California Litigation Attorney Blog

Anonymous Internet SurferCompanies commonly spend substantial resources in developing information that allows for profitable operation. Valuable information may take many forms, such as customer lists, pricing formulas, product specifications and business plans. A challenging problem that must be addressed by any employer is how to protect those trade secrets from being used by former employees after they leave to work for a competitor.

Like most states in the United States, California has adopted the Uniform Trade Secrets Act (“UTSA”), found at Civil Code sections 3426.1-3426.11. Under the UTSA, if a company takes reasonable measures to protect its information, and if steps are taken to maintain the secrecy of the information, California Courts will protect the information as a trade secret.

The protection afforded to trade secrets under the UTSA is not limited to recorded versions of information, such as documents or electronic data. In California, it is not a requirement that an employer establish that the employee physically took trade secret information. Rather, the UTSA also affords protection of the contents of an employee’s memory. Therefore, the misappropriation of a trade secret can be shown simply by establishing that the employee used or disclosed the content of his or her memory regarding a trade secret.

The most prudent approach for an employer is to minimize the risk of loss of trade secrets by taking all reasonable measures available to protect the trade secrets. The measures taken by the employer should include:

  • Use a confidentiality agreement that is signed when an employee is hired. The agreement should clearly state that the employee will come into possession of company trade secrets and that the trade secrets are not to be disclosed both while employed by the employer and after the employment ends. If possible, list specific items that are deemed trade secrets, such as customer lists, pricing information and business strategies.
  • Update the confidential agreements on an annual basis to include any new areas of important information and have the employees sign a confidentiality agreement on an annual basis.
  • Have detailed internal policies regarding the use of electronic storage devices, internet use, and use of the company’s email system.
  • Have secured networks with limited employee access with firewalls, multi-character passwords, or other ways to limit access or to track employee network activity.
  • Conduct exit interviews with all departing employees and remind them of the confidentiality agreements they signed and attempt to obtain signed confirmation from the departing employee that they received and agreed to the confidentiality agreements.

In summary, the best way to avoid protracted and expensive litigation against a former employee for the misappropriation of trade secrets is to protect the information before the employee leaves.

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Most employers know that they will have to begin paying their employees a minimum of $9.00 an hour as of July 1, 2014. In addition to effecting their hourly/non-exempt employees, this change may also effect some of their salary/exempt employees.

Presently, exempt employees (for many businesses, its managers) must be paid at least $2,774 per month/$33,288 a year due to California’s requirement that exempt employees make at least twice the minimum wage for a standard 40 hour work week. After July 1, 2014, employers will need to pay those same employees at least $3,120 per month/ $37,440 per year, or a raise of $4,152. After January 1, 2016, when the minimum wage increases to $10.00 an hour, employers will have to pay those same employees at least $3,467 per month/$41,604 per year.

Employers must take these cost increases into account when thinking about their strategic planning for 2015 and beyond.

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Contract picOver the many years I have practiced law in California, I have dealt with a wide array of disputes involving written contracts. In some instances, my clients’ have asserted that prior to signing a written contract (whether it was a business contract, real estate contract, construction contract etc.) they and the other contracting party had both orally negotiated and agreed that certain terms were to be included in the written contract. However, as is sometimes the case, after the written contract was prepared (either by an attorney for one of the parties, or by using a generic form such as an AIA construction contract or California Association of Realtors form) the parties fail to closely review the written contract to ensure that all bargained for terms were included, before they both signed the contract.

In some instances, as performance of the contract ensues, a dispute later arises between the parties when one of the parties contends that the other party failed to perform a condition and/or term that they had earlier “orally” agreed to perform. If the parties are unable to informally resolve the contract dispute, it may lead to litigation and a detailed legal analysis (by an attorney) of what rights a party has to enforce “oral” terms that were intentionally or inadvertently omitted from the final written contract.

