E. Pauline Barnes - Page 5

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               Therefore, we must decide: (1) Whether the wrongful                    
          termination claim underlying petitioner's settlement agreement              
          was based upon tort or tort type rights; and (2) whether the                
          damages paid to petitioner in settlement of such claim were                 
          received on account of personal injuries or sickness.                       
               We must first decide whether petitioner's settlement                   
          agreement was based upon tort or tort type rights.  State law               
          controls the nature of the legal interests and rights created by            
          State law, even though the Federal tax consequences pertaining to           
          such interests and rights are solely a matter of Federal law.               
          Commissioner v. Tower, 327 U.S. 280, 288 (1946); Lucas v. Earl,             
          281 U.S. 111 (1930);  Brabson v. United States, 73 F.3d 1040,               
          1044 (10th Cir. 1996).  Accordingly, we look to the law of the              
          State of Oklahoma for guidance as to the nature of petitioner's             
          wrongful termination cause of action.                                       
               The Oklahoma Supreme Court first adopted a public policy               
          tort exception to the Oklahoma terminable-at-will employment rule           
          in Burk v. K-Mart Corp., 770 P.2d 24 (Okla. 1989).  In discussing           
          the nature of the cause of action the Court was very specific:              
               We recognize this new cause of action in tort.  It is                  
               well settled in Oklahoma a tort may arise in the course                
               of the performance of a contract and that tort may then                
               be the basis for recovery even though it is the                        
               contract that creates the relationship between the                     
               parties.  An employer's termination of an at-will                      
               employee in contravention of a clear mandate of public                 
               policy is a tortious breach of contractual obligations.                
               Id. at 28.  [Fn. refs. omitted].                                       

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