Court Opinion

ID: 6346156
Source: CourtListenerOpinion
Date Created: 2022-06-02 17:46:07.001171+00
Date Added: 2024-06-11T09:15:47.490340
License: Public Domain

Case: 21-30138     Document: 00516340925         Page: 1    Date Filed: 06/02/2022

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

                                                                           FILED
                                                                        June 2, 2022
                                  No. 21-30138                        Lyle W. Cayce
                                                                           Clerk

   Eric Ottemann, an individual, on behalf of himself and
   the proposed class,

                                                           Plaintiff—Appellant,

                                      versus

   Knights of Columbus, a Connecticut corporation,

                                                           Defendant—Appellee.

                  Appeal from the United States District Court
                     for the Eastern District of Louisiana
                            USDC No. 2:19-cv-11291

   Before Dennis, Southwick, and Wilson, Circuit Judges.
   Leslie H. Southwick, Circuit Judge:
          An insurance agent contracted with an insurance company to recruit
   and manage insurance sales agents in Louisiana. After several years, the
   agent concluded that the company was violating his contract and causing him
   financial injury. The agent sued for breach of contract and related claims.
   The district court dismissed the suit for failure to state a claim. We partly
   disagree and thus REVERSE IN PART and AFFIRM IN PART.
Case: 21-30138        Document: 00516340925           Page: 2   Date Filed: 06/02/2022

                                       No. 21-30138

              FACTUAL AND PROCEDURAL BACKGROUND
             The Knights of Columbus — referred to here as “the Order” or “the
   KCs” — is a Catholic fraternal society and charitable organization based in
   Connecticut. The Order offers insurance products to its members. To
   promote and sell these insurance products, the Order contracts with Field
   Agents (“FAs”) and General Agents (“GAs”). FAs promote and sell
   insurance products to prospective customers, and GAs recruit and oversee
   FAs within a specified territory. GAs may also sell insurance products in
   their territory.
             Under the terms of their respective contracts, FAs and GAs are paid
   commissions on the insurance sales and renewals that they generate. GAs
   also receive commissions from the sales made by the FAs in their territory.
   The Order allows FAs to “receive a draw against future . . . commissions in
   an amount to be determined by the General Agent and the Order.” “The
   right to commissions” for the FA, though, is “subject to offset by the Order
   of any amounts paid to the Field Agent as a draw against future
   commissions.” In the event that the FA fails to repay the draw, the GAs are
   liable:
             The General Agent shall also be liable to the Order for any
             amounts paid to the Field Agent as a draw against future
             commissions and for any debt of the Field Agent on account of
             [supplies provided to the Field Agent by the Order and
             commission adjustments], provided the Field Agent received
             the draw . . . or incurred the debt while under a contract to the
             Order to which the General Agent was a party.”
             The Plaintiff, Eric Ottemann, began selling insurance for the Order in
   2006 as an FA. He worked in that capacity until he became a GA in 2013. As
   a GA, Ottemann was responsible for the territory of “Southeast Louisiana.”

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          The relationship between Ottemann and the Order was not always an
   easy one.     Ottemann alleges miscommunication, mismanagement, and
   malfeasance on the part of the KCs. Ottemann alleges that the Order
   interfered with his contracts by enlisting or terminating FAs without
   Ottemann’s input, enlarging the FAs’ draws in contradiction to Ottemann’s
   wishes, and placing limits on which individuals he could solicit within his
   territory.   Ottemann also contends that this meddling was due to a
   misalignment in incentives: The Order’s “public ratings as well as the
   bonuses of [the Order’s] senior employees were significantly affected by [the
   Order’s] perceived manpower . . . . Members of [the Order’s] upper
   management told Mr. Ottemann privately that they would receive larger
   bonuses if the General Agents signed more Field Agents.” More FAs,
   though, meant a larger draw — and potentially a larger draw debt for
   Ottemann: “The risk of a Field Agent’s failure to pay draw debt was borne
   exclusively by Mr. Ottemann . . . . [The Order] bore no risk, and it simply
   paid draw debt from poorly performing Field Agents by paying them from
   the commissions of General Agents such as Mr. Ottemann.”
          Ottemann resigned in 2015. He brought suit against the KCs in 2019
   in the United States District Court, Eastern District of Louisiana, alleging
   among other claims that the KCs breached his contract. His Third Amended
   Complaint alleged seven claims, including breach of contract and of the duty
   of good faith, along with violations of Connecticut and Louisiana wage
   payment laws. In the alternative, Ottemann pled several non-contractual
   theories of recovery. The district court dismissed each of the claims for
   failure to state a claim. Ottemann timely appealed.
                                 DISCUSSION
          This court “review[s] a district court’s grant of a motion to dismiss de
   novo.” Boyd v. Driver, 579 F.3d 513, 515 (5th Cir. 2009) (per curiam). “To

