Case: 09-40586 Document: 00511171101 Page: 1 Date Filed: 07/13/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 13, 2010
No. 09-40586 Lyle W. Cayce
Clerk
HARTFORD FIRE INSURANCE COMPANY,
Plaintiff–Appellant
v.
CITY OF MONT BELVIEU, TEXAS,
Defendant–Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before JONES, Chief Judge, and BENAVIDES and PRADO, Circuit Judges.
EDITH H. JONES, Chief Judge:
A performance bond guarantees the timely completion of a construction
project for the benefit of the project’s owner. The Hartford Fire Insurance
Company issued such a bond to a construction company on a project for the City
of Mont Belvieu, Texas. When the builder failed to complete punch list items
and warranty work, the City sued Hartford for compensation under the bond,
and a jury found in favor of the City, awarding nearly $500,000 in damages.
Hartford now appeals the district court’s denial of its motion for judgment as a
matter of law. Because the City’s claim was barred by the applicable statute of
limitations, and no act of Hartford excuses the City’s failure to bring suit within
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the limitations period, we sustain Hartford’s position and reverse and render the
judgment.
I. BACKGROUND
In 1998, Hartford issued a payment bond and a performance bond to
Williams Industries, a general contractor, for the construction of the Eagle
Pointe public recreational facility in Mont Belvieu. These bonds are required by
Texas law for most public work contracts, and their terms are largely defined by
statute. T EX. G OV’T C ODE § 2253.021 et seq. (Vernon 2008).
The construction process was tumultuous, with many delays and change
orders occasioned by architectural flaws and mid-course alterations to the plans.
As the facility neared completion in mid-2001, the City issued a certificate of
occupancy and took possession in May. By July 2002, Eagle Pointe was open
and operating.
At that time, however, a number of “punch list” items—repairs and the
like—remained incomplete. This was due in part to Williams’s financial
difficulties. In addition, the company had neglected to pay some of its
subcontractors, and they filed payment bond claims with Hartford. Hartford
therefore advised the City to “exercise reasonable caution in the payment of any
further contract funds to Williams because of Williams’ alleged non-payment of
subcontractors and suppliers.” Hartford feared that Williams would go under,
leaving it responsible for the bond claims.
The document at the heart of this case is Change Order 67, executed by
the City and Williams on July 2, 2002, to resolve the various disputes between
them. Under this agreement, the City paid Williams $674,628.50. That sum
covered the expense of changes requested by the City and included an “equitable
adjustment,” subject to the following terms:
Whereas the City and Williams Industries have reached an
agreement to cover the cost of all current and future claims which
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Williams Industries has or may have. And whereas Williams
Industries and in turn its Bonding Company — The Hartford Fire
Insurance Company [—] have agreed that all warranties will remain
in force. And also, that Williams Industries will pursue completion
of remaining punch list and/or warranty items or compensate the
City for expenditures which the City may have to make to achieve
the required repairs (with the exception of recently completed
repairs at the Wave Pool caisson grates). The City agrees to pay
Williams Industries an additional $214,359.29.
In calculating the total due Williams, Change Order 67 offset against the City’s
obligation a charge of $231,000 in liquidated damages for Williams’s delinquency
in completing the project. To determine this charge, the change order stipulated
that, while the contract had mandated completion by February 14, 2001, “[t]he
actual completion date was July 19, 2001.” The cover page of the change order
described this as the “date of Substantial Completion.”
On July 9, 2002, the City forwarded Change Order 67 to Hartford.
Attached were a check for the full $674,628.50, made out to Williams and
Hartford jointly, and a cover letter. The cover letter stated that the City “will
continue to look to Williams and ultimately the Hartford for any punch list items
and warranty claims that remain unresolved.” Hartford cashed the check and
used the proceeds to settle payment bond claims and reimburse its own
adjustment costs.