Many written contracts (drafted by attorneys or included in some of the form contracts referenced above) include a short paragraph usually entitled “Entire Agreement” or “Integration Clause.” Although brief in nature, this paragraph has huge implications to both contracting parties, especially if one of the parties is attempting to enforce a term that was orally agreed to between the parties, but omitted from the final contact. Integration clauses generally read as follows:

All understandings between the parties are incorporated in this Agreement. Its terms are intended by the parties as a final, complete and exclusive expression of their Agreement with respect to its subject matter and supersede and replace all prior or contemporaneous discussions, negotiations, letters, memoranda or other communications, oral or written, with respect to the subject matter hereof and may not be contradicted by evidence of any prior agreement (either written or oral).

Integration clauses are strictly enforced by courts in the State of California. Although some exceptions may exist to enable a party to enforce an oral term that was omitted from the final contract, the party seeking to enforce such a term faces an uphill and very difficult battle. The exceptions to this rule are rare, and parties should immediately contact legal counsel to determine if such an exception may apply in their case. Consequently, a party signing a written contract involving a substantial financial commitment or a significant legal obligation, should closely review the contract and may wish to retain legal counsel to review the contract and ensure it includes all essential terms before the contract is signed.

The California business attorneys at Reid & Hellyer have extensive experience in construction, real estate and contract law.

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Contract picIf you have ever purchased or sold a home, or seen a medical doctor, no doubt you were presented with a proposed written agreement, possibly on a preprinted form, that contained an arbitration provision. The typical arbitration provision requires any dispute arising under the subject agreement to be arbitrated, as opposed to having it decided by a jury. Some of these agreements also contain provisions that require the parties to mediate their disputes (essentially have a settlement conference) prior to arbitrating it. The rationale behind arbitration provisions is that it’s quicker, and in many cases, more cost effective than going to court.

Although one of the rationales for an arbitration provision is to keep costs down, arbitrators can be very expensive and generally charge by the hour for ALL work performed. In addition to presiding over the hearing, arbitrators will often charge for reviewing materials and for the time it takes them to draft their ruling. In some cases, the out of pocket costs can be thousands to tens of thousands of dollars. Whereas, in civil court, for the one time cost of a filing fee or answer fee, the parties have an arbitrator (the judge) for the duration of the dispute. Accordingly, when dealing with a lawyer or a medical office in the context of an arbitration provision on one of their forms, ask who pays the initial costs of the arbitration and whether or not the prevailing party can be reimbursed by the losing side.

In the context of real estate transactions in California, there are several kinds of form contracts that I have come across in my practice. The difference between one of these contracts and the ones you might get if you transact with a law firm is that the person on the other side may be just as uninformed about the arbitration provision as you are. Although you stand little chance of convincing a law firm or a medical office into scratching out the arbitration provision in their contracts, when you deal with another lay person in a real estate transaction, undertake to determine whether or not arbitration makes sense in the context of the transaction and consider the possibility with the other side of the transaction of crossing out the provision. Depending on the specifics of the transaction, a court of law might actually be cheaper than an arbitration and you will preserve your right to have your matter decided by a jury.

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Newspaper of General Circulation

When a publication believes it meets the requirements to be adjudicated as a newspaper newspaper of general circulation (NGC), it can file a petition with the Superior Court requesting the right to run legal notices in compliance with various statutes (e.g., publishing fictitious business name statements).

However, what happens when a newspaper files for adjudication, but it doesn’t meet those requirements? The answer is that the legislature created a system that is largely self-effectuating since there is no government body (other than the courts) that scrutinize such petitions.

Instead, it is up to any individual (or individual on behalf of an entity) to file a a contest to a petition for adjudication. (Gov. Code section 6022.) In filing this contest, a contestant can obtain the facts through formal or informal discovery, then present the evidence and the law at a formal hearing in court. (Gov. Code section 6023.)

Obviously, if the facts support the adjudication, don’t bother. But, if they don’t, then go for it. A lawyer with experience in adjudications can advise if the contest stands much chance of success, as the criteria for adjudication are subject to evolving judicial interpretations. Some cases are clear, some are not.

Recently, we filed a contest to an adjudication order that had been obtained by misrepresenting the facts to the court. We were able to present the true facts and the other side decided to toss in the towel by ceasing publication.

In another recent case, we deposed the petitioner (the person seeking adjudication) and exposed the weakness of the facts he’d presented to the court. His petition was denied.

