Esprit Health LLC v. University of Delaware et al
Filing
96
MEMORANDUM OPINION regarding Motion for Summary Judgment (D.I. 73 ). Signed by Judge Richard G. Andrews on 8/7/2015. (nms)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
ESPRIT HEALTH, LLC,
Plaintiff;
v.
Civil Action No. 13-1385-RGA
UNIVERSITY OF DELAWARE
and
STEVEN J. STANHOPE,
Defendants.
MEMORANDUM OPINION
Jeffrey S. Cianciulli, Esq., WEIR & PARTNERS LLP, Wilmington, DE.
Attorney for Plaintiff.
William E. Manning, Esq., James Taylor,Jr., Esq., Gerard M. Clodomir, Esq., SAUL EWING LLP,
Wilmington, DE.
Attorneys for Defendants.
August], 2015
~o/o~
Before the Court is Defendants' Motion for Summary Judgment (D.I. 73) on all counts in
Plaintiff's Amended Complaint. Plaintiff's six-count Complaint asserts claims for breach of
contract, fraud, unjust enrichment, negligent misrepresentation, promissory estoppel, and
"third-party beneficiary." (D.I. 6). The motion is fully briefed. (D.174, 84, 87, 91). For the
reasons that follow, the Court will grant Defendants' motion for summary judgment as to breach of
contract and "third-party beneficiary," but will deny Defendants' motion for summary judgment as
to the rest of the claims.
I.
BACKGROUND
Plaintiff Esprit Health, LLC ("Esprit") is a limited liability company organized and
existing under the laws of the State of Illinois. (D.I. 6 at 1). Frank Pierce, a citizen of Michigan,
is the president of Esprit. (D.I. 6 at 1, 4). Defendant University of Delaware is an entity
organized and existing under the laws of the State of Delaware. (D.I. 6 at 1). Defendant Steven
J. Stanhope is employed as a professor by the University. (Id.).
In April 2010, the U.S. Department of Defense ("DoD'') issued a Program Announcement
seeking bids and proposals focused on improving the rehabilitation of combat-related
neuro-musculoskeletal injuries. (D.I. 74 at 2). Intending to submit a bid, the University, by and
through Stanhope, contacted Esprit, by and through its president Pierce, in July 2010 in an effort to
identify a research IT infrastructure to meet the DoD requirements. (D.I. 6 at 4). In October
2010, the University's research enterprise working on the ?id, called the BADER Consortium, led
by Stanhope, submitted a proposal to DoD in which eSphere - developed and owned by Esprit was identified as a proposed solution to the DoD data management requirements. (D.1. 74 at 3).
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The budget included in the proposal was $1,200,000, which represented a substantial reduction
from the original budget submitted by Esprit to the University. (D.1. 6 at 6).
The BADER Proposal was approved for funding in February 2011. (D.L 74 at 6). On or
about May 10, 2011, Pierce attended a pre-Award meeting and presented eSphere to military
representatives responsible for the entire project. (D.1. 6 at 7). On May 13, 2011, Stanhope
forwarded an email to Pierce entitled "Alternative to eSphere." (D.1. 74 at 7). In response,
Esprit's Vice President, Weddle, sent Stanhope "summary points about advantages of eSphere for
Bader vis-a-vis RedCap" and information titled "eSphere and REDCAP Side-by-Side
Comparison." (Id. at 7, 8).
On September 30, 2011, DoD awarded the contract to the University. (D.I. 6 at 7). On or
around May 22, 2012, Dr. Milbourne, a BADER member, discovered a free alternative to eSphere
and informed Stanhope. (Id. at 12, 13). In or around July 2012, Stanhope informed Pierce that
the University decided to use the free IT infrastructure alternative to eSphere. (D.1. 6 at 8).
II.
LEGAL STANDARDS
"The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter oflaw." Fed. R.
