American Motorists Insurance Company v. Club at Hokuli'a, Inc. (The) et al
Filing
361
ORDER DENYING THE CLUB AND HCA'S MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING AMICO'S ABILITY TO SATISFY ITS OBLIGATIONS THROUGH REIMBURSEMENT 202 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 8/11/11. (emt, )CERT IFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
AMERICAN MOTORISTS INSURANCE
COMPANY,
Plaintiff,
vs.
THE CLUB AT HOKULI`A, INC., a
Hawaii nonprofit corporation;
HOKULI`A COMMUNITY
ASSOCIATION, INC., a Hawaii
nonprofit corporation; 1250
OCEANSIDE PARTNERS, a Hawaii
limited partnership; TEXTRON
FINANCIAL CORPORATION, a
Delaware corporation; RED
HILL 1250, INC., a Washington
corporation; and OCD, LLC, a
Hawaii limited liability
company,
Defendants.
_____________________________
THE CLUB AT HOKULI`A, INC., a
Hawaii nonprofit corporation;
and HOKULI`A COMMUNITY
ASSOCIATION, INC., a Hawaii
nonprofit corporation,
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Counter and Cross- )
claimants,
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vs.
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AMERICAN MOTORISTS INSURANCE )
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COMPANY, an Illinois
corporation, and 1250
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OCEANSIDE PARTNERS, a Hawaii )
limited partnership,
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Counter and Cross- )
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defendants.
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CIVIL NO. 10-00199 SOM/KSC
ORDER DENYING THE CLUB AND
HCA’S MOTION FOR PARTIAL
SUMMARY JUDGMENT REGARDING
AMICO’S ABILITY TO SATISFY
ITS OBLIGATIONS THROUGH
REIMBURSEMENT
ORDER DENYING THE CLUB AND HCA’S MOTION FOR PARTIAL
SUMMARY JUDGMENT REGARDING AMICO’S ABILITY TO
SATISFY ITS OBLIGATIONS THROUGH REIMBURSEMENT
I.
INTRODUCTION.
In this contract dispute, American Motorists Insurance
Company (“AMICO”), a surety on various performance bonds, has
filed suit in federal district court against the bonds’
principal, 1250 Oceanside Partners (“Oceanside”), and the bonds’
obligees, The Club at Hokuli`a, Inc. (“The Club”), and Hokuli`a
Community Association (“HCA”).
AMICO seeks a declaration
regarding the extent of its liability on bonds with penal sums
totaling approximately $50 million.1
AMICO also seeks a
declaration of the parties’ rights and duties with respect to
indemnity agreements, issued between Oceanside and AMICO, in
conjunction with the bonds.
Finally, AMICO brings claims against
Oceanside for breach of contract for alleged defaults on the
indemnity agreements, for quia timet, and for specific
performance.
The Club and HCA have counterclaimed against AMICO
for breach of its performance bonds, and have also cross-claimed
against Oceanside for breach of contract.
The Club and HCA now move for partial summary judgment
pursuant to Rule 56 of the Federal Rules of Civil Procedure,
1
Although they are not involved in the present motions,
additional Defendants include Oceanside’s partners, Red Hill
1250, Inc., and OCD, LLC, along with Textron Financial
Corporation, which was added as an additional obligee to the
surety bonds in 2006.
2
seeking a determination that AMICO may not satisfy its liability
under the performance bonds by requiring The Club and HCA to
first complete construction and then reimbursing The Club and HCA
for their expenditures.
The court denies The Club and HCA’s
motion because the surety agreements contemplate reimbursement of
funds by AMICO.
II.
FACTUAL AND PROCEDURAL BACKGROUND.
Around 1990, Oceanside bought 1,550 acres of land on
the Big Island of Hawaii for a luxury residential community
development to be named “Hokuli`a.”
No. 210-1.
