Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-08-01987/USCOURTS-ca8-08-01987-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 08-1987

___________

PRM Energy Systems, Inc., an *

Arkansas Corporation, *

*

Plaintiff - Appellant, *

*

Energy Process Technologies, Inc., *

*

Plaintiff, *

* Appeal from the United States

v. * District Court for the

* Western District of Arkansas.

Primenergy, L.L.C., an Oklahoma *

Limited Liability Company; Don R. *

Mellot; W.N. Scott, also known as *

Bill Scott, *

*

Defendants, *

*

Kobe Steel, Ltd., *

*

Defendant - Appellee. *

___________

Submitted: October 15, 2008

Filed: January 8, 2010

___________

Before MELLOY, BEAM, and GRUENDER, Circuit Judges.

___________

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 The Honorable Jimm Larry Hendren, Chief Judge, United States District Court

for the Western District of Arkansas.

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MELLOY, Circuit Judge.

PRM Energy Systems, Inc. (“PRM”), licensed certain gasification technology

patents to Primenergy, L.L.C. (“Primenergy”). Through a network of agreements (the

“1999 Agreements”), PRM licensed Primenergy to use the gasification technology and

enter into sublicense agreements in a number of countries. After a series of disputes

between PRM and Primenergy, PRM brought claims against Kobe Steel, Ltd. (“Kobe

Steel”), a potential licensee, for tortious interference with, and inducement to breach,

the 1999 Agreements and for conspiring with Primenergy to convert PRM’s

intellectual property for their own use. 

Kobe Steel moved to compel arbitration of PRM’s claims pursuant to

arbitration provisions in the 1999 Agreements, and the district court1

 granted Kobe

Steel’s motion. PRM now appeals, arguing that Kobe Steel, as a nonsignatory to the

1999 Agreements, should not be permitted to enforce the arbitration provisions from

those Agreements. We affirm. 

I.

To give context to this dispute, we set forth the facts as alleged in PRM’s

complaint.

In the 1999 Agreements, PRM licensed Primenergy to use PRM’s gasification

technology in a number of countries, including the United States but not including

Japan. Although Primenergy’s license did not extend to Japan, Primenergy maintains

that the 1999 Agreements gave it a right of first refusal for a license in Japan. In

2001, a U.S. subsidiary of Kobe Steel (a Japanese company) contacted PRM and

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expressed its interest in licensing the technology in the United States. PRM referred

the subsidiary to Primenergy. In 2002, Kobe Steel began discussing licensing in

Japan with PRM, but Kobe Steel declined to sign a confidentiality agreement, and the

discussions stalled. At the same time, Kobe Steel was allegedly negotiating with

Primenergy, inducing Primenergy to breach the 1999 Agreements by sublicensing the

technology to Kobe Steel and planning joint projects in Japan. In 2003, Kobe Steel

and Primenergy reached a collaboration agreement in violation of the territorial

restrictions in the 1999 Agreements. Neither Primenergy nor Kobe Steel disclosed

this agreement to PRM.

Unaware of the collaboration between Primenergy and Kobe Steel, PRM

executed an option granting an unrelated company a license for the technology in

Japan. In 2004, Primenergy filed a demand for arbitration seeking to force PRM to

terminate the option, citing Primenergy’s purported right of first refusal. Primenergy

also sought to invalidate certain royalty provisions of the 1999 Agreements because

the underlying patents had expired. PRM asserted several cross-claims in the

arbitration, including a claim that Primenergy breached the 1999 Agreements by

having undisclosed dealings with Kobe Steel. In a final ruling on April 22, 2005, an

arbitrator found that the royalty provisions were unenforceable and that both parties

had breached the 1999 Agreements in regard to obligations concerning the territory

of Japan. The arbitrator enjoined Primenergy from further discussions with Kobe

Steel for a period of two years, but it did not award damages because PRM had not

shown any. 

In 2004, while the arbitration between PRM and Primenergy was pending, PRM

filed a complaint in the district court against Primenergy and its officers alleging

breach of contract, fraud, conspiracy, misappropriation of trade secrets, unfair

competition, and tortious interference. On March 24, 2005, PRM filed a complaint

in a separate action against Kobe Steel asserting tortious interference and conspiracy.

On May 18, 2005, PRM filed an amended complaint in its lawsuit against Primenergy

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 The district court’s interlocutory order directing arbitration and staying the

proceedings was not an immediately appealable “final decision.” Green Tree Fin.

Corp.-Ala. v. Randolph, 531 U.S. 79, 87 n.2 (2000). It became “final” within the

meaning of 9 U.S.C. § 16(a)(3), and thus appealable, upon the later dismissal of the

claims. See Randolph, 531 U.S. at 88–89.

