Squires et al v. BAC Home Loans Servicing, LP
Filing
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Order denying the 10 MOTION to Dismiss filed by BAC Home Loans Servicing, LP. Answer due from BAC Home Loans Servicing, LP on 12/13/2011. Signed by Chief Judge William H. Steele on 11/29/2011. (tgw)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
WILLIAM C. SQUIRES, et al.,
Plaintiffs,
v.
BAC HOME LOANS SERVICING, LP,
Defendant.
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CIVIL ACTION 11-0413-WS-M
ORDER
This matter comes before the Court on defendant’s Motion to Dismiss (doc. 10). The
Motion has been briefed and is now ripe for disposition.
I.
Background.
Plaintiffs, William and Loretta Squires, brought this action against defendant, BAC
Home Loans Servicing, LP, alleging a single violation of the Truth-in-Lending Act, 15 U.S.C.
§§ 1601 et seq. (“TILA”). According to the well-pleaded allegations of the Complaint, plaintiffs
executed a real estate mortgage with non-party Countrywide Home Loans in June 2007, with the
loan being secured by plaintiffs’ principal residence. (Doc. 2, ¶¶ 5, 7.) The Complaint
further alleges that “[o]n July 21, 2010 beneficial interest in the Plaintiffs’ mortgage and note
was assigned to BAC,” and that a written assignment identifying BAC as assignee was executed
on that date and recorded shortly thereafter. (Id., ¶ 6.)1
The lone claim asserted in the Complaint is a violation of TILA’s requirement that a
creditor to whom a mortgage loan is sold, transferred or assigned must notify the debtor in
writing within 30 days after that transfer occurs. See 15 U.S.C. § 1641(g)(1) (“not later than 30
days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a
1
Appended to the Complaint is a one-page exhibit, styled “Assignment of
Mortgage,” and stating that on July 21, 2010, nonparty Mortgage Electronic Registration
Systems, Inc. (“MERS”), conveyed and assigned to BAC the Squires’ mortgage, “together with
the debt thereby secured and the property therein described.” (Doc. 2, Exh. A.)
third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in
writing of such transfer”). The Complaint alleges that “BAC failed to notify Plaintiffs at all” of
the July 21, 2010 assignment, such that it “therefore failed to make the requisite disclosures.”
(Doc. 2, ¶ 15.) On that basis, plaintiffs claim that BAC violated § 1641(g), and seek an award of
statutory damages, costs and attorney’s fees.
BAC has now filed a Rule 12(b)(6) Motion, seeking dismissal of the Complaint on the
following enumerated grounds: (i) the claim is time-barred; (ii) BAC was not the plaintiffs’
creditor for § 1641(g) purposes; (iii) BAC is expressly excluded from liability by TILA and its
implementing Regulation Z; (iv) plaintiffs have alleged no actual damages stemming from the
purported violation of § 1641(g); and (v) plaintiffs have engaged in impermissible claimsplitting. Plaintiffs oppose the Motion to Dismiss.
II.
Analysis.
A.
Legal Standard for Motion to Dismiss.
On a Rule 12(b)(6) motion to dismiss for failure to state a claim, “the court construes the
complaint in the light most favorable to the plaintiff and accepts all well-pled facts alleged … in
the complaint as true.” Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260 (11th Cir. 2009); see
also Speaker v. U.S. Dep’t of Health and Human Services Centers for Disease Control and
Prevention, 623 F.3d 1371, 1379 (11th Cir. 2010) (“In ruling on a 12(b)(6) motion, the Court
accepts the factual allegations in the complaint as true and construes them in the light most
favorable to the plaintiff.”); Edwards v. Prime, Inc., 602 F.3d 1276, 1291 (11th Cir. 2010)
(similar).
