Gary/Chicago International Airport Authority v. Zaleski et al
Filing
49
OPINION AND ORDER: GRANTING 43 MOTION to Dismiss amended third-party complaint by Third Party Defendant OXY USA Inc. The amended third-party complaint 41 is DISMISSED with prejudice. Signed by Judge Robert L Miller, Jr on 11/17/2015. (lhc)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
GARY/CHICAGO INTERNATIONAL
AIRPORT AUTHORITY,
PLAINTIFF & COUNTERDEFENDANT
VS.
ANTHONY ZALESKI, JR., TRUST A878, AND INDIANA LAND TRUST
COMPANY (FORMERLY LAKE COUNTY
TRUST COMPANY) AS SUCCESSOR
TRUSTEE OF TRUST A-878,
DEFENDANTS, COUNTERPLAINTIFFS, & THIRD-PARTY
PLAINTIFFS
VS.
OXY USA, INC.,
THIRD PARTY DEFENDANT
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CAUSE NO. 3:15-CV-50-RLM-CAN
OPINION and ORDER
Third-party defendant OXY USA, Inc. (“OXY”) moved to dismiss the thirdparty complaint brought by defendants/third-party plaintiffs Anthony Zaleski,
Jr., Trust A-878, and Indiana Land Trust Company (collectively, “defendants”).
(Doc. No. 43). For the reasons that follow, the court grants the motion and
dismisses the third-party complaint with prejudice.
I. BACKGROUND
This case began in 2012 when the Gary/Chicago Airport Authority
acquired two plots of land from the defendants, one from Trust A-878 and one
from Mr. Zaleski. The Airport Authority brought this suit against the
defendants in January 2015, alleging that the land it acquired from them is
contaminated and seeking damages and declaratory relief under various state
and federal statutes.
In response, the defendants filed the third-party complaint at issue here.
The defendants allege that the Trust acquired the land in question in 1976,
and that before 1976 the land was owned by OXY’s predecessor, Cities Service
Oil Company. Between acquiring the land in 1976 and transferring it to the
Airport Authority in 2012, the defendants didn’t cause or contribute to the
discharge of oil or other contaminants on the land. Rather, throughout this
period OXY’s predecessors owned and operated oil and gas pipeline easements
across the property in question. Accordingly, the defendants insist that any
contamination – whether arising before or after they acquired the land from
Cities Service – was caused by OXY and its predecessors and so is OXY’s
responsibility. The third-party complaint seeks contribution from OXY for any
liability the defendants owe to the Airport Authority, as well as declaratory
judgment to the same effect.
II. STANDARD OF REVIEW
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OXY moves to dismiss the third-party complaint in its entirety for failure
to state a claim under Federal Rule of Civil Procedure 12(b)(6). To state a claim,
a complaint need only contain a short and plain statement showing that the
plaintiff is entitled to relief. See EEOC v. Concentra Health Servs., Inc., 496
F.3d 773, 776 (7th Cir. 2007). When deciding a Rule 12(b)(6) motion, a court
must accept as true all well-pleaded factual allegations in the complaint and
draw all reasonable inferences in the non-moving party’s favor. See Hecker v.
Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009).
A complaint survives a motion to dismiss under Rule 12(b)(6) if it
contains sufficient factual allegations to “state a claim to relief that is plausible
on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has
facial plausibility when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for the misconduct
alleged.”
Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2014)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “Specific facts are not
necessary; the statement need only give the defendant fair notice of what
the…claim is and the grounds upon which it rests.” Erickson v. Pardus, 551
U.S. 89, 93 (2007) (ellipsis in original).
III. DISCUSSION
OXY’s motion is based on a document attached to the motion, which
OXY claims is the written agreement by which Cities Service sold the property.
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OXY argues that the assumption of liabilities in this agreement precludes the
defendants
from
seeking
contribution
from
OXY
for
environmental
contamination.