Civ. P. 56(a). The moving party has the initial burden of proving the absence of a genuinely
disputed material fact relative to the claims in question. Celotex Corp. v. Catrett, 477 U.S. 317,
330 (1986). Material facts are those "that could affect the outcome" of the proceeding, and "a
dispute about a material fact is 'genuine' if the evidence is sufficient to permit a reasonable jury to
return a verdict for the nonmoving party." Lamont v. New Jersey, 637 F.3d 177, 181 (3d Cir.
2011) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The burden on the
3
moving party may be discharged by pointing out to the district court that there is an absence of
evidence supporting the non-moving party's case. Celotex, 477 U.S. at 323.
The burden then shifts to the non-movant to demonstrate tq.e existence of a genuine issue
for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986);
Williams
v~
Borough of West Chester, Pa., 891F.2d458,460-61 (3d Cir. 1989). A non-moving
party asserting that a fact is genuinely disputed must support such an assertion by: "(A) citing to
particular parts of materials in the record, including depositions, documents, electronically stored
information, affidavits or declarations, stipulations ... , admissions, interrogatory answers, or
other materials; or (B) showing that the materials cited [by the opposing party] do not establish the
absence ... of a genuine dispute ... " Fed. R. Civ. P. 56(c)(l).
When determining whether a genuine issue of material fact exists, the court must view the
evidence in the light most favorable to the non-moving party and draw all reasonable inferences in
that party's favor. Scottv. Harris, 550 U.S. 372, 380 (2007); Wishkin v. Potter,476 F.3d 180, 184
(3d Cir. 2007). A dispute is "genuine" only if the evidence is such that a reasonable jury could
return a verdict for the non-moving party. Anderson, 477 U.S. at 247-49. If the non-moving
party fails to make a sufficient showing on an essential element of its case with respect to which it
has the burden of proof, the moving party is entitled to judgment as a matter oflaw. See Celotex
Corp.,477 U.S. at 322.
III.
DISCUSSION
A. Count I - Breach of Contract
Esprit alleges that it entered into an agreement with the University, whereby "Esprit
accepted the University's offer to provide IT infrastructure services and incorporated its software
into the proposal to the Department of Defense and after the award to the University." (D.I. 6 at
4
9). Esprit alleges the University breached its contractual duties, including the implied duty of
good faith and fair dealing by, inter alia, refusing to use eSphere and failing to compensate Esprit
in accordance with the terms agreed upon by the parties. (Id.). The University argues that there
is no written contract and oral agreements are unenforceable without a writing. (D.I. 74 at 14).
1. Statute of Frauds
The Court has diversity jurisdiction over this case. Thus, Delaware law applies.
According to 6 Del. Code§ 2714(a), "[n]o action shall be brought to charge any person ... upon
any agreement that is not to be performed within the space of 1 year from the making thereof, or to
charge any person to answer for the debt, default, or miscarriage, of another, in any sum of the
value of $25 and upwards, unless the contract is reduced to writing .. :" In the pending motion,
the University asserts that the contract alleged by Esprit is a five-year contract to provide a license
and services for $1.2 Million. (D.I. 74 at 14). 1 Esprit, in tum, claims that the parties' agreement
has two components, one of which is a license component that was complete immediately upon the
Award from DoD and was performed within one year. (D.I. 84 at 18). The University then
counter-argues that (i) Esprit's price quote is for five year license; (ii) the University never
received a copy of the software; and (iii) Esprit was never paid. (D.1. 87 at 9). Since Esprit fails
to demonstrate that the license component was performed within one year, or that it could have
been performed within one year, the Court concludes that the agreement between the parties
alleged by Esprit is one that requires more than one year for performance and is subject to the
Statute of Frauds. See Quailes v. Newton, 2013 WL 4149264, at *2 (Del. Super. 2013).
a. Partial performance exception
1 The proposal to DoD identifies $695,000 for license fees, $104,250 for technical support, and
$50,000 for "Author Training" for Year 1; $104,250 annually for technical support from Year 2-5.
The total is $1,266,250. (D.1. 85-10 at 82 [Detailed Budget and Justification]).
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Esprit argues that it performed a substantial amount of work demanded by Defendants and
incurred a number of expenses. (D.I. 84 at 18). Consequently, Esprit argues, its partial
performance renders the Statute of Frauds inapplicable. (Id.) (quoting Chap lake Holdings, Ltd. v.
