INDIANAPOLIS AIRPORT AUTHORITY v. TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA
Filing
88
ORDER granting in part and denying in part Plaintiff's 67 Motion to Compel. ***SEE ORDER FOR FURTHER INFORMATION***. Signed by Magistrate Judge Tim A. Baker on 12/23/2014. (BGT)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
INDIANAPOLIS AIRPORT AUTHORITY,
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Plaintiff,
vs.
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,
Defendant.
No. 1:13-cv-01316-JMS-TAB
ORDER ON PLAINTIFF’S MOTION TO COMPEL
I. Introduction
This is a high-stakes lawsuit about insurance coverage. Plaintiff Indianapolis Airport
Authority, the insured, is suing Defendant Travelers Property Casualty Company, the insurer, for
coverage of its claim related to the collapse of temporary shoring towers used in constructing
IAA’s new midfield terminal project. The collapse damaged steel members, disrupted the
original plan for completing the project, and resulted in additional claims by project consultants
and contractors. Travelers denied significant portions of IAA’s claim, and IAA subsequently
filed this lawsuit for breach of contract and for a declaratory judgment of its coverage under the
policy. IAA filed the motion to compel at issue here seeking voluminous documents from
Traveler’s second amended privilege log, asserting that the information is part of Travelers’
ordinary course of business. Travelers objects, contending that such information is either
privileged, in anticipation of litigation, or irrelevant. For the reasons set forth below, IAA’s
motion to compel is granted in part and denied in part [Filing No. 67].1
1
The Court recognizes there is a lot at stake here for both parties. Overall, the parties have
presented well-crafted briefs. Unfortunately, the briefs also contain unnecessary jabs. The
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II. Discussion
A. Attorney-client privilege
Federal Rule of Civil Procedure 26 grants the Court broad discretion over discovery.
When a party withholds responsive documents from discovery, it bears the burden of
establishing that the withheld materials are not discoverable. Fed. R. Civ. P. 26(b)(5)(A). IAA
asserts that Travelers inappropriately withheld certain entries in its privilege log. Among these
entries are documents described as communications regarding “coverage issues.” IAA contends
that Travelers failed to provide an adequate explanation as to how documents concerning
coverage issues are privileged.2 According to IAA, these documents appear to be part of the
insurer’s ordinary course of business (i.e., factual inquiries of a claim or evaluation of a claim,
which are undertaken to arrive at a claim decision) and thus, are discoverable. Likewise, IAA
asserts that Travelers’ privilege log does not adequately explain whether Travelers’ attorneys
Murray Sacks and Chris Perry were acting in a professional capacity or as claims handlers in
their communications with claims adjusters.
Indiana law governs the scope of the attorney-client privilege. Under the relevant statute,
Indiana protects attorneys from testifying as to communications made to them in the course of
their professional business. Ind. Code § 34-46-3-1. The party asserting this privilege has the
burden to prove the applicability of the privilege as to each and every document. Irving
Materials, Inc. v. Zurich American Ins. Co., No. 1:03-cv-361-SEB-TAB, 2007 WL 4616927, at
parties accuse one another of “cherry picking language,” providing conclusory, misleading, and
deliberately vague arguments, and ignoring applicable case law. Such allegations are not
persuasive and do not advance the parties’ legal arguments.
2
Travelers responds that IAA has equally vague descriptions in its own privilege log, and IAA
should be required to clarify its own entries if the Court finds Travelers must do so. However,
Travelers has filed no motion to compel against IAA for its privilege log, and this is not the
correct manner in which to assert separate allegations for a motion to compel.
2
*3 (S.D. Ind. Dec. 28, 2007). The scope of the attorney-client privilege “should be strictly
confined within the narrowest possible limits.” Medical Assur. Co., Inc. v. Weinberger, 295
F.R.D. 176, 182 (N.D. Ind. 2013).
