Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_17-cv-00308/USCOURTS-casd-3_17-cv-00308-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (District or BAP)

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

STEVEN H. LUCORE, SR., JUDY L. 

LUCORE,

Appellants,

v.

SPECIALIZED LOAN SERVICING 

LLC, AS SERVICER FOR WELLS 

FARGO BANK, N.A. AS TRUSTEE 

FOR THE CERTIFICATE HOLDERS 

OF THE LMT 2006-9 TRUST,

Appellee.

Case No.: 17-CV-308 JLS (MDD)

Bankruptcy Case No.: 13-08534-MM13

ORDER AFFIRMING 

BANKRUPTCY COURT’S 

DECISION

Presently before the Court is Appellants Steven H. Lucore, Jr. and Judy L. Lucore’s 

appeal from the Bankruptcy Court’s order granting Appellee Specialized Loan Servcing

LLC’s motion for relief from an automatic bankruptcy stay. (ECF No. 1.) Appellants filed 

an opening brief, (“Appellant Br.,” ECF No. 8-1), Appellee filed an answering brief, 

(“Appellee Br.,” ECF No. 10), and Appellants then filed a reply brief, (“Reply,” ECF No. 

11-1). Having considered the parties’ arguments and the law, the Court rules as follows.

BACKGROUND

On August 31, 2006, Paul M. Lucore executed and delivered a Note to Mortgage 

Electronic Registration Systems, Inc. (“MERS”) as nominee for the original creditor/lender 

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Sierra Pacific Mortgage Company, Inc. (Record on Appeal, (“ROA”), ECF No. 4, at 12.)1 

Also on August 31, 2006, Paul Lucore executed a Deed of Trust naming Sierra Pacific as 

the Lender and Greenhead Investments, Inc. as the Trustee. (Id. at 16.) The Deed of Trust 

was recorded on September 11, 2006 in the San Diego County Recorder’s Office. (Id.) 

The Deed created a security interest in the real property located at 10657 Filex Drive, 

Santee, California 92071. (Id. at 10.) On November 3, 2010, MERS assigned the Deed of 

Trust to Wells Fargo Bank, N.A. as Trustee for the Certificate Holders of LMT 2006-9. 

(Id. at 16.) 

On April 3, 2009, Paul Lucore purportedly sent a notice of rescission to Sierra 

Pacific. (See id. at 57–61.) The notice stated that Sierra Pacific failed to provide all 

material disclosures required by the federal Truth in Lending Act, 15 U.S.C. § 1635(a) 

(“TILA”) and its implementing regulations. (Id. at 57.) On January 20, 2011, Paul Lucore 

quitclaimed a fifty percent (50%) interest in the property at issue to Steven H. Lucore, Sr. 

and Judy L. Lucore. (Id. at 31.) On August 26, 2013, Steven Lucore and Judy Lucore, 

Appellants here, filed a voluntary petition under Chapter 13 of Title 11 of the United States 

Code. By filing a bankruptcy petition, Appellants received the benefit of an automatic stay 

from any act to enforce a lien against the property. See 11 U.S.C. § 362(a). 

On January 5, 2017, Appellee moved for relief from the automatic stay. (ROA 9–

11.) Appellants opposed the motion on the grounds that Appellee lacked standing to move 

for relief from the stay because it was not a party in interest. They argued Paul Lucore’s 

TILA notice rescinded the Note and, therefore, Appellee did not have an enforceable 

security interest. (See id. at 44–51.) The bankruptcy court heard arguments on January 

31, 2017. The court held that Appellee had standing to move for relief because Appellee 

demonstrated that it had possession of the Note, endorsed in blank. (Id. at 90.) During the 

hearing, the court stated that the TILA issues would have to be pursued elsewhere and the 

 

1 Pin citations to docketed material refer to the CM/ECF numbers electronically stamped at the top of each 

page.

