Present: All the Justices
FRIENDLY ICE CREAM
CORPORATION, ET AL.
v. Record No. 031640 OPINION BY JUSTICE ELIZABETH B. LACY
June 10, 2004
BEATRICE F. BECKNER
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Gaylord L. Finch, Jr., Judge
In this appeal we review the chancellor's decree
rescinding an amendment to a lease because the lease amendment
was the result of undue influence.
Facts
Beatrice Beckner and her husband entered into a
commercial lease with Friendly Ice Cream Corporation
(Friendly) allowing Friendly to build and operate a retail
store on property owned by the Beckners. The lease commenced
in 1976 with an original term of 15 years. Friendly could
exercise five renewal options of five years each. If all five
options were exercised, the lease would terminate in 2016. In
addition to a monthly base rent, the lease required an annual
payment of two percent of the store's annual gross sales
exceeding $275,000 (percentage rent). FriendCo Restaurants,
Inc. (FriendCo) operated the retail ice cream store through a
sublease with Friendly. In 2001, the lease generated a base
rent of $1,105.00 per month and a percentage rent of
$7,984.68, for a total income of approximately $21,200.00.
In December 2001, Friendly and FriendCo decided to close
the retail store. Fourteen years remained on the lease if the
renewal option were fully exercised. Riggs Bank, N.A.
(Riggs), among others, expressed an interest in acquiring
Friendly's interest in the lease. Riggs planned to demolish
the existing retail building and build a bank building on the
property. Riggs was willing to pay Friendly approximately
$800,000 for terminating the sublease and assigning the lease
to Riggs if the lease were amended to relieve Riggs from
payment of the percentage rent.
On December 26, 2001, Sandra L. Hughes, Vice-President
and Deputy General Counsel for FriendCo, wrote to the Beckners
seeking their consent to the assignment of the lease to Riggs,
to the proposed redevelopment of the property, and to an
agreement that the percentage rent requirement would not apply
to Riggs' use of the property as a bank. On January 3, 2002,
in response to a telephone call from Mrs. Beckner, Hughes went
to Mrs. Beckner's home and discussed the provisions of a
proposed amendment to the lease that would meet Riggs'
conditions for the lease assignment. At that meeting Mrs.
Beckner, then widowed and 80 years old, told Hughes that her
lawyer was Norman Hammer.
Hughes contacted Hammer and, at Hammer's request, sent
him a letter dated January 25, 2002, setting out the history
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of payments made on the percentage rent, offering to increase
the base rate by $5,000 a year, and proposing an amendment to
the lease eliminating the percentage rent. Hammer replied on
February 20, stating that he had no counter offer and that he
wanted to confer with Mrs. Beckner's son, Robert O. Beckner.
In a February 27 telephone call to Hughes, Mrs. Beckner
stated that Hammer was no longer her attorney and that she
wanted to meet with Hughes to discuss the amendment to the
lease. Hughes went to Mrs. Beckner's home and discussed the
terms of the proposed amendment to the lease, including the
offer to increase the annual base rent by $5,000. Mrs.
Beckner replied that she wanted the base rate increased by
$8,940 a year, from $1,105 per month to $1,850 per month.
Hughes agreed to submit Mrs. Beckner's proposal to Friendly.
On February 28, Hammer sent a facsimile to Hughes
instructing Hughes not to contact Mrs. Beckner directly and
terming the "present offer" unacceptable. Hughes replied by
facsimile on March 1, telling Hammer that she had met with
Mrs. Beckner at Mrs. Beckner's request; that Mrs. Beckner
stated that Hammer no longer represented Mrs. Beckner; that
Hughes was a principal of FriendCo, the subtenant; and that
"principals may talk to one another at any time, without going
through lawyers if they so choose."
3
Hammer met with Mrs. Beckner on March 7, 2002 to discuss
the amendment to the lease and his representation of her.
Also present at the meeting were Robert Beckner, Clyde R.
Christopherson − a lawyer who had also represented Mrs.
Beckner, and Leroy Jackson, Mrs. Beckner's long-time friend
and insurance agent. Mrs. Beckner agreed that Hammer should
negotiate with Friendly on her behalf regarding the proposed
amended lease. Christopherson drafted a letter reflecting
this decision and, after reviewing the letter with Mrs.
