No. 03-704
IN THE SUPREME COURT OF THE STATE OF MONTANA
2004 MT 396
R.C. HOBBS ENTERPRISES, LLC,
Plaintiff, Respondent and Cross-Appellant,
v.
J.G.L. DISTRIBUTING, INC.,
Defendant and Respondent,
and
ELDON J. NICHOLSON and DONNA NICHOLSON,
Defendants and Appellants.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula, Cause No. DV 2001-1029,
The Honorable John S. Henson, Judge presiding.
COUNSEL OF RECORD:
For Appellants Eldon J. Nicholson and Donna Nicholson:
P. Mars Scott, Keithi M. Worthington, Law Offices of P. Mars Scott, P.C.,
Missoula, Montana
For Respondent and Cross-Appellant R.C. Hobbs Enterprises, Inc.:
Donald V. Snavely, Snavely Law Firm, Missoula, Montana
For Respondent J.G.L. Distributing, Inc.:
Christopher B. Swartley, Attorney at Law, Missoula, Montana
Submitted on Briefs: February 24, 2004
Decided: December 30, 2004
Filed:
__________________________________________
Clerk
Justice John Warner delivered the Opinion of the Court.
¶1 Eldon J. Nicholson and Donna Nicholson (the “Nicholsons”) appeal from an Opinion
and Order entered August 21, 2003, in the District Court for the Fourth Judicial District,
Missoula County, granting summary judgment in favor of J.G.L. Distributing (“J.G.L.”),
thereby permitting J.G.L. to exercise an option to purchase the subject real property. Hobbs
Enterprises, L.L.C. (“Hobbs”) cross-appeals from the same Opinion and Order which grants
summary judgment to the Nicholsons dismissing Hobbs’ claims against the Nicholsons and
J.G.L. In this cross-appeal, Hobbs seeks to preserve its right to seek an award of attorney
fees and costs on appeal based upon the “prevailing party” clause contained in the Option.
We affirm.
¶2 We address the following issues on appeal:
¶3 1. Did the District Court err in concluding an assignment from J.G.L. to Hobbs was
void, and therefore, the Nicholsons owed no obligation to Hobbs?
¶4 2. Did the District Court err in concluding J.G.L.’s breach of contract in assigning the
Option to Hobbs was not sufficient to warrant a forfeiture of J.G.L.’s rights under such
Option?
¶5 3. Did the District Court err in applying § 28-1-104, MCA, the antiforfeiture statute,
to the failure by J.G.L. to make timely payments?
¶6 4. Are the Nicholsons entitled to their attorney fees?
¶7 5. Are Hobbs and J.G.L. entitled to attorney fees on appeal?
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I. FACTUAL AND PROCEDURAL BACKGROUND
¶8 On February 13, 1998, the Nicholsons and J.G.L executed an Option (the “Option”)
that gave J.G.L five years to purchase property located on Old Grant Creek Road in Missoula
from the Nicholsons. Under the Option J.G.L. was to have possession of the property and
to make nonrefundable payments of $1,629 by the 13th of each month to the Nicholsons.
Failure of J.G.L. to make a monthly payment would cause the Option to expire immediately
and the Nicholsons would not be required to refund any part of the payments already made.
The Option stated the monthly payments were not to be credited against the purchase price.
The Option did not grant J.G.L. any legal or equitable interest in the property.
¶9 The Option also contained a clause which required J.G.L. to obtain the Nicholsons’
express written consent before assigning it to a third party.
¶10 To exercise the Option J.G.L. was required to notify the Nicholsons of its intent to
purchase the property and to tender payment of $230,000, the agreed upon purchase price.
¶11 J.G.L. missed two payments, February and March 1998, immediately following
execution of the Option. The Nicholsons accepted the late payments. All other payments
were made on time until April 2001.
