349 F.Supp.2d 256 (2004) | Cited 5 times | D. Connecticut | June 15, 2004


Pursuant to Rule 55(b)(2) of the Federal Rules of CivilProcedure, Plaintiffs International Brands USA, Inc. andInterbrands, Inc. (collectively, "International Brands") move forentry of a default judgment [doc. # 76] against Defendant Old St.Andrews Limited ("OSA"). For the reasons set forth below, theCourt GRANTS in part the Plaintiffs' Application for Judgment andRequest for Expedited Consideration [doc. #76].

I. Procedural History

International Brands imports and distributes alcoholicbeverages in the United States. OSA produced alcoholic beverages,including Scotch whisky products bearing the name "Old St.Andrews." On February 26, 2002, International Brands filed aneight count complaint [doc. # 1] against OSA. InternationalBrands' principal claim was that OSA had improperly, unfairly,and unlawfully terminated the parties' exclusive distributorshipagreement, under which International Brands held the exclusiveright to distribute OSA products in the United States, includinga product bearing the name Old St. Andrews Clubhouse ScotchWhisky. For the wrongful termination of its distributorship agreement, InternationalBrands asserted claims for breach of contract, breach of the dutyof good faith and fair dealing, and violation of the ConnecticutUnfair Trade Practices Act, Conn. Gen. Stat. § 42-110a et seq.("CUTPA"). International Brands also asserted claims against OSAfor failure to reimburse International Brands for certaindefective products and for failure to repay monies advanced toOSA by International Brands.

OSA answered the complaint and asserted special defenses andcounterclaims [doc. #11]. On May 8, 2002, the Court issued a casemanagement plan by margin endorsement [doc. #13], and the partiesproceeded with discovery. In March 2003, OSA moved to amend itscounterclaims [doc. # 21] to add counts alleging violations ofstate and federal law in connection with International Brands'alleged efforts to register with the United States Patent andTrademark Office the name "Clubhouse" in connection with Scotchwhisky. The Court granted OSA's motion to amend its counterclaimson April 11, 2003 and International Brands thereafter filed ananswer and special defenses [doc. # 31] directed to theadditional counterclaims. Discovery, including discovery on theadditional counterclaims, continued in accordance with ascheduling order set on April 16, 2003 [doc. #27].

On November 3, 2003, International Brands filed a motion forsummary judgment [doc. #48] directed to OSA's counterclaimsalleging trademark infringement. However, following a telephonicconference with the Court on December 2, 2003, the parties agreedthat the Court should deny the motion for summary judgmentwithout prejudice and without considering the merits of themotion [doc. #54] since a court trial of all the claims wasscheduled to commence on April 19, 2004. However, on March 5,2004, OSA's counsel informed the Court by telephone that OSA hadcommenced voluntary liquidation proceedings in the UnitedKingdom. On March 8, 2004, OSA's counsel, Michael Feldman and Kristen SchultzeGreene, filed a motion to withdraw their appearances [doc. # 60]as a result of conversations with both OSA's principal and theputative "liquidator" of OSA, who indicated that OSA would notparticipate further in this action. The Court took the motion towithdraw under advisement and during a telephonic conference withcounsel on March 8, 2004 to address the implications of theliquidation proceedings for this case, the Court informed counselfor both International Brands and OSA that if OSA did not retainreplacement counsel by April 12, 2004, the Court would grant themotion to withdraw and if OSA did not appear by counsel in thisaction, International Brands would be free to move for entry ofdefault and default judgment.

On March 17, 2004, OSA informed the Court [doc. #62] that,among other things: 1) the liquidator had requested that anyfurther proceedings in this matter, including counsel's motion towithdraw, be stayed at least until the Creditors Meetingscheduled for March 26, 2004; 2) the liquidator had instructedMr. Feldman and Ms. Greene not to take further action inconnection with the matter except to relay the liquidator'srequest for a stay; and 3) the liquidator and Julian Haswell,OSA's principal, had been fully informed of the likelyconsequences of the granting of counsel's motion to withdraw andOSA's failure to retain counsel to defend the company in thisaction. Specifically, OSA was informed of the strong likelihoodthat a default judgment in an amount of $1.5 million or morewould enter against OSA and that its counterclaims would bedismissed if OSA declined to participate in this action byretaining counsel to appear on OSA's behalf.

