Lyons et al v. Bank of America, NA et al

Filing 42

ORDER GRANTING IN PART DEFENDANTS' 38 MOTIONS TO DISMISS AND TO STRIKE. Case Management Statement due by 2/15/2012. Case Management Conference set for 2/22/2012 02:00 PM. Signed by Judge Claudia Wilken on 12/16/2011. (ndr, COURT STAFF) (Filed on 12/16/2011)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 GINA LYONS and JERRY LYONS, on behalf of themselves and all others similarly situated, 6 Plaintiffs, 7 8 9 United States District Court For the Northern District of California 10 11 12 No. C 11-1232 CW ORDER GRANTING IN PART DEFENDANTS' MOTIONS TO DISMISS AND TO STRIKE v. BANK OF AMERICA, NA and BAC HOME LOANS SERVICING, LP, a wholly owned subsidiary of Bank of America, Defendants. ________________________________/ 13 This case arises out of Plaintiffs Gina and Jerry Lyons' 14 residential mortgage and related foreclosure by Defendants Bank of 15 America, NA and BAC Home Loans Servicing (together, BOA). 16 Defendants move to dismiss Plaintiffs' First Amended Complaint 17 (1AC) and to strike, under Federal Rules of Civil Procedure 12(f) 18 and 23(d)(1)(D), certain allegations in the 1AC. Plaintiffs have 19 filed an opposition. The motions were taken under submission to 20 be decided on the papers. Having considered all the papers filed 21 by the parties, the Court grants in part Defendants' motion to 22 dismiss, grants Defendants' motion to strike the class allegations 23 under Rule 23(d)(1)(D) and grants in part Defendants' motion to 24 strike under Rule 12(f). 25 The factual background is provided in the August 15, 2011 26 Order Granting in Part Defendants' Motion to Dismiss. In that 27 order, the Court found three of Plaintiffs' claims to be 28 1 cognizable, dismissed several claims with prejudice and dismissed 2 six claims with leave to amend. 3 in which they allege six claims: (1) breach of contract; 4 (2) breach of the covenant of good faith and fair dealing; 5 (3) fraud; (4) negligent representation; (5) false advertising 6 under California Business and Professions Code section 17500;1 and 7 (6) violations of California Business and Professions Code section 8 17200. 9 United States District Court For the Northern District of California 10 Plaintiffs timely filed their 1AC DISCUSSION I. Motion To Dismiss 11 A. Legal Standard 12 A complaint must contain a “short and plain statement of the 13 claim showing that the pleader is entitled to relief.” 14 Civ. P. 8(a). 15 Fed. R. Dismissal under Rule 12(b)(6) is appropriate only when the complaint does not give the defendant fair notice of a 16 legally cognizable claim and the grounds on which it rests. Bell 17 18 Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering 19 whether the complaint is sufficient to state a claim, the court 20 will take all material allegations as true and construe them in 21 the light most favorable to the plaintiff. NL Indus., Inc. v. 22 Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). However, this 23 principle is inapplicable to legal conclusions; “threadbare 24 recitals of the elements of a cause of action, supported by mere 25 26 27 28 1 Plaintiffs do not oppose Defendants' motion to dismiss their claim for false advertising under California Business and Professions Code section 17500. Therefore, the Court grants Defendants' motion to dismiss this claim. 2 1 conclusory statements,” are not taken as true. Ashcroft v. Iqbal, 2 129 S. Ct. 1937, 1949-50 (2009) (citing Twombly, 550 U.S. at 555). 3 B. Contract Claims 4 In the 1AC, Plaintiffs allege that Defendants breached three 5 6 different contracts: (1) the original mortgage agreement; (2) an oral contract to enter into a loan modification agreement; and 7 (3) the loan modification agreement. 8 To assert a cause of action for breach of contract, a 9 United States District Court For the Northern District of California 10 plaintiff must plead: (1) the existence of a contract; (2) the 11 plaintiff’s performance or excuse for non-performance; (3) the 12 defendant’s breach; and (4) damages to the plaintiff as a result 13 of the breach. 14 Co., 116 Cal. App. 4th 1375, 1391 n.6 (2004). Armstrong Petrol. Corp. v. Tri-Valley Oil & Gas The prevention of 15 performance by one party to the contract excuses performance by 16 the other party. Lortz v. Connell, 273 Cal. App. 2d 286, 290 17 18 19 (1969). The formation of a contract requires an offer and acceptance. 