Beckner on March 8, sent the letter to Hughes' superior, David
J. Norman.
Mrs. Beckner telephoned Hughes on Friday, March 8,
reiterated her desire to deal directly with Hughes, and asked
if Friendly had responded to the increase in base rent that
Mrs. Beckner had requested. Hughes told Mrs. Beckner that
Friendly had agreed to the increase. Although Mrs. Beckner
wanted to sign the amendment to the lease immediately, Hughes
could not meet with her until Monday, March 11. Hughes sent
Mrs. Beckner a copy of the amendment to the lease along with a
copy of Christopherson's March 8 letter and the facsimile
exchanges between Hammer and Hughes on February 28 and
March 1.
On March 11, Hughes arrived at Mrs. Beckner's home,
reviewed the amendment to the lease with her, and then, at
4
Mrs. Beckner's direction, went with her to the bank where a
bank employee with whom Mrs. Beckner had dealt in the past
notarized her signature on the documents. Hughes then
presented Mrs. Beckner with a letter Hughes had drafted for
Mrs. Beckner's signature stating that Mrs. Beckner wanted to
deal directly with Hughes. Mrs. Beckner signed the letter.
Shortly thereafter, Robert Beckner informed Hughes and
Norman that he was concerned about his mother's actions.
After receiving copies of the documents Mrs. Beckner had
signed, Christopherson wrote Norman indicating Christopherson
considered the documents to be invalid and that the documents
should be resubmitted to Mrs. Beckner for further
consideration.
Proceeding
On March 22, 2002, Mrs. Beckner filed a bill of complaint
against Friendly and FriendCo seeking rescission of the
amendment to the lease on four grounds: fraud, gross
inadequacy of consideration, unjust enrichment, and undue
influence, Counts I through IV, respectively.1 The fraud count
was dismissed by agreed order prior to trial and Mrs. Beckner
abandoned the unjust enrichment count at trial. Friendly and
FriendCo (collectively "Friendly's") filed a motion for
1
A third defendant, DaveCo. Restaurants, Inc., was
dismissed with prejudice.
5
summary judgment asserting that Mrs. Beckner was not entitled
to rescission because she had acquiesced to the terms of the
amended lease when she cashed checks she received pursuant to
the terms of the amended lease. The chancellor denied this
motion as not appropriate for summary judgment.
Following an ore tenus hearing, the chancellor entered a
decree in favor of Mrs. Beckner on Counts II and IV. The
chancellor found that the amendment to the lease was the
product of undue influence because Mrs. Beckner produced clear
and convincing evidence that she suffered from great weakness
of mind, Hughes had a confidential relationship with her
consisting of a formal and informal relationship regarding
business matters, and the consideration for the amendment to
the lease was grossly inadequate and occurred in suspicious
circumstances. The chancellor rescinded the amendment to the
lease and required Mrs. Beckner to pay $5,888.23, the amount
she received under the amended lease exceeding that which she
would have received prior to the amendment. We awarded
Friendly's an appeal.
Count IV − Undue Influence
On appeal, Friendly's raises five assignments of error.
We first consider the three assignments of error that
challenge the chancellor's action rescinding the lease
amendment based on its finding of undue influence.
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A court of equity will not set aside a contract because
it is "rash, improvident or [a] hard bargain" but equity will
act if the circumstances raise the inference that the contract
was the result of imposition, deception, or undue influence.
Payne v. Simmons, 232 Va. 379, 384, 350 S.E.2d 637, 640 (1986)
(quoting Long v. Harrison, 134 Va. 424, 441-42, 114 S.E. 656,
661-62 (1922)); Jackson v. Seymour, 193 Va. 735, 740-41, 71
S.E.2d 181, 185 (1952). To set aside a deed or contract on
the basis of undue influence requires a showing that the free
agency of the contracting party has been destroyed. Tabb v.
Willis, 155 Va. 836, 858, 156 S.E. 556, 563 (1931); Jenkins v.
Trice, 152 Va. 411, 429, 147 S.E. 251, 257 (1929). Because
undue influence is a species of fraud, the person seeking to
set aside the contract must prove undue influence by clear and
convincing evidence. Redford v. Booker, 166 Va. 561, 574, 185
S.E. 879, 885 (1936).