Chrysler Corp., 1999 WL 167834, at *22 (Del. Super. Jan. 13, 1999).). The partial performance
exception does not apply to the situation at hand: "Delaware law is clear that the part performance
doctrine does not apply to oral contracts not to be performed within one-year." Aurigemma v.
New Castle Care LLC, 2006 WL 2441978, at *3 (Del. Super. Aug. 22, 2006); Olson v. Halvorsen,
982 A.2d 286, 295 (Del. Ch. 2008), aff'd, 986 A.2d 1150 (Del. 2009). Since Esprit's alleged
agreement could not be performed within one year, its partial performance does not create an ·
exception to the Statute of Frauds.
b. Written memorialization of the parties' agreement
Esprit refers to the Proposal that the BADER Consortium submitted to the DoD as the
embodiment of material terms of the agreement between Esprit and the University, such as the
identities of the parties, the price, the term, and a description of the goods and services. (D.I. 84 at
4). In Delaware, multiple writings can satisfy the Statute of Frauds if they"(a) reasonably
identify the subject matter of the contract, (b) indicate that a contract has been made between
parties or an offer extended by the signing party and (c) state with reasonable certainty the
essential terms of the unperformed promises in the contract." Olson v. Halvorsen, 982 A.2d 286,
293 (internal quotation omitted).
However, "at least one of the writings must be signed by the
party against whom the documents are to be enforced." Id. In the pending case, the Proposal
does not have a signature of the University or any of its representatives.2 As a result, the proposal
2 The proposal is at D.I. 85-7 through D.I. 85-10. There is no signature by anyone from the
University. (See, e.g., D.I. 85-8 at 6).
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does not serve as the written memorialization of Esprit's agreement with the University and cannot
satisfy the Statute of Frauds.
2.
Court~s
function to determine the existence of a contract
Esprit further claims that the existence of a contract must be decided by the jury. (D.I. 84
at 19). The Court disagrees. The jury is to decide the existence of a contract "when other facts
and circumstances germane to the issue are to be considered in addition to any documentary
evidence," Christiana Marine Serv. Corp. v. Texaco Fuel and Marine Mktg., 2002 WL 1335360, at
*4 (Del. Super. June 13, 2002), or when the issue is the "interpretation and construction of an oral
contract." Ford v. State Bd. ofEduc. ofState, 1995 WL411361, at *9 (Del. Super. June 9, 1995).
In this case, the alleged contract is subject to the Statute of Frauds. Consequently, any oral
agreement is invalid. In Universal Products Co. v. Emerson, the Supreme Court of Delaware held
that "it is the Court's duty to determine whether a contract has been created, when the documentary
evidence's authenticity is not challenged." 179 A. 387, 393 (Del. 1935). Since the authenticity
of the documentary evidence is not challenged in this case, the Court, not the jury, has the duty to
determine the existence of a contract. Even if it were not the Court's duty, as a matter oflaw, a
jury could not find the existence of a contract based on the evidence in the summary judgment
record.
Accordingly, the Court will grant Defendants' motion for summary judgment as to Count I
for breach of contract.
B. Count II - Fraud
A claim for fraudulent misrepresentation requires: (1) a false representation (usually one of
fact); (2) that defendant knew or believed that representation was false; (3) that the false
representation was intended to induce the plaintiff to act or refrain from acting; (4) that the
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plaintiff's action or inaction was taken in justifiable reliance upon the representation; and (5)
plaintiff was damaged by such reliance. Carrow v. Arnold, 2006 WL 328582, at *8 (Del. Ch. Oct.
31, 2006), ajf'd, 933 A.2d 1249 (Del. 2007).
