Court Opinion

ID: 9894246
Source: CourtListenerOpinion
Date Created: 2023-11-01 00:00:29.088134+00
Date Added: 2024-06-11T09:09:11.724444
License: Public Domain

Case: 22-10918    Document: 00516950835        Page: 1    Date Filed: 10/31/2023

           United States Court of Appeals
                for the Fifth Circuit                             United States Court of Appeals
                                                                           Fifth Circuit

                               ____________                              FILED
                                                                  October 31, 2023
                                 No. 22-10918                       Lyle W. Cayce
                               ____________                              Clerk

   Antero Resources, Corporation,

                                          Plaintiff—Appellee/Cross-Appellant,

                                     versus

   C&R Downhole Drilling Inc; Et al.,

                                                                 Defendants,

   John Kawcak,

                        Third Party Defendant— Appellant/Cross-Appellee.
                 ______________________________

                 Appeal from the United States District Court
                     for the Northern District of Texas
                           USDC No. 4:16-CV-668
                 ______________________________

   Before Clement, Elrod, and Willett, Circuit Judges.
   Jennifer Walker Elrod, Circuit Judge:
         This appeal involves several post-trial disagreements. Antero Re-
   sources, Corp., an oil and gas production company, sued former employee
   John Kawcak for breach of fiduciary duty, alleging that Kawcak abused his
   position of operations supervisor to award service contracts to companies
   owned by his close friend Tommy Robertson. Antero also alleged that, after
   winning the contracts, Robertson’s companies deliberately delayed provid-
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                                     No. 22-10918

   ing “drillout” operations, resulting in millions of dollars of overbilling.
          A jury found Kawcak liable in the amount of $11,897,689.39, which
   consists of $11,112,140.00 in damages and $775,549.39 as recoupment for
   value Kawcak received as a result of the breach. The district court entered
   final judgment in the same amount, along with post-judgment interest. The
   district court ordered Kawcak to pay pre-judgment interest and to forfeit
   130,170 shares of stock in Antero Midstream.
          Kawcak challenges the judgment on two bases. First, he says that An-
   tero failed to prove that it was damaged as a result of his breach of fiduciary
   duty. Second, he argues that the district court should have allowed him to
   take post-trial discovery on the amount of a settlement between Antero and
   Robertson, and should have discounted the judgment by that amount. An-
   tero cross-appeals, arguing that, if the court alters the judgment, it should
   also vacate the disgorgement award and remand for reconsideration.
          We conclude that sufficient evidence supported the jury’s finding on
   damages. Accordingly, that portion of the judgment is AFFIRMED. We
   further hold that the district court’s decision to deny Kawcak the opportunity
   to pursue post-trial discovery was an abuse of discretion. The order denying
   Kawcak’s motion to amend the judgment is therefore VACATED. This
   case is REMANDED for the district court to reconsider whether to allow
   Kawcak to pursue discovery relating to Antero’s settlement with the Robert-
   son companies and whether to offset the judgment in light of that settlement.
                                          I
          This case centers on Kawcak’s employment as operations supervisor
   for Antero from 2011 to 2015. Among other places, Antero owns assets in
   the Marcellus Shale—a geological formation that arcs through much of the
   Appalachian Mountains. The particular oil fields at issue are located in West
   Virginia. Kawcak was Antero’s most senior employee for those fields; he was

