J-A14039-14
2014 PA Super 166
MORRISON INFORMATICS, INC., : IN THE SUPERIOR COURT OF
ANTHONY M. GRIGONIS, AND : PENNSYLVANIA
MALCOLM H. MORRISON, :
:
Appellants :
:
v. :
:
MEMBERS 1ST FEDERAL CREDIT :
UNION, MARK ZAMPELLI, AND SCOTT :
DOUGLASS, :
: No. 467 MDA 2013
Appellees :
Appeal from the Order entered February 20, 2013
in the Court of Common Pleas of Cumberland County
Civil Division at No(s): 2011-04636
BEFORE: FORD ELLIOTT, P.J.E, OLSON, and STRASSBURGER,* JJ.
OPINION BY STRASSBURGER, J.: FILED AUGUST 12, 2014
Appellants Morrison Informatics, Inc. Anthony M. Grigonis, and
Malcolm H. Morrison (Plaintiffs, collectively) appeal from the February 20,
2013 order sustaining the preliminary objections of Members 1st Credit Union
part, and remand for further proceedings consistent with this opinion.
The trial court summarized the history of this case as follows.
I. Introduction
[Plaintiffs] filed a complaint on May 7, 2012 arising from
the embezzlement of funds by Defendant Mark Zampelli
(Zampelli). On June 19, 2012, Plaintiffs filed an amended
complaint. In the amended complaint, Plaintiffs allege
conversion and fraud against Zampelli, negligence and fraud
against Scott Douglass (Douglass), civil conspiracy against
Zampelli and Douglass, and respondeat superior, negligence,
* Retired Senior Judge assigned to the Superior Court.
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negligent supervision and breach of contract against Members 1 st
Federal Credit Union (Members 1st). On June 19, 2012, Plaintiffs
also filed a motion to amend caption to add Leon P. Haller,
Chapter 7 Trustee for Morrison Informatics[,] as a Plaintiff in the
action.
Members 1st filed timely preliminary objections to both
amended complaint.
follows: 1) Plaintiffs failed to conform to Pennsylvania Rules of
Civil Procedure because they filed an amended complaint without
leave of court or consent of the adverse party; 2) Plaintiffs
Morrison and Grigonis lack standing as shareholders and owners
of Morrison Informatics because all injuries they suffered were
indirect injuries suffered through the corporation Morrison
Informatics; 3) Morrison Informatics lacks standing because it
complaint cannot be amended to add a new party such as Leon
P. Haller when the statute of limitations has expired on the
II. Facts
Morrison Informatics is a Pennsylvania corporation.
Grigonis and Morrison are shareholders of Morrison Informatics.
Morrison Informatics employed [] Zampelli as a Finance
Manager. [] Douglass was a business banker at PNC Bank and
nts.
In January 2005, Douglass became employed by Members
st
1
transfer to Members 1st, Zampelli initiated and finalized a
Members 1st. Douglass served as the relationship manager
between Members 1st and Morrison Informatics during this time,
aiding Morrison Informatics with opening a business checking
account and a business line of credit, and with obtaining a Visa
business credit card.
Zampelli was at no time authorized as a signer on Morrison
However, Zampelli opened a business savings account in the
name of Morrison Informatics and listed himself as the sole
authorized signer without the permission of Morrison
Informatics.
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supported his gambling by taking money from Morrison
Informatics by utilizing Morri
st
relationship with Members 1 without authority. Specifically,
Zampelli obtained unauthorized cash withdrawals from checks
payable to Morrison Informatics, cashed checks payable to
Morrison Informatics by third parties and himself, made
business checking account, and made unauthorized purchases
2009. On September 17, 2009, Morrison Informatics filed a
Voluntary Petition under Chapter 7 of the United States
Bankruptcy Code. On September 22, 2009, Leon P. Haller was
assigned as the Chapter 7 Trustee for Morrison Informatics. This
action was initiated by a Praecipe for [w]rit of [s]ummons that
was filed on May 27, 2011. The original [c]omplaint in this
action was filed on May 7, 2012, to which Members 1st filed
[p]reliminary [o]bjections on May 25, 2012.