Aff. Stephen Beatty ¶ 6, ECF
Oceanside planned to develop various recreational
amenities for Hokuli`a homeowners, including a golf course, golf
maintenance facility, clubhouse, beach activity center, and
tennis courts.
Id. ¶ 8.
Oceanside formed and organized HCA as
Hokuli`a’s homeowners’ association.
Id. ¶ 7.
Oceanside formed
and organized The Club to administer and manage Hokuli`a’s golf
club.
Id.
In September 1999, Oceanside contracted with The Club
to build recreational facilities at Hokuli`a.
See Decl. Phil
Edlund Supp. The Club & HCA’s Mot. Partial Summ. J. (“Edlund
Decl.”) Exh. A (“Club Improvements Agreement”), ECF No. 203-2.
The original plan included a golf course, a beach activity
center, a golf clubhouse, four tennis courts, and a golf
maintenance facility.
See Club Improvements Agreement at 1-2.
3
The Club Improvements Agreement was later amended and superseded
by an Amended Agreement, dated June 6, 2001.
Edlund Decl. Exh. B
(“Amended Club Improvements Agreement”), ECF No. 203-3.
In September 1999, Oceanside contracted with HCA to
build improvements to the Hokuli`a subdivision.
Exh. E (“Phase 1 Agreement”), ECF No. 203-6.
Edlund Decl.
Oceanside agreed to
install electric lines, telephone lines, and utility ductlinecable lines to serve the subdivision, as well as an electrical
substation and a shoreline park.
Id. at 1-2.
Oceanside also
agreed to complete revegetation of the residential lots.
Id.
In June 2001, Oceanside contracted with HCA to build
additional improvements to the Hokuli`a subdivision.
Decl. Exh. G (“Phase 2 Agreement”), ECF No. 203-8.
Edlund
Oceanside
agreed to install additional electric lines, telephone lines, and
utility ductline-cable lines to serve the subdivision.
2.
Id. at 1-
Oceanside again agreed to complete revegetation of the
residential lots.
Id.
The original and Amended Club Improvements Agreements,
the Phase 1 Agreement, and the Phase 2 Agreement (collectively,
the “Agreements”) each required Oceanside to execute a surety
bond in favor of The Club or HCA.
See Club Improvements
Agreement at 3; Amended Club Improvements Agreement at 4; Phase 1
Agreement at 3; Phase 2 Agreement at 2.
Accordingly, AMICO
issued a bond on September 16, 1999 (the “Club Improvements
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Bond”), and a superseding bond on June 6, 2001 (the “Amended Club
Improvements Bond”), in the penal sum of $28.8 million, to cover
the cost of constructing the facilities in the Amended Club
Improvements Agreement.
203-5.
Edlund Decl. Exhs. C-D, ECF Nos. 203-4,
On September 16, 1999, AMICO issued a bond (the “Phase 1
Bond”) in the penal sum of $17.4 million to cover the cost of
completing the improvements contemplated by the Phase 1
Agreement.
Edlund Decl. Exh. F, ECF No. 203-7.
Finally, on June
13, 2001, AMICO issued a bond (the “Phase 2 Bond”) in the penal
sum of $4.6 million to cover the cost of completing the
improvements contemplated by the Phase 2 Agreement.
Edlund Decl.
Exh. H, ECF No. 203-9.
On August 29, 2001, by way of separate bond riders,
Deere Credit Inc. (“Deere”), one of Oceanside’s lenders, was
added as a dual obligee to the Amended Club Improvements Bond,
the Phase 1 Bond, and the Phase 2 Bond.
Edlund Decl. Exhs. M-O
(“Deere Riders”), ECF Nos. 203-15, 203-16, 203-17.
In 2005,
Deere was deleted as a dual obligee from each of the three bonds.
Decl. Daniel D. Domogala, Jr., Supp. The Club & HCA’s Mot.
Partial Summ. J. (“Domogala Decl.”) Exhs. A-C, ECF Nos. 203-18,
203-19, 203-20.