To withstand Rule 12(b)(6) scrutiny, plaintiffs must plead “enough facts to state a claim
to relief that is plausible on its face,” so as to “nudge[] their claims across the line from
conceivable to plausible.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955,
167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868
(2009) (citation omitted). Thus, minimum pleading standards “require[] more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555. As the Eleventh Circuit has explained, Twombly/Iqbal principles
require that a plaintiff plead “enough facts to state a claim to relief that is plausible on its face,”
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whose allegations are “enough to raise a right to relief above the speculative level.” Speaker,
623 F.3d at 1380 (citations omitted). The factual content of the complaint must “allow[] the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. (citations omitted); see also Wilchombe v. TeeVee Toons, Inc., 555 F.3d 949, 958 (11th Cir.
2009) (“A plaintiff must provide enough factual allegations, which are assumed to be true, to
raise a right to relief above the speculative level.”).
B.
Timeliness.
Defendant’s first argument for seeking dismissal is that the Squires’ Complaint is timebarred on its face. Under TILA, plaintiffs’ claims are subject to a one-year statute of limitations.
See 15 U.S.C. § 1640(e) (“Any action under this section may be brought in any United States
district court … within one year from the date of the occurrence of the violation ….”); Bittinger
v. Wells Fargo Bank NA, 744 F. Supp.2d 619, 628 (S.D. Tex. 2010) (“A one-year statute of
limitations governs claims under the TILA.”); Rodrigues v. Members Mortgage Co., 323 F.
Supp.2d 202, 210 (D. Mass. 2004) (“Most courts have held that a claim for statutory damages
under TILA must be brought within one year of the date the disclosure violation occurred.”).
According to defendant, the Squires’ action is untimely because the well-pleaded
allegations of the Complaint show that assignment of the mortgage and note to BAC occurred on
July 21, 2010, yet plaintiffs did not file suit until July 27, 2011, one year and six days later. This
argument is misguided because it ignores the timing of the alleged violation. Accepting the
Complaint’s allegations as true, as of July 21, 2010, BAC had not violated anything. Recall that
the Squires’ TILA claim is that BAC failed to make disclosures that were due “not later than 30
days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a
third party.” § 1641(g). No violation occurred on the July 21, 2010 transfer date, because BAC
had until 30 days thereafter (or August 20, 2010) to provide the statutory disclosures. Thus, the
Squires’ claim did not accrue until August 20, 2010. That is when the alleged § 1641(g)
violation occurred, because that marked the date on which the 30-day statutory window closed,
without BAC having furnished the requisite notice. BAC points to neither legal authority nor
persuasive reasoning favoring a contrary result. Accordingly, the undersigned finds that the
limitations clock on plaintiffs’ § 1641(g) claim began running on the 30th day after the
assignment occurred because the statute was violated only when no disclosures were given
within 30 days. The Complaint was filed within one year after the alleged § 1641(g) violation
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occurred (i.e., within one year after August 20, 2010); therefore, defendant’s Motion to Dismiss
on limitations grounds is properly denied.2
C.
Whether BAC May Be Held Liable under § 1641(g).
Next, BAC asserts that the Squires’ claims should be dismissed because (i) it is not a
“creditor” within the meaning of § 1641(g), and (ii) as a mere “servicer,” it is exempt pursuant to
§ 1641(f). Neither theory is persuasive at the Rule 12(b)(6) stage.