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   determine the applicable law, a federal court sitting in diversity applies the
   choice of law rules of the forum.” Benchmark Elecs., Inc. v. J.M. Huber Corp.,
   343 F.3d 719, 726 (5th Cir. 2003). Because Ottemann brought suit in
   Louisiana, we apply its choice of law rules. See id. Louisiana Civil Code
   Article 3515 provides the general rule: “Except as otherwise provided . . . an
   issue in a case having contacts with other states is governed by the law of the
   state whose policies would be most seriously impaired if its law were not
   applied to that issue.” La. Civ. Code Ann. art. 3515.
   I.   Contract claims
          We begin with Ottemann’s related breach of contract and breach of
   the duty of good faith claims. His contracts with the KCs stated that the
   instruments “shall be governed by and interpreted in accordance with the
   laws of the State of Connecticut.” Article 3540 of the Louisiana Civil Code
   “generally gives contracting parties the freedom to choose which state’s law
   will govern disputes arising out of the contract.” Cherokee Pump & Equip.
   Inc. v. Aurora Pump, 38 F.3d 246, 250 (5th Cir. 1994). We conclude that
   Connecticut law applies to the contractual disputes.
          To state a claim for breach of contract under Connecticut law, a
   plaintiff must show “the formation of an agreement, performance by one
   party, breach of the agreement by the other party[,] and damages.” Chiulli v.
   Zola, 905 A.2d 1236, 1243 (Conn. App. Ct. 2006) (quotation marks and
   citation omitted). If a contract’s language is unambiguous, its interpretation
   is a matter of law and “the words of the contract must be given their natural
   and ordinary meaning.” See Cruz v. Visual Perceptions, LLC, 84 A.3d 828,
   834 (Conn. 2014) (quotation marks and citation omitted). “A contract is
   unambiguous when its language is clear and conveys a definite and precise
   intent.” Id. If a contract is ambiguous, though, “the determination of the
   parties’ intent is a question of fact.” Id. at 833 (quoting Ramirez v. Health

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   Net of the N.E., Inc., 938 A.2d 576, 586 (Conn. 2008)). “[A] contract is
   ambiguous if the intent of the parties is not clear and certain from the
   language of the contract itself.” Id. at 834 (quoting United Illuminating Co. v.
   Wisvest-Connecticut, LLC, 791 A.2d 546, 550 (Conn. 2002)).
           To constitute a claim for breach of the implied covenant of good faith
   and fair dealing under Connecticut law, “the acts by which a defendant
   allegedly impedes the plaintiff’s right to receive benefits that he or she
   reasonably expected to receive under the contract must have been taken in
   bad faith.” Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 67 A.3d 961, 986
   (Conn. 2013). Lower Connecticut courts have identified three elements in
   this analysis: (1) “the plaintiff and the defendant were parties to a contract
   under which the plaintiff reasonably expected to receive certain benefits;”
   (2) “the defendant engaged in conduct that injured the plaintiff's right to
   receive some or all of those benefits;” (3) “the defendant was acting in bad
   faith” when engaging in that conduct. See, e.g., American Int’l Specialty Lines
   Co. v. HMT Inspections, No. 2010-cv-95007419-s, 2011 WL 1759098, at *5
   (Conn. Super. Ct. Apr. 13, 2011).
           In his complaint, Ottemann claimed breaches of Sections 4, 7, 8, and
   13 of his GA Contract; Sections 2 and 6 of the agreements he signed with FAs
   in his capacity as a GA; and unspecified provisions of his FA contract. He
   also claimed that the same actions breached the covenant of good faith and
   fair dealing. The district court found that, “[u]pon review of these alleged
   breaches, the amended complaint fails to identify an action that violates the
   terms of either contract.” Further, the court held that “the practices
   complained of . . . are set forth clearly within the GA Agreement.” 1 In our