¶12 Around the same time the Option was executed, J.G.L. informed the Nicholsons that
it wanted to subdivide the property into three separate tracts, keep one, and sell the other
two. J.G.L. asked Eldon Nicholson to utilize his family-split exemption to the subdivision
requirements in order to avoid the formal subdivision process. Nicholson cooperated and
assisted J.G.L. in the subdivision process. The property was divided into three smaller
parcels designated Tracts 1, 2, and 3. The Nicholsons executed three warranty deeds to
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effectuate the subdivision and placed them with the escrow agent, Insured Titles. J.G.L. paid
all costs associated with subdividing the property, including debris removal and grading of
the lots, for a total of $17,000.
¶13 In May 1999, after the subdivision process was completed, J.G.L. assigned its option
rights to Tracts 1 and 2 to Hobbs for $50,000. J.G.L. retained its rights to Tract 3. Under
the assignment, Hobbs agreed to make all further monthly payments and to pay the $230,000
purchase price to the Nicholsons at such time the Option was exercised. Thereafter, Hobbs
commenced making the monthly payments of $1,629 to the Nicholsons through the escrow
account at Insured Titles.
¶14 Hobbs continued to make the monthly payments through Insured Titles until April 13,
2001, when Hobbs inadvertently missed a payment. In May 2001, the Nicholsons realized
they had not received the April payment. The Nicholsons contacted Insured Titles and
confirmed the April payment had not been received. Upon learning of the oversight, Hobbs
immediately tendered payment on May 8, 2001. Eldon Nicholson sent a letter to J.G.L. on
May 11, 2001, informing it that due to the missed payment, the Option had expired; the
missed payment caused J.G.L. to forfeit its rights under the Option; any monies paid as
consideration for the Option were forfeited; and the Nicholsons had taken full control of the
said property. On May 17, Hobbs responded to the Nicholsons’ notice of forfeiture on
behalf of both J.G.L. and Hobbs , offering to pay the full purchase price, $230,000, in
exchange for clear title to the property.
¶15 On May 31, 2001, the Nicholsons rejected Hobbs’ offer stating only J.G.L. could
exercise the Option. In spite of Hobbs’ offer, the Nicholsons claim they did not receive any
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offer to pay the $230,000 purchase price from J.G.L. until November 19, 2002, 18 months
after J.G.L. received the notification of forfeiture. Regardless, Hobbs continued to make the
monthly payments into the escrow account through January 2003, the end of the Option
period. The escrow agent held the money in trust, since the Nicholsons refused to accept any
further payments.
¶16 In September 2002, a third party (the “Johnson Brothers”) offered to purchase Tracts
1 and 2 from the Nicholsons for $365,904. The Nicholsons advised J.G.L. in writing on
November 1, 2002, that they intended to sell the property to the Johnson Brothers. J.G.L.
responded with a letter reiterating it stood “ready, willing and able” to tender the full
purchase price of $230,000.
¶17 Meanwhile, in December 2001, Hobbs filed suit against the Nicholsons and J.G.L.
Hobbs alleged it had invested $53,972 in the property, and paid the monthly payments from
May 1999 to January 2003, for a total investment of $127,277. J.G.L. filed a counterclaim
against Hobbs and cross-claims against the Nicholsons. The Nicholsons then filed a
counterclaim against J.G.L.
¶18 All three parties filed cross-motions for summary judgment in February 2003. The
issues were fully briefed, and oral argument was waived. The District Court issued its
Opinion and Order on August 21, 2003. The District Court dismissed Hobbs’ claims
concluding that Hobbs lacked standing to seek relief from forfeiture against the Nicholsons
because it was not a party to the contract between J.G.L. and the Nicholsons.
¶19 With regards to J.G.L.’s cross-claims, the District Court found the consent to
assignment clause contained in the Option was valid and enforceable. However, the District
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Court also held that even though J.G.L. breached the no assignment provision by not
obtaining written consent from the Nicholsons to assign its rights under the Option to Hobbs,
such did not serve to terminate J.G.L.’s right to exercise the Option because it was not a
material breach of contract. The District Court further found J.G.L. violated the Option by
not making the April 13, 2001, payment–and, therefore, the Nicholsons were within their
rights to refuse the late payment. However, the District Court went on to find forfeiture
would be too harsh a remedy given that J.G.L. otherwise made its payments on time and
expended a significant amount of money to improve the property. The District Court found
J.G.L.’s breach was not grossly negligent, willful or fraudulent. Therefore, the District Court
excused the forfeiture and granted J.G.L. 20 days to pay the full purchase price to the
Nicholsons. The District Court denied all requests for attorney fees or other damages. This
appeal followed.