1. Justifiable reliance- direct contradictory written evidence
In the pending case, Defendants argue that the element of justifiable reliance is not the
subject of material dispute in light of the written documents that contradict the alleged oral
representation. (D.I. 87 at 12). This Court has previously acknowledged the rule that justifiable
reliance on oral representations cannot be established when oral representations are "expressly
contradicted by the parties' written agreement." J.C. Trading Ltd. v. Wal-Mart Stores, Inc., 947
F.Supp.2d 449, 459 (D. Del. 2013) (internal quotation omitted). Although there is no written
agreement in this case, contradictory contemporaneous written evidence, if it were to exist, would
have given Esprit the opportunity to discover the misrepresentation and consequently would have
rendered the reliance unreasonable. See Carrow, 2006 WL 3289582, at *8.
a. Pre-Proposal phase
Defendants argue that Esprit's reliance on the oral promise made by Stanhope that the
University agreed to use eSphere in the event it received an award from DoD is not justifiable in
light of contemporaneous written evidence. (D.I. 87.at 12). Defendants particularly point to
emails exchanged in the spring of 2011. (Id.). Esprit, in tum, points out that the emails relied
upon by Defendants were mostly sent after the Proposal was submitted in late-October 2010, when
Esprit was already induced to agree that eSphere be used in the Proposal. (D.I. 84 at 22). As to
the email exchanges on October 3, 2010 that Defendants allege to be suggesting eSphere only as
the best option at the time being, but that a discovery phase would be needed for finding out better
options, Esprit provides a reasonable interpretation of the emails that better options as to
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installation, not software, would need to be developed during the first 12 months after the A ward.
(D.I. 84 at 6). Consequently, there are genuine issues of material fact as to the existence of
contemporaneous written evidence that is directly contradictory to the oral promises made by
Stanhope, which would render Esprit's pre-Proposal reliance on Stanhope's oral promise
unreasonable.
b. Post-Proposal phase
Defendants also argue that any post-Proposal efforts rendered by Esprit were solely
promotional, in light of the email communications indicating that BADER's use of eSphere was
not guaranteed. (D.I. 74 at 17). First, Defendants argue that, after the Proposal was submitted
and before the Award was issued, Esprit was informed that BADER was considering an alternative
called REDCap and responded with, inter alia, additional slides titled "eSphere and REDCAP
Side-by-Side Comparison." (D.I. 74 at 7, 8). Second, according to Defendants, upon the
disbursement of the Award, due to the concerns about eSphere's installation cost, Esprit was given
opportunities to make "commercial-like" presentations to the Military Treatment Facilities
(MTFs) on February 29, 2012, as REDCap and others had do11e. (D.I. 74 at 9).
As to the pre-Award consideration of alternatives, Esprit argues that it was not concerned
about BADER's vetting ofREDCap, because (1) Stanhope told Pierce that the vetting was to
placate his team members, and (2) REDCap did not meet many of the criteria in the DoD
Announcement. (D.I. 84 at 10). Indeed, Stanhope's email to Pierce on August 18, 2011 3 does
not directly contradict Esprit's belief that Stanhope was placating the team members by vetting
REDCap. Nor does the written evidence contradict the alleged oral promise made by Stanhope,
3 August 18, 2011 email from Stanhope to Pierce. ("Ifl order them to select eSphere, my team
will lose important momentum early on. IfDoD orders me to use Redcap, I will have to swallow a
big pill.") (D.I. 75-5, Ex. 21).
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on behalf of the University, that so long as the University received the award, it was committed to
using eSphere on the terms agreed to and included in the Proposal. (D.I. 85-2). The fact that no
decision would be made on the software before the Proposal was approved by DoD4 does not
contradict the statement that once the Award (which presents eSphere as the solution) was
approved, BADER was bound to use eSphere.
As to the post-Award efforts made by Esprit, such as drafting job descriptions and
presenting eSphere to members of BADER and the MTFs (D.I. 84 at 11), Esprit believed that it
was not for the purpose of marketing, but to demonstrate BADER's progress towards
implementation of eSphere. (D.I. 84 at 12). Evidence provided by, and depositions taken from,
BADER team members demonstrated that Esprit's belief was not unreasonable. First, Suzanne
Milbourne, the current manager ofBADER's Clinical Research Core, admitted that Esprit's
presentations to the MTFs were not "marketing." (D.I. 86-7 at 85, iii! 11-13). Second, Davis,
another BADER member, warned Stanhope that "we need to be careful not to assume we are
implementing." (D.I. 75-6 at 14 [e-mail dated Feb. 18, 2012]). Therefore, it cannot be said that
it is materially undisputed that Esprit's post-Proposal efforts could only be justified as promotional
in light of the written communications between the parties.
