Pascual et al v. Aurora Loan Services, LLC et al
Filing
77
ORDER Denying Plaintiffs' Motion For Reconsideration And/Or Clarification Of This Court's Order Granting Defendant Aurora Loan Services, LLC's Motion For Summary Judgment (Which The Court Construes As A Motion To Dismiss) And Judgment, Filed June 19, 2012 re 71 . Signed by JUDGE J. MICHAEL SEABRIGHT on 8/16/12. (gls, )CERTIFICATE 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
LESTER PASCUAL, an individual, and )
OFELIA PASCUAL, an individual,
)
)
Plaintiffs,
)
)
vs.
)
)
AURORA LOAN SERVICES, LLC and )
DOES 1-100 inclusive,
)
)
Defendants.
)
)
________________________________ )
CIVIL NO. 10-00759 JMS-KSC
ORDER DENYING PLAINTIFFS’
MOTION FOR
RECONSIDERATION AND/OR
CLARIFICATION OF THIS
COURT’S ORDER GRANTING
DEFENDANT AURORA LOAN
SERVICES, LLC’S MOTION FOR
SUMMARY JUDGMENT (WHICH
THE COURT CONSTRUES AS A
MOTION TO DISMISS) AND
JUDGMENT, FILED JUNE 19, 2012
ORDER DENYING PLAINTIFFS’ MOTION FOR RECONSIDERATION
AND/OR CLARIFICATION OF THIS COURT’S ORDER GRANTING
DEFENDANT AURORA LOAN SERVICES, LLC’S MOTION FOR
SUMMARY JUDGMENT (WHICH THE COURT CONSTRUES AS A
MOTION TO DISMISS) AND JUDGMENT, FILED JUNE 19, 2012
I. INTRODUCTION
In their First Amended Complaint (“FAC”), Plaintiffs Lester and
Ofelia Pascual (“Plaintiffs”) assert a single claim against Defendant Aurora Loan
Services, LLC (“Defendant”) for violation of Hawaii’s non-judicial foreclosure
statute, Hawaii Revised Statutes (“HRS”) § 667-5. On June 19, 2012, the court
entered its Order Granting Defendant’s Motion to Dismiss without leave for
Plaintiffs to amend. Pascual v. Aurora Loan Servs., 2012 WL 2355531 (D. Haw.
June 19, 2012). The June 19 Order explained, among other things, that HRS
§ 667-5 places no affirmative obligation on a mortgagee to establish that it holds
the note.
Currently before the court is Plaintiffs’ Motion for Reconsideration
and/or Clarification of the June 19 Order and Judgment, in which they argue that
reconsideration is necessary to prevent manifest injustice and due to newly
discovered evidence. Based on the following, the court DENIES Plaintiffs’
Motion for Reconsideration.
II. BACKGROUND
This action arises from a February 12, 2007 mortgage transaction in
which Plaintiffs borrowed $630,000 from Lehman Brothers Bank, F.S.B.
(“Lehman Brothers”), secured by a promissory note and mortgage on real property
located at 468 South Oahu Street, Kahului, Hawaii 96732 (the “subject property”).
On September 20, 2009, the Hawaii Bureau of Conveyances recorded an
assignment of the mortgage to Defendant, who subsequently foreclosed on the
subject property. The FAC asserts that Defendant was not a proper mortgagee
because MERS, on behalf of Lehman Brothers, had transferred the mortgage loan
to Defendant without authority.
On February 29, 2012, Defendant filed a Motion for Summary
Judgment. On May 25, 2012, Plaintiffs filed an Opposition in which they
2
(1) argued that Defendant’s Motion should be construed as a Rule 12(b)(6)
Motion; and (2) offered a number of alternative theories for relief that were not
pled in the FAC. In their June 4, 2012 Reply, Defendant responded to Plaintiffs’
new theories of relief.
On June 18, 2012, the court held a hearing on Defendant’s Motion.
