Court Opinion

ID: 4473312
Source: CourtListenerOpinion
Date Created: 2020-01-15 10:05:09.224146+00
Date Added: 2024-06-11T12:25:12.956997
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                 revision until final publication in the Michigan Appeals Reports.

                          STATE OF MICHIGAN

                           COURT OF APPEALS

CITY OF BAD AXE, CITY OF BAD AXE                                    UNPUBLISHED
DEPARTMENT OF PUBLIC WORKS, CITY OF                                 January 14, 2020
BAD AXE WASTEWATER TREATMENT
FACILITY,

               Plaintiffs-Appellees,

v                                                                   No. 345810
                                                                    Huron Circuit Court
PAMAR ENTERPRISES, INC., and SECURA                                 LC No. 16-105392-CK
SUPREME INSURANCE COMPANY,

               Defendants-Appellants.

Before: K. F. KELLY, P.J., and BORRELLO and SERVITTO, JJ.

PER CURIAM.

        Defendants appeal as of right the order granting summary disposition in favor of
plaintiffs and the judgment comprised of attorney fees and costs in this duty to defend and
indemnification action. We affirm.

                                        I. BASIC FACTS

        This action arises from defendant’s, Pamar Enterprises, Inc. (Pamar), successful bid to
contract with the Michigan Department of Transportation (MDOT) for reconstruction of
highway M-53 and sewer work located in the city of Bad Axe (plaintiff city). The MDOT
proposal advised that the successful bidder was responsible for securing insurance in accordance
with its specifications and the policy additionally had to provide coverage for both the county
and plaintiff city. Defendant Pamar secured a general commercial liability policy through
defendant, Secura Supreme Insurance Company (Secura). After defendant Pamar commenced
work, a significant rain event occurred, and rainwater accessed the sanitary system in the project
area where defendant Pamar performed its work. Consequently, there was damage to the
property of city residents. The city residents filed suit against defendant Pamar, and it named
plaintiff city as a non-party at fault. Consequently, the city residents amended their complaint to
raise a claim against plaintiff city pursuant to the governmental tort liability act (GTLA), MCL

                                                -1-
691.1401 et seq. When plaintiff city requested that defendants provide a defense, they declined
to do so, concluding that the city residents sought to hold plaintiff city responsible for its own
acts of negligence regarding its maintenance of the sewer system. Plaintiffs filed suit to compel
defendants to provide a defense and indemnity as well as reimbursement of expended attorney
fees. The trial court granted plaintiffs’ motion for summary disposition, concluding that
defendant Secura was required to provide a defense and ordered payment of attorney fees. After
defendants moved for a determination regarding a reasonable attorney fee, the trial court
conducted oral argument, reviewed the bills and the supplied economic information before ruling
that plaintiffs were entitled to reasonable attorney fees and costs. From this ruling, defendants
appeal.

                                    II. APPLICABLE LAW

       A trial court’s decision to grant or deny summary disposition is reviewed de novo. Ter
Beek v City of Wyoming, 495 Mich. 1, 8; 846 NW2d 531 (2014). The construction and
application of an insurance policy presents a question of law that is reviewed de novo. Pioneer
State Mut Ins Co v Dells, 301 Mich. App. 368, 376-377; 836 NW2d 257 (2013). The rules
governing contract construction apply to an insurance policy. Fuller v Geico Indemnity Co, 309
Mich. App. 495, 498; 872 NW2d 504 (2015). To determine the policy terms, the entire document
must be read with the goal of enforcing the parties’ intent. Id. “Clear and unambiguous
provisions of an insurance policy must be enforced according to their plain meaning.” Id.

        “The duty to defend and the duty to indemnify are distinct and separable duties.” Mich
Ed Employees Mut Ins Co v Turow, 242 Mich. App. 112, 116-117; 617 NW2d 725 (2000). The
duty to defend is broader than the duty to indemnify. Busch v Holmes, 256 Mich. App. 4, 9; 662
NW2d 64 (2003). The duty to defend arises only from the language of the insurance contract.
Mich Ed Employees Mut Ins Co, 242 Mich. App. at 117. An insurer has the duty to defend an
insured if the allegations raised against the insured even arguably fall within the terms of the
policy. Matouk v Mich Muni League Liability & Prop Pool, 320 Mich. App. 402, 409; 907 NW2d
853 (2017).