In the Agreements and the surety bonds, Oceanside
committed to assure the completion of its contracted-for
improvements in filings under the federal Interstate Land Sales
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Full Disclosure Act.
See Amended Club Improvements Agreement at
3; Phase 1 Agreement at 3; Phase 2 Agreement at 3; Amended Club
Improvements Bond at 1; Phase 1 Bond at 1; Phase 2 Bond at 1.
In
the Agreements, Oceanside also committed to complete the
improvements through filings “under the laws of the State of
Hawaii.”
See Amended Club Improvements Agreement at 3-4; Phase 1
Agreement at 3; Phase 2 Agreement at 3.
AMICO filed this suit on April 5, 2010.
Among other
claims, AMICO seeks a declaratory judgment against all
Defendants, asking the court to determine:
That the CLUB and HCA Bonds are indemnity
bonds that give AMICO the right but not the
obligation to take over and complete the
Project upon a default by OCEANSIDE. Should
AMICO choose not to exercise that right, the
CLUB and HCA must cause the Project to be
completed and then seek reimbursement from
OCEANSIDE and/or AMICO, subject to any other
defenses AMICO may have to the claim brought
by the CLUB and HCA.
Second Amended Compl. (“SAC”) at 49, ECF No. 144.
AMICO, The Club, and HCA have filed motions for partial
summary judgment.
ECF Nos. 202, 209.
In the present motion, The
Club and HCA seek a determination that AMICO is not entitled to
fulfill its surety obligations by reimbursing The Club and HCA
for work completed by them, but rather must “assure completion”
by advancing funds to The Club and HCA for the allegedly
incomplete improvements, financing Oceanside’s performance, or
taking over and itself completing the improvements.
6
Mot. 29-30.
In a companion order, the court denies AMICO’s motion for partial
summary judgment on the issue of whether AMICO may be discharged
from liability associated with the golf course.
III.
STANDARD.
Rule 56 of the Federal Rules of Civil Procedure permits
a party to move for summary judgment on either all or part of its
claims and defenses.
Fed. R. Civ. P. 56(a).
Summary judgment
shall be granted when “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”
Fed. R. Civ. P. 56(a).
A moving
party has both the initial burden of production and the ultimate
burden of persuasion on a motion for summary judgment.
Nissan
Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th
Cir. 2000).
The burden initially falls on the moving party to
identify for the court “the portions of the materials on file
that it believes demonstrate the absence of any genuine issue of
material fact.”
T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors
Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp.
Catrett, 477 U.S. 317, 323 (1986)); accord Miller v. Glenn Miller
Prods., Inc., 454 F.3d 975, 987 (9th Cir. 2006).
“A fact is
material if it could affect the outcome of the suit under the
governing substantive law.”
Miller, 454 F.3d at 987.
When the
moving party bears the burden of proof at trial, that party must
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satisfy its burden with respect to the motion for summary
judgment by coming forward with affirmative evidence that would
entitle it to a directed verdict if the evidence were
uncontroverted at trial.
Id. (quoting C.A.R. Transp. Brokerage
Co., Inc. v. Darden Restaurants, Inc., 213 F.3d 474, 480 (9th
Cir. 2000)).
By contrast, when the nonmoving party bears the
burden of proof on one or more issues at trial, the party moving
for summary judgment may satisfy its burden with respect to those
issues by pointing out to the court an absence of evidence from
the nonmoving party.
Miller, 454 F.3d at 987.
When the moving party meets its initial burden on a
summary judgment motion, “[t]he burden then shifts to the
nonmoving party to establish, beyond the pleadings, that there is
a genuine issue for trial.”
Id.
The court must not weigh the
evidence or determine the truth of the matter but only determine
whether there is a genuine issue for trial.
See Balint v. Carson
City, Nev., 180 F.3d 1047, 1054 (9th Cir. 1999).