           1
             As a preliminary matter, the district court seems to have considered only two
   contracts. The district court’s order stated: “there are two contracts at issue: [t]he [2013]
   General Agent Agreement . . . and the [earlier] Field Agent Agreement.” The district

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   review, though, we find ambiguity in certain clauses. We consider the alleged
   breaches first of Ottemann’s GA contract, then of the FA contracts to which
   Ottemann was a party, and, finally, of Ottemann’s original FA contract.
       a. Ottemann’s GA contract
           Ottemann alleges that the Order breached Sections 4, 7, 8, and 13 of
   his GA contract.
           Section 4 of the GA contract provides that “the General Agent shall
   be free to exercise independent judgment as to the eligible persons from
   whom applications for insurance will be solicited, and as to the time and place
   of such solicitation.” It also states: “The General Agent shall abide by rules
   and procedures established by the Order, but such rules and procedures shall
   not be construed as interfering with the freedom of action of the General
   Agent as described in this agreement.”
           Ottemann argues that the Order breached this provision when it
   prevented him from soliciting certain members in his region. Ottemann’s
   complaint states that the Order directed Ottemann to refrain from soliciting
   NFL coach Joe Lombardi, who lived in Ottemann’s territory, because the
   Order sought to solicit him under their NFL-specific program.
           The parties differ in their understanding of this conduct. Ottemann’s
   interpretation of this provision, as alleged in his complaint, is that
   “[S]ection[] 4 of the [GA] Agreement . . . stated that Plaintiff was an
   independent contractor that was ‘free to exercise independent judgment as
   to eligible persons from who applications for insurance will be solicited’ and

   court does not seem to have contemplated the various FA contracts to which Ottemann
   and the Order were parties but which primarily concerned Ottemann’s FAs. Ottemann did
   not include these separate contracts with his pleadings, and his complaint merely suggested
   that the FA agreements he signed in his capacity as a GA were substantially the same as the
   one he signed in 2013.

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   have ‘freedom of action.’” The Order responds that the GA contract
   explicitly stated that Ottemann had no “authority to bind the Order to issue
   any insurance policy,” and that it was no breach to tell Ottemann not “to
   waste his (and the Order’s) time and resources soliciting that person.” The
   Order also argues there would be no damages to sustain a claim because, even
   if Ottemann was allowed to solicit Lombardi, the Order contractually
   reserved rights to refuse the issuance of policies.
            We hold that Ottemann’s claim as to Section 4 is plausible at the
   motion to dismiss stage. Although there is nothing particularly surprising
   about the Order’s interest in diverting high-value prospects into a special
   sales program, the contract states that the rules and procedures set up by the
   Order “shall not be construed as interfering with the freedom of action of the
   General Agent.” The contract does not demarcate the boundary between
   Ottemann’s freedom of action as a GA and the scope of the Order’s ability
   to dictate “rules and procedures” that would divert otherwise available
   insurance prospects from his territory. We hold that Ottemann’s claim based
   on breach of Section 4 of the GA contract survives the motion to dismiss
   stage. Because Ottemann plausibly alleges that this diversion was done with
   bad faith, his claim for breach of the duty of good faith and fair dealing
   regarding Section 4 of the GA contract also survives the motion to dismiss
   stage.
            The remainder of Ottemann’s theories of breach of the GA contract
   were properly dismissed.       Section 6 of the GA contract states that
   commissions will be paid according to a schedule incorporated in the
   contract. Section 7(c) states that “[t]he right to commissions . . . shall also
   be subject to payment of the General Agent’s indebtedness to the Order,”
   stating a non-exclusive list of items included in the calculation of that
   indebtedness.

