Slayman v. FedEx Ground Package System, Inc.
Filing
63
OPINION & ORDER: Defendant's motion for summary judgment 37 is granted. Plaintiffs' motion for partial summary judgment 40 is denied as moot. See 16-page opinion & order attached. Signed on 5/25/2012 by Judge Marco A. Hernandez. Associated Cases: 3:05-cv-01127-HZ, 3:07-cv-00818-HZ (The motions are 38 and 41 in the trailing case 3:07-cv-00818-HZ) (mr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION
EDWARD SLAYMAN, DENNIS
McHENRY, and JEREMY BRINKER,
individually and on behalf of all others
similarly situated,
No. 3:05-cv-1127-HZ (Lead Case)
No. 3:07-cv-818-HZ (Trailing Case)
Plaintiffs,
v.
OPINION & ORDER
FEDEX GROUND PACKAGE
SYSTEM, INC.,
Defendant.
Steve D. Larson
Mark A. Friel
STOLL STOLL BERNE LOKTING & SHLACHTER P.C.
209 S.W. Oak Street, Fifth Floor
Portland, Oregon 97204
///
///
1 - OPINION & ORDER
Jordan M. Lewis
KELLEY/UUSTAL LAW FIRM
Courthouse Law Plaza
700 SW 3rd Avenue, 3rd Floor
Fort Lauderdale, Florida 33316
Attorneys for Plaintiffs
Robert C. Weaver
Eryn K. Hoerster
GARVEY SCHUBERT BARER
121 S.W. Morrison Street, 11th Floor
Portland, Oregon 97204
Guy P. Michelson
Emily J. Brubaker
Christian N. Dimock
COOR CRONIN MICHELSON BAUMGARDNER & PREECE LLP
1001 S.W. Fourth Avenue, Suite 3900
Seattle, Washington 98154
Attorneys for Defendant
HERNANDEZ, District Judge:
Following remand of these cases to this Court from the Multi-District Litigation (MDL)
Court in the Northern District of Indiana, the only remaining claims are for rescission.
Defendant moves for summary judgment. Plaintiffs move for partial summary judgment on the
issue of liability. I grant defendant's motion and deny plaintiffs' motion as moot.
BACKGROUND
Three plaintiffs in the Slayman case and two in the Leighter case filed these actions as
putative class actions, asserting generally that despite the package delivery contracts they signed
with defendant which established an independent contractor relationship between the parties,
defendant exercised a level of control over the drivers inconsistent with that relationship and
2 - OPINION & ORDER
instead, treated them as employees. The operative Complaints in the cases raised the following
overlapping claims: (1) illegal deductions from wages under Oregon Revised Statute § (O.R.S.)
652.610; (2) rescission of the operating agreement; and (3) declaratory relief. Slayman Third
Am. Compl.; Leighter Compl. Additionally, the Slayman plaintiffs brought a claim for fraud,
and the Leighter plaintiffs brought a claim for injunctive relief, a claim for violation of Oregon
wage and hour laws regarding overtime, and a claim for penalty wages under O.R.S. 652.140 for
failure to timely pay wages upon termination. Id.
The Slayman case was transferred to the MDL Court on July 20, 2005, and the Leighter
case was transferred there on July 16, 2007. The MDL Court adjudicated the class certification
issues and then, on summary judgment, resolved substantive liability issues regarding the nature
of the relationship between the drivers and defendant, first as to a case arising under Kansas law,
then as to cases arising from all over the country. In re FedEx Ground Package Sys., Inc. Emp't
Practices Litig., 758 F. Supp. 2d 638 (N.D. Ind. 2010) (summary judgment decision in all cases);
734 F. Supp. 2d 557 (N.D. Ind. 2010) (summary judgment decision in Kansas case); 662 F. Supp.
2d 1069, 1104 (class certification decision in various cases, including Leighter and on rescission
claim in Slayman); 273 F.R.D. 424, 475 (N.D. Ind. 2008) (class certification decision in various
cases, including Slayman).
Class certification was not granted on the rescission claim in either case. 662 F. Supp. 2d
at 1104-07. On May 27, 2011, the Joint Panel on Multi-District Litigation issued an order
remanding the two cases to this Court, including the certified claims which were resolved on
summary judgment, and the remaining rescission claims of the five plaintiffs.