Before reaching the merits, the court must resolve two disputes about
what material may be considered in ruling on OXY’s motion to dismiss. At the
motion to dismiss stage, a court typically considers only the facts alleged in the
complaint or contained in exhibits attached to the complaint. See Forrest v.
Universal Savings Bank, F.A., 507 F.3d 540, 542 (7th Cir. 2007). OXY urges
the court to consider facts offered in two documents that aren’t part of the
third-party complaint at issue: the Airport Authority’s original complaint
against the defendants, and a purported copy of the 1975 agreement through
which Cities Services transferred the land at issue.
A. The Airport Authority’s Original Complaint
A court ruling on a motion to dismiss may consider documents not part
of the complaint “if they are referred to in the plaintiff's complaint and are
central to his claim.” Wright v. Assoc. Ins. Cos., Inc., 29 F.3d 1244, 1248 (7th
Cir. 1994). OXY urges the court to accept as true not only the facts alleged in
the defendants’ third-party complaint, but also the facts the Airport Authority
alleged in its initial complaint against the defendants. OXY argues that the
“Airport’s allegations are the basis of and incorporated into the 3rd party
complaint,” so the entirety of the Airport Authority’s complaint must be
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accepted as true for purposes of this motion to dismiss. OXY relies on the
Airport Authority’s allegations in support of several arguments in the motion to
dismiss.
To assume the truth of all the Airport Authority’s allegations in
evaluating the legal sufficiency of the third-party complaint would make little
sense. Unlike in the typical incorporation-by-reference situation in which a
plaintiff relies on the truth and validity of an external document to support its
claims, the third-party complaint here neither admits nor depends on the truth
of the Airport Authority’s claims; it simply asserts that if the defendants are
held liable to the Airport Authority, OXY should be liable for contribution. The
third-party complaint avoids admitting many of the key allegations of the
Airport Authority’s complaint. (See, e.g., Third-Party Complaint, Doc. No. 41 at
¶ 8) (referring to “the alleged events giving rise to the Airport Authority’s
claims”) (emphasis added).
More significantly, in its answer to the Airport Authority’s complaint, the
defendants explicitly deny many of the same facts that OXY seeks to deem
admitted. For example, OXY makes arguments related to Mr. Zaleski’s alleged
status as a general partner in a partnership called Lake Material Service. Yet
while the Airport Authority’s complaint alleged that Mr. Zaleski was a member
of that partnership, the defendants’ answer denies that allegation. (See Answer,
Doc. No. 8 at ¶ 16).
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Under OXY’s understanding of the incorporation by reference doctrine,
any defendant who files a third-party complaint would necessarily be deemed
to admit all the allegations of the original complaint – a result that would force
defendants to either defend themselves from the underlying claims or seek
contribution, but never both. The authority OXY cites in support of such a
dramatic proposition falls well short of proving the point. The case OXY
primarily relies on, Williamson v. Curran, 714 F.3d 432 (7th Cir. 2013), simply
explains that written instruments attached to a complaint are typically
considered part of the complaint – but this third-party complaint doesn’t attach
the original Airport Authority complaint. Moreover, Williamson made clear that
even attachments to a complaint should only be assumed true for purposes of
a motion to dismiss if the author of the complaint relies on their contents. See
714 F.3d at 436 (“What makes it appropriate for us to consider the documents
that Williamson has attached to her complaint is that she has not only cited
them in the body of her complaint, but she has, to some degree, relied on their
contents as support for her claims.”). These defendants not only don’t rely on
the truth of the Airport Authority’s allegations, they explicitly deny many of
them.
The only other authority OXY offers in support of its argument are two
out-of-circuit district court cases which recited without elaboration that they
would consider the allegations in both the underlying complaint and the thirdparty complaint when ruling on a motion to dismiss the latter. See Erie Ins.
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Exch. v. Danby Products, Inc., No. CIV.A. 10-1271, 2011 WL 2470608, at *2 n.
