Crane v. Home Depot, Inc.

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IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR KENT COUNTY RUSSELL and JENNIFER CRANE, husband and wife, ) ) ) ) ) ) C.A. No. 06C-03-034-RFS ) ) ) ) ) ) ) Plaintiffs, v. THE HOM E DE POT , INC., a Delaware corporation, and DRAUSE-WERK GMBH & CO.KG, a foreign corporation, Defendants. ORDER Motio n to Dis miss. D enied. Submitted: Decided: February 7, 2008 May 30, 2008 Pending before the Court is a Motion to Dismiss based on Lack of Personal Jurisdiction. Plaintiffs R ussell and Je nnifer Cra ne ( Plaintif fs ) broug ht this produ cts liability action against Defendants, Ho me Depot, Inc. ( H ome Depo t ) and Krause W erk GmbH & Co., K G ( Kra use We rk ). In respo nse to the co mplaint, K rause W erk filed its Motio n to Dis miss fo r Lack of Per sonal Ju risdiction . For the following reasons, Krause Werk s Mo tion to D ismiss is d enied. STANDARD OF REVIEW In a motion to dismiss, the court must assume all well-pleaded facts or allegations in the co mplain t as true. 1 The plaintiff or complainant will have every reasonable factual inference drawn in his favor. 2 Howeve r, the plaintiff must offer mo re than conclusory allegations, and only the well-pleaded facts of the plaintiff s complaint are accepted as true.3 When p ersonal jurisd iction is challen ged by a mo tion to dismis s pursuan t to Superior Court Civil Rule 12 (b)(2), the plaintiff has the burden of showing a basis for the court s exe rcise of jurisd iction over th e nonresid ent defen dant. 4 This burd en is met b y a threshold prima facie showing that jurisdiction is conferred by the statute.5 Consideration of a motion to dismiss can include looking to necessary documents outside the pleadings.6 The court will apply two-step analysis in determining jurisdiction: 1) Does Delaw are s long arm statute apply? 2) Is the exercise of jurisdiction consistent with due process? 7 1 Plumm er & Co. Re altors v. Crisa fi, 533 A.2 d 1242 , 1244 (D el. Super. 1 987). 2 Harm on v. Du daily, 407 A.2d 232 (Del. Super. 1979 ). 3 Lester v. Katzen, 1994 Del. Super. Lexis 617 at *2 (Del. Super. Dec. 19, 1994) (citing Greenly v. Da vis, 486 A.2d 669 (Del. Super. 1984)). 4 Padcom, Inc. v. Netmotion Wireless, Inc., 2004 U.S. Dist. Lexis 9658 at * 7 (D. Del., May 24, 2004) (citing Provident Nat l Bank v. California Fed. Sav. & Loan Assoc., 819 F.2 d 434 (3 d Cir. 198 7); Jeffreys v Exten, 784 F.Supp.146 ,151 (D. Del .199 2). 5 Harmon, 407 A.2 d at 232 . 6 Whitwell, Archmere Academy, Inc., 2008 W L 1735 370 at *3 (Del. Sup er. Aprl. 16 , 2008). 7 LaNuo va D & B , S.p.A. v. B owe Co ., 513 A.2 d 764, 7 68 (De l. 1986). 2 FACTS With these points in m ind, Russe ll Crane ( C rane ) w as repairing a doorwa y while standing on a Multi-Matic ladder ( Multi-Matic ) manufactured by Krause, Inc. ( Krouse ). Crane borrowed the ladder from David Coney, who had purchased it from a Home Depot store in Delaware. Suddenly, he fell onto a concrete floor and was hurt when the ladder unexpectedly collapsed. Crane suffered serious injuries, incurred known medical expenses in excess of $100,000 and has sustained loss of earnings. The Multi-Matic allegedly had a negligently designed latching mechanism and red indicator tab. K rause W erk initially designe d, manuf actured, and distributed M ulti-Matic ladders in the United States through an Illinois distributor named Demarco. Because Demarco failed to fulfill its financial obligations, Krause Werk ended its business relation ship w ith Dem arco. Subsequently, it founded Krause Inc. ( Krause ) in 1987 as a wholly-owned subsidiary wh ich was in corporated in Illinois. Krau se was or iginally formed to distribute Krause W erk s ladders throughou t the United States. Shortly thereafter, Krau se Werk converted Krause into a manufacturing facility, and for about 10 years, Krause has manufa ctured and distributed lad ders based on Krau se Werk s original M ulti-Matic design from Illinois throughout the United States. During Krause s initial start-up period, Krause Werk provided Krause with equipment and financing. Krause Werk has never advertised, solicited, and operated business in Delaware. Krause Werk s design team 3 worked directly with Krause to ensure compliance with U.S. standards. Krause did not have a n engin eer on s taff un til the mid -90 s. Krause Werk