In a third case, the petitioner testified that the newspaper had certain subscribers. During the noon recess, we called some of them and learned that they had not paid for their subscriptions (a requirement). We presented this fact to the petitioner’s lawyer, who withdrew the petition after conferring with his client. (Thankfully, the lawyer was ethical and was not going to present false “facts” to the court.)

Every case is different and the facts matter. Assemble the facts, compare them to the law (see Gov. Code sections 6000 and 6008) and then decide if a contest makes sense or not, especially since they are so expensive to mount in court.

Given the importance of an adjudication, it is always wise to consult with an attorney experienced in California newspapers of general circulation, as the law is not as simply as it may appear.

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Ninth Circuit Court of AppealsThe Ninth Circuit Court of Appeals provides an outline that all attorneys practicing before it should read when filing or responding to an appeal.

The document, entitled “Ninth Circuit Appellate Jurisdiction Outline,” reviews the numerous grounds that the Ninth Circuit will consider in rejecting an appeal on procedural grounds. For example, did you or your opposing counsel properly raise the issue below? Is the order appealable? Was the appeal filed timely?

The Ninth Circuit covers the largest geographic region of any circuit in America. It is also the busiest circuit in America. Its hard-working judges may be glad to rule on the merits of a case that has been properly brought before its jurisdiction, but may be equally glad to dispose of a case without considering the merits where jurisdictional issues exists.

Attorneys and self-represented litigants are wise to review the Ninth Circuit’s outline to advocate for their position.

For more information, review the Ninth Circuit Appellate Jurisdiction Outline and visit ca9.uscourts.gov.

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CNewspaper of General Circulationalifornia Government Code sections 6000 and 6008 are the two statutes that allow a publication to become adjudicated as a newspaper of general circulation (NGC) in California. This entitles the newspaper to publish legal advertising in its particular jurisdiction of adjudication. This article outlines the general parameters of these two statutes.

California Government Code Section 6000

Section 6000 provides:

A “newspaper of general circulation” is a newspaper published for the dissemination of local or telegraphic news and intelligence of a general character, which has a bona fide subscription list of paying subscribers, and has been established, printed and published at regular intervals in the State, county, or city where publication, notice by publication, or official advertising is to be given or made for at least one year preceding the date of the publication, notice or advertisement.

To expand, the requirements of Section 6000 can are:

  1. “Published for the dissemination of local or telegraphic news and intelligence of a general character”
    • Government Code section 6001 explains that a newspaper of general circulation (NGC) cannot be “devoted to the interests, or published for the entertainment or instruction of a particular class, profession, trade, calling, race, or denomination, or for any number thereof, when the avowed purpose is to entertain or instruct such classes . . . .”
  2. “Bona fide subscription list of paying subscribers”
    • A list is “bona fide” if it is a “real, actual, genuine subscription list.” In re Herman (1920) 183 Cal. 153, 164. There is no statute specifying the number of paying subscribers that must be on this list.
  3. “Established” in the county, city or other political jurisdiction where where adjudication is sought for at least one year preceding the petition.
    • Government Code section 6002 explains that a newspaper is “established” if it has “been in existence under a specified name during the whole of the one-year period . . . .”
  4. “Printed” at least weekly in the county, city or other political jurisdiction where adjudication is sought for at least one year preceding the petition.
    • Government Code section 6003 explains that a newspaper is “printed” as required by law if “the mechanical work of producing it, that is the work of typesetting and impressing type on paper” is completed in the city or county where adjudication is sought.
  5. “Published” at least weekly in county or city where adjudication is sought for at least one year preceding the petition for adjudication.

This outline provides only the broad requirements for adjudication under Section 6000. Contact a California newspaper of general circulation attorney to understand the intricacies of the law.

Government Code section 6000 was enacted in 1943 and was the only method for adjudication until Section 6008 was enacted in 1974 providing the alternative criteria.

