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appealed the judgments and the trial court's denial of his motion
for a new trial to the Rhode Island Supreme Court.
C. The Settlement
While the appeal was pending, Dr. Erinakes agreed to pay
Jacquelyn $1,858,948 and the Woodses $91,926 each for a release
and discharge of any and all past or future claims. The Woodses
for themselves and on behalf of Jacquelyn, and Decof, signed the
releases on April 14, 1992. The parties did not discuss tax
consequences during settlement negotiations.
On April 14, 1992, the Woodses and Dr. Erinakes filed a
stipulation and stipulation of dismissal with the trial court.
On April 16, 1992, the trial court granted the parties' motion to
approve the settlement of Jacquelyn's personal injury claim,
subject to the creation of a trust fund which would provide for
the receipt, investment, and disbursement of the net settlement
proceeds paid to Jacquelyn. The proceeds of the settlement were
held in escrow by Decof pending approval of the settlement by the
judge. The Woodses created the Jacquelyn R. Woods Trust, which
the trial court approved on July 15, 1992. Neither the judgment
nor the jury award was an enforceable final judgment under Rhode
Island law because both were voided by the parties' settlement
and stipulation of dismissal.
JUA issued a check for $183,852 to the Woodses and Decof on
July 23, 1992. JUA issued a check for $1,858,948 payable to
Jacquelyn and Decof on July 23, 1992. JUA did not issue a Form
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