20 Brown v. California State Lottery Comm'n, 232 Cal. App. 3d 1335, 21 1339 (1991). 22 enter into a bargain, so made as to justify another person in 23 "An offer is the manifestation of willingness to understanding that his assent to that bargain is invited and will 24 conclude it." Donovan v. RRL Corp., 26 Cal. 4th 261, 271 (2001). 25 26 27 "The terms of an offer must be met exactly, precisely and unequivocally for its acceptance to result in the formation of a 28 3 1 binding contract." 2 Co. v. Hock Investment Co. 68 Cal. App. 4th 83, 89 (1998). 3 Marcus & Millichap Real Estate Inv. Brokerage 1. Breach of the Original Loan Agreement 4 In the August 15, 2011 Order, the Court dismissed this claim 5 because Plaintiffs had failed to allege that they were up-to-date 6 on their loan payments when Defendants initiated foreclosure 7 proceedings. In their 1AC, Plaintiffs allege the following. On 8 9 February 26, 2009, they were current on their loan payments when United States District Court For the Northern District of California 10 they contacted Defendants to request a loan modification. 1AC 11 ¶ 196. 12 eligible for a loan modification only if they were three months in 13 arrears on loan payments. 14 that they did not want to default on their loan, but Defendants Defendants instructed Plaintiffs that they would be 1AC ¶ 197. Plaintiffs told Defendants 15 said, a second time, that Plaintiffs would not be eligible for a 16 loan modification unless they were three months in arrears. 1AC 17 18 ¶ 199-200. 19 Plaintiffs did not make the next three payments on their loan. 20 1AC ¶ 201. 21 monthly payment, but Defendants would only accept payment for the 22 total owed for the three months plus late fees and would not 23 In accordance with Defendants' instructions, After three months, Plaintiffs attempted to make their accept payment for one month. 1AC ¶ 202-03. At the same time, 24 Plaintiffs applied for a loan modification from Defendants. 1AC 25 26 ¶ 205. Plaintiffs faxed to Defendants all the documentation 27 Defendants requested, but Defendants said, on multiple occasions, 28 that the documents were not received or were incomplete. 4 1AC 1 ¶ 207-08. 2 calls to Plaintiffs about their unpaid loan payments, even though 3 Plaintiffs were applying for a loan modification. 4 September 15, 2009, Plaintiffs received a Notice of Default from 5 Defendants, and, on December 16, 2009, Plaintiffs received a 6 During this time, Defendants made harassing collection Notice of Trustee's Sale set for April 20, 2010. 1AC ¶ 209. On 1AC ¶ 210-11. 7 These allegations are sufficient to state a claim for breach 8 9 of the loan agreement because Plaintiffs claim that they attempted United States District Court For the Northern District of California 10 to perform under the loan agreement, but were thwarted by 11 Defendants. 12 Defendants argue that these allegations are still 13 insufficient to state a breach of contract claim because the deed 14 of trust securing Plaintiffs' loan provides that forbearance or 15 modification by the lender does not release the borrower from any 16 obligations or constitute a waiver of the lenders' rights or 17 18 remedies. 19 that Defendants waived their right to collect the full amount of 20 the loan. 21 Defendants, by instructing Plaintiffs to stop making payments so 22 that they would qualify for a loan modification, gave up any right 23 They characterize Plaintiffs' claim as an allegation However, Plaintiffs explain that their claim is that to charge late fees and to foreclose during the time necessary to 24 qualify for the modification. 25 26 Parties may, by their conduct, waive a provision in a 27 contract where evidence shows that was their intent. 28 Equality Emergency Medical Gp., Inc. 102 Cal. App. 4th 125, 141 5 Biren v. 1 (2002); Olyaie v. General Elec. Capital Bus. Asset Funding Corp., 2 217 Fed. Appx. 606, 609 n.2 (9th Cir. 2007). 3 the 1AC are sufficient to claim that Defendants intended to waive 4 provisions in the deed of trust relating to late fees and 5 foreclosure proceedings during the time that Plaintiffs were 6 The allegations in applying for a loan modification. 7 Therefore, Defendants' motion to dismiss this claim is 8 9 denied. 2. Oral Agreement For Loan Modification United States District Court For the Northern District of California 10 11 In the August 15, 2011 Order, the Court found that Plaintiffs 12 had sufficiently alleged a claim for breach of an oral loan 13 modification agreement. 