                       T.C. Memo. 1997-460



                     UNITED STATES TAX COURT



                    FRED HENRY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 26254-96.                    Filed October 9, 1997.



     Robert G. Gargiulo, for petitioner.

     Stephen R. Takeuchi and Keith Aqui, for respondent.


                       MEMORANDUM OPINION


     PANUTHOS, Chief Special Trial Judge:    This matter is before

the Court on petitioner's Motion for Summary Judgment.   The issue

for decision is whether petitioner is entitled to a judgment that

a payment in the amount of $1,623,203 that he received from E.I.

du Pont de Nemours & Co., Inc. (Dupont), in 1994 is excludable

from his taxable income for that year pursuant to section
                                - 2 -


104(a)(2).1   Because petitioner's motion does not provide a basis

for the disposition of all of the issues in dispute in this case,

petitioner's motion is correctly characterized as a Motion for

Partial Summary Judgment and will be referred to as such herein.

     As explained in greater detail below, we shall deny

petitioner's Motion for Partial Summary Judgment on the ground

that the issue raised by the motion is not ripe for summary

adjudication.

Background2

     During the period 1987 through 1991, petitioner and his then

wife were in the business of growing orchids for sale, operating

under the name Fred Henry's Paradise of Orchids.    Between 1987

and 1991, petitioner applied a product known as Benlate to his

orchids for the intended purpose of preventing and controlling

disease.    Benlate is manufactured by Dupont and marketed by

Universal Enterprises Supply Corp. (Universal).    After petitioner

applied Benlate to his orchids, the orchids gradually showed

signs of severe damage including interference with normal growth

patterns, "chloretic" color, root loss, defoliation, and death of

plants.    As a result of the losses that he suffered from using


     1
        Section references are to the Internal Revenue Code, as
amended. Rule references are to the Tax Court Rules of Practice
and Procedure, unless otherwise indicated.
     2
        The following is a summary of the relevant facts that do
not appear to be in dispute; they are stated solely for the
purpose of deciding the pending motion, and they are not findings
of fact for this case. See Rule 1(a); Fed. R. Civ. P. 52(a).
                                 - 3 -


Benlate on his orchids, petitioner was forced out of the orchid

business.

     On October 8, 1992, petitioner and his wife filed a civil

lawsuit against Dupont, Universal, and others in Florida State

court.   Petitioner's complaint alleges:   (1) Petitioner suffered

damages as a result of Dupont's negligence in its formulation,

manufacturing, and analysis of Benlate; (2) Dupont and Universal

are liable under the theory of strict product liability; and (3)

Universal is liable to petitioner for breach of warranty.    The

damages that petitioner allegedly suffered include lost profits,

loss of business reputation as an orchid grower, diminution of

sales, and a diminution in the value of his nursery due to

contamination of the soil.

     Petitioner's case against Dupont and Universal was tried

before a jury in 1993.   During the course of the trial,

petitioner's expert testified that petitioner's damages totaled

$3,796,118, an amount composed of $3,254,000 in lost inventory

and approximately $542,000 representing the amount that

petitioner would have earned on $3,254,000 at 8 percent compound

interest over the 2-year period that elapsed between the date

petitioner terminated his orchid business and the anticipated

date of entry of the judgment.

     On September 23, 1993, the jury entered its verdict in

petitioner's favor finding:   (1) Dupont placed Benlate on the

market with a defect that was a legal cause of damage to
                                - 4 -


petitioner; (2) Universal sold Benlate with a defect that was a

legal cause of damage to petitioner; and (3) Dupont's negligence

was a legal cause of damage to petitioner.    The jury further

concluded that petitioner was also negligent, assigning 80

percent of responsibility for petitioner's damages to Dupont and

Universal and 20 percent of the responsibility to petitioner.

The jury listed petitioner's total damages as $3,796,318, an

amount that is exactly $200 more than the damages estimated by

petitioner's expert at trial.

     On September 28, 1993, the trial court entered a final

judgment, consistent with the jury's verdict in petitioner's

favor, in the amount of $3,037,054.3    However, on October 4,

1993, Dupont and Universal filed, inter alia, a motion to amend

the judgment to reduce the same to account for $200,000 that

Dupont previously paid to petitioner with respect to his claims.

