Dallas County Hospital District v. NextGen Healthcare Information Systems LLC
Memorandum Opinion and Order denying 21 Motion to Dismiss Plaintiff's First Amended Complaint Pursuant to Rule 12(b)(1). (Ordered by Judge Jane J. Boyle on 1/6/2017) (axm)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS COUNTY HOSPITAL
DISTRICT d/b/a PARKLAND HEALTH
& HOSPITAL SYSTEM,
INFORMATION SYSTEMS, LLC,
CIVIL ACTION NO. 3:15-CV-4063-B
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant NextGen Healthcare Information Systems, LLC’s (NextGen)
Motion to Dismiss Plaintiff Dallas County Hospital District’s (Parkland) First Amended Complaint
Pursuant to Rule 12(b)(1). Doc. 21. The parties argued their positions at a hearing on January 4,
2017. For the following reasons, the Court DENIES NextGen’s Motion.
This is a contract dispute. Parkland is a county hospital district and “political subdivision of
the State of Texas.” Doc. 1, Pl.’s Compl. ¶ 1. NextGen is a company that provides electronic medical
record “software to hospitals and practitioners.” Doc. 22, Def.’s Br. in Supp. of Mot. to Dismiss 2
[hereinafter Def.’s Br.]. On September 15, 2013, Parkland contracted with NextGen for a record
management system. Id. The parties executed two documents that day: (1) the Contract for Services
(the Contract); and (2) the Software License & Services Agreement Addendum #1 (the
Addendum). Id.; Doc. 25, Pl.’s Resp. App. 7, 58.
The Contract lays out performance standards and deadlines for NextGen. See Doc. 1, Pl.’s
Compl. ¶¶ 8–17. The details of both those requirements and the parties’ ensuing conflict are
irrelevant here—suffice to say that Parkland thinks NextGen breached the Contract. See Doc. 1, Pl.’s
Compl. ¶¶ 18–26. The Court’s focus is whether Parkland complied with the Contract’s procedural
requirements when it conveyed that thought to NextGen.
Parkland claims its Chief Operating Officer, Ronald Laxton, determined that NextGen was
in default under the Contract. Docs. 24, Pl.’s Resp. to Def.’s Mot. to Dismiss ¶ 10 [hereinafter Pl.’s
Resp.]; 25, Pl.’s Resp. App., Ex. A, Decl. of Ronald Laxton. Then, Parkland continues, he instructed
Parkland’s counsel to give NextGen notice of default. Parkland’s counsel sent a notice of default to
NextGen on May 14, 2015. Id. The Notice Letter included eight pages of factual findings of default
and informed NextGen that it had thirty days to cure. Doc. 25, Pl.’s Resp. App., Ex. B, Notice Letter.
NextGen denied the allegations of default and—under the belief that the notice of default was not
actually a notice of default because it did not issue directly from Laxton—took no further action.
Docs. 22, Def.’s Br. 2–3; 24, Pl.’s Resp. ¶ 11.
After the Contract’s 30-day cure period expired, Parkland says Laxton directed Parkland’s
counsel to issue a final decision that Parkland was terminating the Contract. Docs. 24, Pl.’s Resp.
¶ 12; 25, Pl.’s Resp. App., Ex. A, Decl. of Ronald Laxton, Ex. D, Termination Letter. The
Termination Letter referenced the findings of fact included in the Notice Letter, noted that NextGen
had failed to remedy them, demanded repayment of Parkland’s previous payments to NextGen,
concluded that NextGen was in default, and advised NextGen of its right to appeal within 90 days
under the Contract’s Disputes Clause. Docs. 24, Pl.’s Resp. ¶ 12; 25, Pl.’s Resp. App., Ex. D,
NextGen did not respond to the Termination Letter. Docs. 22, Def.’s Br. 2–3; 24, Pl.’s Resp.
¶¶ 13–14. So after the 90-day appeal window passed, Parkland brought suit to enforce its finding of
breach. Doc. 24, Pl.’s Resp. ¶ 15. NextGen now moves to dismiss Parkland’s claim under Rule
12(b)(1), alleging that the Court lacks subject matter jurisdiction because Parkland failed to exhaust
its own administrative dispute resolution process before bringing suit.