After conferring with counsel for the parties on numerousoccasions in the ensuing weeks, including on April 1, 2004, theCourt on April 2, 2004 entered an order [doc. # 69] granting Mr. Feldman and Ms. Greene's motion to withdraw theirappearances, which had been supplemented by additional affidavitsand supporting papers [docs. ## 67, 68]. The Court furtherordered that International Brands would be free to move for entryof default and for default judgment if replacement counsel didnot appear on OSA's behalf by April 12, 2004. At the Court'sbehest, Mr. Feldman was required to serve a copy of the Court'sOrder [doc. #69] on Julian Haswell, the managing director of OSA,and Mark Goldstein, the liquidator, and Mr. Feldman filed anotice with the Court attesting to service of the Court's Orderon these individuals. See Notice of Service [doc. #73].

To date, no replacement counsel has appeared for OSA, and, asOSA had been informed by Mr. Feldman and the Court, OSA, as acompany, could not appear pro se and has not sought to do so.On May 10, 2004, International Brands filed an application forentry of default for failure to appear and defend [doc. # 74],which was served on the principal of OSA and the liquidator. TheClerk entered a default against OSA on May 11, 2004 [doc. # 75].On May 13, 2004, International Brands filed an Application forJudgment and Request for Expedited Consideration [doc. #76],which also was served, along with the supporting documentation,on OSA's principal and liquidator. See Certification, id. at7.

In support of its request for entry of default judgment,International Brands submitted extensive documentation, includingseveral affidavits, deposition transcripts, and numerous exhibitspertaining to both the merits of its claims as well as thedamages it suffered as a result of OSA's conduct. SeePlaintiff's Proposed Findings of Fact and Conclusions of Law[doc. #77], Affidavit of Plaintiff's Expert Harold Gorman [doc.#78], Affidavit of Plaintiff's Expert Andrew Hillman [doc. #79],Affidavit of Rolf Andersen [doc. #80], Affidavit of Matt Klim[doc. #81], Affidavit of Marc J. Kurzman Regarding Deposition Transcripts[doc. #82], and Affidavit of Marc J. Kurzman Re: Attorneys' Fees[doc. #83]. Having previously entered a default against OSA, theissue currently before the Court is the amount of damages to beawarded International Brands on its claims.

II. Findings of Fact

Because of the default entered against OSA, the Court acceptsas true all of the factual allegations of the complaint, exceptthose relating to damages. Au Bon Pain Corp. v. Artect, Inc.,653 F.2d 61, 65 (2d Cir. 1981); see 10A C. WRIGHT, A. MILLER &M. KANE, FEDERALPRACTICE & PROCEDURE § 2688, at 58-59 (3d ed.1998) ("If the court determines that defendant is in default, thefactual allegations of the complaint, except those relating tothe amount of damages, will be taken as true."). In addition,International Brands submitted extensive documentary evidence andaffidavits in support of their motion for default judgment. TheCourt was impressed by both the detail and documentation thatInternational Brands submitted in support of its claim, and basedupon those affidavits and documentation, as well as the wellpleaded allegations of the Complaint, the Court makes thefollowing findings of fact.

International Brands USA, Inc. and Interbrands, Inc. were atall relevant times Delaware corporations operating out ofFarmington, Connecticut engaged in the importation anddistribution of alcoholic beverages in the United States. At allrelevant times, OSA was a corporation incorporated under the lawsof the United Kingdom, and produced, through third partydistillers and bottlers, alcoholic beverages, including Scotchwhisky products bearing the name "Old St. Andrews."

In August of 1989, Robert Haswell, OSA's Chairman and majorityshareholder, and Rolf Andersen, the President of Interbrands, Inc., reached anagreement whereby Interbrands would develop a market in theUnited States for products manufactured by OSA. The partiesagreed that Interbrands would be OSA's exclusive United Statesdistributor and would be solely responsible for developing amarket in the United States for products produced by OSA. Theexclusive distributorship agreement was memorialized in a letterof appointment dated August 2, 1989 and executed by Mr. Haswell.The parties agreed that Interbrands would remain OSA's exclusiveU.S. distributor so long as Interbrands met its obligations toOSA in terms of developing a market for products by OSA andpurchasing sufficient volume of such products. The agreement wasconsistent with prevailing industry custom and practice, underwhich producers/suppliers of Scotch whisky products gave theirimporters/distributors exclusive distributorships that could notbe terminated without compensation unless the producer/supplierhad good cause for termination, meaning willful misconduct, falsereporting, loss of importer's permit, or unjustified failure topurchase product.

