United States v. Hilton Hotels Corporation

PETITIONER: United States
RESPONDENT: Hilton Hotels Corporation
LOCATION: Riverbed of the Arkansas River

DECIDED BY: Burger Court (1969-1970)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 397 US 580 (1970)
ARGUED: Feb 26, 1970
DECIDED: Apr 20, 1970

Facts of the case


Media for United States v. Hilton Hotels Corporation

Audio Transcription for Oral Argument - February 26, 1970 in United States v. Hilton Hotels Corporation

Warren E. Burger:

Number 528, United States against Hiltons Hotels Corporation.

Mr. Walters, you may proceed whenever you are ready.

Johnnie McKeiver Walters:

Mr. Chief Justice and may it please the Court.

The relevant facts in this case were stipulated and may be summarized in pertinent part.

In August 1953, Hilton Hotels Corporation owned some 325,370 shares of the 366,040 shares outstanding of the Hotel Waldorf-Astoria leaving some 40,670 shares of Waldorf outstanding in the hands of others.

Contemplating a merger, Hilton retained consultants to do a study to determine a fair basis for exchange of Hilton shares for Waldorf shares.

Hilton and Waldorf agreed upon a proposed merger with Hilton to be the surviving corporation.

Under the proposed plan, Hilton offered to exchange 1.25 shares of its stock for each share of the Waldorf stock it did not already owned.

Prior to the agreement of merger, however, shareholders owning some 20,000 shares of Waldorf filed with Waldorf an objection to the merger and demanded payment for their Waldorf stock.

Thereafter, on December 28 and 29, 1953 more than 2/3 of the stock holders of each of the two corporations voted approval of the merger and on December 31, 1953, the merger agreement and certificate of consolidation were filed with the Secretary of State of New York.

The applicable New York law provided that in such a case the stockholder demanding payment for his Waldorf shares have no right to receive dividends payable on those shares after the close of business on the day preceding to the date that the Waldorf stockholders voted approval of the merger and that upon that vote the dissenting stockholder ceased to have any of the rights of a stockholder of Waldorf except the right to receive payment of the value of the stock.

Under the New York law, the dissenting stockholder or the corporation have the right to have the stock appraised in a Court proceeding.

Complying with New York law on January 7, 1954, Hilton offered to the Waldorf stockholders $24.54 for each share of Waldorf stock it did not already own.

Those stockholders who had dissented from the merger rejected the offer and began Court proceedings under state law for a determination of the buyer of their shares.

Hilton again retained the same consulting firm to determine the value of those Waldorf shares on the date prior to the vote of approval of the merger.

In addition to paying those consultants, Hilton also paid almost $40,000.00 to lawyers and others in connection with the Court proceedings to develop that value.

Hilton claimed a deduction as an ordinary and necessary business expense under Section 162 of the code for all of the fees paid to the consulting firm, attorneys and others including the fees that have been paid to the consultants prior to the vote of the merger.

The Commissioner of Internal Revenue disallowed the deduction.

Hilton paid the asserted deficiency and commenced a suit for refund.

The District Court held that the appraisal costs were deductible but that the consultant's fees that were incurred prior to the merger were nondeductible capital expenditures.

Hilton conceded as to those pre-merger fees and the Seventh Circuit affirmed the District Court allowing deduction of the appraisal fees.

Potter Stewart:

This was a taxable year 1955.

Johnnie McKeiver Walters:

This began in 1953 sir.

Potter Stewart:

Well, the transaction began in '53, I would guess probably the taxable year involved of 1954?

Johnnie McKeiver Walters:

Yes sir.

Potter Stewart:

How on earth did it take 16 years?

Johnnie McKeiver Walters:

Mr. Justice Stewart, I cannot answer that it seems an awful long time.

Potter Stewart:

It is an awfully long time.

This is supra refund on the District Court.

Johnnie McKeiver Walters:

Yes sir.