       With regard to insurance contracts, this Court delineated the following rules addressing
the duty to defend:

               The duty of an insurance company to defend its insured arises solely from
       the language of the insurance contract. The insurer’s duty to defend is determined
       by the allegations in the complaint against the insured. An insurer has a duty to
       defend, despite theories of liability asserted against any insured which are not
       covered under the policy, if there are any theories of recovery that fall within the
       policy. This duty is not limited to meritorious suits and may even extend to
       actions which are groundless, false, or fraudulent, so long as the allegations
       against the insured even arguably come within the policy coverage. [Farmers &
       Merchants Mut Fire Ins Co v LeMire, 173 Mich. App. 819, 824; 434 NW2d 253
       (1988) (citations omitted).]

       The trial court’s decision to award attorney fees and the determination regarding the
reasonableness of the fees is reviewed for an abuse of discretion. Teran v Rittley, 313 Mich App

                                               -2-
197, 208; 882 NW2d 181 (2015). An abuse of discretion occurs when the court selects an
outcome outside the range of reasonable and principled outcomes. Id. When the trial court
renders factual findings underlying the attorney fee award, those findings are reviewed for clear
error. Id. This Court’s review of unpreserved claims is limited to plain error affecting
substantial rights. Bennett v Russell, 322 Mich. App. 638, 642-643; 613 NW2d 364 (2018).

                                   III. DUTY TO DEFEND

        We conclude that the trial court properly granted summary disposition in favor of
plaintiffs in light of the language of the amended complaint. The documentary evidence
establishes that MDOT and plaintiff city entered into a contract on January 30, 2013, for
reconstruction work on Highway M-53 within the city limits that would be designated as a state
trunkline highway. As a result of that contract, MDOT solicited bids in accordance with the
2012 Standard Specifications for Construction. In addition to advising the bidder that the
construction specifications would govern the agreement, the proposal also contained the
following paragraph:

       Unless the bidder gives MDOT advance written notice, MDOT may correspond
       directly with the Insurance agencies concerning questions and problems with the
       Insurance certificates, bonds and related materials. It is the obligation of the
       bidder to monitor the filing of the Insurance certificates, bonds, and related
       materials with MDOT and the bidder is responsible for any failure to provide
       MDOT with the required materials, on a timely basis and in proper form.

The proposal also advised of the following “Notice to Bidders”:

       Insurance

       The contractor shall provide for and in behalf of the State, the Commission, the
       Department and its officials, agents, and employees, and all agencies and their
       employees, specifically named below, or as stated on the Insurance Requirements
       (Form 1304A, dated 05/2006), an Owner’s Protective Public Liability
       Insurance or the alternative option described in section 107.10 of the 2012
       Standard Specifications for Construction, Indemnification, Damage Liability
       and Insurance.

       The agencies are the:

       Michigan Department of Transportation,

       Huron County

       Huron County Road Commission

       City of Bad Axe [Emphasis in original.]

The MDOT 2012 Standard Specifications for Construction, section 107.10, state in pertinent
part:

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       A. Indemnification. The Contractor must hold harmless, indemnify, and defend
       in litigation the State, the Commission, the Department, and their agents and
       employees against claims for damage to public or private property and for injuries
       to persons arising out of the performance of the work until the Contractor
       achieves satisfactory final inspection in accordance with subsection 109.07.C.1.
       The Contractor will not be responsible for claims that result from the sole
       negligence or willful acts or omissions of said indemnitee.

                                             * * *

       C. Bodily Injury and Property Damage. The Contractor must carry adequate
       insurance, satisfactory to the Department, to afford protection against claims for
       damage to public or private property and injuries to persons arising out of the
       performance of the work until the Contractor achieves satisfactory final inspection
       in accordance with subsection 109.07.C.1. If required by the contract, the
       Contractor must also carry adequate insurance to protect the owner of premises on
       or near which construction operations are to be performed. Copies of completed
       certificates of insurance must be submitted to the Department in accordance with
       subsection 102.15.

                                             * * *

       4. Owners Protective Liability. The Contractor must ensure that the insurer
       extends bodily injury and property damage protection including general
       supervision of work performed, to the State, the Commission, the Department,
       and their agents and employees and as indicated by the identity of the contracting
       parties, to participating political subdivisions and public corporations. The
       minimum limit will be $1,000,000.

