Running head: A REVIEW OF COURT CASES

A Review of Court Cases

Name

Institution

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           Every single business operation is governed by regulations that ensure a smooth running

of operations. In case of breach of these regulations, then a legal court process is initiated for

justice to be served. All court cases have various implications that favor either the appellant or

the appellee or otherwise decided by the judge presiding over the case. This instance is well

illustrated in two cases outlined in the following context. This paper reports two court cases

related to business entrepreneurship. 

Case 1

Kopp's Company, Inc., Appellant, v. the United States of America, Appellee, 636 F.2d 59 (4th

Cir. 1980)

           As stated above, Kopp’s Co., Inc., a Maryland corporation involved in lumber and

building supply business, was the appellant in the case. The case was heard on a stipulation of

various oral arguments, facts, and briefs. The case had its roots after an accident that occurred

back on 17th November 2017. Wayne, son to Jean Kopp, had caused the accident while at home

on leave and making permissive and personal use of a company-owned car. The accident

rendered the driver of the other vehicle Warren Danner, a quadriplegic. Warren, the victim of the

accident, went ahead and filed a suit back in 1969 against the Jean, Wayne, Earl, and the

Company for damages amounting to $4.2 million. 

           In order to relieve its financial stress, the company opted to settle down the damages out-

of-court with Danner. In so doing, the Company’s liability insurer was to pay Danner $102,000,

and the Company was also to pay $50,000. Additionally, the Company incurred legal fees

amounting to $3,068. In its Federal income tax return, the company deducted all the expenses

incurred as ordinary and necessary business expenses under section 162 of the code. The

appellant argued that the deduction was lawful under section 162 (a). However, the District
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Court rejected it. The ruling was arrived at after consideration of the United States V. Gilmore,

372 U.S 39, 83 S. Ct. 623, 9 L. Ed. 2d 570, (1963). 

Case 2

JAMES A. CAVANAUGH, JR., Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.

           During a 2002 Thanksgiving holiday, Mr. Cavanaugh CEO and sole shareholder of Jani-

King International, Inc. decided to go for a vacation to the Caribbean with Robinson, where he

had a residence. He was accompanied by his girlfriend Colony Anne and two employees Erika

Fortner and Ronald Walker. During the vacation, Colony Anne died, and it was later found that

she died of a cocaine overdose. Consequently, Colony’s mother, Ms. Robinson, sued Cavanaugh

and Jani-King. She alleged that her daughter’s death was caused by the Jani-king employees

acting in the course of their day-to-day work (p. 1280). 

           Upon discovery, Cavanaugh faulted the allegations and explained that they were

“frivolous” nonetheless, he was willing to pay $250,000 in his defense personally. The

company’s counsel said that Ms. Robin was highly likely to lose the case, but a negative

consequence on the company’s reputation would occur. The counsel ultimately agreed to pay up

to $5 million. The parties finally settled for $2.3 million, and Cavanaugh paid $250,000. When

filing tax returns, Jani-King deducted reimbursement payment, settlement payment, and related

legal expenses as necessary and ordinary expenses (p. 1281). 

           The IRS disallowed the deductions prompting Cavanaugh to fight for the deductions even

though he had paid to $2.3 million to avoid protracted litigation as well as negative publicity.

The Tax Court maintained that the deductions were unlawful. Just like in the first case, the court

referred to the Unites States V. Gilmore, 372 U.S 39 (1963), controls (p. 1282). In this case, it
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was held that, when determining the deductibility of litigation expenses as business expenses, the

character and origin of the claim concerning which a cost was experienced, rather than its

impending impacts on the fortunes of the taxpayer. 

           In a nutshell, for both cases, we can argue that for the aforesaid reasons, both outcomes

are affirmed.