Direct proof of undue influence is often difficult to
produce. In the seminal case of Fishburne v. Ferguson, 84 Va.
87, 111, 4 S.E. 575, 582 (1887), however, this Court
identified two situations which we considered sufficient to
show that a contracting party's free agency was destroyed,
and, once established, shift the burden of production to the
proponent of the contract. The first involved the mental
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state of the contracting party and the amount of
consideration:
[W]here . . . great weakness of mind concurs
with gross inadequacy of consideration, or
circumstances of suspicion, the transaction
will be presumed to have been brought about by
undue influence.
Id. Thus, if the party seeking rescission of the deed or
contract produces clear and convincing evidence of great
weakness of mind and grossly inadequate consideration or
suspicious circumstances, he has established a prima facie case
of undue influence and, absent sufficient rebuttal evidence, is
entitled to rescission of the document. See also Payne, 232
Va. at 384-86, 350 S.E.2d at 640-41 (deed rescinded based upon
grantor's diminished mental capacity and the fact that $5,000,
without the grantor retaining a life tenancy was grossly
inadequate consideration); McGrue v. Brownfield, 202 Va. 418,
425-27, 117 S.E.2d 701, 706-08 (1961) (rescission unavailable
absent weakness of mind where conveyance of property for
cancellation of $400 debt secured by deed of trust was not
grossly inadequate consideration); Foster v. Helms, 169 Va.
634, 643-45, 194 S.E. 799, 802-03 (1938) (rescission not
available because grantor competent and agreement to care for
grantor was not grossly inadequate consideration); Bibby v.
Thomas, 165 Va. 248, 253, 182 S.E. 226, 228-29 (1935) (deed by
8
elderly, infirm, illiterate woman, conveying property valued at
$1,200 to caretaker for $100 was rescinded).
The second instance Fishburne identified arises when a
confidential relationship exists between the grantor and
proponent of the instrument:
[W]here one person stands in a relation of
special confidence towards another, so as to
acquire an habitual influence over him, he
cannot accept from such person a personal
benefit without exposing himself to the risk,
in a degree proportioned to the nature of their
connection, of having it set aside as unduly
obtained.
84 Va. at 112-13, 4 S.E. at 582. Here, equity considers the
benefit to the person in the relation of special confidence
presumptively invalid and, once that relationship and benefit
is established, the burden of going forward with evidence that
the transaction was fair rests on the proponent of the
transaction. See also Economopoulos v. Kolaitis, 259 Va. 806,
812, 528 S.E.2d 714, 718 (2000) (the presence of a
confidential relationship creates a presumption of fraud.);
Nuckols v. Nuckols, 228 Va. 25, 34-38, 320 S.E.2d 734, 739-41
(1984) (one seeking rescission has burden to prove
confidential or fiduciary relationship or other direction and
control depriving grantor of free volition); Nicholson v.
Shockey, 192 Va. 270, 275, 64 S.E.2d 813, 816 (1951) (gift
from mother to son acting as attorney and confidential advisor
9
in transaction is "presumptively invalid;" donee must overcome
this presumption by clear and convincing evidence); Waddy v.
Grimes, 154 Va. 615, 647, 153 S.E. 807, 817 (1930) (where a
deed is made to the wife of the grantor's duly appointed
committee, the burden of proving that the transactions are
valid falls on the party seeking to uphold the deed).
Initially, we note that in this case the trial court
stated that Mrs. Beckner had established "the three elements of
[the undue influence] presumption." We assume this refers to
the statement in Martin v. Phillips, 235 Va. 523, 528, 369
S.E.2d 397, 400 (1988), that the presumption of undue influence
arises if weakness of mind, grossly inadequate consideration or
suspicious circumstances, and a fiduciary or confidential
relationship are established by clear and convincing evidence.
As we have discussed, the presumption of undue influence arises
and the burden of going forward with the evidence shifts when
weakness of mind and grossly inadequate consideration or
suspicious circumstances are shown or when a confidential
relationship is established. To the extent Martin requires all
three elements to be shown before the presumption of undue
influence can be invoked, it is overruled. Nevertheless, under
the principles established in Fishburne and subsequent cases,
the chancellor's findings in this case, if supported by the
record, entitled Mrs. Beckner to the presumption of undue
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influence under either situation − a confidential relationship
or weakness of mind and grossly inadequate consideration or
suspicious circumstances.