As to the first point, BAC focuses on language in § 1641(g) imposing the disclosure
obligation on “the creditor that is the new owner or assignee of the debt.” Id. Defendant notes
that the Assignment of Mortgage appended to the Complaint shows that MERS assigned the
mortgage to BAC; however, defendant argues, “MERS was never plaintiffs’ creditor, therefore
BAC[] was never plaintiffs’ creditor.” (Doc. 10, at 5.) There are several problems with this
argument. As an initial matter, on a Rule 12(b)(6) Motion, all factual allegations in the
Complaint are taken as true. The Squires’ Complaint alleges that “beneficial interest in the
Plaintiffs’ mortgage and note was assigned to BAC.” (Doc. 2, ¶ 6 (emphasis added).) The
Court is not free to disregard that factual allegation – which yields a plausible Twombly / Iqbal
inference that BAC, in fact, became plaintiffs’ creditor when it obtained beneficial interest in
both mortgage and note – merely because BAC disputes it.3
2
Defendant’s reliance on Velardo v. Fremont Investment & Loan, 2008 WL
4768850 (11th Cir. Nov. 3, 2008), for the proposition that TILA violations occur “when the
transaction is consummated” is misplaced. Id. at *2. In Velardo, the plaintiffs’ TILA claims
were that defendants had failed to provide disclosures of terms such as finance charges, interest
rates, and rights of rescission at the time they refinanced their mortgage. Those disclosures
obviously must be made at or before the time of the proposed transaction to be of any help to the
consumer in making an informed decision; therefore, it only makes sense that the violation
would be complete at the time of the transaction. By contrast, the § 1641(g) disclosures have
nothing to do with assisting a borrower in assessing the desirability of a transaction, but rather
are intended to keep the borrower informed as to who holds his or her mortgage. There is thus
no reason to run the limitations period for § 1641(g) violations concurrently with consummation
of the underlying transfer. Defendant does not identify a single authority that has held otherwise.
Furthermore, defendant’s position is unpersuasive because it would require either disregarding or
contorting the plain language of § 1641(g), which provides that an assignee has 30 days posttransfer to provide the necessary disclosures, to conclude instead that the violation is complete at
the exact moment of the transfer if no disclosure is given then.
3
Defendant’s response is that this factual allegation can be ignored because it
contradicts the Assignment of Mortgage attached to the Complaint. As a general proposition, it
(Continued)
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More importantly, defendant’s argument is flawed because it imports the definition of the
term “creditor” taken from elsewhere in TILA, without rebutting or even acknowledging the
Federal Reserve Board’s statement that such an application is improper. See 74 Fed. Reg.
60143-01, at 60145 (“Section 404(a) imposes the disclosure duty on the ‘creditor that is the new
owner or assignee of the debt.’ The Board believes that to give effect to the legislative purpose,
the term ‘creditor’ in Section 404(a) must be construed to refer to the owner of the debt
following the sale, transfer or assignment, without regard to whether that party would be a
‘creditor’ for other purposes under TILA or Regulation Z.”); 12 C.F.R. § 226.39(a)(1) (§ 1641(g)
disclosure requirements apply generally to “any person … that becomes the owner of an existing
mortgage loan by acquiring legal title to the debt obligation, whether through a purchase,
assignment or other transfer, and who acquires more than one mortgage loan in any twelvemonth period”). Defendant does not explain how its argument that BAC is not a “creditor” for
§ 1641(g) purposes can be squared with § 226.39 or statements by the Board, much less offer
any basis for departing from that interpretive guidance.4 Nor does defendant reconcile its belief
is correct that facts in a complaint need not be credited if they are contradicted by exhibits to
same. See generally Daniels-Hall v. National Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010)
(“[w]e are not … required to accept as true allegations that contradict exhibits attached to the
Complaint”). But there is no obvious contradiction here. After all, the Assignment of Mortgage
states that MERS is transferring to BAC the Squires’ mortgage “together with the debt thereby
secured and the property therein described.” (Doc. 2, Exh. A.) Just as the Complaint states,
then, the Assignment of Mortgage confirms that the mortgage “and the debt thereby secured”
were transferred to BAC. Nor does BAC advance its cause by suggesting that other evidence
supports other factual inferences that MERS lacked creditor status. A Rule 12(b) Motion is not
the time for such factual determinations to be made on an incomplete, undeveloped record
relying on a movant’s self-serving representations. This is particularly true where defendant
would point to a mortgage document from 2007 as the definitive statement of MERS’ rights vis a
vis the Squires’ mortgage at the time of assignment in 2010, without an iota of proof as to
anything that might or might not have transpired in the interim to alter MERS’ status. At the
pleadings stage, this Court cannot make a factual determination of MERS’ rights and interests in
the loan as of 2010, beyond accepting plaintiffs’ allegation that MERS transferred both mortgage
and note to BAC.