California Government Code Section 6008

Section 6008 provides:

Notwithstanding any provision of law to the contrary, a newspaper is a “newspaper of general circulation” if it meets the following criteria:

(a) It is a newspaper published for the dissemination of local or telegraphic news and intelligence of a general character, which has a bona fide subscription list of paying subscribers and has been established and published at regular intervals of not less than weekly in the city, district, or judicial district for which it is seeking adjudication for at least three years preceding the date of adjudication.

(b) It has a substantial distribution to paid subscribers in the city, district, or judicial district in which it is seeking adjudication.

(c) It has maintained a minimum coverage of local or telegraphic news and intelligence of a general character of not less than 25 percent of its total inches during each year of the three-year period.

(d) It has only one principal office of publication and that office is in the city, district, or judicial district for which it is seeking adjudication.

For the purposes of Section 6020, a newspaper meeting the criteria of this section which desires to have its standing as a newspaper of general circulation ascertained and established, may, by its publisher, manager, editor, or attorney, file a verified petition in the superior court of the county in which it is established and published.

As used in this section:

(1) “Established” means in existence under a specified name during the whole of the three-year period, except that a modification of name in accordance with Section 6024, where the modification of name does not substantially change the identity of the newspaper, shall not affect the status of the newspaper for the purposes of this definition.

(2) “Published” means issued from the place where the newspaper is sold to or circulated among the people and its subscribers during the whole of the three-year period.

To expand, the requirements of Section 6008 are:

  1. “Dissemination of local or telegraphic news and intelligence of a general character”
    • Government Code section 6001 explains that a newspaper of general circulation cannot be “devoted to the interests, or published for the entertainment or instruction of a particular class, profession, trade, calling, race, or denomination, or for any number thereof, when the avowed purpose is to entertain or instruct such classes . . . .”
  2. “It has maintained a minimum coverage of local or telegraphic news and intelligence of a general character of not less than 25 percent of its total inches during each year of the three-year period.”
    • In other words, 25% of the content in the publication must be the local or telegraphic news and intelligence of a general character. The use of the term “inches” suggests that in a close case, a court could compare the number of square inches in a publication used for the content as compared to the total number of square inches in the publication.
  3. “[H]as a bona fide subscription list of paying subscribers” and “has a substantial distribution to paid subscribers in the city, district, or judicial district in which it is seeking adjudication.”
    • A list of paying subscribers is “bona fide” if it is a “real, actual, genuine subscription list.” In re Herman (1920) 183 Cal. 153, 164. Although there is no statute specifying the number of subscribers that must be on this list, Section 6008 requires a “substantial” distribution to paying subscribers. In contrast, Section 6000 provides no “substantial” requirement.
  4. “[H]as been established . . . for at least three years preceding the date of adjudication.”
    • “‘Established’ means in existence under a specified name during the whole of the three-year period . . . .” Gov. Code section 6008(1).
  5. “[H]as been . . . published [at least] weekly in the city, district, or judicial district for which it is seeking adjudication”
    • “‘Published’ means issued from the place where the newspaper is sold to or circulated among the people and its subscribers during the whole of the three-year period.” Gov. Code section 6008(2).
  6. “It has only one principal office of publication and that office is in the city, district, or judicial district for which it is seeking adjudication.”
    • In other words, the publication’s “principal” office of publication must be in the city, county, district or judicial district for which adjudication is sought. See In re Tri-Valley Herald (1985) 169 Cal.App.3d 865 for a more expansive discussion of this requirement.
  7. “[A] newspaper meeting the criteria of this section which desires to have its standing as a newspaper of general circulation ascertained and established, may, by its publisher, manager, editor, or attorney, file a verified petition in the superior court of the county in which it is established and published.”
    • A petition for adjudication must be verified by the publication’s publisher, manager, editor, or attorney.

Again, the outline, above, provides only the broad requirements for adjudication under Section 6008. Contact a California newspaper of general circulation attorney to understand the intricacies of the law.

If you have specific questions about the statutory scheme governing newspapers of general circulation, contact a California media lawyer with experience counseling publications large and small with concerns related to newspaper legal advertising.