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that included specific allegations concerning the interactions between Primenergy and

Kobe Steel. On November 15, 2005, the district court granted PRM’s motion to

consolidate the two actions, but it dismissed the claims against Primenergy,

concluding that the claims were subject to arbitration. 

On November 18, 2005, PRM filed an amended complaint against Kobe Steel,

asserting the existence of a confidentiality agreement and several exclusive

collaboration agreements between Primenergy and Kobe Steel. PRM further alleged

that Primenergy and Kobe Steel conspired to hide their dealings from PRM and that

Primenergy and Kobe Steel, through their concerted actions, were attempting to

negotiate lower royalty premiums and broader territorial rights for the licensing of

PRM’s technology. 

 

On March 21, 2006, the district court confirmed an April 2005 arbitration

decision from the arbitration between PRM and Primenergy. Kobe Steel and PRM

then filed cross-motions for judgment on the pleadings as to PRM’s claims against

Kobe Steel. On June 19, 2006, the district court granted Kobe Steel’s motion in part,

allowing Kobe Steel to compel arbitration. The district court also entered a stay of the

proceedings. The district court held that Kobe Steel could enforce the arbitration

provisions of the 1999 Agreements on an estoppel theory because “all of PRM’s

claims either make reference to or presume the existence of the 1999 Agreements, and

allege substantially interdependent and concerted misconduct by both the

nonsignatory [Kobe Steel] and one or more of the signatories [Primenergy] to the

contract.” An arbitrator subsequently dismissed the claims against Kobe Steel. The

district court later confirmed the arbitrator’s dismissal of the claims, and PRM now

appeals the June 19, 2006 order compelling the arbitration.2

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3

 Kobe Steel cited Arthur Andersen and an Arkansas case, American Insurance

Company v. Cazort, 871 S.W.2d 575, 579–80 (Ark. 1994), in a letter to our court in

accordance with Eighth Circuit Rule of Appellate Procedure 28(j). PRM did not

respond to this letter. Kobe Steel asserts that Cazort would permit a nonsignatory to

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II.

“This court reviews de novo a district court’s grant of a motion to compel

arbitration.” Donaldson Co., Inc. v. Burroughs Diesel, Inc., 581 F.3d 726, 730 (8th

Cir. 2009) (internal quotation omitted). The first question before us is whether a

nonsignatory defendant may compel a signatory plaintiff to arbitrate claims under a

valid arbitration agreement where the relationship between the parties is based on the

concerted misconduct of the defendant and a different signatory. As we recognized

in Donaldson, the Supreme Court has held that “state contract law governs the ability

of nonsignatories to enforce arbitration provisions.” Id. at 732; Arthur Andersen LLP

v. Carlisle, 129 S. Ct. 1896, 1902 (2009) (“‘State law,’ therefore, is applicable to

determine which contracts are binding under § 2 [of the Federal Arbitration Act] and

enforceable under § 3 ‘if that law arose to govern issues concerning the validity,

revocability, and enforceability of contracts generally.’” (quoting Perry v. Thomas,

482 U.S. 483, 493 n.9 (1987))). 

The Supreme Court issued Arthur Andersen, and our court issued Donaldson,

however, long after the district court ordered and subsequently confirmed arbitration

in the present case and after the parties briefed and argued this matter to our court.

Below, the district court applied federal law to address Kobe Steel’s ability to invoke

the arbitration provisions of the contract between PRM and Primenergy. In its brief

on appeal, PRM argues that federal law applies, and Kobe Steel cites only federal law

in its brief as to this issue. Accordingly, we rely primarily upon the federal law as

discussed by the parties on appeal, and by the district court below, regarding the

ability of a nonsignatory to compel arbitration.3

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compel arbitration under Arkansas law. In light of Arthur Andersen and Donaldson,

and notwithstanding the history of this case, we conducted an independent review of

Arkansas law (the only state’s law arguably applicable to the present agreement). We

determined that Arkansas law was consistent with our analysis as set forth herein and

would lead to the same result. See Cazort, 871 S.W.2d at 579–80 (holding that an

insurer-nonsignatory could compel arbitration pursuant to an arbitration agreement

between an insured-broker and one of the broker’s clients, stating, “‘In short,

[plaintiff] cannot have it both ways. It cannot rely on the contract when it works to its

advantage and ignore it when it works to its disadvantage.’” (quoting Tepper Realty

Co. v. Mosaic Tile Co., 259 F. Supp. 688, 692 (S.D.N.Y. 1966))). In fact, in Cazort,

the Arkansas Supreme Court cited with approval Hughes Masonry Co. v. Greater

Clarke County School Building Corporation, 659 F.2d 836, 838–41 (7th Cir. 1981),

and the federal cases we cite herein rely, in part, on Hughes Masonry and the

reasoning of the Seventh Circuit in that case.