The court explained that because it could determine Defendant’s Motion based on
judicially-noticed evidence only, it would treat Defendant’s Motion as a Rule
12(b)(6) Motion to Dismiss. The court further explained that by treating
Defendants’ Motion as a Rule 12(b)(6) Motion, the court must consider whether
Plaintiffs should be granted leave to amend if the Rule 12(b)(6) Motion is
otherwise granted. In response, Plaintiffs represented at the June 18, 2012 hearing
that their briefing included all theories that they wished to include in an amended
pleading. See Pascual, 2012 WL 2355531, at *3. And because Defendant had
responded to these new arguments in its Reply, Plaintiffs and Defendant concurred
that the briefing was complete as to the claims Plaintiff would seek to include in a
second amended complaint and on the issue of whether it would be futile to make
these specific allegations. Id.
On June 19, 2012, the court entered its Order Granting Defendant’s
Motion to Dismiss without leave for Plaintiffs to amend. The June 19 Order found
3
that the FAC’s single claim that MERS did not have authority to transfer the
mortgage loan from Lehman Brothers to Defendant failed in light of Cervantes v.
Countrywide Home Loans, 656 F.3d 1034 (9th Cir. 2011), and in light of the
express disclosures in the mortgage stating that MERS may transfer the mortgage
loan. Id. at 4-5.
Turning next to whether Plaintiffs should be granted leave to amend,
the June 19 Order rejected each of Plaintiffs’ proffered additional theories
attacking Defendant’s ability to foreclose on the mortgage, including that:
(1) Lehman Brothers’ bankruptcy prevented a valid transfer of the mortgage loan
to Defendant; (2) Defendant failed to affirmatively demonstrate that it is a proper
mortgagee; (3) Defendant failed to proffer evidence in its Mortgagee’s Affidavit of
Foreclosure Under Power of Sale that it was assigned the mortgage; and
(4) Defendant failed to demonstrate that it was the proper holder of the note at the
time of foreclosure. As to each of the latter three arguments, the court explained
that HRS § 667-5 did not place an affirmative requirement on a mortgagee to
establish its right to foreclose and/or produce the note, and that Plaintiffs had not
asserted any basis to question that Defendant was not the proper mortgagee. Id. at
6-7. Because all of Plaintiffs’ proffered theories of relief failed, the June 19 Order
dismissed the FAC without leave to amend. Judgment was entered the same day.
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On July 3, 2012, Plaintiffs filed their Motion for Reconsideration.
Defendant filed an Opposition on July 17, 2012, and Plaintiffs filed a Reply on
July 31, 2012. Pursuant to Local Rule 7.2(d), the court determines the Motion for
Reconsideration without a hearing.
III. STANDARD OF REVIEW
A motion for reconsideration filed within twenty-eight days of entry
of judgment is considered under Federal Rule of Civil Procedure 59(e); a later-filed
motion is considered under Rule 60(b). United States v. Comprehensive Drug
Testing, Inc., 513 F.3d 1085, 1098 (9th Cir. 2008) (quoting Am. Ironworks &
Erectors, Inc. v. N. Am. Constr. Corp., 248 F.3d 892, 898-99 (9th Cir. 2001)).
Because Plaintiffs filed their Motion for Reconsideration within twenty-eight days
of judgment, the court analyzes his motion pursuant to Rule 59(e).1
“A district court has considerable discretion when considering a
motion to amend a judgment under Rule 59(e).” Turner v. Burlington N. Santa Fe
R.R. Co., 338 F.3d 1058, 1063 (9th Cir. 2003). Under Rule 59(e),
“[r]econsideration is appropriate if the district court (1) is presented with newly
discovered evidence, (2) committed clear error or the initial decision was
manifestly unjust, or (3) if there is an intervening change in controlling law. There
1
Local Rule 60.1 applies to motions for reconsideration from interlocutory orders.
Because judgment was entered in this action, L.R. 60.1 is not applicable.
5
may also be other, highly unusual, circumstances warranting reconsideration.”
Sch. Dist. No. 1J, Multnomah Cnty., Or. v. ACandS, Inc., 5 F.3d 1255, 1263 (9th
Cir. 1993) (citation omitted); see also Turner, 338 F.3d at 1063; Circuit City
Stores, Inc. v. Mantor, 417 F.3d 1060, 1063-64 n.1 (9th Cir. 2005); In re Syncor
ERISA Litig., 516 F.3d 1095, 1100 (9th Cir. 2008).
