Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-03434/USCOURTS-cand-3_05-cv-03434-3/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:145 Patent Infringement

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SHOOM, INC.,

 Plaintiff,

 v.

 ELECTRONIC IMAGING SYSTEMS OF

AMERICA, INC. ET AL,

Defendant. /

No. C05-03434 MJJ

ORDER GRANTING DEFENDANT'S

MOTION TO DISMISS 

Pending before the Court is Defendant Electronic Imaging Systems of America, Inc.’s (“eISA”)

Motion to Dismiss Plaintiff Shoom, Inc.’s (“Shoom”) First Amended Complaint for lack of subject

matter jurisdiction. (Doc.# 27.) For the following reasons, the Court GRANTS eISA’s motion.

I. Background

On August 24, 2005, Shoom filed its original Complaint against eISA and eISA’s CEO, John

Metsig. (Doc. #1). In that Complaint, Shoom sought declaratory judgments of noninfringement and

invalidation of U.S. Patent No. 6,505,173 (the ‘173 Patent), and asserted claims under California

Business and Professions Code § 17200 and 35 U.S.C. § 292. eISA subsequently filed a motion to

dismiss. In response, Shoom filed a First Amended Complaint. (Doc. #13.) Shoom’s First Amended

Complaint requests declaratory judgments of noninfringement and invalidity of the ‘173 patent; drops

the false patent marking and unfair business practice claims; and no longer names Mr. Metsig as a

defendant. eISA now moves to dismiss Shoom’s First Amended Complaint pursuant to Rule 12(b)(1)

of the Federal Rules of Civil Procedure. 

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Newspaper companies provide their advertisers with invoices in order to account for money owed for publishing

an advertisement. Typically, newspapers include clippings or tearsheets with these invoices as proof of publication. 

2

Shoom is in the business of producing electronic invoices containing electronic tearsheets for

newspapers that publish print advertisements.1

 eISA owns the ‘173 Patent entitled “Method for

electronically merging digitized data system of generating billing statements for published advertising.”

In June 2005, eISA sent a form letter regarding the ‘173 patent to approximately 250 newspapers and

newspaper organizations. Approximately 30 of Shoom’s customers received eISA’s form letter. The

letter states:

Dear [addressee] :

Electronic Imaging Systems of America, Inc. (‘eISA”) owns Wirbel et

al., United States Patent 6,505,173 (“the ‘173 Patent”), which issued on

07 January 2003. For your convenience, I have enclosed a copy of the

‘173 Patent as it may concern existing and/or contemplated system

decisions that may relate but may not be limited to: Electronic

Tearsheets, Proof of Ad Delivery Systems, Advertising/Classified

Statements and Inserts Orders/Contracts. eISA currently has another

U.S. Patent Application pending before the United States Patent and

Trademark Office, which is related to the technology covered by the

‘173 Patent.”

Although eISA currently owns all rights, title and interest in the ‘173

Patent, eISA intends to soon license, exclusively or not-exclusively, or

otherwise transfer its rights, title and/or interest in the ‘173 Patent.

I am communicating this letter to you and other companies in the

industry. If you want to license or purchase rights associated with the

‘173 Patent, please contact me at your convenience.

Thank you,

John Metsig 

President and CEO

(Doc. # 29, Metsig Decl., ¶6, Ex. 2)

On July 27, 2005, Karen Spurlock of Gannet, a company that is one of Shoom’s customers and

owns approximately 1000 newspapers, informed William Freschi, C.E.O. of Shoom, about the eISA

letter and sent Mr. Freschi an email with the ‘173 patent. In the email, Ms. Spurlock states, “Please .

. . let me know what Shoom is doing about this. Newspapers across the country have begun receiving

communications from [eISA] . . . . It’s an obvious concern . . . . We have also contacted Gannet Legal

and have them looking into it.” In response, Mr. Freschi assured her that the ‘173 patent did not apply

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to the electronic invoices that Shoom provides to Gannet.