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           In his complaint, Ottemann alleges that the Order impermissibly
   withheld commissions under Section 7 by failing to make appropriate
   reimbursements and illegitimately increasing the FA draw debt. 2
   Specifically, Ottemann alleges that he was never reimbursed for “costs for
   leasing an office, using computer equipment, supplies, insurance, software,
   postage, and continuing education, among others.” Ottemann also claims
   that the Order “withheld, diverted, deducted, or purportedly offset Mr.
   Ottemann’s earned renewal commissions by the amount of Field Agents’
   draw debt.”
           These may be understandable grievances, but they do not constitute
   additional breaches of contract. For example, the Order was not obligated
   under the GA contract to reimburse Ottemann for “costs for leasing an
   office, using computer equipment, supplies, insurance, software, postage,
   and continuing education.” On the contrary, Section 5(d) of the GA contract
   specifically stated that “[t]he General Agent and his Field and District
   Agents shall not incur any expense on behalf of the Order,” and Section 7(c)
   specifically allows for deductions for “supplies provided to the General
   Agent or his Field and District Agents by the Order.” If anything, the GA
   contract makes Ottemann liable to the Order for such expenses, not the other
   way around.

           2
              In his third amended complaint, Ottemann also alleges that the Order
   renegotiated contracts after his termination so that he would no longer earn commissions.
   The only portion of the appellate briefing that could potentially relate to this claim merely
   states that a Knights of Columbus Vice President once said, “[w]e have ways to make [a
   General Agent] stay away by cutting off his [insurance policy] renewals and commissions,”
   and that the Order “engaged in the same course of conduct in relation to [Ottemann’s]
   omissions.” Such limited discussion is insufficient to sustain the argument on appeal. See
   United States v. Scroggins, 599 F.3d 433, 447 (5th Cir. 2010) (holding that an appellant
   waives a claim on appeal by failing to brief it adequately).

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          Further, Ottemann has not alleged an additional breach in his claim
   that the Order “withheld, diverted, deducted, or purportedly offset [his]
   earned renewal commissions by the amount of Field Agents’ draw debt.” It
   is not a breach of the contract to hold Ottemann liable for legitimate Field
   Agent draw debt: Section 6(b) expressly provides that commissions are
   “subject to offset . . . of any amounts paid to the General Agent, or to the
   General Agent’s Field Agents, as a draw against future commissions.”
   Further, even if the Order interfered with Ottemann’s freedom of action as
   a GA in preventing his termination of FAs, the appropriate measure of
   damages would necessarily contemplate compensation for withheld
   commissions due to illegitimate draw debt.
          Ottemann’s alleged breaches of Section 8 and 13 of his GA contract
   also fail. Section 8 of the GA contract provides for the vesting and payment
   of renewal commissions for GAs.            Section 13 concerns the return of
   “property of the Order” upon termination. Because Ottemann has not
   addressed on appeal how the Order breached these provisions, he has
   forfeited these arguments. See Scroggins, 599 F.3d at 447 (holding an
   appellant waives a claim on appeal by failing to adequately brief it).
          Summarizing Ottemann’s claims about his GA contract, we hold that
   Ottemann has stated a plausible claim that the Order breached Section 4 of
   his GA contract. The district court did not err, though, in dismissing
   Ottemann’s claims under Sections 7, 8, and 13 of the GA contract.
      b. FA contracts to which Ottemann was a party
          Ottemann also alleges that the Order breached “Sections 2 and 6 of
   the Field Agent Agreements signed by [Ottemann]” in his capacity as a GA.
          Ottemann does not specify how the Order breached Section 2 of the
   FA contract, which allows the GA to “change or revoke the assignment of
   councils [assigned to an FA] in accordance with guidelines established by the

