Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-94-06096/USCOURTS-ca10-94-06096-0/pdf.json

Nature of Suit Code: 230
Nature of Suit: Rent, Lease, Ejectment
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

FEDERAL DEPOSIT INSURANCE CORPORATION, 

acting in its corporate capacity, 

Plaintiff, 

v. 

SANDRA B. HAMILTON, an individual; 

L.G. HAMILTON, an individual, 

Defendants-Appellees, 

v. 

NCNB TEXAS NATIONAL BANK, and 

Nations Bank, 

Third-Party-Defendant-Appellant. 

FILED 

UDited States Court of Appeab 

Tenth Circuit 

JUL 0 7 1995 

PATRICK FISHER 

Clerk 

No. 94-6096 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-92-843-A) 

Conner L. Helms (Drew Neville, Russell A. Cook, and Brinda K. 

White with him on the briefs) of Linn & Neville, Oklahoma City, 

Oklahoma, for appellees. 

Kirk D. Fredrickson (Douglas N. Gould with him on the briefs), of 

Hall, Estill, Hardwick, Gable, Golden & Nelson, Oklahoma City, 

Oklahoma, for appellant. 

Before ANDERSON, BARRETT and BALDOCK, Circuit Judges. 

BARRETT, Senior Circuit Judge. 

Appellate Case: 94-6096 Document: 01019277246 Date Filed: 07/07/1995 Page: 1 
NationsBank of Texas, N.A. (NationsBank), formerly NCNB Texas 

National Bank, third party defendant, appeals from the judgment of 

the district court in favor of Sandra B. Hamilton and, her son, 

L.G. Brown Hamilton, collectively referred to as "the Hamiltons."1 

Facts 

On October 12, 1990, the Hamiltons entered into a Real Estate 

Lease Purchase Contract (the Agreement) with NationsBank regarding 

an 11,584 square foot residential property located at 1512 West 

Plato Road, Duncan, Oklahoma (the Property) . The Agreement provided for a three year lease term with an option to purchase at 

any time during the lease term. 

The Agreement obligated the Hamiltons to pay $ 1,400 monthly 

in rent, additional amounts for insurance and property taxes, and 

to repair the swimming pool during the first year of the lease 

term. NationsBank was to reimburse one-half of the pool repair 

expenses if the purchase option was not exercised. Under the 

Agreement, NationsBank was responsible for "maintenance and repair 

of all functions of the property to the extent such repairs and 

maintenance exceed$ 1,000 per year." (Appellant's Appendix, Vol. 

I at 6). 

The Agreement allowed the Hamiltons, at their own expense, to 

construct a recording studio in the garage area of the Property 

and provided that in the event the Hamiltons did not purchase the 

1 NationsBank assigned its interest in the Property in question 

to the FDIC in November, 1991, and the FDIC initiated this action 

in May, 1992. See Facts, infra. The FDIC did not appeal the 

decisions of the district court that affected it and is, therefore, not involved in this appeal. 

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Property the cost of reconverting the studio back into a garage 

would be offset against the obligation to reimburse one-half of 

the pool repair expenses. The Hamiltons intended to operate a 

recording studio with overnight accommodations for studio guests. 

In November, 1990, NationsBank's asset manager, Tom Grimland 

(Grimland), toured the Property with the Hamiltons and identified 

certain items which the Hamiltons asked to be repaired. Grimland 

agreed on behalf of NationsBank to make certain of these repairs. 

The repair work was assigned to Harvey Garrett, the original 

builder of the home. 

In January, 1991, Ward Warren (Warren) replaced Grimland as 

asset manager for the Property. Warren learned that the Hamiltons 

were having difficulty with Garrett. Warren toured the Property 

with the Hamiltons and they presented him with a list of items in 

need of repair or replacement. Warren discussed the list with 

Grimland and concluded that due to the extent of the needed repairs it would be appropriate to engage a construction consultant 

to oversee the project. 