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As a starting point, we note that a nonsignatory may compel a signatory to

arbitrate claims in limited circumstances. See, e.g., Finnie v. H & R Block Fin.

Advisors, Inc., 307 F. App’x 19, 21 (8th Cir. 2009) (unpublished per curiam)

(compelling arbitration based on a close relationship between signatories and

nonsignatories); CD Partners, LLC v. Grizzle, 424 F.3d 795, 798–99 (8th Cir. 2005)

(discussed infra); MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947–48 (11th Cir.

1999) (same); Thompson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 779 (2d

Cir. 1995) (applying an estoppel theory based on a close relationship of parties and

claims that were intertwined with contract rights and duties); Pritzker v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1121 (3d Cir. 1993) (applying a

“traditional agency theory” regarding a nonsignatory employee of a signatory); see

also Am. Ins. Co. v. Cazort, 871 S.W.2d 575, 579–80 (Ark. 1994).

In CD Partners, we recognized two such circumstances. See CD Partners, 424

F.3d at 798. The first relies on agency and related principles to allow a nonsignatory

to compel arbitration when, as a result of the nonsignatory’s close relationship with

a signatory, a failure to do so would eviscerate the arbitration agreement. Id.; see also

Nesslage v. York Secs., Inc., 823 F.2d 231, 233 (8th Cir. 1987) (permitting a

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nonsignatory to compel arbitration where it was the “disclosed agent” of a signatory).

The second relies loosely on principles of equitable estoppel, broadly encompasses

more than one test for its application, and has been termed “alternative estoppel.” CD

Partners, 424 F.3d at 799 (“A willing nonsignatory seeking to arbitrate with a

signatory that is unwilling may do so under what has been called an alternative

estoppel theory which takes into consideration the relationships of persons, wrongs,

and issues . . . .’”) (quoting Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d

125, 131 (2d Cir. 2003)) (alteration omitted, emphasis added). Alternative estoppel

typically relies, at least in part, on the claims being so intertwined with the agreement

containing the arbitration clause that it would be unfair to allow the signatory to rely

on the agreement in formulating its claims but to disavow availability of the

arbitration clause of that same agreement. See Sunkist Soft Drinks, Inc. v. Sunkist

Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993) (citing with approval and adopting

the reasoning of Hughes Masonry Co. v. Greater Clarke County Sch. Bldg Corp., 659

F.2d 836, 838 (7th Cir. 1981)). 

The specific theory or test for application of alternative estoppel that formed the

basis of the district court’s decision in the present case relies on the interdependent

and concerted misconduct of a nonsignatory and a signatory. Kobe Steel argues that

the district court was correct in applying this test. In addition, Kobe Steel argues that

other theories of alternative estoppel apply and that the close relationship or agency

theory recognized in CD Partners provides an independent basis for compelling

arbitration in the present case. Because we conclude that the district court correctly

relied upon the theory of concerted misconduct, we confine our discussion to

concerted misconduct.

In CD Partners, we relied upon MS Dealer in which the Eleventh Circuit set

forth the theory of concerted misconduct as a basis to compel arbitration when there

is no agency or other close relationship between the signatory plaintiff and

nonsignatory defendant. MS Dealer, 177 F.3d at 947 (“[A]pplication of equitable

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estoppel is warranted . . . when the signatory to the contract containing the arbitration

clause raises allegations of . . . substantially interdependent and concerted misconduct

by both the nonsignatory and one or more of the signatories to the contract.”)

(alteration and quotation omitted). The district court in the instant case, turning to MS

Dealer as persuasive authority, imported the Eleventh Circuit’s “concerted

misconduct” basis for applying alternative estoppel. 