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   “responsible for supervising vendors, overseeing expenditures, and approv-
   ing invoices of up to $100,000.”
          Beginning in 2011, Kawcak arranged to hire service companies owned
   by his close friend Robertson. Robertson’s companies—C&R Downhole
   Drilling and Big Tex Well Services—performed what are known as
   “drillout” operations. In hydraulic fracturing (or fracking), sections of the
   horizontal pipe are “plugged” in order to isolate particular mineral deposits.
   But the plugs must later be “drilled out” to allow the oil to flow to the sur-
   face. Robertson’s companies provided this service for over 200 of Antero’s
   wells. Eventually, Robertson’s companies became Antero’s exclusive pro-
   vider of drillout operations.
          According to Antero, Kawcak and Robertson were dealing under the
   table. Kawcak gave Robertson information on Antero’s other drillout ven-
   dors so that he could underbid the competition. And after winning the con-
   tracts, Robertson’s companies deliberately took longer than necessary to
   conduct drillout operations. Among other things, Robertson’s employees
   dropped tools down the well, brought faulty equipment to the site, and al-
   lowed other equipment to freeze, all of which resulted in lengthy delays.
          Kawcak benefitted from this arrangement. Robertson’s companies
   made cash payments to him totaling $729,000. Robertson also gave Kawcak
   a private jet, though Kawcak maintains that he purchased the plane for be-
   tween $390,000 and $430,000. In addition, Kawcak received substantial
   compensation from Antero: $2,666,828 in salary and bonuses, and restricted
   stock grants valued at $9,439,497 when they vested in 2015. He also received
   stock grants that had not yet vested at the time that he retired.
          Eventually, Antero learned of the arrangement and sued Robertson
   and his companies in federal court, asserting fraud and breach of contract,
   among other things. Evidence of Kawcak’s role came out in discovery, and

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   Antero added claims against him too: breach of fiduciary duty, fraud (includ-
   ing exemplary damages), and unjust enrichment. 1 Antero ultimately settled
   with Robertson, leaving only the claims against Kawcak. Those claims pro-
   ceeded to trial in April of 2022.
           The post-trial disputes center on the testimony given by Antero’s ex-
   pert, Steve Taylor. Taylor utilized a three-step analysis to establish the value
   of Antero’s loss. First, he concluded that Robertson’s companies took longer
   than other drillout vendors. Taylor did this by comparing the invoices and
   daily completion reports submitted by C&R Drilling/Big Tex Well Services
   and those submitted by drillout companies Antero had used in the past. Sec-
   ond, Taylor concluded that Robertson’s companies faced similar working
   conditions as those faced by prior vendors. 2
           Third, and last, Taylor estimated the loss caused by the Robertson
   companies’ alleged inefficiency. He started by calculating a discount rate;
   the ratio of how long the Robertson companies should have taken to perform
   drillout services to how long it actually took them. Taylor then multiplied
   the percent difference by the total amount paid to the Robertson companies
   across its several years of work—$150,000,000. The product of those two
   figures is $11,122,140; according to Taylor, the total amount of overbilling.
   Taylor also testified that the drillout delays caused “ripple effects” that im-
   peded other contractors and resulted in an additional $20 million of damages.
           One way Kawcak defended against Antero’s case was to argue that

           _____________________
           1
              Antero also asserted a RICO claim, but the district court declined to present it to
   the jury, apparently granting Kawcak’s motion for judgment as a matter of law. The claim
   is not at issue here.
           2
             Drillout operations might take significantly more time if a particular well poses
   greater difficulty. This could be the case if, among other reasons, the well is deeper or the
   geological composition is more resistant to drilling.

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   Antero failed to prove damages. That is so, Kawcak said, because Antero
   profited from its arrangement with the Robertson companies, and no drillout
   provider would have cost Antero less. In addition, Kawcak offered his own
   testimony for the proposition that the only other available drillout provider,
   Fortis Energy, billed at a substantially higher daily rate than the Robertson
   companies. C&R Drilling and Big Tex Well Services charged $30,000 a day
   whereas Fortis charged $38,000 a day.
          The jury returned a verdict that was mostly favorable to Antero. It
   found that Kawcak breached his fiduciary duty to Antero and that Antero
   should be compensated in the amount of $11,122,140.00—the amount the
   Robertson companies overbilled, according to Antero’s expert. The jury also
   found that Kawcak received $775,549.39 as a result of the breach. It further
   found that Kawcak committed fraud (including exemplary damages) against
   Antero but awarded $0 as relief. Finally, the jury found that Kawcak did not
   receive unjust enrichment.
          The parties then exchanged post-trial motions. Kawcak filed a re-
   newed motion for judgment as a matter of law, Fed. R. Civ. P. 50(b), or
   in the alternative, to alter or amend the judgment, Fed. R. Civ. P. 59(e).
   He renewed his argument that Antero had failed to prove damages associated
   with the breach of fiduciary duty and asked the district court to set aside the
   $11,122,140 damages award. Kawcak also argued that the district court
   should reduce the damages award by an amount equal to Antero’s settlement
   with Robertson. Post-trial, Kawcak maintained that the district court should
   order Antero to disclose the amount of the settlement, or else allow him to
   take discovery on that topic.
          In addition to opposing the relief Kawcak sought, Antero moved for
   an order of disgorgement of the benefits Kawcak received in connection with
   his breach of fiduciary duty. Specifically, Antero moved to alter the judgment