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   Order.” Ottemann might be arguing that this provision allowed him to
   terminate FAs at will as a GA. This would necessarily involve “changing or
   revoking the assignment of councils” in the process. Such an interpretation
   would exceed the scope of authority delegated to him by the contract.
   Because Ottemann did not specifically allege that he sought to change the
   council assignments for his FAs and was stymied in this pursuit by the Order,
   we hold that he has not alleged a plausible breach pertaining to Section 2 of
   the FA contracts.
          Ottemann makes more concrete allegations pertaining to a breach of
   Section 6 of the FA contracts. Section 6(c) sets out the guidelines regarding
   an FA’s draw. It states that the FA may receive a draw “in an amount to be
   determined by the General Agent and the Order.”             In his complaint,
   Ottemann alleges that the Order breached the “Field Agent Agreements
   where Plaintiff was a party” by not allowing Ottemann to “set[] the amount
   of [his] Field Agents’ draws.”
          Specifically, Ottemann alleges that he had no input into the amount of
   the draws. In his complaint, Ottemann alleges that “Defendant became the
   sole decisionmaker regarding hiring and terminating Field Agents and setting
   the amount of their draws.” The contract is ambiguous as to the balance of
   the power sharing between the Order and Ottemann. If one reads the
   contract to mean that both the GA and the Order must agree to the amount
   of an FA draw, but the Order in fact was “the sole decisionmaker,”
   Ottemann has alleged a plausible breach.          If, instead, the Order were
   permitted to override Ottemann’s input, there would be no breach of
   contract. The text of the contract does not clearly demarcate the division of
   power envisioned by the parties, and resolving this dispute precipitates a
   question of fact which cannot be resolved as a matter of law on a motion to
   dismiss. Because Ottemann plausibly alleges that the Order increased his
   staff for its own benefit in bad faith, his claim for breach of the duty of good

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   faith and fair dealing regarding Section 6 of the FA contracts also survives
   the motion to dismiss stage.
      c. Ottemann’s FA original contract
          Ottemann’s remaining breach of contract allegations concern
   provisions of his FA Contract.          Ottemann alleges that the Order
   impermissibly deducted debt accrued by the FAs under his management as a
   GA from recurring commissions he was due from his time as an FA.
          Ottemann’s complaint does not identify any particular provision of
   the FA contract that the Order allegedly violated. His briefing discusses
   Section 7(c) of the FA contract, which allowed deductions to his own FA
   commissions on account of “the Field Agent’s indebtedness to the [O]rder.”
   From there, Ottemann argues that this creates liability only for debts
   incurred in his capacity as an FA. He contends this is so based on the FA
   agreement’s statement that the commission reduction was subject to
   “payment of the Field Agent’s indebtedness to the Order, including but not
   limited to” a number of FA-specific expenses and obligations.
          The Order reads the Section 7(c) deduction allowance more broadly.
   According to the Order, because “Field Agent” is a defined term that refers
   at all times in that contract to Eric Ottemann, “the Field Agent’s
   indebtedness to the Order” extends beyond any indebtedness that Ottemann
   might incur in his capacity as an FA and extends to any indebtedness he might
   have incurred at any future point. The Order argues this provision permits
   it to deduct debts that Ottemann became responsible for in his capacity as a
   GA against compensation he was due under his old (but never novated or
   cancelled) FA agreement.
          We hold that the contract is ambiguous as to the scope of the FA’s
   indebtedness to the Order under Section 7(c) of the FA contract. It may be
   entirely reasonable that the Order would expect any future debts under

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   subsequent contracts to count against Ottemann’s earnings under the
   original FA contract. On the other hand, given that the FA contract has no
   provision governing elevation to a GA position, nor does it refer to any future
   contractual relationships, it is ambiguous as to whether “the Field Agent’s
   indebtedness to the Order” contemplates indebtedness incurred under other
   contracts as well as indebtedness incurred under the original FA contract.
   Accordingly, Ottemann’s breach of contract claim as it relates to Section 7(c)
   of his FA contract survives the motion to dismiss stage.
   II.   Equitable claims
          Ottemann’s complaint also alleges claims for unjust enrichment and
   quantum meruit. 3 Once again we apply Connecticut law to evaluate these
   claims that sound in contract. See La. Civ. Code Ann. art. 3540.
          The Connecticut Supreme Court’s guidance is sufficiently clear:
   Claims for unjust enrichment or quantum meruit may stand “[w]herever
   justice requires compensation . . . for property or services rendered under a
   contract, and no remedy is available by an action on the contract.” Town of
   New Hartford v. Conn. Res. Recovery Auth., 970 A.2d 592, 609 (Conn. 2009)
   (quoting 26 Williston on Contracts, § 68:4 (4th ed. 2003)). In such
   cases, “restitution of the value of what has been given must be allowed.” Id.
   At the same time, “an employee [may] not recover in unjust enrichment . . .
   when there exist[s] an express, enforceable employment contract that set[s]
   the terms of the employee’s salary but [does] not provide for [incentive
   compensation sought], and the employee [does] not . . . perform[] services