II. STANDARD OF REVIEW
¶20 Our review of a summary judgment order is de novo. Urquhart v. Teller, 1998 MT
119, ¶ 14, 288 Mont. 497, ¶ 14, 958 P.2d 714, ¶ 14. We review summary judgment to
determine if the District Court was correct that there are no material facts at issue and if it
applied the law correctly. May v. Era Landmark Real Estate, 2000 MT 299, ¶ 17, 302 Mont.
326, ¶ 17, 15 P.3d 1179, ¶ 17.
III. DISCUSSION
ISSUE ONE
¶21 Did the District Court err in concluding an assignment from J.G.L. to Hobbs was
void, and therefore, the Nicholsons owed no obligation to Hobbs?
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¶22 Rule 56(c), M.R.Civ.P., authorizes summary judgment “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law.” As the moving party, the Nicholsons had to demonstrate that
no genuine issues of material fact exist. Stanley v. Holms, 1999 MT 41, ¶ 31, 293 Mont.
343, ¶ 31, 975 P.2d 1242, ¶ 31. If the movant demonstrates that no genuine issues of
material fact exist, “the burden then shifts to the non-moving party to prove, by more than
mere denial and speculation, that a genuine issue does exist.” Stanley, ¶ 31. Mere
conclusory statements are insufficient to create genuine issues of material fact. Stanley, ¶
32. Further, the fact that all three parties moved for summary judgment does not establish,
in and of itself, the absence of genuine issues of material fact. Montana Metal Bldgs., Inc.
v. Shapiro, 283 Mont. 471, 477, 942 P.2d 694, 698. “Moreover, disagreement over the
interpretation of facts does not amount to a genuine issue of material fact.” Stanley, ¶ 32.
The determination of the existence of genuine issues of material fact is one
that is not always easily ascertained. Important in this determination is
whether the material facts are actually disputed by the parties or whether the
parties simply interpret the facts differently.
Sprunk v. First Bank System (1992), 252 Mont. 463, 466, 830 P.2d 103, 105.
¶23 In the present case, we conclude the Nicholsons demonstrated there was no factual
issue as to whether they waived their rights under the consent to assignment clause, and
Hobbs failed to set forth specific facts to prove a genuine issue did exist.
¶24 Hobbs claims the Nicholsons waived the consent to assignment clause in the Option.
It is well settled law that a “[w]aiver is a voluntary and intentional relinquishment of a
known right, claim or privilege, which may be proved by express declarations or by a course
7
of acts and conduct which induces the belief that the intent and purpose was waiver.”
VanDyke Const. Co. v. Stillwater Mining Co., 2003 MT 279, ¶ 15 , 317 Mont. 519, ¶ 15, 78
P.3d 844, ¶ 15. “To establish a knowing waiver, the party asserting waiver must demonstrate
the other party's knowledge of the existing right, acts inconsistent with that right, and
resulting prejudice to the party asserting waiver.” VanDyke, ¶ 15.
¶25 The Nicholsons denied receiving any notice that J.G.L. had assigned its rights to
Hobbs. J. Gary Louquet, the President of J.G.L., admitted he at no time informed the
Nicholsons of the assignment. There is nothing in the record to show anyone connected with
Hobbs told the Nicholsons about the assignment. We conclude these facts are sufficient to
shift the burden to Hobbs to show proof that a genuine issue of material fact existed with
respect to whether the Nicholsons waived the consent to assignment clause.
¶26 Even after drawing all reasonable inferences in favor of Hobbs as the party opposing
the motion for summary judgment, Hobbs failed to show that a genuine issue of material fact
existed. Hobbs asserts the Nicholsons had an affirmative duty to inquire as to who Hobbs
was when Eldon Nicholson saw Hobbs’ name on the payment checks. The checks from
Insured Titles were apparently from Hobbs’ account. Nevertheless, this does not put the
Nicholsons on notice of an assignment; it merely shows that for some reason money is
coming from an account by checks that have Hobbs’ name on them. However, under the
terms of the Option, the Nicholsons had no affirmative duty to inquire if the Option had been
assigned. It was J.G.L. who had the duty to seek permission to assign its rights to Hobbs.