       In lieu of the Owners Protective Liability, the Contractor must add to their Bodily
       Injury and Property Damage Policy:

       a. Additional Insured. The Bodily Injury and Property Damage Policy must
       name as additional insured the State, the Department, and the Commission and all
       agents and employees thereof and, where indicated by the identity of the
       contracting parties, the protection must be extended to all participating political
       subdivisions and public corporations. [Emphasis in original.]

Thus, it is apparent from the above specifications that MDOT required the successful bidder to
provide insurance to all agents of the contract (and plaintiff city was expressly delineated in the
notice) as well as all participating political subdivisions and public corporations.

       MDOT and defendant Pamar signed a contract for the M-53 state trunkline project on
April 1, 2013. Defendant Pamar also obtained commercial general liability insurance from
defendant Secura as required by MDOT. The policy contained the following pertinent
provisions:

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       1. Insuring Agreement

       a. We will pay those sums that the insured becomes legally obligated to pay as
       damages because of “bodily injury” or “property damage” to which this insurance
       applies. We will have the right and duty to defend the insured against any “suit”
       seeking those damages. However, we will have no duty to defend the insured
       against any “suit” seeking damages for “bodily injury” or “property damage” to
       which this insurance does not apply. We may, at our discretion, investigate any
       “occurrence” and settle any claim or “suit” that may result.

The policy also had an endorsement that modified the policy. It set forth, in pertinent part:

       A. Additional Insured When Required By Written Construction Contract

       1. Operations Performed For An Additional Insured

       WHO IS AN INSURED is amended to include as an additional insured any
       person or organization for whom you are performing operations when you and
       such person or organization have agreed in a written contract or written agreement
       prior to a loss, that such person or organization be added as an additional insured
       on your policy. Such person or organization is an additional insured only with
       respect to liability for “bodily injury”, “property damage” or “personal and
       advertising injury” caused, in whole or in part, by:

       a. Your acts or omissions; or

       b. The acts or omissions of those acting on your behalf;

       In the performance of your ongoing operations for an additional insured.

        In light of the above, it is apparent that defendant Pamar obtained a general commercial
policy of insurance through defendant Secura because it was a requirement of its contractual
agreement with MDOT to be awarded the bid for the reconstruction of M-53 located in plaintiff
city. The notice to bidders further advised that insurance had to be secured for MDOT, the
county, and the city. Although the policy contained an “additional insured” endorsement, the
plain language of the “additional insured” provision modified the “WHO IS AN INSURED”
language of the policy. Therefore, defendants’ argument, that there was a distinction between an
insured and an additional insured, lacks merit.

        Having concluded that defendant Pamar was required to obtain insurance for plaintiff city
and that the policy obtained from defendant Secura had a duty to defend, the issue becomes
whether the underlying complaint raises a theory of liability against an insured that falls within
the policy coverage. Defendants alleged that a review of the amended complaint revealed that
city residents sought to hold plaintiffs responsible for their own acts of negligence. However,
caselaw provides that a contracting party has the duty to defend if the allegations in an
underlying lawsuit arguably fall within the terms of the contract. Citizens Ins Co, 279 Mich. App.
at 74. Although defendants cite to the fact that the amended complaint contains separate
allegations against plaintiffs, defendants ignore the factual portion of the complaint that delineate
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the actions by defendant Pamar that purportedly caused the city residents’ damages and the
alterations that it made to the area during construction which allowed the rainwater to overwhelm
the sewer system. The amended complaint fact section provides, in relevant part:

       29. On or about April 1, 2013, Defendant Pamar contracted with the Michigan
       Department of Transportation to perform, among other things, asphalt
       reconstruction, concrete curb, gutter, sidewalk, ramps and driveways, storm and
       sanitary sewer, watermain, traffic signal, and pavement markings on M-53 from
       Outer Drive easterly to M-142 (the “Project”) in the City of Bad Axe, Huron
       County, State of Michigan. Exhibit A.

       30. On or about April 8, 2013, Defendant Pamar closed the work area and
       commenced the Project.

       31. By July 6, 2014, Defendant Pamar had performed demolition work and
       removed the concrete/asphalt road material from the Project area, reducing it to
       the dirt/stone base.

