Application of Adler, CV 93-1476 (MDG).
| Decision Date | 03 December 1994 |
| Docket Number | No. CV 93-1476 (MDG).,CV 93-1476 (MDG). |
| Citation | 869 F. Supp. 1021 |
| Parties | In the Matter of the Application of Leah ADLER, as Executrix of the Estate of Mordechai Adler, and Leah Adler, Individually. |
| Court | U.S. District Court — Eastern District of New York |
Tamara S. Heckman, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, Thomas A. McFarland, Asst. U.S. Atty., E.D.N.Y., Brooklyn, NY, for U.S.
Mordechai Schwartz, Fuchsberg & Fuchsberg, New York City, for Leah Adler, individually and as executrix.
John M. Leventhal, Brooklyn, NY, guardian ad litem, for Mordechai, Mendel and Rachel.
Moshe Katlowitz, New York City, for Meyer and Israel Adler.
Stanley Lane, Jr., Otterbourg, Steindler, Houston & Rosen, P.C., New York City, for BNY Financial Corp.
Robert J. Clerkin, Hahn & Hessen, New York City, for Burlington Industries, Inc.
Paul Forster, New York City, for N.Y. Dept. of Taxation and Finance.
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. § 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.
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.
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.
Various creditors of the Estate and Mrs. Adler, as well as Adler's distributees, have asserted claims against the settlement proceeds as follows.
Federal Tax Liens. On December 15, 1983, a delegate of the Secretary of the Treasury assessed Mordechai and Leah Adler, jointly and severally, for outstanding taxes for the taxable year 1976, in the amounts of $43,241.00 in tax and $35,491.78 in interest. The United States subsequently filed notices of federal tax liens against Mordechai and Leah Adler on or about September 12, 1985, December 16, 1986, March 25, 1988, October 30, 1989, December 11, 1989 and October 12, 1990. The United States claims that the total amount of taxes owed by the Estate and Mrs. Adler, jointly and severally, is $164,633.57. This sum consists of $55,823.38 in outstanding principal liability before accruals, $98,938.69 in interest accrued to April 27, 1992, and $9,871.50 for the penalty accrued to April 27, 1992. On March 21, 1989, Mordechai and Leah Adler executed a waiver which extended the period for collection of the 1976 tax assessments until 1999.
Judgment Creditors. On March 5, 1991, Burlington Industries, Inc. ("Burlington") obtained a judgment for $367,478.81 against Leah Adler individually and as the executrix of the Estate from the Supreme Court, New York County. BNY Financial Corporation ("BNY") also obtained a judgment for $2,280,000.00 against Leah Adler individually and as the executrix of the Estate from the Supreme Court, New York County on March 4, 1992.
New York State Tax Claims. The Commissioner of the New York State Department of Taxation and Finance ("Commissioner") asserted a claim for $20,666.15, plus interest from May 16, 1993, against Mordechai and Leah Adler and Highworth Trading Co. Ltd., their closely held company, for tax assessments for various sales, and corporate and withholding taxes for the years 1989, 1990 and 1991. The Commissioner had previously filed an objection in the Surrogate's Court to settlement of the Estate until a determination is made of the taxes due from the Estate and proof of filing and payment of all outstanding income and fiduciary income tax returns by the decedent and his Estate.
Distributees. At the time of his death, Mordechai Adler was survived by his wife, Leah Adler, who was 38, and their five children: Mordechai Adler (not yet born), Mendel Adler (age 9), Rachel Adler (age 11), Meyer Adler (age 15), and Israel Adler (age 17½). On August 18, 1992, Mrs. Adler filed a notice of renunciation, seeking to renounce her interest in any monies attributable to her share of wrongful death proceeds.
Mrs. Adler and her children (the "Adler claimants") now subsist on welfare. Since they are observant Orthodox Jews, the children attend religious schools.
Mrs. Adler, the guardian ad litem for her three infant children, and Israel and Meyer Adler, her children who are no longer infants, have moved for an order determining: (1) that the settlement proceeds be allocated entirely to wrongful death rather than pain and suffering; and (2) that Mrs. Adler's renunciation was valid against the federal tax lien and judgment creditors or, in the alternative, for an order awarding the entire wrongful death proceeds solely to the children.
Damages awarded for a decedent's pain and suffering become the property of the decedent's estate. N.Y. Est. Powers & Trusts Law ("E.P.T.L."), § 11-3.3(a) (McKinney 1993). However, damages for wrongful death belong to the decedent's statutory distributees. E.P.T.L. §§ 5-4.1, 5-4.4 (McKinney Supp.1994); George v. Mt. Sinai Hosp., 47 N.Y.2d 170, 176, 417 N.Y.S.2d 231, 235, 390 N.E.2d 1156, 1159-60 (1979); Dawson v. Langner, 106 A.D.2d 152, 153, 484 N.Y.S.2d 743, 744 (4th Dep't 1985). Since pain and suffering damages are property of an estate, they are subject to federal tax liens. United States v. McDermott, ___ U.S. ___, 113 S.Ct. 1526, 123 L.Ed.2d 128 (1993). On the other hand, wrongful death proceeds are considered a property right of the distributees. Alberino v. Long Island Jewish-Hillside Medical Center, 87 A.D.2d 217, 218, 450 N.Y.S.2d 857, 859 (2d Dep't 1982). The creditors in this action may properly assert claims against the wrongful death proceeds only to the extent that they have a valid claim against any potential distributee of Adler — i.e., Mrs. Adler.
The Adler claimants contend that the entire amount of the settlement should be attributed to the wrongful death claim while the United States argues that at least a portion of the proceeds should be attributable to pain and suffering. An initial determination must be made whether the settlement proceeds should be allocated between the claims for pain and suffering and wrongful death, since these claims give rise to distinct property interests with differing consequences for creditors.
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