¶27 Hobbs next argues the fact the Nicholsons agreed to subdivide the property knowing
J.G.L. intended to sell was further proof they had knowledge of the assignment. However,
8
this does not show that J.G.L. had assigned the Option to anyone.
¶28 We hold the District Court did not err in concluding these facts are insufficient to
raise a genuine issue of material fact whether the Nicholsons had knowledge of the
assignment between J.G.L. and Hobbs. The District Court was correct to conclude the
Nicholsons had not waived the consent to assignment clause.
ISSUE TWO
¶29 Did the District Court err in concluding J.G.L.’s breach of contract in assigning
the Option to Hobbs was not sufficient to warrant a forfeiture of J.G.L.’s rights under
such Option?
¶30 The Nicholsons appeal the District Court’s conclusion that even though J.G.L.
breached that portion of the Option requiring written consent to assignment of J.G.L.’s rights
under the contract, the breach did not terminate J.G.L.’s rights under the Option.
¶31 The Nicholsons assert it is important for the general public to know that if a contract
states it is not assignable, then it is not assignable. The Nicholsons further assert, in
breaching the consent to assignment clause, J.G.L. defeated every purpose the Nicholsons
had in entering the contract. We disagree.
¶32 First, it is well settled law in Montana that contract clauses requiring consent prior to
assignment are enforceable, and that any assignment in violation of such clause is void. See,
e.g., Hedges v. Woodhouse, 2000 MT 220, ¶ 13, 301 Mont. 180, ¶ 13, 8 P.3d 109, ¶ 13;
Rother-Gallagher v. Montana Power Co. (1974), 164 Mont. 360, 364, 522 P.2d 1226, 1228.
It is also well settled that where the contract contains such a clause, assignment without
consent destroys or precludes the establishment of privity between an alleged assignee and
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the other party. Rother-Gallagher, 164 Mont. at 364, 522 P.2d at 1228. However, as J.G.L.
and Hobbs point out, this does not answer the question of what affect the voided assignment
has on the rights of J.G.L.
¶33 In determining remedies for breach of contract, Montana distinguishes between
“material” breaches, which entitle the non-breaching party to terminate the contract, and
“incidental” breaches, which only entitle the non-breaching party to sue for damages.
Norwood v. Service Distributing Inc., 2000 MT 4, ¶ 29, 297 Mont. 473, ¶ 29, 994 P.2d 25,
¶ 29. A material breach is one that touches the fundamental purpose of the contract and
defeats the object of the parties in making the contract. Norwood, ¶ 29. The party claiming
a material breach must show the deficient performance on the part of the other party is, in
fact, material to the contract. Norwood, ¶ 33.
¶34 The District Court concluded, “violation of [the consent to assignment clause] was
not of such consequence to be considered a material breach of contract.” The facts, that is,
what happened here, are not at issue. Based on our review of the record, we hold the District
Court’s conclusion was correct when the law is applied to the facts presented. We fail to see
how every purpose the Nicholsons had in entering the Option was defeated by the
assignment. By their own admission, the Nicholsons were not aware of the assignment until
after they sent notice of forfeiture to J.G.L. for missing the April 2001 payment, and they
suffered no damage as a result of the assignment.
¶35 The assignment only became material to the Nicholsons once they realized they could
sell two lots in the newly subdivided property for an additional profit of $135,000 and retain
the remaining lot for themselves. To hold the assignment in question would be a material
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breach of the contract extinguishing J.G.L’s right to exercise its option to purchase would
cause the Nicholsons to be unjustly enriched. See Erban v. Monforton (1987), 227 Mont.
531, 740 P.2d 677.
ISSUE THREE
¶36 Did the District Court err in applying § 28-1-104, MCA, the antiforfeiture statute,
to the failure by J.G.L. to make timely payments?