On a summary
judgment motion, “the nonmoving party’s evidence is to be
believed, and all justifiable inferences are to be drawn in that
party’s favor.”
Miller, 454 F.3d at 988 (brackets omitted)
(quoting Hunt v. Cromartie, 526 U.S. 541, 552 (1999)).
Summary judgment may also be appropriate when a mixed
question of fact and law involves undisputed underlying facts.
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See EEOC v. UPS, 424 F.3d 1060, 1068 (9th Cir. 2005); Colacurcio
v. City of Kent, 163 F.3d 545, 549 (9th Cir. 1998).
IV.
ANALYSIS.
In general, “a suretyship relationship exists whenever
a person becomes responsible for the debt of another.”
State ex.
rel. Ameron, Inc. v. Tradewinds Elec. Serv. & Contracting, Inc.,
80 Haw. 218, 223, 908 P.2d 1204, 1209 (1995) (brackets and
citation omitted).
surety bonds.
State law governs the interpretation of
See Contractors Equip. Maint. Co. ex rel. U.S. v.
Bechtel Hanford, Inc., 514 F.3d 899, 903 (9th Cir. 2008).
In
Hawaii, surety contracts are subject to the rules governing
simple contracts.
Van Dusen v. G.S. Shima Contracting, Inc., 4
Haw. App. 261, 664 P.2d 753, 754 (Ct. App. 1983).
The “goal when
interpreting a contractual provision is to determine the
intention of the parties.”
Pancakes of Haw., Inc. v. Pomare
Props. Corp., 85 Haw. 300, 304-05, 944 P.2d 97, 101-02 (Ct. App.
1997).
As in a standard contractual relationship, the terms of
the surety contract govern the sureties’ obligations and rights.
See Mayer v. Alexander & Baldwin, Inc., 56 Haw. 195, 198, 532
P.3d 1007 (1975) (“There is no principle of law better settled
than that a surety has the right to stand upon the very terms of
his contract.”) (quoting Territory v. Pac. Coast Cas. Co., 22
Haw. 446, 450 (1915)).
When the meaning of specific contractual
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terms is unclear, a court may consider extrinsic evidence, such
as evidence of surrounding circumstances and the subsequent acts
and conduct of the parties.
Stewart v. Brennan, 7 Haw. App. 136,
143, 748 P.2d 816, 821 (Ct. App. 1988).
However, contractual
terms are to be interpreted according to their plain, ordinary
meaning, and a court should look no further than the four corners
of the document to determine whether an ambiguity exists.
United
Public Workers, AFSCME, Local 646, AFL-CIO v. Dawson Int’l, Inc.,
113 Haw. 127, 141, 149 P.3d 495, 509 (2006).
Mere disagreement
by the parties as to the meaning of a contract or its terms does
not render clear language ambiguous.
Foundation Int’l, Inc. v.
E.T. Ige Constr., Inc., 102 Haw. 487, 496, 78 P.3d 23, 32 (2003);
see also Sentinel Ins. Co. v. First Ins. Co. of Haw., 76 Haw.
277, 298, 875 P.2d 894, 915 (1994) (noting that the court “must
respect the plain terms of the insurance policy and not create
ambiguity where none exists”) (brackets omitted), amended on
reconsideration by 76 Haw. 453, 879 P.2d 558 (1994).
The
subjective intent of the parties is generally irrelevant if the
intent can be determined from the actual words used.
See
Stanford Carr Dev. Corp. v. Unity House, Inc., 111 Haw. 286, 298,
141 P.3d 459, 471 (2006).
The starting point of the court’s analysis is,
therefore, the language of the bonds.