       32. The removal of the road material from the Project area created a bathtub like
       area where the base was significantly lower than the surface level sides.

       33. Also, by July 6, 2013, Defendant Pamar cut the openings for the sanitary
       system flush with the new dirt/stone ground level.

       34. Defendant Pamar did not take steps to ensure that the sanitary sewer entrance
       [was] properly covered so as to not be accessed by water or other materials.

       35. On July 6, 2013, the City of Bad Axe, in and around the Project, received
       large amounts of rainfall.

       36. On July 8, 2013, the City of Bad Axe received additional rainfall.

       37. On both July 6, 2013 and July 8, 2013, rainwater accessed the sanitary system
       in the Project area because of the changes made to the work zone by Defendant
       Pamar.

       38. The water that entered the sanitary system through the Project area exposed
       by Defendant Pamar flooded the sanitary system and resulted in each Plaintiff
       having water and/or sewage water flood their homes.

       39. Upon information and belief and based on the Notice of Non-Party Fault filed
       by Defendant Pamar, Bad Axe failed to respond to the systematic problems and
       insufficiencies of its sanitary sewer system.

       40. Upon information and belief, the systematic problems and insufficiencies of
       the Bad Axe sanitary sewer system were the cause or a contributing cause to the
       backup of water and/or sewage into Plaintiffs’ homes.

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The first count of the city residents’ amended complaint raised a claim of negligence against
defendant Pamar. The following allegations were raised against defendant Pamar:

       42. Defendant Pamar owed a duty to the Plaintiffs and the public in general to
       complete the Project in a professional manner, while not causing harm to
       Plaintiffs or the public.

       43. Defendant Pamar owed a duty to the public in general and these Plaintiffs in
       particular to complete the Project utilizing due care and reasonably prudent
       construction techniques.

       44. Defendant Pamar breached the duty owed to Plaintiffs.

       45. Defendant Pamar’s breach of its duty of care included, but is not limited to,
       the following acts or commissions, to wit:

       a. Creating a trenched area that could fill full of water and overwhelm the
       sanitary system;

       b. Leaving the site without proper monitoring or otherwise securing the site;

       c. Cutting down and opening the man hole or drain pipes so that they could be
       infiltrated by rain; or

       d. Not making a proper plan or even any plan to protect the sanitary system from
       being overwhelmed in the event of rain.

       46. As a direct and proximate cause of Defendant Pamar’s breach of its duty,
       Plaintiffs’ sustained damage, including but not limited to, the introduction of raw
       sewage into their houses, the loss and destruction of property, both real and
       personal, humiliation, emotional loss and pain and suffering.

       47. The loss was reasonably foreseeable.

It is apparent from the allegations by the city residents in the underlying amended complaint that
they claimed defendant Pamar’s alteration to the sewage system during construction caused the
rain event to overwhelm the system and damage to their property. In turn, defendant Pamar filed
a notice of non-party at fault naming plaintiff city. This caused the city residents to raise a claim
of liability against plaintiff city in its amended complaint. Irrespective of the fact that a separate
and distinct claim was raised against plaintiff city, the allegations in the amended complaint
attribute their damages to the actions of defendant Pamar in its construction work by its
alterations to the area. In light of defendant Pamar’s claim that plaintiffs’ sewage system was
deficiently maintained, the city residents’ amended complaint included allegations that plaintiffs’
maintenance of the system was the cause or a contributing cause.

        Again, a contracting party has the duty to defend if the allegations in an underlying
lawsuit arguably fall within the terms of the contract. Citizens Ins Co, 279 Mich. App. at 74. The
allegations in the complaint first attribute the city residents property damage to defendant

                                                 -7-
Pamar’s negligence and, after defendant Pamar placed the blame on plaintiffs, the city residents
amended their complaint to continue to allege that defendant Pamar was responsible or that both
defendant Pamar and plaintiffs were responsible. Thus, the addition of plaintiffs did not alter the
fact that the underlying lawsuit arguably falls within the terms of the policy because it contests
defendant’s actions and involvement in causing the property damage. Further, the caselaw
directs to an examination of the complaint to determine if the allegations arguably fall within the
terms of the policy. The caselaw does not conclude that a separate claim against a separate entity
bars policy coverage. Further, “[i]n considering the gravamen of plaintiff’s complaint, we
examine the entire claim, looking beyond procedural labels to determine the exact nature of the
claim.” Altobelli v Hartmann, 499 Mich. 284, 303; 884 NW2d 537 (2016). Defendants reliance
on the filing of a separate claim against plaintiffs pursuant to the GTLA act is without merit
because the courts must examine the entirety of the claim without being bound by the labels
used.

