CHRISTIAN LIFE CENTER, INC. et al v. Colony Insurance Company
Filing
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MEMORANDUM AND ORDER GRANTING 41 Opposed MOTION to Intervene.(Signed by Judge Keith P Ellison) Parties notified.(sloewe)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CHRISTIAN LIFE CENTER, INC. et al, §
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Plaintiffs,
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v.
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COLONY INSURANCE COMPANY,
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Defendant.
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CIVIL ACTION NO. 4:9-cv-3776
MEMORANDUM AND ORDER
Pending before the Court is Foundation Capital Resources, Inc.’s (“FCR”) Motion
to Intervene (“Motion”). (Doc. No. 41.) Having considered the Motion, all responses
and replies thereto, and the applicable law, the Court finds that FCR’s Motion must be
GRANTED.
I. BACKGROUND
This case arises out of a dispute between a church and its affiliated day care
center and school, which sustained damage during Hurricane Ike, and the insurance
company that issued the insurance policy covering the damaged structures. Plaintiffs
Christian Life Center, Inc., Christian Life Center Academy, and Christian Life Center
Daycare (collectively, “Plaintiffs”) filed this lawsuit against Colony Insurance Company
(“Defendant”) in state court in October 2009 for breach of the insurance contract, as well
as for claims under the Texas Insurance Code and the Deceptive Trade Practices Act.
Defendant removed the case pursuant to the Court’s diversity jurisdiction.
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Shortly thereafter, invoking the appraisal clause in the insurance contract,
Defendant moved to compel appraisal of the properties. The Court granted Defendant’s
motion and stayed the case during the appraisal process, which began in March 2010.
In January 2011, Plaintiffs filed a Motion to Lift the Stay, informing the Court
that, although the umpire issued an appraisal award, issues remained that required the
Court’s resolution. The Court granted the motion and lifted the stay. Subsequently,
Defendant filed a Motion to Dismiss Plaintiffs’ contractual claims because, it claimed,
the uncontested appraisal award is binding. Defendant also asked the Court to grant
summary judgment as to Plaintiffs’ extracontractual claims because, it argued, the
evidence conclusively negates these claims as a matter of law. Plaintiffs responded to
Defendant’s motions, requesting a thirty-day extension to obtain discovery on several of
the remaining disputed issues. The Court granted Plaintiffs’ request.
Before the Court could rule on Defendant’s Motion to Dismiss and for Summary
Judgment, however, Plaintiffs filed a document entitled Response to Defendant’s Offer of
Judgment. The document stated that, in April 2011, Defendant made Plaintiffs an offer
of judgment in the amount of $175,000.
Plaintiffs stated that they would accept
Defendant’s offer if the payees listed on the offer of judgment were only Plaintiffs and
their attorney. If, however, Defendant’s offer of judgment listed persons or entities other
than Plaintiffs and their attorney as payees, then the offer would be improper and not
unconditional and Plaintiffs would not accept it.
Subsequently, Defendant filed a Reply to Response to Offer of Judgment and
Alternative Motion to Join Mortgage Company. In this motion, Defendant argued that
Plaintiffs’ mortgage lender, FCR, is an indispensable party under Federal Rule of Civil
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Procedure 19(a)(1)(A) because, it contended, FCR has an equitable lien on the properties
and because there is a Loss Payable provision in the relevant insurance policy. It argued
that the mortgage lender must be a co-payee for any payment made either in a settlement
or judgment in this matter. Alternatively, Defendant asked the Court to join the mortgage
lender if the parties were unable to resolve the objections to Defendant’s offer of
judgment. The Court held a hearing in hopes of resolving the issue of the proper payees
for Defendant’s offer of judgment, but the parties were unable to come to an agreement.
FRC subsequently filed the present Motion to Intervene pursuant to Rule 24.