2. Justifiable reliance - Other factual evidence
Defendants argue that as a sophisticated vendor to government ag~ncies and research
projects, Esprit could not have justifiably believed that Stanhope "would or could bind the
University to a $1.2 million contract without a formal process and with no meaningful due
diligence." (D.I. 74 at 17). However, the case that Defendants rely on is a trial stage analysis on
4 Aug. 17, 2011 email from Stanhope to Pierce. ("In addition, we are still approximately 4 weeks
from having the grant awarded and much further from making any decisions regarding the
software.") (D.I. 75-4, Ex. 19).
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the justifiable reliance issue. See Tracinda Corp. v. DaimlerChrysler, 364 F. Supp. 2d 362, 401
(D. Del. 2005) (holding that for a sophisticated party, "the complexity and magnitude ofthis
transaction ... weighs in favor of finding a lack of reasonable reliance on any oral representation.").
In the summary judgment phase of the same case, the Court refused to rule on the reasonableness
of reliance on oral statements due to genuine issues of material fact concerning the reasonableness
ofreliance. See In Re DaimlerChrysler AG Securities Litigation, 294 F.Supp.2d 616, 621 (D.
Del. 2003).
In the pending case, it cannot be said that there is a lack of a genuine issue of material fact
concerning the reasonableness of Esprit's reliance on Stanhope's oral representations in the
summer of2010. The following factors could influence the factual determination ofreasonable
reliance. First, although Esprit is a company with experience in research projects, Pierce claims to
be the sole member of Esprit (D.I. 6 at 1), raising a question regardingthe assumption that Esprit is
a sophisticated party. Second, Stanhope and Pierce met in 2003 and Stanhope became a client of
Esprit and a user of eSphere throughout the remainder of his time at the National Institutes of
Health. (D.I. 85-2 at 1-2); see In Re DaimlerChrysler AG Securities Litigation, 294 F.Supp.2d at
621 (acknowledging that for purposes of Rule 1Ob-5 claims, the existence of a longstanding
business or personal relationship is one of the factors determining whether plaintiffs reliance is
reasonable); see also Wilmington Trust Co. v. Aetna Cas. and Sur. Co., 690 A.2d 914, 916 (Del.
1996) (holding that the question of whether a plaintiffs reliance on defendant's misrepresentation
was reasonable was a question for the jury). Thus, whether Esprit justifiably relied on Stanhope' s
oral representation involves genuine issues of material fact. Accordingly, the Court will not grant
the Defendant's motion for summary judgment as to Count II.
C. Count III - Unjust Enrichment
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A claim for unjust enrichment requires: (1) an enrichment; (2) an impoverishment; (3) a
relation between the enrichment and the impoverishment; (4) the absence of justification; and ( 5)
the absence of a remedy provided by the law. Nemec v. Shrader, 991 A.2d 1120, 1130 (Del.
2010). Here, Esprit's unjust enrichment claims consist of two parts -pre-Proposal benefit and
post-Proposal benefit. For the pre-Proposal benefit, Esprit argues that it conferred benefits upon
Defendants by agreeing to be included in the Proposal and Esprit's inclusion was one of the
reasons that the University secured the Award, which was worth $19.5 million. (D.1. 84 at 23).
Esprit further argues that, after the grant of the Award, Defendants continued to receive benefit
from Esprit's assistance in performing its contractual obligation to the DoD. (Id.). Esprit claims
that before and after the award, Esprit incurred not less than 200 man-days oflabor, at the standard.
rate of $3,000 per day, totaling no less than $600,000 in time and expenses. (D.1. 6 at 5). On the
pre-Proposal benefit, Defendants counter that there is no detriment - the information in the
Proposal was already in Stanhope's possession and Esprit's effort in preparing materials that were
not even used was minimal. (D.1. 87 at 14). Defendants also argue that Esprit's post-Proposal
efforts were promotional in nature and cannot be a detriment. (D.1. 87 at 15). Esprit, in tum,
alleges and provided evidence suggesting that its post-proposal effort was not marketing. (D.1. 84
at 11).