        In summary, city residents in the underlying complaint placed primary blame on
defendant Pamar and when it raised plaintiffs as non-parties at fault, the city residents added
claims against plaintiffs seemingly in the alternative to ensure recovery against a party in whole
or partly responsible. However, the addition of plaintiffs to the underlying lawsuit did not alter
the conclusion that policy coverage was invoked for the performance of the work. Moreover,
plaintiff city was an additional insured to the policy. Accordingly, the trial court did not err in
granting summary disposition in favor of plaintiffs and concluding that there was a duty to
defend by defendant Secura.

                             IV. ATTORNEY FEES AND COSTS

        Furthermore, the trial court did not abuse its discretion in its award of attorney fees and
costs to plaintiffs. The general rule is that attorney fees are not recoverable as an element of
costs or damages unless an express legal exception exists. Fleet Business Credit, LLC v Krapohl
Ford Lincoln Mercury Co, 274 Mich. App. 584, 589; 735 NW2d 644 (2007). An exception is
presented when attorney fees are governed by the contract executed between the parties. Id.
That is, the courts will enforce a contractual provision for payment of attorney fees which are
considered damages. Id. An additional exception to the general rule occurs when a party seeks
to recover attorney fees as damages for having to expend money to defend because of the
wrongful acts of another. Persichini v William Beaumont Hosp, 238 Mich. App. 626, 639 n 7;
607 NW2d 100 (1999).

        Generally, an evidentiary hearing should be held when a party challenges the
reasonableness of the attorney fees requested. Kernen v Homestead Dev Co, 252 Mich. App. 689,
691; 653 NW2d 634 (2002). “However, if the parties created a sufficient record to review the
issue, an evidentiary hearing is not required.” Id. “A trial court’s decision that an evidentiary
hearing is not warranted is reviewed for an abuse of discretion.” Id.

       The party requesting attorney fees bears the burden of proving the reasonableness of the
fees. Vittiglio v Vittiglio, 297 Mich. App. 391, 409; 824 NW2d 591 (2012). The following factors
should be analyzed to determine the reasonableness of an attorney fee, but are not exclusive:

                                                -8-
              (1) the experience, reputation, and ability of the lawyer or lawyers
       performing the services,

              (2) the difficulty of the case, i.e., the novelty and difficulty of the
       questions involved, and the skill requisite to perform the legal service properly,

               (3) the amount in question and the results obtained,

               (4) the expenses incurred,

               (5) the nature and length of the professional relationship with the client,

             (6) the likelihood, if apparent to the client, that acceptance of the particular
       employment will preclude other employment by the lawyer,

               (7) the time limitations imposed by the client or by the circumstances, and

               (8) whether the fee is fixed or contingent. [Pirgu v United Servs Auto
       Ass’n, 499 Mich. 269, 281-282; 884 NW2d 257 (2016).]

The trial court does not abuse its discretion by including in the reasonable attorney fee the partial
reimbursement of expenses incurred which may include the expenses of staff and other overhead
as well as a reasonable profit. Teran, 313 Mich. App. at 210.

        In its order determining attorney fees and costs, the trial court delineated the burden of
proof, the factors to determine reasonableness, the rules of professional conduct, and the possible
need for an evidentiary hearing before holding as follows:

               The City of Bad Axe believes that $185.00/hr., the rate it actually charged,
       is appropriate. Secura believes that the fee customarily charged in this area is
       appropriate. Said fee is between $120.00/hr. and $140.00/hr. and is the rate its
       client actually pays for legal service based on statements made by Secura at the
       evidentiary [sic] hearing.

              According to the 2014 Economics of Law Practice publication, the median
       hourly rate for an attorney with 35 plus years of practice is $250.00/hr. The
       median hourly rate for that attorney in a firm in excess of 50 attorneys is
       $375.00/hr. The median hourly rate for civil litigation attorneys in the Bay
       City/Midland/Saginaw area is $198.00/hr.