FCR alleges that it loaned Plaintiffs approximately $7,000,000 in February 2007 to
purchase the properties involved in the case. FCR claims that Plaintiffs secured the loan
by granting FCR a lien on the properties. Pursuant to section 1.3 of the relevant Deed of
Trust, FCR argues, the insurance proceeds Plaintiffs seek to recover have been assigned
to FCR. Section 1.3 states in relevant part:
All insurance proceeds on the Property . . . and all causes of actions,
claims, compensation, awards . . . recoveries for any damage . . . or for
any damage or injury . . . are hereby assigned to and shall be paid to
Lender. At Lender’s option, Lender may appear in and prosecute . . . or
participate in any suits or proceedings, relating to any such proceeds,
causes of action, claims, compensation, awards or recoveries. Lender shall
apply any sums received by it under this Section 1.3 first to the payment
of all its reasonable costs and expenses (including but not limited to legal
fees and disbursements) incurred in obtaining those sums, and then, in its
absolute discretion and without regard to the adequacy of its security, to
the payment of the indebtedness and obligations secured by this Security
Instrument.
(Ex. 2 to Ex. A to Mot. Inv. at 3.)
FCR asserts that, pursuant to Section 1.3, it has an interest related to the
properties that are the subject of this lawsuit and disposing of the action may impair or
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impede its ability to protect its interest in the insurance proceeds. It argues that no
deadlines have been established in this case and that its intervention will not delay or
prejudice the adjudication of the original parties’ rights. Defendant filed a Motion to
Dismiss in which it asked for the Court to grant FCR’s Motion to Intervene. (Doc. No.
43.) Plaintiffs then filed a response to the Motion to Intervene, to which FCR did not file
a reply. (Doc. No. 45.) Defendant later filed a Motion for Leave for Colony Insurance
Company to File Declaratory Judgment Action, for Joinder of 600 Charles LLC, and for
Partial Abatment, in which it requested joinder of 600 Charles LLC, an entity believed to
claim an ownership interest in the payment on the property involved in the litigation.
(Doc. No. 49.)
The Court held a hearing on the question of assignability in September, at which
the Court granted parties additional time to file briefing on the issue. FCR filed a Brief in
Support of its Motion to Intervene Addressing the Issue of Assignability. (Doc. No. 52.)
Defendant filed Colony Insurance Company’s Response to Plaintiffs’ and Foundation
Capital Resource, Inc.’s Briefs to the Court (Doc. No. 53) urging joinder of FCR as well
as 600 Charles Street LLC. Plaintiffs filed a Supplement to Plaintiffs’ Response to the
Motion to Intervene of Foundation Capital Resources, Inc. (Doc. No. 51) and Plaintiff’s
Response to Foundation Capital Resources, Inc.’s Brief in Support of its Motion to
Intervene Addressing the Issue of Assignability (Doc. No. 54).
II. LEGAL STANDARD
Under Federal Rule of Civil Procedure 24(a), “[o]n a timely motion, the court
must permit anyone to intervene who: (1) is given an unconditional right to intervene by
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a federal statute; or (2) claims an interest relating to the property or transaction that is the
subject of the action, and is so situated that disposing of the action may as a practical
matter impair or impede the movant’s ability to protect its interest, unless existing parties
adequately represent that interest.” A party seeking to intervene as of right must satisfy
four requirements: (1) timeliness, (2) an interest relating to the action, (3) that the interest
would be impaired or impeded by the case, and (4) that the interest is not adequately
represented by existing parties. In re Lease Oil Antitrust Litig., 570 F.3d 244, 247 (5th
Cir. 2009) (citations omitted). If a party seeking to intervene fails to meet any one of
those requirements, it cannot intervene as a matter of right. Sierra Club v. Espy, 18 F.3d
1202, 1205 (5th Cir. 1994) (citing Kneeland v. Nat’l Collegiate Athletic Ass’n, 806 F.2d
1285, 1287 (5th Cir. 1987), cert. denied, 484 U.S. 817, 108 S.Ct. 72, 98 L.Ed.2d 35
(1987)).