For the next 12 years, until 1994, Interbrands, at its ownexpense, engaged in extensive sales, distribution, and marketingefforts to develop a U.S. distribution network for OSA products,including aggressively promoting OSA products, maintaining morethan adequate warehouse facilities, and purchasing on an ongoingbasis sufficient volumes of OSA products to meet market demand

In 1994, Mr. Andersen created a new company, InternationalBrands USA, Inc. to carry on the business of Interbrands. WithOSA's knowledge and consent, Interbrands assigned its rights andobligations under the exclusive distributorship agreement toInternational Brands USA, Inc. OSA thereafter dealt withInternational Brands USA, Inc. as its exclusive United States distributor. International Brands assumed fullresponsibility for continuing the development of the UnitedStates market for OSA products, and at substantial time and costand with OSA's full knowledge, International Brands worked tocontinue to develop the U.S. market for OSA. International Brandswas apparently quite successful in building OSA's distribution inthe United States, as sales of OSA products grew from 1,700 casesin 1994 to over 10,000 cases by 1998.

Throughout the period International Brands was OSA's exclusivedistributor, International Brands made extensive investments ofits own funds on behalf of OSA and with OSA's full knowledge andconsent. For example, at its own expense, International Brandsengaged Matt Klim, a highly regarded marketing expert, toredesign the bottles of certain OSA products and to createbrochures, advertisements, and promotional materials for OSAproducts. Affidavits and exhibits submitted by Mr. Klim and Mr.Andersen describe in detail the extent and costs of theInternational Brands' efforts on OSA's behalf. See generally,Affidavit of Matt Klim [doc. #81]; see also Affidavit of RolfAndersen [doc. #80], at 8-10. In the period 1999-2001International Brands spent over $1.4 million promoting andmarketing OSA's products. During the same period, however,International Brands realized profits on sales of OSA products ofonly $154,412. International Brands invested these sums inreliance on OSA's promise that International Brands would remainOSA's exclusive U.S. distributor, and as a consequence,International Brands expected that it would be able to recoup itsinvestments over time.

In August 1999, Mr. Andersen advised Mr. Haswell that theUnited States government inspectors had determined that thelabels on the 50ml white golf ball shaped bottles of Old St.Andrews "Classic" failed to describe the product as Scotchwhisky, and thereby failed to conform to U.S. law. Mr. Haswell agreed the defectively labeled productcould be returned to OSA for credit. International Brands securedBATF permission to liquidate its inventory of 50ml Classic untilJanuary 1, 2000, later extended to March 30, 2000. With respectto the 50ml Classic already in the hands of wholesalers, theState of Virginia required International Brands either to recoverthe product from roughly 180 state liquor stores or to issue a"depletion allowance" so that the State could accelerate the saleof the product. After discussions between Mr. Haswell, Mr.Andersen, and Julian Haswell — the son of Robert Haswell andeventual principal of OSA — the Haswells agreed that OSA wouldcredit International Brands for the amount of any depletionallowance issued by International Brands to the State ofVirginia. Accordingly, International Brands elected to have the50ml Classic liquidated by the State of Virginia rather thanrecover the product from 180 state liquor stores for return toOSA for full credit.

In April 2000, OSA asked International Brands to makearrangements for the return of the mislabeled 50ml Classic, whichtotaled 212 cases. In June 2000, International Brands advised OSAthat it would be returning 212 cases of mislabeled Classic. OSAapproved the shipping costs for the return and accepted thereturn of the 212 cases. On July 15, 2000, International Brandsissued OSA two credit invoices, Invoices 715 and 716, forreimbursement of the 212 cases of 50ml Classic returned to OSAand for reimbursement for the cases of 50 ml Classic soldpursuant to the depletion allowances permitted by the State ofVirginia or returned from Virginia distributors. To date, OSA hasrefused to pay the Invoices.