               Considering the evidence presented, there is insufficient evidence in the
       record to support Secura’s claim that $120.00/hr. and $140.00/hr. is a fee
       customarily charged. Considering the 2014 Economics of Law Practice
       Publication, this Court finds that the fee customarily charged in this area for
       similar legal service is $198.00/hr. However, according to the billing records
       submitted to this court, the City of Bad Axe was charged $185.00/hr. It stands to
       reason that $185.00/hr. is reasonable as it is less than the fee customarily charged

                                                -9-
       in this area for similar legal service. Therefore, this Court finds that $185.00/hr.
       is the starting point to consider as the reasonable hourly rate.

                                             * * *

                 To date, the City of Bad Axe has expended 622 . . . billable hours pursuant
       to the detailed billings records submitted along with Ms. Hudson’s Affidavit. The
       City of Bad Axe claims that the number of hours expended is reasonable. Secura
       argues that the number of hours expended is excessive. Secura’s Exhibit D . . .
       lists its objections totaling $71,058.15. In part, Secura believes that “many of the
       hours that were billed by Plaintiff’s [sic] counsel were for activities such as
       driving at the full hourly rate” as well as counsel summarizing depositions at the
       attorney hourly rate. . . .

               After considering Secura’s Objections pertaining to the number of billable
       hours and reviewing the submitted billing records, this Court finds that the City of
       Bad Axe has met its burden that 622 hours is reasonable including travel time and
       summarization of depositions. Therefore, this Court finds that the starting point
       for calculating a reasonable attorney fee the legal fees is $115,052.00.

The trial court next noted that plaintiffs’ lead counsel, Heidi Hudson, had been a member of the
bar since 1981 and had experience in this litigation, the claims involved extensive skill and labor
and a “significant result” was achieved in light of the dismissal of the claims against plaintiff
city, and the expenses of $9,725.94 were reasonable because they were incurred. The trial court
rejected defendants’ objection to $5,887.65 of the costs because they “do not appear to be
duplicative, repetitive, unnecessary or excessive; including the travel time expenses.” Thus, the
court awarded attorney fees of $115,052.00 and costs of $9,725.94.

        As an initial matter, we note that defendants failed to request an evidentiary hearing in
the lower court, but merely objected to over $70,000 in requested fees by classifying the fees as
excessive, unnecessary, secretarial, non-specific, duplicative, and overhead. Further, at the
motion hearing on the attorney fees and costs motion, defense counsel agreed to proceed with
oral argument on the motion and did not request an evidentiary hearing. A party may not harbor
error as an appellate parachute by deeming treatment of an issue as proper in the trial court and
raise the issue on appeal. Auto-Owners Ins Co v Compass Healthcare, PLC, 326 Mich. App. 595,
613; 928 NW2d 726 (2018).

        Further, a review of defendants’ argument on appeal reveal that they classify the attorney
fees and costs as excessive, but fail to provide a rationale underlying the challenge. A party may
not simply announce a position or claim error and leave it to the appellate court to discover and
rationalize the basis for the claims or unravel and elaborate the arguments. Innovation Ventures,
LLC v Liquid Mfg, LLC, 499 Mich. 91, 518-519; 885 NW2d 861 (2016). For example,
defendants objected to the entries for research and preparation of the dispositive motion. Yet,
they failed to delineate why the hours expended (approximately 11) for that motion were
excessive. In light of the fact that the trial court addressed the factors to determine the
reasonableness of attorney fees, rendered factual findings, and did not find defendants’
objections had merit, the award of attorney fees did not constitute an abuse of discretion.

                                               -10-
Additionally, if defendant Secura could have secured a defense at a lower rate or negotiated the
exclusion of travel fees, it should have accepted the defense of plaintiffs in the underlying
litigation pursuant to a reservation of rights. Defendant Secura’s disagreement with the charges
by plaintiffs’ counsel did not render them unreasonable.

       Affirmed. Plaintiffs, as the prevailing parties, may tax costs.

                                                             /s/ Kirsten Frank Kelly
                                                             /s/ Stephen L. Borrello
                                                             /s/ Deborah A. Servitto

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