On December 8, 1993, the trial court granted the above-described

motion and entered an amended judgment in petitioner's favor in

the amount of $2,837,054.

     On December 17, 1993, Dupont and Universal filed a notice of

appeal with respect to the amended judgment.    On May 31, 1994,

petitioner approved and accepted a distribution schedule which




     3
        The final judgment in the amount of $3,037,054 is 80
percent of the amount of the total damages determined by the jury
and reflects the jury's determination respecting the parties'
comparative negligence.
                                 - 5 -


reflects a gross recovery from Dupont and Universal in the amount

of $2,800,000.

     Petitioner did not include the payment that he received from

Dupont and Universal in his taxable income for 1994.      On

September 18, 1996, respondent issued a notice of deficiency to

petitioner determining deficiencies in and additions to his

Federal income taxes for 1992 and 1994.    The most significant

adjustment is respondent's determination that petitioner failed

to report income in the amount of $1,623,2034 for 1994

representing the net amount that petitioner received from Dupont

and Universal.

     Petitioner filed a timely petition for redetermination with

the Court contesting the above-described notice of deficiency.

As previously discussed, petitioner contends that he is entitled

to partial summary judgment that the amount he received from

Dupont and Universal in 1994 is excludable from his income

pursuant to section 104(a)(2).    Respondent objects to

petitioner's motion on the ground that material facts remain in

dispute.




     4
        The notice of deficiency does not provide an explanation
as to how this amount was computed. The distribution schedule
reflects a gross recovery of $2,800,000, less attorney's fees and
distributions to third parties. We are unable, however, to
reconcile respondent's adjustment with the amounts set forth in
the distribution schedule, nor are we required to do so for
purposes of this opinion.
                                - 6 -


     This case was called for hearing at the Court's motions

session in Washington, D.C.   Counsel for both parties appeared at

the hearing and presented argument respecting the pending motion.

Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    Florida Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law".   Rule 121(b); Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985).    The moving

party bears the burden of proving that there is no genuine issue

of material fact, and factual inferences will be read in a manner

most favorable to the party opposing summary judgment.    Dahlstrom

v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982).

     Section 61 defines gross income to include "all income from

whatever source derived".   Section 61(a)(4) specifically provides

that gross income includes "interest".    Section 104(a)(2)

provides for the exclusion of "the amount of any damages received
                               - 7 -


(whether by suit or agreement and whether as lump sums or as

periodic payments) on account of personal injuries".   The

regulations interpret this language as encompassing damages

received "through prosecution of a legal suit or action based

upon tort or tort type rights, or through a settlement agreement

entered into in lieu of such prosecution".   Sec. 1.104-1(c),

Income Tax Regs.   Statutory interest imposed on tort judgments,

however, must be included in gross income under section 61(a)(4),

even under circumstances in which the underlying damages are

excludable under section 104(a)(2).    Brabson v. United States, 73

F.3d 1040, 1046-1047 (10th Cir. 1996); Robinson v. Commissioner,

102 T.C. 116, 126 (1994), affd. in part and revd. in part on

another ground 70 F.3d 34 (5th Cir. 1995); Kovacs v.

Commissioner, 100 T.C. 124, 128-130 (1993), affd. without

published opinion 25 F.3d 1048 (6th Cir. 1994).

     Respondent's determination in the notice of deficiency that

the amount that petitioner received from Dupont constitutes

taxable income is presumptively correct, and petitioner has the

burden of proving otherwise.   Rule 142(a); Welch v. Helvering,

290 U.S. 111 (1933).   In order to satisfy his burden of proof,

petitioner must demonstrate that the underlying cause of action

giving rise to the damages that he received from Dupont is based

upon "tort or tort type rights", and that the damages were

received "on account of personal injuries or sickness".

Commissioner v. Schleier, 515 U.S. 323, 336-337 (1995).
                               - 8 -


     Petitioner contends that he has satisfied his burden of

proof under section 104(a)(2) by demonstrating that the damages

that he was awarded against Dupont and Universal arose from

negligent conduct, a tort, and that the damages were paid on

account of a personal injury; i.e., the harm to petitioner's

professional reputation as an orchid grower.

     Respondent counters that material facts remain in dispute.