On June 11, 2012, [] Douglass filed a Suggestion of
Bankruptcy to stay the action as to Defendant Douglass pursuant
to 11 U.S.C. § 362.[1] On June 19, 2012, Plaintiffs filed an
Amended Complaint and a Motion to Amend Caption to add Leon
P. Haller, Trustee as Plaintiff. The [a]mended [c]omplaint added
a count for implied breach of contract. On July 5, 2012,
Defendant, Members 1st, filed [p]reliminary [o]bjections to
Trial Court Opinion, 2/20/2013, at 1-4 (citations omitted).
The trial court sustained the preliminary objections and dismissed
timely filed a notice of appeal. Both Plaintiffs and the trial court have
complied with Pa.R.A.P. 1925.
1
By order of January 4, 2013, the bankruptcy court lifted the stay to allow
this case to proceed.
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Plaintiffs raise the following questions on appeal, which we have
renumbered for ease of disposition.
[I]. Whether the trial court erred in ordering that Anthony M.
Grigonis and Malcom H. Morrison do not have standing in
their separate and distinct claims?
[II]. Whether the trial court erred in ordering that Morrison
Informatics, Inc. could not amend [its] caption and
therefore did not have standing?
[A]. Should Morrison Informatics, Inc. been granted leave
to amend the caption to substitute Chapter 7
Trustee, Leon P. Haller, for Morrison Informatics,
Inc.?
[B]. Whether Morrison Informatics, Inc. has standing to
bring the case at issue?
omitted).
Our standard of review in an appeal from an order sustaining
preliminary objections is as follows.
In reviewing a trial court's grant of preliminary objections, the
standard of review is de novo and the scope of review is plenary.
The salient facts are derived solely from the complaint and
pursuant to that standard of review, the court accepts all well-
pleaded material facts in the complaint, and all inferences
reasonably deduced therefrom must be accepted as true.
Martin v. Rite Aid of Pennsylvania, Inc., 80 A.3d 813, 814 (Pa. Super.
2013) (quoting Keller v. Scranton City Treasurer, 29 A.3d 436, 443 n. 12
(Pa. Cmwlth. 2011)).
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We first examine whether the trial court erred in holding that Morrison
and Grigonis lacked standing to bring the claims stated in the amended
complaint.
ng to sue individually, the shareholder must allege a
direct, personal injury that is independent of any injury to the corporation
Hill v. Ofalt, 85 A.3d 540, 548 (Pa. Super. 2014) (citing, inter alia, Burdon
v. Erskine, 401 A.2d 369, 370 (Pa. Super. 1979) (en banc
se to a
If the injury is one to the plaintiff as a shareholder as an
individual, and not to the corporation, for example, where the
action is based on a contract to which the shareholder is a party,
or on a right belonging severally to the shareholder, or on a
fraud affecting the shareholder directly, or where there is a duty
shareholder, it is an individual action. If the wrong is primarily
against the corporation, the redress for it must be sought by the
corporation, except where a derivative action by a shareholder is
Whether a cause of action is individual or derivative must be
determined from the nature of the wrong alleged and the relief,
if any, that could result if the plaintiff were to prevail.
In determining the nature of the wrong alleged, the court must
look to the body of the complaint, not to the plaintiff's
designation or stated intention. The action is derivative if the
gravamen of the complaint is injury to the corporation, or to the
whole body of its stock or property without any severance or
distribution among individual holders, or if it seeks to recover
assets for the corporation or to prevent dissipation of its
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result of an injury to the corporation, and not directly, the
shareholder cannot sue as an individual.
Hill, 85 A.3d at 549. (quoting 12B Fletcher Cyclopedia of the LAW of
CORPORATIONS § 5911 (2013)).