1 (W.D. Pa. June 21, 2011); Railey v. S. Ry. Co., 31 F.R.D. 519, 522 (E.D.S.C.
1963). Neither case provides any authority for (or even discussion of) this
practice, and neither makes clear whether the third-party plaintiff denied the
relevant allegations of the original complaint in its answer. In any event,
neither case binds – nor is either opinion persuasive to – this court. Williamson
is binding, and its reasoning compels a conclusion that the Airport Authority’s
allegations shouldn’t be presumed true, because the defendants didn’t rely on
the truth of these allegations in support of their third-party claims.
B. The Written Agreement
OXY’s motion to dismiss attaches as an exhibit a document that
purports to be a June 27, 1975 agreement between Cities Service and Lake
Material Service. The agreement relates that Cities Service agreed to sell a
certain parcel of land to Lake Material “conditioned on certain agreements and
covenants” that the agreement sets forth. In essence, the agreement provides
that Lake Material would pay $10, and in exchange Cities Services would
transfer the land to Hoosier State Bank as trustee for the Trust (of which Lake
Material is listed as beneficiary). The agreement states that Lake Material will
“assume and be responsible for any and all obligations, liabilities, losses or
damages that may arise out of the interest and title” of the property, and that
Lake Material will “assume and be responsible for any and all obligations,
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liabilities, losses or damages that may arise” out of the interest and title in the
property or all operations on the property. (Agreement, Doc. No. 44-1 at 2). The
agreement mentions environmental issues specifically, stating that Lake
Material also assumes “any and all problems concerning environmental
pollution agencies” and will be responsible for satisfying the Indiana
environmental regulatory agency.
OXY says that this agreement represents the land sale contract
transferring the land in question from OXY’s predecessor to the Trust, so the
entire third-party complaint relies on the agreement. OXY therefore urges the
court to consider the agreement as incorporated by reference in the third-party
complaint. The defendants respond that documents outside the pleadings can
only defeat contrary allegations of a complaint in the context of breach of
contract actions, and that OXY’s attachment of the agreement to its motion to
dismiss converts the motion into one for summary judgment. There is no merit
to either argument. “It is well settled that in deciding a Rule 12(b)(6) motion, a
court may consider ‘documents attached to a motion to dismiss ... if they are
referred to in the plaintiff’s complaint and are central to his claim.’”
Brownmark Films, LLC v. Comedy Partners, 682 F.3d 687, 690 (7th Cir. 2012)
(quoting Wright v. Assoc. Ins. Cos. Inc., 29 F.3d 1244, 1248 (7th Cir. 1994)).
Courts can – and routinely do – consider documents other than the complaint
when considering motions to dismiss a wide variety of actions, not only breach
of contract suits. See, e.g., Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002)
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(considering a letter incorporated to the complaint in a § 1983 action).
Moreover, our court of appeals has made very clear that “if a plaintiff mentions
a document in his complaint, the defendant may then submit the document to
the court without converting defendant's 12(b)(6) motion to a motion for
summary judgment.” Brownmark Films v. Comedy Partners, 682 F.3d at 690.
The agreement (if relevant to the parties and land at issue here)1 is
referred to by, and central to, the defendants’ third-party claims. Had OXY’s
predecessor not been the original owner and subsequently sold the land to the
Trust, the defendants could hardly blame the pollution problems on OXY now.
The defendants’ third-party claims against OXY exist only by virtue of OXY’s
status as the prior owner, so the document transferring the land from OXY’s
predecessor to the defendants’ affiliate is inextricably bound up in the
contribution claim. While the third-party complaint doesn’t refer to the
document itself, it mentions and relies heavily on the underlying land transfer
that the agreement memorializes. (See Third-Party Complaint, Doc. No. 41 at ¶
10-11) (relating that “[b]efore 1976, Cities Service Oil Company… owned all 153
acres of the Original Property” and that “[i]n 1976, the Trust acquired 153
acres of land”). The defendants can’t premise their entire claim for contribution
on this land transfer, yet escape the terms of the transfer contract simply
The defendants’ chief arguments for why the terms of the agreement do not bar their
contribution claims are that they were not a party to it and that it is unclear whether
it refers to the same plot of land as the third-party complaint. The court considers
these arguments below.
