Heisler v. Convergent Healthcare Recoveries Inc et al
Filing
94
DECISION AND ORDER signed by Magistrate Judge Nancy Joseph. IT IS ORDERED that Heisler's motion for summary judgment on the judicial estoppel defense (Docket # 80 ) is GRANTED IN PART and DENIED IN PART. Heisler is not judicially estopped from pursuing statutory damages up to $1,000 or a class representative incentive award up to $6,000. (cc: all counsel) (asc)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
CHAD H. HEISLER, on behalf of himself and all
others similarly situated,
Plaintiff,
v.
Case No. 16-CV-1344
CONVERGENT HEALTHCARE RECOVERIES,
INC., and JOHN AND JANE DOES NUMBERS 1
THROUGH 25.
Defendants.
DECISION AND ORDER ON PLAINTIFF’S MOTION
FOR SUMMARY JUDGMENT AS TO DEFENDANTS’
JUDICIAL ESTOPPEL DEFENSE
Chad H. Heisler brought this class action complaint against Convergent Healthcare
Recoveries, Inc. (“Convergent”), alleging that Convergent sent a debt collection letter that
violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”).
(Docket # 1.) In its answer, Convergent asserted as an affirmative defense that Heisler is
judicially estopped from claiming or recovering sums in excess of amounts claimed in his
separate action in Bankruptcy Court. (Docket # 30 at 18.) I denied Heisler’s motion for class
certification because Convergent had an arguable judicial estoppel defense to Heisler’s claim
that was legally and factually specific to Heisler, rendering Heisler an inadequate class
representative. (Docket # 68 at 8–10.) Heisler filed a motion for reconsideration, which I
denied. (Docket # 74 at 3–6.) Heisler then filed a motion for summary judgment as to the
judicial estoppel defense. (Docket # 80.) For the reasons below, Heisler’s motion will be
granted in part and denied in part.
UNDISPUTED FACTS
On September 26, 2016, Heisler, represented by counsel, filed a Chapter 7
bankruptcy petition in the United States Bankruptcy Court for the Eastern District of
Wisconsin. In re Heisler, Case No. 16-29492-beh (Bankr. E.D. Wis. 2017) (Decl. of Francis
R. Greene (“Greene Decl.”) Ex. A, Docket # 82-1). Heisler’s Bankruptcy Schedule E/F lists
Convergent as a creditor with an unsecured claim. (Greene Decl. Ex. B, Docket # 82-2;
Defendants’ Response to Plaintiff’s Proposed Findings of Fact (“DPFOF”) ¶ 4, Docket #
87.) Heisler reported $6,250 worth of property and claimed $6,250 in exempt property,
including “2 FDCPA claims against collection agencies” valued at $2,000. (Proposed
Findings of Fact (“PFOF”) ¶¶ 2–3, Docket # 83; DPFOF ¶ 23.) Heisler did not schedule a
class representative incentive reward as an asset in his original bankruptcy petition, although
he later amended his schedules to include it. (DPFOF ¶ 19; Plaintiff’s Response to DPFOF
(“Response to DPFOF”) ¶ 19, Docket # 91; Defs.’ Br. at 18, Docket # 86.)
Heisler’s bankruptcy petition included a notice as required by 11 U.S.C. § 342(b),
which states that the petitioner must promptly file detailed information about creditors,
assets, liabilities, income, expenses, and general financial condition; warned that the court
may dismiss the case if the petitioner does not file the information within the deadlines; and
directed petitioners to a website for more information. (DPFOF ¶¶ 20–21.) The bankruptcy
petition contained a signed declaration that Heisler had examined the petition; declared
under penalty of perjury that the information provided was true and correct; and understood
that making a false statement, concealing property, or obtaining money or property by fraud
in connection with a bankruptcy case can result in fines or imprisonment. (Id. ¶ 24.)
Heisler’s bankruptcy petition also included a signed declaration that he had read the
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summary and schedules filed with his declaration and that they were true and correct. (Id. ¶¶
25–26.)