Concurrently, on July 27, 2005, Ed Kost, Chief Information Officer for the Tribune Review

Publishing Company, also a Shoom customer, emailed Shoom. Mr. Kost’s message references the eISA

form letter. Additionally, Mr. Kost’s email contains an email sent from Brad Koltz of the New Media

Foundation to Mr. Kost. Mr. Koltz’s message addresses research he did for Mr. Kost concerning the

‘173 patent. In this portion of the email, Mr. Koltz writes, “I’m not a patent attorney, but I’d sure check

with one before doing much in this area.”

The next day, on July 28, 2005, Mr. Freschi called Mr. Metsig regarding the form letter and the

‘173 patent. Mr. Freschi indicated that the form letters were causing great turmoil and uncertainty

among Shoom and Shoom’s customers. Mr. Freschi also mentioned that the market was “frozen in

turmoil, customers [were] calling, prospects [were] postponing decisions,” and that it was “urgent” for

the parties to resolve the problem. Shoom also contends that Mr. Metsig said, “In general, the ‘173

patent covered the creation of any electronic invoice for a newspaper.” However, Mr. Metsig does not

recall making this statement, but acknowledges that he may have told Mr. Freschi that “the ‘173 patent

related to electronic invoices in the publishing market.”

On July 29th, Mr. Freschi again emailed Ms. Spurlock of Gannet in order to update her on the

patent issue and to assure her that Shoom was diligently addressing the problem.

On the same day, Mr. Freschi emailed Mr. Metsig for further clarification of the scope of the

‘173 patent. Mr. Metsig sent a response email to Mr. Freschi, stating:

Good Morning Bill,

Just returned from Memphis/Little Rock...I think it is hotter here in Chicago

today than there...and that’s HOT!!

Sorry for the misunderstanding regarding my visit to California...I will not be

out there until later this month or September.

Bill, I am not an intellectual property attorney and therefore cannot advise you

legally or from a laymen’s [sic] perspective on the advice of my attorney. The

patent content is as it is in the document I sent you...and I say this with all

respect to you.

I would be happy to discuss this with you at your earliest convenience or if

you are planning to come to Chicago before I go to your beautiful Coast, we

can meet here. My intentions are to work with you if at all possible, so that

we can better serve our clients and each other.

Thanks,

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john [sic]

(Doc.# 33, Freschi Decl., Ex. 6)

Mr. Freschi replied to Mr. Metsig’s email, stating, “when you start a freeze on the market place

. . . you impose a great urgency to resolve the situation immediately.”

Subsequently, on August 1, 2005, Ms. Cole of the Toledo Blade newspaper emailed Ms. Ryoji

of Shoom. Ms. Cole notified Shoom about the issue concerning the ‘173 patent and warned Shoom that

a discussion concerning patent ownership rights of electronic tearsheats had emerged in the New Media

mailing. 

On August 4, 2005, Ms. Spurlock again emailed Mr. Freschi for an update on the situation. In

response, Mr. Freschi reiterated that Shoom was taking steps to address her concern.

 On August 11, 2005, John Kephart of Shoom sent an intra-office memo to Shoom’s sales team.

The memo mentioned that the Las Vegas Review Journal (“LVRJ”), which was a customer of Shoom,

was considering a change in tearsheet providers. The memo explained that the LVRJ received the June

2005 form letter and believed that a potential patent violation may result with Shoom.

Mr. Freschi contends that Mr. Metsig made various other statements before Shoom filed its

declaratory action against eISA. These statements include the following: “[t]he patent applies to

everyone who creates electronic invoices for newspapers, you are going to pay”; “[y]ou can pay me now

or pay me later”; and “[w]e will let the lawyers handle it.” Mr. Metsig does not recall making these

statements; however he claims that if he did, they occurred during settlement discussions after Shoom

filed this lawsuit.

