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In addition, the Court of Appeals for the Tenth Circuit, to
which any appeal in this case lies, has consistently adhered to
the Oklahoma Supreme Court's recognition of this cause of action
as one proceeding in tort. See Dupree v. United Parcel Serv.,
956 F.2d 219 (10th Cir. 1992); see also York v. American Tel. &
Tel. Co., 95 F.3d 948, 959 (10th Cir. 1996); McKenzie v.
Renberg's, Inc., 94 F.3d 1478, 1488 (10th Cir. 1996).
Petitioner clearly satisfies the first requirement of the
Schleier test for excluding from gross income damages received
pursuant to a lawsuit. The petition filed in the wrongful
discharge case alleged that petitioner was terminated in
contravention of the public policy of the State of Oklahoma. The
settlement proceeds were received in lieu of the prosecution of
that action. Since Oklahoma law definitively treats this cause
of action for wrongful termination as one proceeding in tort, we
hold that petitioner's settlement proceeds were received as
damages through a settlement agreement entered into in lieu of
prosecution of an action based upon tort or tort type rights.
We must next decide whether the settlement proceeds satisfy
the second requirement of the Schleier test that they must be
damages received on account of personal injuries or sickness. In
cases involving settlements, the critical question is in lieu of
what kind of damages was the settlement amount paid? Bagley v.
Commissioner, 105 T.C. 396, 406 (1995). As noted above,
petitioner bears the burden of proving that respondent's
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