A review of Travelers’ privilege log reveals countless numbers of entries where “legal
opinions, advice and/or recommendations re-coverage issues,” or some variation thereof, is the
description provided. For example, Travelers withheld emails from June 2007 for attorney-client
privilege and work product, describing it as an “e-mail exchange including communication with
in-house counsel, Attorney Murray Sacks regarding analysis of coverage issues.” [Filing No. 688, at ECF p. 3.] In another entry dated August 25, 2010, Travelers redacted portions of a
quarterly loss report with “communications with counsel, Attorney Murray Sacks re: coverage
issues.” [Filing No. 68-8, at ECF p. 43.] It is unclear what topics the phrase “coverage issues”
includes, and Travelers’ explanations do not assist the Court in determining whether such topics
relate to evaluating and adjusting the claim or whether they relate to privileged communications.
See Hartford Financial Services Group, Inc. v. Lake County Park and Recreation Board, 717
N.E.2d 1232, 1236-37 (1999) (finding attorney-client privilege protects attorneys interpreting
policy, investigating details, and determining insurer liability but does not protect attorneys
giving business advice or acting as negotiators, agents, or claims adjusters in insurance lawsuits).
Nor do Travelers’ privilege log descriptions shed light on whether Sacks and Perry
evaluated IAA’s claim, made factual inquiries of the claim, calculated the claim, or otherwise
acted in a manner analogous to a claims handler.3 See, e.g., Irving Materials, Inc. v. Zurich
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Travelers’ claim notes refer to Sacks as staff counsel in some communications and as part of
the claims legal department in other communications. This suggests that Sacks may have been
performing different duties or working in different capacities throughout Travelers’ investigation
of IAA’s claim. [See, e.g., Filing No. 71-4, at ECF p. 12, 18, 79, 81, 100, 104, 151.]
3
American Ins. Co., No. 1:03-cv-361-SEB-TAB, 2007 WL 4616917 (S.D. Ind. Dec. 28, 2007)
(rejecting an insurance company’s argument that its attorney acted only in a professional
capacity when facts revealed that the attorney specifically handled the underlying claim); see
also Illiana Surgery and Medical Center LLC v. Hartford Fire Ins. Co., No. 2:07-cv-3, 2010 WL
4852459, at *2 (N.D. Ind. Nov. 18, 2010) (“[A]n insurance company’s blanket claim of privilege
is insufficient without specific information regarding each document withheld on the basis of
privilege. Thus, information does not become privileged simply because it came from counsel
and was declared as advice.”). For instance, Travelers redacted claims handler Nancy Fisher’s
file notes from January 28, 2008, describing them as “referencing communications with in-house
counsel, Attorney Murray Sacks regarding legal opinions, advice and/or recommendations re:
proof of loss.” [Filing No. 68-8, at ECF p. 13.] Similarly, Travelers withheld emails dated July
23, 2007, regarding “communications with in-house counsel, Attorney Murray Sacks regarding
discussions as to legal opinions and strategy regarding proof of loss and other coverage issues.”
[Filing No. 68-9, at ECF p. 5.] Insurers consider proof of loss and other coverage issues when
evaluating and adjusting an underlying claim. Merely declaring that such communications
contained legal advice does not shield Travelers from production when the topics discussed are
part of its ordinary course of business. Travelers must provide a specific explanation on how
these particular topics are privileged, and it has failed to do so.
There is not enough information to determine whether Sacks and Perry were acting in
their professional capacities and whether coverage issues are privileged. Within fourteen days of
this order, Travelers shall supplement the entries in its second amended privilege log with more
detailed descriptions of the privileged documents at issue to opposing counsel so that the parties
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may attempt to seek agreement as to whether the material is privileged.4 This includes the
documents withheld on the basis of the attorney-client privilege where it does not appear that
Sacks and Perry were acting as attorneys. [See Filing No. 67, at ECF p. 4.] Moreover, the
amended privilege log must better describe the coverage issues contained in documents that
Travelers withheld under attorney-client privilege. [Filing No. 67, at ECF p. 2-3.] With the
benefit of the supplemented privilege log, the parties are to meet and confer in an effort to
resolve these outstanding discovery requests. If issues remain after a good faith effort on the part
of both parties, they may contact the Magistrate Judge to seek guidance and resolution of any
remaining issues.