The trustee in Heisler’s bankruptcy conducted a § 341 Meeting of Creditors on
November 17, 2016. (PFOF ¶ 5, DPFOF ¶ 27.) Convergent did not file a claim. (PFOF ¶ 6.)
Heisler attended the § 341 Meeting with his bankruptcy attorney. (DPFOF ¶ 29.) Heisler
was under oath during the § 341 Meeting. (Id. ¶ 30.) At the § 341 Meeting, Heisler affirmed
that he had provided his attorney the information he used to fill out the schedules; he had
told his attorney about all his assets, debt, income, and expenses; his attorney had taken all
that information and put it in the form of schedules for his review; he had reviewed the
schedules before he signed them; and he understood that he signed them under penalty of
perjury and knew what that meant. (DPFOF ¶ 31; Decl. of Chirag H. Patel (“Patel Decl.”) ¶
3, Docket # 88.) In response to a statement from the trustee that “[a]pparently your attorney
has got an FDCPA claim here,” Heisler’s bankruptcy attorney stated, “Two claims on this
one. This one got down to a solid number.” (DPFOF ¶ 32; Patel Decl. ¶ 3.)
On November 18, 2016, the trustee filed its Report of No Distribution, meaning
there was no property available for distribution from Plaintiff’s bankruptcy estate. (PFOF ¶¶
7, 14; DPFOF ¶¶ 7, 14.) The trustee reported $6,250 in exempt assets and stated “that there
is no property available for distribution from the estate over and above that exempted by
law.” (PFOF ¶¶ 7–8, DPFOF ¶¶ 7–8.) The relevant portion of the report states in full:
Chapter 7 Trustee’s Report of No Distribution: having been appointed trustee
of the estate of the above-named debtor(s), report that I have neither received
any property nor paid any money on account of this estate; that I have made
a diligent inquiry into the financial affairs of the debtor(s) and the location of
the property belonging to the estate; and that there is no property available for
distribution from the estate over and above that exempted by law. Pursuant to
Fed R Bank P 5009, I hereby certify that the estate of the above-named
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debtor(s) has been fully administered. I request that I be discharged from any
further duties as trustee. Debtor appeared. Key information about this case as
reported in schedules filed by the debtor(s) or otherwise found in the case
record: This case was pending for 2 months. Assets Abandoned (without
deducting any secured claims): $ 0.00, Assets Exempt: $ 6250.00, Claims
Scheduled: $ 37834.29, Claims Asserted: Not Applicable, Claims scheduled
to be discharged without payment (without deducting the value of collateral
or debts excepted from discharge): $ 37834.29.
(DPFOF ¶ 33; Greene Decl. Ex. C at 4, Docket # 82-3.)
On January 9, 2017, Heisler, through counsel, filed an Amended Property Schedule
in his bankruptcy case. (PFOF ¶ 9.) Heisler’s Amended Schedule reported and exempted
$11,250 worth of property, including “1 FDCPA claims against collection agencies (up to
$1,000 claim) and Class Representative Incentive Reward Case (up to $6000 claim).” (Id. ¶
10.) On January 23, 2017, the Bankruptcy Court entered an order discharging Heisler’s
debts and a final decree closing the case. (Id. ¶ 11.)
Convergent asserts that on or about January 24, 2018, while this case was referred to
Magistrate Judge David E. Jones for mediation, Heisler issued a class settlement demand in
which he requested a $10,000 class incentive award. (DPFOF ¶ 34.) Heisler asserts that the
$10,000 demand was a scrivener’s error that he immediately took steps to correct, notifying
the court and opposing counsel that Heisler was seeking a $6,000 incentive award.
(Response to DPFOF ¶ 34; Decl. of Andrew T. Thomasson ¶ 4, Docket # 92.)
SUMMARY JUDGMENT STANDARD
The court shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986);
Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). “Material facts” are those under the
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applicable substantive law that “might affect the outcome of the suit.” See Anderson, 477
U.S. at 248. The mere existence of some factual dispute does not defeat a summary
judgment motion. A dispute over a “material fact” is “genuine” if “the evidence is such that
a reasonable jury could return a verdict for the nonmoving party.” Id.