4
Curiously, defendant cites § 226.39 in other aspects of its brief, but ignores it
altogether in making its “creditor” argument. (See doc. 10, at 7.) Such selective recognition of
Regulation Z does not further defendant’s position. Also, BAC does cite to Kebasso v. BAC
Home Loans Servicing, LP, --- F. Supp.2d ----, 2011 WL 2960219, *2 n.7 (D. Minn. July 20,
2011), to bolster its proposed narrow scope of creditors who are subject to § 1641(g). However,
(Continued)
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that “creditor” should be construed narrowly for § 1641(g) purposes with this Court’s obligation
to interpret TILA liberally in light of its remedial purposes. See, e.g., Brown v. CitiMortgage,
Inc., --- F. Supp.2d ----, 2011 WL 4809142, *4 (S.D. Ala. Oct. 11, 2011) (“The Eleventh Circuit
has emphasized the strong remedial purpose of TILA and has heeded continual admonitions that
we construe TILA … liberally in the consumer’s favor.”) (citations and internal quotation marks
omitted). Finally, by admitting that it “acquired all rights and titles necessary to conduct a valid
foreclosure sale” of the Squires’ property, BAC effectively concedes the presence of a viable
Twombly / Iqbal inference that it is a “covered person” within the meaning of § 226.39. (Doc.
20, at 2.)
BAC’s alternative argument fares no better. According to defendant, everyone agrees
that BAC “merely service[d]” the Squires’ mortgage loan, which therefore exempts BAC from
any disclosure obligation under § 1641(g). (Doc. 10, at 6.) Contrary to defendant’s assertion,
the Complaint neither states nor suggests that BAC was a mere servicer of the Squires’
mortgage; to the contrary, it repeatedly alleges that BAC came to possess a beneficial interest in
plaintiffs’ mortgage and note.5 At a more fundamental level, defendant has not shown that it is
entitled to the benefit of the statutory “servicer” exclusion as a matter of law. That exclusion
provides that “[a] servicer of a consumer obligation arising from a consumer credit transaction
shall not be treated as the owner of the obligation for purposes of this section on the basis of an
the cited footnote in Kebasso is of limited utility because the plaintiffs in that case did not even
brief the TILA issue, such that the court’s summary disposition of the issue lacked the benefit of
balanced advocacy by both sides, but was a mere afterthought. Nor is there any indication that
the Kebasso court was aware of the relevant regulation and Board statement for use in
interpreting the term “creditor” in § 1641(g). Also, it bears noting that other courts have found
that § 1641(g) does apply in analogous situations. See Schafer v. CitiMortgage, Inc., 2011 WL
2437267, *6 (C.D. Cal. June 15, 2011) (“when MERS assigned or transferred any beneficial
interest it had in the DOT and Note to Citi, Citi became the new creditor and would need to
provide Plaintiff with” § 1641(g) disclosures).
5
On this point, defendant cites an allegation in the Complaint that “[s]ervicing of
the loan was transferred to BAC.” (Doc. 2, ¶ 5.) But this statement plainly refers to BAC’s
status with respect to the loan as of June 2007, without saying anything about BAC’s role and
interest in the loan as of July 2010, when the subject assignment occurred. Taken as a whole, the
Complaint cannot rationally be read as indicating that “[p]laintiffs concede that BAC[] merely
services their mortgage loan.” (Doc. 10, at 6.)