B. Subrogation Investigation
IAA also argues that information related to Travelers’ subrogation investigation should
not be privileged because the documents are part of the ordinary course of Travelers’ business.
More important, the documents in IAA’s main claim file discuss notes on the subrogation
investigation and were likely considered by claims adjusters in making coverage decisions
related to IAA’s claim. [See, e.g., Filing No. 71-4, at ECF p. 109.] Travelers responds that the
subrogation investigation was conducted in anticipation of litigation. According to Travelers, the
subrogation investigation involved separate claims handlers, different counsel, and was
considered and analyzed separately from IAA’s claim, so it is also irrelevant.
IAA argues that communications on the subrogation investigation must be produced.
Relying on Compton v. Allstate Property & Cas. Ins. Co., 278 F.R.D. 193, 198 (S.D. Ind. 2011),
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Given the sheer number of entries, the Court will not list each document Travelers must
supplement in this order. Travelers should review IAA’s motion to compel [Filing No. 67] for
the specific entries that must be supplemented. Entries including the coverage issue designation
are listed on pages two and three. [Filing No. 67, at ECF p. 2-3.] Entries concerning Sacks and
Perry’s professional capacities are listed on page four. [Filing No. 67, at ECF p. 4.]
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IAA argues that the subrogation investigation would have occurred regardless of the likelihood
of litigation as it is part of Travelers’ business to evaluate whether the insurer has any
subrogation interest to pursue. Travelers argues that Compton does not apply because Compton
relied on the insurer-insured privilege in determining that subrogation investigations were not
privileged. Travelers is mistaken. In Compton, insurer Allstate redacted documents relating to
potential subrogation claims and adjustment claims by the mortgagee as being irrelevant or
otherwise privileged. Compton rejected Allstate’s argument that claims by the mortgagee were
protected under the insurer-insured privilege as the redacted documents did not fit the
circumstances required to receive protection under the privilege. As for the subrogation reports,
Compton found the reports were part of the ordinary insurance evaluation of a claim and not
created in anticipation of litigation. Compton, 278 F.R.D. at 198. Compton analyzed the
subrogation reports using the work product doctrine, not the insurer-insured privilege. Like
Compton, Travelers’ subrogation investigation appears to reflect the typical and ordinary
evaluation of whether the insurer has any subrogation interest to pursue. Moreover, the mere
fact that subrogation investigation notes are included in IAA’s main claim file suggests that it
was relevant to IAA’s claim. Thus, Travelers must produce the documents regarding its
subrogation investigation.5
5
In a footnote, Travelers indicates that a number of documents identified as containing
subrogation and reserve information on Travelers’ privilege log actually contain only reserve
information. Some of the attorney-client communications identified as including subrogation
information contain no reference to subrogation. [Filing No. 71, at ECF p. 23.] Documents
identified as containing subrogation information that only contain reserve information need not
be produced. Documents containing both subrogation and reserve information must be produced
with reserve information redacted. Attorney-client communications with no reference to
subrogation need not be produced.
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C. Work product doctrine
IAA next asserts that documents and information withheld as work product—some of
which were created January 31, 2007, a mere seven days after the incident occurred—were
within the ordinary course of business and must be produced. Travelers disagrees, arguing that it
anticipated litigation on January 31, 2007, the day it involved coverage counsel, which it
memorialized in a February 6, 2007, reservation of rights letter to IAA.
The work-product doctrine protects “(1) documents and tangible things that are (2)
prepared in anticipation of litigation or for trial (3) by or for another party or its representative.”
