Felix et al v. Anderson

Filing 101

ORDER by Judge Haywood S. Gilliam, Jr. GRANTING IN PART AND DENYING IN PART 89 MOTION FOR SUMMARY JUDGMENT. (ndrS, COURT STAFF) (Filed on 6/29/2016)

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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 SCOTT EMERSON FELIX, et al., 10 Plaintiffs, 11 United States District Court Northern District of California Case No. 14-cv-03809-HSG v. 12 KARIN L ANDERSON, 13 Defendant. 14 ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT Re: Dkt. No. 89 Plaintiffs Scott Emerson Felix and Patricia Shuey allege six causes of action: (1) Fraud, (2) 15 16 Constructive Fraud, (3) Conversion, (4) Constructive Trust, (5) Resulting Trust, and (6) 17 Accounting. Dkt. No. 61. Pending before the Court is Defendant Karin Anderson’s motion for 18 summary judgment on grounds that the statutes of limitations for the claims have passed. 19 Having reviewed the parties’ arguments, the Court GRANTS IN PART and DENIES IN PART 20 the motion for summary judgment.1 21 I. LEGAL STANDARD Summary judgment must be entered against a party who, after adequate time for discovery 22 23 and upon motion, fails to make a showing sufficient to establish an element essential to that 24 party’s case, and on which that party would bear the burden of proof at trial. Fed. R. Civ. P. 56(c); 25 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A party moving for summary judgment may 26 carry its initial burden by pointing out to the district court that there is an absence of a genuine 27 1 28 The Court found this matter suitable for resolution without oral argument, pursuant to Civil Local Rule 7–1(b). 1 issue of material fact. Id. at 323. To avoid summary judgment, the nonmovant must set forth 2 specific facts showing that there remains a genuine issue of material fact for trial. Id. at 324. A 3 factual dispute is genuine if a reasonable jury could return a verdict for the nonmoving party. 4 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The evidence of the nonmovant is to 5 be believed, and all justifiable inferences are to be drawn in the nonmovant’s favor. Id. at 255. If 6 the nonmoving party’s evidence is merely colorable or is not significantly probative, then 7 summary judgment may be granted. Id. at 249-50. 8 II. 9 10 DISCUSSION Defendant moves for summary judgment, arguing that the statutes of limitations on Plaintiffs’ claims have passed. United States District Court Northern District of California 11 A. 12 “To survive summary judgment, a party does not necessarily have to produce evidence in a Evidentiary Objections 13 form that would be admissible at trial, as long as the party satisfies the requirements of Federal 14 Rules of Civil Procedure 56.” Block v. City of Los Angeles, 253 F.3d 410, 418-19 (9th Cir. 2001); 15 see also Chartis Specialty Ins. Co. v. Aqua Scis. Engineers, Inc., No. 11-CV-03669-JST, 2013 WL 16 4647288, at *3 (N.D. Cal. Aug. 29, 2013) (“The Court’s focus at summary judgment is not on the 17 form of the evidence submitted, but on whether its content would be admissible.”). Rule 56(c)(4) 18 provides that “[a]n affidavit or declaration used to support or oppose a motion must be made on 19 personal knowledge, set out facts that would be admissible in evidence, and show that the affiant 20 or declarant is competent to testify on the matters stated.” Fed. R. Civ. P. 56(c)(4). Evidence is 21 relevant if “it has any tendency to make a fact more or less probable than it would be without the 22 evidence” and “the fact is of consequence in determining the action.” Fed. R. Evid. 401. 23 For example, “hearsay evidence attached to an affidavit may be considered at summary 24 judgment if the out-of-court declarant could present the evidence through direct, admissible 25 testimony at trial.” Chartis Specialty Ins. Co., 2013 WL 4647288, at *3 (citing Fraser v. Goodale, 26 342 F.3d 1032, 1036 (9th Cir. 2003)). However, because “[a]uthentication is a condition 27 precedent to admissibility,” “unauthenticated documents cannot be considered in a motion for 28 summary judgment.” Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002). 2 1 Documents can be authenticated by any manner permitted by Federal Rules of Evidence 901(b) or 2 902, not just personal knowledge. Id. at 774. 