D & M Iron Horse Inn, LLC v. United Fire & Casualty Company
Filing
56
ORDER denying 43 Motion in Limine; granting in part and denying in part 46 Motion in Limine; granting in part and denying in part 48 Motion in Limine; granting in part and denying in part 22 Motion; granting 35 Motion in Limine; denying 37 Motion. Signed by Chief Judge Jeffrey L. Viken on 2/4/14. (SB)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DIVISION
D & M IRON HORSE INN, LLC,
)
)
)
)
)
)
)
)
)
)
Plaintiff,
vs.
UNITED FIRE & CASUALTY
COMPANY,
Defendant.
CIV. 11-5075-JLV
ORDER
INTRODUCTION
This case centers around a massive rain and hail storm which hit
Deadwood, South Dakota, on August 3, 2010. Plaintiff D & M Iron Horse Inn,
LLC, brought this breach of contract claim against its insurer United Fire &
Casualty Company after the insurer refused to cover plaintiff’s storm related
damages.
In support of their motions, the parties submitted portions of the policy
which is the subject of this litigation. The complete “Commercial Property
Policy” is beneficial in analyzing the issues. (Docket 36-1). For continuity, the
court will cite to the complete policy.
PENDING PRETRIAL MOTIONS
Pending before the court are a number of pretrial motions. Those
motions include:
1.
Plaintiff’s motion for pre-trial ruling on interpretation
of policy (Docket 22);
2.
Plaintiff’s motion in limine to exclude evidence or
argument that the water exclusion applies to preclude
coverage (Docket 35);
3.
Plaintiff’s motion regarding special interrogatories to
the jury (Docket 37);
4.
Defendant’s motion in limine to exclude evidence or
argument that section D (“additional coverage –
collapse”) of the policy applies (Docket 43);
5.
Defendant’s motion in limine to exclude as evidence
plaintiff’s proposed exhibits 6 (watervideo1) and 7
(watervideo2) (Docket 46); and
6.
Defendant’s motion in limine to exclude evidence or
argument of damages and plaintiff’s proposed exhibit 4
(Docket 48).
ANALYSIS
In this diversity jurisdiction case, South Dakota law governs the
interpretation of the policy. Secura Ins. v. Horizon Plumbing, Inc., 670 F.3d
857, 861 (8th Cir. 2012) (“State law governs the interpretation of insurance
policies when federal jurisdiction is based on diversity of citizenship.”). In
South Dakota, “insurance contract interpretation is a question of law . . . [for
which the Supreme Court of South Dakota has] developed ‘special rules of
construction. . . .’ ” Cornelius v. National Casualty Co., 813 N.W.2d 167, 169
(S.D. 2012) (internal citation omitted). “If the rules of interpretation leave a
genuine uncertainty as to which of two or more meanings is correct, the policy
is ambiguous. Ambiguity in an insurance policy is determined with reference
to the policy as a whole and the plain meaning and effect of its words.” Id. “If
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the provisions of an insurance policy are ambiguous [the court applies] the rule
of liberal construction in favor of the insured and strictly against the insurer.”
Id. at 170 (internal quotation marks omitted). This approach, however, does
not mean that “the court may seek out a strained or unusual meaning for the
benefit of the insured.” Id. (internal quotation marks and citation omitted).
When, as in the present case, “an insurer invokes a contract exclusion to
disallow coverage, the insurer has the burden of proving the exclusion applies.”
Auto-Owners Ins. Co. v. Hansen Housing, Inc., 604 N.W.2d 504, 509 (S.D.
2000) (internal quotation marks omitted).
Each of the parties’ motions will be addressed separately.
I.
PLAINTIFF’S MOTION FOR PRE-TRIAL RULING ON
INTERPRETATION OF POLICY
Plaintiff’s motion is broken down into two parts.
1.
Whether a purported modification to the policy, which
specifically says it applies to modify the “Standard Form,”
applies to the “Special Form” purchased by the Plaintiff.
(Docket 23 at p. 1). Plaintiff argues the “Causes of Loss - Special Form” portion
of the policy provides coverage for its claim. Id. at p. 8. That provision
provides:
A.