We now review the chancellor's findings, applying
established principles of appellate review. We must accept
the chancellor's findings of fact unless they are plainly
wrong or without evidence to support them. The Dunbar Group,
LLC v. Tignor, 267 Va. 361, 367, 593 S.E.2d 216, 219 (2004).
A. Confidential Relationship
We begin our review by considering whether the evidence
supports the finding that Hughes had a confidential
relationship with Mrs. Beckner regarding matters of business.
The chancellor did not identify any evidence upon which he
based his finding. Mrs. Beckner argues, however, that the
requisite confidential relationship existed because Hughes
took "actions expressly designed to . . . ingratiate[ ]
herself with Mrs. Beckner to the exclusion of Mrs. Beckner's
attorneys" and "acted virtually as counsel to Mrs. Beckner,
while adverse to her interests" by giving Mrs. Beckner legal
advice in explaining sections of the lease and proposed
amendment.
We have described a confidential relationship as a
relationship that is
11
"not confined to any specific association of the
parties; it is one wherein a party is bound to act
for the benefit of another, and can take no
advantage to himself. It appears when the
circumstances make it certain the parties do not
deal on equal terms, but, on the one side, there
is an overmastering influence, or, on the other,
weakness, dependence, or trust, justifiably
reposed; in both an unfair advantage is possible."
Trust alone, however, is not sufficient. We
trust most men with whom we deal. There must be
something reciprocal in the relationship before
the rule can be invoked. Before liability can be
fastened upon one there must have been something
in the course of dealings for which he was in part
responsible that induced another to lean upon him,
and from which it can be inferred that the
ordinary right to contract had been surrendered.
If this were not true a reputation for fair
dealing would be a liability and an unsavory one
an asset.
Hancock v. Anderson, 160 Va. 225, 240–41, 168 S.E. 458, 463
(1933) (citation omitted). We have also held that a
confidential relationship exists between a parent and child
when accompanied by an attorney-client or principal-agent
relationship, or between family members when the family member
provides financial advice or handles the finances of another
family member. Economopoulos, 259 Va. at 812-13, 528 S.E.2d
at 718.
Mrs. Beckner does not suggest that an attorney-client or
any other fiduciary relationship existed between herself and
Hughes; rather Mrs. Beckner suggests that the confidential
relationship arose from Hughes' "legal advice" on the terms of
12
the lease and amendment and from Hughes' attempt to "exclude
all others" including Hammer and Christopherson. Finally,
Mrs. Beckner argues that the evidence shows that she "liked
and trusted" Hughes and did not think Hughes "would attempt to
cheat her." These conclusions are neither sufficient to
establish a confidential relationship nor are they supported
by the evidence.
The record demonstrates that the relationship between
Mrs. Beckner and Hughes had the hallmarks of a business
relationship, not those of a confidential relationship. There
was no history of financial interaction of any kind between
Hughes and Mrs. Beckner. Compare Nicholson, 192 Va. at 278,
64 S.E.2d at 818 (business relationship between mother and son
existed over period of years); Jackson, 193 Va. at 737-38, 71
S.E.2d at 183 (brother managed and rented sister's land). The
relationship was of short duration, consisting of
approximately eight contacts beginning on December 26, 2001
and ending on March 11, 2002, six of which Mrs. Beckner
initiated. When Mrs. Beckner initially told Hughes that
Hammer was representing her, Hughes contacted Hammer and sent
him a copy of the proposed amendment to the lease.
Mrs. Beckner testified that she knew Hughes was "with
Friendly's," that the percentage rent under the lease was
going down every year, that some Friendly's stores were
13
closing in the area, and that she would not receive any
percentage rent if the store on her property closed. The
record is clear that during the course of this three-month
relationship, Mrs. Beckner did not allow Hughes to make
decisions for her regarding the second amendment to the lease.
In fact, Mrs. Beckner negotiated a monthly base rent higher
than the rate Hughes proposed. Mrs. Beckner received a copy
of the proposed amendment to the lease in advance of signing
it and she chose the bank and bank employee who notarized her
signatures on the amendment to the lease.