Mr. Haswell died in August 2000. Julian Haswell purchased OSAin or about November 2001 from his father's estate and he assumedthe duties of OSA's "Managing Director." In early 2001, JulianHaswell proposed to Mr. Andersen a production schedule andpricing for a new 750ml Clubhouse product. On January 26, 2001, InternationalBrands submitted a formal purchase order for 4,650 cases of thenew 750ml Clubhouse product at a price of 18 pounds sterling percase for each of the 4,650 cases. OSA accepted InternationalBrands' purchase order and on February 2, 2001, OSA indicatedthat production was about to begin.

On February 26, 2001, Julian Haswsell asked InternationalBrands to wire to OSA's bank 26,045 pounds sterling to "help paythe cost of the bulk whisky I have purchased for your order of4,650 cases which is now becoming due for payment." InternationalBrands agreed to advance these funds to OSA, which were to becredited against the cost of the 4,650 order. On March 9, 2001,International Brands wired to OSA's bank $40,549.01 representingthe bulk whisky advance, receipt of which was acknowledged byOSA. The first 1,200 cases of the 4,650 Case Order were shippedin April 2001. International Brands applied the invoiced cost ofthat shipment (23,600 pounds) to the balance due from OSA fordefective products and the bulk whisky advance.

On June 5, 2001, Julian Haswell requested payment for 783additional cases of the 750ml Clubhouse that were purportedlyready for shipment. By letter dated June 8, 2001, Mr. Andersenreminded Julian Haswell that International Brands already had acredit balance in its favor of 55,302 pounds sterling for (1)defective goods (including goods that had been returned to OSA atOSA's request) and (2) the bulk whisky advance. That creditadvance was sufficient to cover the cost of the 1,200 cases thathad been shipped plus an additional 783 cases.

On June 22, 2001, International Brands requested by fax that inaddition to the 783 cases of 750ml Clubhouse that had purportedlybeen produced, OSA produce an additional 1,617 cases so that a2,000 case container of 750ml Clubhouse could be loaded andshipped to International Brands. However, Julian Haswell responded by fax on June 25, 2001that OSA would not produce any more cases of 750ml Clubhouseuntil it received from International Brands payment for the 783cases it was holding. For his part, Mr. Andersen insisted thatOSA apply the credits due International Brands to the order.

The parties made an attempt to resolve the outstanding paymentissues and secure delivery of the balance of the 4,650 CaseOrder, but those efforts were ultimately unsuccessful. OSArefused to ship the balance of the 4,650 Case Order unlessInternational Brands paid requested charges, and InternationalBrands objected to OSA's refusal to ship and insisted thatInternational Brands receive the credits it was due. On November21, 2001, Julian Haswell advised Mr. Andersen that "withimmediate effect, Old St. Andrews will no longer be supplyingtheir products to International Brands, Inc. as a customer." Thislawsuit followed.

III. Conclusions of Law

The determination of whether to grant a motion for defaultjudgment lies within the sound discretion of the district court.See Shah v. N.Y. Dep't of Civil Serv., 168 F.3d 610, 615 (2dCir. 1999). "[W]here a party fails to respond, after notice thecourt is ordinarily justified in entering a judgment against thedefaulting party." GE Group Life Assur. Co. v. Ruzynski, No.3:03CV1647, 2004 WL 243346, at *1, (D. Conn. Feb. 9, 2004)(quoting Bermudez v. Reid, 733 F.2d 18, 21 (2d Cir. 1984)). Inthis case, OSA was informed about the likely consequences offailure to retain replacement counsel and to participate in thisaction. OSA's failure to respond despite its knowledge of thedefault entry and its potential consequences, as well as theextensive documentation that International Brands has submittedin support of its claims, justifies an entry of a defaultjudgment against OSA. In its application, International Brandsseeks compensatory damages for OSA's breach of the distributorship agreement (CountOne), breach of the covenant of good faith and fair dealing(Count Two), sale of defective goods (Count Six), breach ofcredit agreement (Count Seven), and violation of CUTPA (CountEight). The Court will address each count in turn.1

In Count One International Brands seeks reliance damagesstemming from OSA's unlawful termination of the distributorshipagreement equal to the out-of-pocket expenses InternationalBrands incurred in developing, promoting, and advertising"Clubhouse" products during the period 1999-2001, less theprofits International Brands earned on the sale of Clubhouseproducts during the same time period. Count Two is a cause ofaction for breach of the duty of good faith and fair dealing, andthe damages International Brands seeks for Count Two is the sameas for Count One. On Counts One and Two, International Brandsseeks judgment of a total of $1,333,542.00, which is the sum ofthe expenses International Brands incurred between 1999 andNovember 2001 for advertising and promoting Clubhouse inpreparation for the new Clubhouse 750ml product, totaling$1,487,954.00, minus International Brands' profits on salesduring the same period, which was $154,412.89.

