plaintiff than other cases which might be cited in its support. Cf. Dunn & McCarthy, Inc., v. Commissioner, 2 Cir., 139 F.2d 242.
Nor is the deductability of the plaintiff’s payment to the receiver affected by the fact that to obtain their personal release the plaintiffs officers, who were also Lenox’ officers, on some undisclosed basis contributed $15,000 in cash to the settlement with the receiver, in addition to the payment made by the plaintiff. It will be remembered that the tenor of the receiver’s claim was to the effect that the plaintiff knowingly had profited by the acts of the common directors which were in violation of their duty to Lenox. If such a claim were well-founded, the plaintiff would be jointly liable with its recreant officers to account for all profit thus derived. In such a situation, the coincidence of a joint liability would not destroy the deductability of payments made by the plaintiff for the discharge of its own liability. Howard v. Commissioner, 22 B.T.A. 375, at page 378. See also Watkins Salt Co. v. Commissioner, 1 T.C. 125. If it be important in this connection — which I doubt — it may he noted that under the common law of Connecticut no right of contribution is recognized between joint tort feasors. Sparrow v. Bromage, 83 Conn. 27, 74 A. 1070, 27 L.R.A.,N.S., 209, 19 Ann.Cas. 796, and Rose v. Heisler, 118 Conn. 632, 174 A. 66.
If the payments in settlement were deductible, as I have held, it follows, of course, that the payments to counsel for services in accomplishing the settlements were also deductible. This is a corollary not disputed by the defendants and needs neither citation of authority nor exegesis. Likewise as to all payments to accountants, as well as to counsel, for services not related to the settlements or investigations but in connection with the general conduct of the defendant’s business.
The defendants, I note, question the payments to counsel for services in connection with the investigation of the plaintiff’s affairs by the State’s Attorney and by the Securities and Exchange Commission. This challenge is predicated, in part at least, upon a line of cases, such as Commissioner v. Longhorn Portland Cement Co., 5 Cir., 148 F.2d 276, 277, holding that payment in discharge of fine or of a statutory penalty is not deductible as an ordinary expense of carrying on a business. But such. doctrine is not applicable here where no question of fine or penalty is involved. Nor could it conceivably be held that a settlement with the receiver which was judicially approved in the receivership proceedings was one effective to “frustrate sharply defined public policy” within the scope of the Longhorn case. The defendants also cite in opposition to these deductions Knight-Campbell Music Co. v. Commissioner, 10 Cir., 155 F.2d 837, and Chenango Textile Corp. v. Commissioner, 1 T.C. 147, affirmed 2 Cir., 148 F.2d 296. But in both of these cases, the only counsel fees payments for which were held non-deductible as business expenses were those of counsel retained by, and for the benefit of, others than the taxpayer; the payment of taxpayer’s counsel fees was not involved at all in the Music Company case; and in the Chenango case the payment of services of taxpayer’s counsel was held deductible.
Thus I reach my conclusion that all the payments ($16,000) described in Par. 31 and the payments of $5,000 and $6,620 described in Pars. 33 and 34 were also deductible.
The plaintiff may submit for entry a judgment which shall embody the rulings indicated above together with any further [898]*898findings which may be necessary to show the amount of taxes recoverable for each taxable year in question as a result of said rulings, said judgment and supplemental findings to be settled in chambers on notice unless notice shall be waived.