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IN RE ADLER

December 3, 1994

IN THE MATTER OF THE APPLICATION OF LEAH ADLER, as Executrix of the Estate of MORDECHAI ADLER, and LEAH ADLER, Individually.


The opinion of the court was delivered by: MARILYN DOLAN GO

 GO, United States Magistrate Judge:

 This proceeding regarding settlement of a personal injury action brought on behalf of decedent Mordechai Adler ("Adler") was removed by the United States from the Surrogate's Court, Kings County. The parties have consented pursuant to 28 U.S.C. ยง 636(c) to having me decide pending motions regarding the distribution of the settlement proceeds. The motions concern the interplay between state law and federal tax laws in determining the effect of tax liens, the validity of disclaimers and the priority of creditors and distributees of wrongful death proceeds.

 BACKGROUND

 The facts of this case are not in dispute. The parties stipulated at oral argument to the facts set forth in the documentary evidence submitted.

 Wrongful Death Action

 On August 15, 1989, at around 8:20 p.m., Adler and his son were walking along a road in Orange County, New York when Adler was struck by a speeding car owned by James McArdle ("McArdle") and driven by his son, James McArdle, Jr. Adler was carried on the hood of the vehicle approximately seventy feet before falling into a ditch on the side of the roadway. Goldie Deutsch arrived at the scene of the accident almost immediately thereafter, and was later joined by her husband, Yehuda Deutsch. Both stated in affidavits dated September 13, 1993 that they found Adler to be unconscious and unresponsive.

 In a police accident report signed by Trooper K.M. Corlett, Adler's physical and emotional status was listed as "apparent death." At 8:53 p.m. Adler was brought to the emergency room of the Arden Hill Hospital in Goshen, New York. He was not breathing and had no pulse or respiration, despite administration of cardiac pulmonary resuscitation in the ambulance. After efforts to revive him failed, he was declared dead at 9:11 p.m. The cause of his death noted in emergency room records was cardio-respiratory arrest secondary to trauma. The death certificate lists the cause of death as "Fractured skull, Pelvis, and Left Distal Tibia & Fibula." The medical and police accident reports indicate that Adler had sustained injuries over his entire body.

 On December 14, 1990, the Surrogate's Court, Kings County issued letters testamentary to Adler's wife, Leah Adler, as executrix of the estate of Mordechai Adler (the "Estate"). On December 20, 1990, Leah Adler, as executrix of the Estate and individually, brought an action in Supreme Court, Kings County against James McArdle seeking $ 10,000,000 for wrongful death, $ 5,000,000 for pain and suffering, and $ 5,000,000 in punitive damages. In late 1992, Mrs. Adler and the insurance company representing Mr. McArdle agreed to settle the action for $ 350,000, the limit of McArdle's policy.

 In January, 1993, Mrs. Adler brought a proceeding in the Kings County Supreme Court for leave to settle and compromise the wrongful death action against James McArdle, to discontinue the action for pain and suffering, to distribute the proceeds and to settle the account for the Estate. The matter was then referred to the Surrogate's Court and citations issued. The United States removed the action to this court on April 2, 1993.

 A hearing was held before me on June 25, 1993 regarding Mrs. Adler's application to approve the settlement with McArdle. In her supporting affidavit originally submitted to the Surrogate's Court, Mrs. Adler stated that her counsel had determined after investigation that McArdle had no assets besides the insurance policy to satisfy a judgment. Moreover, all the parties at the hearing noted their consent to the settlement. By order dated July 8, 1993, I ruled that the settlement of the tort action for $ 350,000 by Lumberman's Mutual Casualty Company on behalf of McArdle would be approved, absent any written objections. No objections were filed. Mrs. Adler then executed releases, as executrix and individually, releasing McArdle from liability with respect to all matters relating to the tort action. The settlement proceeds are being held in escrow pending resolution of the remaining dispute over distribution of the proceeds.

 Creditors and Distributees

 Various creditors of the Estate and Mrs. Adler, as well as Adler's distributees, have asserted claims against the settlement proceeds as follows.


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