Over the following months, Williams continued to falter, ultimately failing
to complete many of the punch list items and warranty repairs that it had
agreed to do. On October 30, 2002, the City sent a letter to Hartford stating as
much, and after sending an engineer to assess the situation, Hartford responded
in a March 19, 2003, letter by its attorney, James Cupples. The letter agreed to
reimburse the City up to $32,000 to resolve several claims. For the other claims,
it requested additional information from the City and stated that Hartford was
“committed to investigate and provide the City its conclusions on the remaining
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work items.” The letter concluded with this statement: “it [Hartford] continues
to reserve all of its rights and defenses in this matter and it is without waiver
of same.”
On June 3, 2003, the City promised in writing to supply more details on
its claims and cost documentation, and it did so, in November 2003. According
to Hartford, the City’s documentation stated claims that were far more
extensive, amounting to nearly $500,000, than those the City had identified in
2002. Hartford did not respond to the City’s documentation.
The parties’ next contact occurred in October 2004, in a letter from the
City’s attorney to Hartford. It stated:
The City of Mont Belvieu is concerned about the possible statute of
limitations and I am requesting a tolling agreement from you. If
there is no agreement reached prior to October 30, 2004, I will be
forced to file suit against Hartford for not performing under the
bond. Please let me know if you are agreeable to entering into a
tolling agreement and how quickly Hartford can process these
claims and get them resolved. It has now been nearly two years
since the initial claim was made.
Cupple’s response was non-responsive. It stated that Hartford was still
awaiting documentation on the City’s actual expenditures and “stands ready to
proceed with the process as soon as we can get the data.” No mention was made
of the statute of limitations or tolling.
Settlement discussions between the City and Hartford were unsuccessful,
and Hartford filed suit in July 2007, seeking a declaration that any claims on the
performance bond by the City were barred by the statute of limitations. The
City counterclaimed for payment under the performance bond. Hartford moved
unsuccessfully for summary judgment, and subsequently for judgment as a
matter of law. The district court concluded that the City had raised genuine
issues of material fact on two potential defenses to the running of the limitations
period: quasi-estoppel and promissory estoppel. The case proceeded to trial, and
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the jury found that Hartford had breached its performance bond; Mont Belvieu
filed its claim more than one year after final completion of the Eagle Pointe
project; this failure was excused by both promissory estoppel and quasi-estoppel;
and Mont Belvieu was due damages of $468,492.01. In addition, the district
court awarded Mont Belvieu $218,747.65 in attorney’s fees and $260,704.62 in
prejudgment interest.
Hartford timely appealed.
II. STANDARD OF REVIEW
When a case has been tried by a jury, a motion for judgment as a matter
of law is a challenge to the legal sufficiency of the evidence underlying the jury’s
verdict. Streber v. Hunter, 221 F.3d 701, 721–22 (5th Cir. 2000). Our review of
a district court’s ruling on a motion for judgment as a matter of law is de novo,
applying the same standard as used by the district court, and we consider the
evidence, draw inferences from it, and resolve credibility determinations in the
light most favorable to the non-moving party. Id. The motion should be granted
only when the facts and inferences are so strongly and overwhelmingly in the
movant’s favor that reasonable jurors could not reach a contrary verdict. Id.
III. DISCUSSION
Hartford raises several issues on appeal: that the evidence at trial was
legally insufficient to support the jury’s finding that the City’s failure to file its
claim within the limitations period was excused by promissory estoppel or quasi-
estoppel; that the performance bond expired at the time of substantial
completion, ending Hartford’s obligation to the City; and that the district court
erred in its award of attorney’s fees and calculation of prejudgment interest. The
City responds that the limitations period never began to run. Because we find
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against the City on that issue, and in Hartford’s favor on promissory estoppel
and quasi-estoppel, we need not address the remaining issues.1
A. Statute of Limitations
Before considering the City’s defenses to Hartford’s argument that its
claims are time-barred, we must determine whether those defenses are
necessary at all. If Williams never attained final completion of the Eagle Pointe
project, as the City asserts, the limitations period never commenced.