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motion for stay relief was not the proper forum to address the elaborate issues involved in 

a TILA right of rescission. (Id. at 84–85.) On February 17, 2017, the bankruptcy court 

entered an order terminating the automatic stay. (Id. at 69–71.) Appellants filed a notice 

of appeal two days later. (ECF No. 1.)

LEGAL STANDARD

A bankruptcy court has jurisdiction to grant relief from an automatic bankruptcy stay 

under 11 U.S.C. § 362(d). This Court has jurisdiction, under 28 U.S.C. § 158, to hear 

appeals from final judgments, orders, and decrees. A district court reviews a bankruptcy 

court’s legal conclusions de novo and its factual findings for clear error. In re Mortgages 

Ltd., 771 F.3d 1211, 1214 (9th Cir. 2014). A district court reviews denial of relief from a 

stay for abuse of discretion. In re Conejo Enters., Inc., 96 F.3d 346, 351 (9th Cir. 1996). 

“Decisions committed to the bankruptcy court’s discretion will be reversed only if ‘based 

on an erroneous conclusion of law or when the record contains no evidence on which the 

bankruptcy court rationally could have based that decision.’” Id. (quoting In re Windmill 

Farms, Inc., 841 F.3d 1467, 1472 (9th Cir. 1988)).

ANALYSIS

Appellants contend that the bankruptcy court abused its discretion by granting the 

motion to lift the automatic stay. Specifically, they argue that the notice of rescission, sent 

on April 3, 2009, effectively terminated any security interest in the property. (Appellant 

Br. 7.) Appellants argue that, without a security interest, Appellee was not a party in 

interest and could not move to lift the automatic stay. (Id. at 7–8.) 

The Court begins by reviewing the nature of the hearing for a motion to lift the 

automatic stay. Then, the Court considers the TILA statutory framework and case law.

Next, the Court will determine if the bankruptcy court abused its discretion on the TILA 

issue. Finally, the Court will discuss other issues raised by Appellants in their statement 

of issues.

/ / /

/ / /

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I. Relief from Automatic Stay 

A bankruptcy court may grant relief from an automatic stay “[o]n request of a party 

in interest.” In re Veal, 450 B.R. 897, 913 (9th Cir. BAP 2011) (alteration in original) 

(quoting 11 U.S.C. § 362(d)). “The Bankruptcy Code does not define the term ‘party in 

interest.’ Status as a ‘party in interest’ . . . ‘must be determined on a case-by-case basis, 

with reference to the interest asserted and how [that] interest is affected by the automatic 

stay.” Id. (alteration in original) (quoting In re Kronemyer, 405 B.R. 915, 919 (9th Cir. 

BAP 2009)). Standing to seek relief from the automatic stay expands and contracts to 

match the interests a creditor seeks to assert. Such standing extends to mortgage servicers. 

Yet, it matters not whether a mortgage servicer has been “delegated all its principal’s 

rights” or whether “it could simply be asserting its separate right to be paid out of mortgage 

payments.” Id. at 914 (citations omitted). “In either event, the servicer has standing to 

request some relief from the automatic stay.” Id. “[A] party seeking stay relief need only 

establish that it has a colorable claim to enforce a right against property of the estate.” In 

re Edwards, 454 B.R. 100, 105 (9th Cir. BAP 2011) (quoting Veal, 450 B.R. at 907).

“The proceedings to decide motions for relief from the automatic stay are very 

limited.” In re Cruz, 516 B.R. 594, 602 (9th Cir. BAP 2014). “Stay litigation is limited to 

issues of the lack of adequate protection, the debtor’s equity in the property, and the 

necessity of the property to an effective reorganization.” In re Johnson, 756 F.2d 738, 740 

(9th Cir. 1985). Under the Bankruptcy Rules, the relief from stay is not an adversary 

proceeding, but rather a “contested matter.” Fed. R. Bankr. P. 9014. Thus, a motion for 

relief does not determine the merits underlying substantive claims, defenses, or 

counterclaims. Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 33 (1st Cir. 1994). “When 

a debtor’s affirmative defenses and counterclaims, however, directly involve the question 

of the debtor’s equity, they should be heard in the stay proceeding.” In re Bialac, 694 F.2d 

625, 627 (9th Cir. 1982) (citing United Cos. Fin. Corp. v. Brantley, 6 B.R. 178, 187 (Bankr. 

