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. R

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# F I L ED

F EB 25 2011

MO LL Y C

. D W Y ER

, C L ERK U

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v.

S H E LL O I L C O M P A NY

, a D e l a w a re

c o r po r a t i o n ; e t a l

.,

D e f e n d a n t s

- c o un t e r- c l a i m a n t s

- A pp e ll a n t

- C r o ss / A pp e ll ee s.

A pp ea l f r o m t h e U n i t e d S t a t e s D i s t r i c t C o u rt f o r t h e Ce n t r a l D i s t r i c t o f Ca li f o r n ia
A n d r e w J. G u il f

o r d

, D i s t r i c t

J u d g e , Pr e s i d i ng

A r gu e d a n d S u b m

i tt e d J a nu a r y 11

, 2011
P a s a d e n a , Ca li f

o r n ia

B e f o r e : M c K E O W N

, W

. F L ET C H E R

, a n d C L I F T ON

, C i r c u i t J u d g e s.

S h e ll O il C o m

p a ny a pp ea l s t h e a w a r d o f a tt o r n e y s ’ f ee s b y t h e d i s t r i c t c o u rt

t o P ac i f i c F u e l C o m p a ny a n d t h e d e n i a l o f f

ee s t o S h e ll

. P ac i f

i c c r o ss a pp ea l s on

m u l t i p l e g r o un d s. We a ff

i r m t h e d i s t r i c t c o u r t ’ s r u li ng i n i t s e n t i r e t y

.

Ca li f o r n i a C od e o f C i v il Pr o ce d u r e § 1021 “ r ec o gn i ze s t h a t a tt o r n e y f ees

i n c u rr e d i n p r o s ec u t i ng o r d e f e n d i ng a n ac t i o n m a y b e r ec o v e r e d a s c o s t s . . . w h en

t h e y a r e o t h e r w i s e a u t h o r i ze d b y s t a t u t e o r b y t h e p a r t i e s ’ a g r ee m e n t

. ” San ti s a s v.

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a tt o r n e y s ’ f

ee s, Ca li f o r n i a C i v il C od e § 1717 e n s u r e s t h a t s u c h a tt o r n e y s ’ f

ee s1 S o m

e a u t h o r i t i e s s ugg e s t t h a t § 1717 a pp li e s t o a n e v e n b r o a d e r s w a t h of

c l a i m s. S ee , e

. g ., D e ll M

e r k

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t h e m ea n i ng o f S ec t i o n 1717

. ” )

3 p r o v i s i o n s a pp l y r ec i p r o ca ll y s u c h t h a t i f a p a r t y t o a n ac t i o n w o u l d b e e n t i t l e d to

f ee s un d e r t h e c o n t r ac t ’ s a tt o r n e y s ’ f ee s p r o v i s i o n i f

s u cce ss f u l

, t h e a d v e r s e p a r ty

m u s t a l s o b e e li g i b l e f

o r f ee s i f i t p r e v a il s. T

. E

. D

. B e a r i ng C o

. v

. W

a lt e r E

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& C o ., 112 Ca l

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a tt o r n e y s ’ f

ee s p r o v i s i o n s i s t h e “ p r i m a r y p u r po s e” o f § 1717

. I

d. a t 913

. B y i ts

t e r m s, § 1717 a pp li e s “ [ i ] n a ny ac t i o n o n a c o n t r ac t

, w h e r e t h e c o n t r ac t s p ec i f i ca lly

p r o v i d e s t h a t a tt o r n e y ’ s f

ee s a n d c o s t s, w h i c h a r e i n c u rr e d t o e n f o r ce t h a t c o n t r ac t,

s h a ll b e a w a r d e d e i t h e r t o o n e o f t h e p a r t i e s o r t o t h e p r e v a ili ng p a r t y

. ” T h e M SO

A g r ee m e n t p r o v i d e s f

o r f ee s i n c u rr e d t o “ s ec u r e , d e f e n d

, o r p r o t ec t ” r i gh t s un d er

t h e M S O A g r ee m

e n t t o b e a w a r d e d t o t h e “ p r e v a ili ng p a r t y , ” a n d t hu s § 1717

a pp li e s, a t m

i n i m u m, 1 t o a ll c l a i m s i n w h i c h a t l ea s t o n e o f t h e p a r t i e s i s a tt e m p t i ng

t o “ s ec u r e , d e f

e n d

, o r p r o t ec t ” r i gh t s un d e r t h e M S O A g r ee m e n t

.