Subsequently, in Donaldson, we discussed concerted misconduct at some

length, described the type of claims and allegations that would be necessary to invoke

this theory, but found the theory inapplicable on the facts of that case. 581 F.3d at

733–35. We said that to warrant the benefit of alternative estoppel based on concerted

misconduct, at a minimum, “the plaintiff must specifically allege coordinated behavior

between a signatory and a nonsignatory.” Id. at 734. We did not “suggest that a claim

against a co-conspirator . . . will always be intertwined to a degree sufficient to work

an estoppel.” Ross v. Am. Express Co., 547 F.3d 137, 148 (2d Cir. 2008) (quotation

omitted). Rather, we stated, “The concerted-misconduct test requires allegations of

‘pre-arranged, collusive behavior’ demonstrating that the claims are ‘intimately

founded in and intertwined with’ the agreement at issue.” Donaldson, 581 F.3d at

734–35 (quoting MS Dealer, 177 F.3d at 948). Ultimately, we found on the facts of

Donaldson that there was no allegation of “pre-arranged collusive behavior” as

“required by the case law” of other circuits. Id. at 734 (“Although [the] cross-claim

made common allegations against [the signatory and nonsignatory], it did not make

any allegations suggesting that [they] knowingly acted in concert, improperly

cooperated, or worked hand-in-hand.” (internal quotations omitted)). As such,

although we have recognized and described the theory of concerted misconduct, we

have not yet expressly applied it to compel a party to arbitration.

Here, we believe that the nature of the alleged misconduct and its connection

to the contract demonstrates the requisite relationships between persons, wrongs, and

issues necessary to compel arbitration. PRM “specifically allege[d] coordinated

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behavior between a signatory and a nonsignatory.” Id. The 1999 Agreements

anticipated that an entity such as Kobe Steel might enter into a licensing relationship

with Primenergy, and the 1999 Agreements attempted to govern that expected

relationship. This is not a situation, then, where the nonsignatory co-conspirator “is

a complete stranger to the plaintiffs’ . . . agreements[,] . . . did not sign them, . . . is not

mentioned in them, and . . . performs no function whatsoever relating to their

operation.” Ross, 547 F.3d at 148. 

Collusive conduct between Kobe Steel and Primenergy allegedly arose from

this potential relationship. PRM alleges that Kobe Steel and Primenergy concealed

their actions from PRM, conspired to violate the terms of the 1999 Agreements, and

attempted to undermine the 1999 Agreements’ contemplated authority over licensee

and sub-licensee relationships. The alleged collusive actions not only arose out of and

targeted the 1999 Agreements, they were “intimately founded in and intertwined with”

Primenergy’s underlying contract obligations. Donaldson, 581 F.3d at 735 (quoting

MS Dealer, 177 F.3d at 947). As such, we agree with the district court’s conclusion

that “PRM’s claims either make reference to or presume the existence of the 1999

Agreements, and allege substantially interdependent and concerted misconduct by

both the nonsignatory [Kobe Steel] and one or more of the signatories [Primenergy]

to the contract.” Accordingly, the district court did not err in its reliance on a

concerted-misconduct theory of alternative estoppel to grant nonsignatory Kobe

Steel’s motion to compel arbitration. 

III.

PRM further contends that even if Kobe Steel can compel arbitration, PRM’s

claims against Kobe Steel are outside of the scope of the arbitration clause of the 1999

Agreements. “[A]s a matter of federal law, any doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration,” including “the

construction of the contract language itself.” Moses H. Cone Mem’l Hosp. v. Mercury

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In determining the arbitrability of a dispute, we generally apply these

principles as matters of “federal substantive law,” Moses H. Cone, 460 U.S. at 24,

informed by “‘traditional principles’” of relevant state law, Arthur Andersen, 129 S.

Ct. at 1902 (quoting 21 R. Lord, Williston on Contracts § 57:19, p. 183 (4th ed.

2001)). See also First Option of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Here,

neither party contends that any particular state’s law applies.

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Constr. Corp., 460 U.S. 1, 24–25 (1983); see also Telectronics Pacing Sys., Inc. v.

Guidant Corp., 143 F.3d 428, 430–31 (8th Cir. 1998) (“[A]ny doubts raised in

construing contract language on arbitrability should be resolved in favor of

arbitration.” (internal quotations and alterations omitted)).4

 In determining whether

the scope of the arbitration clause is broad enough to cover the claims at issue, we do

not consider the fact that the defendant is not party to the agreement containing the

clause. CD Partners, 424 F.3d at 801 n.3.

The arbitration clause here covers “all disputes arising under” the agreement,

and PRM argues this language is substantially narrower than the corresponding

language at issue in CD Partners. The CD Partners arbitration clause included “any

claim, controversy or dispute arising out of or relating to” the agreement. Id. at 797,

800. While PRM asserts that the language at issue here is narrower than that in CD

Partners, see Coregis Ins. Co. v. Am. Health Found., Inc., 241 F.3d 123, 128–29 (2d

Cir. 2001) (discussing “related to” as broader than “arising out of” where contract

provision uses both terms), we note that in CD Partners we did not rely solely on the

broader “related to” portion of the arbitration clause. Rather, we held that the claims

“had their genesis in, arose out of, and related to” the operations under the contracts.