Texas law mandates that a “governmental entity that makes a public work
contract with a prime contractor shall require the contractor, before beginning
the work, to execute to the governmental entity: (1) a performance bond if the
contract is in excess of $100,000 . . . .” § 2253.021(a). This bond is “solely for the
protection of the state or governmental entity awarding the public work
contract.” § 2253.021(b). It is also, by statute, subject to a one-year limitations
period on claims commencing from “the date of final completion, abandonment,
or termination of the public work project.” T EX. G OV’T C ODE § 2253.078(a).
The City urges that the July 19, 2001, stipulated date of “substantial
completion,” as used in Change Order 67, is not “final completion” and therefore
did not commence the running of the limitations period. Texas case law,
however, holds to the contrary. “It has been uniformly held that ‘substantial
completion’ of a construction contract is regarded, in legal parlance, as ‘full
performance.’” Transamerica Ins. Co. v. Hous. Auth. of Victoria, 669 S.W.2d 818,
823 (Tex.App.–Corpus Christi 1984, writ ref’d n.r.e.). Further, “[i]t is well
settled that a surety on a performance bond is entitled to rely on the architect’s
Certificate of Completion as the final discharge of its duty on the bond because
1
Mont Belvieu does not challenge the district court’s rejection of its equitable estoppel
defense.
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the architect is the agent and representative of the owner, and his
representation is the representation of the owner.” Id. at 822.2
Change Order 67, which set the date of “substantial completion” as
July 19, 2001, was signed by the City’s architect and its project manager, both
agents of the City, several months after the City took occupancy of the facility.
The limitations period therefore commenced on that date and concluded one year
later, on July 19, 2002, more than five years before the City filed its claim
against Hartford. Without some excuse, the City’s claims were time-barred.
B. Promissory Estoppel
Hartford’s primary contention on appeal is that the evidence was legally
insufficient to support the jury’s finding that promissory estoppel or quasi-
estoppel excused the City’s failure to file suit on its performance bond within the
limitations period. We address each defense in turn.
Promissory estoppel serves simply to “estop[] a promisor from denying the
enforceability of the promise.” Wheeler v. White, 398 S.W.2d 93, 96 (Tex. 1966).
Under Texas law, promissory estoppel may serve as both a cause of action and,
as here, a defense to failure to fulfill a legal obligation. Rendon v. Roman
Catholic Diocese of Amarillo, 60 S.W.3d 389, 391 (Tex.App.–Amarillo 2001,
review denied). The party asserting estoppel must prove four elements: (1) a
promise (2) that the promisor should have expected would lead the promisee to
some definite and substantial injury, (3) that such an injury occurred, and
(4) that injustice that may be remedied only by enforcing the promise. Nagle v.
Nagle, 633 S.W.2d 796, 800 (Tex. 1982) (citing “Moore” Burger, Inc. v. Phillips
Petroleum Co., 492 S.W.2d 934, 937 (Tex. 1973).
2
Indeed, quasi-estoppel may bind the City from asserting otherwise due to the
benefit it received from its settlement with Williams and, by extension, Hartford. See
Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 864 (Tex. 2000).
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Not every representation, of course, constitutes a promise enforceable by
this doctrine; rather, it is a limited exception to broader rules. “As a general
rule, the plaintiff has the full statutory period within which to bring suit.
Consequently, delay in bringing suit ordinarily does not operate as an estoppel.”
Phillips v. Sharpstown Gen. Hosp., 664 S.W.2d 162, 168 (Tex.App.–Houston
1983, no writ) (quoting 37 T EX.J UR.2d, Limitations of Actions, § 155). This
exception, as applied to the timeliness of a claim, therefore encompasses a
narrow range of promises and promissory conduct: the “conduct or words
undertaken by the prospective defendant must ‘amount[ ] to an affirmative
inducement to delay bringing the action.’” Rendon v. Roman Catholic Diocese
of Amarillo, 60 S.W.3d 389, 392 (Tex.App.–Amarillo 2001, writ denied) (quoting
Ladd v. Knowles, 505 S.W.2d 662, 669 (Tex.Civ.App.–Amarillo 1974, writ ref’d
n.r.e.)); see Dobbs v. Russell, 347 S.W.2d 796, 797 (Tex.Civ.App.–Fort Worth
1961) (promissory estoppel applicable only to “promises or assurances that [the
defendant] will not take advantage of a statute of limitations”), aff’d, Russell v.
