TBA, INC. VS. CUYAHOGA SUPPLY & TOOL, INC.
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RENDERED: JANUARY 29, 2010; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2008-CA-002152-MR
TBA, INC.
v.
APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE MARTIN F. MCDONALD, JUDGE
ACTION NO. 01-CI-008051
CUYAHOGA SUPPLY & TOOL, INC.
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CAPERTON AND DIXON, JUDGES; HENRY,1 SENIOR JUDGE.
CAPERTON, JUDGE: The Appellant, TBA, Inc. (TBA), appeals the August 8,
2008, Findings of Fact, Conclusions of Law, and Judgment of the Jefferson Circuit
Court in favor of the Appellee, Cuyahoga Supply & Tool, Inc. (Cuyahoga),
following a bench trial, in which it found that Cuyahoga did not owe a sum of
1
Senior Judge Michael L. Henry sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes
(KRS) 21.580.
$13,360.16 to TBA because (1) the piping at issue was defective, (2) Cuyahoga
complied with the requirements of the Uniform Commercial Code (UCC), and (3)
the unrebutted alleged assertion that an agent of TBA advised Cuyahoga it would
receive a credit for the defective pipe. Having reviewed the arguments of the
parties, the record, and the applicable law, we affirm.
TBA is a Kentucky corporation in the business of manufacturing and
supplying PVC piping and other materials to the construction industry. Cuyahoga
is an Ohio corporation, in the business of supplying construction materials to
contractors primarily in Ohio. According to the brief of TBA, the two companies
had a good business relationship from May of 1995 to July of 2001. Thereafter,
the relationship between TBA and Cuyahoga apparently deteriorated.2
In June of 2001, TBA had shipped two truckloads of PVC pipe to
Cuyahoga’s client, Allegra Construction Company (Allegra), at its ClevelandHopkins International Airport worksite. The parties agree that the cost of the
piping was $13,636.16.
2
According to TBA, the difficulties in the matter sub judice apparently began when Chris
Muzzin, the vice-president at Cuyahoga, purchased a Rolls Royce, which belonged to Tom
Brooks, president of TBA. The Rolls Royce had apparently been totaled, and after accepting
delivery of the car, Muzzin requested that Brooks provide him with title to the car. Brooks
asserted that he was unable to do so because the car was not in working condition at the time it
was sold. Thereafter, the relationship between TBA and Cuyahoga apparently deteriorated,
leading TBA to believe that Cuyahoga refused to make payments on the subject invoices in an
attempt to recoup money paid for the aforementioned Rolls Royce.
We note that at trial, neither Brooks nor Muzzin provided any testimony regarding this
issue. Indeed, the only suggestion of a connection between these two disputes was made by
counsel for TBA. Accordingly, we shall not address this issue further in the course of this
appeal, nor reference it in reaching our decision.
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TBA uses what it claims are independent, outside sales representatives
to conduct its sales activities, and acknowledges that Sam Phillips was its Ohio
sales representative, a fact also acknowledged by Cuyahoga. Cuyahoga apparently
regularly routed its orders to TBA through Phillips, after which TBA would then
ship the orders directly to Cuyahoga or its customers. Cuyahoga does
acknowledge that it occasionally placed phone or fax orders directly with TBA.3
In the matter sub judice, Muzzin testified that Allegra notified
Cuyahoga that they were rejecting the pipe at issue, although TBA asserts that
Muzzin provided no proof of rejection. Muzzin further testified that he went to the
construction site and noted that the pipe was brittle and advised Phillips of same.
According to Muzzin, Phillips met him at the airport construction site, inspected
the pipe, agreed that some of the pipe was defective, and advised that Cuyahoga
would be entitled to a credit on its account with TBA. In the bench trial below, the
court found that TBA did not rebut Muzzin’s testimony that the piping was in fact
defective. The piping was apparently also rejected at the jobsite by the Federal
Aviation Administration official in charge of the project. Thereafter, as an
accommodation to Allegra, Muzzin moved the piping to Cuyahoga’s place of
business.