In evaluating a motion for summary judgment, the court must draw all inferences in
a light most favorable to the nonmovant. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). However, when the nonmovant is the party with the
ultimate burden of proof at trial, that party retains its burden of producing evidence which
would support a reasonable jury verdict. Celotex Corp., 477 U.S. at 324. Evidence relied upon
must be of a type that would be admissible at trial. See Gunville v. Walker, 583 F.3d 979, 985
(7th Cir. 2009). To survive summary judgment, a party cannot rely on his pleadings and
“must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477
U.S. at 248. “In short, ‘summary judgment is appropriate if, on the record as a whole, a
rational trier of fact could not find for the non-moving party.’” Durkin v. Equifax Check
Services, Inc., 406 F.3d 410, 414 (7th Cir. 2005) (citing Turner v. J.V.D.B. & Assoc., Inc., 330
F.3d 991, 994 (7th Cir. 2003)).
ANALYSIS
Heisler moves for summary judgment as to Convergent’s judicial estoppel defense.
Heisler bears the burden of proving that, even making all reasonable inferences in
Convergent’s favor, there are no genuine issues of material fact regarding Convergent’s
judicial estoppel defense. Convergent has the burden of proof on its judicial estoppel
defense, so for that defense to survive this motion, Convergent must produce evidence to
reasonably support it. Heisler argues that Convergent cannot meet this burden. (Pl.’s Br. at
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8–14, Docket # 81.) Convergent argues that Heisler’s motion is procedurally improper, or in
the alternative, that there are genuine issues of material fact precluding summary judgment.
(Docket # 86 at 5–21.)
1. Procedural Challenge
Convergent argues that this motion is procedurally improper because Heisler’s
motion for class certification was denied on the basis that the judicial estoppel defense was
unique to Heisler. (Docket # 86 at 10–14.) Convergent argues that allowing Heisler to
proceed on this motion will further multiply the proceedings related to Heisler’s individual
defense, which is the very harm the policy requiring that class representatives have no
unique defenses is meant to avoid. (Id. at 10–12.) Convergent states that it was unable to
locate any case in which a plaintiff who was denied class representation on the basis of a
unique defense was then allowed to litigate that defense on a summary judgment motion to
establish adequacy as a class representative. (Id. at 11.) Convergent cites a number of cases
for its proposition that “the proper remedy following a court’s determination of inadequacy
is to locate a substitute proposed class representative.” (Id. at 11–12 (citing CE Design Ltd. v.
King Architectural Metals, Inc., 637 F.3d 721 (7th Cir. 2011); Robinson v. Sheriff of Cook County,
167 F.3d 1155, 1158 (7th Cir. 1999); Wahl v. Midland Credit Mgmt., 243 F.R.D. 291, 298 n. 4
(N.D. Ill. 2007).)
While Convergent’s arguments have some appeal as a matter of practice, there is no
rule prohibiting Heisler from moving for summary judgment on Convergent’s defense as it
does here. In CE Design, the Seventh Circuit vacated the district court’s class certification
because the class representative was inadequate, and noted that class counsel might yet
continue the class action by finding another class member to substitute as representative, but
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it did not say that substituting a new class representative was the only option. 637 F.3d at
728. The plaintiff in CE Design was subject to a unique affirmative defense like Heisler, but
he also had credibility problems that summary judgment on the defense would not have
cured. Therefore, I do not read CE Design as foreclosing the possibility of a class
representative curing his inadequacy through a motion for summary judgment on a unique
defense. Robinson and Wahl both confirm that substitution can occur later in a case if it
becomes apparent that the representative of the already-certified class is or has become
inadequate; that is not the procedural posture of this case.
Convergent also argues that the rule against one-way intervention prevents Heisler
from seeking class certification should his motion for summary judgment be granted.