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                                    No. 22-10918

   to add $12,106,325.20 in salary and vested stock, as well as 130,170 shares of
   restricted stock, which Antero held after Kawcak resigned.
          The district court denied Kawcak’s motions. It found that Kawcak
   had not timely presented his damages argument; and in the alternative, that
   the argument failed on the merits. The district court also declined to apply a
   settlement offset on the basis that Kawcak had failed to introduce evidence
   at trial proving the settlement and its amount.
          As to disgorgement, the district court granted the motion in part. It
   denied relief as to Kawcak’s salary and vested stock, reasoning both that An-
   tero profited as a result of the arrangement and that it was already made sub-
   stantially whole by the damages award. Finally, the court granted relief as to
   the restricted stock and awarded prejudgment interest. This appeal followed.
                                          II
          Kawcak presents two issues for review. First, he contends that the
   damages award relating to the alleged overbilling ($11,122,140) should be va-
   cated because Antero failed to prove that it was injured by Kawcak’s breach
   of fiduciary duty. And second, he argues that the judgment should be offset
   by the amount of the Antero-Robertson settlement, and that he should be
   allowed to discover the relevant evidence and present it to the district court.
                                          A
          In reviewing Kawcak’s challenge to the damages award, we give great
   deference to the jury verdict. See Vetter v. McAtee, 850 F.3d 178, 185 (5th Cir.
   2017). Legal conclusions are reviewed de novo, but we will overturn the ver-
   dict only if “the facts and inferences point so strongly and overwhelmingly in
   favor of one party” that no reasonably jury could have found as it did. Id.
          This issue is whether Antero proved that it was damaged by Kawcak’s

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   breach of fiduciary duty. 3 The parties agree that, in this diversity-jurisdiction
   case, Texas law applies to that question of substantive law. See Ayres v. Sears,
   Roebuck & Co., 789 F.2d 1173, 1175 (5th Cir. 1986). In Texas, a plaintiff may
   recover “actual damages” that were caused by a breach of fiduciary duty.
   ERI Consulting Engineers v. Swinnea, 318 S.W.3d 867, 873–74 (Tex. 2010); see
   also Restatement (Second) of Torts § 874 cmt. b (explaining that the benefi-
   ciary in a fiduciary relationship may recover damages for “harm caused by
   the breach of duty arising from the relation”).
           One recognized measure of actual damages is out-of-pocket damages.
   See, e.g., Jerry L. Starkey, TBDL v. Graves, 448 S.W.3d 88, 108–09 (Tex.
   App.—Houston [14th Dist.] 2014, no pet.); Rogers v. Alexander, 244 S.W.3d
   370, 387–88 (Tex. App.—Dallas 2007, pet. denied). This is the method that
   Antero relies on here. Out-of-pocket damages are “measured by the differ-
   ence between the value expended versus the value received.” Anderson v.
   Durant, 550 S.W.3d 605, 614 (Tex. 2018).
                                              1
           Kawcak offers two reasons why Antero failed to prove damages. First,
   he argues that Antero’s expert, Taylor, did not prove the amount of damages
   that the Robertson companies allegedly overbilled. Kawcak maintains that
   Taylor only discussed isolated examples of time wasting, but never con-
   nected those instances to actual days of work lost. As such, Kawcak says,
   there is uncertainty as to the fact of damages, which in Texas is fatal to re-
           _____________________
           3
              Antero also argues that Kawcak forfeited the argument that Antero did not
   introduce sufficient evidence of damages. But, for the reasons explained below, we
   concluded that Antero did introduce sufficient evidence. As such, we assume arguendo that
   Kawcak adequately preserved this argument. See United States v. Hunt, No. 20-50993,
   2021 WL 6102487, at *1 (5th Cir. Dec. 23, 2021) (assuming argument was preserved,
   rejecting argument on the merits); Wells v. J-M Mfg. Co., 652 F. App’x 268, 268 (5th Cir.
   2016) (same).