N.D. Fla. 1980)). 

/ / /

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II. TILA

The TILA affords a borrower an unconditional right to rescind a loan “until midnight 

of the third business day following the consummation of the transaction or the delivery of 

the [disclosures required by TILA], whichever is later, by notifying the creditor . . . of his 

intention to do so.” 15 U.S.C. § 1635(a). After the initial three-day period, the borrower 

has a conditional right to rescind “only if the lender failed to satisfy the Act’s disclosure 

requirements.” Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790, 792 (2015). 

The conditional right to rescind is “completely extinguishe[d]” at the end of a three-year 

statute of repose period. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998). However, 

the Supreme Court has made clear that “so long as the borrower notifies within three years 

after the transaction is consummated, his rescission is timely. The statute does not also 

require him to sue within three years.” Jesinoski, 135 S. Ct. at 792. 

Once a borrower rescinds the loan, the lender “must return to the [borrower] any 

money or property given as earnest money, downpayment, or otherwise . . . and shall take 

any action necessary or appropriate to reflect the termination of any security interest 

created under the transaction.” 15 U.S.C. § 1635(b). Once the creditor has returned the 

earnest money, then the borrower must tender the property to the lender or if the return of 

the property is impracticable or inequitable then the “borrower shall tender its reasonable 

value.” Id.

III. Whether the Bankruptcy Court Properly Considered TILA Rescission Issue 

The bankruptcy court concluded that Appellee had standing as a party in interest to 

move for relief from the bankruptcy stay. (ROA 70, 84.) Specifically, the bankruptcy 

court determined that Appellee had possession of the Note and it was endorsed in blank. 

(Id. at 84.) Appellants argue that Paul Lucore’s notice of rescission sent to Sierra Pacific

rescinded the Note and, by operation of law, terminated the security interest on the 

property. In turn, the lack of a security interest undermines Appellee’s standing as a party 

in interest to bring a motion for relief from the stay. (Appellant Br. 7.) Appellants go on 

to argue that the bankruptcy court erred because it failed to consider the effect of the TILA 

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rescission on Appellee’s standing. 

Appellee argues that Appellants’ TILA claims fail to question the validity of Wells 

Fargo’s rights as a lender and that the TILA claims would be preserved for any subsequent 

foreclosure proceedings Appellee may commence. (Appellee Br. 9.) The parties rely 

greatly on and draw different conclusions from an opinion in the Northern District of 

California. Because that opinion dealt with similar issues as presented here, the Court

discusses it in depth.

In re Hubbel, 427 B.R. 789, 790 (N.D. Cal. 2010), concerned “whether a mortgage 

lender [was] entitled to have an automatic stay lifted even where the mortgagee/debtor 

transmitted a notice of rescission under the Truth in Lending Act (“TILA”).” The appeal 

arose from two related cases. In both cases, debtors filed voluntary bankruptcy petitions 

and listed on their petitions real property burdened by a security interest. Id. at 791–92. In 

both cases, the bankruptcy trustees sent the respective lenders a notice that the borrowers

rescinded the loans because the lenders failed to comply with TILA. See id. The lenders 

requested relief from the automatic bankruptcy stay in a hearing similar to the Lucores. 

The respective trustees argued, as the Lucores do here, that the TILA rescission established 

“serious doubt” as to whether the lenders had a valid security interest on the property. Id.

at 791. The bankruptcy judges in both cases determined that the TILA issues needed to be 

properly presented in an adversarial hearing, but concluded that the potential TILA 

violation raised serious doubts as to the enforceability of the lenders’ security interest. Id.

at 792. The bankruptcy courts found the evidence submitted by the bankruptcy trustees 

warranted leaving the bankruptcy stay in place. 