In March, 1991, George Gibson (Gibson) was hired by NationsBank as a construction consultant to identify the deficiencies at the Property and to secure repair bids. Gibson toured the 

Property on March 29, 1991, with the Hamiltons and prepared a 

schedule of proposed repairs. Len Lawson (Lawson) was selected, 

by the Hamiltons, as the contractor to perform the repairs and was 

asked to provide a cost estimate for each item. 

In April, 1991, NationsBank unilaterally advised the Hamiltons that rental payments may be deferred in order to allow the 

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parties to determine what amount of repair expenses incurred by 

the Hamiltons should be credited against their lease obligation. 

At this time, the Hamiltons provided Gibson with a list of additional repair items, largely consisting of electrical repairs. 

This list was incorporated by Gibson into a seven-page document 

entitled Expenditure Summary and Reconciliation (the Repair Summary) . 

In late April, 1991, Gibson revised the Repair Summary to 

include the cost estimates obtained from Lawson and to reflect his 

personal recommendations as to the allocation of financial responsibility for various repair items. At this time, the aggregate cost of the repairs was $ 37,955.51. 

In early May, 1991, Warren asked the Hamiltons to prioritize 

the repairs so that the most important items could be completed 

first. Warren then met with his supervisors and the decision was 

made to immediately repair the most critical items, to address the 

remaining items later in conjunction with negotiation for a more 

definite lease agreement, and to discuss the distinction between 

functional and cosmetic repair. 

On June 13, 1991, Warren notified the Hamiltons of these decisions, stating that: (1) many of the items fall into the category of capital improvements and repairs which are beyond the 

scope of the typical landlord/tenant relationship; and (2) a 

portion of the items would be performed immediately as a gesture 

of good faith while the balance would be addressed as part of the 

discussions in connection with finalizing the Agreement. 

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NationsBank then entered into two construction contracts 

addressing the major repair items. The contract work was completed by mid-July, 1991, at a total cost of $ 20,022.43. (Appendix Vol. I at 107). 

In July, 1991, following completion of the repair contracts, 

Warren and his supervisor, David Wells (Wells), met with the 

Hamiltons. Wells allegedly told the Hamiltons that NationsBank 

"wanted out of the deal" and suggested the parties discuss sale of 

the Property to the Hamiltons, as well as having the Hamiltons 

take responsibility for the remaining repairs with a corresponding 

reduction in the purchase price by the amount of the repairs remaining unperformed. 

The Hamiltons notified NationsBank on August 8, 1991, that 

they would submit a purchase offer as soon as they received the 

cost of repair estimates from Lawson. No purchase offer was 

submitted. 

On October 2, 1991, NationsBank sent the Hamiltons a proposed 

draft of a more definitive lease agreement with an explanatory 

letter urging them to respond so that the balance of the repair 

items could be addressed. The letter stated, "We realize that 

there are additional repairs which need to be completed, however, 

we will only complete the repairs after the contract has been 

finalized and executed by you." 

On November 6, 1991, the Hamiltons notified NationsBank that 

the new lease proposal was unacceptable, claiming that NationsBank 

was trying to change its responsibilities. The Hamiltons continued to occupy the Property and expend funds modifying and 

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decorating the Property. The Hamiltons claimed that the amount of 

needed repairs had increased to $ 215,000 and that they had expended $ 40,010 for repairs which were the responsibility of NationsBank. The Hamiltons requested a rent abatement due to the 

uninhabitable conditions and claimed they had lost income due to 

the condition of the residence. Discussions ensued on the possibility of trading the Property for property Sandra Hamilton 

owned in Oklahoma City. 

On November 30, 1991, NationsBank assigned its interest in 

the Property and related lease/purchase agreements to the Federal 

Deposit Insurance Corporation (FDIC) pursuant to an assistance 

agreement accompanying NationsBank's purchase of the assets of the 

failed First Republic Bank of Texas. NationsBank remained the 

Property manager. 