¶37 The Nicholsons argue the District Court erred when it granted J.G.L. equitable relief
under § 28-1-104, MCA, Montana’s antiforfeiture statute which states:
Whenever by the terms of an obligation a party thereto incurs a forfeiture or
a loss in the nature of a forfeiture by reason of his failure to comply with its
provisions, he may be relieved therefrom upon making full compensation to
the other party, except in case of a grossly negligent, willful, or fraudulent
breach of duty.
¶38 The Nicholsons first assert the statute is not applicable because the Option in question
merely grants a privilege or right to elect to buy, but it does not impose any obligation to
buy. They are correct in that J.G.L. had no obligation to purchase the property. See, e.g.,
Ryan v. Bloom (1947), 120 Mont. 443, 452, 186 P.2d 879, 883; Pollard v. City of Bozeman
(1987), 228 Mont. 176, 180, 741 P.2d 776, 779. However, to exercise its valuable right to
purchase, J.G.L. had the corresponding obligation to pay the purchase price. It is the very
purpose of the antiforfeiture statute to provide a basis for equitable relief where forfeiture
of a valuable right would otherwise result from default or material breach under a contract.
See, e.g., Quigley v. Acker, 1998 MT 72, ¶ 31, 288 Mont. 190, ¶ 31, 955 P.2d 1377, ¶ 31.
In interpreting this statute, this Court has said:
Section 28-1-104, MCA[,] was enacted for the benefit of obligors whose
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failure to punctually perform would result in loss to them in the matters in
respect to which they have contracted . . . . The intention of the law under this
statute is that a forfeiture should not be needlessly enforced.
Quigley, ¶ 31.
¶39 The circumstances presented here are not unlike those in Holiday Inns of America,
Inc. v. Knight (Cal. 1969), 450 P.2d 42. In Knight, the option required the optionee to make
5 non-refundable annual payments, and further provided failure to make timely payments
would result in automatic forfeiture of the option. The optionee made improvements to the
property. Then, in the third year of the option, the optionee made the annual payment late.
The optionor refused to accept the late payment, and invoked the strict forfeiture provision
of the option. The California Supreme Court held California’s antiforfeiture statute was
applicable to an option contract containing very similar terms to the Option at issue in this
case.1 Here, as in Knight, J.G.L. also made substantial improvements to the property by
subdividing it at their own expense. The equitable relief provided by § 28-1-104, MCA, is
available to J.G.L.
¶40 The Nicholsons cite several cases in which this Court refused to grant equitable relief
to the defaulting party under the antiforfeiture statute. See Huffine v. Lincoln (1930), 87
Mont. 267, 287 P. 629; Lynch v. Shields (1974), 165 Mont. 396, 529 P.2d 348; Petersen
Sheep & Cattle Co. v. Moss (1970), 155 Mont. 311, 471 P.2d 546. Relying on these cases,
the Nicholsons argue J.G.L. cannot invoke the protections of § 28-1-104, MCA, because
J.G.L. had not incurred any obligation when it entered into the Option and had not suffered
1
California’s statute was the source of Montana’s antiforfeiture statute and
contains the identical language.
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any true forfeiture upon default.
¶41 The cases relied on by the Nicholsons are unlike the present circumstances. Here, the
record shows that at all times since the April 2001 payment was missed, J.G.L. remained
ready, willing and able to pay the full price for the property and acted in good faith to
accomplish this end. When J.G.L., through Hobbs, offered payment of the full purchase
price within 6 days of notification of forfeiture, the Nicholsons had the ability to have all that
they were entitled to in their pockets in a reasonable period of time. This Court has long
held where the defaulting party tendered full compensation for the accelerated balance within
a reasonable period of time, and the defaulting party made significant improvements and paid
a significant amount of the money before default, so a forfeiture would result in the seller's
unjust enrichment, equitable relief from forfeiture is appropriate. Quigley, ¶¶ 37-38; Roberts
v. Morin (1982), 198 Mont. 233, 241, 645 P.2d 423, 428.