          3
            Although Ottemann asserts unconscionability as a separate issue on appeal, his
   complaint does not allege a separate unconscionability claim. In any case, we cannot say
   that the GA contract meets the high bar for unconscionability set by the Connecticut
   Supreme Court. See Smith v. Mitsubishi Motors Credit of Am., 721 A.2d 1187, 1190–93
   (Conn. 1998) (outlining the exacting standards for a finding of either procedural or
   substantive unconscionability).

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   not contemplated by that contract.” Id. at 611. Only “when an express
   contract does not fully address a subject, a court of equity may impose a
   remedy to further the ends of justice.” Id. at 612 (quoting Klein v. Arkoma
   Prod. Co., 73 F.3d 779, 786 (8th Cir. 1996)). Because commissions — the
   subject matter for which Ottemann seeks recovery — are provided for in the
   contract, his remedies are limited to that provided for by the contract. No
   separate equitable claim is viable.
   III. Wage payment statute claims
          Ottemann also brought claims under both the Connecticut wage law
   and the Louisiana Wage Payment Statutes. The district court dismissed
   Ottemann’s claim under Connecticut wage law because it found that
   Ottemann was “not an employee under Connecticut’s wage law.” The court
   relied on a Connecticut trial court decision to state that non-Connecticut
   workers are “not afforded the protection of the Connecticut [wage payment]
   statute.” Kubas v. Hartford Fin. Servs. Co., 27 Conn. L. Rptr. 565, 2000 WL
   1170237, at *2 (Conn. Super. Ct., July 19, 2000).
          We make no holding as to whether Ottemann is covered under
   Connecticut’s wage law. Rather, as both the Louisiana and Connecticut
   statutes purport to protect employee wages after discharge, we conclude that
   the district court should have addressed the antecedent question of which
   wage statute applies under Book IV of the Louisiana Civil Code, “Conflict of
   Laws.” See La. Civ. Code Ann. art. 3515. This analysis was not
   performed by the district court.
          The district court also dismissed Ottemann’s Louisiana wage
   payment claim. Its findings regarding the Louisiana wage payment claim,
   though, rested on the propriety of the Order’s deductions: “Plaintiff’s
   commissions were always subject to offset in accordance with the express

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   terms of the General Agent Agreement, and thus in accordance with the
   terms of employment.”
          Because we have held that Ottemann has stated plausible breach of
   contract claims that survive a motion to dismiss, the district court will also
   need to conduct a more extensive analysis of Ottemann’s Louisiana wage
   payment claim on remand if it finds that the Louisiana Wage Payment
   Statutes apply after conducting a choice of law analysis.
                                         ***
          We REVERSE the district court’s holding that Ottemann has failed
   to state a claim upon relief which can be granted regarding a breach of
   contract in relation to Section 4 of the GA contract, Section 6 of the FA
   contracts to which he was a party, and Section 7(c) of Ottemann’s original
   FA contract. We REVERSE the district court’s holding that Ottemann has
   failed to state a claim for the breach of the duty of good faith and fair dealing
   in relation to performance of Section 4 of the GA contract and Section 6 of
   the FA contracts. We also REVERSE the district court’s holdings that
   Ottemann has failed to state a claim under both the Connecticut and
   Louisiana wage payment laws, and REMAND for further consideration.
   We AFFIRM the remainder of the district court’s judgment, including the
   dismissal of Ottemann’s equitable claims.

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