Settlement negotiations ensued and on February 25, 1992, 

Warren communicated the FDIC's counteroffer of $ 270,000. Warren 

also explained that the remaining repairs in the Repair Summary 

would be completed at a cost of approximately $ 12,000, which 

would be deducted from the FDIC offer. 

On March 18, 1992, the Hamiltons countered with a $ 160,000 

offer claiming that the Property was still in need of extensive 

repairs which were the landlord's responsibility. 

On May 12, 1992, the FDIC offered to sell the Property for $ 

229,000 and waive all back rental claims. The fair market value 

of the Property according to a May, 1991, appraisal was $ 350,000. 

Also, on May 12, 1992, the FDIC filed suit against the 

Hamiltons in the district court seeking a declaratory judgment 

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that the Agreement be terminated, that FDIC was entitled to immediate possession of the Property, and for eviction and monetary 

recovery for breach of the Agreement based on the following contentions: (1) failure to pay rent and other lease obligations 

after demand; (2) failure to complete repair of the swimming pool 

during the first year of the lease term or thereafter; and (3) 

failure to enter into a more definitive lease purchase agreement, 

or even to reasonably negotiate such an agreement. The Hamiltons 

asserted that, at this time, most of the repairs in the Repair 

Summary had not been completed and that additional items were in 

need of repair. 

On June 24, 1992, the Hamiltons filed counterclaims against 

the FDIC and NationsBank claiming breach of contract and fraud in 

the inducement of the contract. The third party claims against 

NationsBank were amended to include the allegation that NationsBank intentionally concealed its true intentions regarding repairs 

to induce the Hamiltons to remain on the Property and to continue 

to invest substantial amounts of money (the fraud claim) . 

On April 15, 1993, the court denied cross-motions for summary 

judgment and the case proceeded to trial to the court. At a 

hearing on September 17, 1993, the court announced the general 

structure of its ruling that: the Oklahoma Residential Landlord 

and Tenant Act (ORLTA) applies divisibly to the residential ·portions of the Property only; the ORLTA does not immunize a defrauding lessor from the normal common law consequence of its 

fraud; no fraud occurred with the original lease agreement or from 

Grimland's conduct; fraud was committed by Warren with respect to 

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his repeated promises to repair; and the Hamiltons were not in 

breach of the lease agreement. 

On the issue of damages, the court stated that: rent due 

would be abated by undone repairs; reimbursement for repairs made 

to the business portion of the premises would be fully recoverable; reimbursement for repairs to the residential portion would 

be subject to the ORLTA cap; and fraud damages would include only 

expenses incurred between March/April 1991 and October 2, 1992. 

On November 17, 1993, at a supplemental hearing on the issue 

of damages, the court awarded the Hamiltons $ 1,200,000 in punitive damages based on their fraud claim. On November 18, 1993, 

after receiving additional evidence on the issue of actual damages, the court awarded actual damages to the Hamiltons as follows: no recovery for lost profits; rent abatement in the amount 

of $ 5,300; $ 19,720 from the FDIC for repairs made to the commercial portion of the premises which were the landlord's responsibility on its breach of contract claim; $ 1,537.48 from the FDIC 

for repairs made which were the landlord's responsibility under 

the ORLTA; no damages for flood damage; $ 44,000 from NationsBank 

for damages caused by NationsBank's and Warren's fraudulent conduct; and recovery of their $ 1,400 security deposit from the 

FDIC. The court awarded the FDIC$ 56,606.64 for rent, insurance, 

and tax obligations under the Agreement. The court denied the 

FDIC's request for immediate possession, finding that the Hamiltons had not breached the Agreement. 

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On February 10, 1994, the court entered its final Journal 

Entry of Judgment. 

Issues 

NationsBank contends that: (1) the ORLTA provided the exelusive remedy in this case; (2) no actionable fraud existed under 

the evidence of the case; (3) under Oklahoma law punitive damages 

do not lie in an action arising from a contract; and (4) the punitive damages award violated state and federal law.2 

Discussion 

I. 