(Docket # 86 at 12–14.) The rule against one-way intervention prevents plaintiffs from
moving for class certification after acquiring a favorable ruling on the merits of a claim.
Costello v. BeavEx, Inc., 810 F.3d 1045, 1057 (7th Cir. 2016). But this motion does not ask the
court to adjudicate the merits of any part of the FDCPA claim that would be applicable to
class members. The rationale for the rule—that it is unfair to allow class members to benefit
from a favorable judgment without subjecting them to the risk of an unfavorable one—does
not apply in this case, as the issue on this motion is unique to Heisler. Potential future class
members will neither benefit from a ruling in Heisler’s favor or suffer the effects of an
unfavorable one. Furthermore, even if class certification would be improper, this motion
does not argue for class certification, so the rule is irrelevant.
To the extent Convergent argues that this motion is a re-litigation of Heisler’s motion
for class certification, I disagree. I denied Heisler’s motion for class certification because
Convergent had a unique, arguable defense. Summary judgment applies an entirely different
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legal standard. I do not look to see whether the defense is arguable, but whether the
evidence supporting it would convince any rational trier of fact, or in this case, whether the
evidence would convince me to apply the discretionary doctrine of judicial estoppel.
In sum, I see no procedural impropriety in Heisler’s motion for summary judgment
and will proceed to the merits.
2. Judicial Estoppel
Judicial estoppel is an equitable doctrine, invoked to protect the integrity of the
courts by preventing a party who prevails on one ground in a lawsuit from repudiating that
ground in a subsequent lawsuit. See De Vito v. Chicago Park Dist., 270 F.3d 532, 535 (7th Cir.
2001). In the context of a bankruptcy, judicial estoppel is used to bar a debtor from pursuing
a cause of action after the bankruptcy ends that he or she failed to disclose to the bankruptcy
court during the course of the bankruptcy proceedings. See Cannon-Stokes v. Potter, 453 F.3d
446, 448 (7th Cir. 2006). In other words, a debtor in bankruptcy who denies owning an
asset, including a chose in action or other legal claim, cannot realize on that concealed asset
after the bankruptcy ends. Id. Although this doctrine is seemingly harsh, the theory behind it
is that it “induces debtors to be truthful in their bankruptcy filings[, which] will assist
creditors in the long run (though it will do them no good in the particular case)—and it will
assist most debtors too, for the few debtors who scam their creditors drive up interest rates
and injure the more numerous honest borrowers.” Id.
Courts have repeatedly observed that judicial estoppel is a discretionary doctrine and
there is no set formulation for deciding when to apply it. New Hampshire v. Maine, 532 U.S.
742, 751 (“In enumerating these factors, we do not establish inflexible prerequisites or an
exhaustive formula for determining the applicability of judicial estoppel. Additional
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considerations may inform the doctrine’s application in specific factual contexts.”); accord
Walton v. Bayer Corp., 643 F.3d 994, 1002 (7th Cir. 2011) (“For reasons we don’t understand,
the cases are coy about defining [judicial estoppel].”). Factors courts consider include (1)
whether the plaintiff took an inconsistent position in earlier litigation, (2) whether the
plaintiff prevailed on that claim, and (3) if the claim is not estopped, either the plaintiff will
derive an unfair advantage or the defendant will suffer an unfair detriment. Id. The three
factors are not a “test” for when judicial estoppel should apply; it remains a discretionary
doctrine a court may apply as needed to protect interested parties and the integrity of the
judicial system.
Convergent’s amended answer to Heisler’s complaint states as an affirmative defense
that “Plaintiff filed a bankruptcy petition in which he apprised the Bankruptcy Court and his
creditors that he had FDCPA actions worth a certain dollar amount. Plaintiff is judicially
estopped from attempting to claim or recover any sums in excess of said amount.” (Docket