A l t h o ugh S h e ll p r e v a il e d o n i t s b r eac h o f c o n t r ac t c l a i m , t h e d i s t r i c t c o u rt

w a s w i t h i n i t s d i s c r e t i o n t o f i n d t h a t S h e ll w a s n o t t h e p r e v a ili ng p a r t y un d er

Ca li f o r n i a C i v il C od e § 1717

. S ec t i o n 1717 ( b )( 1 ) p r o v i d e s t h a t a c o u r t “ m a y

. . .

d e t e r m i n e t h a t t h e r e i s n o p a r t y p r e v a ili ng o n t h e c o n t r ac t f o r p u r po s e s o f t h is4

s ec t i o n

. ” W h il e t h i s p r o v i s i o n do e s n o t g r a n t t h e d i s t r i c t j u d g e un li m i t e d d i s c r e t i o n,

b eca u s e t h i s ca s e d i d n o t r e s u l t i n a “ s i m p l e , un q u a li f

i e d w i n ” f o r S h e ll

, t h e d i s t r i ct

c o u r t w a s p e r m

i tt e d t o d e t e r m

i n e t h a t S h e ll w a s n o t t h e p r e v a ili ng p a r t y

. S ee H s u v.

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. 2d 804

, 811

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T h e d i s t r i c t c o u r t a l s o d i d n o t e rr i n f i n d i ng P ac i f

i c t o b e t h e p r e v a ili ng p a r ty

un d e r § 1717

. H a d S h e ll p r e v a il e d i n d e f e n d i ng a g a i n s t P ac i f

i c ’ s f r a u d c l a i m , it

w o u l d h a v e s u cce ss f

u ll y “ s ec u r e [ d ]

, d e f

e n d [ e d ]

, o r p r o t ec t [ e d ] ” i t s r i gh t s un d e r t he

M S O A g r ee m

e n t a n d t h e r e f

o r e w o u l d h a v e b ee n e li g i b l e f o r a tt o r n e y s ’ f

ee s un d er

t h e a tt o r n e y s ’ f

ee s p r o v i s i o n i n t h e M S O A g r ee m e n t

. S ec t i o n 1717 ’ s m

u t u a li ty

p r i n c i p l e d i c t a t e s t h a t P ac i f i c ’ s f r a u d c l a i m s c o un t a s “ o n a c o n t r ac t ” un d e r § 1717

a n d t h e c o u r t w a s p e r m

i tt e d t o a w a r d a tt o r n e y s ’ f ee s t o P ac i f

i c f o r i t s s u cce ss f

ul

c l a i m

. S ee San ti s as , 951 P

. 2d a t 407 ( “ [S] ec t i o n 1717 p e r m i t s [ a ] p a r t y ’ s r ec o v e ry

o f a tt o r n e y f

ee s w h e n e v e r t h e oppo s i ng p a r t i e s w o u l d h a v e b ee n e n t i t l e d to

a tt o r n e y f ee s un d e r t h e c o n t r ac t h a d t h e y p r e v a il e d

. ” ) ; D e ll M e rk

, 33 Ca l

. R p t r

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a t 702 ( “ I f B a n k w o u l d h a v e b ee n l e g a ll y e n t i t l e d t o f ee s i f i t h a d p r e v a il e d,

F r a n z i a w o u l d b e e n t i t l e d t o i t s f ee s f o r d e f e n d i ng B a n k ’ s ac t i o n w h e n B a n k l o s t

. ”)

T h i s r e s u l t acc o r d s w i t h t h e s u b s t a n t i a l d i s c r e t i o n p r o v i d e d t r i a l c o u r t s in

a ll o ca t i ng a tt o r n e y s ’ f

ee s b y bo t h Ca li f

o r n i a c o u r t s a n d t h e N i n t h C i r c u i t

, a s w e ll as

w i t h c o u r t s ’ i n t e r

p r e t a t i o n o f § 1717

. S ee H su , 891 P

. 2d a t 813 ( “ [I] n d e t e r m i n i ng5

li t i g a t i o n s u cce ss, c o u r t s s h o u l d r e s p ec t s u b s t a n ce r a t h e r t h a n f

o r m , a n d t o t h is

e x t e n t s h o u l d b e gu i d e d b y ‘ e q u i t a b l e c o n s i d e r a t i o n s. ’ ) ; B e r k l a v

. C o r e l C o r

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. . . e v a l u a t e li t i g a t i o n

s u cce ss i n li gh t o f t h e p a r t y ’ s o v e r a ll d e m a n d s a nd

ob j ec t i v e s. ” ) ; D e ll M

e rk

, 33 Ca l

. R p t r

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c o n s t r u e t h e t e r m ‘ o n a c o n t r ac t ’ a s u s e d w i t h i n s ec t i o n 1717

. A s l o ng a s t h e ac t i on

‘ i nv o l v e [ s ] ’ a c o n t r ac t i t i s ‘ o n [ t h e ] c o n t r ac t ’ w i t h i n t h e m ea n i ng o f S ec t i o n 1717 .”