NationsBank contends that the district court erred in coneluding that the ORLTA only partially applied to the Hamiltons' 

counterclaims because the ORLTA provided the exclusive remedy in 

this case. NationsBank asserts that the ORLTA preclusively governs the rights and remedies of the parties to a lease of a 

residential dwelling unit in Oklahoma and that any claims from an 

alleged failure to make repairs to the Property are governed exelusively by the ORLTA; thus, a tenant may not bring a claim for 

punitive damages in excess of those provided thereby. 

The district court determined that the ORLTA applied divisibly only to the residential portions of the Property and that the 

ORLTA did not preclude the Hamiltons from asserting common law 

fraud claims. We review de novo a district court's determination 

of state law. Salve Regina College v. Russell, 499 U.S. 225 

2 Due to the dispositive nature of issues (1) and (2), we will 

consider issue (3) only in so far as it applies to the interpretation of Oklahoma law. We will not consider issue (4). 

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(1991) ;·Mares v. ConAgra Poultry Co .. Inc, 971 F.2d 492, 495 (lOth 

Cir. 1992). 

The ORLTA "applies to, regulates, and determines rights, 

obligations and remedies under a rental agreement, wherever made, 

for a dwelling unit located within this state." Okla. Stat. tit. 

41 § 103. A "dwelling unit" is defined as "a structure, or that 

part of a structure, which is used as a home, residence or 

sleeping place by one or more persons." Okla. Stat. tit. 41 § 

102(3). Thus, by the plain language of the statute, the ORLTA 

applies divisibly to that part of a structure which is used as a 

residence. 

The Oklahoma Supreme Court has construed the ORLTA to be the 

exclusive remedy available to a residential tenant for a 

landlord's breach of any and all obligations delineated within the 

act or rental agreement covered by the act. Wagoner v. Bennett, 

814 P.2d 476, 479-80 (Okla. 1991). "[W]here a statute creates a 

right and prescribes a remedy for its violation, the remedy thus 

prescribed is exclusive." Ewing v. Cadwell, 247 P. 665, 666 

(Okla. 1925). However, by statutory mandate, the common law remains in full force and effect unless a statute explicitly provides to the contrary. Okla. Stat. tit. 12 § 2; Tate v. BrowningFerris. Inc., 833 P.2d 1218, 1225 (Okla. 1992). The Oklahoma 

courts recognize that instances in which a common law remedy 

continues side by side with a statute that evinces no legislative 

intent to supplant the common law are not uncommon in Oklahoma jurisprudence. Id. at 1226 n.36. This is our case. 

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While the ORLTA is the exclusive remedy for those delineated 

rights and obligations found in its passages, it does not affect 

those common law rights, obligations, and remedies not found 

within its passages. In Wagoner, the court held that since § 123 

of the ORLTA fixes the remedy for one's wrongful removal or exclusion from a dwelling unit, § 123 supplanted the tenant's common 

law action for wrongful eviction. 814 P.2d at 480. However, the 

court noted that this does not exclude the possibility of a traditional common law cause of action for conversion and/or injury 

to personal property. Id. at 481. The court held that because 

the ORLTA did not address this latter common law claim the ORLTA 

does not supplant it and a tenant may bring a common law action 

for conversion. Id. Since punitive damages are permissible in a 

common law conversion action, the court held that an award of 

punitive damages is not governed by the statutory limits set for a 

wrongful eviction action; they are two different wrongs with 

correspondingly different remedies. Nowhere does the ORLTA 

mention a cause of action for fraud. Hence, the ORLTA does not 

supplant the Hamiltons' common law fraud claims and its remedies. 

Accordingly, we hold that the district court did not err in 

determining that the ORLTA applied to the residential portions of 

the Property and not to the business portions, that the ORLTA did 

not apply to the Hamiltons' common law fraud claims and, thus, did 

not limits the remedies available on those claims. 

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II. 

A. 

NationsBank contends that under the evidence in the record, 

Oklahoma law does not permit any recovery for fraud in this case. 