Covered Causes of Loss
When Special is shown in the Declarations, Covered
Causes of Loss means Risks Of Direct Physical Loss
unless the loss is:
1.
Excluded in Section B., Exclusions; . . .
that follow.
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B.
Exclusions
1.
We will not pay for loss or damage caused directly
or indirectly by any of the following. Such loss or
damage is excluded regardless of any other cause
or event that contributes concurrently or in any
sequence to the loss. . . .
g.
Water
(1)
Flood, surface water, waves, tides, tidal
waves, overflow of any body of water, or
their spray, all whether driven by wind
or not . . . .
(Dockets 36-1 at pp. 47-48) (bold in original).
Plaintiff argues “if the weight of the hail caused the window to collapse,
rather than the weight of water, then the loss is covered.” (Docket 23 at p. 9).
Plaintiff believes “[t]he adjuster’s admissions (by deposition) are an important
fact for the Court to consider, because the company’s own construction of the
policy is given particular weight, especially if it is favorable to the insured.” Id.
at p. 14 (referencing Overfield v. American Underwriters Life Ins. Co., 614
N.W.2d 814, 819 (S.D. 2000) (other references omitted).
Defendant relies on the Water Exclusion Endorsement of the policy to
deny plaintiff’s claim. (Docket 25). That provision provides:
THIS ENDORSEMENT CHANGES THE POLICY,
PLEASE READ IT CAREFULLY
WATER EXCLUSION ENDORSEMENT
This endorsement modifies insurance provided under the following:
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COMMERCIAL PROPERTY COVERAGE PART
STANDARD PROPERTY POLICY
A.
The exclusion in Paragraph B. replaces the Water
Exclusion in this Coverage Part or Policy.
B.
Water
1.
5.
Flood, surface water, waves (including tidal wave
and tsunami), tides, tidal water, overflow of any
body of water, or spray from any of these, all
whether or not driven by wind (including storm
surge);
...
Waterborne material carried or otherwise moved
by any of the water referred to in paragraph 1.,
. . . or material carried or otherwise moved by
mudslide or mudflow.
This exclusion applies regardless of whether any of the
above, in Paragraphs 1. through 5., is caused by an act
of nature or is otherwise caused. An example of a
situation to which this exclusion applies is the situation
where a dam, levee, seawall or other boundary or
containment system fails in whole or in part, for any
reason, to contain the water. . . .
(Dockets 36-1 at p. 57) (bold in original).
Defendant argues “[a]s the water accumulated in the stairwell . . . one of
the basement windows eventually broke due to the horizontal pressure from
the water (i.e. the window did not break due to the pressure from the hail).
Rainwater and hail then flowed into the basement . . . through the broken
window.” (Docket 25 at p. 5).
Plaintiff argues the Water Exclusion Endorsement does not apply
because the Iron Horse Inn purchased the “Special Form” not a “Standard
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Property Policy.” (Docket 23 at p. 12). The October 1, 2009, declarations pages
explicitly denote the policy as “COMMERCIAL PROPERTY COVERAGE PART.”
(Docket 36-1 at pp. 5-6). The Water Exclusion Endorsement contains the same
language, specifically stating the endorsement modifies the “COMMERCIAL
PROPERTY COVERAGE PART.” (Docket 36-1 at p. 57). The Water Exclusion
Endorsement specifically states the endorsement modifies the “Commercial
Property Coverage Part” of the policy, and the top-right corner of the “Causes of
Loss-Special Form” page clearly identifies that portion of the policy as
“Commercial Property.” Id. at p. 47.
Viewing the entire policy objectively and using the plain and ordinary
meaning of the policy, the Water Exclusion Endorsement applies to and
supersedes the “Causes of Loss-Special Form” portion of the policy. Cornelius,
813 N.W.2d at 169. This language is clear and unambiguous. “A contract is
not rendered ambiguous simply because the parties do not agree on its proper
construction or their intent upon executing the contract.” Roseth v. Roseth,
829 N.W.2d 136, 142 (S.D. 2013) (internal citations omitted). The language of
the Water Exclusion Endorsement modifies and replaces the “Causes of LossSpecial Form” provision and applies to this case.