The trial court held that all of the injuries alleged by Morrison and
Grigonis were indirect results of the harm suffered by Morrison Informatics,
rather than individual wrongs suffered separately from their status as
shareholders.
amended complaint, the loss of employment, livelihood, goodwill
and the embarrassment and shame suffered by Grigonis and
Morrison all resulted from the financial collapse and bankruptcy
of Morrison Informatics. Consequently, the injuries suffered by
Grigonis and Morrison did not arise from a contract to which they
were a party or from a duty owed by Defendants directly to
Grigonis and Morrison. Rather, the injuries suffered by Grigonis
and Morrison were indirect injuries that resulted from the
collapse of the corporation in which they were shareholders and
owners. Therefore, Grigonis and Morrison lack standing to bring
an action against Defendants for injuries which were suffered
indirectly as a result of injuries to Morrison Informatics.
Trial Court Opinion, 2/20/2013, at 6 (citations omitted).
Our review of the record leads us to the same conclusion. Morrison
and Grigonis argue in their brief that they were individually harmed by, inter
alia
duties owed to them based upon an employment relationship and a business
ary to the
allegations of the complaint and amended complaint, which provide that all
of the relevant accounts were in the name of Morrison Informatics, not in
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their individual names. See, e.g., Complaint, 5/7/2012, at ¶ 23
(referencing Morrison Informati
business credit card); Amended Complaint, 6/19/2012, at 27 (same). In
each count of the amended complaint, the claims of Morrison and Grigonis
are stated jointly with those of Morrison Informatics, with a single factual
basis: that all of the Plaintiffs were injured by the wrongful taking of money
Accepting the well-pleaded facts as true, there is no question that
Morrison and Grigonis have been injured. However, it is equally clear that
the injuries all were suffered as an indirect result of the wrongs done to the
corporation. No money was taken from personal accounts of Morrison or
Grigonis. The losses were sustained solely by virtue of the status of
Morrison and Grigonis as owners and shareholders of the corporation.
Accordingly, the trial court did not err in sustaining the preliminary
objections based upon the lack of standing of Morrison and Grigonis. See,
e.g., Hill
claims following sustaining of preliminary objections).
-questions. Therein,
Plaintiffs argue th
claims based upon its lack of standing and in denying it leave to substitute
its bankruptcy trustee as party plaintiff.
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There is no dispute that, once it filed for bankruptcy, Morrison
Informa
action, which are considered
of the filing and the debtor could have asserted the claim on his own behalf
In re Emoral, Inc., 740 F.3d 875, 879 (3rd Cir. 2014).
Therefore, as was the case with the claims of Morrison and Grigonis, the trial
Informatics lacked standing.2
The remaining question is whether the trial court erred in denying
Plaintiffs leave to amend the complaint to substitute the bankruptcy estate
of Morrison Informatics as a party plaintiff.
The trial court held that the lack of a named plaintiff with standing to
sue rendered the amended complaint void ab initio. In so doing, it relied on
Thompson v. Peck, 181 A. 597 (Pa. 1935), in which the case was initiated
2
Although Plaintiffs state in their brief that Morrison Informatics did have
standing to bring its claims, what they argue is not that Morrison Informatics
at 25-26. Indeed
Id. at 18. Plaintiffs
make no argument that the claims against Defendants were the property of
Morrison Informatics at the time the complaint was filed, rather than the
property of the bankruptcy estate.
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estate as party defendant. Our Supreme Court held that such amendment
was impermissible:
It is fundamental that an action at law requires a person or
entity which has the right to bring the action, and a person or
entity against which the action can be maintained. By its very
terms, an action at law implies the existence of legal parties;
they may be natural or artificial persons, but they must be
entities which the law recognizes as competent. A dead man
cannot be a party to an action, and any such attempted
proceeding is completely void and of no effect. This disposes of
the further argument that the defect was cured by the
amendment. There can be no amendment where there is
nothing to amend.
Id. at 598 (citations omitted).
Plaintiffs argue that the trial court erred in applying Thompson in the
Thompson was whether suit was initiated
Clinton v. Giles, 719 A.2d 314, 317 (Pa. Super.