1. Plaintiffs’ Evidentiary Objection 3 4 The Court denies Plaintiffs’ objection to Gregory Clayton’s Investigation Report (“the 5 2007 Report”), see Dkt. No. 92, Ex. A. Clayton’s declaration established that the report is his 6 work product, on letterhead, matching letterhead he used at the time the report was made, signed 7 by him, and created using a real estate tool he routinely uses when conducting investigations. Dkt. 8 No. 92 at ¶ 3. Clayton’s declaration further establishes, based on his routine business practices at 9 the time, that he was contacted by Felix in July 2007 to investigate the matters contained in the 10 2007 Report. The Court finds the report properly authenticated, see Fed. R. Evid. 901(b)(1), (4). 2. Defendant’s Evidentiary Objections United States District Court Northern District of California 11 12 Defendant makes several objections to Felix’s declaration and attached Exhibits A through 13 D, see Dkt. No. 96. To the extent that the Court relies on this evidence in this order, it has only 14 relied on relevant evidence. See Neal v. Juarez, No. 06CV0055 J(JMA), 2007 WL 2140640, at *2 15 (S.D. Cal. July 23, 2007) (“Disputes over irrelevant or unnecessary facts will not preclude a grant 16 of summary judgment.” (quoting T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass’n, 809 17 F.2d 626, 630 (9th Cir. 1987)). The Court further notes that it has only considered testimony and 18 evidence that is based on Felix’s personal knowledge and that is not inadmissible hearsay 19 testimony. Accordingly, the Court has not considered the portions of Felix’s declaration and 20 attached exhibits that do not pertain to the alleged agreement between Defendant and Plaintiff 21 Patricia Shuey or the properties relevant in this action. The Court addresses Defendant’s specific 22 objections, if relevant to the outcome of the order, below. 23 24 25 B. Causes of Action 1-4: Fraud, Constructive Fraud, Conversion, and Constructive Trust “[A] plaintiff must bring a cause of action within the limitations period applicable thereto after accrual of the cause of action.” Norgart v. Upjohn Co., 21 Cal. 4th 383, 397 (1999). Under 26 California Civil Procedure Code § 338(d), the statute of limitations for claims grounded in fraud is 27 three years. Accordingly, Plaintiffs were required to bring their claims for fraud, constructive 28 3 1 fraud, and conversion within three years of the alleged wrong. See, e.g., AmerUS Life Ins. Co. v. 2 Bank of Am., N.A., 143 Cal. App. 4th 631, 639 (2006) (applying three-year statute of limitations to 3 conversion action). 4 Plaintiffs’ fourth cause of action for constructive trust is an equitable remedy, requiring 5 Plaintiffs to establish the gain of their property by fraud or other wrongful act. See Kraus v. 6 Willow Park Pub. Golf Course, 73 Cal. App. 3d 354, 373 (Ct. App. 1977). “Because a 7 constructive trust is not a substantive device but merely a remedy . . . , an action seeking to 8 establish a constructive trust is subject to the limitation period of the underlying substantive right.” 9 See Upham v. Fox, No. C 13-3377 MMC, 2014 WL 1379607, at *5 (N.D. Cal. Apr. 8, 2014). Because Plaintiffs’ constructive trust claim is based upon the same fraudulent conduct as the first 11 United States District Court Northern District of California 10 three causes of action, the three-year statute of limitation applies here as well. See Nevarez v. 12 Nevarez, 202 Cal. App. 2d 596, 602 (Ct. App. 1962) (“If an action to impose a constructive trust is 13 based on fraud or mistake it is governed by the three-year statute under section 338.”). 14 Moreover, § 338 codifies the discovery rule, which delays accrual of the limitations period 15 “until the plaintiff discovers, or has reason to discover, the cause of action.” Fox v. Ethicon Endo- 16 Surgery, Inc., 35 Cal. 4th 797, 807 (2005). “A plaintiff has reason to discover a cause of action 17 when he or she ‘has reason at least to suspect a factual basis for its elements.’” Id. (quoting 18 Norgart, 21 Cal.4th at 398); see V.C. v. Los Angeles Unified Sch. Dist., 139 Cal. App. 4th 499, 515 19 (2006). Courts “do not take a hypertechnical approach to the application of the discovery rule,” 20 and instead “look to whether the plaintiffs have reason to at least suspect that a type of 21 wrongdoing has injured them.” Fox, 35 Cal. 4th at 807. 