2.
Whether the endorsement, if it applies here at all, operates to
exclude hail when surface water carried the hail stones to the
exterior of the building, but did not carry it inside the building.
In other words, if the hail piled up to such a depth that it
caused a basement window to collapse inward, and the hail
poured into the building through the open window without
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being carried by water, does the exclusion for damage caused by
water still apply?
(Docket 23 at p. 5) (emphasis in plaintiff’s brief). United Fire agrees there is an
interpretation of the policy which provides coverage. “If Plaintiff’s damages
were caused solely by hail and the weight of the hail alone caused the window
to break, then Defendant agrees . . . that the . . . exclusion would not apply.”
(Docket 25 at p. 9). “[I]f hail was the sole cause of the broken window, and it
was only hail (and no water) that caused damage to Plaintiff’s basement, then
the policy provides coverage to Plaintiff.” Id. (emphasis in original). This issue
is a factual dispute which must be resolved by the jury at trial.
Plaintiff's motion for a pre-trial ruling on the interpretation of the policy
(Docket 22) is granted in part and denied in part consistent with the above
rulings.
II.
PLAINTIFF’S MOTION IN LIMINE TO EXCLUDE EVIDENCE OR
ARGUMENT THAT THE WATER EXCLUSION APPLIES TO
PRECLUDE COVERAGE
Plaintiff moves the court to enter an order excluding evidence or
argument that the general exclusion for water-flood damage contained in
Section B.1.g. applies to bar coverage in this case under Section D “Additional
Coverage – Collapse.” (Dockets 35 & 36 at p. 3). Plaintiff argues the
“Additional Coverage” for “Collapse” set forth in Section D of the policy is
independent coverage and is not subject to the general exclusions (such as the
water-flood exclusion) provided in Section B of the policy. Id. at pp. 3-4.
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United Fire’s initial “grant of coverage” appears in Section A, and that
Section explicitly says that the exclusions in Section B apply to that
coverage. The “Additional Coverage – Collapse,” is added later, in
Section D. Nothing in any provision of the policy says that the
general exclusions in Section B apply to the Additional Coverage –
Collapse, in Section D. In fact, Section D contains its own
limitations. If United Fire meant for the Section B exclusions to apply
to Section D, it had many opportunities to say so. It didn’t. . . .
Section A provides “all-risk” coverage, whereas Section D provides
“specified peril” coverage.
Id. at pp. 20-21.
As mentioned above, Section A, “Covered Causes of Loss” states: “When
Special is shown in the Declarations, Covered Causes of Loss means Risks Of
Direct Physical Loss unless the loss is: 1. Excluded in Section B., Exclusions
. . . .” (Docket 36-1 at p. 47) (bold removed). Section B.2.k makes reference to
“collapse”:
2.
We will not pay for loss or damage caused by or resulting
from any of the following:
...
k.
Collapse, including any of the following conditions
of property or any part of the property:
(1)
An abrupt falling down or caving in;
(2)
Loss of structural integrity, including
separation of parts of the property or
property in danger of falling down or caving
in; or
(3)
Any cracking, bulging, sagging, bending,
leaning, settling, shrinkage or expansion as
such condition relates to (1) or (2) above.
But if collapse results in a Covered Cause of Loss at the
described premises, we will pay for the loss or damage
caused by that Covered Cause of Loss.
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This exclusion, k., does not apply:
(a)
To the extent that coverage is provided
under the Additional Coverage –
Collapse; or
(b)
To collapse caused by one or more of
the following:
(i)
The “specified causes of loss”;
(ii)
Breakage of building glass . . . .
(Docket 36-1 at pp. 49-50). Section D of “Causes of Loss-Special Form” states:
D.
Additional Coverage – Collapse
The coverage provided under this Additional Coverage –
Collapse applies only to an abrupt collapse as described
and limited in D.1 through D.7.