Because the MDL Court's opinions contain detailed background facts regarding the
3 - OPINION & ORDER
relationship between the drivers and defendant and because I agree with defendant that the
rescission claims are barred by not being promptly asserted, I need not repeat the background
information here. Facts relevant to my conclusion are discussed below.
STANDARDS
Summary judgment is appropriate if there is no genuine dispute as to any material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The
moving party bears the initial responsibility of informing the court of the basis of its motion, and
identifying those portions of "'the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence
of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting
Fed. R. Civ. P. 56(c)).
Once the moving party meets its initial burden of demonstrating the absence of a genuine
issue of material fact, the burden then shifts to the nonmoving party to present "specific facts"
showing a "genuine issue for trial." Fed. Trade Comm'n v. Stefanchik, 559 F.3d 924, 927-28
(9th Cir. 2009) (internal quotation omitted). The nonmoving party must go beyond the pleadings
and designate facts showing an issue for trial. Celotex, 477 U.S. at 322-23.
The substantive law governing a claim determines whether a fact is material. Suever v.
Connell, 579 F.3d 1047, 1056 (9th Cir. 2009). The court views inferences drawn from the facts
in the light most favorable to the nonmoving party and draws all reasonable inferences in that
party's favor. Long v. City & County of Honolulu, 511 F.3d 901, 905 (9th Cir. 2007).
If the factual context makes the nonmoving party's claim as to the existence of a material
issue of fact implausible, that party must come forward with more persuasive evidence to support
4 - OPINION & ORDER
his claim than would otherwise be necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
DISCUSSION
Plaintiffs in the two cases raise virtually identical rescission claims and allege that (1)
despite the express terms of the Operating Agreements (OA), plaintiffs' relationship with
defendant satisfies every aspect of the test for employment, and not for independent contractor
status; (2) defendant controls virtually every aspect of the plaintiffs' work and earnings; (3)
defendant mischaracterizes plaintiffs as independent contractors and as a result, plaintiffs must
pay substantial sums of their own money for work-related expenses, including but not limited to,
the purchase or lease of the vehicles meeting company specifications, and all costs of operating,
insuring, and maintaining those vehicles; (4) the OA illegally and unfairly advantages defendant
by mischaracterizing the status of plaintiffs in that defendant evades employment-related
obligations such as social security contributions, workers' compensation coverage, and state
disability and unemployment compensation, illegally shifting these expenses to plaintiffs; and (5)
the OAs between defendant and plaintiffs are void as against public policy and are therefore
unenforceable, for failure to recognize the employment status of plaintiffs and denying them the
legally cognizable benefits of employment. Slayman Third Am. Compl. at ¶¶ 40-45; Leighter
Compl. at ¶¶ 35-40.
Defendant argues that it is entitled to summary judgment because plaintiffs failed to bring
the rescission claims promptly, the contracts no longer exist, and the terms of the contracts have
been fully performed. Because I agree with defendant on the promptness issue, I decline to
address defendant's alternative arguments.
5 - OPINION & ORDER
The goal of rescission is to restore the parties to the status quo ante. See Jones v.
McGinn, 70 Or. 236, 240, 140 P. 994, 996 (1914) ("Rescission means that both parties shall be
wholly released from the contract as though it had not been made"); Sweeney v. SMC Corp., 178
Or. App. 576, 588, 37 P.3d 244, 251 (2002) ("In traditional terms, rescission places the parties in
the positions that they occupied before the transaction occurred; damages, in contrast, make a
plaintiff whole for harm that the plaintiff has suffered"); White v. Burt, 114 Or. App. 476, 479,
835 P.2d 946, 948 (1992) ("permissibility of rescission generally depends on the restoration of
the status quo ante").
Oregon cases recognize the right to rescind a contract upon a showing of fraud,
misrepresentation, or mistake. Generaux v. Dobyns, 205 Or. App. 183, 194, 134 P.3d 983, 989
(2006) ("Mistake, like fraud, is a well-recognized equitable ground for rescission of a contract or
other instrument"); Lesher v. Strid, 165 Or. App. 34, 41, 996 P.2d 988, 993 (2000) (rescission
may be based on mutual mistake or innocent misrepresentation); see also Venture Props., Inc. v.