( i n t e r n a l c i t a t i o n a n d q u o t a t i o n s o m i tt e d )) ; B a rr i e n t o s v

. 1801

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583 F

. 3d 1197

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. 2009 ) ( “ [S ec t i o n 1717 ’ s ‘ ac t i o n o n a c o n t r ac t ’]

p r o v i s i o n i s i n t e r

p r e t e d li b e r a ll y

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n e g li g e n t m

i s r e p r e s e n t a t i o n c l a i m

s ee k i ng d a m a g e s ).

I t i s w e ll e s t a b li s h e d t h a t a c l a i m a n t “ m a y n o t r ece i v e m u l t i p l e a w a r d s f

or

t h e s a m e i t e m o f d a m a g e

. ” A m ba ss ado r H o t e l C o ., L t

d

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580 ( Ca l

. 1993 ) ( “ Re g a r d l e ss o f t h e n a t u r e o r nu m b e r o f l e g a l t h e o r i e s a d v a n ce d by

t h e p l a i n t i ff

, h e i s n o t e n t i t l e d t o m

o r e t h a n a s i ng l e r ec o v e r y f o r eac h d i s t i n c t i t em

o f c o m p e n s a b l e d a m a g e s u ppo r t e d b y t h e e v i d e n ce

. ” )

. W h e t h e r a j u r y a w a r d is

d u p li ca t i v e i s a l e g a l q u e s t i o n

. S ee D u B a rr y I n t e r na t
., I n c

. v

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, 189 ( Ca l

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. P ac i f i c ’ s c l a i m s f

or

c o n cea l m e n t a n d i n t e n t i o n a l m

i s r e p r e s e n t a t i o n w e r e p r e s e n t e d a s a s i ng l e c l a i m,

b a s e d o n t h e s a m

e f ac t s, a n d b a s e d o n t h e s a m e a ll e g e d d a m a g e s. A s s u c h

, t he

d i s t r i c t c o u r t d i d n o t e rr i n f i n d i ng t h e t w o a w a r d s t o b e d u p li ca t i v e a s a m a tt e r of

l a w

. S ee Id

. ( f

i n d i ng s e p a r a t e a w a r d s f

o r b r eac h o f c o n t r ac t a n d b a d f a i t h d e n i a l of

c o n t r ac t bo t h b a s e d o n l o s t c o mm i ss i o n s t o b e “ d u p li ca t i v e a s a m a tt e r o f l a w ” )

.

P ac i f i c c o n t e n d s t h a t S h e ll ’ s s u cce ss f u l a ff i r m a t i v e d e f

e n s e o f P ac i f

i c ’s

b r eac h o f c o n t r ac t c l a i m

s h o u l d b e b a rr e d un d e r t h e e l ec t i o n o f r e m e d i e s do c t r i n e,

a r gu i ng t h a t S h e ll “ t w i ce a ff i r m e d ” t h e M S O A g r ee m

e n t

— f i r s t b y s u i ng P ac i f

i c in

s t a t e c o u r t f

o r b r eac h o f t h e M S O A g r ee m e n t

, a n d s ec o n d b y p u r s u i ng i t s b r eac h of

c o n t r ac t c o un t e r c l a i m t o r ec o v e r f ee s r e l a t i ng t o t h a t

s t a t e c o u r t p r o cee d i ng.

We h a v e h e l d t h a t “ e l ec t i o n i s t h e e x e r c i s e o f a c h o i ce o f a n a l t e r n a t e a nd

i n c o n s i s t e n t r i gh t o r c o u r s e o f ac t i o n , ” a n d t h a t “ [ f ] u ll k n o w l e d g e o f t h e n a t u r e of

t h e i n c o n s i s t e n t r i gh t s a n d t h e n ece ss i t y o f c h oo s i ng b e t w ee n t h e m a r e e l e m e n t s of

e l ec t i o n

. ” I

n r e M ann F a r m s, I n c ., 917 F

. 2d 1210

, 1213 ( 9 t h C i r

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. P ac i f ic

p r e s e n t e d n o e v i d e n ce t h a t S h e ll w a s a w a r e o f t h e f r a u d a t t h e t i m

e o f t h e s t a te

c o u r t ac t i o n

. A s s u c h

, S h e ll ’ s p u r s u i t o f t h e s t a t e c l a i m d i d n o t c o n s t i t u t e e l ec t i o n.