Muzzin further testified that Phillips prepared a return material
authorization (RMA) request form to get authorization to return the pipe for credit.4
3
In so noting, we recognize that at the time this suit was initially filed, there was a dispute
between the parties as to whether or not the trial court had personal jurisdiction over Cuyahoga.
We shall briefly address that issue, infra, herein.
4
At this point in the trial, TBA’s attorney objected to what it described as ongoing hearsay.
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TBA states that the RMA form was filled out by Phillips, and was a request for
authority to return the allegedly defective material. TBA further states that on its
face, the RMA form instructed Cuyahoga to contact Amy Tracy, and provided her
address, phone number, and extension accordingly, as well as providing a fax
number. TBA asserts that Cuyahoga was familiar with, and had utilized TBA’s
return material procedure on prior occasions, including an instance in 1999 in
which Cuyahoga followed the return procedures and received a full refund, plus
costs. In that situation, Cuyahoga did return the defective pipe.
Muzzin testified that he believed that Phillips gave the RMA form to
TBA. Further, he testified that Phillips already knew the value of the pipe, that he
had looked at the pipe and assumedly made an estimate, and that Muzzin was
aware of no other information that Phillips needed to complete and submit the
form.
Thereafter, the defective pipe remained in storage with Cuyahoga for
over a year. Cuyahoga asserts that on multiple occasions, Muzzin reminded
Phillips to arrange for the pipe to be picked up by TBA, or requested that TBA
give Cuyahoga other instructions as to its disposition, and that on many occasions,
TBA was given the opportunity to inspect the pipe and haul it back to Louisville.
Muzzin testified that for reasons unknown to him, TBA did not pick up the pipe
nor issue a credit, and that because the pipe was defective, Cuyahoga could not
resell it. Muzzin further testified that Phillips never advised him that TBA would
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not issue a credit because of incomplete paperwork. Muzzin testified that he was
not aware until this lawsuit was filed nor that TBA did not intend to issue a credit.
Cuyahoga also introduced audiotapes of telephone conversations
between Muzzin and Phillips, which document ongoing discussions concerning the
defective pipe shipments. Cuyahoga asserts that in those tapes, Phillips
acknowledges both the defectiveness of the pipe, as well as TBA’s receipt of
notice of the defect. Phillips further stated that TBA would be issuing a credit to
Cuyahoga.
Muzzin also testified that in the past, when Cuyahoga requested
credits for defective shipments of pipe, Phillips would handle all of the details to
obtain a credit, including filling out any necessary paperwork and submitting it to
TBA. Muzzin stated that prior to the present dispute, Cuyahoga received several
credits for defective shipments through the submission of claims by Phillips, and
that Phillips would handle any problems that Cuyahoga had with any TBA orders,
including the necessary paperwork.
According to the testimony of Amy Tracy, she was the person in
charge of claims, and in charge of TBA’s procedures for authorizing return
material, billing, and for crediting accounts receivable. Tracy acknowledged that
she did not personally see or inspect the defective pipe, and had no personal
knowledge of its condition. Tracy testified that she had no first-hand knowledge
that Cuyahoga was seeking a credit until November of the next year, and further,
that she had never received the necessary paperwork to process the claim. She had
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no recollection of calling anyone at Cuyahoga to inform them that TBA had not
received the necessary paperwork to process the refund.
Tracy also conceded that a TBA customer would not be required to
pay for defective pipe, and that a customer who received a shipment of defective
pipe would be entitled to a refund or credit. Tracy testified that the proper
procedure for obtaining a refund or resolving problems with an account was for the
customer to contact its inside or outside sales representative. Tracy further stated
that Phillips could not have, was not, nor would have been authorized to assure a
refund, as he was simply a sales representative, but did concede that he was
responsible for gathering the necessary documentation.