IV. DISCUSSION
The June 19 Order found, among other things, that Plaintiffs could not
assert a claim for violation of HRS § 667-5 based on Defendant’s failure to
establish that it was the proper holder of the note at the time of foreclosure. The
June 19 Order reasoned that Plaintiffs offered no basis in law to support imposing
a requirement on the mortgagee under Hawaii’s non-judicial foreclosure law to
affirmatively establish that it holds the note, and the majority of courts, including
this one, has rejected borrowers’ claims based on a mortgagee’s non-possession
and/or failure to produce the note. Pascual, 2012 WL 2355531, at *7. Plaintiffs
argue that the June 19 Order committed manifest error in making this
determination, and that in any event, newly discovered evidence establishes that
Defendant does not hold the note.2 The court rejects both these arguments.
2
Defendants further argue that the June 19 Order “is causing mischief throughout the
Hawaii State Courts, as it is being relied upon by State Courts in foreclosure and ejectment
actions to preclude borrower defendants from disputing foreclosures conducted by plaintiffs
(continued...)
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A.
Whether HRS § 667-5 Requires a Mortgagee to Produce the Note
As outlined in the June 19 Order, HRS § 667-5 provides that “the
mortgagee, the mortgagee’s successor in interest, or any person authorized by the
power to act in the premises” may foreclose where the mortgage contains a power
of sale.
According to its plain language, HRS § 667-5 contains no requirement
that a mortgagee affirmatively prove that it holds the note. See In re
Kekauoha-Alisa, 674 F.3d 1083, 1088 (9th Cir. 2012) (explaining that under
Hawaii principles of statutory construction, “where the statutory language is plain
and unambiguous, the court’s sole duty is to give effect to its plain and obvious
meaning”) (citations omitted). Indeed, Plaintiffs do not cite and the court is not
aware of any authority under Hawaii law affirmatively stating that a mortgagee’s
power of sale under Hawaii’s non-judicial foreclosure statute is tied to the
presentment of the underlying note. See also Foth v. BAC Home Loans Servicing,
LP, 2011 WL 3439134, at *8 (D. Haw. Aug. 4, 2011) (stating that Hawaii’s non2
(...continued)
where there are genuine issues of material fact as to whether those plaintiffs were entitled to
collect on the note in the first place, causing borrowers with winning cases to now unfairly lose
their homes.” Doc. No. 71-1, Pls.’ Mot. at 3. Plaintiffs cite no cases for this proposition, and it
remains a mystery as to how the June 19 Order, addressing Plaintiffs’ affirmative claims
regarding a non-judicial foreclosure, would apply to a mortgagee’s affirmative foreclosure or
judicial ejectment action. See Deutsche Bank Nat’l Trust Co. v. Williams, 2012 WL 1081174, at
*5 (D. Haw. Mar. 29, 2012) (drawing distinction between a mortgage’s affirmative burden in
bringing a foreclosure action and its burden in defending a wrongful foreclosure action).
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judicial foreclosure provisions “do not expressly require that the foreclosing party
produce a physical copy of the original promissory note”).
And although the Hawaii Supreme Court has not addressed this
precise issue, interpreting HRS § 667-5 to include an affirmative requirement that
the mortgagee produce the note is inconsistent with decisions in other jurisdictions
that have refused to read a “show me the note” requirement into non-judicial
foreclosure statutes that do not otherwise explicitly include such a requirement.
See, e.g., Hogan v. Washington Mut. Bank, N.A., 277 P.3d 781, 783 (Ariz. 2012)
(holding that Arizona’s non-judicial foreclosure statute does not impose an
affirmative obligation on the mortgagee to establish that it holds the note); Trotter
v. Bank of N.Y. Mellon, 275 P.3d 857, 861-62 (Idaho 2012) (determining that the
plain language of Idaho’s non-judicial foreclosure statute does not require a
mortgagee to establish that it holds the note); Gallant v. Deutsche Bank Nat’l Trust
Co., 766 F. Supp. 2d 714, 721 (W.D. Va. 2011) (rejecting a “show me the note”
theory under Virginia’s non-judicial foreclosure laws); Ray v. CitiMortgage, Inc.,
2011 WL 3269326, at *3 (W.D. Tex. July 25, 2011) (rejecting a “show me the
note” theory under Texas law); Lane v. Vitek Real Estate Indus. Grp., 713 F. Supp.