is solely owned by the Krause family members: Guenther Krause and his son, Stefan Krause. Krause Werk was the sole owner of Krause s stock. Guenther Krause served a s Krause s President an d sole Director, and also as K rause Werk s President and General Manager. Mr. Garry Speight is Krause s own General Manager and Vice President. Mr. Edward Hansen, Director of Operations, managed Krause s day-today business from Krause Werk. Mr. Speight and Edw ard Hansen sent Guenther Krause regular reports r egardin g the op erations and fin ances o f Krau se. Mr. Guenther Krause visited the United States approximately two to three times a year. He me t with emp loyees of H ome D epot on at le ast one occ asion regar ding the sale of Krau se ladders in the Hom e Depo t stores and p rovided inf ormation to promote th e sale of the ladder. He was aware that Home Depot was a national retailer and that Krause had a marketing strategy to sell Multi-M atics in markets outside of Illinois. Krau se Werk carries an industrial liability insurance policy, which covers itself, Krause and other foreign entities against risks globally, including the United States. In or aroun d 1980, K rause W erk had d eveloped and paten ted the hing e concep ts for the Multi-Matic including the hinge/ lock design and release bar. In 1995, Krause Werk and K rause executed an In tangible Property License A greement ( Ag reement ). It authorized Krause to use Krause Werk s ladder patents and trademarks. It granted Krause 4 the exclusive right to utilize the name Multi-Matic on its ladders. Krause Werk had registered Multi-Matic, the Krause emblem, and other insignia as trademarks with the United States government; Guenther Krause signed the Agreement on behalf of K rause Werk. The Agreement obligated Krause Werk and Krause to share know-hows concerning the Multi-Matic ladder at issue with each other. Krause Werk received royalties totally about $ 70,000 an nually under th e Agreem ent. Before 1995, the locking bolt in the hinge of Multi-Matic was composed of diecast zinc. From 1995 to 1996, Krause Werk, in response to potential changes in European Safety standards, discussed the need with Krause to redesign the bolt. In 1997, Krause redesigned the bolt w ith die-cast steel. The steel locking bolts w ere sent to Krause W erk s plant for testing. Thereafter, sometime between 1997 to 1998, Krause redesigned the locking bolt on its ladder to a different metallurgy, and it was composed of powdered steel and coated using Xylan with Teflon. However, the last redesign was defective, which led to a recall of all ladders manufactured from December 1997 to May 21, 1998. The report filed pursuant to the Consumer Product Safety Act provides that Krause has had extensive discussions about the problem with Guenther Krause and engineers at Krause Werk. Mr. Krause and Krause Werk engineers are assisting Krause in analyzing and investigating the problem and possible solutions. In early 1998, Krause removed the Xylan co ating sh ortly after c onfirm ing the d efect. 5 In 2000, K rause filed f or Chap ter 11 reorg anization b ankruptcy an d ceased a ll operations. It did not have the capacity to satisfy all the personal injury claims involving Multi-Matics. Then, it entered into a chapter 7 liquidation bankruptcy by the end of 2001. These claims arose not only from the defects identified in the recall but also from alleged defects for ladders manufactured on the original design. These would include the ladder at issue here. Guenther K rause approved the bankruptcy during the trial of a sev ere personal injury suit involving a collapsing ladder in California. The parties disagree about which corporation re-designed the Multi-Matic at issue or wheth er the redesig n is a proxim ate cause f or the neglig ence claim s. Howe ver, there is sufficient record information to show that Krause Werk designed the center entry of the locking bolt through the hinge and this component was not changed by Krause. Also, when Krause did make a change to the release bar, the modification did not affect the function o f the release bar as argu ed by Krau se Werk . Ultimately a jury w ill have to decide the m erits of the pa rties disagreem ent, but for th e purpose s of this mo tion, there is enough to demonstrate that Krause Werk s design was faulty and proximately caused person al injurie s. QUESTION