14 second look at this claim based upon two written documents they Defendants request that the Court take a 15 submit: (1) Plaintiffs' July 6, 2010 application for the Home 16 Affordable Modification Program (HAMP); and (2) an August 28, 2010 17 18 document informing Plaintiffs that they had been approved for the 19 three-month trial period plan (TPP) under the HAMP.2 20 argue that the application indicates that the information 21 Plaintiffs provide would be used to evaluate their eligibility for 22 a loan modification, so that Plaintiffs were informed that there Defendants 23 was no guarantee that they would receive a loan modification. 24 25 26 27 28 2 Defendants request that the Court take judicial notice of the July 6, 2010 HAMP application and the August 28, 2010 TPP document. The Court grants this request on the grounds that the 1AC refers to these documents, they are central to Plaintiffs' claim and no party questions their authenticity. See Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). 6 1 Defendants' argument is unpersuasive. Plaintiffs allege that 2 they first spoke with Defendants regarding a loan modification in 3 December, 2008 and that, on February 26, 2009, Defendants 4 "instructed Plaintiffs that they would only be eligible for a loan 5 modification if they were three months in arrears on mortgage 6 payments." 1AC ¶ 197. According to the 1AC, this was the start 7 of a long process in which Plaintiffs complied with all of 8 9 Defendants' requests in order to obtain the loan modification. It United States District Court For the Northern District of California 10 was during this time that the parties entered into the oral loan 11 modification agreement. 12 2010, over one year after Plaintiffs began the loan modification 13 process. 14 application and the August 28, 2010 TPP agreement, they may have The HAMP application is dated July 6, Arguably, when Plaintiffs received the written HAMP 15 understood that Defendants were repudiating the alleged oral loan 16 modification agreement. However, the written documents do not 17 18 disprove Plaintiffs' allegations that the parties earlier reached 19 an oral agreement for a loan modification. 20 21 22 23 Therefore, Defendants' renewed motion to dismiss this claim is denied. 3. Written Loan Modification Agreement In their 1AC, Plaintiffs allege that they entered into a 24 "binding modification agreement" with Defendants which provided a 25 26 modified payment schedule and, before Plaintiffs could make the 27 first payment, Defendants increased the required payment to an 28 amount that Plaintiffs could not afford. 7 1AC ¶¶ 254-56. In their 1 opposition to the motion to dismiss, Plaintiffs clarify that the 2 "binding modification agreement" allegation refers to the August 3 28, 2010 TPP agreement which, they argue, was a contract which 4 Defendants breached. 5 6 Defendants argue that the August 28, 2010 document merely extended an offer to Plaintiffs to participate in the TPP and, 7 because Plaintiffs did not accept it by making the modified 8 9 payments, a contract was not formed. Defendants' argument ignores United States District Court For the Northern District of California 10 Plaintiffs' allegations that, before the due date for the first 11 payment, Defendants increased the amount due to a sum that 12 Plaintiffs could not afford. 13 payments under the original loan agreement were $3,033 per month. 14 Because they could not afford these payments, they sought a loan Plaintiffs allege that their 15 modification to reduce them. The original TPP document set 16 monthly payments of $2,463.78, which would have provided 17 18 Plaintiffs with the relief they sought. 19 $2,463.78 was due on October 1, 2010. 20 2010, almost an entire month before Plaintiffs were scheduled to 21 make their first payment, Defendants increased the TPP payment to 22 $3,666.10. 23 The first payment of However, on September 7, On September 13, 2010, Defendants increased the payment to the even higher amount of $3,824.14. 24 The TPP document states: 25 26 27 We are pleased to tell you that you are approved to enter into a trial period plan under the Home Affordable Modification Program. This is the next step toward qualifying for more affordable and sustainable mortgage 28 8 payments. . . . Remember, there are no fees associated with this program. 