“‘Federal courts are courts of limited jurisdiction.’” MacKenzie v. Castro, No. 3:15-cv-0752-D,
2016 WL 3906084, at *2 (N.D. Tex. July 19, 2016) (quoting Stockman v. Fed. Election Comm’n, 138
F.3d 144, 151 (5th Cir. 1998)). For that reason, they can adjudicate claims only when subject matter
jurisdiction “is expressly conferred by the Constitution and federal statute. Federal Rule of Civil
Procedure 12(b)(1) provides the vehicle through which” a party may challenge that jurisdiction.
Armstrong v. Tygart, 886 F. Supp. 2d 572, 584 (W.D. Tex. 2012) (internal citations omitted).
“A Rule 12(b)(1) motion can mount either a facial or factual challenge.” MacKenzie, 2016
WL 3906084, at *2. A facial challenge occurs “when a party files a Rule 12(b)(1) motion without
including evidence.” Id. A factual challenge, by contrast, occurs when a party supports its Rule
12(b)(1) motion with evidence. Id.
In both cases, the burden of proof “‘is on the party asserting jurisdiction.’” Id. (quoting
Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (per curiam)). So Parkland must prove
jurisdiction exists. Yet that is no high bar: “‘[I]t is extremely difficult to dismiss a claim for lack of
subject matter jurisdiction.’” Santerre v. AGIP Petrol. Co., 45 F. Supp. 2d 558, 566 (S.D. Tex. 1999)
(quoting Garcia v. Copenhaver, Bell & Assocs., 104 F.3d 1256, 1260 (11th Cir. 1997)).
For a facial challenge, courts consider just “the allegations in the complaint because they are
presumed to be true.” Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981). And if they
sufficiently allege a claim for recovery, then the complaint stands and the court must entertain the
But this is a factual challenge. Plaintiffs enjoy no presumption towards truthfulness here.
Williamson v. Tucker, 645 F.2d 404, 412–13 (5th Cir. 1981). Instead, they must “prove subject matter
jurisdiction by a preponderance of the evidence.” MacKenzie, 2016 WL 3906084, at *2 (citing
Paterson, 644 F.2d at 523). To that end, each party may submit affidavits, testimony, and other
evidentiary materials in support of their positions. Paterson, 644 F.3d at 523.
This is unlike a motion to dismiss under Rule 12(b)(6). See Robinson v. Paulson, No. H-064083, 2008 WL 4692392, at *10 (S.D. Tex. Oct. 22, 2008) (citing Garcia, 104 F.3d at 1261)
(explaining that courts “may consider matters outside the pleadings” in the context of Rule 12(b)(1)
“without converting the motion to dismiss to one for summary judgment”). On that basis, courts are
given wide discretion “to resolve disputed jurisdictional facts.” Id. So in resolving a factual challenge,
the court, “which does not address the merits of the suit, has significant authority to ‘weigh the
evidence and satisfy itself as to the existence of its power to hear the case.’” Ellis v. Educ. Comm’n for
Foreign Med. Graduates, No. A. H-14-2126, 2015 WL 3866728, at *2 (S.D. Tex. June 23, 2015)
To start—and to give some backdrop to the tangle of statutes, regulations, and arguments
that follow—the Court recognizes that the “doctrine of exhaustion of administrative remedies is well
established in the jurisprudence of administrative law.” McKart v. United States, 395 U.S. 185, 193
(1969). It “provides that no one is entitled to judicial relief for a supposed or threatened injury until
the prescribed administrative remedy has been exhausted.” Id. (internal quotations and citations
omitted). Usually, this comes about when someone suing an agency jumps the gun on bringing suit.
But the doctrine flows both ways—agencies must exhaust their own administrative remedies before
seeking judicial relief. See Martinez v. United States, 728 F.2d 694, 698 (5th Cir. 1984).