May this Court exercise personal jurisdiction over Krause Werk, a German limited liability company under Delaware s Long Arm Statute and Due process Clause of the 6 United States Constitution? This Court will only discuss issues that are necessary to the decisio n. Seve ral of th e positio ns we re aban doned at oral ar gume nt. I. Delawa re s Long A rm Statute A two prong test is applied to determine whether personal jurisdiction can be obtained over a no nresident: First, the court must conside r whether one of Delaware s long arm s tatutes applies ; second, it m ust evaluate whether subjecting a defenda nt to jurisdiction in D elaware v iolates the D ue Proce ss clause of the Fourtee nth Am endmen t.8 The pertin ent Delaw are s Lon g Arm S tatute provid es that: (c)[A] court may exercise personal jurisdiction over any nonresident, or a personal representativ e, who in p erson or thro ugh an ag ent: (1) Transac ts any busin ess or perfo rms any character of work o r service in the State; (2) Contracts to supply services or things in this State; (3) Causes tortious injury in the State by an act or omission in this State; (4) Causes tortious injury in the State or outside of the State by an act or omission outside the State if the person regularly does or solicits business, engages in any other persistent course of conduct in the state or derives substantial revenue from services, or things used or consumed in the State.9 . . . (emphasis added). Home Depot asserts that this Court can exercise direct personal jurisdiction over Krause W erk under §§31 04(c)(1) and (c)(4). Section 31 04(c)(1) ad dresses spe cific jurisdiction, which is at issue when the claims arise out of acts or omissions taking place 8 LaNuo va D & B , 513 A.2d at 768. 9 10 Del. C. §3104(c). 7 in Delaware.10 The jurisdictional theory is then based on the relationship between the action and the forum. On the other hand, section 3104(c)(4) codifies general jurisdiction, which is prem ised on the relatio nship b etwee n the fo rum an d a party. Neither of these sub sections can be completely satisfied. Subsection (c)(1) is not satisfied because Krause Werk has taken no act related to Multi-Matics in Delaware. Subsectio n (c)(4) is not s atisfied beca use Krau se Werk does not q uite meet an y of criteria listed under this subsection; the amount of money received from Delaware sales and royalties is unknown and th e substantial revenue stan dard cannot be satisfied. H owever, this C ourt may e xerc ise perso nal ju risdi ction through the stream of co mmerce theo ry, which confers jurisdiction in products liability cases in which the product has traveled through an extensive chain of distribution before reaching the ultimate consumer. 11 Although there is no basis to satisfy (c)(1) and (c)(4) individually, as a whole, I find that there is a sufficient basis for dua l jurisdiction , which arises whe n (c)(1) and (c)(4) are partially satisfied.12 10 11 Whitwell , 2008 W L 1735 370, at *3. Boone v. Oy Partek Ab, 724 A.2 d 1150 , 1156-1 158 (D el. Super. 1 997). 12 Power Integrations, Inc.v. BCD Semiconductor Corp. & Shanghai BCD Semi Conductor Manufacturing Co., 2008 WL 1775 415, at *5 (D. Del. Aprl. 11, 2008). Plaintiff referenced the stream of commerce theory which is pertinent to the issue and which this ord er finds to be a pprop riate. 8 The developm ent of the dual jurisdiction conc ept and application of the long-arm statute to jurisdic tion based o n the stream of comm erce theo ry was exten sively discussed in a recent Delaware District Court proceeding.13 One of the challenges inherent in the stream of commerce theory is that it does not fit comfortably within any particular provision of 10 D el. C. §3104(c). The stream of commerce concept is based on specific jurisdiction theory, and it does not require a defendant to act in Delaware; however, (c)(1)--the only potentially applicable specific jurisdiction provision--requires an in-sta te act. In LaNuova, the Delaware Supreme Court recognized the potential viability of the concept of dual jurisdiction 14 : It is conceivable that a tort claim could enjoy a dual jurisdictional basis under (c)(1) and (c )(4) if the indic ia of activity set fo rth under (c )(4) were s ufficiently extensive to reach the transactional level of (c)(1) and there was a nexus between the tort claim and the transaction of business or performance of work. 15 In Boon e v. Oy Partek Ab., the Court applied the stream of commerce theory: when a manufacturer has sufficient general contacts with Delaware and the Plaintiffs claims arise out of those contacts, jurisdiction is appropriate under §3104(c)(1) and (c)(4). 