10
The Amended Club
Improvements Bond is set forth in three parts.2
The first part
states the bond’s general obligation, binding AMICO jointly and
severally with Oceanside to pay the bond’s penal sum to The Club:
[W]e, 1250 OCEANSIDE PARTNERS . . . as
subdivider or principal, and AMERICAN
MOTORISTS INSURANCE COMPANY, of ILLINOIS, as
surety, are held and firmly bound into THE
CLUB AT HOKULI`A, INC., a Hawaii nonprofit
corporation, hereinafter called the Club or
obligee, its successors and assigns in the
full and just sum of Twenty-Eight Million
Eight Hundred Thousand DOLLARS ($28,800,000),
for the payment of which to the said obligee,
its successors and assigns, well and truly to
be made, we do hereby bind ourselves and our
respective heirs, executors and
administrators, assigns and/or successors,
jointly and severally . . . .
Amended Club Improvements Bond at 1.
The bond then sets forth
various conditions of the obligation, including Oceanside’s
obligations to The Club under the Amended Club Improvements
Agreement:
THE CONDITION OF THIS OBLIGATION IS SUCH
THAT:
. . .
WHEREAS, the Subdivider [Oceanside] has
entered into an Amended Agreement with the
Club dated the 6th day of June, 2001 to
provide the funds necessary to assure
completion of the Club Recreational
2
The other surety bonds contain substantially identical
language with respect to the rights and obligations of the
subdivider and principal (Oceanside), the surety (AMICO), and the
bonds’ respective obligees (The Club and HCA). See Phase 1 Bond
at 1-3; Phase 2 Bond at 1-3. For convenience, the court’s
analysis cites solely to the Amended Club Improvements Bond.
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Facilities and Golf Maintenance Facility in
Hokuli`a within the time specified therein as
set forth above, or such extension as may be
mutually agreed upon, and upon default, the
Club may cause the same to be completed and
recover the costs thereof from the principal
[Oceanside] and surety [AMICO], which said
agreement is made part of this bond the same
as though set forth herein;
Id. at 2.
Finally, the bond provides that, if Oceanside meets
its obligations, AMICO’s obligation under the Amended Club
Improvements Bond is void:
NOW, THEREFORE, if the above-bounden
principal [Oceanside] shall fully and
faithfully coordinate and assure completion
of the Club Recreational Facilities and Golf
Maintenance Facility according to the terms
of said agreement within Hokuli`a on or
before the dates estimated for completion of
the various components thereof set forth
herein and in the Amended Agreement . . .
this obligation shall be void; otherwise it
shall be and remain in full force and
effect . . . .
Id.
Contrary to The Club and HCA’s argument, under the
terms of the bond, Oceanside and AMICO do not have identical
obligations.
The bond specifically provides, as a condition of
the general obligation, that Oceanside bears the responsibility
to complete the listed improvements.
Indeed, several of the
bond’s conditions indicate that Oceanside alone is liable for
“completion” of the listed improvements:
•
“said principal[] . . . will commit in
Purchase Contracts with purchasers of
lots to assure completion of certain
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Club Recreational Facilities by certain
dates”
•
“Subdivider has agreed to assure
completion of an initial Golf
Maintenance Facility”
•
“Subdivider has entered into an Amended
Agreement with the Club dated this 6th
day of June, 2001, to provide the funds
necessary to assure completion of the
Club Recreational Facilities and Golf
Maintenance Facility”
•
“said principal has committed to assure
by bond the completion of the Club
Recreational Facilities”
•
“NOW, THEREFORE, if the above-bounden
principal shall fully and faithfully
coordinate and assure completion of the
Club Recreational Facilities and Golf
Maintenance Facility . . . this
obligation shall be void . . . .”
Amended Club Improvements Bond at 1-2.
The bond then specifies
“certain dates” by which Oceanside “will commit . . . with
purchasers of lots to assure completion of certain Club
Recreational Facilities,” id. at 1, and provides that, “upon
default, the Club may cause the same to be completed and recover
the costs thereof from the principal and surety,” id. at 2.
Accordingly, the bond first sets out the obligations of the
principal and subdivider, Oceanside, and then sets out separately
a contingency “upon default,” for which AMICO is liable.