1 2 It also states: 3 To accept this offer you must make new monthly "trial period payments" in place of your normal monthly mortgage payment. Send in your monthly trial period payments . . . as follows: 4 5 6 1st payment: 2nd payment: 3rd payment: 7 $2,463.78 by $2,463.78 by $2,463.78 by 10/1/10 11/1/10 12/1/10 8 The first paragraph informed Plaintiffs that they were 9 United States District Court For the Northern District of California 10 approved for the TPP. It may be construed as a contract for a 11 temporary loan modification. 12 as an offer to enter into a permanent loan modification, which 13 Plaintiffs could accept by sending in the $2,463.78 modified 14 payments by October 1, 2010, November 1, 2010 and December 1, The second paragraph could be read 15 2010. 16 Construction of the TPP agreement as a binding contract for a 17 18 temporary loan modification is supported by Plaintiffs' 19 allegations that they had been negotiating with Defendants for 20 over one a half years for approval to enter the TPP and that they 21 complied with all of Defendants' instructions in order to qualify 22 for the TPP, including sending and resending financial information 23 and allowing their loan to go three months into arrears. See 24 Ansanelli v. JP Morgan Chase Bank, N.A., 2011 WL 1134451, at *4 25 26 (N.D. Cal.) (plaintiffs' expenditure of time and energy to make 27 financial disclosures in furtherance of the agreement, which they 28 would have not been required to do under the original contract, 9 1 constitutes consideration). 2 with all of Defendants' requests could be construed as an 3 acceptance of the offer for the TPP and consideration. 4 Defendants allegedly breached the TPP contract when, on September 5 7, 2010 and again on September 13, 2010, they increased the amount 6 The fact that Plaintiffs complied Thus, of the loan payments, excusing Plaintiffs' further performance. 7 Under these circumstances, the Court concludes that Plaintiffs' 8 9 United States District Court For the Northern District of California 10 allegations are sufficient to state a breach of contract claim. Defendants' motion to dismiss this claim is denied. 11 C. Breach of the Covenant of Good Faith and Fair Dealing 12 The implied covenant of good faith and fair dealing 13 supplements "the express contractual covenants, to prevent a 14 contracting party from engaging in conduct that frustrates the 15 other party's rights to the benefits of the agreement." Waller v. 16 Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 36 (1995). The covenant 17 18 thus prevents a contracting party from taking an action which, 19 although technically not a breach, frustrates the other party's 20 right to the benefit of the contract. 21 221 Cal. App. 3d 1136, 1153 (1990). 22 right, however, the implied covenant has nothing upon which to act 23 Love v. Fire Ins. Exchange, "Absent that contractual as a supplement, and should not be endowed with an existence 24 independent of its contractual underpinnings." Id. 25 26 As discussed above, Plaintiffs have successfully alleged that 27 Defendants breached the original loan agreement, an oral loan 28 modification agreement and the TPP agreement. 10 The allegations in 1 the 1AC that, after Plaintiffs stopped making payments on their 2 loan for three months to become eligible for Defendants' loan 3 modification program, Defendants refused to accept monthly 4 payments from Plaintiffs and initiated foreclosure proceedings, is 5 sufficient to state a claim for breach of the implied covenant. 6 Likewise, the allegation that Defendants breached the TPP 7 agreement by raising the monthly payment to an amount they knew 8 9 that Plaintiffs could not afford, is sufficient to state a claim United States District Court For the Northern District of California 10 for breach of the implied covenant of the oral agreement and the 11 TPP agreement. 12 D. Fraud and Negligent Misrepresentation 13 In their original complaint, Plaintiffs alleged (1) that 14 Defendants' statement that Plaintiffs had to be three months in 15 arrears before they would be eligible for a loan modification was 16 false, (2) that Defendants knew it was false but said it to induce 17 18 Plaintiffs to default on their loan so Defendants would reap 19 greater fees in the servicing of the loan, and (3) that Plaintiffs 20 relied on Defendants' misrepresentation to their detriment. 