1
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because the contract itself wasn’t attached to their complaint. This is precisely
the sort of situation for which incorporation by reference was designed. See
Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002) (noting that the doctrine of
incorporation by reference stops a plaintiff from being able to “evade dismissal
under Rule 12(b)(6) simply by failing to attach to his complaint a document
that proved his claim has no merit.”). The court will consider the terms of the
agreement in ruling on the motion to dismiss, and won’t convert the motion
into one for summary judgment.
C. Merits
If the agreement applies in this case, its terms bar the defendants’
claims. The agreement unambiguously establishes that the buyer (Lake
Material)
assumed
responsibility
for
both
then-existing
and
future
environmental problems, including all “obligations, liabilities, losses or
damages” associated with ownership or operation of the property. To the extent
that the agreement binds the defendants, its terms defeat their claim for
contribution against OXY because OXY’s predecessor transferred the land only
on the explicit condition that risk of environmental liability would transfer
completely to the buyer.
The defendants don’t argue to the contrary. Rather, they insist that the
agreement doesn’t defeat their contribution claims because the agreement
doesn’t bind them, because (1) none of them were parties to the agreement,
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and (2) it is impossible to tell without parol evidence whether the land referred
to in the agreement is the land at issue in this case.
The agreement binds the defendants
In their response brief, the defendants insist that the agreement can’t
defeat their claims because none of them was a party to it nor in privity of
contract with a party.2 The agreement is between Lake Material Service (not a
defendant in this case) and Cities Service. Therefore, the defendants argue, any
assumption of liabilities by Lake Material isn’t binding on them. They argue
that the agreement is an indemnity contract, and that under Indiana law an
indemnity claim can only be enforced by parties to an agreement or those in
privity with them. See Coca-Cola Bottling Co.-Goshen, Ind. v. Vendo Co., 455
N.E.2d 370, 375 (Ind. Ct. App. 1983) (affirming summary judgment where
lessor of property damaged by fire brought third-party indemnity claims
against the manufacturer of a piece of machinery that allegedly caused the fire,
because “privity was necessary to the claim and was lacking.”).
The agreement is not simply an indemnity contract. An indemnity
contract obligates one party to reimburse another for costs associated with a
OXY insists that Mr. Zaleski was in effect a party to the contract, because he was a
partner in the Lake Material partnership and so is personally bound by any
agreements made by the partnership in the course of its business. As noted above,
however, the third-party complaint doesn’t refer to any association between Lake
Material and Mr. Zaleski, and the allegations to that effect in the Airport Authority’s
complaint were denied in defendants’ answer. At this stage, therefore, the court can’t
assume the truth of OXY’s statement that Mr. Zaleski was a partner of Lake Material.
2
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particular liability. See Henthorne v. Legacy Healthcare, 764 N.E.2d 751, 756
(Ind. Ct. App. 2002) (explaining that “an indemnity agreement involves a
promise by one party (indemnitor) to reimburse another party (the indemnitee)
for the indemnitee’s loss, damage, or liability”). This agreement did more than
just provide for reimbursement; it expressly transferred the underlying
liabilities themselves, rather than only obligating Lake Material to pay any
damages assessed against Cities Service.
Regardless, whether the agreement is construed as an indemnity
contract is irrelevant; privity is generally required before any type of contract
can be enforced against a party in Indiana. But privity of contract is only one of
the ways in which parties can be bound by the terms of an agreement. Indiana
has long recognized that the obligations of a contract may also extend to those
who stand in privity of estate with the parties to the contract. See Evansville &
S.I. Traction Co. v. Evansville Belt Ry. Co., 44 Ind. App. 155, 162, 87 N.E. 21,
23 (1909); see also Columbia Club, Inc. v. American Fletcher Realty Corp., 720
N.E.2d 411, 417 (Ind. Ct. App. 1999) (noting that privity of estate is “an
exception to the privity of contract requirement”).