13 Id. 14 16 Power Integ rations,2008 W L 1775 415, at *5. 15 LaNuo va D & B , 513 A.2 d at 768 . n.3. Boone, 724 A.2d at 1157-1158 (q uoting LaVnuova D & B (citation om itted)); See Power Integrations, Inc., 2008 WL 1775415, at *5-6. 16 9 The Boone Court, reconciled the stream of commerc e theory with the Delaw are statutory framework .17 However, this analysis should not overemphasize §3104(c)(1) or (c)(4) . Rather than emphasizing the level of general presence or act of manufacturer in State, the Court focused o n the existence of def endant s purpose o r intent to serve Delawa re market. In o ther word s, if the defen dant purp osefully shipp ed the accu sed produ ct into the forum state through an establishe d distribution c hannel, no more is usu ally required to establish specifi c jurisdic tion. 18 Plaintiffs argued that it is irrational to suppose that Krause Werk did not anticipate that ladders subject to the A greement, which included use of K rause Werk s designs, pa tents, and trad emarks th roughou t North A merica, w ould be so ld in Delaw are. 19 The fact that Ho me Depot is a na tional retailer and Krause W erk s awarene ss of it show s that Krau se Werk anticipated to be haled in to the Dela ware cou rt. Additionally, Plaintiffs asserted that the insurance policy paid by Krause Werk, which also co vers its su bsidiary, K rause, c onfirm s this exp ectation . Home Depot cites Wright v. American Home Products, Corp. to support its argumen t that Kraus e Werk in deed had the purpo se or intent to s erve a natio nal marke t, 17 Power Integ rations,2008 W L 1775 415, at *6. 18 Padcom, Inc., 2004 U.S. Dist. Lexis 9658, at *13 (citing Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F. 3d 1558, 1564 (Fed . Cir.1994)). 19 Pl. s Answer ing Br., at 20 . 10 including Delaware s market, thus would support a dual jurisdictional basis.20 In Wright, even though American companies manufactured and marketed a dangerous diet pill, the court focused on the French defendants continuing involvement in the manufacture, distribution, reg ulation and use of the d rugs they license d the Am erican entities to manu facture and sel l. 21 Further, the Wright Court used the active participation of French defendants in regulatory process to reflect the defendants purpose or intent to serve the U.S. mark et: [T]he French defendants engaged in a years-long pattern of pushing their product into and throughout the U.S. market. And, their efforts were more than licensing. They w ere invo lved in in troduc ing a pr oduct in to a tight ly-regulate d mark et, a market regulated by the FDA. Not only were the French defendants aware of that but they helped in the process and participated in the ongoing nature of the regulatory process.22 Here, even though Krause manufactured and m arketed the Multi Matic, Krause Werk w as continuo usly involved in the manu facture, ma rketing and distribution. M ulti Matic was only manufactured by Krause because Krause Werk granted the license to do so.23 Like the licenses in Wright, which kept the foreign companies informed of FDA application and appro val processes, the Agre ement here has sup plemented Kra use Werk s intimate involv emen t in the pr ocess to protect K rause W erk s pa tent. 24 The Agreement provided that Krause participate with Krause Werk in improvements to the ladder. It also 20 Wright v. American Home Products Corp., 768 A.2d 518 (Del. Super. 2000 ). 21 Id. at 528. Id. 23 Wright, 768 A.2 d 518 a t 532. 24 Id. at 522. 