22 Here, Plaintiffs contend that the limitations period should be delayed under the discovery 23 rule, arguing that “it was not until 2014 that Defendant informed the Plaintiffs that she did not 24 intend to return any of Plaintiff’s property that she had held on their behalf.” Dkt. No. 95 at 1. In 25 applying the discovery rule, however, the Court finds that Plaintiffs were on inquiry notice of the 26 facts constituting the fraud at the very latest by 2007. The 2007 Report established that the 27 Guerneville property was sold in 1993 for $13,500. Accordingly, upon receipt of the report, 28 Plaintiffs had constructive notice of the alleged wrongdoing—that is, that Defendant sold the 4 Guerneville property “for approximately $160,000.00 under its fair market value” and concealed 2 the sale from Plaintiffs. Dkt. No. 61 at ¶ 29.2 The Court finds that the report gave Plaintiffs 3 information about the circumstances that would put a reasonable person on notice of the alleged 4 wrongdoing. See Jolly v. Eli Lilly & Co., 44 Cal. 3d 1103, 1111 (1988) (“So long as a suspicion 5 exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her.”); 6 Fox, 35 Cal. 4th at 807-08 (“[P]laintiffs are charged with presumptive knowledge of an injury if 7 they have information of circumstances to put [them] on inquiry or if they have the opportunity to 8 obtain knowledge from sources open to [their] investigation.” (internal quotation marks omitted)). 9 Plaintiffs’ contention that any fiduciary relationship between the parties makes the 10 discovery rule “much less applicable” does not change the Court’s conclusion. Dkt. No. 95 at 11. 11 United States District Court Northern District of California 1 The existence of a “special relationship” does not negate the discovery rule, but rather reinforces 12 the principle that statute of limitations “should not be interpreted so as to bar a victim of wrongful 13 conduct from asserting a cause of action before he could reasonably be expected to discover its 14 existence.” E-Fab, Inc. v. Accountants, Inc. Servs., 153 Cal. App. 4th 1308, 1318 (2007) 15 (emphasis added); Moreno v. Sanchez, 106 Cal. App. 4th 1415, 1423-24 (2003). That risk does 16 not exist here. The report sufficiently established a basis for reasonable suspicion of wrongdoing. Because Plaintiffs had reason to discover the causes of action in 2007, the limitations 17 18 period began in 2007. See E-Fab, Inc., 153 Cal. App. 4th at 1318-19. Applying the three-year 19 limitations period, Plaintiffs were required to file the lawsuit by 2010, but failed to do so until 20 2014. Accordingly, the Court grants summary judgment as to the first four causes of action 21 because the claims are time barred and, as described below, Plaintiffs’ tolling arguments are 22 without merit. 23 1. California Code of Civil Procedure, § 351 First, Plaintiffs argue that tolling is required under § 351 of the California Code of Civil 24 25 Procedure. By its terms, § 351 tolls the limitations period when a defendant is out of state.3 26 2 27 28 The Court relies on Plaintiffs’ factual assertions in the complaint, finding they are judicial admissions binding on Plaintiffs. See Am. Title Ins. Co. v. Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988). 3 Section 338 states: 5 1 Plaintiffs contend that Defendant lived in Maryland starting in 2003, and that as a result 2 the limitations period has been tolled since then. In support, Plaintiffs rely on Felix’s declaration, 3 which provides as follows: “I have known for many years that Karin held possession of property 4 and funds that belonged to my mother and me as her only son. Throughout this time, and at least 5 since 2003, Karin did so while she lived in Maryland.” Dkt. No. 96 at ¶ 3. 