Specifically, respondent contends that the record reflects that

petitioner received the payment in question by way of a

settlement as opposed to the State court judgment.   In

conjunction with this argument, respondent contends that

petitioner has failed to show that the payment was made to

compensate petitioner for personal injuries.

     Based upon our review of the entire record, we are not

persuaded that the issue of the applicability of section

104(a)(2) to the Dupont/Universal payment is ripe for summary

adjudication.   Contrary to petitioner's assertion, a factual

inference may be drawn from the record that petitioner received

the payment in question pursuant to a settlement with Dupont and

Universal.   In particular, the record indicates that, after

Dupont and Universal filed their appeal, petitioner accepted a

gross payment from Dupont and Universal that was approximately

$37,054 less than the amount awarded pursuant to the final

judgment of the trial court.   Assuming for the moment that the

Dupont/Universal payment was in fact made pursuant to a
                               - 9 -


settlement, we would be required to consider any allocation in

the settlement agreement and/or the intent of the payors, to

determine whether the payment was made on account of personal

injuries or sickness.   See Bagley v. Commissioner, 105 T.C. 396,

406-408 (1995), affd. 121 F.3d 393 (8th Cir. 1997).

     Petitioner complains that respondent's opposition to

petitioner's motion does not comply with Rule 121(d), which

requires that supporting and opposing affidavits submitted with

respect to a motion for summary judgment shall be made on

personal knowledge and that sworn or certified copies of all

papers or parts thereof referred to in an affidavit shall be

attached thereto or filed therewith.   Petitioner points out that

respondent has submitted an affidavit executed by Gregory Luna, a

Dupont legal assistant, that includes a reference to a settlement

between petitioner and Dupont, but the settlement document is not

attached to the affidavit.   Petitioner is correct that the Luna

affidavit is insufficient in this regard.   Nevertheless,

respondent did provide the Court with a copy of the

Dupont/Universal appeal and a copy of a distribution agreement

executed by petitioner that purportedly show that petitioner

ultimately received a payment from Dupont and Universal that is

less than the amount of the judgment entered by the trial court.

These documents suggest that petitioner entered into a settlement

with Dupont and Universal.   Counsel for petitioner was unable to

definitively state that there was no settlement between
                               - 10 -


petitioner and Dupont.   We are thus left with the uncertainty of

whether there was a settlement and the terms of the settlement if

there was one.    Under the circumstances, we conclude that

petitioner is not entitled to summary judgment on the ground that

material facts remain in dispute.

     Moreover, we would deny petitioner's motion even assuming

that petitioner did not enter into a settlement with Dupont and

Universal.   In particular, we are not satisfied that petitioner

has proven that the underlying cause of action giving rise to the

jury's verdict in his favor is based exclusively upon "tort or

tort type rights", or that the damages were received "on account

of personal injuries or sickness".      The civil complaint that

petitioner filed against Dupont and Universal includes a number

of causes of action, including tort type claims as well as a

warranty claim.   Because the jury's verdict sheet indicates that

the jury held for petitioner with respect to his warranty claim

against Universal, we are unable to conclude at this time that

the underlying cause of action giving rise to the jury award is

based exclusively upon tort or tort type rights.      Equally

important, an inference may be drawn that the disputed payment

was not made on account of petitioner's "personal injuries or

sickness".   Significantly, the amount of damages determined by

the jury is remarkably similar to the damage estimate offered by

petitioner's expert during the civil trial--a damage estimate

that was based on the value of petitioner's lost inventory and
                                - 11 -


interest on such amount.   Simply put, these aspects of the case

raise serious doubts that petitioner is correct in his assertion

that the Dupont/Universal payment was made exclusively "on

account of personal injuries or sickness".       Commissioner v.

Schleier, supra at 336-337.

     In his motion, petitioner asked "in the alternative for a

determination of material facts not in substantial controversy,

and for an order specifying those facts".      As we indicated supra

footnote 2, the facts set forth in this opinion are solely for

the purpose of deciding the motion.      Nevertheless, it appears

from the record that many of the facts are not in dispute, and

the Court encourages the parties to stipulate facts to the

fullest extent possible.   See Rules 91, 122.

     Consistent with the preceding discussion, we shall deny

petitioner's Motion for Partial Summary Judgment.

    To reflect the foregoing,

                                            An order will be issued

                                      denying petitioner's Motion

                                      for Partial Summary Judgment.