Parker, 223 Or. App. 321, 349, 195 P.3d 470, 487 (2008) ("Rescission is a potential remedy for
various harms"). Oregon also recognizes the right to rescind a contract which is void as against
public policy. W. J. Seufert Land Co. v. Greenfield, 262 Or. 83, 87, 496 P.2d 197, 199 (1972).
Here, plaintiffs' rescission claims, as indicated above, are based on the theory that the
contracts are void by violating public policy. The parties do not dispute that under Oregon law,
for rescission claims based on fraud, misrepresentation, or mistake, the party seeking rescission
must act promptly. E.g., First W. Mortg. Co. v. Hotel Gearhart, Inc., 260 Or. 196, 202, 488 P.2d
450, 453 (1971). The promptness requirement is sometimes expressed as an "election" to
continue the contractual obligation or to disaffirm it, and is sometimes expressed as a "waiver."
6 - OPINION & ORDER
See Brown v. Hassenstab, 212 Or. 246, 256, 319 P.2d 929, 934 (1957) (a party induced to enter a
contract by fraud, misrepresentation, or mistake "has an election either to continue the obligation
or to disaffirm it" and because the "two courses of action are inconsistent[,] the taking of one will
preclude the other"; the "would-be plaintiff must make his election with reasonable
promptness"); Eivers v. Peard, 100 Or. 197, 206-07, 197 P. 264, 267 (1921) (party induced to
enter contract by fraud, false representations, or mistake must act with reasonable promptness in
electing whether to affirm it in order to avoid injury to the other party or intervening interests of
third persons); McCourt v. Johns, 33 Or. 561, 569, 53 P. 601, 603-04 (1889) ("When cause exists
for rescission, the law requires the party seeking to take advantage of it to act without delay, so
that the other party to the contract may be placed as nearly in statu quo as possible; and a
nonobservance of the rule will generally constitute a waiver of the right to rescind"); Gearhart v.
Goehner, 74 Or. App. 95, 101, 701 P.2d 461, 465 (1985) (describing the issue as "whether
defendant waived his right to assert his claim by failing to rescind the contract promptly").
Three federal district courts have recently dismissed rescission claims in identical FedEx
cases on the basis of unreasonable delay. In Debnam v. FedEx Home Delivery, the District of
Massachusetts granted the defendant's motion to dismiss a rescission claim, identical to the
claims raised here, because the plaintiff waited several years to bring the claim. The court
explained:
The rescission claim . . . is based on the alleged misclassification of the plaintiff
as an independent contractor, causing him to incur costs he would not have if he
were considered an employee and to miss out on the benefits of employment,
which the plaintiff contends makes the Agreement void as against public policy . .
..
Additionally, as an equitable remedy, actions for rescission must be
brought with "reasonable promptness." Elias Bros. Rests., Inc. v. Acorn Enters.,
7 - OPINION & ORDER
Inc. 831 F. Supp. 920, 927 (D. Mass. 1993). The plaintiff's allegations, . . . , stem
from the initial contract formation in 2004 and the overall terms of his
relationship with the defendant since then. Having had knowledge of the
circumstances and having reaped the benefits of the Agreement since 2004, it
cannot be said that the plaintiff has brought his claim for rescission with
reasonable promptness.
Debnam, No. 10-11025-GAO, 2011 WL 1188437, at *2 (D. Mass. Mar. 31, 2011).
In a District of Maine case, the court reached the same conclusion. Scovil v. FedEx
Ground Package Sys., Inc., No. 1:10-cv-515-DBH, 2011 WL 2968350, at * 1 (D. Me. July 21,
2011). The court granted the defendant's motion to dismiss the rescission claim because it had
not been brought within a reasonable time:
Under Maine law, as an equitable remedy an action for rescission is only available
if brought within a "reasonable time" after discovery of the facts justifying it. . . .
Where the facts are undisputed, however, the Maine Law Court has said that [the
question of reasonableness] is a question of law.