According to Tracy, Phillips was, and still is, TBA’s sales
representative in Ohio, that he was assigned to the Cuyahoga account, and that he
regularly handled that account during the relevant time period. Tracy testified that
she never told Phillips it was beyond his authority to attempt to resolve the dispute
with Cuyahoga, and agreed that “to some extent,” Phillips had authority to resolve
claims. Although Tracy denied that Phillips had complete authority to settle claims
on his own, she nevertheless conceded that neither she nor, to her knowledge,
anyone else from TBA ever advised Cuyahoga that Phillips lacked authority to
settle claims or issue refunds.
Tracy further stated that Phillips was aware that TBA’s policy was to
pick up defective pipe before issuing a refund, although she had no recollection of
any conversations with Phillips about picking up the defective pipe from
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Cuyahoga. Tracy stated that she had no personal knowledge concerning
conversations between Phillips and Muzzin, and that she never spoke with Muzzin
herself concerning the defective pipe.
TBA also presented the testimony of Joyce Hare, who handles
collection issues on TBA’s accounts receivable. Hare acknowledged that she did
not personally see or inspect the defective pipe, and had no personal knowledge of
its condition. Hare testified concerning TBA’s general procedures for past due
accounts, and stated that based upon those procedures, she believes she would have
made two calls per month to Cuyahoga’s accounting department in an attempt to
obtain payment on the account during the 60-day period that payment was overdue.
Hare had no specific recollection of any conversations with a Cuyahoga
representative, but did recall having at least one conversation with Phillips, as a
result of which she was aware of the ongoing dispute between TBA and Cuyahoga
concerning the shipment in question.
TBA also called Tim Biery, its sales director for Ohio, as a rebuttal
witness. Biery testified that he met Muzzin at Cuyahoga in Bedford Heights, Ohio,
when he accompanied Phillips on a sales call. Biery’s testimony was apparently
offered, over the objection of Cuyahoga, to impeach Muzzin, who testified that he
did not recall having met or dealt with any TBA representative other than Phillips
over the course of time that he had been doing business with TBA. Biery did not
testify concerning the defective pipe or the dispute between TBA and Cuyahoga.
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This case came before the circuit court, who heard the matter by
bench trial on April 18, 2005. Thereafter, on August 8, 2008, the court entered the
aforementioned findings of fact and conclusions of law in this matter. TBA
subsequently filed a motion to alter, amend, or vacate pursuant to CR 60.02, which
was denied. It is from that order that TBA now appeals to this Court.
At the outset, we briefly address the issue of the jurisdiction of the
court below to decide this issue. In its brief to this Court, Cuyahoga asserts that
this Court should affirm the court below, but nevertheless maintains its argument
that the court lacked personal jurisdiction to decide these issues. In its arguments
below, Cuyahoga asserted that the court lacked personal jurisdiction, as it was a
nonresident buyer, and lacked the necessary minimum contacts with the state of
Kentucky.5
In response, TBA asserted that pursuant to KRS 425.210(2)(a)(1), the
court did have personal jurisdiction. Specifically, TBA stated that over the course
of the business relationship, Cuyahoga would at times call its orders in directly to
the TBA office in Louisville, and further, that there were various times when the
TBA representative in Ohio would fax Cuyahoga orders from Ohio to the TBA
office in Kentucky.
On June 3, 2003, the trial court issued an opinion and order finding
that it had personal jurisdiction to hear this matter. In so finding, the court found
5
Specifically, Cuyahoga asserted that it has no place of business in Kentucky; has no land here;
that no one from Cuyahoga has been to Kentucky on business; that TBA initiated the business
relationship in Ohio; and that all supplies were shipped to Cuyahoga in Ohio.
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that TBA met its burden of proof in establishing personal jurisdiction. The court
found that since the relationship between the parties began in 1991, the parties had
engaged in a series of transactions which constituted an extended business
relationship involving substantial amounts of money. Based thereon, and in
reliance upon applicable precedent, the court found that Cuyahoga’s actions caused
a consequence in the state of Kentucky, and that Cuyahoga had a substantial
enough connection to the state to make the exercise of personal jurisdiction
reasonable.