6 To begin with, the Court grants Defendant’s objection, concluding that this portion of 7 Felix’s declaration is inadmissible under Federal Rule of Evidence 602 as lacking a basis in 8 personal knowledge. It is undisputed that Felix was incarcerated from 1982 to 1993 and from 9 1996 to the present day, see Dkt. No. 97-2, and Felix provides no basis for how he knew that 10 United States District Court Northern District of California 11 Defendant lived in Maryland starting in 2003. The Court notes that even if it were to consider Felix’s declaration, § 351 could not 12 provide a basis for tolling as its application would be unconstitutional. To evaluate the statute’s 13 constitutionality, the Court compares the “burden the tolling statute places on interstate 14 commerce” with “the interests of the State.” Bendix Autolite Corp. v. Midwesco Enters., Inc., 486 15 U.S. 888, 891 (1988); see also Abramson v. Brownstein, 897 F.2d 389, 392 (9th Cir. 1990). In 16 doing so, the Court finds that California’s interest in alleviating “any hardship that would result by 17 compelling [Plaintiffs] to pursue [D]efendant out of state” does not support the resulting burden 18 on interstate commerce because “the California long arm statute would have permitted service on 19 [Defendant] throughout the limitations period.” See Abramson, 897 F.2d at 392-93 (finding the 20 statute poses “a significant burden” by forcing “a nonresident individual engaged in interstate 21 commerce to choose between being present in California for several years or forfeiture of the 22 limitations defense, remaining subject to suit in California in perpetuity”); see also Galvani v. 23 Galvani, No. C 11-2062 PJH, 2011 WL 4080338, at *5 (N.D. Cal. Sept. 12, 2011) (applying the 24 reasoning to a defendant who leaves the state for personal reasons and who is not necessarily 25 26 27 28 If, when the cause of action accrues against a person, he is out of the State, the action may be commenced within the term herein limited, after his return to the State, and if, after the cause of action accrues, he departs from the State, the time of his absence is not part of the time limited for the commencement of the action. 6 1 engaged in interstate commerce, holding the individual is “entitled to the same protection under 2 the Commerce Clause as a nonresident engaged in commerce”). Because § 351’s application 3 would be unconstitutional, the Court rejects Plaintiffs’ contention that the statute provides a basis 4 for tolling. 5 6 2. Equitable Estoppel Second, Plaintiffs rely on an equitable estoppel argument. “Equitable estoppel, also 7 termed fraudulent concealment, halts the statute of limitations when there is active conduct by a 8 defendant, above and beyond the wrongdoing upon which the plaintiff’s claim is filed, to prevent 9 the plaintiff from suing in time.” Guerrero v. Gates, 442 F.3d 697, 706 (9th Cir. 2006) (internal quotation marks omitted). A plaintiff bears the burden of pleading and proving fraudulent 11 United States District Court Northern District of California 10 concealment. Conmar v. Mitsui & Co. (U.S.A.), Inc., 858 F.2d 499, 502 (9th Cir. 1988). To meet 12 its burden, the plaintiff must establish all of the substantive elements of fraud and provide an 13 excuse for late discovery of facts. See Brown v. Shimano Indus. Co., 960 F.2d 152, 1 (9th Cir. 14 1992) (unpublished) (citing Cmty. Cause v. Boatwright, 124 Cal. App. 3d 888, 900 (Ct. App. 15 1981)). With respect to the belated discovery, the complaint also must allege “(1) when the fraud 16 was discovered; (2) the circumstances under which it was discovered; and (3) that the plaintiff was 17 not at fault for failing to discover it or had no actual or presumptive knowledge of facts sufficient 18 to put him on inquiry.” Cmty. Cause, 124 Cal. App. 3d at 900. Finally, California applies the 19 discovery rule to fraudulent concealment claims as well. See Bowman v. McPheeters, 77 Cal. 20 App. 2d 795, 798 (1947); AmerUS Life Ins. Co., 143 Cal. App. 4th at 639. 21 Relying on paragraphs 9 through 12 of Felix’s declaration, Plaintiffs contend that 22 Defendant must be equitably estopped from asserting a limitations defense because “Defendant 23 told Plaintiffs to have faith in their arrangement, that she would take care of them, that she would 24 do right by them, that they were in good hands.” Dkt. No. 95 at 8. Applying the discovery rule, 25 the Court finds Plaintiffs’ equitable estoppel claim fails. 