Associate Attorney Scott Talkov and Senior Attorney James J. Manning, Jr. have represented petitioners and contestants of national, regional and local prominence in newspaper of general circulation litigation in Los Angeles, Orange, San Diego, Riverside and San Bernardino counties. Scott may be contacted at stalkov@rhlaw.com and at (951) 682-1771. Jim may be contacted at jmanning@rhlaw.com and at (951) 682-1771.

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Plaintiffs asserting breach of contract/fraud claims often want to enforce those claims against more than just the signatories to the contract. Often times, for example, plaintiffs will also want to enforce a claim against the shareholders of a corporation who entered into an agreement, or against one or more members of an LLC that entered into a contract. Where a contract calls for arbitration among the contracting parties, can a nonsignatory be compelled participate? Interestingly enough, yes.

California and Federal courts have recognized six theories by which a nonsignatory may be bound to arbitrate: (1) incorporation by reference (e.g., construction subcontractors); (2) assumption; (3) agency; (4) veil-piercing or alter ego; (5) estoppel; and (6) third-party beneficiary. (See, Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 268.)

Thus, it behooves a business or an individual to seek legal assistance at the inception of a case to determine whether a particular arbitration provision can be invoked as to all relevant parties. As arbitration in some instances may  be a quicker and cheaper alternative to pursuing a suit in state or federal court, research and analysis should be performed at the on-set to determine whether any of the six above theories can be used to compel arbitration to any nonsignatories so that the matter can be resolved in one legal forum.

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Contract picOne of the simplest ways for a plaintiff involved in a commercial breach of contract claim to increase its chance at recovering damages is to apply for a writ of attachment. California Code of Civil Procedure section 483.010 provides for writs of attachment to be issued where: (1) a claim is based upon a contract; (2) for a fixed or ascertainable amount of not less than $500; (3) that is unsecured or secured by personal property; and (4) on a commercial claim.

If the application for the writ is granted, in addition to being able to lien a defendant’s personal property, a successful applicant can put a lien on a defendant’s real property. Writs of attachment are particularly effective tools if a plaintiff anticipates a lengthy delay between when a case is filed and when a judgment is entered, either because of court congestion or because of the complexity of the matter. In such circumstances, a successful application allows a plaintiff to put a judgment lien on a defendant’s real property, thereby making it less likely that the defendant can refinance away the equity before resolution of the matter. Often times, such liens are the difference between recovery and having nothing to show for years of legal wrangling.  Courts sometimes are reluctant to grant writs, so plaintiffs should use experenced lawyers for this kind of work.

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Scales of JusticeMany small companies adopt the corporate form in order to shield their owners/shareholders/officers/employees from personal liability. It’s a well known risk management strategy for some individuals to avoid personal liability in certain situations. 

For example, if the company performs unsatisfactory work, the wronged party may lack redress except when “extraordinary circumstances” allow that party to “pierce the corporate veil” and establish the corporation as the “alter ego” of the individuals. Absent alter ego, the company may simply default and its owner may start another business as a new limited liability company. This incorporate-default-repeat scenario may give unscrupulous entrepreneurs carte blanche to avoid responsibility for their misconduct so that wronged parties are never compensated for their damages.

Recognizing this injustice, the Court of Appeal in Michaelis v. Benavides (1998) 61 Cal.App.4th 681, refused to shield a corporate contractor’s president from personal liability after negligent construction of a driveway. In addition to allowing a breach of contract claim against the corporation, the Court of Appeal held that the president was personally, jointly and severally liable because he personally bid and negotiated the project, and oversaw its construction. As articulated by the court, corporate agents may incur personal liability when they participate in, direct, or authorize their company’s bad acts. This is due to the general agency rule that an agent is liable for his own conduct and may subject his principal to liability under the doctrine of “respondeat superior.” 

The Michaelis case was decided in 1998. Yet, so many seem to be unaware of it or the general principles expounded in it and in similar cases. Consequently, too many companies and their lawyers underestimate the risk in certain circumstances.

Recently, we represented a plaintiff in a trial wherein the court found the corporate defendant’s president directly liable under Michaelis, to the tune of over $400,000. Suffice it to say, he would have been well-advised to have managed his risk better.