Hughes testified that she considered Mrs. Beckner to be
her landlord and that negotiations regarding the second
amendment to the lease involved "[d]ealing with the other
side."
The relationship Hughes and Mrs. Beckner described did
not involve any requirement that Hughes act on Mrs. Beckner's
behalf, nor did either party presume that Hughes should or
would do so. Although Mrs. Beckner may have liked and trusted
Hughes, such trust alone is insufficient to establish a
confidential relationship. Hancock, 160 Va. at 240-41, 168
S.E. at 463. The record at most reflects a commercial
relationship in which the parties trusted each other.
Mrs. Beckner failed to carry her burden of proof to show
she and Hughes had a confidential relationship, formal or
14
informal, regarding matters of business. Thus, she was not
entitled to the presumption of undue influence and would not
be entitled to judgment in her favor on this basis.
B. Mental Status and Consideration
The chancellor also found that Mrs. Beckner was entitled
to a presumption of undue influence because she suffered from
"great weakness of mind," and that the consideration she
received was grossly inadequate and the transaction occurred
under suspicious circumstances. Again, although the
chancellor did not identify the evidence upon which he based
these findings, Mrs. Beckner points to a number of factors
which she asserts support the chancellor's findings.
Beginning with the adequacy of the consideration, Mrs.
Beckner first claims that under the original or amended lease,
the base rent was "significantly below prevailing market
rates." Mrs. Beckner claimed that the rental value of the
property "had risen dramatically" and, according to her expert
witness, the current fair market rental value would be between
approximately $5,000 and $8,000 a month. However, Mrs.
Beckner's expert did not consider the impact the outstanding
lease would have on the fair market rental value of the
property. The chancellor, while refusing to strike the
testimony of this expert, considered it "weightless." We
agree with the chancellor that evidence of current fair market
15
rental value without consideration of the existence of the
lease or its conditions is not probative of whether the
consideration for the amendment to the lease is grossly
inadequate.
Next, Mrs. Beckner argues that the consideration was
grossly inadequate because the increase in base rent contained
in the amendment did not significantly increase the annual
amount she received compared to the aggregate amount of base
and percentage rent she received under the lease before the
amendment. The base rent in the amended lease produced only
$80 a month more than she received in 2001 from the combined
base and percentage rents, thereby making the consideration
received grossly inadequate, according to Mrs. Beckner.
We disagree. The increase in the base rate was in an
amount Mrs. Beckner specifically requested. Over the likely
lifetime of the amended lease, Mrs. Beckner would receive
$310,800 in base rent, $125,160 more than she would have
received in base rent without the amendment. The record also
shows that the percentage rent in 2001 declined from the prior
year. There is no evidence in the record that the value of
percentage rent would remain at 2001 levels or would increase.
Although Mrs. Beckner labels as speculative the suggestion
that Friendly's would or could close the retail store, thereby
discontinuing the obligation to pay percentage rent, the
16
uncontradicted evidence was that Friendly's had decided to
close the store and that Mrs. Beckner was aware of that
decision. Mrs. Beckner testified that she understood that, if
the store closed, she would no longer receive any percentage
rent. Thus, the increase in base rent was not grossly
inadequate in light of the additional income it would produce
and the uncertainty of the amount or continuation of revenue
from the percentage rent.
Mrs. Beckner next argues that the possibility that she
might own a bank building valued at $800,000 at the end of the
lease period should not be included as part of the
consideration because it also was speculative. Here again the
uncontradicted evidence was that, if the lease was amended,
Riggs planned to build such a building. This potential asset
was a known part of the business transaction and, in the
absence of fraud, may be considered as part of the benefit
Mrs. Beckner received from agreeing to the lease amendment.
Finally, Mrs. Beckner asserts that the appropriate
comparison of "value exchanged" is to compare the additional
$80 per month Mrs. Beckner would receive under the amendment
with the $800,000 Friendly's would receive for the assignment
of the lease to Riggs. This disparity, she maintains, shows
that the consideration she received was grossly inadequate.
The amount Friendly's would receive from Riggs to assign the
17
lease is irrelevant to the adequacy of the consideration Mrs.
Beckner received. Mrs. Beckner could not recover any amount
from Riggs because she could not assign the lease to Riggs.