The lenders appealed. The district court stated that bankruptcy stay litigation is 

typically handled in summary fashion and that the validity of the claim or contract 

underlying the claim is not litigated during the stay hearing. Id. at 794 (citing In re 

Johnson, 756 F.3d 738, 740 (9th Cir. 1985)). “When a debtor’s affirmative defenses and 

counterclaims, however, directly involved the question of the debtor’s equity, they should 

be heard in the stay proceeding. When they do not, they should be tried separately.” Id.

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(quoting Bialac, 694 F.2d at 627). The court determined that whether the loans had been 

rescinded, under TILA, involved the debtor’s equity. It arrived at this conclusion because 

the TILA rescission issue necessarily involved whether the lenders had standing as parties 

in interest to seek relief from the automatic stay. See id. at 796. The court summarized the 

critical issue as follows:

The bankruptcy judge did not determine, as a final matter, 

whether or not TILA rescission was proper or improper. On the 

contrary, because relief from stay proceedings are limited as to 

the matters that can be adjudicated within them, the bankruptcy 

judge simply determined that TILA’s self-executing rescission 

provision cast serious doubt on Appellant’s rights.

Id.

Here, Appellants argue that Hubbel supports their position because the TILA right 

of rescission is self-executing and therefore, like Hubbel, casts serious doubt on Appellee’s 

rights. (Appellant Br. 9.) Appellants contend that because they presented evidence that 

the original borrower (Paul Lucore) rescinded the loan, then the bankruptcy court should 

have determined the notice of rescission cast serious doubt on Appellee’s ability to enforce 

the security interest on the property. (Id. at 10–11.) Appellants argue that if the lender 

disputed the substance of the TILA claim then the lender should file an adversary 

proceeding to fully adjudicate the issue. (Id. at 11.)

Appellee contends that Hubbel does not determine the outcome here because the 

evidence presented by Appellants in this case was not sufficient compared to the evidence 

presented in Hubbel. (Appellee Br. 10.) In Hubbel, the trustees in both cases presented 

not only the rescission notice itself, but also the allegedly defective notice from the lender 

that allowed the borrower to rescind in the first place and evidence of the mailing date of 

the notice of rescission. (Id. (citing Hubbel, 427 B.R. at 791).) Appellee compares that 

weight of evidence in Hubbel to the evidence here. Appellants only provided Paul Lucore’s 

purported notice of rescission, but did not submit the defective documents from Sierra 

Pacific that allowed Paul Lucore to rescind in 2009 or proof that the notice was sent to 

Sierra Pacific. (Id. at 11.) Appellee contends the Appellants fail to identify the basis for 

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Paul Lucore’s right to rescind and the notice of rescission itself is too vague. (Id. at 12.) 

Thus, the record here does not contain the evidence required to cast serious doubt on 

Appellee’s rights. Appellee concludes that the bankruptcy court was within its discretion 

to lift the stay because, first, Appellants’ evidence was insufficient to cast serious doubt on 

Appelle’s rights and, second, the TILA issues require a full adjudication. Appellee states 

that the merits of Appellants’ claim will be preserved for a future foreclosure proceeding. 

(Id. at 9.) 

The ultimate issue in this case is whether Paul Lucore’s purported rescission claim 

invalidated the loan on the property and thus removed the security interest that Wells Fargo 

and Appellee rely on to be parties in interest. This issue needs to be fully adjudicated in 

an adversarial hearing, whether it be in a bankruptcy forum, see Fed. R. Bankr. P. 7001(2), 

or in state court. It is clear that the stay litigation was not the proper forum to decide the 

TILA question; the parties agree that some sort of adversarial hearing is the proper forum 

to adjudicate the TILA issue. The dispositive issues on appeal are whether the existence 

on an unverified letter is sufficient to cast serious doubt on Appellee’s claim and whether 

the bankruptcy court properly considered the TILA claim. 

Appellants urge the Court to find Hubbel’s outcome controlling. (Appellant Br. 10–

11.) Yet, Hubbel did not decide, as Appellants argue, that a notice of rescission alone is 

sufficient to prevent a mortgage lender from receiving relief from the automatic stay. 