Fed. R. Civ. P. 26(b)(3)(A). When the primary motivating purpose behind the creation of a
document or investigative report is to aid in possible litigation, the document is prepared in the
anticipation of litigation under Rule 26(b). Binks Mfg. Co. v. National Presto Industries, Inc.,
709 F.2d 1109, 1120 (7th Cir. 1983). In the insurance context, determining the primary purpose
behind creating a document can be especially difficult as the same document can serve both
litigation and ordinary business purposes. Cummins, Inc. v. Ace American Ins. Co., No. 1:09-cv00738-JMS-DML, 2011 WL 1832813, at * 5 (S.D. Ind. May 2, 2011). There is no bright line
rule for making this determination and must be analyzed on a case-by-case basis. In the case of
first-party insurance coverage, there is a presumption that it is unreasonable to anticipate
litigation before the insurer reaches a final claim decision. Iliana Surgery and Medical Center
LLC, v. Hartford Fire Ins. Co., No. 2:07-cv-3, 2008 WL 2622803, at *2 (N.D. Ind. June 30,
2008); Harper v. Auto-Owners Ins. Co., 138 F.R.D. 655, 663 (S.D. Ind. 1991). Thus, any
document prepared before an insurer makes a final decision on its insured’s claim is presumed
not to be work product. This is particularly true as the insured and insurer’s interests are
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presumed to be aligned up until a final claim decision. F.D.I.C. v. Fidelity and Deposit Co. of
Maryland, No. 3:11-cv-19-RLY-WGH, 2013 WL 3989140, at *3 (S.D. Ind. Aug. 2, 2013).
Travelers contends that it triggered the work product doctrine when it involved coverage
counsel in the claim. However, involving counsel in an investigation and claim decision is too
remote to be protected under the work product doctrine. For one, IAA did not file a lawsuit
against Travelers until 2013, six years after Travelers involved its counsel. Moreover, it appears
that counsel’s purpose was to interpret the policy, and investigate and evaluate the claim, not
prepare for litigation. See Telamon Corp. v. Charter Oak Fire Ins. Co., No. 1:13-cv-00382RLY-DML, 2014 WL 202097, at *2 (S.D. Ind. Jan. 17, 2014) (finding that the work product
doctrine did not apply because hiring counsel was not associated with any litigation; litigation
occurred many months after counsel was hired; was not the primary motivating factor for hiring
the attorney; and thus was too tenuous to support the proposition that litigation was likely).
Coverage counsel’s role in the claim does not support the notion that litigation was likely, and
Travelers’ work product from January 31, 2007, is not protected.
Travelers points to its February 9, 2007, reservation of rights letter to show that it
anticipated litigation soon after the steel collapse incident occurred. Citing Cummins Inc. v. Ace
American Ins. Co., No. 1:09-cv-00738-JMS-DML, 2011 WL 1832813, at *6 (S.D. Ind. May 2,
2011), Travelers argues that this February 9, 2007, letter clearly reflects its initial and detailed
decision regarding the coverage issues at the heart of the parties’ dispute, and can be reasonably
viewed as a change in the relationship between Travelers and IAA with respect to IAA’s claim.
The Court disagrees. The February 9 letter is a mere two pages that indicates that the
investigation is ongoing, that Travelers will continue to gather necessary information to complete
its investigation, but that it reserves any and all rights and defenses under the policy. The letter
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further informs IAA of its obligation under the “Duties in the Event of Loss or Damage”
provision in the policy, which requires IAA to make every effort to meet the planned completion
date for its midfield terminal project. [Filing No. 68-13.] The February 9 letter’s content
provides no indication of any impending litigation and cannot be reasonably viewed as a change
in the relationship between the insured and insurer.
Travelers mailed subsequent letters to IAA—dated March 6, 2007; April 23, 2007; May
16, 2007; January 28, 2009; March 27, 2009—that discuss the ongoing investigation and request
information from IAA to further resolve the claim, including direct expense reports, expert costs,
and reports generating post loss. [Filing No. 71-8.] Even though the subsequent letters reserve
rights, Travelers continued to work with IAA to gather information and documents concerning
the investigation. Indeed, the letters reveal that Travelers and IAA were still working with each
other to determine the extent of the claim at issue. Travelers even noted that the critical issue of
cause of loss remained undetermined. [Filing No. 71-8, at ECF p. 10.] The letters appear to be
part of the ordinary course of Travelers’ business and are not protected under the work product
doctrine.