21 the August 15, 2011 Order, the Court found that these allegations 22 were insufficient to meet Rule 9(b)'s heightened pleading 23 In requirement because Plaintiffs failed to allege who made the 24 statement, what was false or misleading about it and why it was 25 26 27 false. The Court also found that Plaintiffs had not alleged justifiable reliance. 28 11 1 In their 1AC, Plaintiffs again allege that "Defendants 2 instructed Plaintiffs that they would only be eligible for a loan 3 modification if they were three months in arrears on mortgage 4 payments." 5 fraud and negligent misrepresentation for the same reasons given 6 1AC ¶ 197. This allegation fails to state a claim for in the August 15, 2011 Order. Plaintiffs' argument that they are 7 not required to provide more specificity because the facts lie in 8 9 the knowledge of the opposing party is unpersuasive. The United States District Court For the Northern District of California 10 deficiencies are not merely by whom or when the allegedly 11 fraudulent statement was made, but what was false about the 12 statement and how Plaintiffs were justified in relying upon it. 13 Therefore, Defendants' motion to dismiss the fraud and 14 negligent misrepresentation claims is granted. Because Plaintiffs 15 have been given an opportunity to amend these claims, dismissal is 16 without leave to amend. 17 18 E. Unfair Competition Law 19 The California Unfair Competition Law (UCL), Cal. Bus. & 20 Prof. Code § 17200 et seq., prohibits “any unlawful, unfair or 21 fraudulent business act or practice and unfair, deceptive, untrue 22 or misleading advertising.” 23 Because section 17200 is written in the disjunctive, it establishes three types of unfair competition. 24 Davis v. Ford Motor Credit Co., 179 Cal. App. 4th 581, 593 (2009). 25 26 Therefore, a practice may be prohibited as unfair or deceptive 27 even if it is not unlawful and vice versa. 28 Healthcare Corp., 50 Cal. App. 4th 632, 647 (1996). 12 Podolsky v. First 1 2 1. Unlawful Business Practices In the August 15, 2011 Order, the Court found that Plaintiffs 3 had stated an unlawful business practices claim based on the fact 4 that they had stated a claim for breach of an oral loan 5 modification agreement. 6 In the 1AC, Plaintiffs have also stated claims for breach of the original loan agreement and breach of the 7 TPP agreement. Under the reasoning in the August 15, 2011 Order, 8 9 United States District Court For the Northern District of California 10 11 Plaintiffs state an unlawful business practices claim based on the breach of all three agreements. 2. Unfair Business Practices 12 In the August 15, 2011 Order, the Court adopted the unfair 13 business practices standard enunciated in Camacho v. Automobile 14 Club of Southern California, 142 Cal. App. 4th 1394, 1403 (2006), 15 which applies three factors to determine if a practice is unfair: 16 (1) the injury must be substantial; (2) the injury must not be 17 18 outweighed by any countervailing benefits to consumers or 19 competition; and (3) the injury must be one that the consumer 20 could not reasonably have avoided. 21 The Court found that Plaintiffs had failed to state an unfair 22 business practices claim because they could have avoided injury if 23 they had made timely mortgage payments. However, the allegations 24 in the 1AC are that Plaintiffs were current on their mortgage 25 26 payments when they temporarily stopped paying them to become 27 eligible for a loan modification and that, when they tendered 28 their monthly payments to Defendants once again, Defendants 13 1 rejected them. 2 injury but were thwarted from doing so by Defendants. 3 allegations are sufficient to allege a claim under the unfairness 4 prong of the UCL. 5 6 Thus, Plaintiffs allegedly attempted to avoid These 3. Fraudulent Business Practices In the August 15, 2011 Order, the Court dismissed this claim 7 because the allegations upon which it was based lacked the 8 9 required particularity. Plaintiffs have not remedied this United States District Court For the Northern District of California 10 deficiency. Therefore, this claim is dismissed without leave to 11 amend. 12 II. Motion to Strike Under Rule 12(f) 13 A. Legal Standard 14 Defendants move to strike the factual background allegations 15 in the 1AC on the ground that they are generalized, conclusory 16 allegations of wrongdoing that have no bearing on Plaintiffs' 17 18 right to relief. 19 allegations are not scandalous or impertinent and are relevant to 20 understanding how the mortgage-lending industry works. 