On August 24, 2005, Shoom filed this declaratory action. At some point, the partes engaged in

discussions regarding royalty rates for licensing the ‘173 patent. According to Shoom, these discussions

preceded its initiation of this lawsuit. eISA, however, alleges that any discussions occurred after Shoom

filed its Complaint. eISA now moves to dismiss Shoom’s First Amended Complaint on the basis that

Shoom has failed to demonstrate that an actual controversy exists conferring subject matter jurisdiction

on this Court under the Declaratory Judgment Act. 

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II. Legal Standard

The Declaratory Judgment Act, 28 U.S.C. § 2201(a), provides that “[i]n a case of actual

controversy” a federal court “may declare the rights and other legal relations of any interested party

seeking such declaration, whether or not further relief is or could be sought.” This “actual controversy”

requirement “is the same as the ‘case or controversy requirement of Article III of the United States

Constitution.” Societe de Conditionnement en Aluminium v. Hunter Engineering Co., 665 F.2d 938, 942

(9th Cir. 1981) (citing Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-40 (1937)). “To constitute an

actual controversy, the plaintiff has the burden of establishing by a preponderance of the evidence . . .

that it has a reasonable apprehension that it will be sued.” Shell Oil Co. v. Amoco Corp., 970 F.2d 885,

887 (Fed. Cir. 1992) (citing Jervis B. Webb Co. v. Southern Sys., Inc., 742 F.2d 1388, 1398 (Fed. Cir.

1984). In conducting this review, the Court “look[s] for any express charges of infringement, and if

none, then to the totality of the circumstances.” Arrowhead Indus. Water Inc. v. Ecolochem Inc. 846

F.2d 731, 736 (Fed. Cir. 1988). 

In suits requesting a judicial declaration of patent invalidity or non-infringement, courts apply

a two-part test to determine whether an actual controversy exists, thereby invoking the court’s subject

matter jurisdiction pursuant to the Declaratory Judgment Act. See BP Chems. Ltd. v. Union Carbide

Corp., 4 F.3d 975, 978 (Fed. Cir. 1993). The plaintiff must show: “both (1) an explicit threat or other

action by the patentee, which creates a reasonable apprehension on the part of the declaratory plaintiff

that it will face an infringement suit, and (2) present activity which could constitute infringement or

concrete steps taken with the intent to conduct such activity.” Id. “The test, however stated, is objective

and is applied to the facts existing when the complaint is filed.” Arrowhead Indus. Water Inc., 846 F.2d

at 736.

When considering a Rule 12(b)(1) motion challenging the substance of jurisdictional allegations,

the Court is not restricted to the face of the pleadings, but may review any evidence, such as declarations

and testimony, to resolve any factual disputes concerning the existence of jurisdiction. See McCarthy

v. United States, 850 F.2d 558, 560 (9th Cir. 1988). The burden of proof on a Rule 12(b)(1) motion is

on the party asserting jurisdiction. See Sopack v. Northern Mountain Helicopter Serv., 52 F.3d 817, 818

(9th Cir. 1995). The principles articulated in Data Disc, Inc. v. Systems Technology Assocs., 557 F.2d

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 In the instant case, the Court finds that an evidentiary hearing is unnecessary because the Court need not determine

material facts to decide eISA’s motion. Thus, Shoom need only present a prima facie case that an actual controversy exists

permitting the Court to exercise its jurisdiction over Shoom’s claim for declaratory relief.

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1280, 1284-86 (9th Cir. 1977), regarding the evidentiary standard apply in determining personal

jurisdiction are also applicable to determination of subject matter jurisdiction. Societe de

Conditionnement En Aluminium, 655 F.2d at 942. Thus, when a defendant’s motion to dismiss is made

as its initial response, Shoom need only make a prima facie showing that subject matter jurisdiction

exists. Data Disc, 557 F.2d at 1285. 

If the pleadings and other submitted materials raise issues of credibility or disputed questions

of fact, the court may, in its discretion, order a preliminary hearing to resolve the contested issues. In

this situation, the plaintiff must establish the jurisdictional facts by a preponderance of the evidence.