In support of its contention, NationsBank asserts five points of 

error: (1) that uncontroverted evidence of acts in furtherance of 

performance of the promises to repair precludes a finding of 

fraud; (2) no evidence reasonably supports a finding that false 

promises to perform repairs were intended to induce assent by the 

Hamiltons or create a benefit to NationsBank; (3) there was no 

showing of detrimental reliance; (4) the Hamiltons had no expectation of completed performance; and (5) there was no evidence of 

concealment of NationsBank's true intentions regarding performance 

of repairs. Due to the dispositive nature of issue (1), we will 

not address issues (2) through (5). 

B. 

NationsBank asserts that uncontroverted evidence of acts in 

furtherance of performance of its promises to repair precludes any 

finding of fraud on the theory of promises made with no intention 

to perform. 

Although the general rule is that to be actionable fraud the 

false representations must be of existing facts, under Oklahoma 

law fraud may be predicated upon a promise to do a thing in the 

future when the promisor's intent is otherwise. Wagstaff v. 

Protective Apparel Corp. of America. Inc., 760 F.2d 1074, 1077 

(lOth Cir. 1985); Tice v. Tice, 672 P.2d 1168, 1171 (Okla. 1983). 

"The gist of the rule is not the breach of promise but the 

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fraudulent intent of the promisor at the time the pledge is made 

not to perform the promise so made and thereby deceive the promisee." Citation Co. Realtors. Inc. v. Lyon, 610 P.2d 788,790 

(Okla. 1980). The court stated that "[t]here is a wide distinction between the nonperformance of a promise and a promise made 

mala fide, only the latter being actionable fraud." Id. 

In Citation, a buyer asserted fraud in the performance of a 

realtor's contract claiming that the realtor acted fraudulently by 

misrepresenting the broker's intent to market the property. 610 

P.2d at 789-90. In upholding the trial court's grant of summary 

judgment disallowing the fraud claim, the Oklahoma Supreme Court 

held that "the simple fact that the depositions illustrate attempts were made to sell the units removes the issue from the 

concept of fraud through a promise to execute a future act made 

mala fide and relegates the failure to perform to simple nonperformance of a promise." Id. at 791. 

In a more recent case, Furr v. Thomas, 817 P.2d 1268, 1269 

(Okla. 1991), residential purchasers in a development asserted 

fraud in the performance of a sales contract, claiming that the 

seller acted fraudulently in promising to construct a two mile, 

all weather, smooth surface, road to serve the development without 

the intention of performing on the contract. The seller built a 

gravel road, which he maintained until the suit was filed, but he 

did not construct the promised black-top road. Id. The seller 

argued that the fraud claim should never have been submitted to 

the jury because when the fraud rests on a theory of making a 

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promise with no intention of performing on the promise, any performance by the promisor precludes a finding of fraud. Id. at 

1272. The seller contended that his construction and maintenance 

of the gravel road was sufficient. The Oklahoma Supreme 

Court disagreed, stating that "just any action by the promisor 

will not suffice to avoid a claim for fraud." The court held that 

"the action of the promisor must be toward the fulfillment of the 

promise." Id. The court relied on the seller's admission that he 

did not build the road required by the sales contracts and that 

before he finished selling the lots, he had decided not to build 

it as specified in the contracts. Id. 

Here, the district court found that NationsBank committed 

fraud through its agent, Warren, by knowingly making materially 

false representations regarding repairs between March and October, 

1991. However, the record reflects that NationsBank spent in 

excess of $20,000 on repairs to the Property during the period in 

which the district court found fraudulent conduct.3 

Unfortunately, we cannot discern from the record whether the 

district court considered the effect, if any, of the $ 20,000 in 

expenditures on the Hamiltons' fraud claim under the law of 

Oklahoma as stated in Citations and Furr, even though the issue as 

3 During oral argument counsel for the Hamiltons (appellees) 

stated eight times that "NationsBank never made a repair" during 

the March, 1991, to October, 1991, "window of fraud." At least 

two of these representations were in direct response to questions 

regarding the $20,000 of repairs made by NationsBank. (Appendix 

Vol. I at 107). The record does not support counsel's contentions 

and, in fact, supports the exact opposite conclusion, i.e., that 

repairs (at least $20,022.43 out of $ 37,955.51) were made before 

October, 1991. See (Appendix Vol. I at 102, 107; Vol. II at 348-

49, 385-86, 401-10; Vol. III at 483-89). 