21 22 23 Plaintiffs argue that the factual background Pursuant to Federal Rule of Civil Procedure 12(f), the court may strike from a pleading “any redundant, immaterial, impertinent or scandalous matter.” The purpose of a Rule 12(f) motion is to 24 avoid spending time and money litigating spurious issues. 25 26 Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), 27 rev'd on other grounds, 510 U.S. 517 (1994). 28 if it has no essential or important relationship to the claim for 14 Matter is immaterial 1 relief plead. 2 and is not necessary to the issues in question in the case. 3 Motions to strike are disfavored because they are often used as 4 delaying tactics and because of the limited importance of 5 pleadings in federal practice. 6 Id. Matter is impertinent if it does not pertain 1450, 1478 (C.D. Cal. 1996). Id. Bureerong v. Uvawas, 922 F. Supp. They should not be granted unless it 7 is clear that the matter to be stricken could have no possible 8 9 bearing on the subject matter of the litigation. Colaprico v. Sun United States District Court For the Northern District of California 10 Microsystems, Inc., 758 F. Supp. 1335, 1339 (N.D. Cal. 1991). 11 The Court finds that most of the factual background 12 allegations are neither impertinent nor scandalous and denies the 13 motion to strike on these grounds. 14 relevant to any of Plaintiffs' original or amended claims: However, the following are not 15 (1) allegations regarding documenting and processing foreclosures, 16 ¶¶ 23-49; and (2) allegations regarding Congressional hearings and 17 18 reports, ¶¶ 101-92. These allegations are stricken. Defendants' 19 motion to dismiss under Rule 12(f) is granted in part. 20 III. Motion to Strike Under Rule 23(d)(1)(D) 21 Defendants move, under Federal Rule of Civil Procedure 22 23(d)(1)(D), to strike the class allegations because Plaintiffs 23 have failed to allege an ascertainable class. Plaintiffs respond 24 that they have clearly identified a class and reserve the right to 25 26 redefine the class prior to a motion for class certification. 27 The granting of motions to strike class allegations before 28 discovery and in advance of a motion for class certification is 15 1 rare. 2 2011 WL 2682975, *21 (C.D. Cal.). 3 authority to do so if the complaint demonstrates that a class 4 action cannot be maintained. Tietsworth v. Sears, 720 F. Supp. 2d 5 1123, 1146 (N.D. Cal. 2010). To constitute an ascertainable 6 Cholakyan v. Mercedes-Benz USA, LLC, __ F. Supp. 2d __, However, the court has class, class members must have suffered an injury, without which 7 they have no standing to sue. Id. at 1146-47. 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 Plaintiffs define their proposed class, in relevant part, as follows: All persons who are or have been obligors on notes and/or mortgages, and/or whose spouses or domestic partners have been obligors on notes and/or mortgages, on property located in the United States serviced by BOA, and/or one of its named servicers within six years of the date of the original complaint. 1AC ¶ 232. Because the proposed class includes many members who have not 17 been injured, it is not certifiable. 18 class allegations on this ground is granted, with leave to amend. 19 The motion to strike the CONCLUSION 20 Based on the foregoing, Defendants' motion to dismiss is 21 22 granted in part. The following claims are dismissed without leave 23 to amend: (1) fraud; (2) negligent misrepresentation; (3) false 24 advertising; and (4) unlawful competition based upon fraudulent 25 business practices. 26 cognizable: (1) breach of the original loan agreement, an oral 27 The following claims have been found loan modification agreement and the TPP agreement; (2) breach of 28 16 1 the implied covenant based on these contracts; and (3) unlawful 2 competition based on unlawful and unfair business practices. 3 Defendants' motion to strike under Rule 12(f) is granted in part 4 and their motion to strike under Rule 23(d)(1)(D) is granted. 5 Dismissal of the class allegations is with leave to amend. 6 If Plaintiffs wish to amend the class allegations, they must file an 7 amended complaint within seven days from the date of this order. 8 9 United States District Court For the Northern District of California 10 11 A case management conference will be held on February 22, 2012 at 2 pm. IT IS SO ORDERED. 12 13 14 Dated: 12/16/2011 CLAUDIA WILKEN United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17

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