The only part of the agreement specifying the actions
AMICO must take states that The Club may “recover the costs” of
completion from AMICO.
Id. at 2.
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It does not say that AMICO is
required to complete the improvements.
Indeed, the court finds
nothing in the language of the bonds supporting The Club’s
position that requiring The Club and HCA to “complete the
Improvements and then seek reimbursement from AMIC would defeat
the very purpose of the Bonds.”
Mot. 25.
Even if Oceanside had
intended this language to mean something other than what its
plain meaning indicates, it is well settled that “the purely
subjective, or secret, intent of a party in assenting is
irrelevant in an inquiry into the contractual intent of the
parties.”
Stanford Carr Dev. Corp., 111 Haw. at 298, 141 P.3d at
471 (quoting Standard Mgmt., Inc. v. Kekona, 99 Haw. 125, 134, 53
P.3d 264, 273 (Ct. App. 2001)).
The only coextensive obligation set out in the
agreement is that Oceanside and AMICO “are held and firmly bound
into [The Club] . . . in the full and just sum of Twenty-Eight
Million Eight Hundred Thousand DOLLARS ($28,800,000), for the
payment of which to the said obligee, its successors and assigns,
well and truly to be made, we do hereby bind ourselves and our
respective heirs, executors and administrators, assigns and/or
successors, jointly and severally.”
Improvements Bond at 1.
See Amended Club
This language provides that Oceanside
and AMICO are jointly and severally liable for the amount of the
14
bond itself.
It does not require AMICO to proactively assure
completion of the listed improvements in concert with Oceanside.3
Although the court believes the language of the bonds
clearly permits reimbursement by AMICO, the court briefly notes
the extrinsic documents The Club and HCA rely on to interpret the
bonds.
The various Agreements between Oceanside and The Club or
HCA constitute one such set of documents.
The Club and HCA argue
that the Agreements, like the surety bonds, state in several
places that Oceanside is committing to complete the various
projects at issue.
Mot. 18-20, 21-23.
However, as discussed
above, the mere statement in the Agreements that Oceanside is
liable for completion does not automatically require AMICO, as
surety, to step into Oceanside’s shoes and complete the project
itself.
The Agreements do not provide for this, other than to
indicate that Oceanside will secure its own commitment to assure
completion of the various improvements “by a good and sufficient
surety bond.”
Similarly, none of the filings made by Oceanside
pursuant to federal or state law indicates an agreement that
AMICO, the surety, would itself take over Oceanside’s performance
3
The language of the Deere Riders provide additional support
for the court’s conclusion. These riders, which were executed by
The Club and HCA in 2001, and were part of the bonds until 2005,
explicitly provide that “the subject bond is an indemnity bond”
and that it is “conditioned upon proof of damages.” Each Deere
Rider was incorporated by reference to each respective bond. See
Edlund Decl. Exhs. M—O (“[t]o be attached and form a part of
[each] contract bond . . . .”).
15
obligations should Oceanside default.
The bond is the only
document before this court that spells out the nature of AMICO’s
obligations, and its language specifically states that AMICO may
discharge its liability through reimbursement.
The court is mindful of The Club and HCA’s concern that
they may be unable to make the payments required to complete the
Hokuli`a facilities.
Nevertheless, it is the bond agreement that
governs AMICO’s liability as surety and, by its plain language,
it limits AMICO’s obligation to reimbursement.
V.
CONCLUSION.
For the reasons stated above, The Club and HCA’s motion
for partial summary judgment is DENIED.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, August 11, 2011.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
AMICO v. The Club at Hokuli`a; Civil No. 10-00199 SOM/KSC; ORDER DENYING THE CLUB AND HCA’S
MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING AMICO’S ABILITY TO SATISFY ITS OBLIGATIONS THROUGH
REIMBURSEMENT
16
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