Ned's Three Stories

My younger brother Ned had a client with a world class collection of modern paintings. He feared that, on his death, almost all of his paintings would have to be sold by his executor to pay his inheritance taxes. He wanted to know whether there was any way this could be avoided. Ned suggested that he start by donating about ten percent of this collection to the Chicago Art Institute. He and Ned went through the paintings and chose a ten percent that was typical of the collection. There were several by Matisse so they chose one. Similarly the Institute was enriched by a very valuable Cezanne.

The next step was to get estimates for the value of the gift from the dealers in Chicago. At that time the art market was very high and the estimates reflected this. Taking mostly the highest, Ned deducted the value of the gift from the client's income tax for that year. At a meeting the IRS agents screamed bloody murder. All innocence Ned protested that the estimates had been provided by some of the most prominent experts in Chicago and he failed to understand why the IRS would not accept their opinions. He had no desire whatever to get into a lengthy negotiation, but felt his client was being treated unfairly. Finally he asked just what the IRS agents would consider a reasonable deduction. "No more than a third of what you are asking." said the agents.

Complaining of the unfair treatment Ned nevertheless accepted their values and recomputed the client's income tax. When the client died only about a year later, the IRS discovered that they had valued the remaining ninety percent of the art collection at their figures.

Who Owns What

I complained to Ned that title insurance seemed to be a racket. There was no way to avoid it when one was taking out a mortgage. Was a title company really entitled to such a substantial fee on a house whose title they had cleared just a couple of years before? He had a story that showed that things might not always be so clear cut.

The company attorney of one of the railroads had called him, complaining that there was an abandoned structure about to fall on the tracks. He wanted it removed, or if the owners refused, to sue them. Ned suggested that things might be so straight forward.

The property had belonged to a famous old local brewery which after prohibition was in deep financial trouble. The mortgage on their valuable real estate was held by a bunch of sharp types who could hardly wait to get their hands on it. One of the elderly and almost retired partners in Ned's law firm had been the attorney for the brewery for many years. He told the owner that he believed he could prevent the foreclosure. Going into the law books he had discovered that one could not foreclose a cold storage warehouse. This was done to protect third parties that might have perishables stored there. There was a cold area at the brewery to age the beer.

In about 1924 he argued the merits of his position before the lower court. The judge rejected his position, and after a suitable delay he appealed to the Circuit Court. Failing there, he was finally forced to carry forward his appeal, after more delays, to the Supreme Court of Illinois. In 1929 they opined that his objection was frivolous and foreclosure could proceed. The problem was that the group holding the mortgage were part of the Insull conglomerate. Insull had completely vanished during the depression leaving a snarled mishmash of often illegal financial dealings. The courts and their receivers were never able to determine who owed what to whom.

"Well,"said the railroad's attorney, I'll work with one of the company's engineers and get him to remove the damned thing."

Another Art Story

One of Sidley and Austin's most valuable clients was Searle Pharmaceutical who had a major plant in a small town northwest of Chicago. The plant manager called Ned with a very serious problem. His star Swiss pill coater had been called for jury duty. Pill coating is a fine art. The coater sniffs the air, checks the humidity of the room, and the temperature and percentage of sugar in the bath. Using his considerable experience he then determines the precise time to leave the pills in. No more than one or two percent dissolve, and the rest come out with the desired coating. The coater's assistant, who had a mere ten years of experience, was lucky if he got a fifty percent yield. Searle thought that their situation was unique, but on checking with other drug producers, found that each was in exactly the same boat - just one coating artist, usually Swiss. One of Sidley's younger attorneys was given all the facts and sent out to reason with the local judge. He succeeded in getting the coater excused. A year passed and again the coater was notified to report for jury duty. This time Ned decided he had best head out to see the judge. Again success.

Unbelievably just a year later Searle's plant manager called again. This time Ned persuaded Adlai Stevenson to head north to mollify the judge. As Ned remarked, "I can't imagine who we might send should Searle's pill coater receive yet another summons."

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