1998). Morrison Informatics did not cease to exist as a legal entity upon
filing for bankruptcy; as alleged in the amended complaint, Morrison
is a Pennsylvania corpor
6/20/2012, at ¶ 1 (emphasis added). Neither Defendants nor the trial court
cites authority for the proposition that a pending bankruptcy petition is the
equivalent of death. Therefore, unlike in Thompson, the problem in the
instant case is not that the action was initiated lacking any legal party as a
plaintiff, rendering it void ab initio. Accord Graziani v. Randolph, 856
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retroactive relief from automatic stay allowed case to continue although the
complaint was filed against bankrupt defendant during pendency of the
bankruptcy). The issue here is that the claims stated in the complaint were
the property of the bankruptcy estate rather than that of Morrison
Informatics. Thus, the bankruptcy trustee, and not Morrison Informatics,
erty of
the estate is properly pursued by the bankruptcy trustee because it inures to
In re Emoral, Inc., 740 F.3d 875, 879 (3rd Cir.
2014) (internal quotation marks omitted).
The question becomes whether the trial court erred in refusing to allow
Plaintiffs to amend the complaint to substitute the real party in interest as
plaintiff. Although the preliminary objections were properly sustained on
their merits, leave to amend the complaint should be granted unless it is
impossible to cure the defects. As this Court has explained,
Rule 1033 of the Pennsylvania Rules of Civil Procedure allows a
party to amend his or her pleadings with either the consent of
the adverse party or leave of the court. Leave to amend lies
within the sound discretion of the trial court and the right to
amend should be liberally granted at any stage of the
proceedings unless there is an error of law or resulting prejudice
to an adverse party.
The policy underlying this rule of liberal leave to amend is to
insure that parties get to have their cases decided on the
substantive case presented, and not on legal formalities.
Moreover, we have held:
Even where a trial court sustains preliminary objections on their
merits, it is generally an abuse of discretion to dismiss a
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complaint without leave to amend. There may, of course, be
cases where it is clear that amendment is impossible and where
to extend leave to amend would be futile. However, the right to
amend should not be withheld where there is some reasonable
possibility that amendment can be accomplished successfully.
In the event a demurrer is sustained because a complaint is
defective in stating a cause of action, if it is evident that the
pleading can be cured by amendment, a court may not enter a
final judgment, but must give the pleader an opportunity to file
an amended pleading.
Hill, 85 A.3d at 557 (quotation marks and citations omitted; emphasis in
original).
The trial court denied leave to amend based upon the following
rationale.
Where courts have substituted a trustee for a debtor
without concern for standing of the debtor, they have done so
because the bankruptcy of the debtor was instituted while the
underlying litigation was pending. See Killmeyer v. Ogelbay
Norton Co., 817 F.Supp.2d 681 (W.D.Pa. 2011). In other
words, the debtor initiated bankruptcy after having filed an initial
complaint with the court. Consequently, the debtor had standing
at the time he or she initiated the case with the court, and only
lost his or her right to the cause of action after filing for
bankruptcy. In the present situation, Morrison Informatics filed
for bankruptcy prior to initiating the action. Accordingly, it did
not have a right to the cause of action at the time of filing its
original complaint and, therefore, did not have standing to bring
the initial complaint.
Trial Court Opinion, 2/20/2013, at 8-9 (emphasis in original).
bankruptcy trustee as party plaintiff was premised upon its conclusion that
and amended complaint rendered the action a nullity. As discussed above,
the lack of standing of any of the named plaintiffs at the time the action was
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commenced did not render the complaint void and thus unamendable.
jurisdiction to entertain the case. See, e.g., In re Paulmier, 937 A.2d 364,
cedent is clear that [a challenge to standing is
not incapable of being waived because of ties to jurisdiction]; standing is not
Whether a bankruptcy trustee may be substituted for a debtor when a
case stating claims owned by the bankruptcy estate was initiated by the
debtor appears to be an issue of first impression in Pennsylvania. Upon
examination of decisions in this Commonwealth in related areas, as well as
those of our sister states on the precise issue at hand, we hold that the trial
court abused its discretion in denying Plaintiffs leave to amend the complaint
to name the bankruptcy trustee as plaintiff.