¶42 The Nicholsons further assert that requiring them to complete the sale of the property
to J.G.L. constitutes specific performance, which is a remedy only available under an option
contract where the party has fully and fairly performed the terms of the contract. Rogers v.
Relyea (1979), 184 Mont. 1, 7, 601 P.2d 37, 40. They argue the plain language of § 28-1-
104, MCA, dictates the breaching party is not entitled to relief where the breach is due to the
party’s own gross negligence, willfulness or fraud or where the breaching party has not
offered full compensation within a reasonable period of time.
¶43 The Nicholsons’ substantive argument is that J.G.L. acted willfully when it breached
the consent to assignment clause. The record does not demonstrate that J.G.L. acted with
gross negligence, willfulness, or fraud. It was only when the Nicholsons discovered they
13
could sell the property at a much greater profit that they acted to strictly enforce the timely
payment provision of the contract.
¶44 We conclude, as did the District Court, it is appropriate under these facts to apply the
antiforfeiture statute to avoid an unjust result.
ISSUE FOUR
¶45 Are the Nicholsons entitled to their attorney fees?
¶46 The Nicholsons assert they are entitled to attorney fees under the “prevailing party”
clause contained in the Option. We conclude the Nicholsons are not entitled to such fees as
they did not prevail in the District Court, nor do they prevail on appeal.
ISSUE FIVE
¶47 Are Hobbs and J.G.L. entitled to attorney fees on appeal?
¶48 Both Hobbs and J.G.L assert they are entitled to attorney fees on appeal under the
“prevailing party” clause contained in the Option if they prevail in this Court. The contract
clause provided:
Any action brought by the Buyer or the Seller to enforce any of the terms of
this Contract, the prevailing party in such action shall be entitled to such
reasonable attorney fees as the court shall determine just and proper.
¶49 In Montana, attorney fees are allowed in civil cases when they are provided for by
statute or contractual provision. See Trustees of Indiana University v. Buxbaum, 2003 MT
97, ¶ 19, 315 Mont. 210, ¶ 19, 69 P.3d 663, ¶ 19; Jordan v. Elizabethan Manor (1979), 181
Mont. 424, 434, 593 P.2d 1049, 1055. An award of attorney fees based in contract will be
granted on appeal where the contract “obviously contemplated that attorney fees on appeal
as well as at trial were to be charged,” because the contract explicitly stated fees would be
14
awarded by “both trial and appellate courts.” Diehl and Associates v. Houtchens (1979), 180
Mont. 48, 53, 588 P.2d 1014, 1015; Transaction Network, Inc. v. Wellington Technologies,
Inc., 2000 MT 223, ¶ 38, 301 Mont. 212, ¶ 38, 7 P.3d 409, ¶ 38; Majers v. Shining
Mountains (1988), 230 Mont. 373, 381, 750 P.2d 449, 454; Hoven v. Amrine (1986), 224
Mont. 15, 17, 727 P.2d 533, 535.
¶50 This Court has also held that when an award of attorney fees is based in contract, the
prevailing party may be entitled to an award of reasonable attorney fees on appeal, even if
the contract does not explicitly say so. See Quigley, ¶ 47; Smith v. Johnson (1990), 245
Mont. 137, 145, 798 P.2d 106, 111 (citing Lauderdale v. Grauman (1986), 223 Mont. 357,
359, 725 P.2d 1199, 1200).
¶51 Nevertheless, this Court has further held the prevailing party “is entitled to attorney
fees generated on appeal only if, in fact, the District Court awards [the prevailing party]
attorney fees in the first place. . . .” General Motors Acceptance Corp. v. Finch (1990), 246
Mont 359, 363, 805 P.2d 1331, 1334.
¶52 Based on the facts of this case, and because J.G.L. failed to appeal the District Court’s
determination not to award attorney fees to any of the parties upon summary judgment,
J.G.L. is not now entitled to an award of attorney fees. Hobbs is not entitled to attorney fees
because it has not prevailed on appeal.
IV. CONCLUSION
¶53 We affirm the judgment of the District Court.
/S/ JOHN WARNER
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We Concur:
/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ PATRICIA O. COTTER
/S/ JIM RICE
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