Id. Likewise, where the jurisdictional facts are “intertwined with the merits of the action,” it is

preferable that determination of jurisdiction be made at trial. Id. at 1285-86.2

In this instance, a prima facie showing means that Shoom has produced admissible evidence

which, if believed, would be sufficient to demonstrate a finding of an actual controversy to confer

subject matter jurisdiction under the Declaratory Judgement Act. Id.

III. Discussion

As indicated above, Shoom has the burden of demonstrating facts creating a reasonable

apprehension of lawsuit. Shoom maintains that three factual characteristics of this case - (1) eISA’s

June 2005 letter, (2) Mr. Metsig’s August 1, 2005 email, and (3) Mr. Metsig’s oral statements to Mr.

Freschi - illustrate that there existed a reasonable apprehension of a lawsuit under the totality of the

circumstances. The Court therefore reviews Shoom’s proffered facts.

First, Shoom contends that eISA’s June 2005 letter resulted in confusion and insecurity among

its customers about their use of Shoom’s product and constituted an attempt by eISA to “solicit

[Shoom’s] clients and its prospects in the marketplace.” (Freschi Decl. at ¶27.) According to Shoom,

eISA’s June 2005 letter “states in subtle lawyer language that the eISA patent covers electronic tear

sheet systems, the very essence of Shoom’s longstanding business and a vital necessity for today’s

newspapers.” (Opp. at 12.) Shoom proffers that, after receiving the letter, its customers, including its

largest customer, Gannet Corporation, contacted Shoom to express their concern over receiving the

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Shoom also explains that prior to July 27, 2005, it was unaware of the existence of eISA’s patent, and eISA never

delivered a copy of the patent to Shoom. The Court fails to see how these facts weigh on whether Shoom faced a reasonable

apprehension of suit at the time it initiated this action. In the same vein, Shoom contends that eISA failed to include the

claims of its patent in the letter, thereby further confusing the recipients. Again, the Court fails to see how partial inclusion

or omission of the actual patent heightened Shoom’s apprehension of suit by eISA. 

7

letter. Additionally, Shoom contends that the letter resulted in another of its customer’s, Tribune

Review Publishing Company, refusing to continue to work with Shoom on the implementation of an

electronic tearsheet service until the matter was resolved. (Doc. 33, Freschi Decl. at ¶ 36.) As Shoom

characterizes it, eISA’s letter created major turmoil in the newspaper industry and “placed [Shoom] on

the defensive, threatened [Shoom’s] position in the industry, and [] threaten[ed] [Shoom] with litigation

over a possible liability that [Shoom] [was] having a difficult time evaluating.” (Id. at ¶ 33.)3

 

“The offer of a patent license does not create an actual controversy.” Phillips Plastics Corp. v.

Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051, 1053 (Fed. Cir. 1995). Here, eISA’s June 24, letter sent

to hundreds of newspapers and newspaper organizations consisted of nothing more than a mere offer

to license. The letter specifically states that “eISA intends to soon license . . . its rights and/or interest

in the ‘173 patent . . . If you want to license or purchase rights contact me at your convenience.” 

Additionally, contrary to Shoom’s characterization, the language of the letter is not threatening

to either Shoom or Shoom’s customers. In Shell Oil Company, the court found that the patentee’s letter,

describing the declaratory plaintiff’s activities as “fall[ing] within” the patent, did not constitute an

allegation of infringement. 970 F.2d at 889. Here, eISA’s letter is even less threatening than the one

in Shell. eISA’s letter contains very vague language and merely mentions that the ‘173 patent “may

concern existing and/or contemplated system decisions that may relate but may not be limited to:

Electronic Tearsheets, Proof of Ad Delivery Systems, Advertising[.]” (emphasis added). Nowhere does

the letter threaten litigation or even insinuate actual infringement by Shoom or its customers.

Letters directed to a potential infringer’s customers can be relevant in determining whether a

reasonable apprehension of litigation exists. See Arrowhead Industrial Water, Inc., 846 F.2d at 737. 