2d 1092, 1099 (E.D. Cal. 2010) (“There is no stated requirement in California’s
non-judicial foreclosure scheme that requires a beneficial interest in the Note to
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foreclose. Rather, the statute broadly allows a trustee, mortgagee, beneficiary, or
any of their agents to initiate non-judicial foreclosure. Accordingly, the statute
does not require a beneficial interest in both the Note and the Deed of Trust to
commence a non-judicial foreclosure sale.”); Stein v. Chase Home Fin., LLC, 2010
WL 4736828, at *3 (D. Minn., Aug. 13, 2010) (collecting cases and explaining that
“[c]ourts have routinely rejected the defense on the ground that foreclosure statutes
simply do not require production of the original note at any point during the
proceedings”).3 The court believes that the Hawaii Supreme Court would find
these authorities persuasive and similarly reject that HRS § 667-5 includes a “show
me the note” requirement.
In opposition, Plaintiffs ask the court to follow U.S. Bank Nat’l Ass’n
v. Kimball, 27 A.3d 1087 (Vt. 2011), and In re Veal, 450 B.R. 897 (B.A.P. 9th Cir.
2011). These cases are no help to Plaintiffs -- both cases addressed a mortgagee’s
3
This interpretation is also consistent with the numerous cases in the District of Hawaii
that have rejected the “show me the note” theory of liability. See Lindsey v. Meridias Cap., Inc.,
2012 WL 488282, at *8 (D. Haw. Feb. 14, 2012) (rejecting claim to stay non-judicial foreclosure
that was based on a “show me the note” theory); see also White v. IndyMac Bank, FSB, 2012 WL
966638, at *8 (D. Haw. Mar. 20, 2012) (rejecting a “show me the note” argument for an unfair
and deceptive acts or practices claim); Del Piano v. Mortg. Elec. Registration Sys., Inc., 2012
WL 621975, at *10 (D. Haw. Feb. 24, 2012) (rejecting a “show me the note” claim as
“baseless”); Krakauer v. IndyMac Mort. Servs., 2010 WL 5174380, at *9 (D. Haw. Dec. 14,
2010) (citing Angel v. BAC Home Loan Servicing, LP, 2010 WL 4386775, at *9-10 (D. Haw.
Oct. 26, 2010) (“[T]his Court and other district courts have rejected ‘show me the note’
arguments like Plaintiffs’.”); Brenner v. Indymac Bank, F.S.B., 2010 WL 4666043, at *7 (D.
Haw. Nov. 9, 2010).
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legal standing to foreclosure through a court process (as opposed to here where the
mortgagee is defending against an action brought by the borrowers), and neither
interpreted HRS § 667-5, much less even addressed a non-judicial foreclosure
statute. For example, Kimball held that under Vermont law, a mortgagee who
brings a foreclosure action must establish its standing by “demonstrat[ing] that it
has a right to enforce the note.” 27 A.3d at 1092. In re Veal held that a mortgagee
must establish its standing to obtain relief from a stay in bankruptcy proceedings in
order to conduct a foreclosure, which, under the applicable Illinois law, required
the entity to hold both the note and mortgage. See 450 B.R. at 917 (explaining that
pursuant to Illinois law, Wells Fargo needed to establish “that it had some interest
in the Note, either as a holder, as some other ‘person entitled to enforce,’ or that it
was someone who held some ownership or other interest in the Note”). Simply
put, these cases do not support interpreting HRS § 667-5 as Plaintiffs suggest.