26 Initially, the Court notes that contrary to Plaintiffs’ contention paragraphs 9 through 12 do 27 not include any of the following statements—that is, that “Defendant told Plaintiffs to have faith 28 in their arrangement, that she would take care of them, that she would do right by them, that they 7 1 were in good hands.” Next, the Court addresses Defendant’s evidentiary objections to paragraphs 2 9 through 12. The Court denies the hearsay objections, noting that Defendant’s statements are 3 those of a party opponent, and thus admissible under Fed. R. Evid. 801(d)(2), see Orr, 285 F.3d at 4 773, and that the statements of Felix’s mother or Uncle Mike would be admissible not for the 5 truth, but for the effect on the listener, see Dkt. No. 96 at ¶ 10, lines 25-27; ¶ 11, lines 6-7. The 6 Court, however, sustains Defendant’s relevance objection to Exhibit A, Dkt. No. 96, as the letter 7 pertains to a property that is unrelated to the claims in this action, as well as Defendant’s 8 authentication objection to Exhibit D, Dkt. No. 96, as Felix’s declaration provides no basis to 9 support the exhibit’s authenticity. Although Exhibits B and C remain a part of the record, there is nothing in either letter that suggests Defendant prevented Plaintiffs from timely pursuing their 11 United States District Court Northern District of California 10 claims. 4 Additionally, the Court finds inadmissible the portions of each paragraph that are not 12 based on Felix’s personal knowledge. See Dkt. No. 96. Finally, before turning to the discovery 13 rule, the Court notes that even if it had ruled in Plaintiffs’ favor on each evidentiary objection, the 14 record would remain entirely lacking in any facts to support Plaintiffs’ fraudulent concealment 15 claim. Indeed, the bulk of these paragraphs are largely unhelpful because they relate to 16 Defendant’s agreement with Mike Shuey, and not to the agreement between Defendant and 17 Patricia Shuey. See, e.g., Dkt. No. 96 at ¶ 11 (“She consistently said she would return Uncle 18 Mike’s property when he qualified for a loan or could pay the entire mortgage to have the house 19 placed back in his name”). Under the discovery rule, the Court finds that Plaintiffs have not offered any evidence 20 21 tending to excuse their failure to discover the alleged fraud. As discussed, the 2007 Report would 22 have raised reasonable suspicion, warranting further investigation. Plaintiffs offer no explanation 23 as to why they could not have discovered the alleged wrongdoing in light of the notice provided 24 by the 2007 Report, and they have failed to explain how Defendant induced them to stop inquiring 25 26 4 27 28 The Court denies Defendant’s contention that Exhibits B and C, see Dkt. No. 96, are not properly authenticated. Felix’s declaration states that he recognizes the signatures on each document, which is a sufficient basis under Rule 901(b)(2). Moreover, that Felix was in prison during this time is an issue of weight that goes to the credibility of his opinion, not the exhibits’ admissibility. 8 1 further about the properties specific to this matter.5 Accordingly, Plaintiffs have failed to 2 demonstrate reasonable diligence in pursuit of their claims, and tolling on this basis is not 3 appropriate. See Bernson v. Browning-Ferris Indus., 7 Cal. 4th 926, 933-34 (1994) (fraudulent 4 concealment tolls the running of the statute until the wrongdoing is “discover[ed], or through the 5 exercise of reasonable diligence[,] should have [been] discovered”). 6 3. Equitable Tolling Plaintiffs reargue fraudulent concealment as a basis for equitable tolling, appearing to 7 8 confuse the concepts of equitable tolling and equitable estoppel. Under California law, equitable 9 tolling relieves plaintiff from the bar of a limitations statute when plaintiff, “possessing several legal remedies . . . , reasonably and in good faith, pursues one designed to lessen the extent of his 11 United States District Court Northern District of California 10 injuries or damage, thereby allowing the statutory period to run.” Guerrero v. Gates, 442 F.3d 12 697, 706 (9th Cir. 2006) (internal quotation marks omitted); Conley v. Int’l Bhd. of Elec. Workers, 13 Local 639, 810 F.2d 913, 915 (9th Cir. 1987) (“Equitable tolling is most appropriate when the 14 plaintiff is required to avail himself of an