However, in Arrowhead, the patentee’s letter specifically referenced Arrowhead, mentioned direct

patent infringement, and was directed to a specific customer of the declaratory plaintiff. Here, eISA’s

letter does not mention Shoom, nor did eISA specifically target Shoom’s customers in its mass mailing

of the letter. Rather, Shoom customers encompassed only 30 of the estimated 250 recipients of the

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letter.

Furthermore, other factors also illustrate the non-threatening tone of eISA’s offer to license.

eISA’s President signed and endorsed this letter, not eISA’s legal council. Also, eISA’s letter avoids

language that requires urgent action on the part of the recipient. Notably, the letter concludes by stating,

“please contact me at your convenience.” 

Overall, the Court finds that eISA’s Judge 2005 letter did not create a reasonable apprehension

of litigation among Shoom’s customers and did not amount to a direct or implied threat of litigation

against Shoom.

Second, Shoom argues that certain statements contained in Mr. Metsig’s August 1, 2005 email

amount to threats of litigation when viewed under the totality of the circumstances. Specifically, Shoom

highlights the following statements: (1) “the patent is what it is”; (2) “[m]y intentions are to work with

you, if at all possible...”; and (3) “upon the advice of counsel.” Shoom then offers the following

explanation of these statements:

While . . . Metsig, in a vacuum, may not be required to give an assurance of noninfringement, Metsig’s statement of Aug. 1, 2005 “[m]y intention are to work

with you if at all possible, . . .” indicate that Metsig wants to do something, i.e.,

work with Freschi, and that giving an assurance of nonsuit is not one of them.

The term “if at all possible” is a thinly veiled threat of litigation. Metsig has

retained counsel, stating “upon the advise of counsel . . .” in his August 1, 2005

email. Metsig’s definition of “. . . work with you. . .” meant that Freschi was to

pay royalties to [eISA]. In almost every conversation with Metsig, Freschi

recalls that Metsig wanted to discuss royalties and how they would be paid. 

(Opp. at 10 (citing Freshi Decl. at ¶66).)

When placed in context, the email fails to establish a direct or implied threat. Immediately

before Mr. Metsig’s August 1 email, Mr. Freschi emailed Mr. Metsig requesting clarification regarding

the scope of the ‘173 patent. In response, Mr. Metsig would not discuss the limits of the patent.

However, Mr. Metsig did convey his intentions to work with Mr. Freschi. Thus, Mr. Metsig’s response

to Mr. Freschi demonstrates that eISA had a willingness to engage in licensing negotiations with Shoom,

rather than to immediately file suit. 

As detailed above, a patentee’s offer to license does not create an actual controversy. Phillips,

57 F.3d 1051, 1053 (Fed. Cir. 1995). “A patentee’s attempt to conduct license negotiations is a

commercial activity.” Id. at 1054. “When there are proposed or ongoing license negotiations, a litigation

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controversy does not arise until negotiations have broken down.” Id. Here, Shoom presents no evidence

that negotiations failed. After Mr. Metsig’s August 1st email, Shoom responded critically of Mr.

Metsig’s hesitation to describe the ‘173 patent. Nothing suggests that eISA stalled or refrained from

continuing with negotiations. Shoom thereafter filed suit, but the reasonable apprehension standard

“requires more than the nervous state of mind of the possible infringer.” Id. at 1053-54. 

More specifically, the quotations referenced in Shoom’s brief cannot be construed as implied

threats of litigation. At most, the alleged purposeful phrasing of eISA’s email is nothing more than

posturing. The Ninth Circuit has recognized that “banter between parties, short of a threat to file a suit

or harassing or threatening to harass the trade . . . goes far to undercut the requisites of an actual

controversy.” Solenoid Devices, Inc. v. Ledex, Inc., 375 F.2d 444, 445 (9th Cir. 1967). Accordingly, the

Court finds that Mr. Metsig’s August 1st email, coupled with the surrounding circumstances, fails to

amount to an implied threat of litigation.