The real party in interest may be substituted for the
original plaintiff, and the substitution of the real party in interest
for the original plaintiff should be liberally allowed when the
change is merely formal and in no way alters the original
participants. However, the substitution of the real party in
interest for the original plaintiff should be denied where to do so
would be to substitute a new cause of action or present a wholly
new or different issue.
67A Corpus Juris Secundum Parties § 73 (footnotes omitted). See also 59
Am. Jur. 2d Parties § 318 (
action brought by a nominal plaintiff (or one suing for the use of another)
may be amended to substitute the real party in interest (or person for whose
benefit the suit is brought) at least where the claims and recovery sought
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plaintiff the real party in interest have long been condoned even in the
absence of express statutory authority. They should be liberally allowed
when the change is merely formal and in no way alters the original
(footnotes omitted).
Other state courts have allowed the substitution of the bankruptcy
trustee even where the complaint was fil
bankruptcy proceedings had been instituted. A factually similar case is
Cloud v. Northrop Grumman Corp., 79 Cal.Rptr.2d 544 (Cal. App. 1998).
In that case, Cloud filed for bankruptcy in June 1996. She filed, in her own
name, a wrongful termination and sexual harassment action against
Northrop, her former employer, in December 1996, while the bankruptcy
action remained pending. Id. at 546. Northrop filed a motion for judgment
on the pleadings based upon, inter alia lack of standing. Id. The
trial court granted the motion without leave to amend the complaint. Id. at
547. The appellate court agreed that Cloud lacked standing to file the
complaint. Id.
es
That did not end the inquiry.
Although the trial judge and Northrop were therefore correct that
[Cloud] lacked standing, their apparent assumption that [her]
lack of standing was fatal to her complaint was mistaken. It is
true that a complaint filed by a party who lacks standing is
subject to demurrer. The rationale for such a demurrer is
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generally stated to be that a complaint by a party lacking
standing fails to state a cause of action by the particular named
plaintiff, inasmuch as the claim belongs to somebody else. A
more accurately stated rationale would be that there is a defect
in the parties, since the party named as plaintiff is not the real
party in interest.4 In any event, [a] suit is sometimes brought
by a plaintiff without the right or authority to sue, and the
amendment seeks to substitute the real party in interest.
Although the original complaint does not state a cause of action
in the plaintiff, the amended complaint by the right party
restates the identical cause of action, and amendment is freely
allowed.
_____
4
This is especially so in light of the case law, discussed
below, holding that in determining whether a cause of
action is stated, the focus is on the factual allegations
against the defendant, not upon the identity of the
plaintiff. Hence the case law allows amendment to change
the plaintiff and holds that such an amendment does not
amount to a change in the cause of action for statute of
limitations purposes.
** *
California allows great liberality in the amendment of pleadings,
particularly when the only change is a substitution of parties
without alteration of the substantive grounds of the suit. A
plaintiff may amend his complaint to sue in his representative
rather than individual capacity without stating a new cause of
action. It should be borne in mind ... that the substantive cause
of action counted on in the amended complaint has not been
changed. It remains precisely the same as that stated in the
original pleading. No new facts are alleged as a ground of
recovery, the only change being in the name of the plaintiff and
the capacity in which he sues.... This being so, the change
effected by the amendment is obviously in no just sense the
bringing of a new action. It is one of form rather than of
substance, and in the interests of justice is to be treated as
such, rather than to adopt a view which would result in an
irretrievable bar to all remedy. Under the modern doctrine, the
discretionary power of the court to such end is to be liberally
exerted in favor of, rather than against, the disposition of a case
upon its merits....