Rather, In re Veal actually recognized that non-judicial foreclosure
statutes may change the common law rule requiring a mortgagee to hold the
underlying note. Specifically, In re Veal noted that although Illinois follows the
common law rule that a mortgagee must hold the note to foreclose, other “states
may have altered this rule by statute.” Id. at 916-17 & n.34. In re Veal explained:
We are aware of statutory law and unreported cases in
this circuit that may give lenders a nonbankruptcy right
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to commence foreclosure based solely upon their status
as assignees of a mortgage or deed of trust, and without
any explicit requirement that they have an interest in the
note. See, e.g., Cal. Civil Code §§ 2924(a)(1) (a “trustee,
mortgagee or beneficiary or any of their authorized
agents” may conduct the foreclosure process); 2924(b)(4)
(a “person authorized to record the notice of default or
the notice of sale” includes “an agent for the mortgagee
or beneficiary, an agent of the named trustee, any person
designated in an executed substitution of trustee, or an
agent of that substituted trustee.”); Putkkuri v. Recontrust
Co., No. 08cv1919, 2009 WL 32567 at *2 (S.D. Cal. Jan.
5, 2009) (“Production of the original note is not required
to proceed with a non-judicial foreclosure.”); Candelo v.
NDex West, LLC, No. 08-1916, 2008 WL 5382259 at *4
(E.D. Cal. Dec. 23, 2008) (“No requirement exists under
the statutory framework to produce the original note to
initiate non-judicial foreclosure.”); San Diego Home
Solutions, Inc. v. Recontrust Co., No. 08cv1970, 2008
WL 5209972 at *2 (S.D. Cal. Dec. 10, 2008) (“California
law does not require that the original note be in the
possession of the party initiating non-judicial
foreclosure.”). But see In re Salazar, 448 B.R. 814, 819
(Bankr. S.D. Cal. 2011) (valid foreclosure under
California law requires both that the foreclosing party be
entitled to “payment of the secured debt” and that its
“status as foreclosing beneficiary appear before the sale
in the public record title for the [p]roperty.”).
Id. at 917 n.34.
As explained above, Hawaii’s HRS § 667-5 is just one more example
of a state giving lenders a right to commence non-judicial foreclosures based solely
upon their status as assignees of a mortgage and without any explicit requirement
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that they have an interest in the note.4 The June 19 Order made no error in this
regard.
B.
Newly Discovered Evidence
Assuming the court accepts their argument that HRS § 667-5 requires
a mortgagee to establish that it holds the note, Plaintiffs further argue that newly
discovered evidence establishes that Defendant did not hold the note at the time of
foreclosure and that Plaintiffs should be permitted to amend the FAC to include
this allegation as well as to assert claims against additional Defendants. Given the
court’s legal analysis above, the court need not reach these arguments. But even if
it did reach them, these arguments provide Plaintiffs no relief.
As an initial matter, Plaintiffs offered several new theories of relief to
the court in their Opposition to Defendant’s Motion and never asserted at any time
before the June 19 Order and Judgment a claim that Defendant in fact did not hold
the note. Rather, their claim was limited to the assertion that Defendant failed to
affirmatively establish that it holds the note. And at the June 18 hearing, Plaintiffs’
4
Relying on In re Veal, Plaintiffs assert the Hawaii legislature did not define the term
“mortgagee” as used in HRS § 667-5 such that the common law definition applies, requiring that
a mortgagee hold the promissory note to enforce the mortgage. See In re Veal, 450 B.R. at 916
(explaining the common law rule where “courts treat a mortgage as incident or accessory to the
debt, and, an assignment of a mortgage without the note as a nullity”). The court rejects this
argument -- the plain language of HRS § 667-5 outlines what a mortgagee must do to foreclose
pursuant to a mortgage; if the Hawaii legislature wanted to require a mortgagee to also establish
that it holds the note, it would have affirmatively stated so in the statutory language.