NextGen’s Motion rests on that premise—it argues that the Court lacks subject matter
jurisdiction because Parkland failed to follow its own administrative procedures. Accordingly, the
parties centered all of their initial briefing on that point, presupposing that no exhaustion equaled
no jurisdiction. Yet that oversimplifies the issue because the exhaustion can be either statutory or
jurisprudential. See Williams v. J.B. Hunt Transp., Inc., 826 F.3d 806, 810 (5th Cir. 2016). Statutory
exhaustion requirements set forth in statutes or regulations are jurisdictional prerequisites; if a party
does not exhaust its administrative remedies, then courts lack subject matter jurisdiction. Id.; see also
Taylor v. U.S. Treas. Dep’t, 127 F.3d 470, 475 (5th Cir. 1997) (explaining that statutory exhaustion
requirements are “tantamount to a legislative investiture of exclusive original jurisdiction in the
But “‘in the absence of a statutory requirement of exhaustion of administrative remedies, the
jurisprudential doctrine of exhaustion controls.’ That doctrine ‘is not jurisdictional in nature,’” and
to treat it as such is error. Williams, 826 F.3d at 810 (quoting Taylor, 127 F.3d at 475). With that in
mind, the Court ordered the parties to submit additional briefing on the nature of the exhaustion
requirement at issue here. See Doc. 28, Order for Suppl. Br.
Which Process Must Be Exhausted and From Where Does it Flow?
Parkland’s own procedures create a statutory exhaustion requirement
Both parties agree that there is a statutory exhaustion requirement at play here that
implicates the Court’s subject matter jurisdiction. After reviewing the parties’ briefing and
considering their oral arguments, the Court concurs. See Docs. 29, Pl.’s Suppl. Br. 2, 4–7; 31, Def.’s
Suppl. Br. 2–6.
Parkland is an agency of the state and derives its authority from both the Texas Local
Government and Health and Safety Codes. The Public Property Finance Act grants governmental
agencies acting through their governing bodies the ability to contract for certain purchases. Tex. Loc.
Gov’t Code §§ 271.001 et seq. Parkland is a governmental agency and its Board of Managers is a
governing body. See id. §§ 271.003(3)–(5). And Section 271.005 grants the Board authority to enter
into contracts like the one at issue here. Id. § 271.005.
The Health and Safety Code grants the Board general powers to control and manage
Parkland. See Tex. Health & Safety Code § 281.047.The Dallas County Commissioners Court has
authority to develop specific policies and procedures for making such purchases—but they can
delegate that power to the Board. Id. § 281.049. And that’s what happened here.
The Commissioners Court established purchasing policies, then delegated the enforcement
and administration of those policies to the Board. Dallas Cty. Code § 78-31(a). The Board then set
out those procedures in the Dallas County Hospital District Purchasing Practices and Procedures
Manual (the Manual). Dallas Cty. Hosp. Dist. Purchasing Prac. & Proc. Manual, available at
http://www.parklandhospital.com/Uploads/Public/Documents/PDFs/Purchasing-Practices-andProcedures-Manual.pdf [hereinafter Manual] Thus, the Manual is a regulatory scheme promulgated
under powers granted by the Texas state legislature, and its exhaustion requirements are therefore
statutory. See Martin K. Eby Const., Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467–68
(explaining that a governmental agency’s dispute-resolution procedures found only in its own
procurement regulations and agreement with contractors may constitute a statutory administrative
The Contract provides the procedures to be followed
As noted above, both sides agree up to this point—and so does the Court. They disagree,
however, on which of Parkland’s procedures apply. Parkland argues that the procedures set forth in
the Contract’s Disputes Clause control. See Doc. 29, Pl.’s Suppl. Br. 3, 7–10. NextGen, on the other
hand, claims that the Manual’s procedures govern. See Doc. 31, Def.’s Suppl. Br. 6–11.
The Manual applies to “every expenditure of [Parkland’s] funds.” Manual § 1-106(1)–(2);
Doc. 22, Def.’s Br. 7. It is over 200 pages long and has a litany of provisions. See generally Manual.
Two are relevant here. The first is Section 10-400 – Contract Disputes Procedures. Manual § 10401–404. It “contains the procedures for resolving contract disputes pursuant to the Disputes Clause
required by the [Manual] to be included in [Parkland’s] contracts.” Id. § 10-401. That includes the
Contract with NextGen. Doc. 22, Def.’s Br. 7. The Manual provides that:
(1) When a controversy cannot be resolved by mutual agreement, the Contracting
Officer shall, after written request by the contractor for a final decision, promptly
issue a written decision. Before issuing a final decision, the Contracting Officer shall:
(a) review the facts pertinent to the controversy; and
(b) secure any necessary assistance from legal, fiscal, and other advisors.