Having reviewed the opinion of the trial court and the applicable law,
we are compelled to agree. We note that de novo review is appropriate when the
lower court is alleged to be acting outside of its jurisdiction, as jurisdiction is
generally a question of law. See Grange Mutual Insurance Co. v. Trude, 151
S.W.3d 803 (Ky. 2004). In so noting, we have reviewed the law, and believe the
trial court’s interpretation of applicable precedent to be correct.
Pursuant to Tube Turns Division of Chemetron Corporation v.
Patterson Company, Inc., 562 S.W.2d 99 (Ky.App. 1978), the court below
correctly stated that it would be unreasonable for Kentucky to exercise jurisdiction
over a non-resident purchaser where the purchaser’s only contact within the state
was negotiation by telephone and mail culminating in a single order.
Nevertheless, the court found, and we believe correctly, that the
parties in this instance have engaged in more than an isolated transaction. Indeed,
the record shows that since 1991, Cuyahoga and TBA have engaged in repeated
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and prolonged transactions, constituting substantial sums of money, some of which
were conducted by phone, others by facsimile. We believe that the nature of these
transactions and the sum of money involved were substantial enough to establish
the requisite transaction of business within the state.
As we have previously held in First National Bank of Louisville v.
Shore Tire Co., 651 S.W.2d 472 (Ky.App. 1982), the repeated placing of orders by
a nonresident with a Kentucky resident constituted the transaction of business in
Kentucky, and that the extended business relationship between the two and the
substantial amount of money involved established the necessary minimum contacts
to make the exercise of jurisdiction reasonable. Accordingly, we affirm the ruling
of the lower court on this issue.
Having addressed issues of jurisdiction, we turn now to the merits of
the dispute between the parties. In reviewing this matter, we note that this case
was tried to the court below on both the law and the facts. It is the law of this
Commonwealth that findings of fact issued by the trial court will not be set aside
on appeal unless those findings are clearly erroneous. See Frances v. Frances, 266
S.W.3d 754 (Ky. 2008). Certainly, this Court may not substitute its own judgment
for that of the trial court on the weight of the evidence, unless that decision is
unsupported by substantial evidence. See Castle v. Castle, 266 S.W.3d 245
(Ky.App. 2008). Substantial evidence is evidence of a probative value that a
reasonable person would accept as adequate to support a conclusion. See Moore v.
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Asente, 110 S.W.3d 336 (Ky. 2003). We now review this matter with those
standards in mind.
As its first basis for appeal, TBA asserts that Cuyahoga did not
properly reject its shipment. In support of that argument, TBA states that on prior
occasions, it had furnished shipments and had been paid in full, and that
occasionally, it had furnished pipe which Cuyahoga had rejected by utilizing the
proper procedures, including the use of TBA’s RMA form. TBA states that on
those occasions, Cuyahoga had returned the pipe, and received full credit for it,
including reimbursement for out of pocket expenses.
TBA asserts that other than the statement from Muzzin that he had
visited the job site and seen the defective pipe, the remainder of his testimony was
hearsay from the FAA, Allegra, and Phillips. TBA asserts that via the RMA form
which it submitted as an exhibit in this claim, Cuyahoga was on notice of the
proper procedure to follow to make the claim and initiate the process of returning
the defective pipe for credit. Further, TBA relies upon Tracy’s testimony that she
had no first-hand knowledge that Cuyahoga was seeking a credit until November
of the following year, and that she had never received the paperwork to process the
claim or authorize an RMA.
Accordingly, TBA argues that Cuyahoga accepted the goods, as it
failed to reject the shipment within a reasonable time after delivery pursuant to
KRS 355.2-602 and KRS 355.2-606. TBA asserts that even given the most
favorable interpretation of the facts, Cuyahoga attempted, over a year after their
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acceptance, to revoke the acceptance. Thus, TBA asserts that Cuyahoga, as the
buyer, has the burden to establish any breach with respect to the goods accepted
pursuant to KRS 355.2-607. TBA asserts that there is no proof in the record that
the goods were in fact defective aside from Muzzin’s own testimony.