1.
For the purpose of this Additional Coverage –
Collapse, abrupt collapse means an abrupt falling
down or caving in of a building or any part of a
building with the result that the building or part
of the building cannot be occupied for its intended
purpose.
2.
We will pay for direct physical loss or damage to
Covered Property, caused by abrupt collapse of a
building or any part of a building that is insured
under this Coverage Form or that contains
Covered Property insured under this Coverage
Form, if such collapse is caused by one or more of
the following:
....
d.
Use of defective material or methods in
construction, remodeling or renovation if
the abrupt collapse occurs after the
construction, remodeling or renovation is
complete, but only if the collapse is caused
in part by:
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(1)
(2)
One or more of the “specified causes
of loss”;
(3)
3.
A cause of loss listed in 2.a or 2.b;
Breakage of building glass . . . .
This Additional Coverage – Collapse does not
apply to:
a.
b.
G.
A part of a building that is standing, even if
it has separated from another part of the
building; or
c.
8.
A building or any part of a building that is
in danger of falling down or caving in;
A building that is standing or any part of a
building that is standing, even if it shows
evidence of cracking, bulging, sagging,
bending, leaning, settling, shrinkage or
expansion.
....
The term Covered Cause of Loss includes the
Additional Coverage – Collapse as described and
limited in D.1. through D.7.
....
Definitions
....
2.
“Specified causes of loss” means the following:
. . . hail . . . weight of snow, ice or sleet; water
damage. . . .
(Docket 36-1 at pp. 53-56) (bold removed).
Defendant argues Section D.8 specifically “incorporates the entirety of
Section D (‘Additional Coverage – Collapse’) into the ‘Covered Causes of Loss’ in
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Section A . . . .” (Docket 42 at p. 2). “Section D is incorporated into the
‘Covered Causes of Loss’ in Section A, and therefore, is subject to the
exclusions in Section B as Section A provides for coverage ‘unless the loss is:
Excluded in Section B., Exclusions.’ ” Id. Because of this integration,
defendant argues, “the ‘Water Exclusion’ is applicable to the facts of this case.”
Id.
However, the Water Exclusion Endorsement specifically replaces only the
Water Exclusion of Section B. “The exclusion in Paragraph B. replaces the
Water Exclusion in this Coverage Part or Policy.” (Docket 36-1 at p. 57,
paragraph A) (bold removed). The Water Exclusion Endorsement did not
modify the remaining portions of B.1:
a.
Ordinance or Law;
b.
Earth Movement;
c.
Government Action;
d.
Nuclear Hazard;
e.
Utility Services;
f.
War and Military Action; and
h.
Fungus, Wet Rot, Dry Rot and Bacteria.
Id. at pp. 47-49. Likewise, the Water Exclusion did not modify Section B.2,
which identifies separate losses which would not be covered in the event of
loss. Id. at pp. 49-50. It is in Section B.2.k where the collapse exclusion
appears. Id. at p. 50 (see paragraph B.2.k.). But, Section B.2.k declares the
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collapse exclusion is preempted: “this exclusion k. does not apply . . . (a) to the
extent that coverage is provided under the Additional Coverage – Collapse
section.” (emphasis added). That section provides exclusion k. does not apply
to “(b)(ii) Breakage of building glass . . . .” Id.
Section D: “Additional Coverage – Collapse” is separate and independent
of Section B.2.k and provides an independent potential basis for coverage of
plaintiff’s claim. For these reasons, plaintiff’s motion in limine (Docket 35) is
granted.
III.
PLAINTIFF’S MOTION REGARDING SPECIAL INTERROGATORIES
TO THE JURY
Plaintiff proposes a number of special interrogatories for submission to
the jury. (Docket 38 at pp. 15-17). Each of these proposed interrogatories
must be separately evaluated once the court resolves all the legal issues
presented by the parties’ pretrial motions. In addition, the court contemplates
developing its own set of special interrogatories after the parties have sufficient
time to evaluate the court’s rulings. For these reasons, plaintiff’s motion
(Docket 37) is denied.
IV.