B eca u s e i t s b r eac h o f c o n t r ac t c o un t e r c l a i m a r o s e o u t o f t h a t s t a t e c o u rt

p r o cee d i ng , S h e ll ’ s f

r a u d d e f e n s e w a s a m

e r e c h a ng e i n r e m

e d i e s, w h i c h d i d n ot7

t r i gg e r t h e e l ec t i o n o f r e m e d i e s do c t r i n e “ un l e ss t h e c h a ng e i nv o l v e s a p r e j u d i ce to

t h e l o s i ng p a r t y

. ” C

a lif o r n i a G o lf

, L

. L

. C

. v

. C oop er , 78 Ca l

. R p t r

. 3d 153

, 164

( Ca l

. C t

. A pp

. 2008 )

. T h e r e w a s n o p r e j u d i ce h e r e

. I n d ee d

, i t w o u l d b e un j u s t to

d e ny S h e ll f

ee s t o w h i c h i t w a s c o n t r ac t u a ll y e n t i t l e d i n a c o m p l e t e d li t i g a t i on

b a s e d o n a s u b s e q u e n t f

i n d i ng t h a t i t h a d b ee n t h e v i c t i m o f f r a u d

. C o nv e r s e l y , it

w o u l d b e un

j u s t t o d e ny S h e ll a n a ff

i r m a t i v e d e f

e n s e b a s e d o n t h a t f

r a u d s i m p ly

b eca u s e i t a ss e r t e d i t s c o n t r ac t u a l e n t i t l e m e n t t o a tt o r n e y s ’ f

ee s o n i t s ea r li e r,

s u cce ss f u l b r eac h o f c o n t r ac t

s u i t

, e x ec u t e d w i t h o u t k n o w l e d g e o f t h e f r a u d.

M o r e o v e r , i t i s w e ll e s t a b li s h e d t h a t a p a r t y m a y r e s c i n d a c o n t r ac t a n d s t ill r ec o v er

a tt o r n e y s ’ f

ee s un d e r t h e r e s c i n d e d c o n t r ac t

. S ee San ti s as , 951 P

. 2d a t 407.

We un d e r s t a n d P ac i f

i c ’ s c l a i m f

o r d i s g o r g e m

e n t o f p r o f

i t s ea r n e d un d e r t he

M S O A g r ee m

e n t t o r e f e r t o t h e r u l e t h a t a r e s c i n d i ng p a r t y m u s t “ [r] e s t o r e t o t he

o t h e r p a r t y e v e r y t h i ng o f v a l u e w h i c h h e h a s r ece i v e d f r o m h i m un d e r t h e c o n t r act

o r o ff e r t o r e s t o r e t h e s a m

e u po n c o n d i t i o n t h a t t h e o t h e r p a r t y do li k e w i s e , un l e ss

t h e l a tt e r i s un a b l e o r po s i t i v e l y r e f u s e s t o do s o

. ” Ca li f

o r n i a C i v il C od e § 1691 ( b ).

T h e r e i s s i m

p l y n o s u ppo r t f

o r t h e p r opo s i t i o n t h a t a p a r t y f o un d t o h a ve

c o mm i tt e d f r a u d i s e n t i t l e d t o t h e a d v e r s e p a r t y ’ s p r o f i t s. W i t h r e s p ec t t o r e s t o r i ng

t o t h e o t h e r p a r t y e v e r y t h i ng o f v a l u e r ece i v e d un d e r t h e c o n t r ac t

, S h e ll h a s a l r ea dy

b ee n o r d e r e d t o p a y P ac i f i c a n a m o un t g r ea t e r t h a n w h a t i t r ece i v e d f r o m P ac i f i c.8

M o r e o v e r , i t i s n o t c l ea r t h a t r e s t o r a t i o n i s r e q u i r e d w h e n a p a r t y r e s c i n d s a s a

d e f e n s e

. S ee M

cC au l ey v

. D e nn is

, 34 Ca l

. R p t r

. 90

, 93 ( Ca l

. D i s t

. C t

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. . . m a y s et

u p t h e f r a u d a s a p a r t i a l d e f

e n s e o r c o un t e r c l a i m w i t h o u t a ny o ff e r o f r e s t i t u t i o n