(2) The Contracting Officer immediately shall furnish a copy of the decision to the
contractor . . . and include in the decision:
(a) a description of the facts giving rise to the controversy;
(b) a reference to pertinent contract provisions;
(c) a state of the factual areas of agreement or disagreement;
(d) a statement of the Contracting Officer’s decision, with supporting
(e) a paragraph substantially as follow:
“This is the final decision of the Contracting Officer. This decision
may be appealed to the Board of Managers of the District. If you decide to
make such an appeal, you must mail or otherwise furnish a written notice of
appeal to the Board on or before the 90th day from the date you receive this
decision. A copy of the notice of appeal shall be furnished to the Contracting
Officer from whose decision the appeal is taken. The notice shall indicate
that an appeal is intended, reference the decision from which the appeal is
being taken, and identify the contract involved.
Manual § 10-403. The second is the disputes clause that is set out in Chapter Six of the Manual. It
is also the Contract’s Disputes Clause, and reads in pertinent part:
Except as otherwise provided in this contract, any dispute concerning a question of
fact or law arising under or related to this contract which is not disposed of by
agreement shall be decided by the Contracting Officer, who shall reduce his decision
to writing and mail or otherwise furnish a copy thereof to [NextGen]. The decision
of the Contracting Officer shall be final and conclusive unless, on or before the 90th
day from the date of receipt of such copy, [NextGen] mails or otherwise furnishes a
written appeal addressed to [Parkland].
Doc. 23, Def.’s App. 6–7, Contract § H-10. A cursory comparison of the two provisions sheds light
on the parties’ positions: Parkland’s actions here look to comply with the Disputes Clause but the
Manual is a closer call. The Court looks to the whole of the Contract to determine which applies.
Klein v. Fed. Ins. Co., —F. Supp. 3d—, 2016 WL 7106307, at *6 (N.D. Tex. 2016).
Contracting Officer is a defined term in the Contract. Originally, it meant “the person
executing this contract of behalf of [Parkland] or such person’s duly appointed successor” and
included “the authorized representative of the Contracting Officer acting within the limits of such
representative’s authority.” Doc. 23, Def.’s App. 5, Contract § A-1(c).
But the parties later executed two Schedules amending the Contract. See id. at 8–10,
Contract Schedules A-1 & A-2. Schedule A-1 redefined Contracting Officer to mean only
Parkland’s “Chief Executive Officer, Chief Financial Officer, or Chief Operating Officer.” Id. at 9,
Contract Schedule A-1 ¶ 12. Schedule A-2 established the primacy of documents for
interpretation—any inconsistency would “be resolved by giving precedence to the following order:
(a) the Addendum; (b) the Schedules; and (c) the Contract.” Id. at 10, Contract Schedule A-2. So
the Addendum controls. And it contains the following provision:
Other than those provisions of the [Manual] specifically referenced in the [Contract],
the terms and conditions of the [Manual] shall not be applicable to [NextGen].
Id. at 11, Addendum ¶ C.3. Accordingly, Parkland claims, the Contract’s Dispute Clause alone
provides the dispute resolution procedures that Parkland had to follow before bringing suit because
the Disputes Clause does not reference the Manual. See Doc. 29, Pl.’s Suppl. Br. 3, 7–10. NextGen
asserts a number of positions in response to argue that the combined impact of the above provisions
allow the Manual’s dispute resolution procedures to supplement the Disputes Clause. See Doc. 31,
Def.’s Suppl. Br. 6–11. None are persuasive.