The defendants here are unquestionably3 in privity of estate with the
original covenanting party, Lake Material. Vertical privity is “the most easily
satisfied form of privity of estate,” and is established when “the party seeking to
Again, this assumes that the land at issue in the agreement is the same land
involved in the third-party complaint – a proposition that is discussed below.
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enforce the covenant and the party against whom it is to be enforced are
successors in title to the property of the covenantee and covenantor
respectively.” Columbia Club v. American Fletcher, 720 N.E.2d at 421-422.
Additionally, horizontal privity must generally be proven by showing that the
covenant in question was made in the context of the transfer of an interest in
the relevant land. See Moseley v. Bishop, 470 N.E.2d 773, 777 (Ind. Ct. App.
1984). Both requirements are easily met here. The agreement makes clear that
Lake Material purchased the land in question as nominee for the Trust, and
the third-party complaint states that the Trust subsequently conveyed portions
of the land to Mr. Zaleski. The third-party complaint also alleges that OXY
became the successor of Cities Service “with respect to the easements and
pipelines on the property.” (Third-Party Complaint, Doc. No. 41 at ¶ 20). Mr.
Zaleski and the Trust are, accordingly, subsequent grantees of the land and
stand in vertical privity of estate with Lake Material, while OXY stands in
vertical privity with Cities Service. Horizontal privity is also established,
because the agreement recites that it memorializes a land transfer “conditioned
on certain agreements and covenants” including the assumption of liability at
issue here.
That privity of estate exists between defendants and OXY due to their
status as subsequent grantees of the covenanting parties doesn’t necessarily
mean that defendants can be bound by the assumption of liabilities covenant
in the agreement. In Indiana, only covenants in a contract that “run with the
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land” impose an affirmative duty on subsequent grantees as well as the original
covenantor. See Columbia Club, 720 N.E.2d at 418 (Ind. Ct. App. 1999);
Evansville & S.I. Traction Co. v. Evansville Belt Ry. Co., 87 N.E. 21, 23 (1909)
(“Privity of estate that can render parties liable upon contracts not of their own
making relate solely to covenants that run with land, or some interest
therein.”). A covenant that imposes affirmative duties will run with the land if:
“(1) the covenantor and covenantee intend it to run; (2) the covenant touches
and concerns the land; and (3) there is privity of estate between subsequent
grantees of the covenantor and covenantee.” Williams v. Indiana Rail Rd. Co.,
33 N.E.3d 1043, 1053 (Ind. Ct. App. 2015) (quoting Columbia Club v. American
Fletcher, 720 N.E.2d at 418). As already discussed, the parties are in privity of
estate. There is little dispute that the assumption of liabilities touches and
concerns the land; the agreement expressly conditions transfer of the land on
the assumption covenant, and the liabilities assumed are those “arising from
the property” and from “all operations on said property.” The dispositive
question is whether the parties intended the assumption of liability to run with
the land.
The covenanting parties’ intent must be determined “from the specific
language used and from the situation of the parties when the covenant was
made.” and “a statement in the covenant that it is binding on the covenantor’s
heirs and assigns is strong evidence of intent that the covenant should run
with the land.” Williams v. Indiana Rail, 33 N.E.3d at 1053-1054. With regard
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to the specific language used, the original parties to the agreement explicitly
stated that the assumption of liability covered not only existing environmental
problems but also problems “which may arise subsequent to the date of
transfer.” This language indicates that the parties intended the transfer of
liabilities to be permanent and ongoing, and that Cities Service intended to
wash its hands entirely of any pollution problems on the land. Such an intent
would be frustrated if Lake Material could simply resell the property and future
owners could sue Cities Service for preexisting contamination. True, in such a
situation Cities Service might sue Lake Material to recover any damages
assessed against it. But that would transform the agreement into nothing more
than an indemnity contract; as discussed above, the agreement reflects an
intent to transfer the liabilities entirely rather than simply giving Cities Service
a future entitlement to reimbursement.