The drivers argue that determining the timeliness of their rescission claim
is premature because the factual record has not yet been developed. . . . If there
was a dispute over when the drivers discovered the factual grounds for their
rescission claim, this argument would have merit. Here, however, the drivers
have not alleged any facts that would support a finding that the rescission claim
was brought within a reasonable period of time.
The drivers allege in their Complaint that they signed contracts with
FedEx between 1998 and February 2008. . . . The factual basis for their rescission
claim - that the contracts misclassified them as independent contractors, when in
fact, FedEx treated them as employees- must have been known to the drivers
when they signed these contracts or shortly after they began working as delivery
drivers for FedEx. The drivers brought this lawsuit in December 2010. As a
matter of law, that is too long.
Id. at *1 (citations to the record omitted; citing cases holding that 6.5 years, 2.5 years, and 2
months were unreasonably long periods of time).
Finally, in Currithers v. FedEx Ground Package Sys., Inc., No. 04-10055, 2012 U.S. Dist.
8 - OPINION & ORDER
Lexis 16070 (E.D. Mich. Feb. 9, 2012), the plaintiffs sought rescission because the OAs violated
public policy, they were illegal, or there was fraud in the inducement. Id. at *4. The court
explained that under Michigan law, "[u]pon the discovery of the basis for rescission, a plaintiff
must seasonably assert such rescission, tender back what he has received, and demand
repayment." Id. at *8. The court granted FedEx's summary judgment motion because (1) FedEx
had not waived the plaintiffs' duty to tender back the consideration received, and (2) the plaintiffs
waived their rescission claim by continuing to perform under the contract after discovering that
they were being inappropriately treated as employees instead of independent contractors, and
thus they did not "seasonably assert" their rescission rights. Id. at *12.
Plaintiffs in the two cases here fail to mention this highly relevant and persuasive
authority. Instead, plaintiffs argue that when a contract is void as against public policy, instead
of voidable by reason of fraud, mistake, or misrepresentation, the promptness requirement does
not apply because there is no "election" to be made. I reject this argument.
Plaintiffs rely on a single Oregon case from 1928 and fail to mention other Oregon cases
which do not support their argument. They also ignore that the other federal district court cases
discussed above addressed claims alleging that the contract was void from its inception as
violative of public policy, but nonetheless applied the "promptness" requirement under the law of
three different states.
In Pennicard v. Coe, 124 Or. 423, 623 P. 920 (1928), the case plaintiffs cite, the plaintiff
sought to rescind a contract for the purchase of securities because the contract violated Oregon
statutes regulating the sale of securities. Id. at 430, 623 P. at 922. The court agreed with the
plaintiff that the contract was void for being in violation of the statutes. Id. at 433, 623 P. at 923.
9 - OPINION & ORDER
The defendant argued that the plaintiff was not entitled to rescission because the plaintiff
had "ratified the sale of the securities with knowledge of the alleged fraud[.]" Id. The court
rejected that argument for two reasons. First, the court determined there was no testimony in the
record to show that the plaintiff committed any act intended to ratify the unlawful acts of the
defendant. Id. Second, the court stated that "a contract which is unlawful under existing laws
cannot be ratified." Id. at 434, 263 P. at 923. The court said:
"It is a general rule of law that a contract made in violation of a statute is void,
and that when a plaintiff cannot establish his cause of action without relying upon
an illegal contract he cannot recover. Consequently, a contract which is in reality
illegal cannot, properly speaking, be ratified."
Id. (quoting 2 Elliott on Contracts § 686).
I do not quarrel with the premise that if a contract is illegal and thus is void rather than
voidable, there is no "election" by the injured party whether to affirm or disaffirm the contract
because an illegal contract cannot be ratified. But, this is as far as Pennicard goes. The case does
not address the issue of whether a party seeking to rescind a void contract has the duty to act
promptly upon discovering the facts allowing for rescission.
Moreover, while I found no Oregon cases citing to Pennicard for the proposition relied on
by plaintiffs, there are subsequent Oregon cases suggesting that promptness is in fact required
when seeking rescission of a void contract. In a 1994 case, the plaintiff sued to rescind a
contingent fee agreement between the plaintiff and attorneys who had settled a personal injury
case on the plaintiff's behalf. Powell v. Goff, 126 Or. App. 194, 197, 868 P.2d 26, 28 (1994).