District courts may also grant permissive intervention. Under Federal Rule of
Civil Procedure 24(b), “[o]n timely motion, the court may permit anyone to intervene
who: (A) is given a conditional right to intervene by a federal statute; or (B) has a claim
or defense that shares with the main action a common question of law or fact.” When
“exercising its discretion, the court must consider whether the intervention will unduly
delay or prejudice the adjudication of the original parties’ rights.” FED. R. CIV. P.
24(b)(3). Thus “Rule 24(b)(2) provides for permissive intervention when (1) timely
application is made by the intervenor, (2) the intervenor’s claim or defense and the main
action have a question of law or fact in common, and (3) intervention will not unduly
delay or prejudice the adjudication of the rights of the original parties.” League of United
Latin Am. Citizens, Council No. 4434 v. Clements, 884 F.2d 185, 189 (5th Cir. 1989). See
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also Chambers Med. Found. v. Petrie, 221 Fed.Appx. 349, 350 (5th Cir. 2007) (“Under
Rule 24(b), permissive intervention is appropriate where ‘an applicant's claim or defense
and the main action have a question of law or fact in common.’” (quoting Trans Chem.
Ltd. v. China Nat. Mach. Imp. and Exp. Corp., 332 F.3d 815, 821-22 (5th Cir. 2003))).
III. APPLICATION
The Court finds that FCR meets the first two prongs for intervention as of right:
timeliness and an interest related to the action. However, FCR fails to sufficiently explain
how it meets the last two prongs of the test. Thus, the Court will not grant FCR
intervention as of right. However, the Court will grant FCR permissive intervention.
A.
Intervention as of Right
1. Timeliness
The first factor for intervention as of right, timeliness, has four subparts: (1) the
length of time between the would-be intervenor’s learning of her interest and her petition
to intervene, (2) the extent of prejudice to existing parties from allowing late intervention,
(3) the extent of prejudice to the would-be intervenor if the petition is denied, and (4) any
unusual circumstances. In re Lease Oil Antitrust Litig., 570 F.3d at 247-48. The analysis
is contextual and all circumstances should be considered.
Absolute measures of
timeliness should be ignored. Sierra Club, 18 F.3d at 1205.
i.
Length of Time
The first timeliness factor is “‘[t]he length of time during which the would-be
intervenor actually knew or reasonably should have known of his interest in the case
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before he petitioned for leave to intervene.’” In re Lease Oil Antitrust Litig., 570 F.3d at
248 (quoting Stallworth v. Monsanto Co., 558 F.2d 257, 264 (5th Cir. 1977)). In this
case, Plaintiffs allege that, as early as November 2008, FCR was aware that Plaintiffs
intended to pursue a Hurricane Ike insurance claim against Defendant. In March 2009,
they assert, they gave FCR a status report on their insurance claim. In addition, before
Plaintiffs re-financed their mortgage note with FCR in September 2010, Plaintiffs told
two FCR employees about the pending lawsuit. At that time, Plaintiffs claim that an
employee of FCR told Plaintiffs that FCR was not interested in obtaining any insurance
proceeds that may be awarded in connection with this lawsuit. Plaintiffs contend that it
was only after Defendant contacted FCR following its offer of judgment attempting to list
FCR as a co-payee that FCR moved to intervene.
FCR has not contested these facts. Thus, the Court finds that FCR knew or
should have known of its interest in the case in approximately the fall of 2009, more than
a year and a half before it moved to intervene.
ii.
Extent of Prejudice to Existing Parties from
Allowing Late Intervention
The Fifth Circuit makes clear that, with regard to this second sub-factor,
“prejudice must be measured by the delay in seeking intervention, not the inconvenience
to the existing parties of allowing the intervenor to participate in the litigation.” Sierra
Club, 18 F.3d at 1206. Plaintiffs list a number of actions that have taken place in this
case since it was filed in 2009; however, they do not point to any specific ways in which
they would be prejudiced by FCR’s tardy intervention in this case. Plaintiffs do assert
that FCR’s attempt to intervene in this action is for an improper purpose. They claim that
FCR and Defendant are conspiring in bad faith to deprive Plaintiffs of their insurance
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proceeds under the appraisal award. Indeed, Plaintiffs claim, Defendant has indicated
that it supports FCR’s intervention so that FCR can accept its previous offer of judgment
or otherwise settle this case. This potential prejudice to Plaintiffs, however, would not
result from FCR’s delay in seeking intervention in this lawsuit.
iii.