Hubbel only held that the bankruptcy court decisions were not an abuse of discretion. 

Further, the court emphasized that the bankruptcy judges did not decide whether or not 

TILA rescission was proper or improper. Hubbel, 427 B.R. at 796. Instead, the bankruptcy 

judges only determined whether there was sufficient prima facie evidence to support the 

movant’s claim. Id. The fact that the bankruptcy courts in the Northern District of 

California arrived at a different outcome than the bankruptcy court here is not dispositive; 

each bankruptcy court had the discretion to lift the stay based on the evidence presented to 

it. Like Hubbel, Appellants’ right to raise the TILA rescission was not adjudicated on the 

merits and is preserved for future proceedings, whether it be wrongful foreclosure or 

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otherwise.

The TILA right to rescind framework does not control the outcome here. As 

Appellants point out, Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. at 792, 

clarified that section 1635(a) provides a right to rescind and only requires the borrower to

notify the creditor of his intention to do so. A borrower does not need to sue to enforce the 

right within the three year statute of repose. Id. “The language leaves no doubt that 

rescission is effected when the borrower notifies the creditor of his intention to rescind.” 

Id. (emphasis added). Thus, Paul Lucore’s notice of rescission, by itself, is an indication 

that he rescinded the loan at the time notice was sent. See Paatalo v. JPMorgan Chase 

Bank, 146 F. Supp. 3d 1239, 1243 (D. Or. 2015) (“Thus, if—as plaintiff alleges—[the 

defendant] failed to provide the required disclosures and plaintiff delivered written notice 

of rescission in March 2008, the rescission was effected and the security interest in 

plaintiff's property voided at that time.”). 

Yet, the right to rescind is predicated on a lender failing to provide the required 

disclosures in the first instance. 15 U.S.C. § 1635(a). Jesinoski did not address whether 

the borrower in that case had the right to rescind in the first place and did not address 

whether the lender failed to provide the disclosures required by TILA. See Pauson v. 

Bayview Loan Servicing, LLC, No. C15-5612-RBL, 2016 WL 4528469, at *2 (W.D. Wash. 

Aug. 30, 2016) (arriving at similar conclusion). Indeed, a borrower has the right to rescind 

“only if the lender failed to satisfy the Act’s disclosure requirements.” Jesinoski, 135 S. 

Ct. at 792 (emphasis added). Once again, this reinforces the need for an adversarial hearing 

with evidence presented by both sides as to the merits of the TILA claim. And, once again, 

the decision whether lift the stay based on the evidence before the bankruptcy court is 

committed to the discretion of the bankruptcy judge. Here, the lack of proof that the notice 

of rescission was mailed, combined with the lack of required lender disclosures, supports 

the bankruptcy court’s conclusion. The bankruptcy court did not have sufficient evidence 

on which to determine that Appellants’ TILA rescission cast serious doubt on Appellee’s 

standing. 

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A bankruptcy court should consider claims and counterclaims when those issues cast 

serious doubt as to the moving parties’ right to relief from a stay. Bialac, 694 F.2d at 627. 

However, the decision whether or not an issue casts serious doubt is committed to the 

discretion of the bankruptcy court. See id. Here, the bankruptcy court considered the TILA 

issue in arriving at its finding. Appellants presented the same TILA argument to the 

bankruptcy court in their opposition to the motion for relief from stay. (See ROA 44–47.) 

Their briefing included Paul Lucore’s purported notice of rescission, (id. at 57–59), as well 

as citations to Hubbel, (id. at 55). At the hearing, the bankruptcy court stated that TILA 

issues raised in Appellants’ brief would need to be resolved in an evidentiary hearing. (Id.

at 84.) Moreover, the court indicated a general awareness of TILA issues previously raised 

by Appellants in the course of their bankruptcy proceedings. (Id. at 86–87 (“I’ve read this 

all very carefully in another occasion.”).) Thus, the Court finds no error of law and no 

failure to consider evidence. Therefore, the Court finds no abuse of discretion by 

preserving the TILA issue for a later hearing and lifting the stay.