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   covery. See Dyll v. Adams, 167 F.3d 945, 946–47 (5th Cir. 1999).
          As an initial matter, we conclude that Kawcak’s argument goes to the
   amount of damages, not the fact of them. That is, his argument is really that
   Taylor’s testimony does not prove $11,122,140 worth of overbilling, not that
   the testimony fails to prove overbilling at all. This difference matters because
   Texas law allows for some uncertainty in the amount of damages. See
   McKnight v. Hill & Hill Exterminators, Inc., 689 S.W.2d 206, 207 (Tex. 1985);
   Jefferson v. Parra, 651 S.W.3d 643, 650 (Tex. App.—Houston [14th Dist.]
   2022, no pet.). Specifically, the amount of damages need only be proven
   “with a reasonable degree of certainty.” C&C Rd. Constr., Inc. v. SAAB Site
   Contractors, LP, 574 S.W.3d 576, 590 (Tex. App.—El Paso 2019, no pet.).
          Taylor’s testimony calculated Antero’s out-of-pocket damages to a
   reasonable degree of certainty, especially when viewing the evidence in favor
   of the verdict. Taylor followed sound analytical methods to determine how
   long the Robertson companies should have taken to complete the drillout ser-
   vices. He reviewed the hundreds of completion reports and tens of thousands
   of invoices, accounting for uncontrollable delays and site-specific conditions.
   Taylor then compared the time spent to the time taken by previous drillout
   providers and concluded that the Robertson companies took some percent-
   age longer than those companies. Applied to the rates charged by the Rob-
   ertson companies, Taylor calculated damages in the amount of $11,122,140.
   That is a perfectly rational way of approximating overbilling. Cf. O & B
   Farms, Inc. v. Black, 300 S.W.3d 418, 422 (Tex. App. 2009) (upholding dam-
   ages based on estimates of number loads hauled and fuel surcharge per load).
          It is true that Taylor did not conduct an invoice-by-invoice analysis,
   as Kawcak argues he should have done. But it does not follow that Taylor’s
   testimony is no evidence at all. Perhaps Antero might have offered a more
   precise estimation of how much the Robertson companies overbilled. But all

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   that was required was for Antero estimate its damages “with a reasonable
   degree of certainty.” C&C, 574 S.W.3d at 590. Taylor’s testimony clears
   that bar, especially when viewed against the favorable standard of review that
   we apply to a jury verdict. See Vetter, 850 F.3d at 185.
                                          2
           Kawcak also contends that Taylor’s testimony was deficient because
   it did not consider what rates competing drillout providers might have paid.
   Even if the Robertson companies took longer, so the argument goes, if they
   charged significantly less than other companies, Antero might have ended up
   paying less than if it had hired someone else. And indeed, Kawcak himself
   testified that the Robertson companies’ daily rate ($30,000 a day) was less
   than the only available alternative (Fortis Energy, $38,000 a day).
           This argument fails because evidence of a competitor’s rate is not nec-
   essary to prove out-of-pocket damages. See, e.g., Aquaplex, Inc. v. Rancho La
   Valencia, Inc., 297 S.W.3d 768, 775 (Tex. 2009) (calculating out-of-pocket
   damages using the value paid and the value received). To show damages, An-
   tero need only prove that the Robertson companies charged it more than the
   “value [Antero] received.” Anderson, 550 S.W.3d at 614. By billing Antero
   more than the services it rendered, Kawcak caused Antero to incur out-of-
   pocket expenses. That is, Antero paid $150,000,000 in exchange for a cer-
   tain number of days of work. But because the Robertson companies did not
   actually work on all of the days they billed, the value of the work Antero re-
   ceived was only $138,877,860. The difference in value is the amount over-
   billed. No reference to competitors’ rates is needed for that statement to be
   true.
           Moreover, the jury was not required to accept Kawcak’s testimony
   regarding Fortis Energy’s rates. As Antero points out, there are multiple rea-
   sons why the jury might not have credited Kawcak’s assertion that Fortis