Section 271.154 of the Texas Local Government Code provides that administrative remedies
applicable to a local government entity’s particular purchase are established by the parties’ affirmative
incorporation of those terms into their contract. But here, the Dallas County Code expressly provides
that Parkland’s CEO or COO can create exceptions to the Manual’s procedures if—as happened
here—those exceptions are filed with Parkland’s Board of Managers. See Dallas Cty. Code § 7831(c); Doc. 30, Pl.’s App. Supp. Suppl. Br., Ex. A, Decl. of James Floyd. The Manual itself echoes
The Chief Executive Officer may approve deviations from this Manual with respect
to an individual procurement; provided, however, that any such deviation (together
with a description of the circumstances and the justification therefore) shall be
reported to the Board at its next meeting in a written report of the Chief Executive
Manual § 2-301. Read together, then, § 271.154 of the Texas Local Government Code, together
with § 78-31(c) of the Dallas County Code and § 2-301 of the Manual, allow Parkland’s Board of
Managers to deviate from the Manual’s procedures on a contract-by-contract basis if the deviation
is reported to the Board at its next meeting in a written report from Parkland’s CEO. Put another
way, Parkland’s Board of Managers dictates the dispute resolution procedure for every contract that
Parkland enters into—and while the Manual provides the default process, the parties are free to
amend that process by the terms of their agreement provided they gain Board approval. The Court
is not charting new territory with this line of reasoning—indeed, another court in this District has
found as much and was affirmed by the Fifth Circuit. See Martin K. Eby Constr. Co. v. Dallas Area
Rapid Trans., No. 3:03-cv-0110-G, 2003 WL 21529043, at *3 (N.D. Tex. July 3, 2003), aff’d 369
F.3d 464 (5th Cir. 2004).
In that case, a contractor entered into a contract with Dallas Area Rapid Transit. Id. at *1.
DART, like Parkland, had a procurement manual. Id. at *2. And like Parkland’s, it contained both
a section on dispute procedures and a template disputes clause to be included in DART’s contracts.
The language in both manuals is substantially the same, as is the disputes clause. The contract in
that case, however, specified that the contractor had to exhaust its administrative remedies under
either the manual or the disputes clause. Id. at *3. It did neither, and the court found:
As previously noted, the Texas Transportation Code empowers the DART board of
directors to promulgate rules regarding the resolution of contract disputes. The
contract between Eby and DART specified that Eby must first submit its dispute to
a Contracting Officer. Because Eby has not exhausted its requisite administrative
remedies prescribed by the contract, it is not entitled to judicial review.
Id. (emphasis added). Simply put, the contract’s terms controlled and, because they were
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promulgated by the board, were jurisdictional—just like in this case. And while the contract in Eby
allowed for the parties to appeal through either the contract’s dispute clause or the manual’s section
on dispute procedures, the Contract here does not. The Contract’s Addendum is clear that the
Manual applies only when expressly referred to. The Disputes Clause does not mention it. So the
Disputes Clause alone sets forth the procedures that the parties must exhaust before filing suit.
In sum, a confluence of the Texas Government, Local Government, and Health & Safety
Codes, along with the Dallas County Code and Parkland’s procurement Manual, creates a statutory
administrative exhaustion requirement that must be satisfied for the Court to have subject matter
jurisdiction. Generally, Parkland’s Manual sets out the applicable procedures. Here, however,
Parkland’s Board, using authority delegated to it by the Dallas County Commissioners Court,
approved the Contract’s deviation from those default procedures. And the Contract makes plain that
in this situation, the Disputes Clause’s procedures—not the Manual’s—control.
As a result, Parkland must have followed the Disputes Clause’s procedures before it filed suit.
The fate of NextGen’s motion therefore turns on whether it did.
What Steps Must Parkland Take Under the Contract’s Disputes Clause?
The Contract’s Disputes Clause states, in pertinent part:
Except as otherwise provided in this contract, any dispute concerning a question of
fact or law arising under or related to this contract which is not disposed of by an
agreement shall be decided by the Contracting Officer, who shall reduce his decision to
writing and mail or otherwise furnish a copy thereof to the Contractor.
Doc. 25, Pl.’s Resp. App. 15–16 (emphasis added).
NextGen argues that Parkland failed to follow the Disputes Clause. Doc. 22, Def.’s Br. 4–6.
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In particular, NextGen claims that, when read in conjunction with Schedule A-1's amended
definition of Contracting Officer, the Disputes Clause requires a C-suite executive to both make a
decision on default and breach and reduce his own decision to writing. In other words, the amended
definition prevents a Contracting Officer from delegating any authority under the Disputes
Clause—he must make the decision and then either author or sign the notices sent to NextGen. Id.