In response, Cuyahoga asserts that Muzzin’s unrefuted testimony
established that Cuyahoga made a timely, rightful, and effective rejection of the
defective pipe supplied by TBA, and that Cuyahoga took all necessary steps to
comply with the requirements of KRS 355.2-602(1). We note that KRS 355.2602(1) provides that:
(1) Rejection of goods must be within a reasonable time
after their delivery or tender. It is ineffective unless the
buyer seasonably notifies the seller.
Cuyahoga asserts that the lower court was correct in finding that it rejected the
goods within a reasonable time after delivery by immediately notifying Phillips of
the condition of the pipe. Cuyahoga further argues, and we believe correctly, that
KRS 355.2-602(1) makes no requirement as to specifically whom the notice must
be given. In this instance, given that the testimony of all parties establishes that
Cuyahoga routinely and primarily dealt with Phillips, it logically follows that he
would be the individual to whom notice was provided.
Our review of the record establishes that notice was given to Phillips,
that he was given an opportunity to inspect the pipe, and that he was advised that
Cuyahoga did not find the condition of the pipe to be satisfactory. While
Cuyahoga may have moved the pipe to its facility as a courtesy to its customer, the
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record indicates that it made clear to Phillips on multiple occasions that the pipe
needed to be picked up, or otherwise disposed of. Certainly, under the UCC a
supplier of non-conforming goods cannot turn a rightful rejection into an untimely
one simply by refusing to pick up the non-conforming goods.
Further, we are not persuaded by TBA’s arguments concerning the
missing paperwork needed to process the refund for Cuyahoga. Having reviewed
the record, we are of the opinion that it clearly indicates that the necessary
paperwork was given to Phillips and, further, that this was the customary method
in which Cuyahoga normally made its returns. For reasons set forth herein below,
we believe Phillips to have been an agent with, at the very least, apparent authority
on behalf of TBA. We believe that Cuyahoga’s actions in providing the RMA to
Phillips, just as it had done on previous occasions, constituted an effective and
seasonable rejection of the defective pipe.
Having found that Cuyahoga seasonably and effectively rejected the
shipment, we need not address TBA’s second argument concerning whether
Cuyahoga’s rejection of the defective pipe should be treated as a revocation of
acceptance under KRS 355.2-607, rather than a rejection of non-conforming goods
under KRS 355.2-602(1). Accordingly, we now turn to the second basis of appeal
asserted by TBA.
As its second basis for appeal, TBA argues that the court below erred
in finding that Phillips had apparent authority to inspect the pipe and advise
Cuyahoga that it was defective, and that Cuyahoga was entitled to a credit. While
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TBA acknowledges that in this Commonwealth, a principal is bound by the acts of
an agent acting within the scope of his authority, it disputes ever granting that
agency to Phillips. TBA argues that when apparent authority is claimed, we must
look to the acts or statements of the principal for the requisite foundation, and not
to those of the agent. Further, TBA argues that the principal must affirmatively
hold the agent out to the public as possessing sufficient authority to modify the
contract or to permit the agent to act as if he has the required authority.
Accordingly, TBA asserts that there is no evidence to indicate that it
did anything to imply or to give Cuyahoga the impression that Phillips was
anything other than a sales agent, and states that Cuyahoga’s one piece of
evidence, the RMA form purportedly completed by Phillips, specifically informed
Cuyahoga that they must contact Tracy in order to secure an RMA.