22 11 was a segue with the Consumer Product Safety Commission. Krause Werk assisted Krause w ith its complian ce obligation s, and Kra use continu ed to derive financial be nefits from its royalties. Krause W erk s close involveme nt with Krause is reflected by Guenther Krau se s receipt of periodic reports from Krause regarding its operations and finances. As indicated before, Krause Werk engineered several changes to the MultiMatic. Guenther Krause also attended one of Home Depot s meetings in the U.S. in which distribution and marketing of Mu lti Matics w as discusse d. Giving P laintiffs the be nefit of all rea sonable inferences, the function of Krause as wholly owned subsidiary under the close supervision of Krause Werk can be seen like that of a sales / marketing agent of Krause Werk in the United States, including in Delaware. Indeed, Krause solicited business everywhere.25 Additionally, Home Depot is a national retailer, and no state was excluded when Krause agreed to d istribute the M ulti Matic to H ome D epot. 26 Implicitly Krause Werk solicited busine ss from Delaw are. The intent of Delaware s long arm statute is to provide residents a means of redress aga inst those no t subject to pe rsonal servic e within the State and in order to effectuate this intent, this section should be construed liberally so as to provide 25 Wright, 768 A.2d at 530 (citing Boone v. Oy Partek Ab, 724 A.2 d 1150 (Del. Sup er. 1997 )). Power Integrations, Inc., 2008 WL 177 5415, at *7 ( [I]t must be noted that a non-resident firm s intent to serve the United States market is sufficient to establish an intent to serve the Delaware market unless there is evidence that the firm intended to exclude from its marketing and distribution efforts some portion of the country that includes Delaware ). 26 12 jurisdicti on to th e max imum extent p ossible. 27 Similarly, the court in Crucible, Inc. v. Stora Kopparbergs observed that it is not fair to allow a w rongdoin g manuf acturer to insulate himself from the long arm of the courts by using an intermediary or by professing ignora nce of the ultim ate desti nation o f his pro ducts. 28 Krause Werk was closely involved with Krause s manufacturing, distributing and marketing during its existence, and this type of control under the Wright case satisfies the purpose or intent threshold for jurisdictional purposes. Here, a Delaware resident was severely hurt w hile using the Multi-M atic. Circum stantially, Krause Werk d esired prof it from the national market, including Delaware. In the dual jurisdictional context, I find that Krause Werk exhibited an intent and purpose to serve the Delaware market under 10 Del. C. § 3104(c)(4). Further, its action resulted in the marketing of an allegedly defective ladder to Home Depot in Delaware that resulted in later serious injury to a citizen under 10 Del. C. § 310 4(c)(1). II. Due Process Clause To subject a non-resident defendant to a personal jurisdiction, due process requires minimum contacts with the forum state such that the maintenance of the suit does not offen d tradit ional no tions of fair play a nd sub stantial ju stice. 29 In World-Wide 27 Boone, 724 A.2 d at 1156-57. 28 Crucible, Inc. v. Stora Kopparbergs Bergslags AB, D.C.Pa., 403 F.Supp. 9, 12 (W.D. Penn. 1975)(citing Hone ywell, Inc. v. M etz Appra tewerke, 509 F.2d 1137 (7 th Cir. 1975 )). 29 World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (198 0) (quoting Int l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). 13 Volkswagen, the United States Supre me Court fou nd that foreseeability alone or mere likelihood that a product will find its way into the forum State is not enough for conferring personal jurisdiction.30 Also, as elucidated in Burger King Corp. v. Rudzewicz, jurisdiction is proper where the contacts of the defendant proximately result from actions by the defen dant himself which create a substan tial conn ection w ith the fo rum. 31 To justify jurisdiction, a d efendan t should rea sonably anticip ate being h aled into co urt in forum State based on his own conduct, which proximately creates substantial connection with the forum State.32 Furthermore, conduct of the defendant indicating an intent or purpo se to serv e the m arket in t he foru m State is nece ssary. 33 As discussed in the previous section, Plaintiffs and Home Depot demonstrated that Krause Werk acted in an affirmative manner to purposefully avail itself of the privilege of conducting activities within the forum state, invoking the benefits and protection of its laws.34 Both Plaintiffs 30 Id. at 296; See also H anson v . Denck la, 357 U.S. 23 5 (U.S. 1958 ) (Florida courts cannot co nstitutionally exercise jurisdiction o ver a Dela ware trustee tha t had no oth er contacts w ith the forum S tate, notwithstand ing it is foreseeab le that the Settlor of Delaware trust would subsequently move to Florida and seek to exercise a power of appointment there). 