# 30 at 18.)
One important factor in determining whether to apply judicial estoppel is whether
there is inconsistency between a party’s representations in earlier litigation and its
representations in the present action. De Vito, 270 F.3d at 535. Here, Heisler’s original
bankruptcy petition listed two FDCPA claims worth a total of $2,000. His amended
bankruptcy schedule dropped one FDCPA claim and listed the other (presumably this one)
as worth $1,000. In this case, Heisler’s complaint requests statutory damages under 15
U.S.C. § 1692k(a)(2)(B), which allows damages up to $1,000. (Compl. ¶ 47(A)(2), Docket #
1.) These statements are entirely consistent with one another: Heisler valued his FDCPA
claim at $1,000 in both actions. I see no unfairness in allowing Heisler to proceed on that
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claim. Therefore, I will grant Heisler’s motion for summary judgment on the judicial
estoppel defense as to his $1,000 statutory damages claim.
As for the potential incentive award, although Heisler’s original bankruptcy petition
did not mention it, his amended schedule filed before the close of bankruptcy proceedings
listed a class representative incentive award worth $6,000. In his complaint in this case,
Heisler requests “[a]n incentive award for Plaintiff, in connection with his services to the
Class, in an amount to be determined by the Court after judgment is entered in favor of the
Class.” (Compl. ¶ 47(A)(3), Docket # 1.) This statement is vague, but not inconsistent with
Heisler’s bankruptcy filings. He has never represented to this court that his incentive award
should exceed $6,000. Because I perceive no inconsistency, I am not inclined to apply
judicial estoppel to Heisler’s request for an incentive award—at least not unless he requests
more than $6,000.
Convergent points out that in Spaine v. Cmty. Contacts, Inc., the Seventh Circuit stated
that judicial estoppel might apply when the plaintiff made a late disclosure of an asset before
the end of bankruptcy proceedings “if [the defendant] could prove that [the] omission,
though later cured, was an intentional effort to conceal an asset from her creditors.” 756
F.3d 542, 548 (7th Cir. 2014). Convergent offers six items from the record that it claims
support an inference that Heisler intended to hide the potential incentive award. (Docket #
86 at 17–18.)
First, Convergent argues that Heisler was represented by counsel in his bankruptcy
proceedings, making it “less likely” that the omission was a result of Heisler
misunderstanding his obligations to disclose the claim. (Id. at 17.) But the fact that Heisler
was represented by counsel tells us nothing of Heisler’s subjective intent. A client
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represented by counsel may nevertheless fail to fulfill a legal obligation for any number of
innocent reasons—for example, due to a miscommunication between counsel and client, or
between bankruptcy counsel and counsel in the other action, or due to counsel’s failure to
advise the client. Metrou v. M.A. Mortenson Co., 781 F.3d 357, 360 (7th Cir. 2015) (some
omissions “will be innocent[, for example] based on poor communication between
bankruptcy counsel and tort counsel . . . and should not be punished”). It is not reasonable
to infer that, simply because a party is represented by counsel, that party has full
understanding of their legal obligations and therefore that any failure to fulfill an obligation
must be intentional. Furthermore, we do not know how, or even if, Heisler’s bankruptcy
counsel advised him regarding disclosure of the potential incentive award, and attorneys
(like the ones in this case) may disagree about whether it was an asset requiring disclosure at
all. (Docket # 81 at 11 n. 2; Docket # 86 at 19–20; Reply Br. at 8, Docket # 90.) The mere
fact that Heisler was represented by counsel therefore says nothing about Heisler’s
subjective intent.
Second, third, and fourth, Convergent highlights Heisler’s repeated statements under
oath that his bankruptcy schedules were accurate, and his failure to correct his attorney’s
statement that the FDCPA claims were “down to a solid number” and that number was
$2,000. (Docket # 86 at 17–18.) I fail to follow Convergent’s reasoning. Without evidence
that Heisler was aware of the potential incentive award and understood his duty to disclose
it, Heisler’s statement under oath that he had reported all his assets does not imply
dishonesty. If anything, the rational inference is that Heisler was unaware of the potential
incentive award or of his obligation to disclose it, and that the omission was thus an
innocent one.