alternate course of action as a precondition to filing 15 suit.”); see, e.g., Elkins v. Derby 12 Cal.3d 410 (1974) (tolling statute of limitations on a personal 16 injury action while plaintiff asserts workers’ compensation remedy). California courts have 17 developed a three-part test as a prerequisite to invoking this doctrine: (1) timely notice in filing the 18 first claim; (2) lack of prejudice to defendant in gathering evidence to defend the second claim; 19 and (3) good faith and reasonable conduct by plaintiff in filing the second claim. Collier v. City of 20 Pasadena, 142 Cal.App.3d 917, 922-24 (1983) (summarizing the history and rationale behind the 21 doctrine of equitable tolling). “[T]he effect of equitable tolling is that the limitations period stops 22 running during the tolling event, and begins to run again only when the tolling event has 23 concluded.” Lantzy v. Centex Homes, 31 Cal. 4th 363, 371 (2003) (emphasis omitted). Given that Plaintiffs simply repeat their fraudulent concealment argument, the Court 24 25 denies tolling on an equitable tolling basis, finding that it does not apply on this record. 26 5 27 28 Defendant’s statements about properties involved in the agreement between Michael Shuey and Defendant do not create a colorable fraudulent concealment claim in this case. Plaintiffs have offered no evidence to explain why Defendant’s statement about an unrelated agreement and separate properties would cause Plaintiffs to refrain from pursuing the claims in this action. 9 C. 1 Causes of Action 5-6: Resulting Trust and Accounting Plaintiffs’ fifth cause of action for a “resulting trust” has a four-year statute of limitations 2 under California Code of Civil Procedure § 343. Moreover, the statute of limitations does not 3 begin to run until there has been a repudiation of the trust. See Berniker v. Berniker, 30 Cal. 2d 4 5 439, 448 (1947) (“[T]he statute of limitations did not commence to run until demand (upon the trustee) and (his) refusal to account.”); In re Estate of Yool, 151 Cal. App. 4th 867, 875 (2007); 6 McCosker v. McCosker, 122 Cal. App. 2d 498, 501 (1954). 7 Plaintiffs’ sixth cause of action for accounting is a derivative action, “proper where there is 8 an unliquidated and unascertained amount owing that cannot be determined without an 9 examination of the debts and credits on the books to determine what is due and owing.” 10 Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal.App.4th 1105, 1136-37 (2014); Janis v. United States District Court Northern District of California 11 12 13 Cal. State Lottery Commission, 68 Cal.App.4th 824, 833-34 (Ct.App.1998). “[W]here an accounting is treated as an independent cause of action,” it still depends “upon a substantive basis for liability.” Upham, 2014 WL 1379607, at *3; see also Glue–Fold, Inc. v. Slautterback Corp., 14 82 Cal.App. 4th 1018, 1023 n.3 (2000). 15 Plaintiffs contend that the statute of limitations for the resulting trust did not accrue until 16 2014, when Defendant repudiated the trust, refusing to return the property. Under Yool, the statute 17 of limitations began running when this repudiation occurred. Because the lawsuit was filed in 18 2014, the resulting trust cause of action was timely filed. Moreover, because the accounting claim 19 is derivative, the sixth cause of action also remains viable. See Upham, 2014 WL 1379607, at *3 20 (holding that “the nature of the right sued upon, not the form of action or the relief demanded, 21 determines the applicability of the statute of limitations”). 22 23 III. CONCLUSION For the reasons described, the Court grants Defendant’s summary judgment motion in part, 24 finding that the statute of limitations has run as to the first four causes of action. The Court denies 25 summary judgment as to the fifth and sixth causes of action. 26 The Court sets a case management conference for July 5, 2016 at 2:00 p.m. The parties 27 should be prepared to discuss the remaining causes of action, as well as the scheduling of a 28 10 1 2 3 settlement conference. IT IS SO ORDERED. Dated: 6/29/2016 4 5 HAYWOOD S. GILLIAM, JR. United States District Judge 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11

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