Nextgen asserts that Parkland’s COO Laxton did not do both steps. Laxton may have made
the decision, NextGen concedes, but he delegated his duty to reduce that decision to writing. Id. In
so doing, NextGen continues, Parkland violated the Disputes Clause and robbed NextGen of notice
that it had reached a final decision on default. Id. at 5–6. In short, Parkland did not exhaust its own
administrative process. Id. Therefore, NextGen concludes, the Court lacks subject matter
Parkland presents an antipodal interpretation in response: The Disputes Clause, when read
together with Contracting Officer’s amended definition, just prevents the Contracting Officer from
delegating his decision-making authority. Doc. 24, Pl’s Resp. 5–6. That his decision be reduced to
writing is integral; who reduces it, however, is irrelevant. Id. Laxton made the decision that NextGen
was in default and breach, and then had Parkland’s legal department reduce his decision to writing
and mail it to NextGen. See Doc. 25, Pl.’s Resp. App., Ex. A, Decl. of Ronald Laxton. For that
reason, Parkland concludes, it complied with the Disputes Clause. Id.
The Court sides with Parkland and finds NextGen’s argument wanting on two levels. For
starters, NextGen’s entire theory is that it lacked notice of default because Ronald Laxton did not
personally author or sign the letters it received. That position is questionable given that the letters
were titled “Notice of Default” and “Termination for Default.” Doc. 25, Pl.’s Resp. App., Ex. B,
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Notice Letter; Ex. D, Termination Letter. Those look clear enough.
As to the larger issue of interpreting what “who shall reduce to writing” means, it strains
credulity to believe that NextGen, in negotiating the terms of the Contract, thought it necessary that
the Contracting Officer must him or herself type out the contents of his or her decision.
Under Texas law, the court’s primary concern when interpreting a contract is to
ascertain the parties intentions as expressed objectively in the contract. In doing so,
the court must examine and consider the entire writing in an effort to harmonize and
give effect to all contractual provisions, so that none will be rendered meaningless.
Language should be given its plain and grammatical meaning unless it definitely appears that
the parties intentions would thereby be defeated. Where the contract can be given a
definite legal meaning or interpretation, it is not ambiguous, and the court will
construe it as a matter of law.
Klein, 2016 WL 7106307, at *6 (emphasis added) (internal citations omitted).
At bottom, then, this whole fight hinges on what “reduce” means. Merriam-Webster provides
12 definitions; two apply here: (1) “to bring to a specified state or condition”; and (2) “to put down
https://www.merriam-webster.com/dictionary/reduce. Neither would appear to require that Laxton
personally wrote the letters to NextGen.
To be sure, NextGen may have intended that the Contract require a Contracting Officer to
personally write out his or her decision. But if a contract “is worded so that it can be given a definite
or certain legal meaning, it is not ambiguous and the court must construe the policy as a matter of
law and enforce it as written.” Tetra Tech. Inc. v. Cont’l Ins. Co., 814 F.3d 733, 746–47 (5th Cir.
2016). In other words, a contract is not ambiguous unless it is “susceptible to two or more reasonable
interpretations.” Tesoro Ref. & Mktg. Co. v. Nat’l Union Fire Ins. Co. of Pitt., 833 F.3d 470, 474 (5th
Cir. 2016) (internal quotations and citations omitted). Neither the bare presence of conflicting
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contract interpretations nor mere “disagreement about the meaning of” terms is enough. Id.
And here, it just is not reasonable to conclude that “reduce to writing” means write; if it did,
then the contract would have said “write” instead. Laxton made his decision and then made sure
that it was written down (ie. “reduced to writing”)and sent to NextGen. That suffices. Parkland has
proven by a preponderance of the evidence that it complied with the Disputes Clause and, in so
doing, exhausted its own administrative process. On that basis, the Court has subject matter
jurisdiction over this case.
For the above reasons, the Court DENIES NextGen’s Motion to Dismiss Parkland’s First
Amended Complaint Pursuant to Rule 12(b)(1).
SIGNED: January 6, 2017.
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
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