CD Partners, 424 F.3d at 801 (emphasis added). And even though the clause here

may be somewhat narrower, it includes no limiting language and is generally broad

in scope. See Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206

F.3d 411, 416 n.3 (4th Cir. 2000) (recognizing “[a]ny dispute arising out of the

Contract” as “broad”); United Food and Commercial Workers Union, Local 400 v.

Shoppers Food Warehouse Corp., 35 F.3d 958, 960 (4th Cir. 1994) (stating that

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“arises under” is “relatively broad”); cf. Heckler v. Ringer, 466 U.S. 602, 615 (1984)

(broadly construing “arising under” in statutory language).

Arbitration may be compelled under “a broad arbitration clause . . . as long as

the underlying factual allegations simply ‘touch matters covered by’ the arbitration

provision.” 3M Co. v. Amtex Sec., Inc., 542 F.3d 1193, 1199 (8th Cir. 2008) (quoting

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 n.13

(1985)). It generally does not matter that claims sound in tort, rather than contract.

Hudson v. ConAgra Poultry Co., 484 F.3d 496, 499–500 (8th Cir. 2007) (“Under the

Federal Arbitration Act, we generally construe broad language in a contractual

arbitration provision to include tort claims arising from the contractual relationship,

and we compel arbitration of such claims.”); CD Partners, 424 F.3d at 800 (“Broadly

worded arbitration clauses . . . are generally construed to cover tort suits arising from

the same set of operative facts covered by a contract between the parties to the

agreement.”). In light of the interpretive preference for arbitration, we have no trouble

concluding that PRM’s tort claims are “disputes arising under” the 1999 Agreements

and are therefore within the scope of the broad arbitration clause.

IV.

For the foregoing reasons, we affirm the judgment of the district court.

BEAM, Circuit Judge, dissenting.

I disagree with the court's conclusion that the nature of PRM's claims are

connected to the contract and demonstrate the requisite relationships between persons,

wrongs, and issues necessary to compel arbitration. The arbitration clause tangentially

at issue here purports to cover "all disputes arising under" a technology licensing

agreement between PRM and Primenergy. 

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The problem is, insofar as this appeal is concerned, that PRM asserts only a

garden variety tort claim against Kobe Steel that does not directly touch either the

subject matter or the geographic reach of the PRM/Primenergy contract itself. Indeed,

according to PRM, the tortious activities of Kobe Steel deal with transactions beyond

the scope, and purposefully outside of, the licensing authority granted Primenergy.

To be sure, it is axiomatic that in order for Kobe Steel to have engaged in the alleged

misconduct it must have had knowledge of the 1999 Agreements but that is the extent

of the allegations' involvement with those agreements.

This is clearly not the situation discussed in Ross v. American Express Co., 547

F.3d 137, 148 (2d Cir. 2008), one of the principal cases relied upon by the court. Nor

does PRM allege the sort of interdependent and concerted misconduct discussed in

Donaldson sufficient to place the claims within the scope of the arbitration clause.

Donaldson Co., Inc. v. Burroughs Diesel, Inc., 581 F.3d 726, 733-34 (8th Cir. 2009)

(discussing the application of the concerted misconduct test in MS Dealer Serv. Corp.

v. Franklin, 177 F.3d 942, 945, 948 (11th Cir. 1999), wherein the plaintiff alleged that

a non-signatory worked hand-in-hand with the signatory in a fraudulent scheme

intertwined with and involving the obligations imposed by the contract containing the

arbitration clause). Certainly, because of Kobe Steel's allegedly surreptitious

negotiations with Primenergy seeking to circuitously obtain the benefits of PRM's

technology for use in Japan, Kobe Steel is not "a complete stranger to the plaintiffs'

. . . agreements." Ross, 547 F.3d at 148. But, Kobe Steel is virtually so. The

PRM/Primenergy agreements do not mention Kobe Steel and perform no function

whatsoever relating to the supposed Kobe Steel/Primenergy "exclusive collaboration"

agreement. And, Kobe Steel was never a participant in the PRM/Primenergy deal.

Thus, the concerted misconduct requirements of Donaldson, the case that

mainly drives the court's analysis in this appeal, are almost totally absent. 581 F.3d

at 733-34. Accordingly, as in Donaldson, this litigation, too, lacks sufficient

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allegations of pre-arranged collusive behavior, and Kobe Steel's arbitration demand

should be rejected. Id. at 735.

I dissent. 

______________________________

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