Third, Shoom contends that Mr. Metsig’s oral statements to Mr. Freschi amounted to explicit

or implicit threats of litigation. Specifically, Shoom proffers that Mr. Metsig made the following

statements during discussions with Mr. Freschi: (1) “You can pay me now or you can pay me later”; (2)

“We will let the lawyers handle it”; and (3) “The patent applies to everyone who creates electronic

invoices newspapers, you are going to pay[.]”

Although Shoom contends that these statements support a finding that eISA’s conduct created

a reasonable apprehension of litigation necessitating this lawsuit, Mr. Freschi’s Declaration fails to

specifically identify when Mr. Metsig made these statements. eISA maintains that these statements, if

made at all, occurred after Shoom filed this action, and therefore could not give rise to a threat of

litigation by eISA. Irrespective of this timing issue, even assuming Mr. Metsig made these statements,

none of them amount to a direct threat of litigation. Further, Shoom’s failure to establish when these

statements were made leaves open the possibility that Mr. Metsig could have made them after Shoom

filed this lawsuit or during the parties’ confidential settlement negotiations when the parties discussed

licensing and royalty rates - none of which could support a finding of a reasonable apprehension of

litigation preceding Shoom’s filing of this action. 

Other factors also illustrate that Shoom did not have a reasonable apprehension of litigation.

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Courts may consider a patent holder’s willingness and capacity to engage in litigation to enforce patent

rights. Arrowhead, 846 F.2d at 737. Also, courts have considered whether the patent holder previously

filed any actions against the declaratory plaintiff. See C.R. Bard, Inc. v. Schwartz, 716 F.2d 874, 879-82

(Fed. Cir. 1983) (finding that in the past, patent holder filed suit in state court to enforce rights under

license agreement between itself and declaratory Shoom). Shoom fails to demonstrate that eISA ever

filed any patent litigation prior to August 24, 2005 to enforce any patents, not just the ‘173 patent.

Additionally, Shoom’s August 22, 2005 intra-office memo acknowledges that eISA “may flame out

unless they strong arm some royalties from the industry.” (Doc. #33, Ex. #14.) Thus, the evidence

appears to show that Shoom did not even subjectively believe eISA would file suit because eISA did

not demonstrate a marked willingness and capacity to engage in patent infringement litigation.

When viewed in totality, the circumstances in this case are markedly different from those that

supported jurisdiction under the Declaratory Judgment Act in Arrowhead. Particularly, in that case, the

Federal Circuit found that the Ecolochem’s letter to Arrowhead “stated Ecolochem’s express intent to

enforce its patent rights by litigation”; Ecolochem’s lawsuit against another party “evinced not only an

intent but a willingness and capacity to employ litigation in pursuit of its patent rights”; and

Ecolochem’s request that the court find that Arrowhead was infringing on its patent, thereby

demonstrating Ecolochem’s belief that Arrowhead’s process was an infringement on Ecolochem’s

patent, all of which combined to establish that Ecolochem’s conduct created a reasonable apprehension

on the part of Arrowhead that Ecolochem would sue if Arrowhead continued its activity. Arrowhead,

846 F.2d at 737. Here, in contrast, eISA’s acts preceding the initiation of this lawsuit do not compel the

same conclusion. eISA’s form letter and Mr. Metsig’s emails and statements do not demonstrate an

express, or even implied intent to file an infringement action against Shoom or any of its customers.

Additionally, there is no evidence that eISA has been aggressively filing infringement suits to enforce

its patent. Finally, there is no evidence that eISA had determined that Shoom’s electronic invoices

infringe on its patent. In light of the foregoing, the Court finds that Shoom has failed to meet its burden

of demonstrating that eISA’s conduct created a reasonable apprehension that it would initiate an

infringement action against Shoom or its customers if they continued to use Shoom’s electronic

invoices. The Court therefore finds that no actual controversy exists to support subject matter

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jurisdiction over this action under the Declaratory Judgment Act. 

IV. Conclusion

For the foregoing reasons, the Court GRANTS eISA’s Motion to Dismiss (Doc. #27).

IT IS SO ORDERED.

Dated:5/31/2006 

MARTIN J. JENKINS

UNITED STATES DISTRICT JUDGE

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