The trial court found that the fee agreement was unconscionable. Id. The question on appeal
was whether the plaintiff had waived his right to rescind the unconscionable contract by waiting
10 - OPINION & ORDER
too long to seek rescission. The court ruled that the plaintiff's claim was waived because he
waited several years after learning of the facts that gave him a right to rescind before bringing his
claim and continued to accept the benefits that he obtained from the work that the defendants had
performed under the fee agreement. Id. at 199, 868 P.2d at 28-29.
Although the Powell court did not expressly state that the promptness rule applies to
unconscionable, and thus void, contracts, the outcome makes clear that the obligation to
promptly rescind exists in that context. Powell undermines plaintiffs' reliance on Pennicard.
In a 2002 case, the court discussed the promptness rule in the context of an illegal
contract. Mount Joseph Cattle Co. v. Makin Farms, Inc., 180 Or. App. 27, 42 P.3d 331 (2002).
There, the trial court found that the lease agreement at issue was illegal and that the defendant,
the party seeking rescission, knew of the illegality before entering into the lease and thus, was not
entitled to seek rescission. Id. at 31, 42 P.3d at 332. On appeal, the defendant did not challenge
the contract's illegality, but argued that there were unresolved issues regarding what facts were
known by whom, and thus, the defendant's counterclaims were improperly resolved on summary
judgment. The appellate court noted that the plaintiff, in opposition to the defendant's rescission
claim, argued that the defendant had waived its right to rescind by failing to complain about the
lease agreement's fraud earlier than it had and attempting to disaffirm the contract only after the
plaintiff sued the defendant in 1997. The court rejected the plaintiff's argument not on the merits,
but because there was a jury question as to when the defendant knew all of the facts relevant to
the counterclaim. Id. at 35, 42 P.3d at 335. The court explained that if the defendant did not
know all of the facts relevant to a possible misrepresentation claim when it entered into the
agreement, then its doing so could not have amounted to a waiver of any future misrepresentation
11 - OPINION & ORDER
claims. Id.
Importantly, the court did not state that there was no duty to act promptly when
rescinding an illegal contract. Instead, it entertained the argument that even with an illegal
contract, there is an obligation to promptly rescind. The only reason the court did not address the
merits of the argument was because it did not have undisputed facts allowing it to conclude that
the defendant had waited too long.
Plaintiffs cite, and I have found, no cases holding that the prompt notification duty is
limited to voidable contracts which offer the injured party to right to affirm or disaffirm the
contract. When the law requires the injured party to rescind promptly in order to prevent
unnecessary harm to the opposing party caused by the injured party's continuing performance of
the contract, e.g., Eivers, 100 Or. at 206-07, 197 P. at 267-68, it makes no difference whether the
party is injured by a contract voidable due to fraud, misrepresentation, or mistake, or by a
contract void as against public policy. That in one instance the injured party has the option to
rescind and in the other instance rescission may be the sole remedy makes no difference to the
fact that continuing to perform a contract subject to rescission could cause harm to the other
party. Similarly, if the law requires the injured party to rescind promptly in order to prevent the
injured party from retaining the fruits of the contract by continuing to perform it after that party
knows of the basis for seeking rescission, Scott v. Walton, 32 Or. 460, 464, 52 P. 180, 182
(1898), it makes no difference that a contract was void at its inception instead of voidable.
I agree with defendant that a finding that a contract is void is just one of several bases
which allow a trial court, in its discretion, to determine whether the equitable remedy of
rescission is appropriate and that acting with reasonable promptness is a prerequisite for a
12 - OPINION & ORDER
rescission claim, regardless of whether the contract at issue is void as being against public policy
or is voidable because it was based on fraud, misrepresentation, or mistake.
The relevant inquiry in assessing promptness is "whether plaintiff acted promptly to
rescind after obtaining knowledge of the facts constituting the grounds for rescission, not
whether plaintiff acted promptly to rescind after obtaining knowledge that he could bring a legal
action on those grounds." Powell, 126 Or. App. at 199, 868 P.2d at 28. While the facts in each
case are assessed independently, courts generally conclude that fairly short periods of time, such
as a few months, are reasonable, and that longer periods of time are unreasonable. E.g., First W.