Dobbs, 163 Tex. 282, 354 S.W.2d 373 (Tex. 1962). Thus, in Rendon, the court
rejected the plaintiff’s assertion of estoppel as a defense to the statute of
limitations for the reason that the representations of the defendant’s
agent—“that no legal action . . . would be necessary” and that he “would take
action to take care of the matter”—were not promises that “comprised
inducement to delay initiation of a civil suit.” Rendon, 60 S.W.3d at 392.
Similarly, “the mere exchange of information between potential litigants should
not suspend the running of the applicable limitation statute or estop a litigant
from asserting it as a defense” because it does not constitute a promise to waive
limitations. Phillips v. Sharpstown Gen. Hosp., 664 at 168. Thus, negotiations
to settle a claim were not promissory conduct that could establish estoppel. Id.
In the present case, the City presented evidence of three representations
in support of estoppel: first, the statements in Change Order 67 that “all
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warranties will remain in force” and that “Williams Industries will pursue
completion of remaining punch list and/or warranty items” or compensate the
City for doing so itself; second, Hartford’s March 19, 2003, letter offering to
reimburse the City for several of its claims and asserting Hartford’s right to
address warranty issues; and third, Hartford’s October 2004 letter stating that
it needed additional information and was “ready to proceed with the process.”
None of these representations, however, is legally sufficient to excuse the
running of the limitations period because none “amount[s] to an affirmative
inducement to delay bringing the action.” Rendon, supra. No provision of
Change Order 67 speaks to the limitations period, and the statement that
warranties would “remain in force” does not purport to alter the substance of
those warranties, including their ability to be enforced. The City contends that
this clause must serve to extend the limitations period because, otherwise,
Hartford’s duty on the performance bond would have expired within weeks of it
receiving the change order and payment from the City. This argument
overlooks, however, Williams’s obligations, per the terms of its contract with the
City and the Change Order, to complete punch list and warranty items, even
after the project reached substantial completion. In addition, Hartford remained
liable to suppliers and subcontractors under the terms of the payment bond.
T EX. G OV’T C ODE § 2254.078(b). Further, this argument ignores the very purpose
of Change Order 67, which was to resolve dueling claims between Williams and
the City by, inter alia, fixing the date of substantial completion and determining
the two parties’ obligations to each other under their prior agreements. The
Change Order does not suggest, in any way, that Hartford’s collateral obligations
would be altered, but merely that they would remain “in force.” Finally, the
City’s interpretation is weakened by the vagueness of the promise it asserts was
made. Does the waiver extend liability to post-completion issues, such as defects
to punch list work, unlike the usual performance bond? Did Hartford agree to
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waive the limitations defense in perpetuity? If not, when did its waiver expire?
That these questions remain open may be dispositive of the matter under Texas
law. Vastine v. Bank of Dallas, 808 S.W.2d 463, 464 (Tex. 1991) (“Guarantors
and sureties are bound only by the precise terms of the contract they have
secured . . . ”); Empire Steel Corp. v. Omni Steel Corp., 378 S.W.2d 905, 911
(Tex.App.-Fort Worth 1964, writ ref’d n.r.e.) (where doubt and uncertainty exist
as to the meaning of a surety agreement, the interpretation favorable to the
surety will be adopted). Cf. Transamerica, 669 S.W.2d at 822 (The limitations
period “may be extended by the existence of an agreement to remedy defects . . .
that arise within a time period after the final acceptance.” (emphasis added)).
Estoppel may not be premised on so vague a promise, especially when it is
juxtaposed against clear and unambiguous statutory text creating the
limitations period. Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 141–42
(Tex.App.–Houston 1999, review denied); see T EX. G OV’T C ODE § 2253.078(a).