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assignment of the obligation from the creditor or another assignee to the servicer solely for the
administrative convenience of the servicer in servicing the obligation.” 15 U.S.C. § 1641(f)(2)
(emphasis added). BAC asserts in conclusory fashion that the Assignment of Mortgage
conveyed MERS’s rights to BAC solely for its administrative convenience, but does not identify
any facts supporting – much less dictating – that result. (Doc. 10, at 7.) It appears that BAC’s
position is that MERS executed the Assignment of Mortgage solely for the purpose of facilitating
BAC’s ability to foreclose on the subject property. But defendant does not identify any record
facts shedding light on the purposes of the Assignment or whether BAC’s servicing obligations
included foreclosure, much less facts that would mandate a singular plausible inference that the
assignment was solely for BAC’s administrative convenience in servicing the mortgage loan.6
Accordingly, the Court cannot find that BAC is entitled to Rule 12(b)(6) relief based on the
§ 1641(f)(2) “servicer” exclusion.
D.
Actual Damages and § 1641(g).
Next, BAC asserts that dismissal of the Complaint is warranted because “if a plaintiff has
not alleged actual damages resulting from an alleged failure to comply with the requirements of
15 U.S.C. § 1641(g), then he has not stated a claim under that statute.” (Doc. 10, at 8.) In their
Complaint, the Squires neither allege any actual damages, nor make a demand for same, but
instead limit their ad damnum clause to “statutory damages, costs and attorneys’ fees pursuant to
15 U.S.C. § 1640(a).” (Doc. 2, at 3.)
The parties’ briefs give short shrift to the issue of whether actual damages are necessary
to state a claim under TILA for a § 1641(g) violation. Nonetheless, during the briefing process
on this Motion to Dismiss, the undersigned issued an opinion addressing this issue in a case
styled Brown v. CitiMortgage, Inc., --- F. Supp.2d ----, 2011 WL 4809142 (S.D. Ala. Oct. 11,
2011). In Brown, the Court rejected this very argument by a § 1641(g) defendant, reasoning that
“the plain statutory text creates liability for a creditor that fails to comply with § 1641(g) in the
6
At most, defendant points to Fannie Mae Servicing Guidelines and suggests that it
is routine for loan servicers to acquire title to a mortgage loan “for the limited purpose of
conducting a foreclosure sale in their own name.” (Doc. 20, at 4.) Even if defendant is correct
in its assertion that such assignments are commonplace, it says nothing about the reasons for this
particular assignment. The Court cannot and will not simply assume that such a purpose existed
for the Assignment of Mortgage to BAC in this case, as would be necessary to grant the Motion
to Dismiss.
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form of the sum of actual and statutory damages. … Thus, the mere fact that the [plaintiffs]’
Complaint does not allege actual damages in no way impairs their right to hold [defendant] liable
for a § 1641(g) violation, as long as they are eligible for statutory damages.” Id. at *2. There
being no suggestion that the Squires are ineligible for statutory damages, BAC’s “no actual
damages” argument is conclusively defeated by Brown. Inasmuch as defendant offered no viable
basis for departing from the reasoning and conclusion of Brown here, the Court rejects its
assertion that actual damages are necessary for the Squires to state a claim under § 1641(g).
E.
Claim-Splitting.
The final stated ground for defendant’s Rule 12(b)(6) Motion is that the Squires have
engaged in improper claim-splitting by bringing certain claims against BAC in this action and
certain other claims against BAC in proceedings pending in the Circuit Court of Mobile County,
Alabama, and styled Federal National Mortgage Association v. William C. Squires, et al. (the
“State-Court Action”). In that regard, BAC shows that in March 2011, the Squires brought thirdparty claims against BAC (and related entities) in the State-Court Action for wrongful
foreclosure, wantonness, negligence, breach of mortgage agreement, breach of fiduciary duty,
fraud, fraudulent suppression, equitable/ promissory estoppel, and declaratory/injunctive relief.
All of these state-law claims relate to a foreclosure sale that BAC conducted on September 21,
2010 and certain representations that BAC allegedly made to the Squires in connection with a
proposed loan modification and the foreclosure sale. (See doc. 10, Exh. 1.)