However, the Court rejects IAA’s assertion that the work product doctrine applies only
after July 10, 2013, the date of the final claim decision. While the date that an insurer reaches a
final decision on a claim is presumed the time when the parties anticipate litigation, this
presumption may be rebutted by specific evidentiary proof of objective facts to the contrary.
Stout v. Illinois Farmers Ins. Co. 150 F.R.D. 594, 605 (S.D. Ind. 1993). IAA’s August 17, 2012,
letter to Travelers provides objective facts to rebut this presumption.
In the letter, IAA accuses Travelers of not acting in good faith, being unreasonable, and
not moving any closer to resolving its claim. IAA complains that it has “little confidence that
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this matter is progressing appropriately toward resolution” because Travelers refused to
participate in discussions on how to resolve the claim. [Filing No. 71-7, at ECF p. 5-6.] IAA
threatens litigation as one of three options to bring the claim to a conclusion—the first option
being negotiation; the second, private judge litigation or binding arbitration; and the third,
litigation—and demands Travelers promptly provide a position as to how the parties should
proceed. Without question, this letter sets forth proof that, prior to the July 2013 final claim
decision, Travelers anticipated litigation. This letter indicates a significant change in the
relationship between the insurer and the insured as the interests of the parties no longer align.
Consequently, the work product doctrine applies from August 17, 2012 onward.
Travelers also asserts that IAA’s request to toll the statute of limitations between January
14, 2009, and July 2013, shows that it anticipated litigation as early as 2009. This argument
fails. Both Travelers and IAA sought to toll the statute of limitations throughout the
investigation. [See, e.g., Filing No. 71-4, at ECF p. 73; Filing No. 71-7, at ECF p. 86.]
Moreover, both parties sought to extend the statute for filling as they continued to work together
on handling claims. Thus, the mere presence of tolling the statute of limitations in this case
cannot be reasonably viewed as anticipation of litigation.6
IAA’s August 17, 2012, letter marks a drastic shift in the relationship between the insured
and insurer such that the parties could reasonably anticipate litigation. Thus, all documents
6
On January 14, 2011, ten days before the final extension for the time period to file suit was to
expire, IAA Attorney Alan Goldstein indicated he would have no other option than to file suit if
Travelers would not grant IAA another extension due to health issues, new general counsel, and
a bond issue. [Filing No. 71-4, at ECF p. 32.] However, this threat of litigation did not change
the date when the parties reasonably anticipated litigation as IAA and Travelers continued to
work collaboratively with one another after January 14, 2011. [See, e.g., Filing No. 71-4, at ECF
p. 8, 24, 27, 28.]
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marked as work product after August 17, 2012, are protected by privilege. All documents prior
to August 17, 2012, that have been marked as work product must be produced.
D. Redacted loss reserves
IAA’s final argument concerns Travelers’ redaction of reserve amounts in previously
produced documents. IAA argues that the amount of reserves for its claim is relevant to
establish Travelers’ understanding of IAA’s loss and damages—a fact IAA argues is important
given the substantial difference in the parties’ respective positions on the covered loss figures.
IAA requests that the Court order Travelers remove redactions of the loss reserve amounts from
the already produced documents.
The Court denies this request. Loss reserves are not relevant to the issues in this case.
For one, reserve amounts are precautionary estimates unrelated to the merits of a claim.
Compton v. Allstate Property & Case. Ins. Co., 278 F.R.D. 193, 198 (S.D. Ind. 2011).
Moreover, reserve information for a claim is ordinarily not discoverable. G&S Metal
Consultants, Inc. v. Continental Cas. Co., No. 3:09-cv-493-JD-PRC, 2014 WL 5431223 (N.D.
Ind. Oct. 24, 2014); Cummins, Inc. v. Ace American Ins. Co., No. 1:09-cv-00738-JMS-DML,
2011 WL 130158, at *11-12 (S.D. Ind. Jan. 14, 2011); see In re AT&T Fiber Optic Cable
Installation Litigation, No. IP99-C-9313H/K, 2002 WL 1364157, at *2 (S.D. Ind. June 5, 2002)
(noting that reserves are not discoverable though the information would be helpful to plaintiff in
formulating a strategy for settlement negotiations). Similarly, IAA has not alleged any bad faith
claims so as to warrant discovery on reserve amounts. Woodruff v. American Family Mut. Ins.
