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Hi, if there is smoke coming from the passenger side tire the right rear brake caliper is most likely seized or the parking brake is stuck on. You will need to replace the pads and rotors due to overheating but you will also need to check the brake calipers to see if they are seized. A bad brake hose could also cause the problem. I doubt that dragging the car caused the problem but not having been there to see what was done I cannot say for sure.
Let me know if you have any questions.
have a 2002 e320 4matic wagon. Please provide steps to