This vagueness speaks, as well, to the reasonableness of the City’s reliance
on the promise. Texas courts “have emphasized that ‘estoppel requires a
reasonable or justified reliance on the conduct or statement of the person sought
to be estopped by the person seeking the benefits of the doctrine.’” Allied Visa,
Inc., 987 S.W.2d at 142 (Tex.App. 1999) (quoting Simpson v. MBank Dallas,
N.A., 724 S.W.2d 102, 108 (Tex.App.–Dallas 1987, writ ref'd n.r.e.)) (emphasis
in original). In Allied Vista, the plaintiff relied on a promise by his former
employer to supply him with equipment for a new recycling plant. The parties
never discussed what items of equipment would be forthcoming or what specific
terms, such as pricing and payment, would apply. Id. at 140. The appeals court
found that the promise was “too vague to support detrimental reliance” and,
accordingly, that the plaintiff’s reliance “was not reasonable or justified as a
matter of law.” Id. It therefore reversed a jury verdict in favor of the plaintiff.
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Undermining the reasonableness of any reliance by the City, the purported
promise in the present case is even less certain than that in Allied Vista. When
claiming estoppel as a defense to the running of a limitations period, “[a]
plaintiff may not ‘blindly rel[y] upon a situation as being what it seemed rather
than as being what it in reality was.’” Dean v. Frank W. Neal & Assocs., Inc.,
166 S.W.3d 352, 358 (Tex.App.–Fort Worth 2005, no writ) (quoting Neal v.
Pickett, 280 S.W. 748, 753 (Tex.Comm.App. 1926, jdgmt. adopted)). The City’s
delay must be “unmixed with any want of diligence on their part.” Id. The City
of Mont Belvieu is a legally sophisticated party and, as a municipality,
knowledgeable in Texas’s law of public project bonds. If the City relied upon the
terms of Change Order 67 to delay filing suit for years after the substantial
completion of the Eagle Pointe project, its reliance was neither reasonable nor
justified.
Nor are the letters cited by the City availing to it. Initially, neither of
these letters evinces a promise by Hartford to relinquish, modify, or otherwise
affect the state of limitations; as with Change Order 67, they are too vague to
support promissory estoppel. Equally critical, promissory estoppel cannot revive
a claim that has already expired at the time of the promise. Moore, 492 S.W.2d
934, 936 (estoppel “only prevents a party from insisting upon his strict legal
rights when it would be unjust to allow him to enforce them”); Sun Oil Co.
(Delaware) v. Madeley, 626 S.W.2d 726, 734 (Tex. 1981) (“Estoppel . . . is a
defensive theory. It does not create a contract right that does not otherwise
exist.”). Because the City is unable to establish promissory estoppel with respect
to Change Order 67, the limitations period ran well before Hartford’s 2003 and
2004 letters. These letters, and any promises they contain, are therefore
incapable of reviving the City’s claims. To hold otherwise would be to eviscerate
the statute of limitations that applies to public project bonds, to the ultimate
detriment of Texas municipalities.
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Viewing the evidence in the light most favorable to the City, it is legally
insufficient to establish promissory estoppel.
C. Quasi-Estoppel
Under Texas law, quasi-estoppel “precludes a party from asserting, to
another’s disadvantage, a right inconsistent with a position previously taken.
The doctrine applies when it would be unconscionable to allow a person to
maintain a position inconsistent with one to which he acquiesced, or from which
he accepted a benefit.” Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857,
864 (Tex. 2000) (citations omitted). Put otherwise, it “forbids a party from
accepting the benefits of a transaction or statute and then subsequently taking
an inconsistent position to avoid corresponding obligations or effects.” Atkinson
Gas Co. v. Albrecht, 878 S.W.2d 236, 240 (Tex.App.–Corpus Christie 1994, writ
denied).