Based on the evidence provided by both sides, the Court concludes that there are genuine
issues of material fact as to: ( 1) whether Esprit has suffered an impoverishment before the Proposal
was submitted; (2) whether Esprit's post-Proposal work could be justified as purely promotional.
Therefore, the Court will not grant Defendants' motion for summary judgment as to Count III for
unjust enrichment.
D. Count IV -Negligent Misrepresentation
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A claim for negligent misrepresentation requires: (1) the existence of a pecuniary duty to
provide accurate information; (2) the supplying of false information; (2) that the defendant failed
to exercise reasonable care in obtaining or communicating the information; and (4) plaintiff
suffered a pecuniary loss caused by reliance upon the false information. Kuhn Constr. Co. v.
Ocean & Coastal Consultant, Inc., 844 F.Supp.2d 519, 525 (D. Del. 2012).
As with Esprit's fraud claim, negligent misrepresentation requires the element of
justifiable reliance. Atwell v. Rf!IS, Inc., 2006 WL 2686532 (Del. Super. Aug. 18, 2006). For
the same reasons given in the previous discussion, there are genuine issues of material fact as to
justifiable reliance. Accordingly, the Court will not grant Defendants' motion for summary
judgment as to Count IV.
E. Count V - Promissory Estoppel
Promissory estoppel "is an equitable remedy designed to enforce a contract in the interest
of justice where some contract formation problem would otherwise prevent enforcement." Weiss
v. Northwest Broad., Inc., 140 F.Supp.2d 336, 344-45 (D. Del. 2001) (internal quotations and
citation omitted). A promissory estoppel claim requires "that defendant made a promise with
intent to induce action or forbearance, that plaintiff actually relied on the promise, and that he
suffered injury as a result." See VonFeldt v. Stifel Fin. Corp., 714 A.2d 79, 87 (Del. 1998).
Defendants argue that Esprit's promissory estoppel claim fails because it cannot show
reasonable reliance. For the same reasons given in the previous discussion, there are genuine
issues of material fact as to justifiable reliance. Accordingly, the Court will not grant Defendants'
motion for summary judgment as to Count V. 5
5 Plaintiff's promissory estoppel claim seems to set forth its $1,800,000 "damages theory," which
is "unpaid labor, materials [of] not less than $600,000.00" and ''unrealized value of the contract
.
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F. Count VI - Third Party Beneficiary
To prevail on a third party beneficiary theory, a plaintiff must show, among other things, an
intent between the contracting parties to benefit a third party through the contract. Phifer v.
Sevenson Envtl. Servs. Jnc., 2012 WL 868692, at *9 (D. Del. Mar. 14, 2012); Comrie v. Enterasys
Networks, Inc., 2004 WL 293337 (Del. Ch. Feb. 17, 2014). Although eSphere is included in the
University's Proposal to the DoD, Defendants provide evidence that DoD confirmed in writing
that the University could.choose another software after the Award. (D.I. 75-5 at 38 [e-mail dated
Feb. 1, 2012]). Esprit fails to provide any evidence ofDoD's or BADER's intent that the Award
was to benefit Esprit. Thus, there is no genuine issue of material fact as to intent to benefit a third
party through the contract.
The Court will grant Defendants' motion for summary judgment as to Count VI.
IV.
CONCLUSION
For the reasons set forth above, the Court will grant Defendants' motion for summary
judgment on the breach of contract and third party beneficiary claims, and deny Defendants'.
motion for summary judgment on the fraud, unjust enrichment, negligent misrepresentation, and
promissory estoppel claims. A separate order, consistent with this Memorandum Opinion, will be
entered.
[of] approximately $1,200,000.00." (D.I. 6 at 15). On Plaintiffs best day, this seems like
double-counting.
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