Extent of Prejudice to Would-Be Intervenor if
Motion is Denied
If FCR’s motion is denied, it will arguably be “forced to institute a separate
action.” Skinner v. Weslaco Indep. Sch. Dist., No. 99-40541, 2000 WL 959531, at *2
(5th Cir. June 7, 2000). The Fifth Circuit has found prejudice under such circumstances.
Id. (citing cases). Indeed, given that Plaintiffs appear unwilling to allow FCR to be a copayee on any settlement check, FCR may be forced to institute a separate action in order
to enforce any rights it may possess under the Deed of Trust.
The Fifth Circuit is clear that “[t]he requirement of timeliness is not a tool of
retribution to punish the tardy would-be intervenor, but rather a guard against prejudicing
the original parties by the failure to apply sooner.” Sierra Club, 18 F.3d at 1205 (citing
McDonald v. E.J. Lavino Co., 430 F.2d 1065, 1074 (5th Cir. 1970)). “Federal courts
should allow intervention ‘where no one would be hurt and greater justice could be
attained.’” Id.; see also Sierra Club v. Fed. Emergency Mgmt. Agency, Civ. No. H-070608, 2008 WL 2414333, at *5 (S.D. Tex. June 11, 2008). Under this standard, although
FCR delayed nearly a year and a half, it appears that FCR’s intervention is timely.
2. An Interest Relating to the Action
In addition to timeliness, FCR must demonstrate an interest that will be impaired
or impeded if it cannot intervene and that is not adequately represented by the existing
parties.
To support intervention as of right, FCR must show that it has “a direct,
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substantial, legally protectable interest in the action, meaning that the interest be one
which the substantive law recognizes as belonging to or being owned by the applicant.”
In re Lease Oil Antitrust Litig., 570 F.3d at 250 (citing Cajun Elect. Power Coop. v. Gulf
States Utils., Inc., 940 F.2d 117, 119 (5th Cir. 1991)) (internal quotations omitted).
Here, FCR contends that, pursuant to section 1.3 of the Deed of Trust, the
insurance proceeds Plaintiffs seek to recover have been assigned to FCR. Thus, it argues,
it has a legally protectable interest in any award Plaintiffs recover in this case. Plaintiffs
counter that FCR has no such interest in this lawsuit because the insurance policy at issue
contains a non-assignment clause that is enforceable under Texas law.
Indeed, Plaintiffs contend, paragraph F of the insurance policy’s Common Policy
Conditions is entitled “Transfer of Your Rights and Duties Under This Policy” and states
in pertinent part: “Your rights and duties under this policy may not be transferred
without our written consent except in the case of death of an individual named insured.”
(Doc. No. 28-2.) Plaintiffs argue that such non-assignment clauses have been enforced
consistently by Texas courts and, thus, Plaintiffs’ right to recover insurance proceeds
under that policy could not be assigned without Defendant’s prior written consent.
Plaintiffs argue that Defendant never granted Plaintiffs written consent to any assignment
of their rights under the insurance policy and, thus, the clause in the Deed of Trust
purporting to assign Plaintiffs’ rights to all “insurance proceeds on the Property” is
invalid. Because the invalid assignment clause in the Deed of Trust is FCR’s only
asserted basis for a legally protectable interest in this case, Plaintiffs argue, FCR’s motion
must be denied.
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Plaintiffs cite authority holding that non-assignability clauses, including
provisions in insurance contracts, are enforced in Texas. (Supp. to Pl.’s Resp., Doc. No.