The lease had, at a minimum, four years remaining, with the
potential to extend, if the tenant so desired, to fourteen
years, and contained no provisions for termination by the
landlord other than for nonpayment of rent or insolvency of
the tenant. Therefore, the value of Mrs. Beckner's
consideration must be measured not simply in the amount of
increase in base rent but also in light of the rights that she
possessed regarding the property and her options at the time
of the amendment.
Consideration is grossly inadequate when the
" 'inequality [is] so strong, gross and manifest that it must
be impossible to state it to a [person] of common sense
without producing an exclamation at the inequality of it
. . . .' " Jackson, 193 Va. at 741, 71 S.E.2d at 185 (quoting
Gwynne v. Heaton, 1 Bro. Ch. 1, 9, 28 Eng. Rep. 949 (1778)).
That others could have bargained for a higher base rent or
secured more favorable terms for the execution of the lease
amendment does not affect the determination of grossly
inadequate consideration. In this case, by executing the
amendment to the lease, Mrs. Beckner received an annual
increase of $8,940 in base rent regardless of whether the
18
lease was assigned to another party and whether any business
was operating on the property. She also acquired the
possibility of owning the new bank building at the end of the
lease. This record does not support a finding that the
consideration Mrs. Beckner received was grossly inadequate.
Mrs. Beckner also asserts the chancellor was justified in
finding that the transaction occurred under suspicious
circumstances because Hughes did not further investigate
whether Mrs. Beckner was represented by counsel following
Christopherson's March 8 letter and because Hughes drafted a
letter for Mrs. Beckner's signature stating that Mrs. Beckner
wanted to deal with Hughes directly. As noted above, the
record clearly shows that Mrs. Beckner herself initiated all
but two of the contacts with Hughes. Mrs. Beckner's active
participation in the negotiations regarding the lease
amendment belies the existence of circumstances that would
give rise to a level of suspicion sufficient to support the
presumption of undue influence and rescission of the
amendment.
We need not address the chancellor's finding that Mrs.
Beckner suffered from great weakness of mind because even
assuming that the finding is supported by the record, weakness
of mind alone will not entitle Mrs. Beckner to rescission.
19
McGrue, 202 Va. at 426, 117 S.E.2d at 707, Fishburne, 84 Va.
at 111, 4 S.E. at 582.
Because the record is insufficient to support the
chancellor's findings that Mrs. Beckner had a confidential
relationship with Hughes and that the consideration she
received was grossly inadequate or the transaction occurred
under suspicious circumstances, Mrs. Beckner was not entitled
to a presumption of undue influence. Therefore, the
chancellor erred in rendering judgment in favor of Mrs.
Beckner on Count IV, Undue Influence.
Count II − Grossly Inadequate Consideration
The chancellor also entered judgment in Mrs. Beckner's
favor on Count II of her Bill of Complaint − grossly inadequate
consideration. Substantial failure of consideration is a
recognized ground for rescission of a contract because such
gross inadequacy is clear evidence of fraud. Texas Co. v.
Northup, 154 Va. 428, 442-45, 153 S.E. 659, 663-64 (1930);
Broaddus v. Broaddus, 144 Va. 727, 750, 130 S.E. 794, 801
(1925). The standard for this claim is the same as claims of
undue influence based on grossly inadequate consideration:
"[a]n inequality so strong, gross and manifest that it must be
impossible to state it to a man of common sense without
producing an exclamation at the inequality of it." Texas Co.,
154 Va. at 443, 153 S.E. at 663, (quoting Gwynne, 1 Bro. Ch.
20
at 9). Finally, because gross inadequacy is based on fraud,
it must be shown by clear and convincing evidence. Id.
We have already determined in considering Mrs. Beckner's
claim of undue influence that the record did not support a
finding of grossly inadequate compensation. Applying the same
standard to her claims in this Count, we conclude that the
chancellor erred in entering judgment in favor of Mrs. Beckner
on Count II because the consideration was not grossly
inadequate.
Accordingly, for the reasons stated, we will reverse the
trial court's decree rescinding the amendment to the lease and
requiring repayment of funds by Mrs. Beckner.2
Reversed and final judgment.
2
In light of this determination, we need not address the
remaining assignments of error.
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