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counsel agreed that the court should treat Defendant’s Motion as a Motion to
Dismiss and should apply a futility analysis in determining whether Plaintiffs
should be granted leave to amend. The court stated that it intended to treat the
motion as one brought under Rule 12(b)(6), and then consider arguments in
Plaintiffs’ Opposition -- which raised matters not alleged in the Complaint -- in
determining whether to grant leave to amend:
The Court: And it appears to me, I have to say, that as
far as what is alleged in the complaint that, based on my
view of the law, that is precluded. But you’ve raised
many other matters. And so my view is to take those as
your offer of proof as to what might be included in a
second amended complaint and apply a futility analysis
to those to determine whether or not it’s appropriate to
grant you leave to amend to include those matters.
Plaintiffs’ counsel: I would agree with you on that
suggestion, Your Honor.
This colloquy makes clear that Plaintiffs had a full and fair opportunity to present
their legal theories and represented that they had no additional arguments for the
court to consider. Plaintiffs therefore cannot seek to insert additional arguments
post-Judgment that they could have previously raised.
The court further rejects Plaintiffs’ argument that reconsideration is
appropriate because they only recently discovered new evidence establishing that
Defendant does not hold the note. Specifically, Plaintiffs present evidence
13
gathered through the “Bloomberg Terminal,” which allows searches of SEC
databanks and Wall Street trading reports using borrower information. See Doc.
No. 71-2, Gary Dubin Decl. ¶¶ 5-6. Plaintiffs’ counsel asserts that they recently
commissioned a search of the Bloomberg Terminal and the results obtained on July
1, 2012 establish that the mortgage loan was securitized and that Defendant never
held the note. Id. ¶ 7. Plaintiffs have failed to establish that this evidence is
“newly discovered” that would allow reconsideration.
A party moving for reconsideration on the basis of newly discovered
evidence “must show that the evidence (1) existed at the time of the trial, (2) could
not have been discovered through due diligence, and (3) was of such magnitude
that production of it earlier would have been likely to change the disposition of the
case.” Jones v. Aero/Chem Corp., 921 F.2d 875, 878 (9th Cir. 1990) (internal
citations omitted). If the evidence was in the possession of the party before the
judgment was rendered or if it could have been discovered with reasonable
diligence, it is not newly discovered. Feature Realty, Inc. v. City of Spokane, 331
F.3d 1082, 1093 (9th Cir. 2003); Caliber One Indem. Co. v. Wade Cook Fin.
Corp., 491 F.3d 1079, 1085 (9th Cir. 2007).
Plaintiffs argue in conclusory fashion that current counsel only
recently appeared in this case (on April 19, 2012) and that the “data was not
14
available to Plaintiffs or their newly retained counsel prior to the [June 18, 2012]
hearing.” Doc. No. 76, Pls.’ Reply at 4-5. Yet this argument -- unsupported by
any declaration or other evidence -- fails to establish that Plaintiffs’ new evidence
could not have been discovered with reasonable diligence before judgment was
rendered. Plaintiffs fail to explain (1) whether the Bloomberg Terminal available
to Plaintiffs’ previous counsel; (2) when the Bloomberg Terminal became available
to Plaintiffs’ current counsel; or (3) why a search of the Bloomberg Terminal could
not have been performed prior the June 19 Order. And Plaintiffs cannot seriously
assert that they were given inadequate time to become familiar with the case and
present all of their arguments -- when Plaintiffs’ counsel entered the case in April
2012, they requested and were granted a continuance on Defendant’s instant
Motion. Doc. No. 49. Plaintiffs certainly could have asked for additional time to
present their full arguments; instead, they represented at the June 18 hearing that
their Opposition included all arguments relevant to whether they should be granted
leave to amend. The court therefore DENIES Plaintiffs’ Motion for
Reconsideration.
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V. CONCLUSION
Based on the above, the court DENIES Plaintiffs’ Motion for
Reconsideration.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, August 16, 2012.
/s/ J. Michael Seabright
_____________________________
J. Michael Seabright
United States District Judge
Pascual et al. v. Aurora Loan Servs. LLC., Civ. No. 10-00759 JMS-KSC, Order Denying
Plaintiffs’ Motion for Reconsideration And/or Clarification of this Court’s Order Granting
Defendant Aurora Loan Services, LLC’s Motion for Summary Judgment (Which the Court
Construes as a Motion to Dismiss) and Judgment, Filed June 19, 2012
16
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