Unlike other species of estoppel, quasi-estoppel “requires no showing of
misrepresentation or detrimental reliance.” Id. It does, however, assume
detriment and requires the inconsistency to be a cause of that detriment. Cook
Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 136
(Tex.App.–Houston 2000, writ denied) (testimony of the defendant’s executive
was not a cause of the plaintiff’s pre-litigation detriment); Maguire Oil Co. v.
City of Houston, 69 S.W.3d 350, 367 (Tex.App.–Texarkana 2002, writ denied) (a
party “should not be permitted to adopt an inconsistent position and thereby
cause loss or injury to the other”). Reliance is therefore relevant where it speaks
strongly to causation and unconscionability. Consequently, where a party
asserts quasi-estoppel as an excuse for its failure to file a claim in a timely
fashion, unconscionability “necessarily requires a reliance component.” Douglas
v. Moody Gardens, Inc., No. 14-07-00016-CV, 2007 WL 4442617, *4
(Tex.App.–Houston Dec. 20, 2007, no writ) (unpublished). In Douglas, when an
employee failed to file a worker’s compensation claim within the applicable time
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limit, quasi-estoppel could not lie in her employer’s changed position as to
whether her injury had occurred within the course of employment. The plaintiff
“had her own attorney to advise regarding her rights and responsibilities” under
the law, “including the need to timely file a workers’ compensation claim.” Id.
She was “not denied recovery for her injury based on Moody’s inconsistent
positions,” but “because she elected not to timely pursue a workers'
compensation claim.” Id. In these circumstances, there was neither causation
nor unconscionability.
Similarly, inconsistency can be determined as a matter of law. For
instance, “rights expressly secured by contract” ordinarily cannot be “dissolve[d]”
by quasi-estoppel because a party may, pursuant to a contract and for legitimate
reasons, have the right to assert superficially inconsistent positions at different
times. Neiman-Marcus Group, Inc. v. Dworkin, 919 F.2d 368, 371 (5th Cir.
1990); Fasken Land & Minerals, Ltd. v. Occidental Permian Ltd., 225 S.W.3d
577, 594 (Tex.App.–El Paso 2005, petition denied) (“We simply fail to see how
agreeing to the parties’ contract amounts to an inconsistent position with OPL’s
later assertion of its voting rights under that same contract . . . .”). That party
cannot “be equitably charged with choosing to accept benefits in a manner
genuinely inconsistent with his subsequent claim.” Neiman-Marcus, 919 F.2d at
371 (emphasis added). In such a case, the party has not acted to “avoid
corresponding obligations” but merely to assert its legal rights. Fasken,
225 S.W.3d at 593. Were the law otherwise, settlement negotiations would all
but compel a finding of liability, and no contract claim could be subject to a
limitations period.
Hartford’s performance bond incorporated Texas statutory law, which
includes a limitations period that runs for one year following completion of the
bonded project. After that period, a claim is time-barred. To establish quasi-
estoppel as a defense to that bar, a party must show a statement or conduct by
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the opposing party prior to the running of the limitations period waiving its right
to assert that bar. The City has made no such showing here. As discussed
above, Change Order 67 does not speak to the limitations period or suggest any
agreement to waive or extend it. The City presented no other evidence of
representations or conduct arguably concerning the limitations period before its
natural expiration. The City concedes, in fact, that its next contact with
Hartford was its letter of October 30, 2002, complaining of Williams’s failure to
complete punch list items. That communication, and others made after the
limitations period had run, cannot establish an inconsistency regarding
Hartford’s liability under the performance bond. Hartford’s later assertion of its
rights created no inconsistency at all, but flowed from Texas law and its contract
with Williams.
As a matter of law, the City failed to present legally sufficient evidence to
support its defense of quasi-estoppel.
IV. CONCLUSION
We are exceedingly reluctant to overturn a jury’s verdict and will do so
only when “there is no legally sufficient evidentiary basis for a reasonable jury
to have found for the prevailing party.” Johnson v. Louisiana, 369 F.3d 826, 830
(5th Cir. 2004). This is such a case. The City’s position is simply unsupported
by Texas law. The judgment against Hartford is REVERSED and
RENDERED.
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