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   Energy was the only other available drillout provider, and that it would have
   charged more than the Robertson companies. Kawcak gave the rates strictly
   from memory, and his credibility was already in question because of his in-
   consistent answers to previous questions. In short, even if there was evidence
   that the Robertson companies were the cheapest drillout provider, and even
   if such evidence were relevant, the jury had discretion to reject that evidence.
   See City of Keller v. Wilson, 168 S.W.3d 802, 820, 827 (Tex. 2005).
           Sufficient evidence supports the jury’s finding that Kawcak’s breach
   of fiduciary duty harmed Antero in the amount of $11,122,140.00. See Vetter,
   850 F.3d at 185. We affirm the damages award relating to Kawcak’s breach
   of fiduciary duty. 4
                                               B
           We next consider the district court’s denial of Kawcak’s motion to
   amend the judgment, in which the court rejected Kawcak’s request to take
   post-trial discovery on the Antero-Robertson settlement. 5 The denial of such
   a motion is reviewed for an abuse of discretion. Franlink Inc. v. BACE Servs.,
   Inc., 50 F.4th 432, 438 (5th Cir. 2022). And discovery orders that form the
   basis of the district court’s reason to deny a motion to amend the judgment
   are reviewed under the same standard. Moore v. Willis Indep. Sch. Dist., 233
   F.3d 871, 876 (5th Cir. 2000).

           _____________________
           4
            On cross appeal, Antero argues that, if we vacate or reverse the damages award,
   we should also vacate the disgorgement award and remand for the district court to consider
   whether a different disgorgement remedy is appropriate. But we affirm the damages award,
   so we do not reach Antero’s conditional argument.
           5
            Citing Texas’s one-satisfaction rule, Kawcak argued that the damages judgment
   should have been offset by an amount equal to the settlement between Antero and
   Robertson. The one-satisfaction rule applies when multiple parties cause the same damage.
   See Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 8 (Tex. 1991).

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          Because this issue involves procedure and substance, it involves a mix-
   ture of state and federal law. Camacho v. Ford Motor Co., 993 F.3d 308, 311
   (5th Cir. 2021) (“In diversity cases, we apply state substantive law and fed-
   eral procedural rules.”). As a matter of substance, Texas state law explains
   that the defendant bears the burden to prove “its right” to a settlement
   credit. Sky View at Las Palmas, LLC v. Mendez, 555 S.W.3d 101, 107 (Tex.
   2018); see Chevron Oronite Co. v. Jacobs Field Servs. N. Am., Inc., 951 F.3d 219,
   232 (5th Cir. 2020) (applying Texas law on allocation of burden of proof).
   Texas law also provides that the judge, not the jury, decides whether a de-
   fendant is entitled to a settlement credit. See Utts v. Short, 81 S.W.3d 822,
   829 (Tex. 2002); Dalworth Restoration, Inc. v. Rife-Marshall, 433 S.W.3d 773,
   784 (Tex. App.—Fort Worth 2014, no pet.) (explaining that a “nonsettling
   defendant should raise a settlement-credit issue ‘to the trial court[,] not the
   jury’”) (quoting Utts, 81 S.W.3d at 829).
          But because discovery is procedural, federal law governs the question
   of whether a party is entitled to take post-trial discovery. See Camacho, 993
   F.3d at 311. Discovery after evidence has closed is typically reserved for sit-
   uations where the trial reveals a new basis for seeking further information.
   See United States v. Corp. Mgmt., Inc., 78 F.4th 727, 750 (5th Cir. 2023); Brill
   v. Cochran, No. 98-31229, 1999 WL 511904, at *2 (5th Cir. July 1, 1999) (per
   curiam); see also Griffin v. Foley, 542 F.3d 209, 223 (7th Cir. 2008) (“Post-
   trial discovery is usually reserved for when a party becomes aware of new
   information after trial.”).
          In denying Kawcak’s motion to amend the judgment, the district court
   appears to have assumed that Kawcak was required to present evidence of
   the settlement at trial and was categorically prohibited from pursuing that
   evidence after trial. That was legal error, and by definition, an abuse of dis-
   cretion. See In re Planned Parenthood Fed. of Am., Inc., 52 F.4th 625, 631 (5th
   Cir. 2022) (explaining that a district court abuses its discretion when it