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Id. at 549-550 (citations, footnote, and quotation marks omitted; emphasis
in original). The court therefore remanded the case with instructions to
enter an order granting the motion for judgment on the pleadings with leave
to amend the complaint. Id. at 561. See also Miller v. Campbell, 192
P.2d 352 (Wash. 2008) (granting motion on appeal to substitute the
bankruptcy trustee as the real party in interest in sexual abuse case); Rice
v. Adam, 575 N.W.2d 399 (Neb. 1998) (trial court erred in dismissing
substitute the bankruptcy trustee as the real party in interest). But see
Powers v. Dankof, No. CA 24505, 2011 WL 6016293 (Ohio App. filed
December 2, 2011) (holding trial court did not err in dismissing the case
without allowing plaintiff to amend to add the bankruptcy trustee as the real
party in interest where state rule required amendment to cure defect within
a reasonable time, and plaintiff took no effort to cure the defect for five
months).
arisen in the context of adding defendants after the statute of limitations has
Borough of Berwick v. Quandel Group Inc., 655
prejudiced by the proposed change, courts are inclined to deem the change
one of name only, not of party, and will permit the amendment to allow the
Jacob's Air Conditioning and Heating v. Associated Heating
and Air Conditioning, 531 A.2d 494, 496 (Pa. Super. 1987).
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The only Pennsylvania appellate case we have found addressing
substitution of a plaintiff, rather than a defendant, after the running of the
statute of limitations is Borough of Berwick, supra
Borough of Berwick decided to upgrade and refurbish its sewage treatment
plant. The borough did this through the Municipal Authority of the Borough
of Berwick (the Authority). The Authority owned the plant, and leased it to
construction contracts with the defendants. The borough was not a party to
Id. Nonetheless, after
there were serious problems with the sewage plant, the Borough, rather
than the Authority, filed a complaint. In the initial appeal following the
sustaining of the demurrer of defendant Innova-Tech, this Court held that
Tech. It insulated
itself from the plant construction, and instead used the separate legal entity
of the Authority to build, maintain and own the plant. The Authority dealt
with the defendants, so the proper party to bring suit would have been the
Id. On remand to the trial court to address the motions of the
other defendants, the Borough sought leave to amend the complaint to add
the Authority as a party plaintiff. The trial court declined to grant leave to
amend, citing the futility of the amendment. This Court affirmed, holding
commence a suit and then attempt to substitute the proper plaintiff after the
statute of limitations has run. The substitution would effectively introduce a
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new cause of action which is time barred, and will therefore not be
Borough of Berwick, 655 A.2d at 608.
The circumstances of the instant case are distinguishable. In
Borough of Berwick, this Court examined the relationship between the
Authority and the Borough and concluded that the Borough was neither a
party to the contract nor a third-party beneficiary. Because the Authority
was a separate and distinct entity, the substitution of the real party in
interest had the effect of adding a new party. Here, the amendment would
not have that effect, because the bankruptcy trustee stands in the shoes of
the debtor, subject to all of the same claims and defenses to which the
debtor was susceptible. See, e.g., Bank of Marin v. England, 385 U.S.
with the title of the bankrupt as of the date of the filing of the petition to
described kinds of property including rights of act
succeeds only to such rights as the bankrupt possessed; and the trustee is
subject to all claims and defenses which might have been asserted against
marks omitted).
The amendment thus would not have the effect of adding a new party
or a new cause of action. Further, Defendants will suffer no surprise as a
result of the amendment, as Plaintiffs disclosed the bankruptcy of Morrison
Informatics in the body of the initial complaint. See Complaint, 5/7/2012,
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Accordingly, we hold that the trial court erred in its determination that
granting Plaintiffs leave to amend the complaint to substitute the bankruptcy
trustee as plaintiff was futile. Upon remand, the trial court shall enter an
order sustaining the preliminary objections of Members 1st and granting
Plaintiffs leave to file an amended complaint to substitute Leon P. Haller,
Chapter 7 Trustee for Morrison Informatics, Inc., as Plaintiff in this action.3
Order affirmed in part and vacated in part. Case remanded with
instructions. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/12/2014
3
Also before us is the Application to Provide Documents from Certified
Record Responsive to Inquiry by the Court filed by Members 1 st after oral
argument. As the documents attached to the application are located in the
certified record, we deny the application as moot.
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