Both case law and the affidavits of International Brands'experts regarding the custom and practice in the industry supportInternational Brands' claim for recovery of reliance damages forOSA's breach of the distribution agreement. See, e.g., ATACSCorp. v. Trans World Communications, Inc., 155 F.3d 659, 669 (3dCir. 1998) ("[W]here a court cannot measure lost profits withcertainty, contract law protects an injured party's relianceinterest by seeking to achieve the position that it would have obtained had the contractnever been made, usually through the recovery of expendituresactually made in performance or in anticipation of performance.")(citations omitted); Nashville Lodging Co. v. Resolution TrustCorp., 59 F.3d 236, 246 (D.C. Cir. 1995) ("[W]here theprospective, `benefit of the bargain' damages prove too difficultor speculative to calculate, courts commonly give the plaintiffdamages measured retrospectively, protecting the plaintiff's`reliance interest' by undoing the harm which his reliance on thedefendant's promise has caused him and putting him in as good aposition as he was in before the promise was made.") (citationsomitted); see also Affidavit of Harold Gorman [doc. #78];Affidavit of Andrew Hillman [doc. #79]. Moreover, the amountsought, $1,333,542.00, is supported by ample documentaryevidence. See Andersen Affidavit, Ex. ## 33, 34; Ex. ## 30,30A; see also Klim Affidavit, Ex. ## 5, 7; Ex. ## 63, 65.Accordingly, the Court concludes that International Brands isentitled to judgment against OSA on Counts One and Two and isentitled to recover $1,333,542.00 for OSA's breach of contractand breach of good faith and fair dealing as alleged in thosecounts.

Next, International Brands seeks $37,903.64 in damages underCount Six based on OSA's failure to reimburse InternationalBrands for defective and unmerchantable goods, including the 50mlClassic inventory. The sum sought is the amount of the creditinvoices International Brands rendered to OSA for defectivegoods. International Brands submitted copies of both invoices,the first in the amount of $28,857.00 for "return of defectivelabeling on 50ml white gold ball," Andersen Affidavit, Ex. 57;the second in the amount of $9,046.64 in "billing from the Stateof Virginia for discounting the defective/mislabeled white goldballs." Id., Ex. 58. International Brands has submitted ampleproof of the $37,903.64 in damages for defective and unmerchantable goods. Consequently, the Court concludes thatInternational Brands is entitled to judgment against OSA on CountSix and is entitled to recover $37,903.64 in damages on thatcount.

Count Seven contains a request for reimbursement from OSA formonies advanced by International Brands to OSA at OSA's request,purportedly for the purchase of bulk whisky needed to fulfill a4,650 case order for Old St. Andrews Clubhouse Scotch Whisky.International Brands seeks $6,801.00 under Count Seven, which itcomputes by subtracting from the amount of its advance the pricefor the 1,200 cases of Clubhouse that OSA shipped toInternational Brands. See October 1, 2001 Correspondence [doc.#80], Ex. 49. This claim is also supported by affidavits anddocumentary evidence. Accordingly, the Court concludes thatInternational Brands is entitled to judgment against OSA on CountSeven and is entitled to recover $6,801.00 on that count.International Brands is therefore entitled to recover a total of$1,378,246.64 in compensatory damages for the claims set forth inCounts One, Two, Six, and Seven.

Finally, in Count Eight, International Brands seeks to recoverunder CUTPA for OSA's wrongful termination of InternationalBrands' exclusive distributorship and for OSA's failure to creditInternational Brands for the advanced payments demanded by OSA orfor the defective products. Compl. ¶ 48. On its CUTPA claim,International Brands seeks two forms of recovery: its legal fees,and punitive damages as assessed by the Court.