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   applies “incorrect legal principles”). We are aware of no precedent obligat-
   ing a defendant to prove the existence of a settlement credit at trial.
           On the contrary, district courts frequently defer discovery relating to
   a third-party settlement until after trial. See Morris v. Aircon Corp., No. 9:16-
   CV-35, 2017 WL 11630439, at *1, *3–5 (E.D. Tex. Sept. 27, 2017); Hoerchler
   v. Equifax Info. Servs., LLC, 568 F. Supp. 3d 931, 936 (N.D. Ill. 2021); Zook
   v. Equifax Info. Servs., LLC, No. 3:17-cv-2003, 2018 WL 10604347, at *3 (D.
   Or. July 2, 2018). Indeed, as Kawcak observes, the amount of a third-party
   settlement does not become relevant until after the jury reaches a verdict. 6
   See Sky View, 555 S.W.3d at 106 (defendant did not request production of
   settlement documents until plaintiff moved for judgment on the verdict). In
   other words, a jury verdict is “new information” that puts the defendant on
   notice that he now needs to pursue discovery on the plaintiff’s settlement
   with a third party. Griffin, 542 F.3d at 223.
           Because the district court’s order denying Kawcak’s motion to amend
   the judgment rested on an erroneous understanding of the law, it must be
   vacated. But that does not necessarily mean that Kawcak will be entitled to
   take post-trial discovery on the Antero-Robertson settlement. District courts
   have “broad discretion . . . on discovery issues,” and this discretion permits
   a range of allowable outcomes. O’Malley v. U.S. Fid. & Guar. Co., 776 F.2d
   494, 499 (5th Cir. 1985).
           The parties disagree over whether Kawcak timely requested evidence
   of Antero’s settlement with the Robertson companies. Kawcak maintains
   that he included a request for the settlement in his initial requests for

           _____________________
           6
            The lack of relevance during trial is underscored by the fact that the district court
   prohibited the parties from mentioning the terms of the settlement without first obtaining
   the permission of the court.

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   production and points out that, in his pre-trial brief, he asked the district
   court to order Antero to disclose the amount of settlement. Antero responds
   that Kawcak’s pre-trial brief was filed only after the discovery period had
   closed.
          We do not decide whether Kawcak is or is not entitled to conduct post-
   trial discovery. It appears to be common for district courts to take up the
   subject of a settlement credit after trial. And Texas state courts follow that
   approach in the usual course. See, e.g., Dalworth Restoration, 433 S.W.3d at
   784; Polk v. St. Angelo, No. 03-01-356-CV, 2002 WL 1070550, at *4 (Tex.
   App.—Austin May 31, 2002, pet. denied); Borg-Warner Corp. v. Flores, 153
   S.W.3d 209, 221 (Tex. App.—Corpus Christi-Edinburg 2004), rev’d on other
   grounds, 232 S.W.3d 765 (Tex. 2007). The district court is entitled to weigh
   these and any other appropriate considerations in the first instance. But in
   making that determination, the district court must account for the fact that
   the law generally allows for post-trial discovery of a third-party settlement.

                                  *         *         *
          For the foregoing reasons, the component of the final judgment corre-
   sponding to the $11,122,140.00 that the jury awarded as damages for Kaw-
   cak’s breach of fiduciary duty is AFFIRMED. The district court’s order
   denying Kawcak’s motion to amend the judgment is VACATED. The case
   is REMANDED for the district court to, consistent with this opinion, con-
   sider whether to allow Kawcak to pursue discovery relating to Antero’s set-
   tlement with the Robertson companies and whether to offset the final judg-
   ment in light of that settlement.

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