IV. Whether Bankruptcy Court Abused Its Discretion in Finding Appellee Was 

Real Party in Interest

In their statement of issues, Appellants also raised the following issue: whether the 

bankruptcy court erred in finding Appellee was the real party in interest when Appellee 

was a loan serviced with no pecuniary interest in the debt.2 (Id. at 3.) Appellants do not 

address this issue in their opening brief, but raise it in their answering brief. They argue 

that “[t]here is no evidence in the record that [Appellee] had possession of the original 

note.” (Reply 5.)

 

2 Appellants also raised a second issue that is virtually identical to the issue referenced herein: 

Whether the Bankruptcy Court erred in finding that Specialized Loan 

Servicing LLC was the real party in interest with standing to seek relief 

from stay because under 11 U.S.C.S. § 362(d), only a “party in interest” 

may seek relief from the operation of the automatic stay from a bankruptcy 

court. Here, Specialized Loan Servicing, LLC is a loan servicer with no 

pecuniary interest in the debt to bring any action on its behalf.

(ROA 3.) The Court considers both issues together.

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Appellants’ argument here is not well taken. First, they were required to include in 

their Appellants’ brief all issues they sought to present as well as arguments for those 

issues. See Fed. R. Bankr. P. 8014(a); see also Eberle v. City of Anaheim, 901 F.2d 814, 

818 (9th Cir. 1990) (“It is well established in this circuit that ‘[t]he general rule is that 

appellants cannot raise a new issue for the first time in their reply briefs.’” (alteration in 

original) (internal quotation marks omitted) (quoting Nw. Acceptance Corp. v. Lynnwood 

Equip., Inc., 841 F.2d 918, 924 (9th Cir. 1988))). By failing to include this argument in 

their opening brief, Appellants deprived Appellee the opportunity to answer this specific 

argument. Second, the record supports the bankruptcy court’s conclusion that Appellee 

had standing to move for the stay as a party in interest. The court cites a leading case, In 

re Veal,

3 450 B.R. 897, and determined that Appellee possessed the Note, endorsed in 

blank. (ROA 84.) Appellants point to no specific defect in the bankruptcy court’s 

reasoning or its conclusion, other than lack of evidence. As discussed, the bankruptcy court 

had evidence of the Note in making its decision. Therefore, the bankruptcy court’s decision 

to find that Appellee had standing was not an abuse of discretion.

V. Whether the Court Clerk Erred in Filing Docket 301 and Bankruptcy Court 

Erred in Relying on Docket 301

Appellants also appealed two related issues: whether the clerk of court erred in filing 

the document at docket 301 and whether the bankruptcy court erred by using the document 

filed at docket number 301. (ROA 3.) The documents filed at docket number 301 included

Appellants’ Opposition to the Motion for Relief for Stay and their Declaration in support 

of the Opposition. (Id. at 2.) Appellants offer no argument in their opening or reply briefs 

as to what they mean by this appeal. (See generally Appellant Br.; Reply.) This Court has 

no basis to determine this issue on appeal and, thus, finds no error.

/ / /

 

3 The Court notes that the transcript states the bankruptcy court said In re Beale. (ROA 84.) However, 

the Court cannot finding a case entitled In re Beale addressing the issues raised here. The Court assumes 

this is a scrivener’s error and should have read In re Veal.

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CONCLUSION

In sum, the bankruptcy court considered the TILA issues, but decided that those 

issues did not cast serious doubt on the stay litigation to warrant keeping the stay in place. 

There was no erroneous conclusion of law and there was sufficient evidence to support the 

bankruptcy court’s decision. Accordingly, the bankruptcy court’s decision to lift the stay 

was not an abuse of discretion.

The Court AFFIRMS the bankruptcy court’s decision to lift the bankruptcy stay. 

This Order ends litigation in this matter. The Clerk SHALL close the file.

IT IS SO ORDERED.

Dated: March 22, 2018

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