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Fifth, Convergent points out that Heisler did not amend his schedules to include his
potential incentive award until four months after filing his putative class action complaint
and sixty days after the trustee filed its report of no distribution. (Id. at 18.) Again, the mere
passage of time is not evidence of intent to deceive. There are any number of innocent
explanations for such a delay and it is not rational to infer intent to deceive without more.
See Matthews v. Potter, 316 F. App’x 518, 522 (7th Cir. 2009) (“The Bankruptcy Code
contemplates the possibility that a debtor may later discover and inform the trustee of
additional assets not already listed on the schedules.”); Fed. R. Bankr. P. 1009 (debtor may
freely amend a “voluntary petition, list, schedule, or statement . . . as a matter of course at
any time before the case is closed”). Even if Heisler had not amended his schedules at all, it
would not be reasonable to infer that he intended to deceive. Ryan Operations G.P. v.
Santiam–Midwest Lumber Co., 81 F.3d 355, 364 (3d Cir. 1996) (“Policy considerations
militate against adopting a rule that the requisite intent for judicial estoppel can be inferred
from the mere fact of nondisclosure in a bankruptcy proceeding.”). The fact that Heisler did
amend the schedules suggests, rather, an intent to be truthful.
Finally, Convergent finds evidence of Heisler’s deceptive intent in an email from
counsel during settlement proceedings. The parties debate whether this email is properly
disclosed under the Civil Local Rules or admissible under the Federal Rules of Evidence. I
need not resolve this, because even if the statement is both allowed and admissible, it is not
probative of Heisler’s subjective intent. It is simply not reasonable to infer from one nonbinding settlement communication by counsel in the FDCPA case that Heisler had the
subjective intent to deceive in his earlier bankruptcy case.
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In sum, none of these facts supports an inference that Heisler had the intent to hide
assets in his bankruptcy proceedings. Nor does considering these facts together, rather than
separately, tell us anything about Heisler’s subjective intent: as the saying goes, zero plus
zero still equals zero. Heisler might have erred in a technical sense by not disclosing the
potential incentive award in his initial bankruptcy petition. However, Convergent has not
met its burden of providing evidence sufficient for a rational trier of fact to conclude that
Heisler engaged in intentional deceit. 1 Therefore, I will grant Heisler’s motion for summary
judgment on the judicial estoppel defense as to the class incentive award up to the amount
of $6,000.
CONCLUSION
To prevail on this motion, Heisler must show that there are no genuine issues of
material fact and that he is entitled to judgment as a matter of law on the judicial estoppel
defense. Because Heisler consistently asserted a $1,000 statutory damages claim in
Bankruptcy Court and in this court, I will grant Heisler’s motion for summary judgment on
the judicial estoppel defense as to the statutory damages claim. Because there is insufficient
evidence to support a finding that Heisler’s initial omission of the potential incentive award
in his bankruptcy petition was intentional, I will also grant Heisler’s motion for summary
judgment on the judicial estoppel defense as to his potential class representative incentive
award, but only up to $6,000.
1
It is worth noting that, even when there is intentional concealment of assets, judicial estoppel arguably should not
apply when doing so would harm creditors by preventing the plaintiff from recovering funds in which creditors
might ultimately share. See Thompson v. Elkhart Lake’s Road America, Inc., No. 15-CV-672-JPS, 2016 WL
1558414, at *6 (E.D. Wis., Apr. 15, 2016). This argument does not apply here, as creditors apparently would not
benefit from Heisler’s incentive award (Docket # 81 at 14) and I have other reasons detailed herein for declining to
apply judicial estoppel.
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ORDER
NOW, THEREFORE, IT IS ORDERED that Heisler’s motion for summary
judgment on the judicial estoppel defense (Docket # 80) is GRANTED IN PART and
DENIED IN PART. Heisler is not judicially estopped from pursuing statutory damages up
to $1,000 or a class representative incentive award up to $6,000.
Dated at Milwaukee, Wisconsin this 12th day of June, 2019.
BY THE COURT:
s/Nancy Joseph ____________
NANCY JOSEPH
United States Magistrate Judge
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