31 Burger King Corp. v. Rudzewicz, 471 U .S. 462, 4 75 (198 5). 32 Asahi M etal Indu stry Co. v. Su perior Co urt of Califo rnia, 480 U.S. 102, 104 (1987); See Mayhall v. Nempco, Inc. 1994 Lexis 705 (Del. Super. July 29, 1994) (The court could not exercise personal jurisdiction over a manufacturer of a motor cycle brake drums, who did not ma intain a license no r conduc t business in the state ; nor marke t or prom ote its products in the forum Sta te). 33 Fischer v. Hilton, 549 F. S upp. 38 9 (Del. 19 82). (citing Burger King Corp., 473 U .S. 462 (1 985)). 34 Supra at 1-17. 14 and Home Depot have successfully established sufficient minimum contacts between Kraus e Wer k and th e State o f Dela ware. 35 The Due Process Clause requires courts to consider whether the exercise of personal jurisdiction would offend traditional notions of substantial justice .36 The World-Wide Volkswagen Court con sidered sev eral factors in determinin g this issue: A court must consider the burden on the defendant, the interests of the forum state, and the pla intiff s interest in obtaining re lief. It must also weigh in its determination the interstate judicial system s interest in obtaining the most efficient reso lution of co ntroversies; a nd the sha red interest of the several sta te in further ing fun dame ntal soc ial policie s. (citatio n omitte d). The burden on Krause Werk of litigating this case in Delaware is minimal compared to Delaware s and Plaintiffs significant interests. Although Krause Werk is a German based corporation, most of Krause Werk s witnesses would be employees of Krause from Illinois. It is not difficult for them to travel and testify here. The State of Delaware has a significant interest in litigating this case because a Delaware citizen was severely injured by the Multi Matic ladder, which was purchased from a local Home Depot sto re. A similar re sult was rea ched elsew here wh ere Krau se Werk unsucce ssfully sought to dismiss a similar perso nal injury claim on jurisdictional grounds. K rause Werk 35 Int l Shoe Co. v. Washington, 326 U.S. at 316 (quoting Milikin v. M eyer, 311 U.S. 457, 463, 85 L.Ed.278, 61 S. Ct. 339 (1 940)). 36 See Luc v. Krause Werk GMBH & Co., 289 F.Supp.2d 1282 (D . Kan., 2003) (In Luc, the Court found personal jurisdiction on an equitable alter ego basis between Krause and Krause Werk. At oral argument, the parties did not believe that av enue wou ld be availab le given the sep aration of law and equity in the Delaware Court system ); See also Whelan v. Krause , Inc., C.A. No. 01-0783 (D.N.J. Mar.18, 2002) (In the litigation, the New Jersey District Court felt that the claims should be transferred to Illinois where general personal jurisdictions could be found under Illinois law); Whelan v. Krause, Inc, No. 01-C-9963 (N.D. Ill. Jan. 5, 2004) (When transferred, the Illinois District Court ultimately found that personal jurisdiction existed and the suit could proceed there against Krause Werk under the law of the ca se doctrine ). 15 is familiar with domestic law with the litigation background and a Delawarian should not be forced to travel to Germany to seek relief under an unfamiliar civil code system. Also, it is efficient to try this case in Delaware because, other than the representatives of Krause Werk , both P laintiffs and H ome D epot are Delaw are resid ents. I conclude that exercising personal jurisdiction over Krause Werk will not offend traditional notions of fair play and substantial justice . Minimum contacts have been established b etween K rause W erk and this State. Delaw are s and P laintiffs interes ts overweigh Krause Werk s slight burden to litigate in the Superior Court . It should not come as a n unfair su rprise to Kra use We rk that its design ed ladder w as successf ully marke ted in D elawa re and th at it shou ld have to answ er for th e conse quenc es. CONCLUSION This Court has jurisdiction under 10 Del. C. § 3104(c)(1), (4). Minimum contactshave been dem onstrated to s how the exercise of personal ju risdiction is con sistent with fa ir play and substan tial justice . Cons equen tly, Kraus e Wer k s M otion to Dismi ss is den ied. IT IS SO ORDERED. Richard F. Stokes, Judge cc: Prothonotary William D. Fletcher, Jr., Esquire 16 B. Brian Brittingham, Esquire, Sean T. O K elly, Esquire James M. K ron, Esquire 17

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