51 at 2-3.) As Plaintiffs correctly observe, the Fifth Circuit has “recogniz[ed] that ‘Texas
law permits the enforcement of no-assignment clauses in insurance policies.’” Keller
Found., Inc. v. Wausau Underwriters Ins. Co., 626 F.3d 871, 875 (5th Cir. 2010) (quoting
Conoco, Inc. v. Republic Ins. Co., 819 F.2d 120, 124 (5th Cir. 1987)). See also Tex.
Develop. Co. v. Exxon Mobil Co., 119 S.W.3d 875, 880 (Tex.App.-Eastland 2003) (“In
Texas, anti-assignment clauses are enforceable unless rendered ineffective by an
applicable statute.”); Dr. Michael Hoffman & Assoc. v. St. Paul Guardian Insur. Co., No.
05-04-00902-CV, 2005 WL 1950848, at *3 (Tex.App.-Dallas Aug. 16, 2005) (“Our
guiding principle governing the interpretation of insurance policies is to give effect to the
parties intent as expressed in the policy’s plain language. The clear language of the policy
provision prohibits the insured from assigning its interest in the policy.”). As support,
Plaintiffs point to a recent case in the District Court for the Southern District of Texas
which held, applying Keller Found., Inc., that the non-assignment provisions of an
insurance policy precluded assignment of the insured’s rights to the assignee absent
written consent of the insurer. Nautilus Ins. Co. v. Concierge Care Nursing Ctr, Inc., Civ.
No. H-10-2243, 2010 WL 5449849 (S.D. Tex. Dec. 28, 2010).
Yet in these cases, assignees sought to recover directly from the insurance
company, and the insurance company attempted to enforce the non-assignment provision.
FCR does not dispute that if it were to assert a claim directly against Defendant,
Defendant could invoke the non-assignability clause as a defense. (Brief in Supp., Doc.
No. 52 at 4.) In this case, however, the assignor, not the insurance company, seeks to
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enforce the non-assignment clause. Indeed, Defendant supports FCR’s intervention. The
Court finds that these cases do not elucidate whether an assignor can enforce a nonassignment clause in an insurance contract when the insurance company seeks to waive
it.
In fact, authority suggests that non-assignment clauses exist for the benefit of the
insurance company, and can be waived. At least one source has written, “[a] stipulation
against its assignment, in a policy, is only for the insurer’s benefit, and does not enable an
assignor to avoid the assignment.” 44 AM. JR. 2D INSUR. § 785 (2011). Further, under
Texas law, non-assignment clauses can be waived. Johnson v. Structured Asset Serv.,
LLC, 148 S.W.3d 711, 722 (Tex.App.-Dallas 2004) (“An anti-assignment clause can be
waived and the laws governing the waiver of contractual rights apply.”). See also 6 AM.
JUR. 2D ASSIGNMENTS § 24 (2011) (“A contract provision prohibiting or restricting an
assignment may be waived, or a party may be prevented from objecting to the assignment
by effectively ratifying the assignment.” (footnote omitted)); Citibank, N.A. v.
Tele/Resources, Inc., 724 F.2d 266, 269 (2d Cir. 1983) (“Even a specific prohibition
against assignments made without written consent may be waived in favor of an
assignee.”). “Waiver is the intentional relinquishment of a known right or intentional
conduct inconsistent with claiming that right.” Dr. Michael Hoffman & Assoc., 2005 WL
1950848, at *3. By consenting to FCR’s intervention in this lawsuit, Defendant seems to
have intentionally relinquished a known right. Rather than support Plaintiffs’ position,
the weight of authority suggests that Plaintiffs may not be able to enforce an antiassignment clause in an insurance contract to defeat its prior assignment to a mortgage
company.