Conn. Gen. Stat. § 42-110g(d) provides that "the court mayaward, to the plaintiff . . . costs and reasonable attorneys'fees based on work reasonably performed by an attorney and not onthe amount of recovery." Marc J. Kurzman, the lead attorney forInternational Brands at all relevant times, submitted anextensive affidavit and documentation which establishes $290,208.42 as the amount of legal fees and expenses thatInternational Brands incurred in this action as a result of OSA'sconduct. See Kurzman Affidavit Re Attorneys' Fees, Exs. A-C.The fees and expenses requested are reasonable in amount,appropriately documented and were reasonably incurred in supportof the diligent work of International Brands' counsel on behalfof his client. Regrettably, however, this Court cannot awardInternational Brands its legal fees under CUTPA because the Courtdoes not believe that there are legally sufficient grounds toimpose CUTPA liability in this case.

While it is true that by its default OSA admitted InternationalBrands' well-pleaded allegations of fact, Au Bon Pain Corp.,653 F.2d at 65, this Court may grant International Brands onlythat relief for which a sufficient basis is asserted in itsComplaint. 10 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE, §55.12 (3d ed. 2004); cf. Nishimatsu Construction Co., Ltd. v.Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). InCount Eight, the CUTPA claim, International Brands simplyincorporates by reference the conduct described in support of itsbreach of contract claims. Compl. ¶ 48. The Second Circuit hasheld that "a simple contract breach is not sufficient toestablish a violation of CUTPA, particularly where [as here,] thecount alleging CUTPA simply incorporates by reference the breachof contract claim and does not set forth how or in what respectthe defendant's activities are either immoral, unethical,unscrupulous or offensive to public policy . . ." BoulevardAssocs. v. Sovereign Hotels, Inc., 72 F.3d 1029, 1038-39 (2dCir. 1995) (citations omitted); see Loda Agency, Inc. v.Nationwide Ins. Co., No. 3:00CV1750, 2000 WL 1849865, at *4 (D.Conn. Oct. 10, 2000) (incorporating by reference the allegedbreaches of contract in the complaint without setting forth howsuch conduct could be characterized as immoral, oppressive, andunscrupulous, was insufficient to find CUTPA violation). Indeed, the Second Circuit observed, "A rule to thecontrary — that a company violates CUTPA whenever it breaks anunprofitable deal — would convert every contract dispute into aCUTPA violation. We cannot assume that the Connecticutlegislature, in enacting CUTPA, intended such an extraordinaryalteration of the common law." Boulevard Assocs., 72 F.3d at1039.

International Brands has not alleged any aggravatingcircumstances or any immoral or oppressive conduct by OSA in thiscase. To the contrary, it appears to the Court from theallegations of the Complaint and the affidavits as well, that OSAsimply tried to walk away from a contract and agreements that ithad no right to terminate or ignore. Such conduct surelyconstitutes a breach of contract, and even breaches the covenantof good faith and fair dealing. But it does not, withoutsignificantly more, violate CUTPA. And without a CUTPA violation,this Court has no legal basis on which to award InternationalBrands its legal fees.

For the same reasons, the Court cannot award InternationalBrands punitive damages under CUTPA. Conn. Gen. Stat. §§42-110g(a). Therefore, International Brands is not entitled tothe legal fees and punitive damages it requested in Count Eight.

IV. OSA's Counterclaims

In addition to seeking a default judgment on its complaint,International Brands also requests judgment on OSA'scounterclaims. The Court has previously granted a default againstOSA [doc. #75]. Since OSA has not appeared and prosecuted itscounterclaims, International Brands is entitled to a judgment ofdismissal on all of OSA's counterclaims.

V. Conclusion

For the foregoing reasons, the Court GRANTS in partInternational Brands' Motion [doc. #76] and directs the Clerk to enter default judgment forInternational Brands and against OSA on Counts One, Two, Six, andSeven of International Brands' complaint [doc. # 1] in accordancewith this Ruling in the total amount of $1,378,246.64. TheCourt also directs the Clerk to enter a judgment of dismissalagainst OSA on all of OSA's Counterclaims [doc. ## 11, 38]. Therebeing no further matters remaining for disposition, the Clerk isdirected to close this file.


1. Since International Brands has decided not to pursue anyother counts of its Complaint, the Court deems those countsabandoned.

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