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j 

to whether the Hamiltons are entitled to recover on their fraud 

claim was clearly presented. See {Appellant's Appendix, Vol. I, 

p. 31 & 33). In NationsBank's closing argument to the court, 

specific reliance was made on Citation and Furr in conjunction 

with counsel's assertion that: 

Now, in this case, Your Honor, we simply have many, 

many, many acts in fulfillment, and toward fulfillment 

of the original promise to repair and maintain the 

functions of the property. And under Oklahoma law, this 

is simply not a case that should even be considered by 

the Court to involve any fraud claim based on the theory 

that's espoused here. 

{Appellant's Appendix, Vol. III, p. 656-57). 

Under these circumstances, we must reverse the district 

court's finding of fraud and the awards of $ 44,000 in actual 

damages and $ 1,200,000 in punitive damages based on the fraud 

claim, and remand for further proceeding consistent with this 

opinion. 

III. 

NationsBank contends that Oklahoma law prohibits punitive 

damages in actions such as this which arise out of a contract. We 

review the district court's ruling on issues of state law de novo. 

Salve Regina College, 499 U.S. 225; ConAgra Poultry Co., 971 F.2d 

at 495. 

Generally, Oklahoma law prohibits the award of punitive 

damages in a contract action. Okla. Stat. tit. 23, § 9(A). 

However, the Oklahoma courts have allowed punitive damages where 

the parties' relationship is basically contractual, if the 

breaching party's acts constitute "an independent, willful tort." 

Zenith Drilling Co~. v. Internorth. Inc., 869 F.2d 560, 565 (lOth 

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Cir. 1989) (citing Z.D. Howard Co. v. Cartwright, 537 P.2d 345, 

347 (Okla. 1975)). Under Oklahoma law, the plaintiff must recover 

damages for a tort before recovering punitive damages; a breach of 

contract alone cannot support an award of punitive damages. 

Norman's Heritage Real Estate Co. v. Aetna Casualty & Sur. Co., 

727 F.2d 911, 916 (lOth Cir. 1984). See also Wagstaff, 760 F.2d 

at 1078 (under Oklahoma law, the plaintiff can recover punitive 

damages upon a showing of nominal damages from defendant's fraud). 

Although the Hamiltons' relationship with NationsBank arose 

out of a contract and their counterclaims included claims for 

breach of contract, on which they prevailed, they may recover 

punitive damages only in the event that, on remand, the district 

court again finds that NationsBank committed the independent 

willful tort of fraud in light of Citation and Furr. 

Conclusion 

We AFFIRM the district court's February 10, 1994, Journal 

Entry of Judgment with respect to the following awards/findings in 

favor of the Hamiltons and the FDIC, which were not challenged on 

appeal: no recovery for lost profits; $ 19,720 from the FDIC for 

repairs made to the commercial portion of the premises that were 

the landlord's responsibility on the breach of contract claim; $ 

1,537.48 from the FDIC for repairs made which were the landlord's 

responsibility under the ORLTA; no recovery for flood damages; 

recovery of the $ 1,400 security deposit from FDIC; and $ 

56,606.64 to the FDIC for rent, insurance and tax obligations 

under the Agreement. 

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We AFFIRM the district court's conclusion that the ORLTA 

applied divisibly to the residential portions of the Property and 

not to the business portions. 

We REVERSE the district court's award of $ 44,000 in actual 

damages and $ 1,200,000 in punitive damages based on the fraud 

claim and REMAND for further proceedings consistent with this 

opinion. 

AFFIRMED IN PART, REVERSED IN PART, and REMANDED. 

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