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Furthermore, this case involves assignment to a mortgage company prior to
obtaining insurance under an insurance policy. Plaintiff asserts: “Without any authority,
FCR contends that a mortgage company as an assignee is somehow different from other
assignees when an insured/assignor tries to assign a right under an insurance policy
without the insurer’s prior written consent. There is no difference! A mortgage company
is still an assignee of an insured and the controlling authority does not make any
distinctions between assignees.” (Pl.’s Resp. to FCR’s Brief, Doc. No. 54 at 2.) The
Court disagrees. As FCR points out, Deeds of Trust in the state of Texas commonly
include assignments of insurance proceeds. It would make little sense for mortgage
companies to include such assignment clauses if they were defeated by non-assignment
provisions in insurance contracts. (Brief in Supp. at 2.) Moreover, Plaintiffs obtained
insurance after it signed the mortgage contract, meaning that FCR had no control over the
kind of insurance Plaintiffs obtained and whether or not the insurance contract contained
a non-assignability provision. (Id. at 3.)
The Court thus finds that FCR has an interest relating to the action. The Deed of
Trust assigns insurance proceeds to FCR. Although the insurance contract contains a nonassignment provision, Defendant does not seek to enforce it. Plaintiffs have not offered
authority supporting its position that it can independently enforce the non-assignment
clause. The Court has not been able to find authority supporting Plaintiffs’ position,
either. Instead, authority suggests that non-assignment provisions in insurance contracts
exist to protect the insurance company, and can be waived. In the absence of further
guidance on the matter, and given that Defendant supports intervention, the Court finds
that Plaintiffs do not have a right to independently enforce the insurance contract’s non-
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assignability provision in order to defeat its prior assignment to its mortgage company,
FCR.
3. The Interest Would Be Impaired or Impeded by this Case
and the Interest is Not Adequately Represented by the
Existing Parties
FCR claims that “disposing of this action may impair or impede FCR’s ability to
protect its interest in the insurance proceeds.” (Mot. Inv. at 2.) Unfortunately, FCR does
not provide any support for this statement. Furthermore, FCR does not even allege that its
interest is not adequately represented by existing parties. “The applicant has the burden of
demonstrating inadequate representation, but this burden is ‘minimal.’ The applicant need
only show that representation ‘may be’ inadequate.” Sierra Club, 18 F.3d at 1207
(quoting Trbovich v. United Mine Workers, 404 U.S. 528, 538 n.10 (1972)). By failing to
even allege that its interest is not adequately represented, let alone explain why, FCR has
fallen short of even this minimal burden. Of course, the “criteria [for intervention as of
right] are mandatory, but ‘[r]ule 24 is to be construed liberally, … and doubts resolved in
favor of the proposed intervenor.’” In re Lease Oil Antitrust Litig., 570 F.3d at 248
(quoting 6 James W. Moore et al., Federal Practice § 24.03 (1)(a), at 24-22 (3d ed.
2008)). Even construing Rule 24 liberally, however, FCR has failed to meet its burden of
showing its interest is impaired or impeded and not adequately represented. As FCR has
not explained how it meets these last two prongs, the Court denies intervention as of
right.
B.
Permissive Intervention
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Under the permissive intervention standard, the Court may grant “intervention
when (1) timely application is made by the intervenor, (2) the intervenor’s claim or
defense and the main action have a question of law or fact in common, and (3)
intervention will not unduly delay or prejudice the adjudication of the rights of the
original parties.” League of United Latin Am. Citizens, Council No. 4434, 884 F.2d at
189. First, as shown above, the intervenor’s application is timely. Second, as the
intervenor has been assigned the insurance proceeds, its claim and the main action have a
question of fact in common. Third, because the Plaintiffs in fact assigned its right to the
insurance proceeds to FCR, the intervention will not unduly delay or prejudice the
adjudication of Plaintiffs’ rights. If anything, the intervention may obviate the need for
future litigation between FCR and Plaintiffs or FCR and Defendant. For these reasons,
the Court grants permissive intervention of FCR.
IV. CONCLUSION
For the foregoing reasons, FCR’s Motion to Intervene is GRANTED.
IT IS SO ORDERED.
SIGNED at Houston, Texas on this 11th day of October, 2011.
KEITH P. ELLISON
UNITED STATES DISTRICT JUDGE
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