The parties’ situation at the time the covenant was made also indicates
that the assumption of liability was meant to bind future grantees. As reflected
in the language of the agreement itself, Lake Material was purchasing the
property solely as nominee of the Trust. Cities Service therefore knew that the
property would be immediately transferred to another entity. And given the low
purchase price ($10), Cities Service almost certainly believed there to be a
serious risk of future liability associated with environmental contamination on
the land; the real consideration for the transfer of the property appears not to
have been the nominal purchase price, but rather the freedom from future
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liability that would result from the assumption covenant. It is improbable that
the parties intended the assumption of liability to apply only to the land’s
temporary owner, Lake Material, rather than the future owners who would
inevitably have to grapple with any environmental liabilities. See Columbia
Club, Inc. v. Am. Fletcher Realty Corp., 720 N.E.2d 411, 420 (Ind. Ct. App.
1999) (inferring intent for the indemnification provision of a contract to bind
future grantees, because the parties knew it was highly probable that damages
would be incurred after the ownership of the property was transferred to a
third party).
Accordingly, the assumption of liabilities in the agreement binds the
defendants because they stand in privity of estate with the covenanting parties
and the assumption covenant runs with the land.
The agreement and third-party complaint refer to the same land
The defendants’ final argument is that the agreement doesn’t give a legal
description of the land. Therefore, they insist, “it is indeterminable whether [the
agreement] applies to the same property” that is described in the third-party
complaint. The true identity of the land referenced in the agreement can only
be determined by parol evidence, and dismissal prior to discovery is premature.
The third-party complaint describes the “original property” as a plot of
land in Lake County, Indiana that is “[p]art of the Northwest quarter of Section
35, Township 37 North, Range 9 West of the 2nd Principal Meridian” that was
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acquired by the Trust from Cities Service in 1976.4 (3rd P comp ¶ 10-11). The
agreement says the same thing in different words, describing the property at
issue as “certain land owned by Cities Service Oil Company located in the
NW/4 of Section 35, Township 37 North, Range 9 West, Lake County, Indiana.”
The defendants don’t actually claim that the agreement relates to some other
plot of land which the Trust acquired via Cities Service in the same range of the
same section of the same quarter of the same township in the same county.
They merely insist that because the third-party complaint goes on to recite the
foot-by-foot legal description of the land’s precise boundaries yet comparable
detail does not exist in the agreement, there is no proof that the two documents
describe the same plot. The terms of the agreement and the third-party
complaint adequately establish that they refer to the same property.
IV. CONCLUSION
The agreement applies, and its assumption of liabilities clause binds the
defendants. Any claim for contribution that the defendants might otherwise
The defendants make much of the fact that the third-party complaint alleges the
land was acquired by the Trust in 1976, while the agreement is dated June 1975. This
purported inconsistency is illusory; as noted earlier, Lake Material bought the land as
a nominee, with the clear purpose of transferring it to the Trust thereafter. It is
entirely plausible that Lake Material’s deal with Cities Service occurred in 1975 (as
memorialized in the agreement), yet the formal transfer from Lake Material to the
Trust didn’t occur until 1976. If anything, the close proximity in dates supports rather
than undermines a conclusion that the properties referred to in the agreement and the
third-party complaint are the same.
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have against OXY is barred by the express assumption of liabilities in the
agreement, and the third-party complaint must be dismissed in its entirety.
Third-party defendant OXY USA’s motion to dismiss the third-party
complaint (Doc. No. 43) is GRANTED. The amended third-party complaint (Doc.
No. 41) is DISMISSED with prejudice.
SO ORDERED.
ENTERED: November 17, 2015
/s/ Robert L. Miller, Jr.
Judge
United States District Court
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