 

 

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ADASB 1186, California’s new law targeting disability access lawsuits, provides minimal assistance to business owners.  Although hailed by its sponsors, Senators Dutton and Steinberg, as a reform for what business owners describe as Americans with Disabilities Act (ADA shakedown lawsuits, the law is far more limited than many believe.  A summary of the major provisions of the law are provided below.

First, the law provides special protections for businesses in locations that were built after January 1, 2008, or those that have  received a Certified Access Specialist (CASp) inspection. For these businesses, they will be provided 60 days to fix an alleged violation. Moreover, the business’ statutory damages may be reduced from $4,000 to as low as $1,000 “for each offense” if the alleged violations are cured within a certain time period. The vast majority of defendants named in these lawsuits have buildings that pre-date 2008 and have not undergone the costly CASp certification, meaning these new provisions will be of no assistance.

Second, small businesses, defined as those with 25 or fewer employees, that have not had a CASp inspection will have “30 days [from] the complaint being served upon the defendant” to fix the violation. If this repair occurs, the damages are reduced from $4,000 to a “minimum of” $2,000 “for each offense.” This is of no assistance to most defendants, as the complaints often allege multiple violations, but can be settled for less than the statutory damages that would be obtained the plaintiff if the matter proceeds to litigation ($2,000 x the number of violations).

Third, the law ends “demand for money” letters from attorneys, meaning a lawyer can still send a letter, but no monetary demand can be enclosed therewith. Moreover, all demand letters sent to a business alerting them of a potential violation or infraction must be sent to the California State Bar. In turn, the State Bar will examine the letter to ensure that it meets the requirements of the law, including the requirement of a notification that the recipient has certain rights. Plaintiffs can escape this rule by simply filing a complaint in superior court and serving it on the defendant as its “demand” letter. Doing so may be of little cost for the plaintiff’s law firm as the disabled plaintiff often qualifies for a waiver of filing fees based on their income. As such, the only added cost to the plaintiff’s law firm is the drafting of a complaint, rather than the a more simple demand letter.

Fourth, the new law provides an avenue for local cities and counties to expand the Certified Access Specialist (CASp) program in their communities to help bring local businesses into ADA compliance and develop tools to help educate the business community in expanding ADA access. Although this is a commendable effort, most business owners are unlikely to take advantage of such assistance until they are named as a defendant in a lawsuit, at which time it is too late.

Overall, SB 1186 is far more limited than business owners and business lawyers may believe. Specifically, business owners hoped for a period after notification of a violation within which to cure the violation without a fine or the threat of attorney’s fees. The law provides no such relief, ensuring that this form of legalized extortion will continue.

Review the text of SB 1186 online.

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Toast for successMost companies reward their employees with a holiday party, intended to promote morale and productivity. While most in management agree that a holiday party is good for the company, an important issue which must be addressed is whether or not alcohol will be included in the celebration. Based upon the recent ruling in Purton v. Marriott International, Inc. (2013) 218 Cal.App. 4th 499, every employer should either have an extensive plan for transporting employees to and from their homes as part of the event, or skip the alcohol altogether.

In Purton, the appellate court reversed a judgment entered in favor of the hotel employer, finding that the employer had potential liability if one of its employees caused injuries to third parties while driving after being supplied alcohol at a company party. In finding that the employer has potential liability, the court in Purton found that participation by an employee at a holiday party could be considered an activity within the course and scope of employment. The facts in Purton show how dangerous it is to the employer to allow any alcohol at a company event. Although the company offered only beer and wine to its employees, with two drink tickets per attendee, the employee took his own flask of Jack Daniels to the party, consumed it, and then refilled the flask with more Jack Daniels provided by the bartender. The employee managed to make it home safely after the party, but decided to drive another intoxicated coworker home and while doing so, struck another vehicle, killing a minor occupant.

The critical finding by the court on the issue of liability was that the attendance at the party could be considered to be within the course and scope of employment because the drinking of alcoholic beverages were a conceivable benefit to the employer or were a customary incident to the employment relationship so as to render the employee’s act of drinking to be within the scope of employment.

The lesson to be learned for employers is that it is best not to serve any alcohol at company sponsored events.

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