. ”)

P ac i f i c i s n o t e n t i t l e d t o p r e

-

j u d g m e n t i n t e r e s t un d e r e i t h e r Ca li f o r n i a R u le

o f C o u r t 3

. 1802 o r 28 U

. S

. C

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. P e ll e g r i n i v

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. W h il e i t w a s o n ce t h e ca s e t h a t i n t e r e st

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. S

. C

. § 1961 w h e n j u d g m e n t w as

d e l a y e d a f

t e r d a m a g e s h a d b ee n a ss e ss e d

, s ee T u r n e r v

. J apan L i n e s, L t

d.

, 702 F

. 2d

752

, 756

- 57 ( 9 t h C i r

. 1983 )

, t h a t r u l e h a s s i n ce b ee n o v e r t u r n e d b y t h e S u p r e me

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. K a i s e r A l u m i nu m & C h e m i c a l C o r p

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, 835 ( 1990 ).

B eca u s e t h e f

ee s a w a r d e d t o S h e ll a r i s i ng o u t o f t h e s t a t e li t i g a t i o n w e re

a w a r d e d b y t h e j u r y a s d a m a g e s, t h e y n ee d o n l y b e s u ppo r t e d b y s u b s t a n t i al

e v i d e n ce

. W

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. 3d 439

, 442 ( Ca l

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. Ca li f

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. 5 a n d Ca li f o r n i a R u l e o f C o u r t 3

. 172 do n ot

a pp l y

. V i e w i ng “ t h e e v i d e n ce i n t h e li gh t m o s t f a v o r a b l e t o [S h e ll ]

, g i v i ng i t t he

b e n e f i t o f e v e r y r ea s o n a b l e i n f

e r e n ce a n d r e s o l v i ng a ll c o n f li c t s i n i t s f

a v o r , ” we

f i n d t h a t t h e r e w a s s u b s t a n t i a l e v i d e n ce s u ppo r t i ng t h e j u r y ’ s a w a r d

. W il s on , 879

Ca l

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. 3d a t 442

. T h e d i s t r i c t c o u r t t h e r e f o r e d i d n o t e rr i n d e ny i ng P ac i f i c ’s

m o t i o n f o r j u d g m e n t a s a m a tt e r o f l a w.

A FF I R M E D.P ac i f

i c F u e l C o

. v

. S h e ll O il C o. , N o s. 09

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- 55746

M c K E O W N

, C i r c u i t

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I c o n c u r i n t h e m a

j o r i t y ’ s d i s po s i t i o n e x ce p t w i t h r e s p ec t t o t h e a w a r d of

a tt o r n e y s ’ f

ee s t o P ac i f

i c F u e l C o m p a ny

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§ 1717 a pp li e s o n l y t o ac t i o n s “ o n a c o n t r ac t

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ac t i o n on a c on t r a ct
, w h e r e t h e c o n t r ac t s p ec i f i ca ll y p r o v i d e s t h a t a tt o r n e y ’ s f ees

a n d c o s t s, w h i c h a r e i n c u rr e d t o e n f o r ce t h a t c o n t r ac t , s h a ll b e a w a r d e d

. . . t h e n t he

p a r t y w h o i s d e t e r m

i n e d t o b e t h e p a r t y p r e v a ili ng o n t h e c o n t r ac t . . . s h a ll be

e n t i t l e d t o

. . . a tt o r n e y ’ s f ee s. ” ) ( e m

p h a s i s a dd e d )

. Ca li f

o r n i a c o u r t s h a ve

c o n s i s t e n t l y h e l d t h a t a f

r a u d c l a i m

s ee k i ng d a m a g e s s o un d s i n t o r t

, a n d i s n o t “ on

a c o n t r ac t ” f

o r t h e p u r po s e s o f s ec t i o n 1717

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906

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. A t o r t c l a i m ca nn o t b e c o nv e r t e d i n t o a c o n t r act

c l a i m s i m p l y b eca u s e i t i s r e l a t e d t o a c o n t r ac t

. A cc o r d i ng l y , I r e s p ec t f u ll y d i ss e n t

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# F I L ED

F EB 25 2011

MO LL Y C

. D W Y ER

, C L ERK U

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. C O UR T O F APPEA LS