Having reviewed the record, we are compelled to disagree. As the
court below correctly held, it is the well-settled law in this Commonwealth that a
principal is bound by the acts of an agent who is acting within the scope of his
apparent authority. See Clark v. Burden, 917 S.W.2d 574 (Ky. 1996). Our courts
have defined an apparent agent as one whom the principal, either intentionally or
by want of ordinary care, induces third persons to believe to be his agent, although
he has not, either expressly or by implication, conferred authority upon him. See
CSX Transportation Inc. v. First Natl. Bank of Grayson, 14 S.W.3d 563, 568
(Ky.App. 1999) (quoting Middleton v. Frances, 257 Ky. 42, 77 S.W.2d 425
(Ky.App. 1934)).
-14-
In so stating, we do acknowledge that apparent authority is based
upon the representation or conduct of the principal, not of the agent. See
Enzweiler v. People’s Deposit Bank, 742 S.W.2d 569, 570 (Ky.App. 1987). In this
instance, if not intentionally, then at the very least by want of ordinary care in not
advising Cuyahoga to the contrary despite repeated dealings with the company,
TBA vested Phillips with that authority.
Cuyahoga argues, and we agree, that at a minimum the record via the
testimony of both Muzzin and Tracy establishes that under general agency
principles Phillips had apparent authority to handle all aspects of the Cuyahoga
account. This includes the authority to act as a liaison between TBA and
Cuyahoga to obtain refunds for defective shipments of pipe. Testimony
established, and TBA did not refute, that on prior occasions, Cuyahoga had
returned shipments of pipe and had utilized Phillips as its agent from the beginning
to the end of the procedure.
Our review of the record reveals no evidence that TBA ever informed
Cuyahoga that Phillips was not its agent and in fact, testimony from Tracy
establishes she never told Phillips it was beyond his authority to attempt to resolve
the dispute with Cuyahoga. More importantly, Tracy agreed that “to some extent”
Phillips had authority to resolve claims. Further, Tracy conceded that neither she
nor, to her knowledge, anyone else from TBA ever advised Cuyahoga that Phillips
lacked authority to settle claims or issue refunds. In light of all of the actions
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Phillips took on behalf of TBA that would in fact indicate agency authority, it was
certainly incumbent upon TBA to inform Cuyahoga if this were not the case.
Because we believe that the lower court correctly concluded that
Phillips was an agent of TBA, we believe it also correctly admitted Muzzin’s
testimony concerning statements made to him by Phillips. As an agent, Phillips
was one whose statements constitute binding admissions under KRE 801A(b)(3)
and (b)(4). Accordingly, Phillips’s statements concerning the defectiveness of the
pipe, and the promised credit, as well as the statements made by Phillips on the
audiotapes admitted into evidence in this matter, constitute binding admissions by
TBA that the pipe in question was defective and that Cuyahoga was entitled to a
refund or credit for those shipments.
Having found that these statements are admissible, we must likewise
find that TBA failed to produce any evidence to rebut that which was put forth by
Cuyahoga to establish the defectiveness of the pipes and the notice given to
Phillips of same. Certainly, TBA could have called Phillips to the stand to explain
or refute the audiotapes, or to impeach the testimony of Muzzin. It chose not to do
so, nor to submit any other evidence which might refute the assertions made by
Cuyahoga in this regard. Accordingly, we affirm.
Finally, we address Cuyahoga’s request for costs and attorney fees. In
making this request, Cuyahoga argues that TBA made this appeal without a good
faith basis, and failed to call any witnesses with actual personal knowledge of the
condition of the defective pipe, or of the conversations between Muzzin and
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Phillips. We cannot agree. Having reviewed the record and the arguments of the
parties in detail, we simply cannot find that TBA brought this appeal without any
belief in its merit. While we ultimately affirm the lower court in its rulings, we are
of the opinion that TBA presented some evidence on its own behalf which had
merit. Accordingly, we deny Cuyahoga’s request for attorney fees and costs.
Wherefore, for the foregoing reasons, we hereby affirm the August 8,
2008, Findings of Fact, Conclusions of Law, and Judgment of the Jefferson Circuit
Court, the Honorable Martin F. McDonald, presiding.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Edward F. Harrington, Jr.
Louisville, Kentucky
Rebecca F. Schupbach
Louisville, Kentucky
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