Co., 291 F.R.D. 239, 250 (S.D. Ind. 2013) (“Courts have found reserve information relevant in a
bad faith case on the issue of whether there is a ‘potential for liability.’”). As Travelers makes
clear, “the only issue before this Court is whether coverage exists for the remaining amounts for
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which IAA seeks coverage under Travelers’ policy.” [Filing No. 71, at ECF p. 27.] Reserve
amounts have no relevance in the context of this litigation.
IAA asserts that its discovery of the loss reserve amounts is similar to the situation the
Court encountered in Cummins, Inc. v. Ace American Ins. Co., No. 1:09-cv-00738-JMS-DML,
2011 WL 130158 (S.D. Ind. Jan. 14, 2011). While IAA is correct that Cummins ordered
defendant to remove redactions of loss reserves information in documents that defendant already
produced, plaintiff’s bad faith claim served as the Court’s basis for permitting such discovery. In
fact, the Court indicated that loss reserve information is not synonymous with and may not be
probative of an insurer’s opinion on true coverage because reserves are set based on business risk
and regulatory compliance. Cummins, 2011 WL 130158, at *12. As an estimate for regulatory
compliance, the loss reserves are not an accurate assessment as to Travelers’ maximum potential
liability on the IAA insurance claim. Thus, the Court denies IAA’s request that Travelers
remove redactions of the loss reserves information contained in previously produced documents.
III. Conclusion
For the foregoing reasons, the Court grants in part and denies in part IAA’s motion to
compel [Filing No. 67]. IAA’s motion to compel is denied to the extent that IAA seeks to have
Travelers remove reserve information redactions in previously produced discovery. IAA’s
motion to compel is granted as to the documents withheld regarding Travelers’ subrogation
investigation. IAA’s motion to compel production of documents withheld as work product is
granted to the extent that documents withheld prior to August 17, 2012, must be produced.
Travelers need not produce documents withheld as work product after August 17, 2012. IAA’s
motion to compel production of documents regarding coverage issues is granted to the extent that
Travelers must provide a detailed explanation to opposing counsel within fourteen days of this
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order of the coverage issues contained in documents it withheld as privileged. As for IAA’s
motion to compel production of documents protected under the attorney-client privilege,
Travelers must provide a detailed description to opposing counsel within fourteen days of this
order of Sacks’ and Perry’s roles in privileged documents where Travelers’ counsel do not
appear to be acting as attorneys.
Once Travelers supplements its privilege log with descriptions for documents regarding
coverage issues and documents protected under attorney-client privilege where attorneys appear
to be acting outside their professional capacity, the parties shall confer in an effort to resolve
these outstanding discovery requests. With detailed descriptions of the withheld documents, the
parties should be able to resolve these two remaining production issues without the Court’s
involvement. If issues remain despite the parties’ good faith efforts, they may contact the
Magistrate Judge to seek guidance and resolution of any remaining issues.
Dated: 12/23/2014
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Distribution:
Michele A. Chapnick
GREGORY AND MEYER P.C.
mchapnick@gregorylaw.com
Jenny R. Buchheit
ICE MILLER LLP
jenny.buchheit@icemiller.com
Nathaniel M. Uhl
ICE MILLER LLP
nate.uhl@icemiller.com
Rebecca J. Seamands
ICE MILLER LLP
rebecca.seamands@icemiller.com
Stephen M. Brandenburg
JOHNSON & BELL
sbrandenburg@rchlawyers.com
Amanda M. Buishas
JOHNSON & BELL, LTD.
buishasa@jbltd.com
Rick L. Hammond
JOHNSON & BELL, LTD.
hammondr@jbltd.com
Samuel R. Stalker
JOHNSON & BELL, LTD.
stalkers@jbltd.com
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