Mortg., 260 Or. at 202, 488 P.2d at 453 (delay of just over one year unreasonable); Eivers, 100
Or. at 205-06, 197 P. at 266 (delay of several weeks reasonable); Powell, 126 Or. App. at 199,
868 P.2d at 28 (delay of eight years unreasonable); Gearhart, 74 Or. App. at 101, 701 P.2d at 466
(delay from March to July not unreasonable especially when evidence showed the party consulted
an attorney in April and attempted to informally resolve the dispute with the other contracting
party in May).
Plaintiffs contend that they did not know the basis of their rescission claims when they
signed the OAs with defendant. They also argue that there is no evidence that any of them
understood, before filing their respective lawsuits, that the OAs were void on public policy
grounds. As to the second of these arguments, Powell makes clear that it is possession of facts,
not the legal implications of those facts, that is relevant for determining whether plaintiffs acted
promptly. As to the first argument, the facts do not support plaintiffs.
It is undisputed that each plaintiff was familiar with the terms of the OA at the inception
of his relationship with defendant. E.g., Ex. H to Brubaker Dec. at p. 5 (Slayman OA) (signature
13 - OPINION & ORDER
acknowledging that he had read and fully understood provisions of the OA before executing it);
Ex. J to Wagner Dec. at p. 163 (Brinker Depo.) (before signing, asked for a copy of the OA, read
through it, and possessed it for at least twenty-four hours). Many of the facts plaintiffs rely on to
establish defendant's control over the manner and method of their performance involve aspects of
the job governed by a provision in the OA. E.g., Ex. A to Wagner Dec. at §§ 1.10(e), 1.12, 1.5
(Slayman OA) (provisions addressing the driver appearance/uniform standards and the vehicle
appearance standards).
Deposition testimony indicates that soon after becoming a driver, each plaintiff believed
that the OA, despite its express terms, did not give the driver the control he expected as an
independent contractor. E.g., Ex. A to Brubaker Dec. at pp. 88-90 (Slayman Depo.) (was told
within four months of starting that he had to wear black tennis shoes instead of white); Ex. B to
Brubaker Dec. at pp. 23-24, 65-66 (McHenry Depo.) (stating that management demanded that he
act like an employee; forced do to work he did not want to do); Ex. E to Brubaker Dec. at p. 56
(Spicer Depo.) (came to conclusion he was not being treated as an independent contractor "[a]fter
about the first week" because of the "[l]ack of control over my own business").
The evidence shows that soon after beginning to drive for defendant, plaintiffs realized
that the level of control exerted by defendant was inconsistent with an independent contractor
relationship. Even if six months is added to each plaintiff's start date, the evidence shows that
plaintiffs waited between 1.5 and 3.5 years to bring their rescission claims:
14 - OPINION & ORDER
Plaintiff
Start Date + Six Months
End Date
Rescission
Claim Filed
Time Between Start
Date + Six Months &
Filing of Claim
Slayman
May 2002
2003
January 9,
2006
(Amended
Compl.)
more than 3.5 years
McHenry
November 2002
June 2005
April 11,
2006 (named
as plaintiff in
Second Am
Compl.)
just under 3.5 years
Brinker
April 2004
February
2006
December 1,
2006 (named
as plaintiff in
Third Am.
Compl.)
more than 2.5 years
Leighter
December 2002
2007
June 1, 2007
4.5 years
Spicer
October 2005
June 2007
June 1, 2007
more than 1.5 years
Each period of time is unreasonably long. Plaintiffs' rescission claims are barred by their
failure to assert them promptly upon learning of the relevant facts constituting grounds for
rescission.
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///
///
///
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15 - OPINION & ORDER
CONCLUSION
Defendant's motion for summary judgment [37] is granted. Plaintiffs' motion for partial
summary judgment [40] is denied as moot.
IT IS SO ORDERED.
Dated this
25th
day of
May
/s/ Marco A. Hernandez
Marco A. Hernandez
United States District Judge
16 - OPINION & ORDER
, 2012
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