Defendant is quite correct that federal and Alabama courts have long recognized a rule
prohibiting plaintiffs from splitting into multiple lawsuits claims relating to the same transaction
or occurrence. See, e.g., Robbins v. General Motors De Mexico, S. DE R.L. DE CV., --- F.
Supp.2d ----, 2011 WL 4346575, *2 (M.D. Fla. Sept. 16, 2011) (“Federal courts also recognize a
prohibition against splitting of claims relating to the same transaction or occurrence.”); Dorsey v.
Jacobson Holman PLLC, 764 F. Supp.2d 209, 212 (D.D.C. 2011) (“The rule against claim
splitting requires that all claims arising out of a single wrong be presented in one action.”)
(citation and internal quotation marks omitted); Kelecseny v. Chevron, U.S.A., Inc., 262 F.R.D.
660, 672 (S.D. Fla. 2009) (explaining that “all damages sustained or accruing to one as a result
of a single wrongful act must be claimed and recovered in one action or not at all”) (citation
omitted); Gross v. Lappin, 648 F. Supp.2d 48, 50 (D.D.C. 2009) (“Generally, a plaintiff is
expected to present in one suit all the claims for relief that he may have arising out of the same
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transaction or occurrence.”) (citation and internal quotation marks omitted); see also Ex parte
Leasecomm Corp., 886 So.2d 58, 63-64 (Ala. 2003) (to avoid vexatious litigation and
multiplicity of lawsuits, “Alabama has a strong policy against splitting causes of action or
claims”).
Nonetheless, BAC’s argument fails because comparison of the Squires’ claims in the
State-Court Action with those presented here reveals that they do not involve the same
transaction or occurrence. After all, the only claim interposed by the Squires in this action is a
TILA claim alleging that BAC breached its obligation to notify plaintiffs in a timely manner
after the Squires’ mortgage loan was transferred to it in July 2010. By contrast, the Squires’
claims in the State-Court Action have nothing to do with the July 2010 Assignment of Mortgage
and BAC’s purported failure to notify plaintiffs of same. Rather, the State-Court Action claims
concern the September 2010 foreclosure sale and BAC’s alleged misrepresentations relating to
that foreclosure. This is a different occurrence and a different wrong, involving a different time
period. The Squires have not engaged in improper claim-splitting because the subject matter of
the two sets of claims is not the same, but rather is factually and temporally distinct.7 Dismissal
of the Complaint on claim-splitting grounds is therefore unwarranted.
7
In so concluding, the Court has considered BAC’s contention that the allegations
in both sets of claims “arise out of the same operative nucleus of facts, i.e., BAC[]’s servicing of
Plaintiffs’ mortgage loan.” (Doc. 10, at 10.) But BAC’s servicing of the Squires’ mortgage loan
was not itself a singular operative factual nucleus; rather, it had different features at different
times. The transfer of the loan to BAC in July 2010 is of crucial importance to the Squires’
claims in this action, but appears only of tangential relevance to the State-Court Action.
Similarly, the foreclosure sale and BAC’s communications to the Squires in relation to same are
of minimal relevance to this proceeding, but likely are at the heart of the State-Court Action. In
short, the claims involve different conduct at different times. The possibility that “discovery in
both cases is likely to involve many of the same documents and witnesses” (doc. 20, at 5) is not,
without more, enough to justify dismissal of this action on claim-splitting grounds. At any rate,
BAC appears to overstate the likely degree of that overlap, given the different conduct and
events on which each set of claims is predicated. Finally, the Court declines BAC’s invitation to
“require Plaintiffs to assert their TILA claims in the pending state court litigation” (doc. 20, at 5),
which (assuming the deadline for amending pleadings has not passed in the State-Court Action)
would pave the way for BAC to remove that entire State-Court Action to federal court.
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III.
Conclusion.
For all of the foregoing reasons, defendant’s Motion to Dismiss (doc. 10) is denied.
Defendant is ordered to file its answer to the Complaint on or before December 13, 2011.
DONE and ORDERED this 29th day of November, 2011.
s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE
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