DEFENDANT’S MOTION IN LIMINE TO EXCLUDE EVIDENCE OR
ARGUMENT THAT SECTION D (“ADDITIONAL COVERAGE –
COLLAPSE”) OF THE POLICY APPLIES
Defendant moves the court to enter an order excluding evidence or
argument that Section D (“Additional Coverage – Collapse”) of plaintiff’s
insurance policy provides coverage. (Docket 43). Because the court granted
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plaintiff’s motion in limine (Docket 35), defendant’s motion in limine (Docket 43)
is denied.
V.
DEFENDANT’S MOTION IN LIMINE TO EXCLUDE AS EVIDENCE
PLAINTIFF’S PROPOSED EXHIBITS #6 (WATERVIDEO1) AND
#7 (WATERVIDEO2)
Defendant argues the exhibits are not probative of the events of August
3, 2010.
Iron Horse seeks to introduce as evidence videos of the Iron Horse
premises as simulated rainfall accumulation is poured down the
street-access stairwell. The purpose of this evidence, according to
Iron Horse, is to show how water escaped from the stairwell and
disseminated throughout the premises. As such, Iron Horse seeks to
introduce these video exhibits as demonstrations and not
reenactments of the conditions of the actual event. This distinction
is significant because of the different standard applied to
demonstrative evidence, as opposed to reenactments.
(Docket 47 at p. 1). Defendant argues “ ‘[d]emonstrative evidence must be
relevant, probative, and nearly identical’ to the conditions that existed at the
time of an event.” Id. (citing Summervold v. Grevlos, 518 N.W.2d 733, 737
(S.D. 1994). “The videos . . . are dissimilar in at least two fundamental ways
from the conditions of the actual event, thereby precluding admissibility. First,
the amount of water used in the demonstration is significantly less than the
amount present on August 3, 2010. Second, the physical set-up of the
premises in the video differs from the actual event.” Id. at p. 2. Defendant
argues those differences are:
On August 3, 2010, the door to the utility room was closed, yet in
Plaintiff’s proposed video exhibits, the door is open. This discrepancy
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is not insignificant because it counteracts the very purpose for which
Iron Horse seeks to admit the evidence. In other words, Iron Horse
wants to use the videos to show how water flowed through the
stairwell and the premises, but by conducting their demonstration
with an open utility room door, Iron Horse created conditions that
altered where water could accumulate or flow.
Id. at pp. 2-3. “Due to these differences, the video misrepresents the
characteristics of the building and the storm on August 3, 2010.” Id. at p. 3.
For these reasons, defendant argues the videos are more prejudicial than
probative and should be excluded under Fed. R. Evid. 403. Id.
Alternatively, defendant moves for exclusion of the audio portions of
plaintiff’s proposed video exhibits. (Docket 46). Plaintiff does not object to
eliminating the audio portion of the exhibits. (Docket 51 at p. 9)
To create plaintiff’s videos, 1,650 gallons of water were dumped in the
stairwell. (Docket 51 at p. 2). “The videos are offered to show that the stairwell
is not water-tight, and in fact there are several routes through which water can
escape in great quantities, and these outlets are well below the four foot
threshold of the window sill. . . . Consequently, water would drain before it
reached four feet in depth, but hail kept accumulating.” Id. at pp. 1-2.
“Exhibits 6 and 7 are . . . not intended as a ‘re-enactment’ . . . . Instead, the
purpose was to determine what routes water would take once placed in the
stairwell.” Id. at pp. 2-3.
Plaintiff disputes defendant’s assertion the basement door was closed
during the storm as pictures taken immediately after the storm showed the
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door came open. Id. at p. 6. Plaintiff argues that during the storm water was
removed by the sump pump, so the video shows water flowing into the sump
pump pit and escaping through two other large openings. Id. at p. 7. Plaintiff
had sand bags in place before the video to slow the flow of water and test the
capacity of the sump pit and pump. (Docket 51 at p. 8).
The court concludes that with proper foundation the videos are not
intended to be “re-enactments” but are offered to illustrate various routes by
which water may or may not have vacated the stairwell. The videos are not
unduly prejudicial or confusing when balanced against their probative value
and are not excluded by Rule 403. For these reasons the videos are
admissible. The court further finds the audio portion of the videos are not
helpful to the jury’s understanding of the issues and may create confusion.
The audio portion of the videos will not be played at trial. Defendant’s motion
in limine (Docket 46) is denied in part and granted in part.
VI.
DEFENDANT’S MOTION IN LIMINE TO EXCLUDE EVIDENCE OR
ARGUMENT OF DAMAGES AND PLAINTIFF’S PROPOSED EXHIBIT #4
Defendant moves the court to enter an order excluding evidence or
argument relating to plaintiff’s alleged damages. (Docket 49). Defendant
further moves to exclude the portion of plaintiff’s proposed exhibit 4 (Current
Scene) after the 2:08 point of the video. Id. at p. 3.
Exhibit #4 video generally shows the Iron Horse Inn stairwell and
interior of the Iron Horse Inn basement (presumably in its present
state). However, at the 2:08 point of the video and after, the video
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shows scenes of the utility room at the bottom of stairwell. The video
shows the sump pump in the utility room. The video also shows
several openings along the base of the wall of the utility room. In fact,
the videographer . . . goes to great lengths to show close-up views of
the openings in the wall of the utility room at several points in the
video. Plaintiff’s intent is clear. Plaintiff wants to show the jury ways
in which the water flowing down the stairs exited the stairwell other
than through the window into the Iron Horse Inn. However, the door
to the utility room at the bottom of the stairwell was closed at the
time of the events on August 3, 2010. Therefore, showing the jury
hypothetical routes in which water could have traveled and escaped
the stairwell with the utility room door open, will mislead the jury,
confuse the issues, and unfairly prejudice United Fire.
Id. Defendant argues exhibit 4 is more prejudicial than probative and should
be excluded under Rule 403. Id.
Plaintiff agrees the amount of its damages is irrelevant to the Phase I
trial, but the type of damages is relevant to show the nature of the damage—
whether water or melting hail. (Docket 53). Plaintiff argues exhibit 4, like
exhibits 6 and 7, shows the condition of the stairwell and the sump pit and
pump. Id. at p. 3.
The parties stipulated to a bifurcation of trial (Docket 15). Because the
first trial is limited to resolving the question of liability, plaintiff’s money
damages are not relevant. Plaintiff will not be allowed to present money
damage figures to the jury. On the other hand, plaintiff is entitled to present
evidence regarding the nature and extent of any physical damage to the
building. The court finds exhibit 4 to be of the same nature as exhibits 6 and
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7. With proper foundation, exhibit 4 is relevant and is not likely to create
confusion for the jury so as to be excluded under Rule 403.
Defendant’s motion in limine (Docket 49) is granted in part and denied in
part.
ORDER
Based on the above analysis, it is hereby
ORDERED that plaintiff’s motion for pre-trial ruling on interpretation of
policy (Docket 22) is granted in part and denied in part.
IT IS FURTHER ORDERED that plaintiff’s motion in limine to exclude
evidence or argument that the water exclusion applies to preclude coverage
(Docket 35) is granted.
IT IS FURTHER ORDERED that plaintiff’s motion regarding special
interrogatories to the jury (Docket 37) is denied without prejudice.
IT IS FURTHER ORDERED that defendant’s motion in limine to exclude
evidence or argument that section D (“Additional Coverage – Collapse”) of the
policy applies (Docket 43) is denied.
IT IS FURTHER ORDERED that defendant’s motion in limine to exclude
plaintiff’s proposed exhibits 6 and 7 (Docket 46) is granted in part and denied
in part.
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IT IS FURTHER ORDERED that defendant’s motion in limine to exclude
evidence or argument of damages and plaintiff's proposed exhibit 4 (Docket 48)
is granted in part and denied in part.
Dated February 4, 2014.
BY THE COURT:
/s/ Jeffrey L. Viken
JEFFREY L. VIKEN
CHIEF JUDGE
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